REUTERS | Mike Blake

The Italian torpedo disarmed?

The European Commission proposes amending the Brussels Regulation to reduce the scope for avoiding arbitration by commencing court proceedings in breach of an arbitration agreement. This is a welcome boost to those involved with international contracts. The proposals would reinstate one of arbitration’s main advantages: access to speedy justice outside of a judicial system.

Problems with the Regulation

The Regulation allocates jurisdiction between EU member states in civil/commercial matters, but does not deal with arbitration proceedings. It provides that the court first seised of a dispute has exclusive jurisdiction to determine whether it can hear the case – even if those proceedings were commenced in breach of an agreement giving another court exclusive jurisdiction.

Consequently, the ECJ has held that English courts cannot issue anti-suit injunctions preventing a party from continuing proceedings commenced in another EU member state in breach of an exclusive jurisdiction clause. This was extended to proceedings commenced in breach of an arbitration clause in Allianz SpA v West Tankers Inc: if the subject matter of a claim falls within the Regulation, any issue as to the existence/validity of an arbitration agreement must be addressed by the court first seised.

Therefore, the UK courts cannot grant anti-suit injunctions in support of an arbitration agreement unless the court seised is outside the EU. If an EU court is seised, it must be allowed to reach its own conclusion in its own time. Some EU jurisdictions are notoriously slow, and obstructive parties can delay (and even avoid) an arbitration by initiating proceedings in a jurisdiction that is tardy and/or might approach recognition of arbitration agreements more flexibly; a tactic known as the “Italian torpedo”.

What has happened?

In December 2010, the European Commission proposed modifying the Regulation to provide that a court seised of a dispute must stay its proceedings if:

  • those proceedings contravene an arbitration agreement; and
  • either an arbitral tribunal has been seised of the dispute or court proceedings have been commenced in the member state where the arbitration has its seat.

Do the proposals work?

The proposals are a compromise, and jurisdiction scrambles would still be possible. However, overall they go some way to repairing the damage done by West Tankers and reaffirm arbitration as an attractive method of resolving international commercial disputes. In particular:

  • The risk of parallel proceedings should be reduced.
  • A clear legal framework is established for parties wishing to challenge an arbitration agreement, which reduces the potential for abusive litigation tactics.
  • The autonomy of the arbitral process is preserved, giving effect to the parties’ freedom of contract and choice to resolve disputes outside of national court systems.

How will this affect me?

If you deal with contracts with an international (particularly EU) aspect, West Tankers might have made you think twice before including an arbitration clause, given the danger of an Italian torpedo.

If these proposals are adopted, once again parties will have the ability to control how and where to resolve their disputes by entering into an arbitration agreement. The proposals won’t stop a counterparty starting proceedings in breach of that arbitration agreement. However, provided the arbitration is already underway or proceedings have been brought in the courts of the seat of the arbitration, they will ensure that the former proceedings will be stayed so the issues can be resolved by the arbitral tribunal or by the courts of seat, both of which would presumably support the arbitral process. Removing the incentive to deploy the “Italian torpedo” will therefore save costs and time.

What are the next steps?

Arbitration is a valuable tool for international dispute resolution, being independent from national judiciaries, flexible, confidential, easily enforceable and (at least potentially) relatively speedy and inexpensive. The West Tankers decision undermined international arbitrations within the EU, and we welcome proposals to address this. While leaving the door open for jurisdiction scrambles, overall the European Commission’s proposals offer a pragmatic compromise solution to the problem.

The Ministry of Justice launched a consultation in December, inviting interested parties to comment on whether the UK should opt in, or negotiate over, the proposals. Those comments are currently under review, and the Ministry of Justice is expected to publish a response in March.

One thought on “The Italian torpedo disarmed?

  1. The Court of Appeal’s decision on 24 January 2012 in West Tankers Inc v Allianz SpA and another [2012] EWCA Civ 27, confirming that the court has power under section 66 of the Arbitration Act 1996 to enter judgment in terms of a declaratory award, is to be welcomed. By upholding the High Court’s decision in West Tankers Inc v Allianz SpA and another [2011] EWHC 829 (Comm), the Court of Appeal removed any uncertainty that this way around the “Italian Torpedo” in an arbitration context was a fact-specific anomaly or dubious construct to avoid the worst effects of the Brussels Regulation.

    However, the judgment does not solve all the problems caused by the English Court’s inability to grant an anti-suit injunction in respect of proceedings commenced in an EU member state in breach of an arbitration agreement with an English seat. As mentioned in my blog post above, the problem of parallel proceedings, and the costs of dealing with that, remains an issue; and it is still unclear what the English courts would do if subsequently faced with, say, an Italian judgment that conflicted with the prior arbitral declaratory award. Unfortunately, a solution to these problems will have to await the proposed reforms to the Brussels Regulation.

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