Damages for Breach of Jurisdiction
Agreement and Arbitration
Agreement
Koji Takahashi
(Doshisha University, Japan)
1
Why did I choose this topic?
• An English academic referring to jurisdiction agreement as
“contract”.
• A few allusions in the English literature to the possibility of
awarding damages.
• BRIGGS A., ‘Distinctive aspects of the conflict of laws in common law
systems: Autonomy and agreement in the conflicts of laws’ 308 (2005)
Doshisha Law Review
• TAKAHASHI ‘Kankatsu Gôi Ihan no Songai Baishô’ (2007) Kokusai Shiô
Nenpô Japanese Yearbook of Private International Law
• TAKAHASHI ‘Damages for Breach of a Choice-of-Court Agreement’
Yearbook of Private International Law, Volume 10 (2008), 11(2009)
• A growing interest in 2009.
2
Plan of this paper
Breach of Jurisdiction agreement
↓
Breach of arbitration agreement
• Jurisdiction agreement = choice-of-court
agreement
• cf. non-exclusive jurisdiction agreement
3
Type 1
• X sues Y in country A. The court declines
jurisdiction for breach of jurisdiction
agreement. Y sues X for damages in country
B. The court in B also finds that the action
in A was brought in breach of the
agreement.
• Losses = legal costs incurred by Y in A
(above any sum recovered under the costs
rules in A), etc.
4
Type 2
• X sues Y in country A. Despite Y’s allegation that the
action has been brought in breach of jurisdiction
agreement, the court sustains jurisdiction and rules
on the merits [in favour of X]. Y sues X for damages in
country B. The court in B finds that the action in A
was brought in breach of the agreement.
• Losses = legal costs incurred by Y in A (above any
sum recovered under the costs rules in A) [and
incurred by X but has been imposed on Y as well as
any sum Y has been ordered to pay to X on the
merits (claw-back elements)], etc.
5
Normal Remedies for Breach
– Passively, leave the court seised of the action to
decide on its jurisdiction. If a judgment is
rendered in breach of jurisdiction agreement and
its enforcement is sought, refuse.
– (the common law courts) Issue an antisuit
injunction.
– Award damages for breach?
6
Precedents
• England
e.g. Union Discount Co. v. Zoller [2002] 1 WLR 1517
(CA) (Type 1); Donohue v. Armco [2002] 1 All ER 749
(HL) para. 48 (Type 2. The court accepted a party’s
concession).
• United States: from mid-1990s.
• Australia: a few cases after 2000.
• Spain Tribunal Supremo
23 February 2007 (Type 2?)
12 January 2009 (nearly 650,000 Euros) (Type 1)
7
Intra-EU context
• After the demise of an anti-suit injunction, are
damages the only effective remedy left available?
– Erich Gasser GmbH v. Misat Srl (Case C-116/02) [2003] ECR
I-14693.
– Turner v. Grovit (Case C-159/02) [2004] ECR I-3565.
– (arbitration) Allianz SpA v. West Tankers (Case C-185/07) OJ
C 82, 04/04/2009 p. 4
• Does the remedy harm the ‘mutual trust’ as
promoted by ECJ? (esp. in Type 2 cases).
• Is the remedy outside the EU competence? Is it
within the ‘measure’ in Article 114(1) of the Treaty
on the Functioning of the European Union?
8
Possible objections
• Procedural characterisation?
• Finality of dispute settlement
– res judicata
– General principles of procedure law
• Comity towards the court in A
• Difficulty of quantification
(A least traditionally) unavailable even in the common
law countries (See OT Africa Line Ltd v. Magic
Sportswear Corp [2005] 1 C.L.C. 923 para. 33 (CA)).
9
Procedural Characterisation?
• Is jurisdiction agreement a special (procedural) agreement?
Yes (cf. Some common law thinkers make no dogmatic
distinction from substantive ‘contract’).
• Should the remedy for its breach be characterised as
procedural?
Note: Not all issues concerning jurisdiction agreement have to
be characterised as procedural: e.g. effect of fraud or duress
on validity.
– If so characterised, it is subject to the procedural rule of the lex fori.
Less likely to provide for damages.
– If no, it is subject to the conflict-of-law analysis. Damages will be
available if the governing law provides for it.
10
Pleas of res judicata
• Depends on whether the decisions of the court in A
(concerning costs [and the merits]) are entitled to
recognition in B. If yes, they will constitute res
judicata and might preclude the damages claim.
• The court in A does not have jurisdiction in the eyes
of the court in B. By virtue of the jurisdictional
requirement (cf. Art 35(3) of the Brussels I
Regulation), not entitled to recognition.
11
General principles of procedure law
• Generally, the finality of a dispute settlement is
achieved only to the extent the decision becomes res
judicata.
• However, the damages claim necessitates relitigation, i.e. whether the court in A has jurisdiction.
It is also a kind of satellite litigation. It may be
thought that as a matter of policy, it should not be
encouraged.
• The general principles, e.g. good faith and abuse of
process, may be invoked to bar the damages claim.
• Problem: general principles tend to be ill-defined.
12
International comity
• Comity = a concept requiring deference to foreign
interests.
• How far should a court having a close nexus with the
case take proactive control over the workings of
international litigation?
• Type 1 cases: a smaller implication, because the
disagreement only concerns the recoverable amount
of costs.
• Type 2 cases: a greater implication, because of the
disagreement on jurisdiction and the claw-back
element of the claim.
13
Difficulty of Quantification
• Greater in Type 2 cases.
– X may argue that the decisions on costs and the merits
which would be rendered by the court chosen by the
agreement should be taken into account. But this difficulty
will be resolved by way of burden of proof.
– Identification of the time at which the loss materialises: is
it when the judgment in A becomes final or conclusive or is
executed?
• The difficulty of quantification per se is not a good
reason to deny relief.
14
Comparison with anti-suit injunction
• Implication for international comity
Both are only a response to a private party’s conduct rather
than a criticism of the foreign court. (See Castanho v. Brown
[1981] AC 557, 572)
– Less intrusive? - Let the proceedings run their course
– More intrusive? – Repudiate the foreign decisions after a
lot of time, costs and adrenalin have been spent.
• Effectiveness as remedy
– Less effective if Y is cash-strapped.
– More flexible and versatile: e.g. in a multiparty action
partially involving jurisdiction agreement, allowing
recovery only the costs, without prejudice to the
procedural advantages.
15
Express Clause on Damages
• Model clauses have been proposed.
• A practical solution to uncertainty over the
availability, circumstances and the extent of recovery.
• By simply giving effect to privately negotiated
clauses, the court can avoid the objections based on
procedural characterisation, res judicata and comity.
• But such a clause may give rise to disputes of its
own, e.g. the items of loss covered, violation of rules
against a penalty clause.
16
Legal Bases of the Claim
(Where no express clause exists)
• Contract (to recover losses)
• Tort (to recover losses)
– The losses are as mentioned earlier.
• Restitution for wrongs (to strip away gain= to
recover “restitutionary damages” ) – Not
available in Type 1 cases as neither party
obtain benefit from the breach. In Type 2,
judgment in favour of X is a gain.
17
Legal Basis – contract
• Civil law
– Generally fault-based for contractual liability
– Knowledge of the breach or ignorance due to
negligence. Harder to prove in Type 2 cases where
the court in A denies breach.
• Common law
– Strict liability
– Damages are the primary remedy (cf. specific
performance)
18
Legal bases – tort and restitution
• Tort: Institution of a civil action may constitute a tort
under certain conditions.
– Tension with the need to ensure access to justice.
– Bad faith or gross negligence may need to be proved.
• Restitution
– Gain without legal basis (with the consequent loss) must
be proved.
– No need to prove fault.
• Neither claims can be founded on a simple breach of
jurisdiction agreement. The procedural character of
the agreement has no direct impact. More conducive
to substantive characterisation.
19
Governing law of the claim
• Contract
– the governing law of the main contract
– the law of the forum chosen by the agreement
– the law specified by the choice-of-law rules of the chosen forum
• Tort
– Classification (tort or contract?)
– the law of A, the law of the chosen forum, the law governing the
agreement
• Restitution
– Classification (restitution or contract?)
– the law of A, the law governing the agreement.
20
Jurisdiction to hear the damages claim
• Consent jurisdiction – whether jurisdiction
agreement covers a damages claim for its
breach, i.e. whether it provides for exclusive
jurisdiction over the claim.
• Home-court jurisdiction (domicile, etc.)
• Submission jurisdiction
• Derived jurisdiction (counter-claim, etc.)
• Claim-based jurisdiction - contract, tort,
restitution
21
Availability of consent jurisdiction
• Policy arguments for an affirmative answer
– Prevent multiplicity (parallel or related proceedings) of
satellite litigation
– Where the chosen court finds the agreement invalid or
non-exclusive, it is anomalous for other courts to award
damages finding the same agreement valid and exclusive.
• Policy argument for a negative answer
– Each court having a sufficient nexus with the case as to
have jurisdiction on one of the other bases should, if it
finds that there is a breach, provide relief to the aggrieved
party. It should not shrink from that responsibility even if
other courts, be it the court chosen by the agreement, do
not find that there is a breach.
22
Enforcement in other countries of the
judgment awarding damages
• The prerequisites may include, e.g.
jurisdiction, service of process, ordre public.
• Prohibition of révision au fond. It will be
immaterial even if the enforcing court:
– finds the agreement invalid or non-exclusive;
– would characterise the claim as procedural;
– finds granting enforcement will offend comity
towards A (though it may find its own ordre public
being violated).
23
Common law vs. Civil law
• Characterisation: procedural or substantive
– Common law: no dogmatic distinction
– Civil law: if the agreement is characterised as
procedural, the claim may have to be
characterised as substantive to offer the relief.
• Attitude to comity as exemplified in anti-suit
injunctions
• Contractual liability: strict or fault-based.
24
Type 1 vs. Type 2
• The claim is more likely to succeed in Type 1 cases.
– The implication for comity is less serious
– The quantification of damages is less difficult;
– The requirement of negligence or intent will be met with less difficulty.
• The claim should be allowed also in Type 2 cases involving an
unscrupulous behaviour. e.g. where the plaintiff has blatantly
flouted a plainly valid choice-of-court agreement by bringing
an action before a remote court which would, to his
knowledge, exercise an exorbitant jurisdiction and deny effect
to any foreign jurisdiction agreement.
– The court is not worthy of comity.
– There is an intentional breach.
25
Damages for Breach of Arbitration
Agreement
• Many issues are common with the
breach of jurisdiction agreement.
• Many primary and secondary
materials treat them without
distinction.
• However, there are some
differences.
26
Four types of scenarios
• Type 1 and Type 2 as per jurisdiction
agreement but substitute “arbitration
agreement” for “jurisdiction agreement.”
• Type 1-bis, Type 2-bis: substitute “arbitral
tribunal having the seat in B” for “court in B.”
• Other losses may include a loss caused by the
breach of confidentiality.
27
Precedents
• Difficult to capture a complete picture as many arbitral
awards are unpublished (Type 1-bis, 2-bis cases).
• Mantovani v. Caparelli SpA [1980] 1 Lloyd's Rep 375 (CA): the
English court referred to under the special case procedure
approving a GAFTA arbitral award.
• Tracomin SA v Sudan Oil Seeds [1983] 2 Lloyd's Rep. 624 CA
(obiter)
• An ad hoc arbitration in London as introduced in Cohen &
Wessel, “In Tune with Mantovani: the "Novel" Case of
Damages for Breach of an Arbitration Agreement” [2001] 4(2)
Int. A.L.R. 65
• (at least) a few awards of ICC arbitration in Geneva.
28
Res judicata
• In Types 1-bis and 2-bis, even if the court
decisions in A are entitled to recognition in B,
they will not be binding on the arbitral
tribunal.
• However, in Type 2-bis, if A=B, there is
arguably no point in the arbitral tribunal
denying the court’s jurisdiction since the
eventual award is likely to be set aside by the
same court.
29
International Comity
• In Types 1-bis and 2-bis, arbitral tribunal is
under no constraint of international comity
since it is a private body, cf. a national court.
30
Comparison with anti-suit injunction
• In Types 1-bis and 2-bis, arbitral tribunal is
under no constraint of international comity.
• In Types 1-bis and 2-bis, an anti-suit injunction
as issued by an arbitral tribunal may be less
effective than an injunction issued by the
court. Therefore, the remedy of damages may
be more effective than an injunction.
31
Competence of tribunal to hear the
damages claim (Types 1-bis and 2-bis)
• Whether arbitration agreement covers a
damages claim for its breach.
– Yes: Mantovani v. Carapelli, affirmed by CA.
• In Type 2-bis, if A=B, there is arguably no point
in exercising the jurisdiction.
32
Jurisdiction of a court to hear the
damages claim (Types 1 and 2)
• Parallel with the discussion for jurisdiction
agreement.
• Except that the court for the seat of
arbitration may also have jurisdiction as the
court for supporting the arbitration, e.g.
jurisdiction to issue an anti-suit injunction. But
is it a sufficient base to award damages?
33
Enforcement of an arbitral award
granting the damages claim
• There is possibly less concern about offending
comity than when enforcing a court judgment
since an award is a product of a private body.
• The regime of the New York Convention, often
more liberal than those for court judgments.
34