On June 20^th, 2022, the Court of Justice of the European Union (“CJEU”) issued a judgement on case C‑700/20, London Steam-Ship Owners’ Mutual Insurance Association Limited v. Kingdom of Spain which focuses on the interpretation of the provisions[i] of Regulation (EC) No 44/2001 (“the Brussels I Regulation”) regarding recognition and enforcement or foreign judgments. According to the interpreted provision (Article 34, Para. 3) a judgement shall not be recognized if it is irreconcilable with a judgement given in a dispute between the same parties in the Member State in which recognition is sought.

CJEU’s judgement deals with the following important matters:

• Can an EU Member State’s court judgement, which is irreconcilable with another EU Member State’s court judgement entered in the terms of an arbitral award,be refused recognition on grounds of Article 34, Para. 3 of the Brussels I Regulation?
• Can an EU Member State’s court judgement be refused recognition due to contradiction with public policy on the ground that it would disregard the force of res judicata acquired by the judgment entered in the terms of an arbitral award?

Facts of the case

Case C‑700/20 or the “Prestige” case is of great public importance, as its subject was the oil spillage which occurred in November 2002 off the coast of Galicia, Spain after the sinking of the oil tanker MV “Prestige”, causing significant environmental damage to beaches, towns and villages along the north coast of Spain and the west coast of France.

Тhe Spanish State and other injured parties filed direct civil claims against the insurer of the tanker – The London Steam-Ship Owners’ Mutual Insurance Association Limited (“the London P&I Club”), as well as against its master and its owners. The claims were brought before the respective state court in Spain.

In January 2012 the London P&I Club commenced arbitration proceedings in London, seeking a declaration that the claims of the Spanish state are to be pursued within the arbitration proceedings due to the presence of an arbitration clause in the insurance contract between the tanker’s owner and the London P&I Club, as well as a declaration that the latter could not be liable to the Spanish state in respect of those claims, since the insurance contract stipulated that, in accordance with the ‘pay to be paid’ clause, the insured party must first pay the injured party the compensation due before recovery from the insurer is permissible.

In February 2013 the arbitral tribunal issued an award, concluding that:

• the claims for damages brought by the Kingdom of Spain before the Spanish courts should have been referred to arbitration in London;
• in the absence of the prior payment of the damages by the owners of the vessel to the Kingdom of Spain, the London P&I Club could not be liable to the Kingdom of Spain.

In October 2013 the High Court of Justice of the UK granted London P&I Club’s leave to enforce the arbitral award.

In December 2018 by virtue of a final Judgement of the Spanish Supreme Court, the London P&I Club’ was found liable and the Spanish state along with 200 other injured parties were granted damages, amounting to 1 billion US dollars. An enforcement order was subsequently issued by the competent Spanish court.

In March 2019 the Spanish State made an application to the High Court of Justice of the UK for recognition and enforcement in the United Kingdom of the order of the Spanish court. London P&I Club argued that the application should be dismissed because the enforcement order is irreconcilable with the judgement of the High Court recognizing the arbitral award and that the recognition or enforcement of that enforcement order would be manifestly contrary to public policy, inter alia with regard to the principle of res judicata.

The High Court then made a request to the CJEU for a preliminary ruling for the interpretation of Article 34 of Brussels I Regulation.

CJEU’s judgement

The CJEU found that Brussels I Regulation does not apply to any action or judgment concerning the recognition or enforcement of an arbitral award. Therefore, it cannot enjoy mutual recognition between the Member States and circulate within the EU judicial area in accordance with the provisions of that regulation.

However, the CJEU confirmed its caselaw that the exclusion of a matter from the scope of Brussels I Regulation does not preclude a judgment relating to that matter from coming within the scope of Article 34(3) of that regulation and, accordingly, preventing the recognition of a judgment given in another Member State with which it is irreconcilable.

Therefore, an arbitral award can, by means of a judgment entered in the terms of that award, produce effects in the context of Article 34(3) of the Brussels I Regulation only if this does not infringe the right to an effective remedy guaranteed in Article 47 of the Charter of Fundamental Rights of the European Union.

The CJEU held that at the present case the issuance of the arbitral award is an infringement with two fundamental rules of the Brussels I Regulation concerning, first, the relative effect of an arbitration clause included in an insurance contract and, secondly, lis pendens.

In other words, the High Court judgement in the terms of the arbitral award cannot preclude the recognition of the Spanish court’s enforcement order neither on grounds of irreconcilability of the judgements, nor on grounds of contradiction with the public policy.

Comment

The CJEU’s judgement successfully prevents circumvention of the rules of the Brussels I Regulation through instruments that formally do not fall within the scope of the Regulation in a case which had significant political, economical, and social implications. CJEU insists that circumvention of Brussels I Regulation’s fundamental objectives cannot be achieved by initiation of domestic arbitration proceedings followed by a court judgement, allowing enforcement of the arbitral award.

Although the judgement regards Regulation (EC) No 44/2001, which is no longer in force, it becomes part of ECJ’s case-law and will remain relevant to the interpretation of article 45, para 1, i. “c” of the current Regulation (EC) No 1215/2012. CJEU’s case-law is consistent that the Court’s interpretation of the provisions of the previous legal instruments also applies to Regulation No 1215/2012 whenever those provisions may be regarded as ‘equivalent’.

[i] CJEU interprets Article 34, Para. 3 of Regulation No 44/2001, identical with article 45, para. 1, i. “c” of Regulation No 1215/2012.

Author: Asen Stefanov