Report on the AIA, EFILA and CIArb Event: Updates on EU Law Related Arbitration: A Selection of New, Controversial and Hot Topics

Nikoletta Kallasidou and Michal Mojto, AIA, Brussels

The Arbitration for International Arbitration (AIA), EFILA and the CIArb jointly organised a well-attended event  at the VUB University in Brussels on the 27th of May, bringing two panels of experts to discuss recent developments on EU-related arbitration. Contentious issues such as the Brussels I Bis Regulation, the arbitrability of EU competition claims, state aid, human rights and investment arbitration under BITs/ MITs were raised and discussed. A lively discussion during the Q&A session following each panel, greatly benefiting both the panellists and the audience.

Thoughts on  Brexit – Effects on Investment Arbitration

In light of the upcoming EU referendum due to take place on the 23th of June 2016, Dr. Christophe Guilbert de Bruet, the first speaker of the day, provided a particularly useful insight on potential consequences of a Brexit in the context of investment arbitration. The presentation began with an overview of the Brexit process. Article 50 of the Lisbon Treaty shall be interpreted as requiring both parties to negotiate in good faith as well as obliging the EU to conclude a withdrawal agreement. Dr Christophe highlighted the importance of the negotiation process as a means of mitigating potential adverse effects of the Brexit.

Turning to the options of the UK has upon withdrawal, he  discussed 3 major models. The EEA model prescribes the departure of the United Kingdom of the European Union without, however, depriving it access to the EU Single Market. This outcome is what he described as the ‘least harmful option’ for both  the EU but also the UK itself. Then he discussed the option of adopting a Swiss model of membership, which allows the UK and the EU to enter into bilateral agreements on particular sectors. The last potential outcome of a Brexit is a drastic severance of the UK from the EU without any immediate negotiations for a trade-related agreement, which, he argued, could lead to severe consequences in the context of investment arbitration.

In the next part of his presentation, he  explained the grounds upon which a successful claim could be brought against the United Kingdom in the case of a Brexit. First, he referred to the concept of ‘fair and equitable treatment’ (FET) as the relevant legal standard, which is accorded to investors by most BITs and is the most relied upon standard of protection in investment disputes. The popularity of FET lies in the flexibility and wide-ranging nature,  encompassing fundamental standards, such as good faith,  due process and non-discrimination. Certain key aspects of the FET principle have however been identified in arbitral jurisprudence, which include protection of the legitimate expectations of investors as well as the requirements of transparency and stability.

Focusing on legitimate expectations, he  highlighted the controversy surrounding the concept, which as he pointed out has been inconsistently interpreted by various arbitration tribunals and has been subject to ‘vociferous criticism’. In an attempt to explain how the concept operates in practice, he employed two factual scenarios of potential Investor-State Dispute Settlements. One of them was ‘The Indian Car Manufacturer’ scenario. Under the India – United Kingdom BIT,  ‘investments of investors of each contracting party shall at shall at all times be accorded fair and equitable treatment and shall enjoy full protection and security in the territory of the other Contracting party.’ Considering that the investment on the part of the Indian manufacturer in the UK was driven by an expectation to access the internal market,  one may effectively contemplate a breach of legitimate expectations, since in a Brexit situation, such access may be severed or impaired. The chances of success of the claim are higher if the relevant investment agreement had specific assurances of access to the EU Single Market in this regard.

In the context of intra-EU BITs, the United Kingdom has some 100 BITs with other states,  12 of which are with other EU countries. While the European Commission, in its amicus curiae submissions, put forward a range of inter-related arguments to support its position that BITS are superseded by and are incompatible with EU Law, the Tribunals have generally noted that the submissions of the Commission are of persuasive force at best and have sometimes stated explicitly that they do not agree with the Commission’s position. However, if the Commission is right, there is an uncertain future ahead for all these BITs of a post-Brexit British State.

Brussels I Regulation

Up next, Dr Assimakis Komninos, Partner at White and Case, sought to address the ruling of the CJEU in CDC v Akzo Nobel et al, a landmark decision regarding questions of jurisdiction under the Brussels I Regulation in the case of cartel damage proceedings. The preliminary ruling procedure was initiated a German Regional Court, which, inter alia asked the CJEU to elaborate on the bearing of jurisdiction and arbitration clauses in the supply contracts on the German court’s jurisdiction, in light of the requirement for effective enforcement of Article 101 TFEU and Article 53 EEA Agreement.

He first summarised the view given by AG Jaaskinen in delivering his Opinion, who argued that national courts were required by EU law not to apply an arbitration clause, or a jurisdiction clause not governed by Article 23 of the Brussels I Regulation, in cases where the implementation of such clause would  have hampered the effectiveness of Article 101 TFEU. This rather restrictive approach, he explained, was not followed by the Court of Justice. In fact, the CJEU refrained from explicitly addressing arbitration. Instead, the Court of Justice invited national courts to ensure that jurisdiction clauses ‘actually bind the parties’. In other words, the CDC judgment made it clear that jurisdiction clauses cover cartel damage disputes insofar the victim has specifically consented thereto.

He  submitted that the Court’s silence with respect to EU jurisdiction clauses to arbitration clauses was rather intentional, since it could have gone further in its findings, but it chose not to, and as such, the status quo of the more favourable reading of arbitration clauses by national courts should not be affected. If anything, he added, national courts may only exercise a certain degree of caution in the presence of cartel damages claims when ruling on the scope of the arbitration clause. However, he concluded, this does not imply that national courts should routinely require the plaintiff’s explicit consent in order to refer the case to arbitration, since this would amount to serious retrogression.

The arbitrability of competition law claims

Jean-Francois Bellis, Managing Partner at Van Bael & Bellis, gave  a presentation focusing on the arbitrability of competition law issues. Bellis began with a reference to the landmark Eco Swiss case which established by implication the doctrine of arbitrability of competition law. The ordre public nature that is attached to antitrust related disputes, Bellis explained, requires national Courts, when reviewing an arbitral award, to consider EU competition law rules and annul the award where they find the award to be contrary to such principles.

However, the standard of review that is required on the part of the national courts when observing EU Competition rules, was left untouched by the Court of Justice, rendering it one of the key areas of discussion in the field of arbitrability. He referred to the two standards of judicial review, namely the minimalist view, where the Courts render any further examination of competition law issues unnecessary if they are satisfied that the arbitrators have investigated and ruled on potential competition law breaches, and the maximalist view, where the courts perform an in-depth review on how the arbitral tribunal addressed competition law issues and are satisfied that the award did not violate public policy.

National law jurisprudence, he noted, reflects an overall hesitancy to exercise anything above an extrinsic control, which dates back to the case of Thales. In the latter, the French Courts ruled that in order to set aside an arbitral award, the violation of public policy in an international arbitration case must be ‘flagrant, effective and concrete’. The Thales standard has since been reaffirmed on multiple occasions by the French courts, in both enforcement and setting-aside proceedings. However, despite the little support for the maximalist approach, Advocate General Wathelet, in his recent opinion issued in Genentech v Hoechst, emphatically rejected the minimalist approach and called for a more detailed review on the part of the MS Courts on the basis that such fundamental public policy rules cannot be placed under the scope of arbitration proceedings.

In his concluding remarks, Bellis welcomed the new approach initiated by AG Wathelet, highlighting that the existence of an infringement to EU competition law may always be scrutinized ex officio, independent of whether the arbitral tribunal dealt with the issue and irrespective of whether the parties raised such question before the Courts. It now remains to be seen to which extent the CJEU would adopt AG’s Wathelet opinion in the future.

Moving further  from the Minimalist – Maximalist Approach: Let’s talk Pragmatism

Founding Partner of EDGE Legal, Dr Damien Geradin, on the other hand, argued that the two approaches, namely the minimalist and maximalist are extreme positions and endorsed a more pragmatic approach. In practice, he asserted, the reviewing process should not be restrained in its ability to review the award in any matter of depth when it is necessary. While in the vast majority of cases the minimalist approach is sufficient for review purposes, he emphasised that on certain occasions it is necessary for an in-depth review of the arbitral award to be implemented.

In support of his view, he referred to the opinion of AG Saggio in Eco Swiss, which highlighted the need to supervise arbitration awards to ensure that they are compatible with EU Competition rules, which are of great interest in the smooth functioning of the common market.

In relation to the means of investigation that can be used by a domestic Court in its review of the award, it was explained that the starting point is looking at the reasoning of the award. In most instances the reasoning of the award will suffice to identify whether the arbitral tribunal failed to detect anti-competitive behaviour which in turn amounted to a public policy breach. However, on situations where such reasoning is flawed, courts may need to go beyond the reasoning award.

More specifically, he  asserted that where the competition issues relevant to the dispute have been treated by the arbitral tribunal, the reviewing court should rely on the elements of fact that have been submitted to the tribunal without being necessarily bound by the legal characterization of these facts by the tribunal when it has reasons to  believe that it is incorrect. Yet, the reviewing court in principle should only require from the parties to submit factual elements that were not submitted to the tribunal or to produce testimonies in exceptional circumstances when the reviewing court has strong suspicions that the award may condone serious violations of competition law, such as for instance the existence of cartel, which would create a grave prejudice to the interests protected  by competition law. Hence, he  concluded that dismissing the minimalist – maximalist approach altogether and opting for a pragmatic approach, would enable a fair balance to be stricken between the finality of the award, a principle that sits at the core of international arbitration, and the need for domestic courts to ensure that the award does not amount to a serious breach of EU competition law, which is one of the main tools to protect free, undistorted trade within the EU internal market.

The new Investment Court System

Zena Prodromou, Associate in White and Case, followed up next, aiming to shed light on the European Commission’s radical proposal for a new Investment Court System for use in TTIP and future EU trade and investment negotiations. Prodromou opened her speech with some facts and figures on the TTIP and emphasised how the TTIP agreement is intended to enhance the EU-US partnership in the context of trade and investment. Subsequently, she explained that following the inclusion of ‘foreign direct investment’ as part of the common commercial policy under the Lisbon Treaty, the European Commission now negotiates on the basis of the mandates/negotiate directives given by the European Governments with various negotiating rounds. This negotiation, however, is no easy task, since, considering its material scope and the monumental size of economic relations.

Turning to the issue of dispute settlement between investors and states, which has been the most contentious point in the negotiations, she presented the latest proposal of the European Commission which seeks to replace the investor-state dispute mechanism and address scepticism against the ICS instrument. The new system comprises of standing tribunals at two instances: a Tribunal of First Instance, with 15 judges appointed jointly by the EU and the US governments, with 5 appointees each from among EU nationals, US nationals and third party nationals, and a Permanent Appeal Tribunal with 6 members jointly appointed for a six year term.

In terms of the interplay of the new Investment Protection System with domestic law, Prodromou highlighted the strict application of international law, since the Investment Courts would apply exclusively to the provisions of TTIP and would only be allowed to consider a domestic law of each Party taken into account as a matter of fact.  Where the Tribunal would be required to ascertain the meaning of a provision of a domestic law of a Party it would have to follow the interpretation made by that Party’s domestic courts.

Prodromou concluded by observing that the Commission’s proposal sought to address a sense of public distrust towards investment protection. The proposed changes to the ISDS, however, in essence touch upon the very fundamental elements and traits of arbitral proceedings. It is less clear whether, following this, we would be still talking about investment protection granted through arbitration or rather through a new dispute resolution mechanism.

The event was concluded by Dr. Nikos Lavranos, Secretary General of the European Federation for investment Law and Arbitration (EFILA). The animating and controversial topics continued to be discussed in the reception following the event, and all participants left with some new perspectives.

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