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The limits of the CAS’s umbrella: before national courts in the EU

EU law’s relative intolerance of the contractual strategy for asserting the autonomy of the lex sportiva is not only visible in proceedings advanced at EU level. National courts of the Member States asked to intervene in arbitration are also empowered by EU law—and again, this may be for good, it may be for ill, depending on one’s standpoint.

The key ruling of the Court of Justice is Eco Swiss China Time Ltd v Benetton International NV.71 A licensing agreement between Eco Swiss and Benetton provided that all disputes or differences arising between the parties were to be settled by arbitration in conformity with the rules of the Nederlands Arbitrage Instituut (Netherlands Institute of Arbitrators) and that the arbitrators appointed were to apply the law of the Netherlands. The arbitration had concluded with a finding that Benetton should pay damages for its breach of the agreement. Benetton brought proceedings for stay of enforcement of this arbitration award ordering it to pay damages, on the ground that the award in question was contrary to public policy within the meaning of the Dutch Code of Civil Procedure. The core of its claim was that the licensing agreement was incompatible with EU competition law—then Article 81 of the Treaty Establishing the European Community (EC), now Article 101 TFEU—and that accordingly it was void pursuant to that provision’s second paragraph.

A preliminary reference was made to the Court of Justice seeking interpretative guidance on the meaning of EU law in such a context, where EU law is relied upon to break open an existing and apparently final arbitral award. The Court explicitly remarked on the general inadvisability of such interruption. It declared that ‘it is in the interest of efficient arbitration proceedings that review of arbitration awards should be limited in scope and that annulment of or refusal to recognize an award should be possible only in exceptional circumstances’.72 But it then found that exceptional circumstances did prevail.

The Court ruled that where national law requires a court to annul an arbitration award for failure to observe national rules of public policy—as Dutch law did—then it must annul the award where it fails to comply with the prohibition laid down in Article 81(1) EC, now Article 101(1) TFEU. So the Court insists that public policy which is recognized under national law must also accommodate EU competition law.

It added that ‘the provisions of Article 81 EC ... may be regarded as a matter of public policy within the meaning of the New York Convention’.73 Moreover, it declared resoundingly that:

... it is manifestly in the interest of the Community [now Union] legal order that, in order to forestall differences of interpretation, every Community [Union] provision should be given a uniform interpretation ... It follows that ... Community [Union] law requires that questions concerning the interpretation of the prohibition laid down in Article 81(1) EC [now Article 101(1) TFEU] should be open to examination by national courts when asked to determine the validity of an arbitration award and that it should be possible for those questions to be referred, if necessary, to the Court of Justice for a preliminary ruling/4 [1] [2]

This strongly suggests that the Court’s ruling is not based simply on the existing platform in Dutch law which recognized intervention in the name of public policy. Even if national law did not contain a public policy exception granting the power to intervene in arbitration awards, a national court should treat itself as empowered by EU law to intervene in order to check the award for compliance with EU competition law. In precisely this vein, in its subsequent ruling in Vincenzo Manfredi, the Court, expressly referring to Eco Swiss, stated that ‘it should be recalled that Articles 81 EC and 82 EC [now 101 and 102 TFEU] are a matter of public policy which must be automatically applied by national courts’/5 The same bold assertion of public policy is emblazoned in the very first Recital to Directive 2014/104 on actions for damages under national law for infringements of competition law.[3] [4] [5] [6] [7] And presumably a claim to violation of the free movement law would be treated in the same way as a claim to violation of competition law—that is, the award would be opened up on review. In Eco Swiss the Court described Article 81 EC, which is now Article 101 TFEU, as ‘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’77 and—admittedly not in the particular context of arbitration—it has in similar ambitious vein referred to the free movement of goods as ‘one of the fundamental rules of the CommunityV8 and as ‘one of the foundations of the Community’.79

The merit in treating an arbitration as reliably final is therefore of inadequate weight to override the virtue in correcting misapplication of EU internal market law. This would apply to treatment of arbitration in sport in general, and to a ruling of the CAS in particular. It seems to follow from Eco Swiss that a national court in an EU Member State would be required to intervene in an award which disrespected EU competition law or free movement law. This follows, according to the Court of Justice’s reasoning, both as a matter of EU law and pursuant to the ‘public policy’ exception provided for by the New York Convention. Sporting autonomy expressed through arbitration (lex sportiva) is not of itself set aside, but where its economic implications bring it into collision with internal market law it does not prevail. Arbitrating a sporting matter narrowly understood is one thing: arbitrating a commercial matter falling within the scope of EU law which happens to arise in a sporting context is quite different. Eco Swiss stands as a statement of intolerance of misapplication of EU competition law by an arbitrator in a commercial context where the achievement of the EU’s internal market is jeopardized.

So in principle the arbitration is not immune from review pursuant to EU law before national courts. Eco Swiss shows the high significance of the Treaty competition rules in this respect, and free movement law exists on the same elevated level. But the Court has also chosen to treat consumer protection as a particularly important value which under EU law constitutes a matter of public policy.[8] [9] [10] [11] [12] [13] [14] In Elisa Maria Mostaza Claro v Centro Movil Milenium SL a consumer had failed to argue that an arbitration clause was unfair within the meaning of Directive 93/ 13 on unfair terms in consumer contracts during the course of the arbitration.81 That Directive, which targets terms that have not been individually negotiated, includes in its Annex of terms that may be regarded as unfair ‘excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy, particularly by requiring the consumer to take disputes exclusively to arbitration’. This already asserts incursion into a contractual commitment to the exclusivity of arbitration: the Court has similarly tackled terms which confer exclusive jurisdiction in respect of disputes arising under the contract on a court that is convenient to the trader but not the consumer.82 Mostaza Claro goes further. The consumer had raised the matter only in subsequent proceedings contesting the (adverse) arbitral finding. As a matter of Spanish law this was too late. The Spanish court asked the Court of Justice whether the application of Directive 93/13 required that the closure under Spanish law be levered open. The Court agreed that ‘it is in the interest of efficient arbitration proceedings that review of arbitration awards should be limited in scope and that annulment of or refusal to recognize an award should be possible only in exceptional circumstances’^3 This corresponds to the judicial treatment of the New York Arbitration Convention, considered earlier. But the aim of Directive 93/13 is to strengthen consumer protection, and the Court treated it as a measure ‘essential to the accomplishment of the tasks entrusted’ to the Union and ‘to raising the standard of living and the quality of life in its territory’. On this point the Court made an explicit analogy with Eco Swiss8 This meant that a national court seised of an action for annulment of an arbitration award must determine whether the arbitration agreement is void and annul that award where that agreement contains an unfair term, even though the consumer has not pleaded that invalidity in the course of the arbitration proceedings but rather only in the subsequent action for annulment. The Court was especially influenced by the Directive’s concern to protect the consumer as the weaker party.85 This was enough to lead it to require the adaptation of Spanish law, for otherwise the ‘special protection established by the Directive would be definitively undermined’^6 But the consequence of this was definitively to undermine the finality of arbitration.

Intrusion is, however, context-specific. EU law does not always mandate that the effective application of EU law shall dictate setting aside the finality of arbitration or awards that have similar conclusive effect. Elsewhere, and in the absence of the pressing concerns associated with competition law and consumer protection found in Eco Swiss and Claro respectively, the Court of Justice has been perfectly content to protect the finality of decisions that may not be re-opened under national law, even where they exhibit a flaw as a matter of EU law. It has relied on the need for legal certainty, stability, and the sound administration of justice.[15] [16]

And even where competition law or consumer protection are involved, EU law does not wholly and inevitably destabilize national procedures simply to ram home its requirements. In Eco Swiss the Court of Justice accepted that a national court is not required to refrain from applying domestic rules of procedure according to which an interim arbitration award, which is in the nature of a final award and in respect of which no application for annulment has been made within the prescribed time limit of three months, acquires the force of res judicata and may no longer be called in question by a subsequent arbitration award, even if this is necessary in order to examine, in proceedings for annulment of a subsequent arbitration award, whether an agreement which the interim award held to be valid in law is nevertheless void in the light of EU competition law. Such a rule envisages that an award may remain on foot even if contrary to EU law. The Court considered that the stipulated period of three months ‘does not seem excessively short compared with those prescribed in the legal systems of the other Member States, [and] does not render excessively difficult or virtually impossible the exercise of rights conferred by’ EU law.88 The concern of such a rule is to protect legal certainty and EU law is not blind to such values, even where respecting them means no correction of a misapplication of EU law. The same is sometimes true in consumer law. Claro ruled that the consumer who fails to plead a violation of Directive 93/13 on unfair terms in the course of the arbitration proceedings may repair that omission in a subsequent action for annulment of the arbitration award, but in AsturcomTelecomunicaciones SL v Maria Cristina Rodriguez Noguiera the Court held that EU law’s principle of effectiveness could not come to the rescue where the consumer had failed even to bring a challenge to the arbitral award within the time limit stipulated by national (Spanish) law.89

So there are limits to EU law’s recognition of public policy for these purposes and there are limits to the extent to which it insists on upsetting national procedures in the name of its conception of public policy. In fact it cannot be the case that a matter becomes public policy as a matter of EU law simply because it falls within the scope of EU competence within the meaning ofArticles 2 to 6 TFEU, for otherwise everything ‘from the Charter of Fundamental Rights to a directive on pressurized equipment’ would count as public policy within the meaning of Article V(2)(b) of the New York Convention.[17] [18] [19] [20] [21] [22] [23] But, in general, EU law has an ‘unusually robust notion’ of public policy which leads it to an abnormally high level of intervention in international arbitration.91 This is especially the case where application of EU free movement and competition law or the EU’s law of consumer protection is at stake. Seen from the perspective of the integrity of the process of arbitration it has been complained that Claro is ‘ill-considered and arguably contradict[s] the [New York] Convention’s requirements for restraint in application of Article V(2)(b)’s public policy exception’.92 This, however, is the Court’s choice and the critic will be still more vexed by appreciation that the areas in which the Court will be prepared to expect intervention are not closed and much will depend on the Court’s future approach to inquiring into clauses committing to arbitration and into arbitration proceedings which appear to be concluded and final. This is troubling in so far as it implies an unpredictable case-by-case incremental development of legal control, although it is characteristic of the ad hoc development of EU law’s pursuit of the provision of effective judicial protection at national levels3

Possible extension in EU intervention into contractual commitments to submit a dispute to arbitration, rather than to the ordinary courts, could be motivated by a concern to protect the weaker party and, more generally, by an assumption that in a case of asymmetric power, ‘freedom’ of contract is an illusion. This is central to the Court’s interpretation of Directive 93/13.94 This theme is visible too in Directive 2013/11 on alternative dispute resolution in consumer disputes.95 It reveals a similar thematic concern to preclude consumers agreeing to surrender a right to bring an action before the courts for the settlement of the dispute without having been made fully aware of that outcome.96 Articles 38 and 47 of the Charter of Fundamental Rights of the European Union underpin these commitments to a high level of consumer protection and a right to an effective remedy respectively. But protecting the weaker party appears as a concern in EU employment law too. The Court has openly embraced an understanding of the employee as ‘the weaker party to the employment contract’ and in the context of the regulation of working time has identified the need ‘to prevent the employer being in a position to disregard the intentions of the other party to the contract or to impose on that party a restriction of his rights’.[24] In the interpretation of the EU’s harmonization of employment laws, the Court insists on the importance of the aim of protecting employee rights alongside the establishment and functioning of the internal market. This is readily traceable through the EU’s legislative acquis and associated interpretative rulings of the Court stretching over several decades.9[25] [26] So there is a protective or social as well as an economic rationale for legislative harmonization.99 This fits into a broader paradigm of EU law as a source of protection of the weaker party. Directive 93/13 does not touch employment contracts, but the case can be made that Directive 93/13 is but one manifestation of a wider concern in EU law to protect the weaker party.[27] Peering into the future, one could not leave out of account that a sports person might in this sense be treated as a weaker party able to rely on EU law to secure protection from a clause that commits a matter exclusively to arbitration or to lever open an unfavourable arbitral ruling once made even where competition law or free movement law are not at stake. The high-earning legally advised superstar might not deserve such treatment but at a lower level one could envisage a readiness to intervene to protect the weaker party to the contract. Such a push beyond Mostaza Claro and Eco Swiss would weaken further the autonomy from the ordinary courts of the contractual attachment to arbitration expressed through the lex sportiva.

  • [1] CaseC-126/97 Eco Swiss China Time Ltd v Benetton InternationalNV[1999] ECR I-3055.
  • [2] 72 ibid para 35 of the ruling. 73 ibid para 39 . 74 ibid para 40.
  • [3] Joined Cases C-295/04 to C-298/04 [2006] ECR I-6619, para 31.
  • [4] 76 Directive 2014/104/EU of 26 November 2014 on certain rules governing actions for damagesunder national law for infringements of the competition law provisions of the Member States and ofthe European Union [2014] OJ L349/1.
  • [5] Eco Swiss (n 71) para 36.
  • [6] Case 120/78 Rewe-Zentrale AG v Bundesmonopolverwaltung fur Branntwein [1979] ECR 649,para 14.
  • [7] Case C-194/94 CIA Security International v Signalson & Securitel [1996] ECR I-2201, para 40.
  • [8] eg (among many examples) Case C-397/11 Erika Joros, judgment of 30 May 2013, para 30; CaseC-488/11 Asbeek Brusse, judgment of 30 May 2013, para 44.
  • [9] Case C-168/0 5 Elisa Maria Mostaza Claro v Centro Movil Milenium SL [2006] ECR I-10421.
  • [10] 82 eg Case C-137/08 VB PenzUgyi Lizing [2010] ECR I-10847; Case C-243/08 Pannon GSMZrt[2009] ECR I-4713.
  • [11] Claro (n 81) para 34. 84 ibid para 37.
  • [12] 85 ibid para 38. See also eg Case C-243/08 Pannon GSMZrt [2009] ECR I-4713, para 25; Case
  • [13] C-415/11 Aziz, judgment of 14 March 2013, para 45; Case C-169/14 Sanchez Morcillo, judgmentof 17 July 2014, para 23. On the case law, see H-W Micklitz and N Reich, ‘The Court and SleepingBeauty: The Revival of the Unfair Contract Terms Directive’ (2014) 51 CML Rev 771.
  • [14] 86 Claro (n 81) para 31.
  • [15] eg Case C-234/04 Kapferer [2006] ECR I-2585; Case C-455/06 Heemskerk BV [2008] ECRI-8763; Case C-2/08 Fallimento Olimiclub Srl [2009] ECR I-7501.
  • [16] Eco Swiss (n 71) para 45. 89 Case C-40/08 [2009] ECR I-9579.
  • [17] Case C-536/13 Gazprom OAO v Lietuvos Respublika, para 182, Opinion of Wathelet AG delivered on 4 December 2014. His point was that the ‘Brussels I’ Regulation, 44/2001, should not betreated as a matter of public policy within the meaning of the New York Convention. In its judgment of13 May 2015 the Court did not deal with the point, for it found the matter to fall outwith the scope ofthe Regulation. Within Reg 44/2001 itself the notion of ‘public policy’ as a basis for refusing to enforcea judgment of another Member State is to be interpreted narrowly as a matter of EU law: see eg CaseC-420/07 Apostolides [2009] ECR I-3571; Case C-559/14 Rudolfs Meroni v Recoletos Ltd, judgmentof 25 May 2016.
  • [18] G Berman, ‘Navigating EU Law and the Law of International Arbitration’ (2012) 28 ArbIntl 397, 397. See also A Duval, ‘The Court of Arbitration for Sport and EU Law: Chronicle of an Encounter’ (2015) 22(2) MJ 224, 227-35.
  • [19] 92 Born (n 6) ch 26, text at fn 1494. See similarly, if softer, M Piers, ‘Consumer Arbitration in theEU: a Forced Marriage with Incompatible Expectations’ (2011) 2 JIDS 209. And the Courts disrespectfor national procedural autonomy has critics even within the institution: see eg Case C-169/14 SanchezMorcillo, judgment of 17 July 2014, Opinion of Wahl AG (which did not sway the Court in the case).
  • [20] The rich, even eccentric, variety in the case law combined with the intrusive character of EU lawis well captured by the title of an article by A Arnull: ‘The Principle of Effective Judicial Protection inEU law: An Unruly Horse?’ (2011) 36 EL Rev 51.
  • [21] 94 See n 7.
  • [22] Directive 2013/11/EU of 21 May 2013 on alternative dispute resolution for consumer disputes[2013] OJ L165/63. On the relationship between this Directive and Directive 93/13, see N Reich, ‘ATrojan Horse in the Access to Justice—Party Autonomy and Consumer Arbitration in conflict in theADR-Directive 2013/11/EU’ (2014) 10 European Review of Contract Law 258.
  • [23] 96 Especially its Art 10, ‘Liberty’ and Art 11, ‘Legality’.
  • [24] Joined Cases C-397/01 to C-403/01 Pfeiffer and others v Deutsches Rotes Kreuz [2004] ECRI-8835, para 82; Case C-429/09 GUnter Fuff v Stadt Halle [2010] ECR I-12167, para 80.
  • [25] eg on transfer of undertakings Case C-164/00 Katia Beckmann [2002] ECR I-4893, para 29;Case C-561/07 Commission v Italy [2009] ECR I-4959, para 30; cf on collective redundancies, regulated by Directive 98/59, also adopted under Art 100 EEC, Case C-55/02 Commission v Portugal[2004] ECR I-9387, para 48; Case C-385/05 CGT [2007] ECR I-611, para 43.
  • [26] See generally ACL Davies, EU Labour Law (Edward Elgar 2012); C Barnard, EU EmploymentLaw (4th edn, OUP 2012).
  • [27] N Reich, General Principles of EU Civil Law (Intersentia 2014) ch 2; S Weatherill, Contract Lawof the Internal Market (Intersentia 2016) ch 4.
 
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