National Navigation Co v Endesa Generacion SA

For purposes of the Council Regulation (EC) No 44/2001, proceedings are characterised by their essential subject matter and the nature of the rights they protect. A preliminary issue concerning the existence, applicability or validity of an arbitration agreement takes the character of the principal proceedings.

Accordingly, a ruling on that issue in civil or commercial proceedings within the Regulation is itself a Regulation judgment. It must be recognised even when relied on in later arbitration-related proceedings. Article 48 does not permit the preliminary ruling to be severed from the substantive dispute. The public-policy exception is narrow and does not permit refusal merely because the foreign court reached a different legal conclusion.

Endesa brought proceedings in Spain concerning alleged late delivery of coal under a bill of lading and obtained an order arresting the vessel Wadi Sudr. National Navigation Co challenged the Spanish court’s jurisdiction, asserting that the bill of lading incorporated a London arbitration clause and that the English court was first seised. The Spanish court held that no arbitration agreement had been incorporated, but stayed its proceedings under Article 27 of the Regulation.

National Navigation Co then commenced arbitration and related Commercial Court proceedings in London. Mrs Justice Gloster held that the Spanish decision was a Regulation judgment but was not binding in proceedings excluded from the Regulation by the arbitration exception, and granted declarations concerning incorporation of the arbitration clause. The central issue on appeal was whether the Spanish judgment had to be recognised and given effect in the English proceedings. The appeal also concerned an attempted amendment of the earlier Commercial Court action.

1. The Court of Appeal unanimously allowed Endesa’s appeal and dismissed the Arbitration proceedings. It also refused permission to appeal against dismissal of the earlier Commercial Court action.

2. The Spanish court’s decisions were final decisions on the matters they determined. The fact that the Spanish proceedings were stayed under Article 27 did not make the ruling on incorporation conditional. The Spanish court had decided that no arbitration agreement had been incorporated into the bill of lading.

3. Under the Council Regulation (EC) No 44/2001, proceedings are characterised by their essential subject matter. The existence or validity of an arbitration agreement is a preliminary issue which takes its character from the substantive claim. The court applied the reasoning in Marc Rich & Co AG v Societa Italiana Impianti pA (Marc Rich) [1991] ECR I-3855, Van Uden Maritime B.V. v Kommanditgesellschaft in firma Deco-Line [1999] Q.B. 1225 and The Front Comor [2009] 3 W.L.R. 696.

4. Because Endesa’s Spanish claim was a civil or commercial claim within the Regulation, the ruling on the arbitration objection was also a Regulation judgment. Article 33 required recognition in England, regardless of the fact that recognition was sought in arbitration-related proceedings. The court distinguished Through Transport Mutual Insurance Association (Eurasia) Ltd v New India Assurance Co Ltd (The Hari Bhum) [2005] 1 Lloyd’s Rep 67, because the Finnish court in that case had not decided an incorporation issue giving rise to an issue estoppel.

5. Article 48 could not be used to sever the ruling on the preliminary arbitration issue from the substantive dispute. Partial recognition is available where a judgment embraces more than one principal subject matter, not where one determination is a necessary step towards another. Section 32(4) of the Civil Jurisdiction and Judgments Act 1982 preserved the effect of the Regulation. The Spanish judgment therefore had to be recognised and could give rise to issue estoppel. The common-law position was also supported by The Sennar (No. 2) [1985] 1 W.L.R. 490 and Tracomin SA v Sudan Oil Seeds Ltd [1983] 1 Ll Rep 560.

6. The public-policy discussion was unnecessary to the principal decision. In any event, Article 34 did not permit refusal of recognition merely because the Spanish court had reached a conclusion which an English court applying English law would not have reached. The narrow standard in Krombach v Bamberski [2000] ECR 1-01935 was not satisfied. The Spanish court’s good-faith failure to give effect to an imperfectly expressed arbitration clause was not a manifest breach of a fundamental legal principle.

7. National Navigation Co could not radically amend its earlier claim from an asserted English court jurisdiction clause to a claim based on breach of an arbitration agreement merely to preserve first-seised status. The proposed amendment was inconsistent with the original case and would have been futile because the Spanish judgment had to be recognised.

• Court of Appeal (Civil Division): [2009] EWCA Civ 1397. Appeal allowed; the Arbitration proceedings were dismissed. Permission to appeal against dismissal of the earlier Commercial Court action was refused.
• Queen’s Bench Division, Commercial Court: Mrs Justice Gloster, [2009] EWHC 196 (Comm). The Spanish judgment was treated as a Regulation judgment but not binding in proceedings excluded by the arbitration exception. Declarations concerning incorporation of the arbitration clause were granted.