The European Parliament's study on arbitration legal instruments and practice in the EU and Switzerland: a step towards a uniform European regime on arbitration?

Two weeks ago the European Parliament’s Policy Department for Citizens' Rights and Constitutional Affairs published a broad study on the legal instruments and practice of arbitration across the European Union and Switzerland.  This study was undertaken over the past year at the Brunel Centre for the Study of Arbitration and Cross-Border Investment and is based on academic research and the results of a large-scale survey of arbitration practitioners across the EU and Switzerland.

The primary goal of this study is "to portray accurately the actual diversity of arbitration law and practice across the European Union and Switzerland” in order to “discuss the strengths and weaknesses of the law and practice observed" in each European jurisdiction.  In doing so, it first examines the legal framework and practice of arbitration in each Member State.  It then analyses specialised topics of arbitration such as commercial, consumer and online arbitration and finally it evaluates the involvement of EU Member States and the EU in investor-state arbitration.

The study also provides insights into and recommendations for potential future actions and reforms mainly to improve the interaction between arbitration and EU law. Whilst the purpose of this contribution is to guide the European Parliament in its future decisions regarding arbitration, it remains uncertain whether potential reforms on this topic are part of Europe’s broader agenda.

The European Parliament’s study begins with an overview of the implementation and application of the main legal concepts of arbitration in each Member State and in Switzerland, concluding that "substantial harmony exists across the EU at both the level of law and practice".  However, despite this, the results of the survey undertaken as part of the study indicate that the practice of arbitration across the EU is less transnational than expected.  The survey reveals that most arbitration practitioners view arbitration as a field with regional emphasis and that arbitration is predominantly practiced at a national or regional level.  This is also evidenced by the fact that arbitrations across the EU do not use a consistent set of procedures and, even in international arbitration, procedures differ regionally.

The study further addresses the existing problems relating to the interaction between EU law and international commercial arbitration and proposes, amongst other suggestions, the following three main recommendations:

• additional reforms should be undertaken to tackle the risks of parallel proceedings and conflicting judgements that were not resolved by the recast Brussels I Regulation, when dealing with the interaction between arbitration and court litigation in the EU;
• arbitral tribunals should be permitted to seek a preliminary ruling from the Court of Justice of the European Union (CJEU) under Article 267 of the Treaty on the Functioning of the European Union, in order to ensure a uniform and consistent application of EU law by arbitral tribunals;
• the CJEU should develop further interpretation and clarity on EU law norms in jurisprudence relating to arbitration to ensure more certainty in the arbitration context.  For example, the CJEU should determine which provisions of EU law constitute part of EU public policy and therefore provide grounds on which to set aside or deny the recognition and enforcement of an arbitral award under Article V(2)(b) of the New York Convention.

The relationship between investor-state arbitrations arising under intra-EU and extra-EU BITs and the EU legal order is analysed in the final part of the study.  The study group concludes that “investment arbitration is often a beneficial feature of investment agreements”.  However, it also points out that the current system raises problems concerning the compatibility of arbitration with EU law and the risk of unpredictable and unequal treatment of investors within the EU.  To resolve these issues, the study recommends that:

• in commercial arbitration, arbitral tribunals should be permitted to ask preliminary questions to the CJEU in order to ensure the uniform and consistent application of EU law;
• substantive standards of investor protection should be drafted more precisely in order to limit the discretionary power of arbitral tribunals and to maintain the EU's policy space;
• alternatively, an appellate mechanism could be introduced in future treaties, allowing a second instance body to review arbitral rulings.

The EU may conclude from this study that, in order to guarantee access to an efficient dispute resolution system within the European area of justice, it is necessary to take further actions tackling the existing conflicts between EU law and arbitration proceedings.  This conclusion also echoes the debate currently raging in response to the Commission's recent and on-going consultation on the TTIP.

In addition, the study suggests that further mutual trust between arbitration and EU law would be beneficial for both systems: arbitration could help in the promotion of the EU's goals of harmonising the law across Member States and ensuring the application of specific substantive laws; while EU law could guarantee the proper functionality of arbitration and its recognition as an independent mechanism of dispute resolution within the EU.  These conclusions are consistent with the publicly expressed position of the EU in relation to the relationship between EU law and arbitration.

COMMENT

The publication of this study is particularly interesting as it comes only a few weeks after the entering into force of the recast Brussels I Regulation 1215/2012, one of the main purposes of which was precisely to resolve the existing conflicts between arbitration and court litigation such as those that arose in the West Tankers and Endesa cases.

As pointed out in the study, seen from the perspective of the EU, one of the most prominent issues for arbitration proceedings seated in the EU is the inability for arbitral tribunals to apply for preliminary rulings from the CJEU on questions of EU law.  A number of solutions to this could be envisaged, for example: allowing arbitral tribunals to request Member State juges d’appui to make the preliminary reference on their behalf; or the establishment of an EFTA court-style mechanism to apply to arbitration. While no solution seems straightforward, it could potentially resolve problems for EU Member States such as those that arose in the Micula case, in which a Member State was told that the execution of a BIT award could not take place if it would breach EU state aid rules.

Arbitration in the EU continues to attract increasing attention, as evidenced by the recent negotiations on the Brussels I recast Regulation and the TTIP. While the Council will have little appetite to re-open the debate surrounding the exclusion of arbitration from the scope of Brussels I, this study usefully highlights the many other areas where controversy continues in relation to the interaction of arbitration and EU law. A full-scale harmonisation of arbitration law within the EU remains perhaps a distant prospect, but as these issues are worked out further over the coming months and years, the study's recommendation for mutual trust between the two systems is to be welcomed.

For further information, please contact Andrew Cannon, Partner, Marion Bouchetel, Avocat or your usual Herbert Smith Freehills contact.