Eco Swiss and its Ramifications Dr Phillip Landolt Landolt & Koch, Geneva Vienna Arbitration Days February 2012

There are no EU courts for the general enforcement of EU law rights Rights arising under EU law are enforced by courts of the EU Member States EU Member State courts under duty loyally to apply EU law, by virtue of Article 4(3) TEU EU Law Background

EU Law Background Where there are no relevant EU rules … EU law respects the procedural autonomy of Member State courts, subject to three exceptions: Principle of effectiveness Principle of equivalence Availability of preliminary reference for interpretation of EU law (Article 267 TFEU)

Pre-Eco Swiss EU Member State law is not permitted to preclude opportunity for preliminary reference to the ECJ for the authoritative interpretation of EU law Rheinmühlen v. Einfuhr-und Vorratsstelle für Getreide und Futtermittel (1974) Preliminary references

Pre-Eco Swiss Arbitral tribunals cannot make preliminary references to ECJ for interpretation of EU law Nordsee (1982), confirmed in Denuit (2005) Arbitral tribunals are not “tribunals” within the meaning of Art. 267 TFEU

Pre-Eco Swiss Where EU Member State law limited opportunity for beneficiary to raise new plea But court need not go beyond the ambit of the dispute defined by the parties themselves and relying on facts and circumstances other than those on which the party with an interest in application of those provisions bases his claim Peterbroek and Van Schijndel (both 1995) Violation of principle of effectiveness for court not to raise EU law of its own motion in certain circumstances

Facts During the entirety of the arbitration proceeding, neither party took the EC competition law point, and the tribunal did not raise it of its own motion. There was a partial final award finding Benetton liable for the early termination of the licence agreement. Over two years later there was a final arbitral award ordering Benetton to pay millions of dollars in damages. Eco Swiss (1999)

Clear ramifications of Eco Swiss The ECJ recognises the importance of international arbitration, and the importance of finality in international arbitration: “[…] it is in the interests of efficient arbitration proceedings that review of arbitration awards should be limited in scope and that annulment of or refusal to recognise an award should be possible only in exceptional circumstances.” This recognition is important since the significance of Member State goals in their procedural choices is an element in the equivalency analysis

Clear ramifications of Eco Swiss Wherever an application for annulment on the basis of a violation of public policy is available in Member State law an application for annulment on the basis of a violation of EC competition law must be available EC competition law is so important to the EU legal order – it needs to be compared with the most important policies in Member State “domestic” law, i.e. “public policy” Operation of the principle of equivalence binding upon EU Member States

Clear ramifications of Eco Swiss Failure to raise the plea before the arbitral tribunal can be no bar to raising it before the EU Member State court Arbitration tribunals cannot make preliminary references under Art. 267 TFEU There has to be a possibility for an EU Member State court to make a preliminary reference So parties must be able to raise EC competition law points in challenges to arbitration awards on the basis of their incompatibility with EU law

Clear ramifications of Eco Swiss Three month limit for challenging arbitral awards is no violation of EU law A period of three months within which an arbitral award must be challenged or it becomes res judicata is a valid limitation on the application of EU competition law Not versus the principle of effectiveness Regarding other Member States’ laws, not too short This rule serves real purpose – legal certainty

Inferential ramifications of Eco Swiss Member State law restrictions on arbitrators’ raising EU competition law of their own motion are contrary to EU law The Hoge Raad was of the opinion that an arbitrator’s raising EC competition law of its own motion would be a violation of the arbitrator’s terms of reference and a ground to set aside the arbitration award But this is contrary to the ECJ’s conclusion that there must be public policy review of awards for their conformity with EC competition law at the annulment stage

Inferential ramifications of Eco Swiss Arbitrability of EU competition law Concern to protect efficiency of international arbitration Willingness to limit Member States’ courts to public policy review of treatment of EC competition law by arbitral tribunals

Inferential ramifications of Eco Swiss As a general proposition, the EU will accept the level of a Member State’s public policy review of arbitration awards But this is not certain since really loose review may imperil the effectiveness of EC competition law Eco Swiss says nothing directly about the requirements of effectiveness on this point AG in subsequent case of Van der Weerd (2007) says that the comment on preliminary references is based on principle of effectiveness. But the court says in Van der Weerd that it is not

Van der Weerd (2007) EU effectiveness requirements relevant to arbitration must be opportunity to raise plea before EU Member State courts the importance of a particular EU legal norm is not relevant to the determination of whether or not the principle of effectiveness requires a Member State court to raise EU law of its own motion

Mostaza Claro (2006) EU Directive on Unfair Contract Terms (the “Directive”) Spanish woman protected by the Directive entered into a contract with a telecoms supplier with an arbitration clause in it She participated in the arbitration, and did not raise the unfair contract terms point She then sought the annulment of the arbitration award on the basis that the arbitration clause was an unfair contract term and therefore not binding on her The ECJ’s judgment simply reports that the annulment court considered the arbitration clause an unfair contract term without providing any indication of the basis for this

Mostaza Claro Where the arbitration clause is an unfair contract term, an EU Member State court must annul the award even of its own motion Limited to the particular circumstances of consumer protection where the court must supply the consumer’s failure to invoke this right the EU had in the Directive actually legislated this requirement of judicial intervention, bringing the case outside of the usual treatment of EU Member State procedural autonomy

Asturcom (2009) A case on the principle of equivalence The consumer does not even participate in the arbitration concerning her telecommunications contract, and does not even participate in the court proceedings to enforce the award The seat of the arbitration, Bilbao, was not indicated in the contract, and was so far away from the residence of the consumer that it would have cost her more to attend than the value in dispute. Moreover, the body administrating the arbitration is the body that creates the model contract used by the telecommunications company claimant.

Asturcom Member State courts must raise EU law of their own motion in certain circumstances “[W]here [the court] has available to it the legal and factual elements necessary for the task” and insofar as “under national rules procedure, it can carry out such an assessment in similar actions of a domestic nature.” The two-month period for challenging arbitration awards was not a violation of EU law (not contrary to the principle of effectiveness)

Conclusions 1.EU Member State courts requested to enforce arbitration awards must consider compatibility with requirements of important EU law, even if not raised in the arbitration, and even of their own motion 2.In annulment actions, EU Member State courts must consider plea of incompatibility with EU law even if not raised in arbitration but not necessarily of own motion

Conclusions (continued) 3.Where the unfair contract terms directive applies there is always the danger that the arbitration award is invalid as a matter of EU law binding on the Member States 4.EU law may contain requirements as to the nature of a Member State court’s public policy review of an award’s compatibility with EU law

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