EU Law and International Arbitration

Managing Distrust Through Dialogue

Konstanze von Papp

• Publisher: Hart Publishing
• Year: 2021
• ISBN:
  9781509931194
• Edition: 1
• Topic: Law
• Subtopic: Arbitration, Negotiation & Mediation in Law
• Index: Law

"Eminently readable. One need look nowhere else. I regularly teach courses on this subject and have encountered no work that comes close to achieving what von Papp has achieved."
George A Berman, Columbia Law School, European Law Review This timely book addresses the main areas of tension between EU law and international arbitration, looking at both commercial and investment treaty arbitration. It opens pathways for practical solutions based on communication between the different regimes. At the same time, it offers a sound theoretical basis that allows for addressing the core problem as normative conflict between legitimate public interests and the 'privatisation of justice'. The book is divided into five parts. It introduces key aspects of the overall tension between EU law and international arbitration, before setting out the theoretical framework that understands EU law, international commercial arbitration, and investment treaty arbitration as closed regimes. The author then addresses the core problem of finding the limits to contracting out of the EU legal regime, both on a jurisdictional and a substantive level. This is then linked to the question of trust-building in legal outcomes of the relevant regimes. The book concludes with a short summary and key theses. Combining a theoretical and normative with a more pragmatic approach to very topical issues, this book offers invaluable insights for academics and practitioners, private and public, commercial and investment treaty lawyers alike.

1

Introduction

The relationship between EU law and international arbitration is far from settled. It has moved from constituting ‘separate worlds’ of ‘mutual indifference’,¹ to involving ‘challenges’,² or ‘practical problems’,³ which are by no means resolved. However, instead of moving towards solutions, the tide appears to be turning back to mutual indifference. This would be unfortunate and not in the interests of either the EU or international arbitration.

I.The EU and International Arbitration in the International Legal System

A.The EU as Supranational Entity

One of the major difficulties is the architecture of the EU itself, being somewhere between a fully-fledged federal state and a mere international organisation (ie its supranational character). From the perspective of an international lawyer, the EU therefore sits somewhat uncomfortably between being a ‘domestic’ legal system, subject to international law in much the same way as any other state and a ‘regional (economic) organisation’, itself generating international law. This double qualification of the EU leads to problems beyond the specific area of international arbitration. It is addressed in EU external relations law,⁴ various sub-disciplines of general international law⁵ and, increasingly, in the law of state responsibility.⁶

The ‘specific nature’ of the EU,⁷ which originates in the fact that it was set up with its own institutions, leaves a question mark over the relationship between EU law and international law. This has important practical consequences for the resolution of conflicts between the two systems. It has also implications for the role or applicability of EU law in international law and adjudication and, conversely, for the role and applicability of international law in EU law and adjudication. Solutions depend on whether one takes the perspective of EU law or international law.⁸

B.International Arbitration as Part of International Law

At first sight, international arbitration is somewhat easier to classify. It is part of international law, although it is not a substantive area of law but rather a specific form of international adjudication which is used across various areas of international law disciplines. Like general international law, international arbitration is based on bilateral or multilateral treaties between states (ie it is intergovernmental in nature).

The most important multilateral treaties that should be mentioned here are the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1958 (the ‘New York Convention’, hereinafter NYC), and the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States of 30 September 1966 (ICSID). To be clear, there are also mechanisms of state-to-state arbitration, for example under the Dispute Settlement Mechanism of the World Trade Organisation (WTO), but the focus here will be on international arbitration either between individuals or between individuals and states (investor–state dispute settlement, ISDS).

Arbitration between individuals can only take place in international commercial arbitration (ICA), while arbitration between individual investors and states can take the form of either ICA (if based on a contract between investor and state), or investment treaty arbitration (ITA). These three scenarios need to be clearly distinguished. Nevertheless, they do have crucial procedural features in common, in particular the quasi-judicial decision-making by party-selected arbitration tribunals that are largely independent from national courts. These tribunals operate in a non-hierarchical way with no formal doctrine of precedent and no possibility of appellate review within the arbitral system – with the exception of a very narrow form of oversight within the ICSID system,⁹ or under certain institutional arbitration rules like those of the International Chamber of Commerce (ICC).¹⁰ Outside the arbitral order, national courts can play a significant role, which will be looked at below (see II B below).

II.Restrictions on International Arbitration by the EU’s Judicial System

This system of adjudication based on international law does not fit easily within the EU’s supranational structure. One reason is the EU’s judicial system (EU judiciary) as such, the other the EU’s foundational principles. Both are closely linked to each other through the Court of Justice of the European Union.

A.The Role of the Court of Justice of the EU

Starting with the first, the EU judiciary consists of the Member State courts, and the EU’s Court of Justice in the broader sense. According to Article 19 TEU, this includes the Court of Justice (CJEU), the General Court (formerly called the Court of First Instance), and any specialised court(s) that after the demise of the Civil Services Tribunal may be created in the future.

The Member State courts function as ‘ordinary’ EU courts to the extent they are applying EU law.¹¹ In that role, they are hierarchically inferior to the Court of Justice, which remains the final authority on the interpretation of EU law.¹² However, the latter sits not only at the top of the judicial hierarchy, but is also understood as the EU’s ‘motor of integration’, given that the EU is an ongoing project of economic and political integration.¹³ In this role, the CJEU has been at times actively developing the EU’s legal or ‘Constitutional’ foundations. In the early 1990s, these were summarised under just four doctrines: direct effect, primacy, implied powers, and human rights. Crucially, these were said to be topped up by judicial remedies and enforcement.¹⁴

The list of EU Constitutional doctrines has grown over time and, in the Court’s own words, now consists of a ‘structured network’ of rules and principles that still has primacy, direct effect and EU fundamental rights at its core, but also includes the principles of autonomy and mutual trust (sincere cooperation).¹⁵ To these, the Court adds the Constitutional structure of the EU, its institutional framework and the integration process itself as the EU’s ‘raison d’être’.¹⁶ Recently, the Court has also added the principles of conform interpretation (of national law in light of EU law) and state liability.¹⁷ In any event, the Court continues to repeat the importance of the judicial system.¹⁸

Noteworthy at this stage are, in particular, the autonomy of EU law, the principle of mutual trust, and the principle of equivalence and effectiveness. This is where the above-mentioned link between EU foundations and its judicial structure can best be seen. The reason is that the CJEU has played a crucial role in defining these unwritten principles. They can be understood as being process related,¹⁹ and hence have important implications for the relationship between EU and international arbitration.

In a nutshell, these unwritten principles have the following effects on international arbitration. First, there is the question of arbitrability (ie the gateway for an individual dispute to reach an arbitration tribunal). EU law is exclusively interpreted by the CJEU, which relies on the Member State courts for reference of any open questions under Article 267 TFEU. For international arbitrations to which an EU Member State is a party, this means that they must not involve questions of EU law: Member States are prohibited from submitting any EU law related disputes to a forum other than the CJEU (Article 344 TFEU). This has been held to apply also to investor–state disputes.²⁰

Second, there are issues regarding the enforcement of arbitration agreements. The Member State courts in their role as ‘ordinary’ EU courts are linked by mutual trust. This means that when they apply EU law such as the Brussels (recast) Regulation,²¹ they are no longer merely courts of different nation states, bound only by international treaties and comity. Instead, to take the best-known example, the procedural powers of Member State courts in civil and commercial matters are strictly confined even in the absence of specific EU law provisions. In practice, this has translated into an EU-wide prohibition of anti-suit injunctions to enforce arbitration agreements, since that would interfere with mutual trust as basis of the Brussels Regulation.²²

Third, general principles of EU law impact on the enforcement of arbitral awards within the EU. Even when applying their own national law, Member State courts are bound by the principles of equivalence and effectiveness. Hence, they must interpret their national public policy exemptions to the enforcement of arbitral awards in line with EU public policy.²³ It is up to the CJEU as primus inter pares to decide what parts of EU law constitute EU public policy.

The EU’s supranational features overall mean that it is in a special position when it comes to defending its ‘domestic’ legal order vis-à-vis any form of potentially undue interference by international law. It must also ensure that there is enough space for further development (or alteration of direction) of the ongoing integration process. This is made difficult by the fact that there are still no clear conceptual alternatives to the nation state model.²⁴ This might also explain the much criticised, very reluctant approach taken by the CJEU towards accession to the European Convention of Human Rights (ECHR).²⁵

Nevertheless, it falls short of a full justification. As will be discussed in more detail in chapter two, the CJEU is defending its own position as the ultimate decision-maker even if there is only a possibility that EU law may be said to be at stake in an international dispute. I will refer to this as the ‘EU judicial supremacy’. This can put the EU squarely on a collision course with general international law²⁶ and, more specifically, with international arbitration.

B.‘Party Autonomy’ Challenged by EU Judicial Supremacy

International arbitration is typically understood as a self-contained legal regime (see chapter two) based on party consent, which allows for disputes to be solved mainly outside national courts. This independence is most obvious in ICSID arbitrations, which do not have a...