Arbitration, Competition Law and the EU Damages Directive

Key Themes

• Part I “Analytical and Legal Framework”• arbitrability• arbitration under EU law• the concept of public policy under EU law, its boundaries and potential

extensions• standard of review

• Part II “Old and New Problems under Regulation 1/2003 and the Damages Directives”• substantive provisions• evidence• effect of decisions

PART I

“ANALYTICAL AND LEGAL FRAMEWORK”

Arbitrability

• Mitsubishi v Soler 473 US 614 (1985)• distribution agreement between Mitsubishi, Chrysler and Soler, a Puerto Rican company• arbitration clause provided for arbitration in Japan• statutory claims under the Clayton Act are arbitrable as the statue does not prohibit waiver of judicial forum• so-called “second look doctrine” but note that the SCt considered it sufficient that arbitrators “took

cognisance of the antitrust claims and actually decided them” • Baxter International v Abbott Laboratories 315 F 3d 829 (7th Cir) confirmed that the standard of review is the

same as that which applies generally under Art V of the New York Convention

• Labinal v Mors Rev Arb (1993) (France)• J-V between Mors and Westland to compete against Labinal – Mors issued proceedings in the French courts

against Westland for breach of contract and Labinal for having cooperated with Westland against Mors• CA Paris held that the dispute was arbitrable even if there was an issue as to the compatibility of the J-V

agreement with Art 101 TFEU

• Bulk Oil v Sun International [1986] 2 All ER 744 and ET Plus SA v Welter [2005] EWHC 2115 (Comm) (Eng)

• Terra Armata v Tensacciai SpA [2007] ASA Bull n 3, 618 (CA Milan, Italy)

Arbitration under EU Law

• Case 102/81 Nordsee v Reederei Mond• arbitrators in commercial, non-mandatory arbitration based on party autonomy are not

courts or tribunals of the Member States and do not have the power to make a request for a preliminary ruling to the Court of Justice

• Case C-126/97 Eco Swiss v Benetton• Art 101 is part of the public policy of the Member States and, when review of arbitral awards

is allowed on grounds of public policy, in application of the principle of equivalence such a review must include compliance of the award with EU competition law

• para 35: annulment of, and refusal to enforce awards limited to “exceptional circumstances”• para 36: public policy nature results from the link of Art 101 to the internal market objective

of the Union. The sanction that agreements in breach of Art 101 are void is evidence of that• para 40: “questions concerning the interpretation of the prohibition laid down in Article

101(1) of the Treaty should be open to examination by national courts when asked to determine the validity of an arbitration award”

The Boundaries of Public Policy 1

• Case C-168/05 Mostaza Claro• whether court reviewing an arbitral award may raise on its own motion the question as to

whether the arbitration agreement is an unfair term in a consumer contract – answer: YES• para 35: suggests consumer protection belongs to public policy • para 37: consumer protection “is essential to the accomplishment of the tasks entrusted to

the [Union] and, in particular, to raising the standard of living and the quality of life in its territory”

• C-40/08 Asturcom• consumer had not participated in the arbitration and had not challenged the award. Is the

national court in enforcement proceedings required to determine on its own motion whether the arbitration agreement is binding? – answer: YES if the court has the power to do so when an arbitral award is in breach of domestic public policy

• para 52: the rule that unfair term shall not be binding is public policy regardless, it seems, as to whether equivalent domestic provisions are

• paras 53 – 55: court under an obligation to review the validity of the unfair term under public policy even if under national law the court has only a discretion to do so

The Boundaries of Public Policy 2

• Case C-38/98 Régie Nationale des Usines Renault SA v Maxicar SpA• French judgment sought to be recognised in Italy under the Brussels Convention – the Italian court

referred to the Court of Justice the question as to whether a breach of Article 102 by the French court allowed the Italian court to refuse recognition of the judgment under the public policy exception – answer: NO

• para 30: refusal of enforcement on grounds of breach of public policy “can be envisaged only where recognition or enforcement of the judgment delivered in another Contracting State would be at variance to an unacceptable degree with the legal order of the State in which enforcement is sought inasmuch as it infringes a fundamental principle. In order for the prohibition of any review of the foreign judgment as to its substance to be observed, the infringement would have to constitute a manifest breach of a rule of law regarded as essential in the legal order of the State in which enforcement is sought or of a right recognised as being fundamental within that legal order”

• para 33 “The court of the State in which enforcement is sought cannot, without undermining the aim of the Convention, refuse recognition of a decision emanating from another Contracting State solely on the ground that it considers that national or Community law was misapplied in that decision. On the contrary, it must be considered whether, in such cases, the system of legal remedies in each Contracting State, together with the preliminary ruling procedure provided for in Article [267 TFEU], affords a sufficient guarantee to individuals”

Procedural Public Policy

• Case C-453/99 Courage and Crehan, Joined cases C-295/04 to C-298/04 Manfredi and Case C-199/11 Otis• Otis, para 42: “Such a right [the right to damages for breaches of the EU competition

rules] in fact strengthens the working of the EU competition rules and discourages agreements or practices, frequently covert, which are liable to restrict or distort competition. From that point of view, actions for damages before national courts can make a significant contribution to the maintenance of effective competition in the EU”

• also consider that the right to damages must be given effective judicial protection under Art 47(2) EU Charter. Effective judicial protection of EU rights is a fundamental right

• Renault v Maxicar, para 30: a breach of public policy is “a manifest breach of a rule of law regarded as essential in the legal order of the State in which enforcement is sought or of a right recognised as being fundamental within that legal order”

• Ergo: breach of the right to effective judicial protection is breach of EU public policy?

The Standard of Review 1

• Thalès v Euromissile [2005] Rev arb 271 (CA Paris, France)• general test under national law applied• breach must be “flagrant, effective and concrete”• “alleged violation of a mandatory rule does not authorise any departure from the procedural rule

of the prohibition of the review on the merits”• no review of the application of the competition rules to the contract “save in case of fraud or of

manifest violation”• “the award may not be set aside simply because the arbitrators did not raise the competition law

issues on their own motion”

• SNF v Sytec [2007] Rev arb 100 (CA Paris, France), upheld in SNF v Sytec [2008] Rev arb473 (Cour de Cassation, France)• no review on the merits• question is whether recognition and enforcement would be contrary to international public policy

• Principles applied in Tamkar v RC Group, 15 March 2007, unpublished (CA Paris, France) and Linde v Halyvourgiki, Cahiers de l’Arbitrage, 2010/1, 181 (CA Paris, France)

The Standard of Review 2

• Terrarmata v Tensacciai, [2006] Riv arb 744 (Court of Appeal of Milan, Italy) and Nuovo Pignone v Schlumberger [2006] Riv arb 741 (Court of Appeal of Florence, Italy)• have the arbitrators sufficiently taken into account the principles of competition law

in the reasoning as it is set out in the award?

• Judgment of the Svea Court of Appeal, 23 October 2013, Case No T 4487-12• Eco-Swiss does not require a special test - test is the same as under national law

• award is set aside if clearly incompatible with competition law. If there are different views, it seems that the courts should not substitute their own views for those of the arbitrators and review the law and the facts. Relevant that the arbitrators had thoroughly examined the competition law issues

The Standard of Review 3

• Cytec Industries v SNF, Cahiers de l’Arbitrage, 2010/1 (CA Brussels, Belgium), reversing the judgment of the court below SNF v Sytec [2007] Rev arb 303 (Tribunal de Bruxelles, Belgium)• note the Tribunal had reviewed the award for contradictory findings.

The CA reserved holding that the award was not contradictory

• German case law (e.g. Oberlandesgericht Dusseldorf, 21 July 2004, VI-Sch (Kart) 1/02; Oberlandesgericht Thuringen, 8 August 2007, A.G. Co v. Sch. AG, VI Sch (Kart) 01/02, OLGR Jena 2008, 162-164)

• Marketing Displays International, Inc v VR Van Raalte ReclameBV [2006] Stockholm International Arbitration Review 201 (Court of Appeal of the Hague, Netherlands)• refusal to enforce awards on the basis that arbitrators had erred in the

application of Art 101 TFEU

PART II

“OLD AND NEW PROBLEMS UNDER REGULATION 1/2003 AND THE DAMAGES DIRECTIVE”

EU Legislation and Arbitration

• Regulation 1/2003 and the Damages Directive contain two different types of provision:• substantive law provisions such as, for example, the rules on joint and several

liability in the Directive• these rules apply in arbitration as part as the law applicable to the substance of the

dispute

• procedural rules such as Arts 15 and 16 of Regulation 1/2003 and the rules on evidence and on the effect of national infringement decisions in the Damages Directive• these rules apply only before national courts

Questions

• What is the relevance of substantive and procedural rules before national courts in arbitration-related proceedings?• national courts may act in support of the arbitration

• national courts may exercise supervisory jurisdiction in setting aside or enforcement proceedings

• What is the indirect impact in arbitration of the relevance, if any, of substantive and procedural rules before national courts?

Substantive Provisions

• e.g. Art 11 Joint and several liability, Arts 12 – 14 Passing-on of overcharges, passing-on defence and indirect purchasers (note also provisions on the burden of proof, which may be substantive or procedural)

• What if arbitrators do not apply or misapply them?• general position: non-reviewable error of law unless

• certain provisions are deemed to be public policy (e.g. protection of leniency applicants) – then the issue of the standard of review becomes relevant

Evidence 1

•Regulation 1/2003, Art 15• (1) national courts may ask the Commission to transmit to them information

in its possession or its opinion on questions concerning the application of the EU competition rules

• (2) national competition authorities and the Commission may submit written and, with the court’s permission, oral observations

• Damages Directive• Art 5 Disclosure• Art 6 Disclosure of evidence in the file of a competition authority• Art 7 Limits on the use of evidence obtained solely through access to a

competition authority file

Evidence 2

• Art 15 of Regulation 1/2003 and Arts 5 to 7 of the Directive do not apply before the arbitrators• language of the legislation referring to “courts”• arbitrators are not bound by strict rules on disclosure and admissibility of evidence – even if

the seat of the arbitration is in the EU, it is well established today that the procedural rules that apply before the courts of the seat do not apply in arbitration

• see, e.g., Card v Stratton Oakmont Inc 933 F Supp 806 (D Minn 1996)• SEC complaint would have been inadmissible in evidence before a US court but could be admitted by

arbitrators in arbitration with seat in the USA

• Two-fold problem• arbitrators more limited in their ability to rule on damages actions• potential argument that damages actions should be excluded from arbitration agreement

because to have such actions determined in arbitration would run counter to the objective of ensuring that claimants receive full compensation – possible argument based on Courage and Crehan, Manfredi and Otis

Evidence 3

• Problem would fall away if one could argue that Art 15 of Regulation 1/2003 and Arts 5 to 7 of the Directive apply before national courts in arbitration-related proceedings, for example proceedings under s 43 of the Arbitration Act 1996 and Art 27 of the UNCITRAL Model Law on International Commercial Arbitration BUT

• Textual difficulty• Art 15 of Regulation 1/2003 “In proceedings for the application of Article 101 or Article 102 of the Treaty”• Art 5 of the Directive “in proceedings relating to an action for damages” and “action for damages” is defined as an “action

under national law by which a claim for damages is brought before a national court”

• Purposive interpretation doubtful• in arbitration-related proceedings when national courts may be seized for obtaining evidence to be used in arbitration, the

argument would be that they should be able to avail themselves of the powers under Art 15 of Regulation 1/2003 and Art 5 of the Directive – Courage and Crehan, Manfredi and Otis on the importance of the right to damages for the effective enforcement of EU competition law

• Legislative solution (how likely is it?)• nothing prevents Members States from extending the application of Art 15 of Regulation 1/2003 and Art 5 of the Directive to

arbitration-related proceedings

Evidence 4

• What about inadmissibility provisions?• Art 6(6) leniency statements and settlement submissions• Art 6(5) information prepared by a person specifically for the competition investigation,

documents drawn up by competition authorities and sent to the parties and withdrawn settlement submissions

• Language of Directive is clear: inadmissibility only applies in “actions for damages”

• What if an arbitral tribunal orders disclosure of a leniency statement and draws adverse inferences from failure to disclose it?• general rule should be that the tribunal is entitled to do so unless• protection of Art 6(6) and Art 6(5) documents is seen as a matter of public policy

• probably not because such statements are currently disclosable, which suggests that there is no compelling public interest reason for an inadmissibility rule: Pfleiderer and Donau Chemie

• however, in practice arbitrators are well advised to follow the approach in the Damages Directive

Effect of Decisions 1

• Art 16(1) Regulation 1/2003 “When national courts rule on agreements, decisions or practices under Article 101 or Article 102 of the Treaty which are already the subject of a Commission decision”

• Art 9(1) of the Directive “for the purposes of an action for damages brought before their national courts” + Art 9(2) “may … be presented before their national courts”• paragraph 2 more general but this is probably just bad drafting. Plausible to conclude that the rule only

applies in “actions for damages”

• However• the binding effect of a decision by the Commission may be wider as it derives from the principle of sincere

cooperation between the Union and the Member States, including the national courts (Masterfoods)• even for NCAs’ decisions, if it is relevant for the court to determine whether there has been an infringement

of competition law, highly likely that the court would probably follow the infringement decision by which it would be bound had proceedings been brought in court and not in arbitration

• but is merely being contrary to a decision by the Commission or an NCA a breach of public policy or the breach would only relate to whether the award is contrary to competition law? If the latter, answer depends on the standard of review

Effect of Decisions 2

• Could a conflict between an arbitral award and a decision by the Commission or a national competition authority, at least in certain circumstances, be a case of illegality on the face of the award which could warrant refusal of enforcement under the public policy exception?• Lauritzencool AB v Lady Navigation Inc [2005] 1 Lloyd’s Rep 260, per Cooke J: “The

evidence shows that … if an award is published by arbitrators which is inconsistent with a later Commission decision, that award would be subject to annulment”

• consequences for the arbitrators• duty to use professional diligence to make a valid and enforceable award

• stay of arbitration proceedings: Lauritzencool AB v Lady Navigation Inc, where Cooke J assumed that an arbitration would be stayed when the Commission was actively investigating whether the contract the subject matter of the arbitration was a violation of Art 101 TFEU

• question of the duty of the arbitrators to raise competition law issues on their own motion –answer: they may well have such a duty but the problem is in what circumstances and with what consequences

Arbitration, Competition Law and the EU Damages Directive