UK: Never A Boring Day - The Long Running West Tankers Dispute Generates Yet Another Significant Decision

Last Updated: 1 November 2012
Article by Marcia Perucca

In West Tankers Inc v Allianz SpA and another [2012] the Commercial Court held that a tribunal was not deprived of jurisdiction by reason of EU law, to award equitable damages for breach of an obligation to arbitrate.


The original dispute arose out of the collision of a West Tankers' vessel, the "FRONT COMOR", with a pier in Sicily belonging to Erg Petroli SpA, the Charterers. Pursuant to the arbitration clause contained in the charterparty, Charterers commenced arbitration in London against Owners. Later, in 2003, Charterers' subrogated Insurers, Allianz SpA and Generali, both commenced proceedings against Owners, in an Italian Court, to recover the sums which they had paid Charterers.

Owners obtained an anti-suit injunction from the English Court, in 2005, restraining the Insurers from pursuing their claim, in Italy, in breach of the arbitration agreement. There was a "leap frog" appeal to the House of Lords which in turn referred to the European Court of Justice ("ECJ"), the question whether such an injunction was consistent with Council Regulation (EC) 44/2001 ("the Regulation") under which the Italian court had jurisdiction.

While the ECJ decision was pending, the tribunal issued partial awards (including a declaration of non-liability), but two issues were stood over until after the ECJ judgment.

In 2009, the ECJ ruled that anti-suit injunctions were incompatible with the Regulation. Thereafter, the tribunal considered the two outstanding issues.

The tribunal's decision

The issues were (1) whether the Insurers were liable to Owners in damages in respect of the legal fees incurred in the Italian proceedings, and (2) whether they were liable to indemnify Owners against any future award made in the Italian proceedings. The majority of the tribunal answered both issues in the negative.

The arbitrators recognised that an arbitral tribunal should not be bound by the constraints of the Regulation (as the EU national courts are) since arbitration is excluded from the Regulation. Nevertheless, in their view, the ECJ decision meant that the Insurers had the right, under Article 5(3) of the Regulation, to commence proceedings in tort in Italy, where the collision occurred. It followed that, if the tribunal were to award damages against the insurers for failing to arbitrate, it would in effect be punishing the Insurers for exercising their right under the Regulation, such right being protected by the EU law principle of effective judicial protection.

The Commercial Court decision

Owners were given permission to appeal under section 69 of the Arbitration Act 1996.

The Court had to consider three main issues:

  1. Was the tribunal circumscribed by the principle of effective judicial protection, which protected the right conferred by Article 5(3) of the Regulation, in circumstances where the Regulation itself did not apply to arbitration?
  2. If the answer to 1) was yes, was the tribunal right to find that an award of damages or an indemnity would interfere with the insurers' rights under EU law?
  3. If the tribunal was right to conclude that it had no jurisdiction to award damages or an indemnity while the Italian proceedings were pending, was it right for the tribunal to dismiss Owners' claim altogether, given that the Italian court had yet to determine its own jurisdiction?

Allowing the appeal, Mr Justice Flaux decided that the tribunal had erred in law. His conclusions for each of the questions posed above were as follows:

1) He placed considerable importance on the Advocate General's earlier view that since the Regulation did not apply to arbitration, the tribunal could reach decisions inconsistent with the decisions of the Italian court without breaching any principle enshrined in the Regulation. The principle of effective judicial protection is not free-standing (as the tribunal itself recognised) and only applies when a specific right is engaged. Since the Regulation did not apply to arbitration, Article 5(3) was not engaged and, as a result, the principle of effective judicial protection did not operate so as to circumscribe the tribunal's jurisdiction

2) Neither the Advocate General nor the ECJ contemplated that the tribunal should decline jurisdiction altogether until the Italian court had ruled. On the contrary, it was recognised that inconsistent decisions could occur

3) On the third issue, Mr Justice Flaux concluded that the tribunal erred in law in not at the very least deferring a decision on the claim. If the Italian court decided in due course that it did not have jurisdiction, and the Insurers were obliged to arbitrate in London, then there would be a strong case for awarding damages for breach of the duty to arbitrate. By dismissing the claim, the tribunal had shut out what might be an arguable claim in the future.

Permission has been granted for Insurers to appeal to the Court of Appeal, so this may well not be the last decision in the West Tankers saga.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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