Judgment in The Kingdom of Spain v The London Steam-Ship Owners’ Mutual Insurance Association Ltd (The M/T Prestige) [2024] EWCA Civ 1536 was issued in the run up to Christmas. That happened to be during the final weeks of my visiting fellowship at St Catherine’s Oxford, and a whole series of other distractions since (not in the least my subsequent and current visiting fellowship at the EUI). Hence forgive me for the late posting despite my initial promise to have analysis soon.
The judgment raises important issues on res judicata (issue estoppel in particular), the continuing opaqueness of the relationship between Brussels Ia and commercial arbitration, and the discipline with which the CJEU needs to address questions (not) put before it, as well as given the particular situation of Brexit, the impact on the UK courts of a CJEU ruling referred to it by them but delivered after Brexit.
Background to the case is here . The substantive outcome of the case is relatively simple. The Court of Appeal rejected the appeal against Butcher J’s refusal to register and recognise a €855 million Spanish judgment which was obtained by Spain and other claimants against the Club in the Spanish Courts on 1 March 2019, issued against the London Steam-Ship Owners’ Mutual Insurance Association, and also refused to grant the Club equitable relief viz Spain and France’s breach of an equitable obligation to arbitrate their claims against the Club.
The issues upon appeal were [3] ff:
The ‘Brussels’ appeals.
3. The first appeal…concerns the question of whether [the €855 million Spanish judgment] should have been registered in England pursuant to Chapter III [Brussels Ia] . The events took place before Brexit. Spain says in support of its appeal that the Spanish judgment should be enforced in England and Wales, relying on a decision of the Court of Justice of the European Union (the CJEU) (The Prestige).. , after the judge had referred certain questions to it on 21 December 2020. The judge decided that the CJEU’s decision did not bind him to register the Spanish judgment, because (a) the CJEU had exceeded its jurisdiction, and (b) Hamblen J in The Prestige (No 2) [2013] EWHC 3188 (Comm), [2014] 1 Lloyd’s Rep 309 (Hamblen J’s judgment) and the Court of Appeal in The Prestige (No 2) [2015] EWCA Civ 333, [2015] 2 Lloyd’s Rep 33 (the CA’s section 66 judgment) had decided under [s66 Arbitration Act 1996] that an order should be made in the terms of an arbitration award delivered on 13 February 2013..by Mr Alastair Schaff KC… Mr Schaff’s award had declared that Spain was bound to arbitrate its claims against the Club. Hamblen J’s judgment and the CA’s section 66 judgment are together referred to as the “section 66 judgments”. Accordingly, since the judge held that he was not bound by what the CJEU had decided, he decided that the section 66 judgments created issue estoppels that were irreconcilable judgments preventing the registration of the Spanish judgment in England & Wales under [A34(3) Brussels Ia].
4. In addition, the judge held that there was an issue estoppel created in favour of the Club as against Spain by Mr Schaff’s award, which would anyway have prevented the registration of the Spanish judgment as a matter of English public policy under [A34(3) Brussels Ia].
5. The judge, therefore, set aside the registration ordered originally by Master Cook. ….It may be noted at this stage that, whilst Mr Schaff also made a similar award against France in separate arbitration proceedings, France has never sought to register the Spanish judgment in its favour against the Club in England & Wales. Mr Schaff’s awards against each of Spain and France are referred to together as “Mr Schaff’s awards”.
The ‘Arbitration’ appeals.
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- …The issues raised by the second set of [three: one by France, one by Spain, one by the Club] of appeals…concern the question of whether separate arbitration awards made by Sir Peter Gross against Spain and by Dame Elizabeth Gloster (together the Arbitrators) against France should be upheld. The Arbitrators and the judge held that the Club was entitled to equitable compensation from Spain and France in respect of their breach of an equitable obligation to arbitrate their claims against the Club. The essential question in the Arbitration Appeals is whether they were right as a matter of law. The Club says they were, and Spain and France say that no such equitable compensation is available in law. There are two important connected, but subsidiary, questions raised by these appeals. The first is whether an injunction restraining the Spanish proceedings could or should have been granted against either Spain or France, and the second is whether the Club was, either in addition to equitable compensation or instead of it, entitled to equitable damages in lieu of or in addition to such an injunction against Spain and France. … Spain and France support the judge’s holding that no injunctions can be granted against them because of section 13(2)(a) of the State Immunity Act 1978. They appeal the judge’s determination to uphold the Arbitrators’ decisions to award the Club equitable compensation. The Club appeals the judge’s decision to refuse it equitable damages under section 50, which the Arbitrators had each declined to award for different reasons. It also appeals the judge’s decision that injunctive relief could not be awarded against it.
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The ‘Human Rights’ appeal.
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- The fifth appeal is the Club’s appeal…that the judge ought also to have refused to register the Spanish judgment on the grounds that: (a) the conclusions on civil liability on which it was founded were arbitrary or manifestly unreasonable, and impermissibly decided new facts not found by the lower court, in violation of Article 1 of Protocol 1 (A1P1) and article 6 of the European Convention on Human Rights (ECHR), (b) the conviction of the vessel’s Master was not “subject to review by a higher tribunal” as required by article 14(5) (article 14(5)) of the International Covenant on Civil and Political Rights (ICCPR), and (c) the recognition of the Spanish judgment was, therefore, “manifestly contrary to [the] public policy” of England & Wales under article 34(1). Spain contends that the judge was right to reject the Club’s human rights arguments. He held, in effect, that article 36 of the Brussels I Regulation, which provides that “under no circumstances may a foreign judgment be reviewed as to its substance”, prevented him examining the substance of the Spanish judgment. The Club argued that the judge failed properly to apply the principles laid down in [CJEU Diageo Brands] and in [CJEU Bamberski v. Krombach].
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- These appeals have been argued over many pages and 7 court days. Yet essentially, they raise two short central questions. They are whether the judge was right: (i) to have refused to register the Spanish judgment against the Club, and (ii) to have awarded equitable compensation to the Club. ..
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[269] and deciding the various issues upon appeal:
The 2013 arbitration award prevents recognition of the Spanish judgment under Article 34(1) [Brussels Ia]. That issue was not addressed by the CJEU’s decision but non-recognition on that ground is required by considerations of public policy. Equitable compensation is not an available remedy in the context of the conditional benefit principle and in circumstances where damages cannot be awarded under section 50. These conclusions also accord with the overall justice of the case and with considerations of comity.
The judgment is lengthy and the findings essentially come down to this.
The Court of Appeal first of all held that the first instance judge was wrong to hold that he was not bound by the CJEU judgment.
In the Court of Appeal’s analysis, the CJEU was within its rights to decide as it did, including its decisions on the insurance and lis pendens provisions of Brussels Ia (which readers will know I found to be an odd resurrection of BIa to proceedings principally excluded from it), which The Club (see in particular its arguments [138] ff) said had been answered despite those questions not having been referred. Of note is Vos MR’s point [146]
Nor do I think that there was any unfairness, beyond the Club’s legitimate view (which is its real complaint) that the actual decision in [54]-[73] causes potentially problematic practical commercial consequences for the interaction between exclusive international arbitration clauses and processes on the one hand and the ambit of the Brussels I Regulation on the other.
This is a point with which regular readers know I very much agree: the CJEU’s approach to commercial (and investment) arbitration and its relationship with EU law, including EU civil procedure law, is impractical and convoluted and it drives arbitration away from the EU (one wonders what the narrative on the issue was at the recent annual EC legal service conference). It is however rebus sic stantibus the view with which we must contend ourselves.
Next, must the CJEU’s judgment be taken to have decided that A34(1) does not, as a matter of EU law, allow national courts to refuse to register judgments on the grounds of domestic public policies concerning any kind of res judicata including those arising from domestic arbitration awards? [158] Spain’s reading is that the CJEU’s judgment binds courts to hold that A34(1) cannot apply to an arbitration award on which the section 66 judgments were based. The Master of the Rolls disagrees and holds [159] that
Had the CJEU’s decision intended to include res judicata created by an arbitration award in what it said, it could and would have said so.
Instead, the CJEU [79] held that that the EU legislature had
“intended to regulate exhaustively the issue of the force of res judicata acquired by a judgment given previously and, in particular, the question of the irreconcilability of the judgment to be recognised with that earlier judgment by means of Article 34(3) and (4)” (emphasis added).
[160]
failing to recognise the res judicata created by a binding arbitral award,.., would “constitute a manifest breach of a rule of law regarded as essential in the legal order of the Member State”.
The reasons for that in English law are held to be [161]
First, there must be finality to litigation. Secondly, it is wrong as a matter of fundamental legal principle for the domestic courts to ignore and to allow parties to ignore arbitral decisions by which those parties have been finally held by the courts of competent jurisdiction to be bound. Thirdly, the regime of the New York Convention makes it clear that it would be wholly undesirable, as a matter of English public policy, to ignore [the] award. As the judge explained at [285] and [292], inconsistency should be avoided between the effect of the New York Convention and a domestic award. Article 73(2) of the Recast Regulation (the successor to the Brussels I Regulation) is explicit that it does not affect the application of the New York Convention, and that must also be the position under the Brussels I Regulation. Fourthly, the ability of international parties to agree to binding international arbitration is of great importance to the legal system in England and Wales and to the economy of the United Kingdom. That militates in favour of considering the res judicata or issue estoppel created by a binding arbitral award as essential in the legal order of the United Kingdom.
The remainder of the appeal concerns equitable remedies for breach of agreement to arbitrate, and are of less immediate relevance to the blog.
The outcome of this litigation is most unsatisfactory, both for the victims of the disaster, and for the relationship between Brussels Ia and arbitration. I know the EC has different priorities at the moment. Yet at some point a proper exercise on the desirability, feasibility and direction of an EU arbitration act surely must be contemplated (even with the UK outside it, such EU initiative would be most beneficial IMO to arbitration practice).
Geert.
EU Private International Law, 4th ed. 2024, 2.127 ff.
https://x.com/GAVClaw/status/1868961506748198922