Arbitral Tribunals and Article 267 of the Treaty on the Functioning of the European Union The Danish By-Pass Rule

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1 Arbitral Tribunals and Article 267 of the Treaty on the Functioning of the European Union The Danish By-Pass Rule Dan Terkildsen/Sebastian Lysholm Nielsen I. Introduction According to Article 267 of the Treaty on the Functioning of the European Union (the Treaty), The Court of Justice of the European Union (ECJ) has jurisdiction to give preliminary rulings concerning the interpretation of the Treaties, and to give preliminary rulings concerning the validity and interpretation of acts of the institutions, bodies, offices or agencies of the Union. The Article also states that the court or tribunal, before which such a question of interpretation is raised, may request the ECJ to give a ruling on the matter. Besides stating that the court or the tribunal must be located in a Member State, Article 267 does not define which type of courts may request a preliminary ruling, and thus whether an arbitral tribunal may request the ECJ to render such a ruling. In several cases, the ECJ has refused to give a preliminary ruling concerning the interpretation of a Community act as requested by an arbitral tribunal, because it held that the arbitral tribunal could not be considered a tribunal of a Member State as stated in Article 267 of the Treaty. The provision in article 267 is normally interpreted in such a way that a tribunal cannot refer questions directly to the ECJ unless the arbitration process is mandatory and the authorities of a Member State are entitled to trigger or intervene in the arbitral proceedings. An arbitral tribunal has however, essentially the same role as state courts, in light of which it should not be an argument that arbitral tribunals are under the supervision of state courts, and that an award based on erroneous application of Community law may be set aside. It is not acceptable taking issues of procedural efficiency into consideration, that the parties and the tribunal cannot have issues of Community law resolved during the proceedings. This practical problem has been heightened by the fact that the ECJ in its case law has indicated that issues of Community law, as well as secondary legislation (directives), can be considered an integrated part of the European Union s public policy. The fact that an arbitral tribunal generally does not have the possibility of re-

2 196 Dan Terkildsen/Sebastian Lysholm Nielsen ferring questions to the ECJ is thus a serious problem, which may be relied upon as a justification for limiting the jurisdiction of an arbitral tribunal. For instance, in the attempt of setting aside an award issued by an UNCITRAL tribunal, it has recently been argued by Slovakia, before the Frankfurt Regional Court, that the UNCITRAL tribunal lacked jurisdiction in an Investment Treaty case between the state (Slovakia) and a Dutch investor. It was argued that the tribunal did not have the power to request a preliminary ruling from the ECJ on the compatibility of the Investment Treaty protection in relation to basic principles of EU law. 1 ) Although the argument, in the opinion of these authors is clearly flawed, it is disturbing that arguments along these lines are being raised, and thus underlines the urgent need to find a means of resolving this existing problem. This article will focus on the legal framework established through the Danish Arbitration Act passed in 2005, which enables an arbitral tribunal to initiate an indirect request to the ECJ through the national courts. After having introduced this legal framework and the reasoning behind it, the article will, based on prior rulings by the ECJ, consider whether or not such an indirect request will be accepted by the ECJ and whether a similar indirect request could be possible in jurisdictions which do not have such a specific provision. II. The Rule in the Danish Arbitration Act The Danish Arbitration Act (the Act ) was passed in ) The Act is based on the 1985 UNCITRAL Model Law on International Commercial Arbitration. It came into force on July 1, 2005 and applies to all arbitral proceedings instigated after that date. 3 ) According to Section 1 (1), it applies to arbitration, including international arbitration, if the place of arbitration is in Denmark. The Act replaces the former Danish Arbitration Act from Arbitration acts of major arbitration centers do not contain any explicit provision allowing the indirect referral, by national courts located in the member states where the seat of an arbitral tribunal is situated, of a preliminary question to the ECJ. Section 27 (2) of The Act states: If the arbitral tribunal considers that a decision on a question of European Union law is necessary to enable it to make an award, the arbitral tribunal may request the courts to request the Court of Justice of the European Communities to give a ruling thereon. 1 ) See Eureko BV v. The Slovak Republic, 26 SchH 11-10, Oberlandesgericht Frankfurt Am Main Beschluss, German, May 10, ) See Act no. 553 of June 24, ) See Section 40 of The Act.

3 The Danish By-Pass Rule 197 The Act came about due to a working group, under The Danish Bar Association, stressing the need to update the, at that time, rather outdated 1972 legislation, in order to attract international arbitration to Denmark. 4 ) The Act reflects the suggestions put forward by the working group. The working group specifically decided however, not to put forward a rule on a procedure whereby the arbitral tribunal would be entitled to submit questions to the ECJ based on the argument that this right for courts was directly regulated by the Treaty (then article 234) and consequently there was no need for such a rule. Furthermore, it was argued that no such rule existed in the Swedish, German or English arbitration acts. During the hearing phase, where various organizations and committees were asked to give their opinion on the draft act, the Danish Procedural Expert Committee (the Expert Committee ) (in Danish: Retsplejerahbet) proposed a provision in line with Section 27 (2). The Expert Committee was originally established in 1961 and it provides opinions on legislative issues of procedural law. The Expert Committee suggested inserting a provision on the ability of the ordinary courts to submit questions to the ECJ upon the request of an arbitral tribunal with its seat in Denmark. The inspiration for such a legal framework came from Norway. The Norwegian arbitration act 5 ), which has such a provision within the EFTA-framework on the interpretation of the EEA-Treaty, has the following wording: When an arbitral tribunal is obliged to take a position on interpretation of the EEA agreement, including its protocols, exhibits and the legislative acts with which such exhibits are concerned, it may, unless otherwise agreed by the parties of its own accord or at the request of a party, request the courts to submit issues of interpretation to the EFTA Court pursuant to the provisions of section 51a of the Court of Justice Act. The court may challenge the EFTA Court to make an advisory statement regarding the interpretation of the EEA Agreement. The main reason for suggesting the provision was that the Expert Committee found that there was no case law from the ECJ suggesting that the then article 234 could be interpreted in such a way that national courts, in the absence of such a specific provision, could assist an arbitral tribunal in submitting questions to the ECJ. The Danish Ministry of Justice agreed with the Expert Committee and suggested that a specific provision should be inserted in order to establish the necessary connection between the arbitral tribunal and the general Danish procedural rules required for the ECJ to accept such a request under Article 234 (then in force). 6 ) This therefore illustrates how the Ministry of Justice finds that the link 4 ) See Advokatrådets Retsudvalg Reform af voldgiftsloven, 2003, a publication from Advokatsamfundet, the Danish Bar Association. 5 ) See Section 30 (2) of the Norwegian Arbitration Act. 6 ) See The Danish Parliament reports L127 p

4 198 Dan Terkildsen/Sebastian Lysholm Nielsen between the arbitral tribunal and the courts of the Member State, with the introduction of Section 27 (2), is now sufficiently close to fall within the current Article 267 of the Treaty. The Act was passed by the Danish Parliament with the provision in Section 27 (2) quoted above. According to the legislative history of the Act, 7 ) an arbitral tribunal s possibility to request a preliminary ruling consistent with Section 27 (2) of the Act, should not be abused, e.g. with a request of purely academic interest which has no connection with the actual dispute. The purpose of Section 27 (2) is therefore to allow an arbitral tribunal to present questions of Community law to the ECJ to the same extent as a national court. The national court s decision to forward the questions to the ECJ depends on whether the national court itself would have requested a preliminary ruling if the proceeding had taken place before that court. It is also for the national court to decide which questions should be submitted and how these questions should be worded. The procedure whereby the questions are worded by the court could also counter the often heard argument that Tribunals might not have sufficient experience in drafting preliminary questions to the ECJ. In Denmark, it is generally accepted that the parties cannot contract out of section 27 (2) whereby the right for the Tribunal to refer questions through the national courts to the ECJ can be said to be mandatory. The wording of the equivalent Norwegian provision unless otherwise agreed by the parties could indicate that this provision is considered differently under Norwegian Law. According to section 5 (1) of the Act, applications under Clause 27 (2) shall be submitted to the court where proceedings were to have been commenced if the parties had not agreed to arbitration. If no Danish court, in the absence of the arbitration clause, would have had jurisdiction, the application shall be submitted to the court of the applicant s domicile or, if the applicant is not domiciled in Denmark, to the District Court of Copenhagen. This procedural rule is in line with Article 6 of the UNCITRAL Model Law (1985). III. The Actual Need for a Specific Provision It could be, and is argued, that there is no need for a specific provision similar to the one in the Act. The general rules providing for assistance from the ordinary courts to the arbitral tribunal should also be sufficiently broad to include the right to refer questions to the ECJ through the national courts. Prior to the enactment of the Arbitration Act of 2005, it was doubtful whether the, now in force Article 267, contained the possibility for arbitral tribu- 7 ) See the Danish Parliament Reports L127 p. 96.

5 The Danish By-Pass Rule 199 nals to by-pass the rule, as interpreted by the ECJ in Nordsee and Eco-Swiss, by requesting a national court to request the ECJ to give a preliminary ruling. 8 ) Before passing the Act, it was debated whether a by-pass could be done based on the former Danish Arbitration Act from According to Section 3 of the Act from 1972, the national courts had to, inter alia, provide assistance when requested by an arbitral tribunal to conduct the proceedings. In a Danish article published in ), and thus published before Section 27 (2) of the Act was passed, the authors, a judge and a law professor, argued that an arbitral tribunal, based on Section 3, would probably be allowed to request a national court to request the ECJ to give a preliminary ruling. In his article Communitarization of International Arbitration A New Spectre Haunting Europe,Massimo v.benedetelli 10 ) criticises the practice of the ECJ in applying article 267 as a main rule and thus denying an Arbitral tribunal the opportunity to submit questions on points of EU law. We fully agree with this general criticism. On page Benedetelli discusses the possibility for a tribunal to submit questions to the ECJ through state courts. It is his view that general provisions, among others in Germany and Austria, whereby the state courts can assist also in clarifying issues of law, includes the possibility for such courts to refer questions from an arbitral tribunal to the ECJ. First of all, it should be kept in mind that not all Arbitration Acts include provisions of general assistance in legal matters. For instance, the Danish Arbitration Act includes in Section 27 (1) only a general provision on assistance in taking evidence. Furthermore, it should be kept in mind that there are 2 layers to this discussion. The general provisions whereby the ordinary courts can assist an Arbitral Tribunal may grant a right for the arbitral tribunal to forward such a request to the national court. However, this does not necessarily mean that such a request will be accepted by the ECJ. In this context it could be of importance as indicated when passing section 27 (2) of the Danish Arbitration Act, that a specific provision establishes a closer relationship between the tribunal and the ordinary courts, making it more likely that also the ECJ would accept such a request from a national court. The last section of this article looks at relevant ECJ case law in order to asses to what extent a request from an arbitral tribunal, through a national court, would be accepted by the ECJ. 8 ) See Lookofsky and Kristoffersen in Stockholm International Arbitration Review 2006:1, p. 58 and NOU2001:33, p ) See U.2001B.547 Werlauff and Petersen. 10 ) See Arbitration International Volume 27 number 4.

6 200 Dan Terkildsen/Sebastian Lysholm Nielsen IV. Case Law of the ECJ A. Nordsee In the case 102/81, Nordsee, the arbitral tribunal (with its seat in Germany), which referred the question to the ECJ for a preliminary ruling, was established pursuant to a contract (ad hoc arbitration) between private individuals. The ECJ recognized, in paragraph 10, the existence of certain similarities between an arbitral tribunal and the court of a Member State: there are certain similarities between the activities of the arbitration tribunal in question and those of an ordinary court or tribunal inasmuch as the arbitration is provided for within the framework of the law, the arbitrator must decide according to law and his award has, as between the parties, the force of res judicata, and may be enforceable if leave to issue execution is obtained. However, after having accepted these certain similarities, the ECJ concluded in paragraph 10: However, those characteristics are not sufficient to give the arbitrator the status of a court or tribunal of a Member State within the meaning of Article 177 [today Article 267] of the Treaty. The ECJ pointed out that the parties were under no obligation to refer their dispute to arbitration, see paragraph 11. Furthermore, the ECJ noted in paragraph 12: The second point to be noted is that the German public authorities are not involved in the decision to opt for arbitration nor are they called upon to intervene automatically in the proceedings before the arbitrator. It was additionally stated in paragraph 12 that Germany, being responsible for the performance of obligations arising from Community law, had not entrusted, or left to private individuals, the duty of ensuring compliance with such obligations. These considerations led the ECJ to the conclusion in paragraph 13 that the link between the arbitration procedure in this instance and the organization of legal remedies through the courts in the Member State in question, was not sufficiently close for the arbitrator to be considered as a court or tribunal of a Member State within the meaning of Article 177 (now Article 267). As a result, the ECJ held that it had no jurisdiction to give a ruling. The ECJ acknowledged in paragraph 14 however, that parties cannot contract out of Community law. Having stated this obvious fact, the ECJ further acknowledged that the courts will have a role to play if issues of Community law are raised in arbitration. The ECJ further stated in paragraph 14:

7 The Danish By-Pass Rule 201 In that context attention must be drawn to the fact that if questions of Community law are raised in an arbitration resorted to by agreement the ordinary courts may be called upon to examine them either in the context of their collaboration with arbitration tribunals, in particular in order to assist them in certain procedural matters or to interpret the law applicable, or in the course of a review of an arbitration award Furthermore, the ECJ held in paragraph 15 that [i]t is for those national courts and tribunals to ascertain whether it is necessary for them to make a reference to the Court under Article 177 [Article 267] of the Treaty in order to obtain the interpretation or assessment of the validity of provisions of Community law which they may need to apply when exercising such auxiliary or supervisory functions. Based on the reasoning of the court, it could be argued that the link between the arbitration procedure and the organization of legal remedies through the courts in the Member State is only of relevance if it is the arbitral tribunal itself that refers preliminary questions to the ECJ. It is fair to say therefore, that paragraphs 14 and 15 could be interpreted in such a way that the courts can refer preliminary questions to the ECJ from an arbitral tribunal even where such a reference ensues as part of the courts assistance to the arbitral tribunal and not only as a part of, for instance, setting aside proceedings. B. Eco Swiss In the famous case C-126/97, Eco Swiss a judgment rendered almost 20 years later the ECJ basically restated its position on the possibility for an arbitral tribunal to refer preliminary questions to the ECJ. The case dealt with the question whether or not an arbitral award could or should be set aside if such an award violated European Competition law (then Article 85 of the Treaty). The ECJ ruled that European Competition law was an integral part of public policy in the EU and that any agreements or decisions, i.e. also awards, prohibited pursuant to such EU law would be automatically void (paragraph 36). Although the decision does not explicitly state that an arbitral tribunal is under an obligation to raise such issues ex officio, it is true that the decision creates an incentive for arbitral tribunals to raise such issues in order not to have an arbitral award annulled 11 ). It seems that the Eco Swiss decision did highlight the importance of EU law in international arbitration and thus the very unsatisfactory situation where Arbitral Tribunals cannot refer questions directly to the ECJ. p ) See Redfern and Hunter on International Arbitration Student Version 5 th edition

8 202 Dan Terkildsen/Sebastian Lysholm Nielsen As mentioned in the introduction, this problem has increased through other decisions by the ECJ. These decisions indicate that also secondary Community law could be an integrated part of public policy within the EU. It is outside the scope of this article to consider this additional case law but for further discussion see the American Review of International Arbitration. 12 ) On the issue of the position of an Arbitral Tribunal directly relevant to this article, the ECJ in paragraph 34 cited Nordsee: the Court had held, in paragraphs 10 to 12 of that judgment [Nordsee], that an arbitration tribunal constituted pursuant to an agreement between the parties is not a court or tribunal of a Member State within the meaning of Article 177 [today Article 267] of the Treaty since the parties are under no obligation, in law or in fact, to refer their disputes to arbitration and the public authorities of the Member State concerned are not involved in the decision to opt for arbitration nor required to intervene of their own accord in the proceedings before the arbitrator. Following up on the point in paragraph 14 of Nordsee, the ECJ highlighted in paragraph 40 the need for uniform interpretation of Community law and that in light of this, the national courts, in examining arbitral awards, should be able to refer questions to the ECJ. C. Other Similar Cases The case law in Nordsee and Eco Swiss have been relied upon in subsequent decisions. In Case C-125/04 Guy Denuit and Betty Cordenier v. Transorient-Mosaique Voyages et Culture SA the ECJ, in a dispute between 2 travelers and a travel agency, refused to answer questions from a travel dispute committee on the interpretation of Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours on the grounds that it was not competent to do so. The reason for the ECJ ruling was that the dispute was submitted to the travel dispute committee by way of an arbitration agreement entered into between the parties. 12 ) See Allan B. Green and Josh Weiss 2011/Vol. 22 No. 4 p

9 The Danish By-Pass Rule 203 V. Arbitration Tribunals Qualifying To Be Courts or Tribunals of a Member State A. Danfoss In the case 109/88, Danfoss, a Danish industrial arbitration board (in Danish: Den Faglige Voldgiftsret) referred to the ECJ for a preliminary ruling under Article 177 of the Treaty, several questions on the interpretation of the Equal Pay Directive. The first question examined by the ECJ was whether the industrial arbitration board could request the ECJ to answer the preliminary questions raised. The ECJ first pointed out that, according to Danish law, the industrial arbitration board hears disputes between parties to collective bargaining agreements with no recourse to the ordinary courts. In paragraph 7, it was further stated that the board s jurisdiction did not depend upon the agreement of the parties (which must mean the partie s individual agreement). Furthermore, the ECJ emphasized in paragraph 8 that the composition of the arbitral tribunal was fixed in Danish law and was thus not within the parties discretion. Therefore, the ECJ held in paragraph 9 that [i]n those circumstances the Industrial Arbitration Board must be regarded as a court or tribunal of a Member State within the meaning of Article 177 [today Article 267] of the Treaty. Although the board is established by law, for the board to have jurisdiction agreement is still required between the relevant parties. This might not be an individual agreement in every case but by being members of the trade union or the employer association and having entered into the relevant collective bargaining agreement the respective employees/employers consent to the jurisdiction of the board. It is thus arguable whether the reasoning of the ECJ, that the board s jurisdiction did not depend on the parties agreement, was in fact correct. It would then have to suffice that the board was in detail regulated by Danish law. There have been other cases, especially in relation to Austria, where the main issue has been whether or not the requesting tribunal/committee was sufficiently independent to fall within the meaning of courts or tribunals. See case C 118/09, Koller, where the Oberste Berufungs- und Disziplinarkommissions (Austria) jurisdiction was mandatory and thus satisfied the meaning of courts or tribunal. Likewise, case C-246/05 where the Oberster Patent- und Markensat were also held to be a court or tribunal. On the other hand, the Berufungssenat V der Finanzlandesdirektion für Wien was in case C-516/99, Schmid, not considered a court or tribunal due to its lack of independence from the tax authorities as such. In case C-54/96 Dorsch, the ECJ reached the conclusion that the Vergabeüberwachungsausschuss des bundes (Germany) was sufficiently independent to qualify as a court or tribunal.

10 204 Dan Terkildsen/Sebastian Lysholm Nielsen B. The European Schools Complaints Board Case C-196/09 Finally, it should be noted that notwithstanding that a tribunal is in fact a court or a tribunal according to Article 267 of the Treaty, it may still be unable to submit questions to the ECJ if it is not a court or a tribunal in a member state. This was the situation in the recent case C-196/09 where the European Schools Complaints Board (the Complaints Board ) tried to submit questions to the ECJ. All parties agreed that the Complaints Board was a court or tribunal according to Article 267 of the Treaty. However, the Complaints Board was set up according to article 27 of the European Schools Convention and thus did not have the connection to an individual member state that would qualify the Complaints Board as a court or tribunal of a member state. VI. Conclusion This article has focused on the very relevant and practical problem that most arbitral tribunals are unable to submit preliminary questions to the ECJ. This is a serious problem, especially because arbitral tribunals are requested to take Community law into consideration as a part of public policy. In particular, the clash between Investment Treaties and Community law is of concern given that arbitration is the preferred method of dispute resolution in investment disputes. By referring to Article 27 (2) of the Danish Arbitration Act, this article discusses the possibility for an arbitral tribunal to refer preliminary questions to the ECJ through the national courts. There is currently no decision from the ECJ which confirms whether Article 267 can be interpreted so as to allow a national court the possibility to file a request with the ECJ to give a preliminary ruling based on a previous request made to the national court by an arbitral tribunal in situations where the arbitral tribunal does not itself qualify as a tribunal or court. The inability of an arbitration tribunal to request the ECJ to make a preliminary ruling on a point of EU law was the main reason, according to the legislative history of the Act, for including Section 27 (2) in the Act. By way of section 27 (2), the Ministry of Justice intended to establish a close enough connection between the arbitral tribunal and the ordinary procedural order of Denmark. Looking at paragraphs 14 and 15 of the Nordsee decision, it could be argued that the national court, even in the absence of any specific provisions, could refer preliminary questions to the ECJ as an integrated part of the national courts assistance to an arbitral tribunal. In the absence of case law from the ECJ, however, it would be the recommen-

11 The Danish By-Pass Rule 205 dation of these authors that other jurisdictions should consider inserting a provision like the Danish and Norwegian provisions, in order to increase the possibility of having the ECJ rule on preliminary questions submitted by arbitral tribunals through national courts. Such a provision could furthermore serve the purpose of highlighting the issue of Community law to arbitral tribunals in general.