565Mutual Trust Excludes Damages for Suing in Other Member States in Breach of Jurisdiction Clauses

Gilles Cuniberti, Professor of Private International Law, University of Luxembourg; President of the European Association of Private International Law

English lawyers and courts have long attempted to devise remedies to sanction abuse of process in international litigation. Within the European judicial area, these efforts were met with skepticism and viewed as disrespectful of the certain fundamental features of the federal project of the European Union. The English legal profession kept trying, however, and designed new remedies after more traditional ones were found to be incompatible with European law. As they leave the European Union and recover their full judicial sovereignty, the CJEU rules in Charles Taylor Adjusting Ltd and FD v. Starlight Shipping Co. and Overseas Marine Enterprises Inc. (Case C-590/21) that yet another remedy meant to sanction abuse of process is unacceptable. The judgment, however, will teach important lessons to the lawyers of other Member States.

The case was concerned with a dispute between the owner and operator of a vessel, Alexandros T, and their insurers following the shipwreck off South Africa. After the insurers refused to compensate their policyholders, the latter initiated arbitration proceedings in London, resulting in a series of settlement agreements containing jurisdiction clauses for the benefit of the English courts and ratified by those courts. The central question of the case as it would eventually be referred to the Court of Justice related to the scope of these transactions, including in so far as they provided for the jurisdiction of the English court. A few years later, the owner and operator of the vessel brought a tort action related to the original dispute before the Greek courts. The insurers and other defendants in Greece then brought an action before English courts seeking, first, a declaration that the Greek actions constituted infringements of the settlement agreements concluded in England and, second, compensation for the damage resulting from the actions brought before the Greek courts.

566In a judgment of 26 September 2014[1], the English High Court upheld the claims of the insurers (and other defendants in Greece), holding that the actions brought in Greece fell within the material scope of the settlement agreements and infringed the jurisdiction clause laid down therein. As a result, the English court awarded damages to compensate for the damage suffered by the defendants in the Greek actions, i.e. the costs incurred in defending themselves before the Greek courts. On the latter point, the English judgment granted only a provision of 60% of the costs incurred in Greece on the day of the English judgment.

The insurers then sought to have the English judgment declared enforceable in Greece. The Greek court referred a question to the CJEU for a preliminary ruling, asking, in essence, whether the English judgment was compatible with the principle of mutual trust, and whether it could be declared contrary to Greek public policy on that basis.

The sanctioning of choice-of-court clauses through the award of damages is a practice that has recently developed (II) due to the demise of the anti-suit injunction in the European judicial area (I). The CJEU condemns the new remedy by characterising it as a “quasi anti-suit injunction” (III).

I. The Origin: the demise of the anti-suit injunction in the European judicial area

In order to fully understand the importance and scope of the judgment of the Court of Justice, it should be borne in mind that the traditional remedy used by common law courts to sanction infringements of jurisdiction clauses (whether granting jurisdiction to national courts or arbitral tribunal) is the anti-suit injunction. This remedy consists of a court injunction prohibiting the party who initiated proceedings before another (usually foreign) court than the court seised (e.g. English) from continuing their action, on pain of a fine or even imprisonment for contempt of court. It is a civil measure, but with sanctions even seen in England as “quasi-criminal”. Based on English Equity, the measure only purports to target its addressee in a personal capacity (Equity acts in personam). It may therefore be argued that the injunction does not directly interfere with foreign proceedings and courts, since it is addressed only to the party who initiated it, and will, where appropriate, penalise only that party, which is otherwise subject to the jurisdiction of the English court. But this presentation is of course formal. In practice, such an injunction obviously interferes with foreign proceedings, which many English lawyers agree with. This explains why English courts use the anti-suit injunction only in specific cases, in which the conduct of the litigant who brought the 567case before the foreign court seems to them to be particularly objectionable. One of these situations is judicial harassment by one party to the other (e.g. by multiplying the procedures to exhaust it financially). But the main hypothesis is the violation of a jurisdiction clause designating English courts, or an arbitral tribunal sitting in England. While it may be considered that the effect of the measure is difficult to accept, it must be acknowledged that the aims pursued are legitimate, and that English lawyers have the merit of having sought to provide a solution to victims of abuse of process.

In the context of the European judicial area, the anti-suit injunction also posed a clear difficulty in the light of the essential principle of mutual trust. Indirect interference in the judicial system of another Member State is also an at least indirect breach of trust. Unsurprisingly, the Plenary Assembly of the Court of Justice therefore ruled, in Turner v. Grovit (Case C-159/02), that the anti-suit injunction was excluded in the scope of European judicial law. In Turner, the English court had first been seised of an action which a party had subsequently brought before the Spanish court. The latter should have declined jurisdiction on the basis of the lis pendens doctrine established by the 1968 Brussels Convention (now Brussels I bis Regulation), but it had not done so, for an unknown reason. The English court accordingly ordered the applicant to withdraw from the Spanish proceedings. The ECJ held that the injunction infringed the jurisdiction of the Spanish court to resolve the dispute and constituted an interference with that jurisdiction. It was therefore to be hoped that the Spanish court would eventually realise its mistake. Studiously, the English court had insisted on the purpose of the injunction, which was to penalise the bringing of a foreign court in bad faith, and with the aim of impeding the jurisdiction of the court first seised. The ECJ replied that the legitimacy of bringing the matter before the Spanish court could only be assessed by the latter, so that the English court was not even entitled to question the existence of an abuse of procedure.

The anti-suit injunction route was therefore closed within the European judicial area. English lawyers, who did not yet foresee that they would end up leaving, then turned to another technique, which was long considered unusual and secondary: the award of damages for breach of a jurisdiction clause.

II. The award of damages for breach of a jurisdiction clause

The first English decisions that ordered one party to compensate another for breach of a jurisdiction clause are old, but they increased from the 2000s onwards. In addition, similar decisions have been handed down in States belonging to the civil law tradition, like Spain. These cases show that the remedy may be granted in various situations[2].

568A. Reimbursement of legal costs

The first possible scenario is that of a claim for reimbursement of legal costs incurred abroad in order to challenge the jurisdiction of a court which is not elected but brought before it by one of the parties in breach of their contractual obligation. It is interesting to note that, in the cases before the English and Spanish courts, the claim for damages was often made to the elected judge after the foreign judge declared that they lacked jurisdiction. The court seised of the application for conviction was therefore not in an absolutely conflicting position with the foreign court, since it was not asked to contradict it, but in some way to agree with it.

For example, in the first of recent English precedents, Discount Union Co. Ltd v. Zoller[3], the parties had entered into a choice-of-court clause in favour of the English courts. Zoller brought proceedings before a New Yorkese court, but when his opponent raised a plea of lack of jurisdiction, the US court declared that it lacked jurisdiction. However, it did not rule on court fees. Discount Union then claimed damages in England. The English Court of Appeal upheld its request, laying down four conditions for that purpose: “The costs which the claimant seeking to recover in the English proceedings were opened by him when he was a defendant in foreign proceedings blocked by the defendant in the English proceedings; the claimant in the foreign proceedings blocked in those proceedings in breach of an express term, the EJC, which, it is assumed for present purposes, has the effect of empowering the English claimant to damages for its breach; the rules of the foreign forum only permitted recovery of costs in exceptional circumstances; the foreign court made no invitation to tender as to costs”.

Similarly, the case in which the Spanish Supreme (Tribunal Supremo) accepted for the first time to sanction the infringement of a choice-of-court agreement in international matters by awarding damages concerned a situation in which the foreign court, seised in breach of a clause designating the Spanish court, ultimately declared that it lacked jurisdiction. The defendant in the US proceedings then applied to the Spanish court for compensation for the costs of lawyers in the United States. After losing in first instance and on appeal, the party finally won the case before the Tribunal Supremo, which ruled in its favour in a judgment of 12 January 2009[4], ordering the other party to pay EUR 649.477 in damages.

569B. Compensation for loss of trial abroad

European courts have not only considered the possibility of reimbursement of the legal costs incurred before the foreign court in order to challenge its jurisdiction. In several decisions, English courts have also considered the possibility of awarding damages in order to compensate for the damage suffered as a result of the different outcome that the non-chosen court might reach if it decided the dispute.

The leading case is Ellerman Lines Ltd v. Read[5], in which the English court relied on Taylor Adjusting. In Ellerman, the English Court of Appeal did not hesitate to order a party who had failed to comply with its commitment to plead in England to compensate the other party for all the resulting damage, including the loss of the foreign trial on the merits. The subject matter of the dispute was also a ship which had trouble in the Black Sea, and had given rise to rescue operations. The agreement which was concluded in connection with those transactions provided that, in the absence of an agreement, the corresponding remuneration would be fixed in London and that the vessel would not be seised. However, the vessel was taken to Constantinople, where the rescuer brought an action on the merits. Having been successful, he sold the vessel and thus partially implemented the Turkish judgment. The ship owners brought an action before the English courts, seeking an injunction to prevent the execution of the Turkish decision and damages. In that regard, they sought compensation for three distinct losses: the costs invested in Turkey to repatriate the crew, those incurred in attempting to retrieve the vessel before it was sold, and the loss of the vessel. The English Court of Appeal granted their claims, while noting that its decision amounted to overturning the Turkish decision. That first decision thus agreed to make good the damage suffered as a result of the substantive solution adopted by the non-chosen court. Other decisions later confirmed the availability of the remedy in theory, though without actually granting it[6].

III. The “quasi” anti-suit injunction

The Charles Taylor Adjusting case gave the Court of Justice an opportunity to test the alternative to the anti-suit injunction imagined by English lawyers with the principle of mutual trust.

Unsurprisingly, the Court of Justice analyses the new English technique in the light of the ban on anti-suit injunctions which it formulated 20 years earlier. 570But it does not simply take Turner as the starting point for its reasoning. The method which it adopts is to examine the extent to which the English measures can be regarded as “quasi” anti-suit injunctions, deducing from that classification that they are contrary to the principle of mutual trust. The judgment begins by agreeing that the English judgments at issue “do not formally prohibit” the Greek proceedings. It goes on to set out the reasoning of the English judge, emphasizing that he analyzed the obligations contained in the settlement agreements and drew conclusions from them concerning the jurisdiction of the Greek courts in relation to disputes in the field of the settlement agreements. The judgment concludes by insisting that English judgments could dissuade claimants in the Greek proceedings from bringing or continuing the proceedings before the Greek courts, and should therefore be considered as quasi anti-suit injunctions. The CJEU seems to refer here to pecuniary orders, which it emphasizes are provisional in their amount and depend on the continuation of the Greek proceedings.

The argument that a pecuniary order was contrary to EU law had been raised before the English courts. It had been rejected by the Court of Appeal on the ground that the “vice of the anti-suit injunction” was to interfere with the mechanisms for resolving parallel litigation established by EU law, that is to say, the lis pendens doctrine established by the Brussels I Regulation, whereas a pecuniary order was different: the Greek court was free to decide on the claims made before it and to enforce the English judgment[7]. However, that formalistic analysis disregarded the principle of the effectiveness of EU law, as some English commentators themselves had pointed out[8]. Although the Greek court was not affected by a pecuniary order binding on the parties, too much pressure on them could have led them to withdraw their action in Greece.

The main lesson of the judgment is therefore that the principle of mutual trust does not tolerate any attempt by the courts of one Member State to deter the bringing of proceedings before the courts of another Member State. Therefore, any threat of punishment seems to be excluded. A second lesson is perhaps that the mere fact of ruling on the jurisdiction of a court of another Member State, in particular in the context of an assessment of the performance of the terms of a contract, is also prohibited, at least if that court is seised of the dispute.

In practice, the CJEU certainly excludes the award of damages where the foreign proceedings are pending before a foreign court which has retained jurisdiction 571or has not yet ruled on its jurisdiction: the decision ordering damages could indeed dissuade the claimant in the foreign proceedings from continuing them. It is less clear whether the judgment also excludes applications for compensation before the chosen court after the non-chosen court has retained jurisdiction and has ruled on the dispute. Such application cannot have any influence on the foreign proceedings, since they have been completed. However, the application presupposes that the court designated by the clause, seised in the second place, must assess the jurisdiction of the court initially seised in breach of the agreement of the parties. It is possible that the judgment may also condemn such an application, on account of the assessment which it would require of the jurisdiction of the court of another Member State. Finally, it is necessary to bear in mind the situations[9] in which the foreign court, seised in breach of the clause, declines jurisdiction. It is unclear why the successful defendant before the non-chosen court would not have the right to make a claim for compensation before the chosen court, in particular if they would not be entitled to recover the costs incurred before the non-chosen court. Such an application would have no deterring effect and would not entail a reassessment of the jurisdiction of the foreign court.

It should be pointed out that, in the future, the Brussels I bis Regulation will apply. Article 31(2) offers enhanced protection for clauses conferring jurisdiction by requiring the non-chosen court to stay proceedings in favour of the chosen judge, even if first seised, in order for the latter to rule on its jurisdiction. In order to prevent, in the same procedural context, the Greek court from ruling on the scope of the jurisdiction clause and, where appropriate, declaring it inapplicable and hearing the dispute, it will therefore be sufficient to bring an action before the court designated by the clause. The new protection certainly has limitations, in particular in that it does not specify whether the mere allegation of the existence of a jurisdiction clause is sufficient to trigger the mechanism, or whether the non-chosen court could decide to retain jurisdiction if it finds that the clause is manifestly inapplicable[10]. But it is hoped that it will significantly reduce parallel proceedings in the case of a jurisdiction clause.

Finally, it should be noted that the CJEU ignores entirely the distinction between procedural and contractual effects of the jurisdiction clause. The English court justified the award of damages by pointing out that, irrespective of the effects of the clause on the jurisdiction of the chosen and non-chosen courts, the 572clause was a contractual term governed by the law applicable to it and capable, in the event of non-performance, of triggering the remedies available under the applicable (contract) law. The European law of jurisdiction could not prevent an English court from ruling on a claim based on breach of a contract governed by English law and from granting the remedies to which the creditor was entitled under English contract law[11]. On that basis, the English court had therefore envisaged granting four separate remedies: order the payment of damages for compensating the damage suffered as a result of the breach of the jurisdiction clause, a declaration that the action brought before the Greek courts constituted a breach of contract, trigger the indemnity clause stipulated in the settlement agreements, and even specific performance of the obligation to bring any proceedings before the English courts. The application for specific performance, the treatment of which was postponed by the English court and of which it is not known how it was finally resolved, was difficult to distinguish from an anti-suit injunction[12]. But what was the basis for banning other remedies? Is a clause conferring jurisdiction in the field of European judicial law of a purely procedural nature and, as such, incapable of being sanctioned by contractual remedies[13]? Prior to the reform of the Brussels I Regulation, the Court of Justice had ruled that the jurisdiction clause was separable from the contract containing it and “served a procedural purpose” and was governed by European judicial law rather than by the national law governing the contract[14]. However, this analysis is now contradicted by Article 25 of the Brussels I bis Regulation, which subjects jurisdiction clauses at least in part to a national law, the law of the chosen court.

[1] Starlight Shipping Co v. Allianz Marine & Aviation Versicherungs AG [2014] EWHC 3068 (Comm)· [2015] 2 all E.R. (Comm) 747.

[2] On the award of damages for breach of jurisdiction clauses, see generally A. Briggs, Agreements on jurisdiction and choice of law, OUP 2008· K. Takahashi, Damages for Breach of a Choice-of-Court Agreement: Remaining Issues, Yearbook Priv. Int. L. 2008. 57.

[3] [2001] EWCA 1755· [2002] 1 WLR 1517.

[4] Supreme Court of the Kingdom of Spain, 12 January 2009, USA Sogo Inc. v. Angel Jesus, judgment No 6/2009, Rev. Crit. DIP 2009. 756, note D. Fernandez Arroyo, IPRax 2009. 529, note S. Álvarez González.

[5] [1928] 2 KB 144.

[6] Donohue v. Armco Inc. [2001] UKHL 64· [2002] 1 Lloyd’s Rep. 425· Sunrock Aircraft Corporation v. Scandinavian Airlines System Denmark-Norway-Sweden [2007] EWCA 882.

[7] Starlight Shipping Co. v. Allianz Marine & Aviation Versicherungs AG [2014] EWCA Civ 1010 (CA (Civ Div)), No 15 et seq.

[8] A. Dickinson, Once bitten – Mutual trust in European private international law, Law Quarterly Rev. 2015. 192.

[9] Supra, II A.

[10] A second limitation is the issue of conflicting clauses. See generally, G. Cuniberti, Choice-of-Court Agreements and Lis Pendens in the Brussels Ibis Regulation: A Critical Appraisal, in G. Affaki/H. Grigera Naon (dir.), Jurisdictional Choices in Times of Trouble, ICC, Case XII, 2015, 203.

[11] Starlight Shipping Co. v. Allianz Marine & Aviation Versicherungs AG [2014] EWHC 3068 (Comm)· [2015] 2 all E.R. (Comm) 747, No 75 et seq.

[12] See Dickinson, supra note 8.

[13] This was the argument put forward by the Spanish courts to refuse to award damages in USA Sogo Inc.. The Tribunal Supremo (supra note 4) ruled to the contrary.

[14] ECJ, 3 July 1997, Benincasa, Case C-269/95, ECLI:EU:C:1997:337.