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Private dispute resolution, particularly international commercial arbitration, has become popular precisely because it is said to be quicker and less costly than court proceedings. If this is indeed true, the European Court of Justice’s (ECJ) February ruling in Allianz v. West Tankers Inc. has certainly truncated the advantages arbitration–or at least London-based arbitration–is said to enjoy.

The ECJ ruled that British courts could not issue anti-suit injunctions restraining parties to a binding arbitration agreement from commencing court proceedings in another European Union member state. Litigants who contravene the injunction do so on pain of contempt proceedings or other sanctions.

However, because the U.K. is the only member of the EU with a legal system that issues anti-suit injunctions and because London is the world’s preferred arbitration venue, the decision has many British observers up in arms.

West Tankers does create a practical problem because it raises the prospect that parties bound to arbitrate in the U.K. could institute bad faith proceedings elsewhere merely to delay and complicate a matter, especially if the jurisdiction chosen for the court proceedings is known to move slowly,” says Vanessa Edwards, a partner at K&L Gates.

The case also raises the prospect that London’s status as the preferred venue for arbitration will suffer.

“With the growth of places like Singapore and Dubai as international arbitration centers, the fact that their courts can grant injunctions prohibiting collateral proceedings by parties to arbitration agreements reduces London’s competitive advantage,” says Professor Janet Walker of Osgoode Hall Law School at York University in Toronto.

Just how serious the threat is, however, requires a closer look at the ECJ’s ruling.

Regulation Rules

West Tankers arose when a vessel owned by West Tankers but chartered to an Italian company, Erg Petroli SpA, was damaged in a collision in Italian waters. The charter agreement provided for arbitration in London.

Erg made a claim against Allianz, an insurance company, as well as its other insurers. It also instituted an arbitration proceeding in London against West Tankers to cover its uninsured losses. Meanwhile, Allianz sued West Tankers in Italy to recover the payments it had made to Erg.

West Tankers objected to the jurisdiction of the Italian court and also obtained an injunction from the High Court in London requiring the insurers to discontinue the Italian case. On appeal, the House of Lords referred to the ECJ the question of whether the injunction was properly granted.

At the heart of the case was the Brussels Regulation, which sets out the rules for determining jurisdiction in cases involving more than one member state. It also specifically states that it does not apply to arbitration.

Despite the exclusion, the ECJ ruled that anti-suit injunctions were incompatible with the regulation because they prevented the courts of other member states from exercising their proper jurisdiction. As the subject matter of the dispute was clearly within the jurisdiction of Italian courts, so was the issue of whether the arbitration clause was a valid bar to the Italian proceedings. To rule otherwise, the ECJ reasoned, was contrary to the principle that the member courts of each state had the right to determine their own jurisdiction.

“Non-lawyers and many commentators think West Tankers is a cop out,” Edwards says. “But from a European law point of view, the judgment is reasoned and sound.”

Indeed, West Tankers should have been no real surprise to the English bar. Rather, it followed on two high-profile cases: Gasser GmbH v. MISAT Srl in 2003 and Turner v. Grovit in 2004. The cumulative effect of those cases seemed to be that English courts couldn’t issue injunctions prohibiting parties from commencing or continuing litigation in other EU countries under any circumstances, even when it is beyond doubt that the foreign proceedings were commenced in the wrong jurisdiction or brought in bad faith.

Opinions vary as well regarding the impact of West Tankers on London’s thriving arbitration scene.

Doomsday Debunked

Edwards, for one, doesn’t put much stock in predictions by many English commentators, lawyers and arbitrators that West Tankers presents a serious threat to London.

“I think the doomsday scenario is overstated,” she says.

Andrew Manning Cox, a partner at Wragge & Co., notes that the anti-suit injunction is hardly the only factor contributing to London’s prominence in the arbitration world.

“People choose London as a forum for a lot of reasons, including the availability of good law firms and barristers, efficient hearing spaces, good arbitrators, faith in our legal system and judges, and the predominance of the English language,” he says.

Besides, English courts can still issue anti-suit injunctions prohibiting proceedings in non-EU nations. The New York Convention on Recognition of Foreign Arbitral Awards, to which 144 countries including all EU states are signatories, bears on the issue as well.

“Although anti-suit injunctions are no longer available in the EU context, the fact remains that parties can still commence arbitration in London and obtain an award that, under the Convention, could be enforced in 144 states, including the country where the offending litigation was commenced,” Walker says. “The Brussels Regulation, in fact, specifically gives way to other international agreements like the New York Convention.”

In other words, even though parties may not be able to obtain anti-suit injunction in the English courts, West Tankers does not (and does not purport to) restrict parties from enforcing an English arbitration award in an EU country where parallel litigation was commenced.

Still, some observers believe the potential for damage is real.

“In 90 percent of cases, people have chosen arbitration because they don’t want to use the courts, so most will go ahead in accordance with their original intention,” says William Rowley, an international arbitrator with 20 Essex Street Barristers in London. “But the remaining 10 percent can put the system in peril if they do go forum-shopping, especially if West Tankers creates waves that encourage parties to go that route for whatever reason.”

Meanwhile, even those who believe West Tankers is a proper interpretation of the regulation are sympathetic to the argument that the current state of the law is unsatisfactory.

Fortunately, so is the European Commission.

Modernizing Brussels

“The thinking for some time has been that instead of excluding arbitration from the Brussels Regulation, perhaps it’s more appropriate to bring it within the scope of the law and to lay down clear rules as to which court or tribunal has priority,” Edwards says.

As Edwards points out, that’s precisely the recommendation found in the 2008 Heidelberg Report, an EC study analyzing the regulation’s implementation in the EU. The Commission is scheduled to act on the report this year.

Meanwhile, lawyers around the world are busily redrafting their standard arbitration clauses in agreements that name London the forum of choice.

“I think you’ll find some very creative drafting in response to West Tankers,” Manning Cox says. “For example, there’s lot of thought being given to putting in financial or other penalties for parties that unsuccessfully attempt to avoid arbitration obligations.”