In May 2014, it will be ten years since Regulation No 1/2003 entered into force. When the legislator of the European Union adopted this Regulation on 16 December 2002, its main objective was to decentralise the enforcement of the two main provisions of EU antitrust law, Articles 81 and 82 of the Treaty establishing the European Community (now Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU)). Where do the arbitrators fit in this picture?
INTRODUCTION
It will be recalled that for about forty years, Regulation No 17/62 had granted the European Commission the exclusive power to exempt anti-competitive agreements within the meaning of Article 101(1) TFEU if the parties to these agreements demonstrated – in a formal notification – that their agreements met the conditions set forth in Article 101(3).
As the EU legislator put it, it was time to ‘rethink’ this ‘centralised scheme’ because it:
‘… hamper[ed] application of the Community competition rules by the courts and competition authorities of the member states and the system of notification […] prevent[ed] the Commission from concentrating its resources on curbing the most serious infringements’.1
It led the EU legislator to empower the national competition authorities (NCAs) and national courts to apply Article 101 in full, ie including Article 101(3).2 The legislator also confirmed their power to apply Article 102 of the TFEU, which prohibits abuses of dominance, although the European Court of Justice (ECJ) had already ruled that the NCAs and national courts had this power.3
A consequence inextricably linked to the decentralisation of Article 101 (and 102) was that companies no longer had the possibility to request the Commission to vet and clear their agreements. Self-assessment was the new motto: companies had to figure out for themselves whether or not these agreements raised antitrust concerns under Article 101 or 102. All the EU legislator was prepared to do was to give companies the possibility to ‘seek informal guidance’ from the Commission, if their agreements gave rise to ‘genuine uncertainty’ because they presented: ‘novel or unresolved questions for the application of these rules’.4
In addition, the EU legislator set up a framework enabling NCAs and national courts to co-operate with the Commission in order to safeguard the uniform application of Articles 101 and 102 throughout the EU.5
The European Competition Network (ECN), ie the framework for co-operation between NCAs and the Commission, has proven to be a powerful mechanism for cohesion in the application of Articles 101 and 102.
As for the national courts, it was inconceivable to set up a similar mechanism. However, national courts were told they could seek written guidance from the Commission on the application of the EU antitrust rules and that the Commission could even offer such guidance on its own initiative ‘where the coherent application [of these rules] so requires’. The Commission could also provide oral guidance but only ‘with the permission of the court in question’.6 This co-operation mechanism applied, regardless of whether the national courts apply Article 101 or 102 ‘in lawsuits between private parties’, act as ‘public enforcers’ or act ‘as review courts’. Obviously, pursuant to Article 267 of the TFEU, national courts could – as before – request the ECJ to provide clarifications regarding Article 101 and 102 in a preliminary ruling.
SO WHERE DO THE ARBITRATORS FIT IN THIS PICTURE?
Contracting parties can agree to subject their antitrust disputes to arbitration. To that effect, they will insert an arbitration clause in their contract. Arbitration constitutes an alternative form of dispute resolution that seems to fit very well with the key idea behind Regulation No 1, namely to promote the decentralised application of Article 101 or 102 of the TFEU in the European Union and incentivise companies to assess themselves whether or not their conduct might raise antitrust concern under these provisions.
Yet, Regulation No 1 remains completely silent about arbitration. None of the co-operation mechanisms set forth therein and aimed at preserving the uniform application of Articles 101 and 102 of the TFEU therefore apply to arbitrators. It follows that, notwithstanding the fact that the arbitrability of disputes raising issues under the EU antitrust provisions fits very well with the EU legislator’s decentralisation agenda, there are no procedural safeguards guaranteeing that arbitrators will apply these provisions in line with the settled case law in the EU.
In the present contribution, we will briefly address two questions. First, is it a surprise that Regulation No 1 contains no reference to arbitration? Second, is Regulation No 1’s silence about arbitration problematic?
IS IT A SURPRISE THAT REGULATION NO 1 REMAINS SILENT ABOUT ARBITRATION?
No, this should not surprise us. In contrast with national courts, which are public entities that act as member state organs and which are therefore liable to trigger their country’s liability in case of malfunctioning, arbitrators are private dispute settlement bodies that will have been appointed by the contracting parties themselves. Parties empower arbitrators to settle their disputes in an – arguably – swifter way than NCAs or national courts could do and arbitral awards have the authority of res judicata just as much as court judgments have. Swiftness means that the finality of arbitral awards is, in principle, a key objective for parties that choose arbitration to sort out any disputes.
In Nordsee Reederei Mond [1982], the ECJ recognised the fundamental difference between arbitrators and courts. Notwithstanding the fact that the preliminary ruling procedure set forth in Article 267 aims at preserving the uniformity of EU law, the ECJ turned down a request from a German arbitrator to render a preliminary ruling regarding the allocation of EU subsidies for the construction of certain ships on the ground that:
‘… the link between the arbitration procedure in this instance and the organisation of legal remedies through the courts in the member state in question is not sufficiently close for the arbitrator to be considered as a court or tribunal of a member state’.7
If arbitrators cannot seek clarification on the interpretation or validity of EU law, it should not come as a surprise that the co-operation mechanism set forth in Regulation No 1 to assist national courts when they are called upon to apply EU law is – at least on its face – unavailable to private arbitrators.
This said, it could be argued that the effective enforcement of Articles 101 and 102 is thus put at risk. It would indeed seem that arbitrators can interpret EU law as they see fit, even if they get it completely wrong. How can this be squared with Eco Swiss v Benetton International [1999], the judgment in which the ECJ qualified Article 101 as a provision with a ‘public policy’ nature?
According to the ECJ in Eco Swiss, Article 101 is a ‘fundamental provision which is essential for the accomplishment of the tasks entrusted to the Community and, in particular, for the functioning of the internal market’ and it concluded that:
‘… where its domestic rules of procedure require a national court to grant an application for annulment of an arbitration award where such an application is founded on failure to observe national rules of public policy, it must also grant such an application where it is founded on failure to comply with the prohibition laid down in Article 101(1) of the Treaty’.8
However, one should read Eco Swiss in its proper context.
The ECJ fully accepted that it was ultimately the national law governing the arbitration procedure in question that determined under which conditions national judges could review arbitral awards in light of Article 101 or 102. In the case at hand, the ECJ mentioned two relevant provisions of Dutch civil law. First, as already indicated, judicial review of arbitral awards was mandatory when there were public policy grounds to conduct such a review. The ECJ confirmed that Article 101 had a public policy nature. Second, the contracting party that sought the annulment of an arbitral award on antitrust grounds, had to bring its claim within the limitation period set forth in domestic procedural law.9 The ECJ accepted this. In this regard, it referred to:
‘… the basic principles of the national judicial system, such as the principle of legal certainty and acceptance of res judicata, which is an expression of that principle’.
In other words, the ECJ accepted that the finality of an arbitral award ultimately prevailed over the correct application (and hence the effectiveness) of EU antitrust law.10 Put differently, it accepted that no judicial review could take place outside the limitation period, regardless of whether or not the arbitrators got it right on substance.
In Van Schijndel and Van Veen v SPF [1995], a case where the national court had also been asked to apply EU antitrust law, but not in the context of judicial review of an arbitration award, the ECJ adopted an equally deferential approach. It confirmed that Dutch procedural law ultimately determined under which conditions the national judge had the obligation to apply EU antitrust law on its own motion. The ECJ observed that the judge had no such obligation if the application of EU antitrust law required it to:
‘… abandon the passive role assigned to it by going beyond the ambit of the dispute defined by the parties themselves and/or by relying on facts and circumstances other than those on which the party to the proceedings with an interest in application of the provisions of the Treaty bases his claim’.11
This observation is interesting for two reasons. First, it applies by analogy to arbitrators whose mandate to resolve contract disputes may be too limited to actively raise EU antitrust law issues. Second, and more generally, it shows that the uniform application of EU law (and of antitrust law in particular), while being an important objective, is an objective the achievement of which is ultimately conditioned by the procedural laws of the member states – the only nuance being that these laws should not render the application of Community law completely impossible or excessively difficult.12
In light of Eco Swiss and Van Schijndel, Regulation No 1’s silence about arbitration is unsurprising, even though it means that arbitration is not subject to a number of co-operation mechanisms that the EU legislator has built into this Regulation to preserve the uniformity of EU antitrust law.
We could go one step further.
IS IT PROBLEMATIC THAT REGULATION NO 1 REMAINS SILENT ABOUT ARBITRATION?
No, this is not problematic. First, if companies entrust an arbitrator with the task of resolving their contractual disputes, including those regarding EU antitrust law, they in fact outsource their duty to conduct a self-assessment of the validity of their contract (or any of its clauses) under Article 101 or 102. Arbitration is an alternative dispute resolution mechanism whereby the companies agree to use arbitrators as their prolonged arm to conduct this assessment. This mechanism is therefore – as such – completely in sync with the decentralisation objective, a key driver behind Regulation No 1.
When conducting self assessment, companies – or their counsel – can misjudge the situation and enter into arrangements that later raise antitrust concerns against their expectations. Arbitrators may similarly misinterpret EU antitrust law. However, the fact that these privately appointed judges get it wrong does not jeopardise the effectiveness of this body of law any more than when the companies themselves or their counsel get it wrong.
Second, there is no reason whatsoever why one should a priori call into question the expertise of arbitrators that are called upon to resolve these disputes. In fact, in merger cases where parties offer behavioural remedies in order to obtain clearance, the Commission will usually insist on the provision of a fast-track dispute resolution procedure involving the appointment of arbitrators under the ICC rules. The same is true for conduct cases where parties offer commitments under Article 9 of Regulation No 1/2003 decisions in order to bring their future market conduct in line with Article 101 or 102 of the TFEU. It is true that in these cases, the arbitrators naturally operate under the surveillance of the Commission, not as the agents of the companies involved. However, the point made here is that their expertise should, in principle, not be doubted. These same arbitrators, when called upon ex ante by companies to resolve any potential contract dispute later on, may certainly commit errors. However, that is no reason to doubt their expertise.
In any event, under EU antitrust law, few errors are truly unforgivable. Leaving aside clear-cut cartels, we know of very few cases where the legal situation is crystal clear. It is true that the Commission has qualified several types of conduct as infringing Article 101 ‘by object’, ie so clear that there is no need to demonstrate actual harm to the competitive process and/or consumers. However, according to settled case law, even a ‘by object’ infringement can meet the conditions set forth in Article 101(3) in a given situation. It follows that, if an arbitrator concludes that, for instance, a particular form of resale price maintenance is not unlawful, one should not jump to the conclusion that the arbitrator committed an unforgivable error and that their award should be subject to full judicial review.
Third, from a practical point of view, if one of the contracting parties believes that the arbitrator got it wrong to its disadvantage, that party will normally be able to ask a court to review the award. That court will have the possibility to seek guidance, if necessary, from the Commission under the co-operation mechanism set forth in Regulation No 1 or from the ECJ via the preliminary ruling procedure (Article 267 of the TFEU). It may be the case that the law governing judicial review of arbitral awards only grants courts the power to conduct a marginal review, ie limited to detecting manifest errors of law or misrepresentations of the facts.13
Fourth, if the arbitration clause is formulated in a broad enough manner to cover EU antitrust law, Regulation No 1’s silence about the role of arbitrators in the process of decentralised enforcement of EU antitrust law would not seem to prevent these arbitrators – and the EC – to take inspiration from the co-operation mechanism set forth in Regulation No 1 for national courts. Arbitrators should be able to seek informal guidance from the Commission, if they face an antitrust issue that requires clarification under Article 101 or 102 of the TFEU.
It is true that the Commission has never made use of the possibility to provide informal guidance to companies struggling with ‘novel or unresolved questions’ concerning the interpretation of Article 101 or 102 – apparently for fear of re-introducing the old notification regime via the back door. However, when a dispute arises between companies over an antitrust issue and these companies have opted for arbitration as an alternative route for settling that dispute, that fear would seem to be unfounded.
In any event, in the past decennium, the Commission has increasingly made use of the arbitration mechanism in order to enhance the effectiveness of its enforcement policy. Admittedly, the role of arbitrators when monitoring the implementation of behavioural merger remedies (or Article 9 commitments) is different from the classic role of arbitrators, because the Commission cannot formally delegate its monitoring role to them and could ultimately revoke its clearance decision if the companies fail to ‘deliver’.14 Nevertheless, it shows that the Commission increasingly empowers arbitrators to contribute to the effective enforcement of its antitrust policy. Moreover, the Commission’s current proposal for a directive on damage actions for infringements of competition law contains a chapter concerning ‘consensual dispute resolution’.15 In its impact assessment, the Commission specifies that this route should ‘remove existing disincentives to engage in out-of-court settlements to compensate for harm caused’ by these infringements16. Arbitration is not explicitly mentioned, but it seems clear to us that out-of-court settlements fall within the remit of arbitrators. If the Commission sees a role for arbitrators in this last phase of an antitrust dispute, we cannot see why the Commission would be unwilling to provide arbitrators with informal guidance on the interpretation of EU antitrust law upfront, ie when the dispute has just arisen.
By Luc Gyselen, partner, Arnold & Porter LLP, Brussels.
E-mail: Luc.Gyselen@aporter.com.
This article is based on speaking notes used by the author during a panel discussion on ‘abuse and use of antitrust issues in arbitration’ at the IBA’s annual conference in Boston, USA on 7 October 2013.
NOTES
- Introductory recitals 2 and 3 of Regulation No 1/2003.
- Articles 5 and 6 of Regulation No 1.
- Id.
- Recital 38 of Regulation No 1.
- Articles 11 and 15 of Regulation No 1.
- Article 15(1) and 15(3) of Regulation No 1.
- ECJ judgment of 23 March 1982 in Nordsee v Reederei Mond [1982], paragraph 13.
- ECJ judgment of 1 June 1999 in Eco Swiss v Benetton International [1999], paragraphs 36-37.
- Id, paragraph 45. Obviously, if the limitation period were to be excessively short, that would be unacceptable because it would ‘render excessively difficult or virtually impossible the exercise of rights conferred by Community law’.
- Id, cf paragraphs 46-47. The facts of the case clarify why the ECJ makes this point. The arbitrator had ordered Benetton to pay damages to Eco Swiss for its early termination of a licensing contract. Benetton did not argued in the course of the arbitration proceedings that the licensing contract was null and void under Article 101 of the TFEU. It only adduced that argument when it sought the annulment of the arbitral award before the national Dutch court.
- ECJ judgment of 14 December 1995 in Van Schijndel and Van Veen v SPF [1995], paragraphs 16 and 20-22.
- Cf paragraph 45 in Eco Swiss, cit in note 9 and paragraph 19 in Van Schijndel.
- Cf France.
- For mergers, see General Court judgment of 30 September 2003 in ARD v Commission [2003], paragraph 352.
- Document COM (2013) 404 final of 11 June 2013, Article 17 and 18.
- Document COM (2013) 204 final of 11 June 2013, last bullet of paragraph 16 at page 7.