CJEU judgment on the Prestige oil tanker sets new guidelines on the recognition and enforcement of foreign judgments
The European Court’s recent judgment tackles the relationship between arbitration and the recognition and enforcement of judgments in Member States and the existence of more than one judicial decision on the same matter.
The judgment delivered in the Prestige case by the Court of Justice of the European Union was published a few days ago on June 20, 2022 (C-700/20). The Court had the opportunity in this judgment to pronounce as to whether recognition and enforcement is able to be done in the United Kingdom of civil rulings made in a Spanish criminal judgment that ordered the insurer of the owners of the vessel that suffered an accident causing serious damage to Spanish coastlines, to satisfy its civil liability to the Spanish state. It needs to be taken into account that in the United Kingdom a court judgment had been delivered earlier in arbitration proceedings conducted in this country on that civil liability (in which liability had been dismissed). The European Court’s reply was that arbitration proceedings are not an obstacle and therefore recognition and enforcement of the Spanish judgment in the United Kingdom is possible, in spite of the arbitration proceedings conducted there and the judicial decisions handed down in relation to its enforcement.
The interest of the judgment from the standpoint of international litigation is that it gave the Court reason to pronounce once again on the relationship between European instruments and arbitration, in this case in relation to the recognition and enforcement of judgments and, more exactly, on the irreconcilability (incompatibility) of judgments, which is one of the grounds for raising an objection to the recognition and enforcement of foreign judgments. Another point is interest is the Court’s reasoning behind its conclusion as to why in this case the judicial decisions resulting from arbitration proceedings are not an obstacle to recognition and enforcement of the Spanish judgment in the United Kingdom.
Before describing the interpretation to be extracted from the judgment, a brief description of the underlying facts is needed.
1. Brief background
As a result of the accident suffered by the Prestige, criminal proceedings commenced in Spain in 2002, regarding, as far as concerns us here, direct action brought by the Spanish government against the insurer of the owners of the vessel that had suffered the accident (pursuant to article 117 of the Spanish Criminal Code).
Later, in 2012, the insurance company commenced arbitration proceedings in London to seek a declaration that, pursuant to the arbitration clause in the insurance contract concluded with the owners of the Prestige, the Kingdom of Spain was required to bring direct action in the arbitration proceedings and that the insurer could not be liable to the Kingdom of Spain in respect of those claims, if the insurers had not first paid the compensation in accordance with the “pay to be paid” clause in the insurance contract.
In an award published in 2013 the arbitral tribunal held that Spain’s claim for damages should have been referred to arbitration; the insurer could not be liable to Spain if the owners had not first paid the damages; and that, in any event, the liability for damages could not exceed the amount stated in the insurance contract.
Immediately afterwards, the insurer applied to the UK courts for leave to enforce the award in the United Kingdom and for them to enter a judgment in the terms of the award. In the same year, 2013, the UK courts granted leave to enforce the arbitral award and handed down a “judgment in the terms of the award”.
In the meantime, the Spanish criminal proceedings continued to run their course. After a number of events they ended in 2018 with a supreme court judgment entered in 2018 ordering the insurer to indemnify Spain to the extent of the limit stipulated in the contract. Later, in 2019, the Spanish courts delivered an enforcement decision against the insurer (which we refer to as the “Spanish decision”) for hundreds of millions of euros.
Spain applied to the UK for recognition and enforcement of the Spanish decision and the insurer lodged an appeal against the Spanish decision submitting that it was irreconcilable with “the judgment entered in terms of the award” and that in any event recognition would be contrary to public policy with regard to the principle of res judicata.
After explaining the background we will now discuss the points of greatest interest in the judgment.
2. Interpretation of the Court of Justice of the European Union
i. Relationship between European instruments and arbitration
Arbitration is a an excluded matter excluded from the various European instruments adopted in the context of international judicial cooperation. Because of its interrelationship with the courts, however, it is inevitable for questions to arise on this subject.
Until now the European Court had pronounced on the relationship between arbitration and European instruments in relation to provisional measures (Van Uden case C-391/95) and anti-suit injunctions (cases West Tankers C-185/07 and Gazprom C-536/13), although it had not had the occasion to do so in relation to the recognition and enforcement of foreign judgments and irreconcilable decisions.
The Prestige judgment is the first to tackle this, even though to a limited extent. And we say this because the decision invoked to raise an objection to the recognition and enforcement of the Spanish decision was not the actual arbitral award, instead a “judgment entered in the terms of the award”. Put another way, when Spain applied in the UK for enforcement of the Spanish judgment, the decision that the shipowners’ insurer invoked as the ground for objecting to recognition and enforcement, was the judgment entered in the terms of the award by the British courts, not the actual arbitral award.
According to the European Court’s interpretation handed down in the Prestige judgment, a “judgment entered in the terms of the award” is capable of being regarded as a “judgment” (at least in the abstract, we feel should be added) for the purposes of the ground for non-recognition consisting in the irreconcilability of judgments (paragraphs 48 and 53).
This is because, according to the Court “the exclusion of a matter from the scope of Regulation No 44/2001 (which applies to arbitration) “does not preclude a judgment relating to that matter from preventing the recognition of a judgment given in another Member State with which it is irreconcilable” (paragraph 51).
The Court is starting out, in any event, from the definition of “judgment” found in article 32 of Regulation No 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels I Regulation), now in article 2 a) of Regulation No 1215/2012 (Brussels Regulation I bis); which has replaced Brussels I.
Therefore, according to the Prestige judgment and by way of a general premise it would be possible to invoke a “judgment entered in the terms of the award” as a ground against recognition and enforcement (as the Court confirmed in paragraph 53). We shall see, however, that, in this specific case, the opposite conclusion is arrived at from the additional considerations in the discussed judgment.
Before exploring the decision reached on the specific case, the question that emerges is: What would the conclusion have been if the judgment that had been invoked to support the objection were an actual artibral award instead of a judgment entered by the UK courts “in the terms of the award”?
The European Court does not pronounce on this point because it was not raised as a matter. However, having regard to the definition of judgment in article 2 a) of the Brussels I bis Regulation (“ any judgment given by a court or tribunal of a Member State, whatever the judgment may be called, including a decree, order, decision or writ of execution, as well as a decision on the determination of costs or expenses by an officer of the court”) —which matches the definition in article 32 of the Brussels I Regulation I— and to the fact that a ground for non-recognition is if it is “irreconcilable with a judgment given between the same parties in the Member State addressed” —article 45.1.c) of the Brussels I bis Regulation and article 34.3 of the Brussels I Regulation —, an arbitral award would not be capable of being regarded as a “judgment” for the purposes of the regulation.
ii. Absence in the specific case of a judgment that can be invoked against recognition and enforcement
As we mentioned above, in the discussed judgment the European Court of Justice arrives at a conclusion that the “judgment entered in the terms of the award” cannot be invoked against recognition and enforcement of the Spanish judgment. This is not because of its relationship with the arbitration proceedings, as we have already seen, instead for other additional reasons.
More specifically, the Court of Justice engages in an exercise (or fiction) of examining whether a court judgment could have been entered with the contents of the arbitral award, for the reason that if it could, the existence of a “judgment entered in the terms of the award” could be an obstacle to the recognition and enforcement of the foreign judgment.
The conclusion is that court of a Member State could not have entered a judgment with similar contents to the arbitral award, without infringing two rules under the Brussels I Regulation -now the Brussels I bis Regulation-: the relative effect of an arbitration clause contained in an insurance contract concluded between insurer and policyholder and lis pendens rules (paragraph 54 and following).
The reasoning is basically as follows:
- Under the principles of international jurisdiction contained in the Brussels Regulations and their interpretation by the European Court of Justice, a court of a Member State could not have declared itself to have jurisdiction with regard to the arbitration clause in an insurance contract, as the arbitral tribunal had done. That is because that arbitration clause does not apply to the injured party.
An agreement conferring jurisdiction concluded between an insurer and a policy holder cannot be invoked against a victim of insured damage who brings direct action against the insurer (case Assens Havn C-368/16). Accordingly, a court other than that seised of the direct action should not declare itself to have jurisdiction on the basis of that arbitration clause, so as to guarantee the protection of injured parties, because otherwise the right to that protection would be compromised.
- In relation to the lis pendens rules, if a court of a Member State had been seised, it should have dismissed its proceeding on the ground of lis pendens.
For one reason because the Spanish proceedings had commenced earlier; and for another, both proceedings had the same parties, i.e., the insurer and the Kingdom of Spain, and the same subject-matter and cause of action, namely: to seek a declaration that the insurer is liable to the Kingdom of Spain, pursuant to the insurance contract signed between the insurer and the owners of Prestige in respect of the damage caused in the accident at sea. According to the case law of the European Court of Justice (cases Tatry C-406/92, Folien Fischer C-133/11, Nipponkoa Insurance C-452/12 or Schlömp C-467/) the same subject-matter exists in action for a declaration of liability, which is the subject-matter of the civil action brought in the Spanish proceeding), and action to deny the absence of liability which is the subject-matter of the arbitration proceeding.
It needs to be noted, however, that in the Liberato case (C-386/17) the European Court of Justice concluded that a breach of lis pendens rules cannot justify non-recognition of a foreign judgment.
Based on those arguments, the European Court concluded in the Prestige judgment that the court of an addressed Member State would not have been able to hand down a judgment with the contents of the arbitral award without infringing the provisions and objectives of the Regulation, and it therefore held that the “judgment entered in the terms of the award” is not, in that specific case, a judgment able to be invoked against the recognition and enforcement of the Spanish decision.
Lastly, the Court also held with regard to the grounds for objection to the recognition and enforcement, as provided in European instruments, that res judicata cannot be invoked with regard to the ground of being contrary to public policy, which is interpreted narrowly as only applying in exceptional cases, instead this concept has to be referred and examined with regard to the ground consisting of the irreconcilability of decisions.
As a conclusion, and leaving aside the practical consequences of the discussed judgment and its effects in the United Kingdom after Brexit - which fall outside this commentary -, a factor of interest that the Court of Justice tackles in the Prestige judgment is the relationship between arbitration and European instruments on the subject of recognition and enforcement, where there is a judgment by a Member State that declares that an arbitral award is enforceable. According to the established interpretation, that decision would at first sight be regarded as a judgment capable of being a ground for non-recognition (because it is irreconcilable). Also of interest is the Court’s reasoning to arrive at the conclusion that, in this specific case, the judgment cannot be invoked, insofar as a court in a Member State would not have been able to hand down a judgment with similar contents to the arbitral award without infringing the rules provided in European instruments and their application, specifically, in relation to the relative effect of arbitration clauses in insurance contracts, and to lis pendens.