Factual and Procedural Background
This judgment concerns an appeal from an order dated 18 December 2003 by Judge Moore-Bick, which dismissed the Defendant's challenge to the jurisdiction of the English High Court. The order declared that the Defendant was bound to refer certain claims to arbitration in England, held that proceedings initiated by the Defendant in Finland breached the arbitration agreement, and granted an injunction restraining the Defendant from continuing those Finnish proceedings or commencing other proceedings outside arbitration in London. The Defendant was ordered to pay the Claimant's costs and was permitted to appeal.
The underlying facts are undisputed. In October 1999, an Indian merchant shipped a container of garments from Calcutta to Moscow under two transport bills of lading issued by Company A, providing carriage by sea to Finland and then by road to Moscow. The goods were insured against loss or damage by Company B. The container arrived in Finland on 30 November 1999, but was lost during transit through Russia.
The Claimant, a mutual insurance association, insured Company A and its Finnish associated company, Company C, under the same cover. After the loss, the Indian merchant made a claim against Company B, which was compromised, entitling Company B to exercise the merchant’s rights against the carrier. Company C later went bankrupt and was struck off the Finnish register in 2002. No payment had been made by either Company A or Company C in respect of the loss.
The Claimant's insurance rules included a "pay to be paid" clause and an arbitration clause requiring disputes to be referred to arbitration in London under English law. Company B sought to recover from the Claimant under Finnish law, specifically section 67 of the Finnish Insurance Contracts Act 1994, which allows third parties to claim compensation directly from insurers if the insured is insolvent.
In December 2002, Company B commenced proceedings in Finland against the Claimant under this statute. The Claimant contested the Finnish court’s jurisdiction and initiated arbitration proceedings in England. The Finnish court rejected the Claimant’s jurisdictional challenge, holding that Company B was not bound by the arbitration clause since it was not a party to the insurance contract. The Claimant obtained an injunction from the English High Court restraining Company B from pursuing Finnish proceedings and granted declarations that Company B was bound to arbitrate in London.
Legal Issues Presented
- Should the English court decline jurisdiction or stay the proceedings under the EC Judgments Regulation (Brussels Regulation)?
- Was the judge correct in holding that Company B is bound to pursue its claim under the Finnish Act by arbitration in England?
- Should the permission to serve the claim form out of jurisdiction be set aside or the proceedings stayed as a matter of discretion?
- Was the judge correct to grant the declarations regarding the arbitration clause and breach?
- Should the judge have granted an anti-suit injunction restraining Company B from proceeding in Finland?
Arguments of the Parties
Claimant's Arguments
- Company B is bound by the arbitration clause contained in the Claimant’s insurance rules because any claim under section 67 of the Finnish Act must be made "in accordance with the insurance contract".
- The arbitration clause and related provisions apply to Company B’s claim, requiring arbitration in England.
- The Claimant is entitled to an injunction restraining Company B from proceeding in Finland or elsewhere in breach of the arbitration clause.
Defendant's Arguments
- Company B’s claim in Finland arises from an independent statutory right under Finnish law, not from the insurance contract, and thus it is not bound by the arbitration clause.
- The Finnish court was first seised of the dispute under the Regulation and has jurisdiction.
- Both the arbitration clause and the pay to be paid clause are void under Finnish law.
- The English proceedings should be stayed on forum non conveniens grounds, and no injunction should be granted.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Scott v Avery |
Enforcement of arbitration agreements and conditions precedent to litigation. |
Recognized as part of the arbitration clause provisions in the insurance rules. |
| Socony Mobil Oil Co Inc v West of England Ship Owners Mutual Insurance Association (The Padre Island (No 1 & No 2)) [1984] & [1990] |
Characterisation of claims under insurance contracts and arbitration clauses. |
Supported the court’s view on the arbitration clause and pay to be paid clause applicability. |
| Firma C-Trade S.A. v Newcastle Protection and Indemnity Association (The Fanti) |
Effectiveness of pay to be paid clauses in insurance contracts. |
Referenced in relation to the pay to be paid clause and its enforcement. |
| National Bank of Greece and Athens v Metliss [1958] AC 509; Adams v National Bank of Greece [1961] AC 255 |
Principles of characterisation under English private international law. |
Applied to determine whether the claim was contractual or statutory in nature. |
| Macmillan Ltd v Bishopsgate Investment Trust Plc (No 3) [1996] 1 WLR 387 |
Characterisation of claims and identification of the true issue under lex fori. |
Used to analyze the substance of Company B’s claim under Finnish law. |
| Erich Gasser GmbH v Misat Srl, ECR C-116/02 |
Application of the Brussels Regulation and jurisdiction of the court first seised. |
Considered in relation to whether the English court should stay proceedings pending Finnish court decision. |
| Turner v Grovit, ECR C-159/02 [2004] All ER (EC) 485 |
Limits on anti-suit injunctions within the Brussels Regulation framework. |
Addressed regarding whether injunctions restraining proceedings in another Member State are permissible. |
| Marc Rich & Co AG v Societa Italiana PA (The Atlantic Emperor) [1992] 1 Lloyd's Rep 342 |
Scope of arbitration exception under Brussels Convention/Regulation. |
Supported the court’s conclusion that arbitration proceedings fall outside the Regulation. |
| Effer v Kantner [1982] ECR 825 |
Risks of conflicting judgments and jurisdictional disputes. |
Referenced to illustrate the importance of avoiding conflicting rulings on arbitration agreements. |
| Pertenreederei M/S 'Heidberg' v Grosvenor Grain and Feed Co Ltd (The Heidberg) [1994] 1 Lloyd's Rep 287 |
Interpretation of arbitration exception. |
Discussed in relation to differing views on arbitration exception scope. |
| Qingdao Ocean Shipping Co v Grace Shipping Establishment (The Xing Su Hai) [1995] 2 Lloyd's Rep 15 |
Determination of whether claims concern arbitration. |
Used to support the test of whether the subject matter is arbitration. |
| Lexmar Corporation and The Steamship Mutual Underwriting Association (Bermuda) Ltd v Nordisk Skibsrederforensig and Northern Tankers (Cyprus) Ltd ("The Lexmar case") [1997] 1 Lloyd's Rep 289 |
Arbitration exception and related procedural issues. |
Referenced in the context of arbitration proceedings outside the Regulation. |
| Toepfer International GmbH v Société Cargill France [1997] 2 Lloyd's Rep 98 |
Arbitration and jurisdiction issues. |
Considered in relation to arbitration exceptions. |
| Akai Pty Ltd v People's Insurance Ltd [1998] 1 Lloyd's Rep 90 |
Enforcement of choice of law and jurisdiction clauses despite conflicting foreign law. |
Applied analogously to support enforcement of arbitration clause against a non-party. |
| Aggeliki Charis Compania Maritima SA v Pagnan SpA (The 'Angelic Grace') [1995] 1 Lloyd's Rep 87 |
Granting anti-suit injunctions to enforce arbitration agreements. |
Supported the principle that injunctions restraining breach of arbitration clauses are appropriate. |
| Bankers Trust Co v PT Jakarta International Hotels & Development [1999] 1 Lloyd's Rep 910 |
Anti-suit injunctions in breach of arbitration agreements. |
Referenced to affirm principles on injunctions in arbitration breaches. |
| XL Insurance Ltd v Owens Corning [2000] 2 Lloyd's Rep 500 |
Anti-suit injunctions and arbitration agreements. |
Used to illustrate enforcement of arbitration clauses through injunctions. |
| Donohoe v Armco Inc [2001] UKHL 64; [2002] 1 Lloyd's Rep 425 |
Principles governing anti-suit injunctions and enforcement of exclusive jurisdiction/arbitration clauses. |
Quoted extensively to explain rationale and limits of injunctions. |
| Welex AG v Rosa Maritime Ltd (The 'Epsilon Rosa') [2003] EWCA Civ 938; [2003] 2 Lloyd's Rep 509 |
Anti-suit injunctions in breach of arbitration agreements. |
Applied to confirm principles for granting injunctions restraining breach of arbitration clauses. |
| Continental Bank NA v Aeakos Compania Naviera SA [1994] 1 WLR 588 |
Anti-suit injunctions in breach of exclusive jurisdiction clauses. |
Referenced as authority for injunctions to enforce jurisdiction agreements. |
| Turner v Grovit [2001] UKHL 65; [2002] 1 WLR 107 |
ECJ ruling on anti-suit injunctions under Brussels Convention/Regulation. |
Considered in relation to whether injunctions restraining proceedings in other Member States are compatible with the Regulation. |
Court's Reasoning and Analysis
The court began by considering whether the English court should decline jurisdiction or stay proceedings under the Brussels Regulation, given that the Finnish court was first seised. It analysed ECJ decisions, particularly Erich Gasser GmbH v Misat Srl and Marc Rich & Co AG v Societa Italiana PA (The Atlantic Emperor), concluding that arbitration proceedings fall outside the Regulation’s scope under the arbitration exception (Article 1.2(d)). The court held that it was proper for the English court to determine whether the arbitration exception applied, rejecting the submission that this was solely for the Finnish court.
The court then addressed the nature of Company B’s claim under section 67 of the Finnish Act, applying English conflict of laws principles to characterise the claim. It concluded that the claim was essentially to enforce the insurance contract made by the insolvent insured and thus was subject to English law, including the arbitration clause. The Finnish statutory right was not independent of the contract but operated "in accordance with the insurance contract."
The court rejected the Defendant’s argument that the pay to be paid clause and arbitration clause were void under Finnish law for the purposes of the English proceedings, holding that the obligations under the contract were governed by English law and Finnish law could not modify them in England.
Regarding the permission to serve out of jurisdiction and stay applications, the court upheld the lower court’s discretion, finding no reason to set aside service or stay proceedings given the arbitration clause’s applicability.
The court analysed the declarations granted by the judge, agreeing that the declaration binding Company B to arbitration was correct, but setting aside the declaration that Company B was in breach for commencing Finnish proceedings, as Company B was not a party to the contract and thus not in breach.
The court carefully examined the appropriateness of the anti-suit injunction restraining Company B from continuing Finnish proceedings. It reviewed extensive authority on anti-suit injunctions enforcing arbitration agreements, including The Angelic Grace, Donohoe v Armco Inc, and The Epsilon Rosa, affirming the general principle that courts will grant injunctions to enforce arbitration clauses unless strong reasons exist not to.
However, the court distinguished this case from ordinary breaches of contract because Company B’s Finnish proceedings were brought under a statutory right granted by Finnish law, not a contractual claim. The court acknowledged the public policy behind the Finnish statute and the differences in approach to pay to be paid clauses between Finnish and English law.
The court also considered the ECJ’s ruling in Turner v Grovit, which held that anti-suit injunctions restraining parties from commencing or continuing proceedings in courts of other Member States under the Brussels Regulation are incompatible with the Regulation’s principles of mutual trust and jurisdictional respect.
Given that Company B was not in breach of contract by commencing Finnish proceedings under Finnish statutory law, and that the Finnish court had jurisdiction, the court concluded that granting an anti-suit injunction would unjustifiably interfere with the Finnish court’s jurisdiction and would not be just and convenient under section 37(1) of the Supreme Court Act 1981. Therefore, the injunction was wrongly granted.
Holding and Implications
The court’s final decision was to allow the appeal in part:
- The court declined to stay or decline jurisdiction under the Regulation, holding that the arbitration exception applied and the English court had jurisdiction to determine that issue.
- Company B is bound to pursue its claim under the Finnish Act by arbitration in England under English conflict of laws principles.
- Permission to serve out of jurisdiction was not set aside and the proceedings were not stayed as a matter of discretion.
- The declaration that Company B was bound to arbitrate was upheld, but the declaration that Finnish proceedings breached the arbitration clause was set aside as Company B was not in breach of contract.
- The anti-suit injunction restraining Company B from continuing Finnish proceedings was set aside as unjustified interference with the Finnish court’s jurisdiction and not just and convenient.
The direct effect is that Company B may continue its Finnish proceedings under the Finnish statute, but any claim pursued under the arbitration agreement must be arbitrated in England. The court did not establish new precedent beyond reaffirming the limits on anti-suit injunctions in the context of the Brussels Regulation and statutory third party rights. Issues of recognition or enforcement of judgments under the Regulation remain open for future determination.