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Brussels I Review – Interface with Arbitration

The Brussels I Regulation’s interface with arbitration vies with choice of court agreements as the topic within the Commission’s review having the greatest potential impact on the negotiation and efficient implementation of commercial transactions.

According to the Commission:

Arbitration is a matter of great importance to international commerce. Arbitration agreements should be given the fullest possible effect and the recognition and enforcement of arbitral awards should be encouraged. The 1958 New York Convention is generally perceived to operate satisfactorily and is appreciated among practitioners. It would therefore seem appropriate to leave the operation of the Convention untouched or at least as a basic starting point for further action. This should not prevent, however, addressing certain specific points relating to arbitration in the Regulation, not for the sake of regulating arbitration, but in the first place to ensure the smooth circulation of judgments in Europe and prevent parallel proceedings.

In particular, a (partial) deletion of the exclusion of arbitration from the scope of the Regulation might improve the interface of the latter with court proceedings. As a result of such a deletion, court proceedings in support of arbitration might come within the scope of the Regulation. A special rule allocating jurisdiction in such proceedings would enhance legal certainty. For instance, it has been proposed to grant exclusive jurisdiction for such proceedings to the courts of the Member State of the place of arbitration, possibly subject to an agreement between the parties .

Also, the deletion of the arbitration exception might ensure that all the Regulation’s jurisdiction rules apply for the issuance of provisional measures in support of arbitration (not only Article 31). Provisional measures ordered by the courts are important to ensure the effectiveness of arbitration, particularly until the arbitral tribunal is set up.

Next, a deletion of the exception might allow the recognition of judgments deciding on the validity of an arbitration agreement and clarify the recognition and enforcement of judgments merging an arbitration award. It might also ensure the recognition of a judgment setting aside an arbitral award . This may prevent parallel proceedings between courts and arbitral tribunals where the agreement is held invalid in one Member State and valid in another.

More generally, the coordination between proceedings concerning the validity of an arbitration agreement before a court and an arbitral tribunal might be addressed. One could, for instance, give priority to the courts of the Member State where the arbitration takes place to decide on the existence, validity, and scope of an arbitration agreement. This might again be combined with a strengthened cooperation between the courts seized, including time limits for the party which contests the validity of the agreement. A uniform conflict rule concerning the validity of arbitration agreements, connecting, for instance, to the law of the State of the place of arbitration, might reduce the risk that the agreement is considered valid in one Member State and invalid in another. This may enhance, at Community level, the effectiveness of arbitration agreements compared to Article II(3) New York Convention.

Further, as far as recognition and enforcement is concerned, arbitral awards which are enforceable under the New York Convention might benefit from a rule which would allow the refusal of enforcement of a judgment which is irreconcilable with that arbitral award. An alternative or additional way forward might be to grant the Member State where an arbitral award was given exclusive competence to certify the enforceability of the award as well as its procedural fairness, after which the award would freely circulate in the Community. Still another solution suggested consists of taking advantage of Article VII New York Convention to further facilitate at EU level the recognition of arbitral awards (a question which might also be addressed in a separate Community instrument).

The Commission seeks responses to the following questions:

Question 7:

Which action do you consider appropriate at Community level:

To strengthen the effectiveness of arbitration agreements;

To ensure a good coordination between judicial and arbitration proceedings;

To enhance the effectiveness of arbitration awards?

The Commission observes, correctly, that “arbitration is a matter of great importance to international commerce” and that “[t]he 1958 New York Convention is generally perceived to operate satisfactorily and is appreciated among practitioners”.  Any solution to the problems described in the Report and the Green Paper must, therefore, be without prejudice to the functioning of the New York Convention in the Member States.  Further, Art. 71 of the Brussels I Regulation (which, inexplicably, does not presently concern itself with obligations to decline jurisdiction) should be amended to make clear that the Regulation shall not prevent a court from declining jurisdiction, or from recognising or enforcing a judgment or award, where it is required to do so by the New York Convention (or, equally, the Hague Choice of Court Convention).

That said, it is also important that the treatment of arbitration in the Regulation should not give more favourable treatment, or greater protection, to arbitration agreements or to arbitral processes and awards than that given to choice of court agreements or to the judicial determination of disputes in, and the recognition and enforcement of judgments from, Member State courts.  Within the EC’s “area of justice”, private methods of dispute resolution should not be favoured over judicial determination. This proposition is supported, for example, not only by the need for equal and fair access to justice for all at reasonable cost, but also by the important position that national courts hold in the Member States’ constitutional orders and the need to protect the vital role those courts play in developing and declaring civil and commercial law. Arbitration tribunals, given their self-regulatory and confidential character, are not well suited to performing the latter role. One (perhaps the only) positive consequence of the ECJ’s decision in the West Tankers case is that it removed the anomaly whereby an anti-suit injunction could be sought to restrain proceedings in another Member State brought contrary to an agreement for arbitration with its seat in a Member State, but not an exclusive jurisdiction agreement designating the courts of a Member State.

Against this background, a strong case can be made for removal of the arbitration exception in Art. 1(2)(d) of the Regulation as the first step in the process of reform.  As the Study of Professors Hess, Schlosser and Pfeiffer (Study JLS/C4/2005/03, paras. 106-136) affirms, however, that change alone will not be sufficient to ensure the effective co-ordination of judicial and arbitration proceedings, including regulation of jurisdiction with respect to ancillary court proceedings and the inter-relationship between judgments and arbitral awards, and will indeed create fresh problems.

Accordingly, in addition to the adjustment of Art. 71 to confirm the overriding effect of the New York Convention (above), further adjustments to the Regulation will be necessary.  The proposals in the Study, emphasising the key role of the courts of “place of the arbitration” (which must be understood as referring to the seat of the arbitration and not the venue for any hearing) seem as good a starting point for discussion as any.  Further work will, however, be required on the detail of the proposals, including the proposed definition of “place of the arbitration”, with input from practitioners specialising in arbitration as well as international arbitration bodies such as the ICC and LCIA, and (if possible) UNCITRAL as the custodian of the New York Convention.  In particular, it will be necessary to ensure that the existing allocation of competence between national courts and arbitral tribunals (e.g. as to determination of questions of the tribunal’s jurisdiction) is not upset.  Thus, recognition that the courts of the “place of arbitration” have jurisdiction under the Regulation, whether exclusive or not, to determine certain matters should be expressed to be without prejudice to rules in that place concerning the relationship between courts and arbitral tribunals.  Further, in defining the “place of arbitration” in cases where the parties have not made an express choice of seat from the outset, care must be taken not to open up fresh opportunities for tactical litigation to undermine arbitration proceedings by designating as competent the courts of a place that is unlikely to have any close connection to the arbitration.

For the reasons given above, if, as a consequence of these discussions, additional protection is given to arbitration agreements over and above that recognised in the New York Convention (e.g. by giving exclusive jurisdiction to the courts of the “place of the arbitration” to determine the validity of an arbitration agreement ), equivalent protection should also be given to choice of court agreements.

Accordingly, the answer to be given to Question 7 could be that the arbitration exception in Art. 1(2)(d) ought to be deleted and appropriate adjustments made to the Regulation to ensure the effective co-ordination of judicial and arbitration proceedings.  Arbitration agreements, proceedings and awards should not, however, be given more favourable treatment than choice of court agreements, judicial proceedings and judgments.

Arbitration is a matter of great importance to international commerce. Arbitration agreements should be given the fullest possible effect and the recognition and enforcement of arbitral awards should be encouraged. The 1958 New York Convention is generally perceived to operate satisfactorily and is appreciated among practitioners. It would therefore seem appropriate to leave the operation of the Convention untouched or at least as a basic starting point for further action. This should not prevent, however, addressing certain specific points relating to arbitration in the Regulation, not for the sake of regulating arbitration, but in the first place to ensure the smooth circulation of judgments in Europe and prevent parallel proceedings.
In particular, a (partial) deletion of the exclusion of arbitration from the scope of the Regulation might improve the interface of the latter with court proceedings. As a result of such a deletion, court proceedings in support of arbitration might come within the scope of the Regulation. A special rule allocating jurisdiction in such proceedings would enhance legal certainty. For instance, it has been proposed to grant exclusive jurisdiction for such proceedings to the courts of the Member State of the place of arbitration, possibly subject to an agreement between the parties .
Also, the deletion of the arbitration exception might ensure that all the Regulation’s jurisdiction rules apply for the issuance of provisional measures in support of arbitration (not only Article 31). Provisional measures ordered by the courts are important to ensure the effectiveness of arbitration, particularly until the arbitral tribunal is set up.
Next, a deletion of the exception might allow the recognition of judgments deciding on the validity of an arbitration agreement and clarify the recognition and enforcement of judgments merging an arbitration award. It might also ensure the recognition of a judgment setting aside an arbitral award . This may prevent parallel proceedings between courts and arbitral tribunals where the agreement is held invalid in one Member State and valid in another.
More generally, the coordination between proceedings concerning the validity of an arbitration agreement before a court and an arbitral tribunal might be addressed. One could, for instance, give priority to the courts of the Member State where the arbitration takes place to decide on the existence, validity, and scope of an arbitration agreement. This might again be combined with a strengthened cooperation between the courts seized, including time limits for the party which contests the validity of the agreement. A uniform conflict rule concerning the validity of arbitration agreements, connecting, for instance, to the law of the State of the place of arbitration, might reduce the risk that the agreement is considered valid in one Member State and invalid in another. This may enhance, at Community level, the effectiveness of arbitration agreements compared to Article II(3) New York Convention.
Further, as far as recognition and enforcement is concerned, arbitral awards which are enforceable under the New York Convention might benefit from a rule which would allow the refusal of enforcement of a judgment which is irreconcilable with that arbitral award. An alternative or additional way forward might be to grant the Member State where an arbitral award was given exclusive competence to certify the enforceability of the award as well as its procedural fairness, after which the award would freely circulate in the Community. Still another solution suggested consists of taking advantage of Article VII New York Convention to further facilitate at EU level the recognition of arbitral awards (a question which might also be addressed in a separate Community instrument).
Question 7:
Which action do you consider appropriate at Community level:
To strengthen the effectiveness of arbitration agreements;
To ensure a good coordination between judicial and arbitration proceedings;
To enhance the effectiveness of arbitration awards?

Comments on this entry are closed.

  • Sophie Nappert June 17, 2009, 10:34 am

    Andrew

    It is worth noting that the proposal to ground arbitration proceedings at their seat runs counter to the current French Court of Appeal jurisprudence (most recently in the Putrabali case)which sees international arbitration as a self-standing, transnational legal order. This is also the position advocated by Professor Emmanuel Gaillard in his treatise, ‘Les Aspects Philosophiques du Droit de l’Arbitrage International’.

    One consequence of this stance is the freedom of any State to enforce an award that has been set aside by the Courts of the seat of arbitration.

    No doubt this will be pointed out in answer to the Commission’s call for comments.

    Regards

    Sophie Nappert

  • Andrew Dickinson June 17, 2009, 10:53 am

    In response to Sophie’s comment (reflecting a position that I expect will be shared by others in responding to the Green Paper), my own firmly held view is that the claim of arbitration to operate as a self-standing, transnational (or supranational or floating) legal order, independent of national legal systems, should be rejected. That is not to say that particular legal systems (and France may be one) cannot decide that they will give absolute deference to arbitration proceedings and that their courts will not interfere with arbitrations even if they have their seat within the jurisdiction. Other legal systems, such as the UK, clearly do not take that view, and they are perfectly entitled to do so. States are asked to use their enforcement machinery, and other powers, in aid of arbitration proceedings and arbitral awards – arbitral tribunals do not themselves have power, for example, to levy execution or seize assets or imprison parties for contempt. Accordingly, arbitration processes cannot be said to small islands in the sea of dispute resolution that enjoy total independence from national legal systems – at best they are semi-autonomous. As a quid pro quo, States should (and do) have a measure of control over arbitration proceedings and awards. The important question, and the one that is at the heart of the Brussels I Review, is how they delimit and allocate that jurisdiction between themselves.

    As to Putrabali (see http://conflictoflaws.net/2007/the-french-like-it-delocalized-lex-non-facit-arbitrum/), in which the French cour de cassation recognised an arbitral award although it had been set aside in the country of its seat, that remains (for the time being) a position that the French legal system is free to take, for as long as the arbitration exception to the Brussels I Regulation remains. Other Member State courts take a different view, and (as the English legal system as found on more than one occasion) it may be that greater harmonisation of rules of private international law in Europe will require the French legal system to give up existing principles, even ones that are cherished.

  • John Gaffney June 17, 2009, 11:49 am

    Andrew

    One question that occurs to Sophie and me is the entitlement of the European Communities to legislate on arbitration matters – this is relevant, for example, to Sophie’s question in determining whether the Commission’s proposal, if implemented, would trump, e.g., French jurisprudence, on the basis of the doctrine of supremacy.

    I would very much welcome your comments on this question.

  • Andrew Dickinson June 17, 2009, 12:05 pm

    Under Art. 65 of the EC Treaty, the Community may adopt “insofar as necessary for the proper functioning of the internal market” measures “improving and simplifying … the recognition and enforcement of decisions in civil and commercial cases, including decisions in extra-judicial cases”, “promoting the compatibility of the rules applicable in the Member States concerning the conflict of laws and of jurisdiction” and “eliminating obstacles to the good functioning of civil proceedings”. In my initial view, although it does not refer specifically to arbitration (cf. Art. 293), that would likely be held to provide a sufficient legal basis for Community rules regulating arbitration proceedings and the recognition and enforcement of arbitral awards, if such rules were to be contemplated. That question, however, need not be addressed in the present context, as there seems little (if any) doubt that amendments to the Brussels I Regulation to bring within its scope Member State court proceedings and judgments relating to arbitration are within the express contemplation of Art. 65. The proposed rules would not (at least as I understand them) regulate, at least directly, the content or effect of arbitration agreements, the conduct of arbitration proceedings or the recognition and enforcement of arbitral awards per se.

  • Gilles Cuniberti June 17, 2009, 12:19 pm

    So Andrew, if I understand you correctly, you would want the French to be the next victim of European stalinist monoculture (Briggs on Owusu) and to replace the English for that purpose.

    Are you also saying that you are ready to give up any procedural peculiarity that may remain in the Common law for the sole reason that the majority of other Europeans do not like it?

  • Andrew Dickinson June 17, 2009, 12:51 pm

    Gilles,

    As to your first point, however one may describe the harmonisation of European private international law rules, it would be nice to see the pain being shared around.

    As to your second point, I was careful not to suggest that the majority view should necessarily prevail, although the common law has often been at the receiving end of this kind of reasoning (West Tankers being a prime example). Any harmonisation measure must, of course, be justified as being necessary for the functioning of the internal market and any solution must accord with the principles and objectives of EC law. My own view favours protecting party autonomy as a means to these ends, reducing the potential for interference by Member State courts with the parties’ freedom of choice in matters of dispute resolution, but not in such a way as to give preferential treatment to arbitration over judicial dispute resolution or establish the independence of arbitration from national legal systems. Others will, no doubt, disagree.

    Andrew

  • Alexandre Vagenheim June 17, 2009, 3:34 pm

    In response to Andrew, Sophie, John and Gilles’ posts, we would argue that the debate is not so much “who should give up what” as, most importantly, what are the consequences that a deletion of the arbitration exclusion in the Brussels Regulation would entail.

    As advocated by Andrew, choice of court agreements should, under Art. 23, be put on a basis that is not less favourable than that for arbitration agreements, whether within or outside the Regulation. However, arbitration clauses are governed by the particularly favourable regime of the New York Convention and there are no reasons to hinder the efficiency of arbitration agreements designating a seat in Europe. As Lord Hoffman aptly put it in the House of Lords request for a preliminary ruling “the European Community is engaged not only with regulating commerce between Member States but also in competing with the rest of the world (West Tanker”). Deleting the arbitration exclusion would, to our mind, not solve the problems of the regime of choice of court agreements, but would conversely have serious consequences on the issues raised by the “interface between arbitration and the Brussels Regulation”.

    When looking at the ECJ’s case law on the arbitration exclusion, one can readily observe that the exclusion has given rise to very few difficulties, (which no doubt need to be resolved). Are these issues however really worth the change?

    One obvious consequence of the suppression of the arbitration exclusion will be the recognition of judgments deciding on the validity of an arbitration agreement or an arbitral award. Judgments ruling on the validity of arbitration agreements would be automatically enforceable in each Member State. It is believed that automatic recognition of said judgments would be incompatible with Member States’ obligation under Article II of the New York Convention.

    The proposal of the Green Paper to give exclusive jurisdiction to the court of the seat to determine the validity of the arbitration agreement would force parties to seek declaratory relief before the court of the seat in order to paralyse a suit brought in another Member State in breach of the arbitration agreement. In other words, parties would systematically have to litigate in State courts (with possible appeals this may entail) before the arbitration they initially bargained for could start.

    Many other problems may arise, should the arbitration exclusion be deleted that go beyond the scope of the Regulation scope (e.g. determination of the seat of the arbitration absent an express choice, introduction of a choice of law rules in respect of arbitration agreements, lis pendens between an enforcement action and an action on the validity of the arbitration agreement, etc…).

    These issues are complex. The consequences of a suppression of the arbitration exclusion are far reaching and should be looked at carefully. We would therefore be in favour of maintaining the arbitration exclusion in the Brussels’ Regulation. Whether this might be the end of the exception française is, for present purposes irrelevant. We hope to have voiced the concern that Europe as a seat of choice for arbitration might potentially be damaged by the introduction of a stricter regime than the New York Convention.

    We fully adhere to the IBA position paper in reply to the Commission’s Green Paper.

    Janice Feigher/Alexandre Vagenheim

  • Andrew Dickinson June 17, 2009, 3:58 pm

    Many agree with the position taken by Janice and Alexandre. They must accept, however, that following the ECJ’s decision in West Tankers, it is no longer possible to argue that the Regulation and questions concerning the validity and effectiveness of arbitration agreements and awards pass like ships in the night. The ECJ has ruled that preliminary rulings as to the effectiveness of an arbitration agreement do fall within the scope of the Regulation, and must therefore in principle be recognised. Although a later English decision has suggested that there is no obligation to recognise in proceedings that are solely concerned with arbitration, such as an action for a declaration of validity of an arbitration agreement (or enforcement of an award), that decision is not in my view one that the ECJ would readily endorse (see National Navigation Co. v. Endesa Generacion SA [2009] EWHC 196 (Comm)). Accordingly, maintenance of the status quo is not an option for the “arbitration community”. They must either go with the flow of the Heidelberg proposal, or paddle furiously upstream to reverse West Tankers.