London's position as a leading centre for high-value commercial disputes was dealt a blow today by one of Europe's highest courts.

In a complicated but closely-watched case, the European Court of Justice ruled that English courts could not stop proceedings in another European Union member state even if the proceedings are in breach of an arbitration agreement.

Lawyers in London fear the ruling will deprive companies of an effective legal remedy — the so-called "anti-suit injunction" — that prevents counterparties taking legal action beyond the process they had contractually agreed.

Lawyers said it could result in companies seeking to arbitrate in locations such as Hong Kong or Singapore rather than in London or Paris.

The ruling centred on a claim brought in July 2003 by Allianz SpA, formerly Riunione Adriatica di Sicurtá SpA, a subsidiary of Allianz, one of Europe's biggest insurance companies.

The insurance company sued West Tankers, a British shipping company, in an Italian court after a ship it leased crashed into a jetty in Siracuse, in Sicily.

West Tankers responded by seeking an injunction from the High Court in London to halt the proceedings. It argued that its lease allowed for any disputes to be resolved by an arbitration tribunal in the UK.

The High Court, which has historically taken a strong stance on upholding arbitration agreements, granted the injunction. But the case was later referred by the House of Lords to the European Court of Justice.

Today the ECJ rejected the use of anti-suit injunctions and ruled that it should be up to the Italian court to decide whether it has jurisdiction to hear the case.

"Effectively, the ECJ has removed the ability of the English courts to take a pre-emptive strike against satellite litigation," Richard Smith, a partner at Allen & Overy, said.

The Law Society expressed disappointment at the ruling. Des Hudson, chief executive, said: “Today’s ruling does Europe no favours as a place to do business, not to mention London. We will have to ensure today’s ruling does not push arbitration to New York or Singapore, rather than European arbitral seats such as London."

Arbitration has become increasingly popular in recent years as an alternative to the potential uncertainty of domestic courts, particularly in industries dominated by multinational companies such as oil and gas, shipping and insurance.

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