West Tankers Reloaded

Another round in the dispute between West Tankers Inc (“West Tankers”) and Erg Petroli SpA ("Erg") was concluded on 6 April 2011 with the decision of the commercial court of England and Wales, West Tankers Inc v Allianz Spa & Anor [2011] EWHC 829 (Comm) (the “Decision”), to enforce a declaratory award under Section 66 of the English Arbitration Act 1996 (the “Arbitration Act”). The Decision examines the conditions under which such a leave can be granted.

Factual Background

The parties had concluded a charterparty (the “Contract”) under which the vessel Front Comor owned by West Tankers was to carry a cargo of crude oil to Erg’s refinery in Italy. According to the arbitration agreement contained in the Contract, all disputes in relation thereto shall be settled by arbitration in London applying English law.

On 8 August 2000, the vessel collided with a pier owned by Erg in Siracusa, Italy. Erg’s insurers Allianz SpA, formerly Riunione Adriatica di Sicurtà SpA, and Generali Assicurazioni Generali SpA (the “Insurers”), indemnified Erg for the damages thereby incurred up to the amount covered by the insurance policies. Erg then claimed the balance by filing an arbitration claim in London against West Tankers, who denied any liability in relation with the collision.

Further Procedural Development

On 30 July 2003, the Insurers brought a claim against West Tankers before the Tribunale di Siracusa, Italy, by virtue of their statutory right of subrogation to Erg's claims under Article 1916 of the Italian Civil Code, in order to recover the amount paid under the insurance policies.

On 10 September 2004, West Tankers requested the High Court of Justice of England and Wales, Queens Bench Division,Commercial Court (the “High Court”) to issue an anti-suit injunction preventing the Insurers from taking any steps to prosecute their claims except by way of arbitration in London, arguing that the Insurers were bound by the arbitration agreement.

On 21 March 2005, the High Court granted the anti-suit injunction, holding that both in English and Italian law the right to the claim which had been transferred to the insurers by subrogation was covered by the arbitration clause in the Contract. In the appeal procedure, on 21 February 2007, the House of Lords referred to the European Court of Justice (the “ECJ”) the question whether it was consistent with EC Regulation 44/2001 (the “Regulation”) for a court of a Member State to make an order to restrain a person from commencing or continuing proceedings in another Member State on the ground that such proceedings are in breach of an arbitration agreement.

On 7 October 2008, the arbitral tribunal issued an award dismissing Erg’s claims and holding that West Tankers was under no liability to Erg with respect to the collision. On 12 November 2008, the arbitral tribunal issued a further award (the “Final Award”) in which it declared, inter alia, that West Tankers was not liable to the Insurers with respect to the collision.

On 10 February 2009, the ECJ ruled in its much-discussed decision that the Regulation was applicable to the question at hand despite the arbitration exception in its Article 1(2)(d), and that an anti-suit injunction enforcing an arbitration agreement was incompatible with the Regulation.

Following the ECJ’s judgment and despite the issuance of the Final Award ruling on the merits of the case, the Insurers continued to pursue the court proceedings before the Tribunale di Siracusa. West Tankers, concerned that an inconsistent judgment eventually rendered by the Italian court might be enforced in England, sought to enforce the award as a judgment under Section 66 of the Arbitration Act.

On 15 November 2010, the High Court granted West Tankers’ request to enter judgment in terms of the Final Award pursuant to section 66 of the Arbitration Act. The Insurers subsequently appealed to the High Court to set aside this order.

The High Court’s Decision

In its Decision, the High Court took notice that the Insurers might obtain a judgment in their favor from the Tribunale di Siracusa and then seek to have that judgment recognized and enforced in England pursuant to the Regulation. West Tankers’ motion under Section 66 of the Arbitration Act was therefore motivated by the consideration that, upon the conversion of the Final Award into a judgment, any subsequent Italian judgment in favor of the Insurers would not be recognized in England pursuant to Article 34(3) of the Regulation.

Section 66 of the Arbitration Act stipulates the following:

“(1) An Award made by the tribunal pursuant to an arbitration agreement may, by leave of the court, be enforced in the same manner as a judgment or order of the court to the same effect.

(2) Where leave is given, judgment may be entered in terms of the award.

[…]”

Article 34 (3) of the Regulation provides that a judgment will not be recognized “if it is irreconcilable with a judgment given in a dispute between the same parties in the Member State in which recognition is sought. […]”

The relevant part of the Final Award that was converted into judgment provided that “the Claimant is under no liability (whether in contract or tort or otherwise howsoever) to the Defendants in respect of the collision between the vessel “Font Comor” and the pier (and mooring dolphins) at Erg Petroli’s installation at Santa Panagia, Sicily on 8 August 2000”

The Insurers relied on various jurisprudence to argue that only an arbitration award capable of being enforced by means of execution could be subject to a leave under Section 66 of the Arbitration Act. Since a declaratory judgment, such as the Final Award, was no more than a declaration of the Parties’ rights, only exceptional circumstances not present in the case at hand could justify its enforcement.

West Tankers contended that the purpose of Section 66 of the Arbitration Act was to assist the successful party in obtaining the benefit of an award and the word “enforced” in this section should be construed accordingly. West Tankers also invoked English case law where it was held that in appropriate cases declaratory judgments could be enforced on the basis of the an inherent power to ensure that the court’s orders were carried out in the interest of justice.

The High Court agreed with West Tankers’ position, holding that the purpose of Section 66 of the Arbitration Act is to provide a means by which the victorious party in an arbitration can obtain the material benefit of the award in its favor. Consequently, if it could be necessary to establish the primacy of a declaratory award over an inconsistent judgment, the court has jurisdiction to make an order granting the requested leave. as a contribution to the security of the material benefit of the award.

Conclusion

The High Court’s decision constitutes yet another interesting chapter in the West Tankers saga without, however, completing the story. It might seem as if the ECJ’s notorious decision has been outrun by the High Court now. However, as has already been pointed out by commentators, further legal issues might arise in case the Italian court rules in favor of the Insurers who may then attempt enforcing the decision in England under the Regulation. After all, the High Court’s decision on leave of enforcement is arbitration-related and the ECJ might once again be called upon to define the scope of the Regulation’s arbitration exception.