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In the wake of the CJEU’s recent ISU decision we briefly survey the state of the inter-relationship between EU Law rules and commercial arbitration processes in the EU, and consider the extent to which this differentiates it from other arbitration regimes.
Background
Arbitral tribunals, whether seated in the EU or considering disputes with a connection to the EU, may find that aspects of EU Law are of potential relevance to the matter before them.
Where that is the case, issues can arise as to the degree to which arbitral processes may be affected by EU Law principles such as the need to secure its effectiveness, and respect for the role of the CJEU (arbitral tribunals are not generally regarded by EU Law as being capable of making preliminary references to the CJEU).
Whilst, (in)famously, a species of this debate has recently played out in the context of intra-EU investment treaty arbitration; what about commercial arbitration? Whilst the impact may not be as drastic, the consequences can still be of significance.
Eco Swiss, and review of EU public policy rules
Eco Swiss (C-126/97) concerned annulment proceedings before the Dutch courts against an NAI arbitration award. There was an allegation that the underlying licensing agreement contravened EU competition law. The principal question was whether the Dutch courts had to regard those as rules of public policy so as to annul the award (despite “domestic” public policy not extending so far).
The CJEU held that, as (then) Article 81 EC Treaty was to be regarded as a fundamental provision essential for the functioning of the internal market, the answer was yes. In another case (Mostaza Claro, C-168/05) such reasoning, rooted in securing the effectiveness of fundamental provisions of EU law, required a Spanish court, again at the annulment stage, to examine for itself whether certain arbitration provisions contravened EU consumer protection law.
Recently, a corollary of this principle has emerged; that commercial arbitration tribunals, and a limited review of their awards, is compatible with the EU’s constitution subject to a proviso concerning oversight by a Member State court of provisions of EU public policy. In Achmea (C-284/16) this was expressed by the CJEU as follows:
…in relation to commercial arbitration… the requirements of efficient arbitration proceedings justify the review of arbitral awards by the courts of the Member States being limited in scope, provided that the fundamental provisions of EU law can be examined in the course of that review and, if necessary, be the subject of a reference to the Court for a preliminary ruling.
(Albeit, in Achmea the CJEU refused to apply this to arbitration provisions in an intra-EU BIT; which, in its view, were tainted by a separate transgression of EU Law by the Member States involved. And, in PL Holdings (C-109/20), it also regarded an ad hoc agreement replicating intra-EU BIT arbitration provisions as similarly tainted).
Where next?
For commercial arbitration, the message seems to be that, where fundamental rules of EU public policy are applicable, the EU legal order requires a degree of oversight by Member State courts, and that supervisory Member State courts are encouraged to ensure compliance.
What about where the route to that oversight is more indirect; for example, where the seat of arbitration is outside the EU? In such a case, the possibility of review by an EU Member State court of EU public policy rules would arise principally at the point of recognition and enforcement of an award. A flavour of this arose, albeit in a very specific sectorial context, in the recent ISU decision (C-124/21 P). That concerned an appeal against a Commission competition infringement decision against the ISU’s rules (the ISU being the international governing body for ice skating sports). The enforcement of those rules by Swiss seated CAS arbitration was found by the Commission to be an aggravating factor to the extent that it took decisions on economic activity to which EU competition law applied (in particular the organisation of competitions, and participation by competitors).
The CJEU essentially agreed in that it regarded the CAS arbitration arrangements as, to that extent, being incompatible with EU law. Its reasoning was based on two observations. First it applied the above principle concerning the existence of effective judicial review of an award by a Member State and found that it was not met (ISU at [188-199]). Second, it considered that the availability of other remedies (namely the possibility of a private right of action or a separate complaint to the Commission) did not provide ice skaters with an adequate alternative remedy [200-204].
This outcome suggests that, in the case of the ISU’s rules, and in situations to which the application of EU Law competition rules might be relevant, EU Member State courts can consider whether to take jurisdiction free of the CAS arbitration provisions. Whilst it does appear this result turned on the impact that the non-EU seat had on the possibility of review by an EU Member State court, there are signs in the judgment that the CJEU may not intend such a strict approach to apply more generally; for example, it seems to have regarded the factual/sector specific features of the case (i.e. the coercive position of the ISU and the acute impact of the ISU’s decisions on athlete’s short careers) as demanding it (see [193]).
Finally, it appears that there are other, separate, ways in which the effectiveness of fundamental, non-derogable, rules of EU Law may affect commercial arbitration processes. The CJEU’s judgment in London Steamship (C-700/20) concerning the relationship between arbitration and the provisions of the Brussels I Regulation is complex, much debated, and potentially unclear (not least as it relates to an earlier version of that Regulation). But it could suggest that the operation of its rules require EU Member State courts, even in arbitration related proceedings (in that case, an application to enforce an award) to give analogous effect to fundamental rules of that Regulation (i.e. insofar as they preclude or override party choice) such as those on mandatory jurisdiction or lis pendens.
Taking stock - some observations…
Whilst these cases might be said to evidence an interventionalist approach to commercial arbitral proceedings in the EU – insofar as disputes engage fundamental rules of EU Law – in some ways this is perhaps no different from other jurisdictions (there always being a risk they may invoke own such rules in the face of arbitration agreements, or the enforcement of an award).
Thus, for supporters of arbitration as an autonomous system removed as far as possible from national court oversight, optimists would say that in the EU legal order, distinct features exist. The technical, legalistic nature of EU Law, and the involvement of the CJEU in its interpretation, mean that the application of international commercial arbitration norms in the EU need to be looked at through that specific lens in situations where EU Law is potentially relevant.
Conversely, pessimists would draw the dots between a number of disparate cases and fact patterns, as described above. They could not fail to note that in its recent cases, the result has been the same, a decision which is restrictive of arbitration. At some point the CJEU will not be able to sustain the mild contradictions which result from an attempt to read its recent arbitration jurisprudence as a coherent whole. These cases will have to reconciled and the direction of travel is becoming clearer with each decision.15 January 2024
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