The sinking of an oil tanker, recognition of judgements, arbitration proceedings and insurance contracts

On the 20 June 2022, the Court of Justice of the European Union (Grand Chamber) (the “Court”) declared that a judgement confirming an arbitral award can only prevent the recognition of a judgement from another Member State if that award could have been the subject of a judicial decision adopted in accordance with the provisions and fundamental objectives of Regulation 44/2001^[1]. The judgement was delivered in case C-700/20 concerning a request for a preliminary ruling under Article 267 of the Treaty of the Functioning of the European Union from the High Court of Justice (England & Wales), Queen’s Bench Division (Commercial Court) (United Kingdom) in the proceedings London Steam-Ship Owners’ Mutual Insurance Association Limited (the “London P&I Club”) v. Kingdom of Spain.

The case involved the London P&I Club’s potential liability in respect of the Spanish State, under the insurance contract concluded between the London P&I Club and the owners of the Prestige, an oil tanker which sank off the coast of Spain in November 2002, for the significant environmental damage to the Spanish and French coastlines caused by the sinking of the vessel. This event initiated a number of civil claims in Spain, in the context of criminal proceedings, against the master and the owners of the vessel, and against the London P&I Club, the liability insurer of both the vessel and its owners, in terms of the Spanish Criminal Code which provides for a right of direct action. After the introduction of those civil claims, the London P&I Club commenced arbitration proceedings in the United Kingdom pursuant to an arbitration clause included in the insurance contract with the owners of the Prestige.

The arbitral tribunal in the United Kingdom decided that the claims for damages brought by the Kingdom of Spain before the Spanish courts should have been referred to arbitration in London and that the ‘pay to be paid’ clause in the insurance contract must be respected, meaning that the insured party (the owners of the vessel) must first pay the injured party (the Kingdom of Spain) the compensation due before recovery from the insurer (the London P&I Club) is permissible. The London P&I Club obtained a judgement of the High Court of Justice (England & Wales), Queens Bench Division (Commercial Court) (United Kingdom) in terms of the arbitration award which was subsequently confirmed on appeal.

In the meantime, the proceedings in Spain also progressed and resulted in the master and owners of the Prestige and the London P&I Club being held liable in respect of the civil claims to over 200 separate parties, including the Spanish State. The defendants were held liable to pay the Spanish State approximately EUR 2.3 billion, while London P&I Club’s respective liability was contractually limited to USD 1 billion in terms of the relevant insurance contract. The Kingdom of Spain sought to have the Spanish enforcement order recognised in the United Kingdom on the basis of Regulation No 44/2001, and the appeals court in the United Kingdom referred a number of questions to the Court in the form of a request for a preliminary ruling.

The referring court was concerned whether a judgement entered by a court of a Member State in the terms of an arbitral award qualifies as a ‘judgement’ within the meaning of Article 34(3) of Regulation No 44/2001, which provides that a judgement shall not be recognised if it is irreconcilable with a judgement given in a dispute between the same parties in the Member State in which recognition is sought. The referring court was also concerned whether in terms of Article 34(1) of Regulation No 44/2001, which provides that a judgements shall not be recognised if manifestly contrary to public policy in the Member State in which recognition is sought, it is permissible to rely on grounds of public policy to refuse the recognition or enforcement of a judgement from another Member State on the basis of res judicata acquired by a judgement entered in the terms of an arbitral award.

As a preliminary point, the Court noted that arbitration is excluded from the scope of Regulation No 44/2001 and therefore a judgment entered in the terms of an arbitral award is caught by that exclusion and cannot enjoy mutual recognition between the Member States. Nonetheless, such a judgment is considered as a ‘judgment’ within the meaning of Article 34(3) of Regulation No 44/2001 alone and, accordingly, is capable of preventing the recognition of a judgment given by a court in another Member State if those judgments are irreconcilable.

The position is however different where the arbitral award in the terms of which that judgment was entered, was made in circumstances which would not have permitted the adoption of a judicial decision falling within the scope of the Regulation No 44/2001, in compliance with the provisions and fundamental objectives of the said Regulation. Therefore, an arbitral award can, by means of a judgement entered in terms of that award, prevent the recognition of a judgement in terms of Article 34(3) of Regulation No 44/2001 only if the said arbitral award does not infringe the provisions and the fundamental objectives of Regulation No 44/2001.

The Court concluded that in the present case, the arbitral award infringed two fundamental rules of Regulation No 44/2001. First, the arbitral award did not respect the relative effect of an arbitration clause included in an insurance contract, whereby a jurisdiction clause agreed between an insurer and insured party cannot be invoked against an injured party who, where permitted by national law, wishes to bring an action directly in tort, delict, quasi-delict, before the courts for the place where the harmful event occurred or before the courts for the place where the victim is domiciled. Secondly, the arbitral award infringed lis pendens, which principle provides that where proceedings involving the same cause of action and between the same parties are brought in courts of different Member States, any court other than the court first seised shall stay its proceedings until the jurisdiction of the court first seised is established. In this case, the arbitration proceedings in the United Kingdom were instituted after proceedings were commenced in Spain, and the Court found that both proceedings involved the same parties and the same cause of action, specifically the potential liability of London P&I Club in respect of the Spanish State in terms of the relevant insurance contract and the damage caused by the sinking of the Prestige.

Furthermore, the Court determined that the concept of public policy in terms of Article 34(1) of Regulation No 44/2001 precludes the question of whether a foreign judgement is compatible with a national judgement. The Court observed that it was the intention of the EU legislature to exhaustively regulate the issue of res judicata acquired by a previous judgement through Article 34(3) and (4) of Regulation No 44/2001, which therefore excludes recourse to the public policy exception in this respect.

^[1] Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters, which has since been repealed and replaced by Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters.