Humpty-Dumpty, Arbitration, and the Brussels Regulation: A View from Oxford

The post below was written by Adrian Briggs QC, who is Professor of Private International Law Emeritus at the University of Oxford. It is the first contribution to an online symposium on the ruling of the European Court of Justice, of 20 June 2022, in the case of London Steam-Ship Owners’ Mutual Assistance Association Ltd v Spain. Update: other contributions to the symposium have been published in the meanwhile, authored by Gilles Cuniberti, Antonio Leandro and François Mailhé.

The clearing up of the oil which in 2002 splurged out of the wretched MT Prestige (the ownership and operation of which was a worthless stew of Greek, Bahamian and Liberian entities) and into the Atlantic onto the coast of Galicia was an astonishing, miraculous, environmental triumph. It is even reported that a year after the catastrophe, the beaches of Galicia were cleaner than ever before, this thanks, no doubt, to the army of volunteers who laboured to rid the coast of all traces of the filthy effluent when the Spanish state failed to demonstrate the necessary vigour. By contrast, the clearing up of legal liability has proved to be the polar opposite. The account which follows has been pared to its barest essentials, for life is just too short for the full story to be set out.

The Spanish state sued various entities to recoup what it claimed as losses resulting from the cleaning operation. Among other targets it identified the (London) insurer of the vessel, and fancied that it had a direct claim against the insurer for the sums payable under that policy. The policy of insurance provided for arbitration in London, but the Spanish state preferred to sue in its own courts, taking the position that it had no obligation to proceed by arbitration: as one might say in England, it claimed to take the benefit, but not the burden, of the policy on which it relied; it picked out the plums and left the duff.

The English insurer, having issued a policy which provided for arbitration, took objection to its liability to anyone claiming through or under that policy being determined outside the arbitral tribunal foreseen by the policy. It was doubtless aware that it could not defend the attack on the integrity of the arbitration agreement by asking for an injunction from the English courts, so convened the tribunal. The tribunal decided that the Spanish claim for the sums due under the policy, which claim was manifestly contractual in nature and in quantum, was enforceable only by arbitration; its award, determining also that the insurer was not liable on the policy, followed. The insurer then obtained a judgment from the High Court declaring the award, in accordance with the Arbitration Act 1996, to be enforceable as a judgment. Meanwhile, the Spanish courts proceeded to order the insurer to pay $ 1 billion, which represented the cap on insurer liability under the policy of insurance. Thus the scene was set.

Seised of the question whether the Spanish judgment should be registered for enforcement in England under Chapter III of Regulation 44/2001, and perceiving this to be a question which he could not answer, an English judge made a reference to the European Court, nine days before the Brexit divorce was to be made absolute. In it he asked, in effect, what the Regulation required him to do with a Spanish judgment which was radically inconsistent with the London award and English judgment. While the cogs and wheels of the CJEU were starting to turn, the insurer appealed against the decision to make reference to the European Court, relying on orthodox grounds of European law to justify it. The Court of Appeal allowed the appeal, but concluded it was bound to remit the matter to the High Court judge who alone might recall the reference. The Spanish state appealed to the Supreme Court against the decision of the Court of Appeal. The Supreme Court arranged an early date for the appeal which would finally clarify the need or otherwise for the reference. Three days before the published date for the hearing before the Supreme Court, the European Court put out its ruling, trashing the Opinion of its Advocate-General, scuttling the appeal and preventing the English court from considering, in accordance with European law, whether a reference and ruling was required, and doing its level best to make the insurer liable in law to the Spanish state.

No doubt the timing, and the outcome, is the purest coincidence, and the fish-like smell is just an incident of coastal life. But the ruling, and the justification offered for it, is truly, madly, deeply weird.

One starts with the proposition, freely accepted by the court, that the Regulation 44/2001 does not apply to arbitration, because Article 1 says as much. The logical and legal consequence of that, in a decision to which the Court made reference, was that the English court was entitled to apply its law of arbitration, even to the point of refusing to recognise a judgment in a civil or commercial matter given by the courts of another Member State. In 145/86 Hoffmann v Krieg, the court had, at [18], deduced that

the answer to be given to the national court is that a foreign judgment whose enforcement has been ordered in a contracting state pursuant to article 31 of the [Brussels] convention and which remains enforceable in the state in which it was given must not continue to be enforced in the state where enforcement is sought when, under the law of the latter state, it ceases to be enforceable for reasons which lie outside the scope of the convention.

The judgment in Hoffmann was indeed referred to (at [52]), though this was not the paragraph there mentioned. It appears to give a complete answer to the question, as the English judge who set this all in motion should have realised. Instead, the Court used another part of the judgment in Hoffmann for its conclusion that the English judgment on the award was irreconcilable with the Spanish judgment. One may accept that that was so, but still shrug: for this question, framed by Article 34(3) of Regulation 44/2001, would be void of content if the entire subject matter of the English court order lay outside the scope of the Regulation, ratione materiae, in the first place. The Court reasoned that the English order was a judgment within the meaning of Article 34(3), even though it was one on a matter to which the Regulation has no application in the first place. This is very odd (though not a novelty: see C-568/20 J v H Ltd EU:C:2022:264), but in the court’s defence one might claim that it provides a ramshackle means for dealing with a structural problem. The problem has been noticed before; indeed, the writer has written elsewhere that it offers a feasible, if untidy, solution. So be it, then.

So did it follow that the English court could and should refuse recognition of the irreconcilable Spanish judgment? According to the Court, it did not. The reasons given were, it is submitted, as perverse as they are incredible. The gist of paragraphs 54 to 72 goes something like this. If the London tribunal had been a court, and the arbitration clause had been a jurisdiction clause, the jurisdiction clause would not have been enforceable against the Spanish state, which was a third party to the policy of insurance under which it was claiming. If the London tribunal had been an English court, it could not have taken jurisdiction in any event, as the Spanish state had already seised the Spanish courts with the same cause of action. It followed that to allow the actual English judgment to count as a judgment for the purposes of Article 34(3) would undermine or conflict with the objectives of the Regulation; the English order was not a judgment after all. The English courts had been at fault for not realising this nonsense was law:

It is for the court seised with a view to entering a judgment in the terms of an arbitral award to verify that the provisions and fundamental objectives of Regulation No 44/2001 have been complied with, in order to prevent a circumvention of those provisions and objectives, such as a circumvention consisting in the completion of arbitration proceedings in disregard of both the relative effect of an arbitration clause included in an insurance contract and the rules on lis pendens laid down in Article 27 of that regulation. In the present case, it is apparent from the documents before the Court and from the hearing that no such verification took place either before the High Court of Justice (England & Wales), Queen’s Bench Division (Commercial Court), or before the Court of Appeal (England & Wales) (Civil Division) and, moreover, that neither of those two courts made a reference to the Court for a preliminary ruling under Article 267 TFEU.

So here it is. The arbitral tribunal in London was entitled – at least, it has not yet been said that it wasn’t – to proceed to determine the claim to the proceeds of the policy of insurance, but the English court, called upon to approve enforcement of the award, was required to go through the looking glass and play its part in the pantomime just described. The fact that it has not done so meant that it had committed a jurisdictional error. In consequence, its judgment – as the court said that it was – failed to qualify as a judgment, for those reasons of jurisdictional error, to count as a judgment for the purposes of Article 34(3). There is, of course, absolutely nothing in the jurisprudence to suggest that the home court’s ‘judgment’ in Article 34(3) means ‘judgment free of all taint of jurisdictional error’, though there is the collateral instruction in Article 35 that the jurisdiction of the court that gave the foreign judgment shall not be reviewed. No wonder the English court failed to see what it should have done: the words directing it have yet to be written, never mind enacted. The result is that European law requires the English court to construct a parallel reality to enable and require it to ignore its law on arbitration. But of course, it meant that the European Court was able to order the transfer of $1 billion from London to Madrid.

We have been here before. Lewis Carroll, also writing from Oxford, reported the dialogue between Alice and Humpty-Dumpty, in the following terms

‘When I use a word’, Humpty Dumpty said in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less’. ‘The question is’, said Alice, ‘whether you can make words mean so many different things’. ‘The question is’, said Humpty Dumpty, ‘which is to be master — that’s all’.

And that question is the one that counts. An English court may, and surely will, say that if the answer summarised above is the answer resulting from one international instrument by which it is bound, the answer required by another one, the New York Convention, by which is it is also bound, is the one which counts, for the latter is master. And in spite of this output from the European Court, the Brussels lawmaker would seem to agree: along with Article 1, one will find confirmation in the second sentence of the third paragraph of Recital 12 to Regulation 1215/2012. That will mean that the decision of the European Court is, for the United Kingdom, a letter whose deadness has nothing to do with Brexit. It will be for those working in legal systems which remain tied by the jurisprudence of the European Court to explain to their colleagues working in the field of international arbitration how the principle that the Brussels regime does not apply to and does not prejudice the law of arbitration has had such a dramatic effect on their business: good luck with that. For those in the United Kingdom who lamented our separation from the Brussels and Lugano regime, it will be a real struggle to look at the judgment in Case C-700/20 not to regard it as a stunt which shames those who set their hand to it. Others will not need to struggle.