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The post below was written by Sylvain Bollée, who is Professor at Paris 1 Panthéon-Sorbonne University. It is the fourth contribution to the EAPIL online symposium on the English Law Commission’s proposed reform of the law governing arbitration agreements. The previous posts of Alex Mills, Manuel Penades and George Bermann can be found here, here and here.

Readers are encouraged to participate in the discussion by commenting on the posts.

We are aware that some users are experiencing technical issues while posting comments: while we fix these issues, comments may be sent to Ugljesa Grusic (u.grusic@ucl.ac.uk). 

For a French lawyer, the Law Commission’s proposal concerning the determination of the law governing the arbitration agreement is of particular interest. It comes a little less than a year after the decision rendered by the French Court of Cassation in the Koot Food Group case (Civ. 1st, 22 September 2022, No. 20-20.260), in which the French and English courts were notoriously divided on the contemplated issue.

Without going into the details of the solutions found in English case law, their key points can be summarized (albeit with a degree of approximation) – as follows: 1) the parties are free to choose the law applicable to the arbitration agreement; 2) a choice of law clause stipulated in the matrix contract will generally be held applicable to the arbitration agreement; 3) in the absence of any choice of law, the arbitration agreement will generally be governed by the law of the seat chosen by the parties.

In order to understand the French approach, it is important to bear in mind that it is primarily based on the rejection of any conflict-of-laws reasoning and, supposedly, the application of any national law to the arbitration agreement. French courts directly apply “substantive rules” (règles matérielles) which, to a large extent, seek to give effect to the parties’ common intent to submit their dispute to arbitration. In reality, this “substantive rules method” inevitably amounts to applying rules that are a creation of the French legal system. Thus, in the final analysis, it is not so much the application of legal rules from national sources that is set aside, but rather conflict-of-laws rules and all foreign laws (and also, at least in theory, the application of French law rules applicable to domestic situations). The Dalico judgment (Civ. 1st, 20 December 1993, No. 91-16.828), which is the landmark decision on the subject, does not bring this out so clearly. But that is indeed the methodological approach which, in principle, prevails before French courts. Obviously, the underlying policy is to favour the validation of arbitration clauses and, by implication, the enforcement of arbitral awards.

One question is whether the parties may still choose to submit their arbitration agreement to a foreign law. As a matter of principle, the French Court of Cassation has answered in the affirmative. But the existence of such an electio juris is not easy to establish: according to the terms of its judgment in Koot Food Group, “the parties must have expressly submitted the validity and effects of the arbitration agreement itself to such a law”. This entails that a choice of law clause stipulated in the matrix contract, with no specific indication as to its applicability to the arbitration agreement, will not be regarded as sufficient. As a result, the application of the substantive rules method will likely not be overturned in the vast majority of cases.

The Law Commission’s proposal would significantly narrow the gap between the English and French solutions. Of course, from a methodological point of view, there is still a profound divergence: the English approach does not deviate from conflict-of-laws reasoning in the first place, whereas the French approach only grants it a secondary role. But if one looks at the solutions in terms of their practical results, two points of convergence stand out.

The first is a strict limitation of the cases in which the existence of a choice of law clause applicable to the arbitration agreement will be deemed to be established. An express choice will be required, and it will not be sufficient to refer to the existence of a choice of law clause in the matrix contract.

This immediately gives rise to an objection: why exclude the possibility of an implied choice? If the arbitrator or the judge is convinced that the parties have implicitly agreed on the application of a certain law, is it not unfortunate that he or she is obliged to disregard this implicit choice? Of course, one should not be too quick to dismiss the prima facie advantages of the solution: it is expected to close the door to overly subtle discussions, costly litigation and, in the end, what is perceived as legal uncertainty. But can this objective really be achieved? Only to a limited extent, because the existence of an express choice might also be debated. My colleague Dr Manuel Penades rightly raised this point in his contribution and I will take one of his examples here: what will be decided in the case where the matrix contract contains both a choice of law clause the scope of which (as per its very wording) is “the Agreement”, and a clause that defines “the Agreement” as all the clauses contained in the contractual document (which, by hypothesis, will include the arbitration clause)? Commercial contracts regularly include such provisions and I suspect reasonable people might disagree about the existence of an express choice in the considered scenario.

Besides, it would seem to be in the nature of things that a choice of law clause included in the matrix contract should apply to the arbitration agreement, as long as it does not turn out that the parties intended otherwise. In this respect, it has been convincingly objected to the Law Commission’s proposal that it disregards the normal expectations of the parties (see the Final report, paras 12-32 et seq.). As a matter of fact, international contracts very often contain choice of law clauses, which tend to support the view that the parties are keen to settle the issue of applicable law themselves. At the same time, they generally say nothing specific about the law applicable to the arbitration clause. Why is that? Precisely, I believe, because they naturally assume that the choice of law clause they have inserted in the contract will also apply to the arbitration agreement. It is regrettable that the Law Commission’s proposal does not draw the consequences from this, all the more so as the application of two different laws – one to the matrix contract and the other to the arbitration clause – is not without practical disadvantages: it is likely to result in undesirable complexity, if not inconsistencies. This objection is not new and concerns about such a split in the applicable law were raised during the consultation process (see the second consultation paper, paras 2.66 and 2.67).

The second point of convergence between the Law Commission’s proposal and French law pertains to the case (which, in practice, is likely to be by far the most common) where the parties are deemed not to have expressly chosen the law applicable to the arbitration agreement. If the seat of the arbitration is in England, the English court will do what the French court would do in its place: it will apply its own law. In fact, this appears to be one of the main reasons why the Law Commission found it adequate to rule out the possibility of an implied choice: combined with the default rule in favour of the law of the seat, that solution is likely to ensure the applicability of English law in the contemplated situation and, correlatively, to protect the arbitration clause against the effects of a foreign law which might be less supportive of arbitration (see the Final report, paras 12-18, 12-72 and 12-73). Such a pro-arbitration attitude is also at the root of the French method of substantive rules and, arguably, the reluctance of French courts to acknowledge the existence of a choice of law clause which might submit the arbitration agreement to a foreign law.

This being said, French law goes much further in its policy of favouring the validity of arbitration agreements: its substantive rules method applies independently of any conflict of laws rule, so that the benefit of the pro-arbitration rules of French law is not restricted to arbitrations seated in France. The resonance of this approach is all the greater in the light of another aspect of French law: as shown by the decisions rendered in the well-known Hilmarton (Civ. 1st, 23 March 1994, No. 92-15.137) and Putrabali (Civ. 1st, 29 June 2007, No. 05-18.053) cases, the annulment of the award in the country of the seat does not constitute a ground for non-recognition in France. Thus, if the court of the seat of the arbitration, applying its own law, considered that the arbitral tribunal lacked jurisdiction, this will not prevent the French courts from granting exequatur to the award. The Law Commission’s proposal, as it provides for the application of the law of the seat even when it is located abroad, is a reminder that profoundly different conceptions of international arbitration prevail on either side of the Channel.

I discussed Richard de La Tour AG’s Opinion in C-590/21 Charles Taylor Adjusting Limited v Starlight Shipping Company and Overseas Marine Enterprises Inc here.

The CJEU held last week, [27] qualifying as the AG did, the English orders as a quasi anti-suit injunction in the circumstances of the order (leaving some room for distinguishing).

Rather more so (and correctly so) than its AG, it [35] points to the nature of ordre public as expressed in (now) A45 BIa as being a concept of the national legal order of the Member States, even if [36] the origin of that rule may lie in EU law (such as here the rule [37] that “every court seised itself determines, under the applicable rules, whether it has jurisdiction to resolve the dispute before it”).

The CJEU’s reference to Meroni and its stating that a Member State “cannot, without undermining the aim of [Brussels Ia], refuse recognition of a judgment emanating from another Member State solely on the ground that it considers that national or EU law was misapplied in that judgment” [29], with reference ia to Liberato), imho mean that it does not push the principle of ‘non-review’ quite so emphatically as the AG did, however one cannot see in what circumstances an order such as this would survive (now) Article 45.

Finally, the CJEU does not discuss the AG’s ‘ ‘unless it gives effect to a decision which would have been prohibited in direct proceedings’, which I flagged in my earlier post.

The judgment is consistent with the (much contested) Turner and West Tankers approach, and it leaves some open questions on the qualification of orders as ‘quasi anti-suit’,  and the individual circumstances in which they might not clash with ordre public.

Geert.

(EU Private International Law, 3rd ed. 2021, ia 2.95 ff.

#CJEU European court confirms 'quasi anti-suit injunctions' (here ia related to cost order) may fall foul of BIa's recognition rules: MSs may use ordre public to refuse to enforce

C‑590/21 Charles Taylor Adjusting v Starlight Shipping re: The Alexandros Thttps://t.co/u5vT91nLjN

— Geert Van Calster (@GAVClaw) September 7, 2023

The post below was written by George A Bermann, who is Walter Gellhorn Professor of Law and Jean Monnet Professor of European Union Law at Columbia Law School. It is the third contribution to the EAPIL online symposium on the English Law Commission’s proposed reform of the law governing arbitration agreements. The previous posts, by Alex Mills and Manuel Penades, can be found here and here. 

Readers are encouraged to participate in the discussion by commenting on the posts. Those wishing to submit longer analyses are invited to do so by e-mailing Ugljesa Grusic (u.grusic@ucl.ac.uk).

The relationship between the law (if any) chosen in the arbitration clause and the law of the seat is unsettled in the US.

It was taken up in the Restatement of the US Law of International Commercial and Investor-State Arbitration. The gist of the Restatement is that, while the law of the seat governs the conduct of the arbitration, it does not govern the interpretation of the arbitration agreement. Interpretation of the arbitration agreement should of course be governed by the law, if any, chosen in the arbitration clause itself. (I note that the court in Enka v. Chubb cited the Restatement in support.)

There was debate over whether, in the absence of a choice of applicable law in the arbitration clause, the arbitration agreement should be governed by the law, if any, chosen in the main contract. The view that ultimately prevailed is that more respect on matters of choice of law should be given to any expression of preference as to choice of law in the contract (even if not in the arbitration clause) over the law of the seat. That was a choice of seat, not a choice of law (other than the law of arbitration of the seat).

Unfortunately, the Restatement drew no distinction between issues of the interpretation and the validity of the arbitration agreement. More on that below.

The Restatement did not go much further, but the thinking behind it can be amplified and extrapolated. I attempt to do so below. I hasten to add that what follows happens also to be what I think the law should be.

It is this framework that I would use in assessing the differences between US law and the law advanced by the Law Commission.

As a general matter, I believe that Report in some cases fails to make an important distinction and in other cases, acknowledges the distinction, but makes the wrong choice.

I set out below what I consider to be these important distinctions:

1. Distinction between the purposes underlying a choice of law in the arbitration clause (absent which in the law of the main contract) and the purposes underlying a choice of law function of the arbitration law of the seat

When parties choose a seat, they are choosing a seat, full stop. We should not suppose they are choosing an applicable law of any kind other than the arbitration law of the seat (lex arbitri).

By contrast, when parties indicate an applicable law in their arbitration agreement they are making a choice of applicable law. But, absent an indication of an applicable law in the arbitration clause, where else did the parties express a choice of law preference? They expressed it in the choice of law clause in the main contract. There too they are making a choice of applicable law, and their choice of an applicable law should be respected.

2. Distinction between the law of the arbitration agreement and the law of the main contract

This result should be unaffected by the principle of separability. The principle of separability exists for one reason: to ensure that the demise of the main contract (as invalid) does not entail the demise of its arbitration clause. That is why we have the separability principle. It should not be extended to functions (such as choice of law) for which it was not intended.

3. Distinction between “arbitration law of the seat” and “law of the seat”

It is vital to distinguish between the arbitration law of a jurisdiction (lex arbitri) and the whole body of law at the seat, and we too often fail to do so by referring sloppily to “the law of the seat”. An arbitration statute should make clear what it is talking about when it refers to “the law of the seat.”

When the parties chose a seat they certainly chose the lex arbitri of the seat. But, notwithstanding, it seems to be assumed that when the law of the seat is referred to, it includes at least some parts of the law of the seat outside the lex arbitri. For example, if the formation or validity of an arbitration agreement is called into question, the law of the seat may include the law of contract of the seat. If contract law at the seat treats coerced contracts as invalid, then that would apply to a claim that the arbitration agreement was coerced.

4. Distinction between the issues of interpretation and issues of validity

As I mentioned, the Restatement fails to distinguish between issues of interpretation and validity, but it should have.

The law chosen in an arbitration agreement most fundamentally determines the interpretation of that agreement (such as its scope). There is absolutely no reason why the law of the seat should have anything to say about the meaning and scope of the arbitration agreement. If there is no choice of law in the arbitration agreement, then interpretation of the arbitration agreement should be governed by the law chosen in the main contract (on the reasoning set out above).

The question of the validity of the arbitration agreement is slightly more subtle.

Suppose the arbitration agreement is invalid under the law, if any, designated in the arbitration agreement, failing which the law governing the main contract, then it is invalid. It should not matter that it happens to be valid under the law of the seat.

On the other hand, conversely, if the arbitration agreement is invalid under the law of the seat, it is invalid, even if it would be valid under the law, if any, designated in the arbitration agreement, failing which the law governing the main contract. Why? Because the seat has a legitimate interest in the validity of the arbitration agreement giving rise to an arbitration on its territory.

More generally, one should not assume that if the law of the arbitration agreement is not the law of the seat, the seat’s policies risk being impaired. But that is not the case. Under no circumstance can the law of the arbitration agreement or the law of the main contract override the mandatory norms of the arbitration law of the seat (or the public policy of the seat).

The approach set out here is of course contrary to the so-called “validation principle,” and deliberately so. The impetus is a belief that the law chosen by the parties (even that in the main contract) deserves a measure of respect, as does the law of the seat. More delineation should be given to the matter than is generally given. I believe it is sometimes assumed that, unless you give as much weight as you possibly can to the law of the seat, you are not pro-arbitration, which is not the case.

5. Distinction between the mandatory and default law provisions of the lex arbitri

Focusing now on the lex arbitri, it contains both mandatory and default rules. Its mandatory law provisions (and principles of public policy at the seat more generally) must be respected. But its default rules can be contracted around by the parties.

How can parties contract around the arbitration law at the seat? Obviously parties can contract around default rules of the seat by a term of their arbitration agreement. But they should also be allowed to contract around the default rules of the seat via the law designated in the arbitration clause.

Whether they can contract around the default rules of the seat via the law governing the main contract will be more controversial, but, for the reasons set out above, they should be able to do so.

Thoughts on Specific Provisions of the Report and Recommendation

1. 12.17: I do not share the view that subjecting an arbitration agreement to the law of the main contract is a threat to the UK as a seat. It is no more a threat than application of a law chosen in the arbitration clause itself; yet the Report allows the latter to apply in lieu of the law of the seat (sec. 12.17).
2. 12.18, 12:47: The Report treats a choice of law clause in the main contract as only an “implied” choice of law for the arbitration agreement. Driving a wedge between the law designated in the arbitration agreement and the law designated in the main contract is an unwarranted extrapolation of the separability principle.
3. 12.19: I see nothing wrong with the law designated in either the arbitration clause or the main contract with displacing the non-mandatory law of the seat.
4. 12.22: the rule in Enka v. Chubb is not “too complex and unpredictable”.
5. 12.25: as may be expected, I, like those commenters referred to here, do not believe the placement of the choice of law clause in a contract should be determinative.
6. 12.35: This is just another assertion of separability where it doesn’t belong.
7. 12.40: This view is correct. When parties choose a seat, they do not think they are choosing anything more than the seat. Maybe they should be bound by the lex arbitri, but why by the law of the seat writ large?
8. 12.53: What is said here makes no sense. To have the law chosen in the main contract govern the arbitration agreement in no way compromises the parties’ decision to arbitrate. The parties will still arbitrate, won’t they?  The arbitration clause is 100% intact. What the Report is in effect doing is to convert the notion of “the decision to arbitrate” into the notion of “the decision to arbitrate under the law of the seat.” In other words, the remark already assumes what the Report wants to establish, namely necessarily subject the arbitration agreement to the law of the seat.  Moreover, if giving effect to a choice of law (other than the law of the seat) in the arbitration clause itself – which the Report clearly allows – does not undermine the decision to arbitrate, then giving effect instead to the applicable law clause in the main contract doesn’t undermine that decision either. Here, the Report is “question-begging.”
9. 12.66: I do not understand the Report’s aversion to using the law designated in the main contract in the rare situation that no seat was yet chosen.
10. 12.73: Here and elsewhere it is said that we can’t allow a choice of law in the main contract to override the parties’ intent to arbitrate. But it doesn’t override. We can easily give effect to the parties’ intent to arbitrate without subjecting the arbitration agreement in all respects to the law of the seat.

The post below was written by Manuel Penades, who is a Reader in International Commercial Law at King’s College London. It is the second contribution to the EAPIL online symposium on the English Law Commission’s proposed reform of the law governing arbitration agreements. The previous post, by Alex Mills, can be found here. 

Readers are encouraged to participate in the discussion by commenting on the posts. Those wishing to submit longer analyses are invited to do so by e-mailing Ugljesa Grusic (u.grusic@ucl.ac.uk).

This post examines the changes proposed by the Law Commission of England and Wales to the choice of law rules for arbitration agreements. Previous contributions to this Symposium have transcribed the text of the draft legislation, which can be found here. The Law Commission introduces three significant amendments that impact the three steps of the common law doctrine of the proper law of the contract. First, the proposal limits the types of choice of law clauses that can demonstrate an express selection of the law applicable to arbitration agreements. Second, it eliminates the possibility to choose the governing law impliedly. Third, it replaces the closest and most real connection test with a hard-and-fast rule in favour of the law of the seat.

Each of these changes requires analysis, followed by a reflection on the New York Convention.

Express Choice of Law

The new rule continues to respect the parties’ freedom to choose the law governing their arbitration agreement. Party autonomy, however, is tempered by proposed section 6A(2) of the Arbitration Act, which provides that an ‘agreement between the parties that a particular law applies to the contract to which the arbitration agreement forms part does not, of itself, constitute an express agreement that that law also applies to the arbitration agreement’. The rule is apparently simple and excludes the possibility to rely on a generic choice of law clause applicable to the contract that includes the arbitration agreement. Section 6A(2) AA, however, does not capture other scenarios, which might become a source of controversy.

The first refers to cases in which the only choice of law in the whole contract is found in the arbitration agreement itself (e.g., ‘the arbitrators shall decide the dispute in accordance with the law of X’). While these cases do not refer to the arbitration agreement specifically, they are express references to the governing law of the whole contract and are contained in the arbitration agreement itself. It is unclear whether these choices will be express enough to satisfy section 6A(2) AA.

The second scenario refers to cases in which the matrix contract not only includes an express choice of law clause applicable to the whole ‘Agreement’, but also a clause in the contract that defines ‘Agreement’ as encompassing all the clauses incorporated in the contractual document, including the arbitration agreement. The UKSC ruled in Kabab-Ji v Kout Food [2021] UKSC 48 that ‘the effect of these clauses is absolutely clear’ [39] and amounts to an express choice also for the arbitration agreement. The Law Commission’s proposal does not mention whether section 6A(2) AA intends to overrule Kabab-Ji. In these scenarios it is not the generic choice of law clause ‘of itself’ that supports the finding of an express choice of law but the combined reading of that clause alongside the definition of the term ‘Agreement’ expressly agreed by the parties in another clause of the contract.

Neither of these uncertainties would exist in the current regime under Enka v Chubb [2020] UKSC 38, as the same law would apply under express or implied choice of law.

The Elimination of Implied Choice of Law

Enka clarified that the designation of a seat does not amount to an implied choice of the law governing the arbitration agreement. This reduced, yet did not eliminate, the uncertainty surrounding implied choice. The proposal of the Law Commission goes much further; it eliminates implied choice altogether from the choice of law rules applicable to arbitration agreements. This is quite revolutionary and might come as a surprise.

Notwithstanding the complexities caused by its application, the courts of England have never questioned the acceptance of implied choice and the UKSC confirmed in Enka that ‘an implied choice is still a choice which is just as effective as a choice made expressly’ [35]. An implied choice is a manifestation of party autonomy, a principle which is at the root of English contract and private international laws.

The proposed new rule also runs contrary to the acceptance of implied choice of law in the vast majority of instruments governing international business transactions (see article 3.1 Rome I, article 14.1 Rome II or article 4 Hague Principles on Choice of Law).

Against this background, disregarding an implied choice of law might seem a step backwards in the common law tradition and global trends. The truth, however, is that decades of arbitration-related litigation in England demonstrate that the inquiry around implied choice is a source of significant uncertainty, expense and tactical litigation. The Law Commission is willing to adopt a regime that disregards cases of real (yet implied) choice of law in exchange for the certainty and savings produced by the elimination of implied choice of law. This less litigious regime makes for better arbitration regulation and strengthens the position of England as efficient arbitration destination.

The proposed solution does not necessarily curtail party autonomy. In fact, the rule after Enka that an implied choice of law for the matrix contract automatically amounts to an implied choice of law for the arbitration agreement, while apparently straightforward, might not always be reflective of the real intent of the parties. The proposed rule eliminates such risk of artificiality.

Further, case law shows that in most disputes where the issue of implied choice arises, English law offers the most arbitration-friendly outcome among the various alternative laws. Under the proposed reform, those cases will be resolved frequently in favour of English law pursuant to the default rule. This will generally protect the parties’ agreement to arbitrate more than under the current regime.

From a normative point of view, the Law Commission’s proposal also eliminates the somewhat artificial cases of double implication, where an implied choice of law for the matrix contract is used as evidence to find an implied choice of the law governing the arbitration agreement (see the conclusion of the minority in Enka [207, 228]).

Finally, the proposal eliminates the confusion sometimes perceived in English judgments between the test applicable to imply a choice of law and the (stricter) requirements to imply an ordinary contractual term [Enka [35] or Kabab-Ji [53]].

The Law of the Seat and Role of the Validation Principle

Under the proposed regime, the absence of an express choice results in the application of the law of the seat. Hard-and-fast rules are alien to the common law doctrine, where the reference to the closest and most real connection permits certain room for manoeuvre in the determination of the applicable law. Other choice of law regimes that provide hard-and-fast rules incorporate escape clauses that allow for the exceptional disapplication of the identified law (e.g., article 4.3 Rome I). In contrast, the proposed rule lacks any reference to the possibility to escape from the law of the seat.

One could wonder whether this could be a residual role for the validation principle. This principle was used in Enka to support the application of the law of the seat when an implied choice in favour of the law of the matrix contract led to a serious risk that the arbitration agreement would be invalid or ineffective. The expulsion of implied choice from the proposed regime would eliminate the raison d’etre of the validation principle. Still, the Law Commission does not exclude the principle in absolute terms, and rather states that ‘we do not need the validation principle for that purpose’ [Para. 12.56]. The question then arises whether other purposes exist.

One option would be to retain the application of the validation principle to correct express choices of law that render the arbitration agreement invalid or ineffective. The answer should be negative. The role of courts is not to improve the contract (Arnold v Britton [2015] UKSC 35, [20]). The validation principle allows the court to resort to the more favourable interpretation when the contract allows for various possible interpretations. When the choice is express, however, there is only one undisputable choice, even if it renders the arbitration agreement invalid or ineffective. In those cases, party autonomy (and the pathologies derived from it) must prevail. Any deviation from the principle of party autonomy would have required an express rule in the Law Commission’s proposal.

The other possible application of the validation principle would be in the context of the default rule, when the law of the seat renders the arbitration agreement invalid or ineffective. Indeed, the majority of the UKSC in Enka suggested (but did not confirm) that the closest connection test might itself be subject to the validation principle [146]. As noted by the Law Commission [para. 12.58], my response to the Second Consultation said that it would be odd to apply the validation principle to escape from an invalidity provided by English law itself under the default rule. However, the proposed default rule is not just in favour of English law, but in favour of the law of any seat. This approach could open the door to the application of the validation principle when, unlike the law of the seat, English law rendered the arbitration agreement valid and effective. While the Final Report of the Law Commission does not explore this option, such extended reach of the validation principle would deviate from the finality and simplicity with which the Law Commission views the default rule. Also, it might not be an appropriate and efficient policy to use English law to enforce a foreign arbitration agreement when the parties have not selected the governing law and the law of the seat would render it invalid or ineffective.

The Conflict with the NYC

Article V(1)(a) NYC provides that arbitration agreements shall be governed by the law to which the parties subjected it or, failing any indication thereon, by the law of the country where the award was made. The default rule in the Law Commission’ proposal aligns English law with the NYC, which is a welcome result.

Section 103(2)(b) AA incorporates article V(1)(a) NYC and therefore allows ‘any indication’ of choice of law made by the parties. The UKSC concluded unanimously in Kabab-Ji that ‘the word “indication” signifies that something less than an express and specific agreement will suffice’ [33]. It is unclear whether the Law Commission intends the new choice of law rule to apply in the context of section 103 AA. The UKSC said in Kabab-Ji that the common law rules on choice of law for arbitration agreements were not ‘directly applicable’ in the context of NYC enforcement actions [35]. Also, awards caught by section 103 AA have a foreign seat by definition and are not English arbitrations. Still, the proposal makes it clear that ‘the new rule would apply whether the arbitration was seated in England and Wales, or elsewhere’ [12.75]. An option would be to interpret this statement as referring to every scenario in which English courts examine an arbitration agreement (whether seated in England and Wales or elsewhere) with the exception of cases caught by section 103 AA. That is, two different choice of law treatments would co-exist within the Act. This internal dealignment would be undesirable and could lead to serious inconsistencies. The same arbitration agreement in favour of an arbitration seated abroad could be subject to different laws in pre-award disputes (e.g., section 9 AA) and post-award litigation (e.g., section 103). The UKSC said in Enka [136] and in Kabab Ji [35] that this divide would be ‘ilogical’.

The better interpretation is that the Law Commission’s proposal also extends to section 103 AA cases. Nothing in the proposal expressly excludes this reading. In fact, the Report argues that the NYC allows, but does not require, the recognition of implied choices [12.47] and concludes that the proposal is compatible with the NYC [12.52]. Ultimately, the new rule replaces the common law doctrine with a statutory provision, which becomes part of the of the regulatory fabric of English arbitration law and should not be limited, unless otherwise provided, to areas originally governed by the common law. Section 100(2) AA shows that critical parts of the notion of arbitration agreement in Part III (where section 103 AA belongs) ‘have the same meaning as in Part I’ (where the new section 6A AA would be placed). Such internal coherence of English arbitration law supports the application of the proposed rule across the board. Still, should Parliament adopt of the Law Commission’s proposal, they would need to be aware of two undesirable (yet tolerable) dealignments.

The first is that English law would move away from the prevailing interpretation of article V(1)(a) NYC as regards the acceptance of implied choice. The UKSC in Kabab-Ji objected to this departure and held that ‘it is desirable that the rules set out in article V(1)(a) for determining whether there is a valid arbitration agreement should not only be given a uniform meaning but should be applied by the courts of the contracting states in a uniform way’ [32]. Still, England would not be alone in this travel. For instance, France has also departed from the choice of law rule in the NYC. Moreover, the generally pro-arbitration results usually achieved by the proposed rule could well place the reform within the favourable gateway of article VII NYC.

The second consequence is that the same arbitration agreement (and award) might be treated differently between English and foreign courts if an existing implied choice of law disregarded in England is effective in other jurisdictions. It should be noted, however, that retaining the possibility of implied choice does not guarantee the uniformity of outcome. For instance, the same dealignment of outcome could occur between two legal systems that accepted the possibility of implied choice of law if one favoured the law of the matrix contract whereas the other veered toward the law of the seat.

Conclusion

The reasons above support the view that the potential disregard of real (yet implied) choice in some exceptional cases and the risk of some disfunctions derived from the described dealignments would be compensated by the significant simplification and savings produced by the Law Commission’s proposal. The draft Bill is therefore well-founded, courageous and beneficial to reinforce English law’s position at the forefront of international arbitration globally.

The post below was written by Alex Mills, who is Professor of Public and Private International Law at University College London. It is the first contribution to the EAPIL online symposium on the English Law Commission’s proposed reform of the law governing arbitration agreements.

Readers are encouraged to participate in the discussion by commenting on the posts. Those wishing to submit longer analyses are invited to do so by e-mailing Ugljesa Grusic (u.grusic@ucl.ac.uk).

The Law Commission of England and Wales has produced a deeply thoughtful and well-researched Report, which proposes a number of very welcome reforms to the Arbitration Act 1996. Regretfully, however, I have significant reservations about the proposal which is the subject of this Symposium – the adoption of a new choice of law rule for arbitration agreements. This proposal is based on the Second Consultation Paper produced by the Law Commission in March 2023, and this comment draws on my Submission which responded to that Consultation Paper.

The rules for identifying the law applicable to an arbitration agreement have long been the subject of debate. The issue was prominently addressed by the UK Supreme Court in Enka v Chubb [2020] UKSC 38, which acknowledged (at [3]) that it had “long divided courts and commentators, both in this country and internationally”. The decision in Enka v Chubb has, however, strikingly failed to end the division among commentators. I understand why the Law Commission considered it desirable to address this question, because of the importance of the issue and the policy considerations it presents, and because it has been suggested that there is a lack of clarity in the Supreme Court’s judgment in Enka v Chubb. This issue is complex and reasonable arguments can certainly be made on both sides, as indeed acknowledged in the impressive Report and Second Consultation Paper. I am, however, not convinced of the proposal set out in the Report, which is that “the Arbitration Act 1996 be amended to provide that the arbitration agreement is governed by the law of the seat, unless the parties expressly agree otherwise” [Report, 12.77]. In this post I set out what I understand to be the relevant principles, and explain how these broadly support the rule adopted by the Supreme Court in Enka v Chubb, which has also been followed in other common law jurisdictions (such as Singapore and Hong Kong).

A first and well-known key principle is that the law governing the arbitration agreement need not be the same as that governing the remainder of the contract, sometimes referred to as the ‘matrix contract’. This is because of the principle of separability, which allows for a distinct analysis of the arbitration clause’s applicable law.

A second key principle is party autonomy, which is the starting point for analysis of any contractual choice of law issue, and particularly important in arbitration because of its contractual foundations. An agreement as to the law which governs a contract or a clause of a contract must generally be given effect, absent considerations of public policy. Traditionally, a choice of law may be express or implied – if the latter, the search is for factors which demonstrate a real (but undocumented) choice, not a choice which is imputed to the parties as one which they ought to have made.

In the absence of a real choice, it is necessary to consider not the intentions of the parties but the objective factors linking the contract to a particular system of law. Arbitration clauses remain subject to the common law choice of law rule, under which the objective test is sometimes described as a search for the system of law with ‘the closest and most real connection’ to the contract or contractual clause. An arbitration clause will generally be most closely connected to the place where it is to be performed, which is the seat of the arbitration (see further Enka v Chubb, at [120] et seq).

In the law of arbitration, another principle is that of efficiency, but this principle is secondary to that of party autonomy. While the fact that efficiency is generally a goal for parties and for arbitration can assist in interpreting arbitration clauses (see eg Fiona Trust v Privalov [2007] UKHL 40), parties may choose to have their agreements resolved according to inefficient arbitral procedures should they so wish. The law should not interfere with their choices merely because they are thought unwise or undesirable.

Choice of Law Rule in Enka v Chubb

On the basis of these clear principles, the law applicable to an arbitration agreement should be governed by the following rule, comprised of three parts in hierarchical order. This is, in essence although not form, the rule set out by the Supreme Court in Enka v Chubb.

Subject to considerations of public policy, an arbitration agreement is governed by:

(i)         The law expressly chosen to govern it;

(ii)        The law implicitly chosen to govern it;

(iii)       The law with which it has its closest and most real connection, which will ordinarily be the law of the seat of the arbitration.

This rule is simple in appearance, although its application may be complex in particular circumstances, as explained further below. The analysis below does not consider the application of public policy, but it remains an important limitation.

Choice of Law Rule in the Report

The Report proposes to amend the Arbitration Act 1996, to insert the following choice of law rule:

(1) The law applicable to an arbitration agreement is—

(a) the law that the parties expressly agree applies to the arbitration agreement, or

(b) where no such agreement is made, the law of the seat of the arbitration in question.

(2) For the purposes of subsection (1), agreement between the parties that a particular law applies to an agreement of which the arbitration agreement forms a part does not, of itself, constitute express agreement that that law also applies to the arbitration agreement.

This rule differs from the previous rule in three respects. First, for an express choice to be made, it is necessary that the parties expressly agree that it applies to the arbitration agreement. Second, there is no possibility for an implied choice. Third, in default of a choice, the law of the seat is automatically applied, rather than being the ordinary outcome of the rule.

Analysis

Under existing law a choice of law for an arbitration agreement may arise in one of three ways.

First, the contract may contain a specific express choice of law agreement for the arbitration clause. In this case, the application of this law to the arbitration clause is self-evidently based on the principles of party autonomy and separability, and is not controversial. This position is maintained in the Law Commission’s proposal.

Second, there may be an implied choice of law for the arbitration agreement. This could arise, for example, where the parties have indicated an understanding that certain statutory provisions which are specific to a governing law will apply to the validity of the arbitration agreement. In this case, the application of the chosen law to the arbitration agreement once again follows straightforwardly as a matter of party autonomy and the principle of separability. One important question in this context is whether a choice of arbitral seat should give rise to an implied choice of law for the arbitration clause. This would certainly be a factor indicating a possible choice of the law of the seat, but it is not generally considered to be a decisive one on its own, as the inquiry is concerned with identifying a real choice made (but not documented) by the parties, and must be attentive to the terms of the contract and other relevant circumstances. This rule would thus in many cases lead to the same outcome as the proposed rule 1(b) in the Report, but would do so not because of a fixed rule of law but because of an implied agreement of the parties. This possibility is rejected in the Law Commission’s proposal.

Third, the matrix contract may contain an express or implied choice of law which should, unless the contrary is agreed, be interpreted to extend to the arbitration clause. This is understood to follow from party autonomy, in combination with the common sense presumption that if parties have made a choice of law for their entire contract, and have not specified a different applicable law for any particular clause of the contract, their choice extends to all of the terms of their contract – including any arbitration agreement (see eg Enka v Chubb, at [43]). This presumption is, however, rebuttable, if there are indications that the parties would not have wanted their choice to cover the arbitration agreement. It is important, however, to understand that this question is about the correct interpretation of the scope of a choice which has been made by the parties. (Here I depart slightly from the reasoning in Enka v Chubb, as I take the view that an express choice of law in the matrix contract which also applies to the arbitration clause is an express, not implied, choice of law for the arbitration clause – see also Report, at [12.34] et seq.) The issue is whether there is evidence which might rebut the common sense presumption. The rule proposed in the Report abolishes the presumption and indeed the possibility of a choice of law in the matrix contract extending to the arbitration agreement, unless it does so specifically and expressly.

There are two main justifications offered for the changes in the Report. The first is that they align with the principle of separability (Report, [12.72]). The analysis of the law applicable to the arbitration agreement is treated as an issue which is entirely unrelated to the contract of which it forms part. It is submitted, however, that this takes separability too far (see eg Enka v Chubb, at [41] and [232] et seq). Separability as a principle rightly ensures that the validity of an arbitration clause is analysed separately from the matrix contract, so that challenges to the validity of the matrix contract do not necessarily undermine the validity of the arbitration clause. This does not, however, require that the arbitration clause be treated as an entirely free-floating agreement, ignoring the context in which it was formed. Indeed, if a choice of law clause in the matrix contract is (as proposed in the Report) deemed to be irrelevant to the arbitration clause, this raises the question whether other clauses in the matrix contract are similarly irrelevant. What if the matrix contract contains an ‘entire agreement’ clause, or a ‘no oral modification’ clause? Are they also irrelevant to the arbitration clause? If not, why is the choice of law singled out, particularly as it may also have interpretive effect?

The second is that the rule proposed in the Report would be more desirable for various policy reasons. The rule would, for example, undoubtedly be clearer and easier to apply than the current position (Report, [12.74]). Applying the rule would also strongly favour the selection of English law to determine the validity of an arbitration agreement with the seat of arbitration in England, which the Report considers to be desirable on various grounds, such as the alignment of the law governing the arbitration agreement and the law governing the arbitration process, and the favourable approach of English law toward arbitration agreements (see Report, [12.16] et seq). It is submitted, however, that these justifications are also not persuasive, as they elevate efficiency and other similar policy considerations above party autonomy. In the absence of an express choice of law specific to the arbitration clause, the fixed rule in the Report in favour of the law of the seat no longer requires but rather excludes an inquiry into what the parties have actually agreed. Contrary to the analysis in the Report (eg, at [12.53], [12.73]), this is a significant constraint on party autonomy. Where parties have chosen a seat for their arbitration, but have (expressly or impliedly) chosen a different governing law for their arbitration clause, the fact that they have thereby chosen different laws for the law governing the arbitration process and the law governing the arbitration agreement may be considered undesirable, and it may be inefficient, but it is submitted that this is not a sufficient reason for the law to disrespect their choice, which is the very foundation of arbitration. The proposed rule also has the undesirable effect that the arbitration agreement and the matrix contract are more likely to be governed by different laws, which raises difficult questions concerning their consistent interpretation and validity (see, eg, Enka v Chubb, at [53] and [235] et seq). There is also a concern that arbitrators will be faced with a difficult choice between applying a law chosen by the parties (for example, through a matrix choice of law agreement, or through an implied choice), which they may consider themselves to be required to do as a matter of their contractual mandate, and applying the law that will be applied by the English courts if their award is challenged.

The Law Commission’s Report is overall an excellent example of law reform, offering carefully crafted and well-reasoned proposals for improvement. On this issue, it makes its case well, and there would undoubtedly be some benefits to the reforms which it proposes. Ultimately, however, I am not persuaded that they are consistent with the core principles that should be guiding the law. A simple and clear rule is often desirable, but in this case it is my view that the complexities of the existing rule simply reflect the complexities of arbitration, which cannot and should not be legislated away.

La Cour d’appel de Paris a consacré il y a quelques mois un principe d’effet utile de la convention d’arbitrage. Pourtant, en parallèle, elle adopte une lecture toujours plus stricte de la volonté des parties, privilégiant la volonté exprimée sur la volonté implicite, allant jusqu’à priver la clause de tout effet. Voilà une tendance qui interroge.

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On 7 September 2023, the Court of Justice of the European Union ruled in Case C-590/21, Charles Taylor Adjusting that judgements ordering a party to pay certain sums of money for violating a choice of court agreement are ‘quasi anti suit injunctions’ which violate mutual trust. The courts of Member States are therefore free to consider that such judgements violate public policy and to deny them enforcement under the Brussels I Regulation.

Background

On 3 May 2006, the vessel Alexandros T sank and was lost, along with its cargo, off the bay of Port Elizabeth (South Africa). The companies Starlight Shipping Company and Overseas Marine Enterprises Inc. (‘OME’),  the owner and operator of that vessel, respectively  requested that the insurers of that vessel pay an indemnity on the basis of their contractual liability arising from the occurrence of the insured incident.

After the insurers refused, Starlight initiated proceedings before English courts and before an arbitral tribunal. The parties settled all these actions in several Settlement Agreements, which contained a jurisdiction clause designating English courts. The Settlement Agreements were ratified by several English judgments in 2007 and 2008.

A few years later, Starlight and OME initiated tort actions in Greek courts related to the actions settled in England. One of the defendants in the Greek proceedings was Charles Taylor Adjusting Limited, a legal and technical consultancy which had defended the insurers of the vessel Alexandros T against the claims made by Starlight before the English court, and against the director of that consultancy.

While those actions were pending, the insurers of the vessel and their representatives, including, in particular, Charles Taylor and its director, the defendants in the Greek proceedings, brought actions against Starlight and ΟΜΕ before the English courts seeking a declaration that the actions brought in Greece constituted infringements of the settlement agreements and applying for declarative relief and compensation.

In 2014, the English High Court awarded the applicants compensation in respect of the proceedings instituted in Greece as well as payment of their costs incurred in England on the basis of the content of the settlement agreements and of the jurisdiction clause that they contained.

Charles Taylor and its director then sought recognition and partial enforcement of the 2014 English judgement in Greece.

The Piraeus Court of Appeal found that the 2014 English judgement amounted to a quasi anti suit injunction and should thus be denied recognition and enforcement. The Greek Court of Cassation referred the matter to the CJEU.

Judgment

The starting point of the reasoning was obviously Turner and the other judgments of the CJEU which have confirmed that anti-suit injunctions are unacceptable under the EU law of jurisdiction: ‘Any injunction prohibiting a claimant from bringing such an action must be seen as constituting interference with the jurisdiction of the foreign court which, as such, is incompatible with that regulation’.

The key issue was to determine whether other forms of assessment of the jurisdiction of courts of other Member States and sanctions of parties wrongly litigating before the courts of Member States could equally interfere with the jurisdiction of those courts.

The CJEU found that, although it did not order any party to discontinue the foreign proceedings, the English judgment still held:

26. … That judgment and those orders nonetheless contain grounds relating to, first, the breach, by Starlight and OME together with the natural persons representing them, of those settlement agreements; second, the penalties for which they will be liable if they fail to comply with that judgment and those orders; and, third, the jurisdiction of the Greek courts in the light of those settlement agreements. Moreover, that judgment and those orders also contain grounds relating to the financial penalties for which Starlight and OME, together with the natural persons representing them, will be liable, in particular a decision on the provisional award of damages, the amount of which is not final and is predicated on the continuation of the proceedings before the Greek courts.

The CJEU ruled that the 2014 English judgment thus interfered with the jurisdiction of Greek courts, and could thus be classified as a quasi anti suit injunction:

27. … While the purpose of that judgment and those orders is not to prohibit a party from bringing or continuing legal action before a foreign court, they may be regarded as having, at the very least, the effect of deterring Starlight and OME, together with their representatives, from bringing proceedings before the Greek courts or continuing before those courts an action the purpose of which is the same as those actions brought before the courts of the United Kingdom, which matter is, in any event, for the referring court to determine.

The CJEU then discussed whether the prohibition to review foreign judgments under the Brussels Regulation prevented the Greek court from denying enforcement to the 2014 English judgment. The CJEU concludes that the Greek Court could rely on the public policy exception to sanction the infringement to the principle that every court is to rule on its own jurisdiction, that other courts should trust the result, and the principle of access to justice.

Assessment

The rationale for the judgment seems to be twofold. First, the courts of the Member States should not deter litigants from bringing  proceedings before the courts of any other Member State. Second, the courts of the Member States should always refrain from assessing whether the court of other Member States have jurisdiction.

The first reason seems to exclude any interference in proceedings pending before other Member States which could be perceived as exercising pressure on one party to terminate them. It would leave open the possibility to sue after the termination of the proceedings to seek any form of remedy for initiating the foreign proceedings in violation of a choice of court agreement. The second reason, however, would seem to apply even after the foreign proceedings resulted in a judgment.

The broader question is whether it is possible to seek a remedy for abuse of process for seizing wrongly the court of a Member State. For instance, for initiating proceedings in violation of lis pendens. The answer seems to be that such remedy can only be sought in the Member State of the court wrongfully seized, and nowhere else.

The Court of Justice delivered today (7 September 2023) its decision in case C‑832/21 (Beverage City & Lifestyle GmbH, MJ, Beverage City Polska Sp. z o.o., FE v Advance Magazine Publishers Inc.), which is about the conditions of application of Article 8 Brussels I bis:

“Article 8(1) of [Brussels I bis] must be interpreted as meaning that a number of defendants, domiciled in different Member States, may be sued in the courts for the place where one of them is domiciled before which, in the context of an infringement action, claims have been brought against all of those defendants by the proprietor of an EU trade mark where they are each accused of having committed a materially identical infringement of that trade mark and they are connected by an exclusive distribution agreement”.

Source : https://curia.europa.eu/juris/document/document.jsf?mode=DOC&pageIndex=0&docid=277065&part=1&doclang=EN&text=&dir=&occ=first&cid=478516

The Court of Justice delivered today (7 September 2023) its decision in case C‑590/21 (Charles Taylor Adjusting Ltd, FD v Starlight Shipping Co., Overseas Marine Enterprises Inc.), which is about a “quasi anti-suit injunction” and recognition and enforcement of judgments from other Member States:

“Article 34(1) of [Brussels I] read in conjunction with Article 45(1) thereof, must be interpreted as meaning that a court or tribunal of a Member State may refuse to recognise and enforce a judgment of a court or tribunal of another Member State on the ground that it is contrary to public policy, where that judgment impedes the continuation of proceedings pending before another court or tribunal of the former Member State, in that it grants one of the parties provisional damages in respect of the costs borne by that party on account of its bringing those proceedings on the grounds that, first, the subject matter of those proceedings is covered by a settlement agreement, lawfully concluded and ratified by the court or tribunal of the Member State which gave that judgment and, second, the court of the former Member State, before which the proceedings at issue were brought, does not have jurisdiction on account of a clause conferring exclusive jurisdiction”.

One of the key points: “the judgment and orders of the High Court [of England and Wales] could be classified as ‘“quasi” anti-suit injunctions’. While the purpose of that judgment and those orders is not to prohibit a party from bringing or continuing legal action before a foreign court, they may be regarded as having, at the very least, the effect of deterring Starlight and OME, together with their representatives, from bringing proceedings before the Greek courts or continuing before those courts an action the purpose of which is the same as those actions brought before the courts of the United Kingdom, which matter is, in any event, for the referring court to determine” (paragraph 27). The Court adds, at paragraph 28, that “An injunction having such effects would not […] be compatible with Regulation No 44/2001”.

Source: https://curia.europa.eu/juris/document/document.jsf?docid=277063&mode=req&pageIndex=3&dir=&occ=first&part=1&text=&doclang=EN&cid=434606

How does the anchor defendant mechanism operate in the realm of EU trade marks and actions on trade mark infringement? Is the existence of an exclusive distribution agreement between the defendants sufficient to rely on this mechanism? Those are the questions that the Court of justice addresses in its judgment handed down this morning in the case Beverage City Polska, C-832/21.

 

Factual context  and preliminary question

A Polish company manufactures, advertises and distributes an energy drink. Its managing director is domiciled in the city where this company is based.

A German company is connected to the Polish one through an exclusive distribution agreement for Germany – on this basis, it sourced the energy drink from the Polish Company. Its managing director is also domiciled in Germany, in a different state of that country.

Another German company being a proprietor of an EU trade mark brings an action for injunctive relief throughout the entire EU and supplementary claims against the Polish and German companies as well as against their managing directors before a court in Germany, with jurisdiction over the place where the managing director of the German company is domiciled.

The German court bases its jurisdiction over the Polish defendants (the company and its managing director) on Article 8(1) of the Brussels I bis Regulation, referring to the principles established in the judgment of the Court of Justice in Nintendo.

As a reminder, Article 8(1) of the Brussels I bis Regulation – applicable in the case via Article 122 of the EU trade mark Regulation – states: ‘A person domiciled in a Member State may also be sued […] where he is one of a number of defendants, in the courts for the place where any one of them is domiciled, provided the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings.’

This decision is contested by the Polish company and its managing director.

The second instance court refers the following question to the Court of Justice for a preliminary ruling:

‘Are claims “so closely connected” that it is expedient to hear and determine them together to prevent irreconcilable judgments, within the meaning of Article 8(1) of [Regulation No 1215/2012], where, in infringement proceedings for infringement of an EU trade mark, the connection consists in the fact that the defendant domiciled in a Member State (here, Poland) supplied the goods which infringe an EU trade mark to a defendant domiciled in another Member State (here, Germany) whose legal representative, against whom infringement proceedings have also been brought, is the anchor defendant, if the parties are connected to each other only through the mere supply relationship beyond which there is no legal or factual connection?’

 

Opinion of Advocate General

In his Opinion delivered this March, AG Richard de la Tour proposed the Court to answer the preliminary question in a following manner:

‘Article 8(1) of the Brussels I bis Regulation […] must be interpreted as meaning that more than one defendant, domiciled in different Member States, may be sued in the courts for the place where one of them is domiciled that are seised, in the context of infringement proceedings, of claims brought against them by the proprietor of an EU trade mark where the defendants are alleged to have infringed that trade mark in a materially identical manner through each of their acts in a supply chain. It is for the court seised to assess whether there is a risk of irreconcilable judgments resulting from separate proceedings, taking into account all the relevant material in the case file.’

 

Answer of the Court

In its judgment handed down this Thursday, the Court reminds that according to its case law in order for Article 8(1) to apply, it must be ascertained whether, between various claims brought by the same applicant against various defendants, there is a connection of such a kind that it is expedient to determine those actions together in order to avoid the risk of irreconcilable judgments resulting from separate proceedings. For decisions to be regarded as irreconcilable, it is not sufficient that there be a divergence in the outcome of the disputes, but that divergence must also arise in the context of the same situation of fact and law (para. 28).

Concerning the first requirement (ie. the same situation of law) the Court bases its reasoning on the universal effect of an EU trade mark within the territory of EU Member States. As such, for the Court, this requirement does not seem to be problematic in the situation at hand (para. 29 to 31).

This is the second requirement (ie. the same situation of fact) that is put under more scrutiny. The Court notes that – according to the information provided by the referring judge – the Polish and German companies do not belong to the same group. Furthermore, there is no link between the Polish company and its director, on the one hand, and the director of the German company described by the referring courts as an ‘anchor defendant’, on the other hand (para. 32).

Hence, the sole element potentially connecting the defendant companies seems to be the exclusive distribution agreement. The question is therefore whether such an agreement is sufficient to meet the requirement of ‘the same situation of fact’.

The Court starts it reasoning with a reminder: the purpose of the jurisdiction rule referred to in Article 8(1) of Brussels I bis Regulation is to facilitate the proper administration of justice, to reduce as far as possible the possibility of concurrent proceedings and thus to avoid solutions that might be irreconcilable if the cases were tried separately (para. 34). In order to assess whether there is a connection between the various claims brought before it, it is for the national court to take into account, in particular, the fact that several companies established in different Member States are accused, each separately, of the same acts of infringement in respect of the same products (para. 36).

Echoing the Opinion of its Advocate General, the Court states that the existence of a connection between the claims in question is based primarily on the relationship between all the acts of infringement committed, rather than on the organizational or capital links between the companies concerned. Similarly, in order to establish the existence of a single factual situation, particular attention must also be paid to the nature of the contractual relations existing between the companies involved (para. 37).

For the Court, the existence of the exclusive distribution agreement renders it more foreseeable that multiple actions on trade mark infringement will be considered as meeting the requirement of ‘the same situation of fact’ (para. 38).

The Court also noted that – as it transpires from the case file and the hearing – the close cooperation between the companies manifested itself in the operation of their websites, the domains of which belonged to only one of the co-defendants, through which the products at issue in the main proceedings were marketed by means of cross-references between these sites (para. 39). This also reveals the foreseeable nature of the obligation to respond to allegations of infringement from the same source before the same court (para. 40).

Probably to nuance those considerations, the Court adds that the circumstances justifying the reliance on the anchor defendant mechanism cannot be created in an artificial manner just in order to establish jurisdiction over co-defendants; that is, however, not the case if a ‘close link’ exists between the defendants – such a ‘close link’ exists in presence of an interest in hearing and judging them together to avoid solutions that might be irreconcilable if the cases were judged separately (para. 43-45).

Ultimately, the Court answered the preliminary question by stating that:

‘[…] a number of defendants, domiciled in different Member States, may be sued in the courts for the place where one of them is domiciled before which, in the context of an infringement action, claims have been brought against all of those defendants by the proprietor of an EU trade mark where they are each accused of having committed a materially identical infringement of that trade mark and they are connected by an exclusive distribution agreement.’

 

Some highlights and remarks…

At least three aspects of the case merit particular attention:

• first, the requirement of ‘the same situation of fact’ appears to hinge on the defendant’s foreseeability that he may be summoned to a court with jurisdiction over other individuals or entities he collaborate with. In other terms, the closer the contractual link and the more intensive the cooperation are, the more one exposes himself to the risk of being sued outside of the court of his domicile through the anchor defendant mechanism;
• second, while the judgment stresses the relevance of contractual relations between the defendants and the fact of them being bound by an exclusive distribution agreement, it remains to be seen how this can translate into the situation of the managing director of a company against which the action is also brought through the anchor defendant mechanism; there is also even more fundamental the question of the possibility to consider that an action brought against the director of a company can ‘anchor’ via Article 8(1) the actions against another company and its director; those inquiries received consideration in the Opinion (points 68 et seq.);
• third, echoing the possibility to rely on the interdiction of the abuse of EU law from Vinyls Italia (para. 54 and 55) in the realm of private international law, the Court underscores that the facts underpinning a case should not be artificially fabricated just in order to justify the reliance on the anchor defendant mechanism.

 

The judgment can be found here.

 

On 27 October 2023, the Department of Private Law of Maastricht University (the Netherlands) is hosting a lecture by Prof. Dr. Horatia Muir Watt, Professor at the Sciences Po Law School (Paris), entitled: “Ecological Jurisprudence: The Shape of Legality at its Own Last Frontier (a Private International Law Approach)” at 17:00 (CEST time). This event will take place onsite and in English. For more information, click here.

Registration is free of charge. The deadline to register is 19 October 2023.

A Research Seminar with PhD researchers and Prof. Dr. Horatia Muir Watt will take place that same day from 10.00 – 12.00.

Prof. Horatia Muir Watt has recently published a book entitled: The Law’s Ultimate Frontier: Towards an Ecological Jurisprudence: A Global Horizon in Private International Law (Oxford: Hart, 2023). More information is available here.

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Principes du droit communautaire
État de droit en Roumanie : la promotion de juges vers une juridiction supérieure, fondée sur une évaluation de leur travail et de leur conduite par des membres de cette juridiction, est compatible avec le droit de l’Union

Nexive Commerce e.a.
Liberté d'établissement
Coûts de fonctionnement de l’autorité réglementaire du secteur postal : une obligation de contribution peut être imposée aux acteurs du marché, en excluant tout financement par l’État

Lietuvos Respublikos generalinė prokuratūra
Rapprochement des législations
La directive « vie privée et communications électroniques » s’oppose à ce que des données recueillies pour lutter contre la criminalité grave soient utilisées dans le cadre d'enquêtes administratives relatives à la corruption dans le secteur public

London holds the distinction of being a preferred seat for arbitration, making significant developments in English arbitration law of general interest to arbitration specialists and, at times, private international lawyers. Few developments in arbitration law can match the significance of a reform affecting the statute providing a framework for arbitration. This is precisely what the Law Commission of England and Wales is recommending in its final report on the review of the Arbitration Act 1996.

One of the proposals aims to introduce a statutory rule for determining the governing law of an arbitration agreement, which significantly departs from the current common law position. Given the importance of this proposal, the EAPIL blog will host an online symposium on the law governing arbitration agreements from 11 to 13 September 2023.

In this post, I will introduce the Law Commission’s proposals and the symposium.

Law Commission’s Proposals

On 6 September 2023, following an extensive consultation process that included the publication of two consultation papers in September 2022 and March 2023, the Law Commission unveiled its proposals for reforming the 1996 Act (the text of the final report and draft Bill is available here; a summary is available here). These proposals aim to uphold the Act’s core principles, while introducing improvements aimed at enhancing London’s position as a global arbitration centre.

The Law Commission’s major proposals are: codifying an arbitrator’s duty of disclosure; strengthening arbitrator immunity around resignation and applications for removal; introducing the power to make arbitral awards on a summary basis; improving the framework for challenges to awards under section 67 on the basis that the tribunal lacked jurisdiction; adding a new rule on the law governing arbitration agreements; and clarifying court powers in support of arbitral proceedings and emergency arbitrators.

Additionally, the Law Commission proposes several minor corrections, including: allowing appeals from applications to stay legal proceedings; simplifying preliminary applications to court on jurisdiction and points of law; clarifying time limits for challenging awards; and repealing unused provisions on domestic arbitration agreements.

Since private international lawyers are likely more interested in the proposed choice-of-law rule for arbitration agreements and the proposed new relationship between courts and arbitrators regarding jurisdictional challenges, I will focus on these two proposals.

New Choice-of-Law Rule for Arbitration Agreements

The Rome I Regulation does not cover arbitration agreements, leaving the determination of the law governing arbitration agreements in England to the common law choice-of-law rules for contracts. These rules are well-known: a contract is governed by the law expressly or impliedly chosen by the parties or, in the absence of choice, by the system of law with which the contract is most closely connected. Applying this rule to arbitration clauses can be difficult. Does a broad choice-of-law clause in a matrix contract amount to an express choice of law for the arbitration clause contained therein? If the parties have not expressly chosen the law to govern their arbitration clause, is the choice of law for the matrix contract an indication of implied choice for the arbitration clause? Is the designation of the arbitral seat an indication of such implied choice?

The United Kingdom Supreme Court addressed these questions twice in the past three years in Enka and Kabab-Ji. The court’s majority in Enka (Lord Hamblen, Lord Leggatt, and Lord Kerr) set out the following rules for determining the existence of parties’ choice of law in [170]:

iii) Whether the parties have agreed on a choice of law to govern the arbitration agreement is ascertained by construing the arbitration agreement and the contract containing it, as a whole, applying the rules of contractual interpretation of English law as the law of the forum.

iv) Where the law applicable to the arbitration agreement is not specified, a choice of governing law for the contract will generally apply to an arbitration agreement which forms part of the contract.

v) The choice of a different country as the seat of the arbitration is not, without more, sufficient to negate an inference that a choice of law to govern the contract was intended to apply to the arbitration agreement.

vi) Additional factors which may, however, negate such an inference and may in some cases imply that the arbitration agreement was intended to be governed by the law of the seat are: (a) any provision of the law of the seat which indicates that, where an arbitration is subject to that law, the arbitration agreement will also be treated as governed by that country’s law; or (b) the existence of a serious risk that, if governed by the same law as the main contract, the arbitration agreement would be ineffective. Either factor may be reinforced by circumstances indicating that the seat was deliberately chosen as a neutral forum for the arbitration.

vii) Where there is no express choice of law to govern the contract, a clause providing for arbitration in a particular place will not by itself justify an inference that the contract (or the arbitration agreement) is intended to be governed by the law of that place.

The court also clarified that the law of the seat is ‘generally’ the system of law most closely connected to the arbitration agreement.

Unsurprisingly, consultees said that these rules were complex and unpredictable. This has led the Law Commission to propose a reform of these rules in its second consultation paper.

The proposal has three key elements: 1) retaining express choice; 2) eliminating implied choice; and 3) specifying that the law of the seat applies in the absence of an express choice.

The proposed choice-of-law rule for arbitration agreements reads as follows:

6A Law applicable to arbitration agreement

(1) The law applicable to an arbitration agreement is—

(a) the law that the parties expressly agree applies to the arbitration agreement, or

(b) where no such agreement is made, the law of the seat of the arbitration in question.

(2) For the purposes of subsection (1), agreement between the parties that a particular law applies to an agreement of which the arbitration agreement forms a part does not, of itself, constitute express agreement that that law also applies to the arbitration agreement.

(3) This section does not apply in relation to an arbitration agreement that was entered into before the day on which section 1 of the Arbitration Act 2023 comes into force.

New Relationship between Courts and Arbitrators Regarding Jurisdictional Challenges

If a party participates in arbitral proceedings, raises a jurisdictional challenge before the tribunal, and is accorded a fair hearing, should they be allowed to challenge the tribunal’s jurisdiction before a court using the same arguments and evidence? The answer to this question is principally guided by two somewhat conflicting considerations: efficiency and freedom of contract (which, of course, includes a freedom not to be bound by a non-existent or invalid contract).

The UKSC addressed this issue in Dallah. Lord Mance wrote obiter in [26] that:

An arbitral tribunal’s decision as to the existence of its own jurisdiction cannot…bind a party who has not submitted the question of arbitrability to the tribunal. This leaves for consideration the nature of the exercise which a court should undertake where there has been no such submission and the court is asked to enforce an award. Domestically, there is no doubt that, whether or not a party’s challenge to the jurisdiction has been raised, argued and decided before the arbitrator, a party who has not submitted to the arbitrator’s jurisdiction is entitled to a full judicial determination on evidence of an issue of jurisdiction before the English court, on an application made in time for that purpose under s.67 of the Arbitration Act 1996.

Lord Collins and Lord Saville expressed similar views in, respectively, [96] and [159]-[160].

The Law Commission believes that such a de novo rehearing is inefficient and unfair to the party wishing to enforce the arbitration agreement. It proposes to limit when a participating party can raise a jurisdictional challenge before English courts.

Following a very controversial proposal in its first consultation paper, the Law Commission has settled on a proposal that has the following four key elements: 1) it covers situations where a party participates in arbitral proceedings, objects to the tribunal’s jurisdiction, and the tribunal rules on its jurisdiction; 2) the court will not entertain any new grounds of objection, or any new evidence, unless it was not reasonably possible to put them before the tribunal; 3) the court will re-hear evidence only if necessary in the interests of justice; and 4) these limitations are to be introduced through rules of court rather than the 1996 Act itself.

The proposed rules outlining this new relationship between courts and arbitrators regarding jurisdictional challenges, to be inserted in section 67, read as follows:

(3A) Rules of court about the procedure to be followed on an application under this section may, in particular, include provision within subsection (3B) in relation to a case where the application—

(a) relates to an objection as to the arbitral tribunal’s substantive jurisdiction on which the tribunal has already ruled, and

(b) is made by a party that took part in the arbitral proceedings.

(3B) Provision is within this subsection if it provides that—

(a) a ground for the objection that was not raised before the arbitral tribunal must not be raised before the court unless the applicant shows that, at the time the applicant took part in the proceedings, the applicant did not know and could not with reasonable diligence have discovered the ground;

(b) evidence that was not heard by the tribunal must not be heard by the court unless the applicant shows that, at the time the applicant took part in the proceedings, the applicant could not with reasonable diligence have put the evidence before the tribunal;

(c) evidence that was heard by the tribunal must not be re-heard by the court, unless the court considers it necessary in the interests of justice.

EAPIL Blog Symposium on the Law Governing Arbitration Agreements

From 11 to 13 September 2023, the EAPIL blog will host an online symposium on the law governing arbitration agreements. The focus will be on assessing the Law Commission’s proposal and providing a comparative perspective. Professor Alex Mills (UCL) and Dr Manuel Penades Fons (KCL) will kick off the discussion by assessing the proposed choice-of-law rule for arbitration agreements from a UK perspective on Monday 11 September 2023. More contributions from comparative perspectives will follow on Tuesday and Wednesday.

Readers are encouraged to participate in the discussion by commenting on the posts. Those wishing to submit longer analyses on the law governing arbitration agreements, the relationship between courts and arbitrators, or any other issue relating to the Law Commission’s final report are invited to do so by e-mailing Ugljesa Grusic (u.grusic@ucl.ac.uk).

The editorial team of the EAPIL blog has just become a bit larger! Ugljesa Grusic, an Associate Professor at the Faculty of Laws of UCL, has kindly accepted to join our invitation: thanks a lot, Ugljesa, and welcome!

Please check out Ugljesa’s first post here.

It’s a rather special first post, as it announces an on-line symposium, edited by Ugljesa himself, that will run from Monday to Wednesday next week, on the law applicable to arbitration agreements in light of the recent proposals of the English Law Commission.

The Court of Justice delivered on 13 July 2023 its judgement in case C‑87/22 (TT v AK), which is about the interpretation of Article 15 Brussels II bis:

“1. Article 15 of Council Regulation (EC) No 2201/2003 […] must be interpreted as meaning that the court of a Member State, which has jurisdiction to rule on the substance of a case on the matter of parental responsibility under Article 10 of that regulation, may exceptionally request the transfer of that case, provided for by Article 15(1)(b) of the regulation, to a court of the Member State to which the child has been wrongfully removed by one of his or her parents.

2. Article 15(1) of Regulation No 2201/2003 must be interpreted as meaning that the only conditions to which the possibility for the court of a Member State with jurisdiction as to the substance of a case in matters of parental responsibility to request that that case be transferred to a court of another Member State is subject are those expressly set out in that provision. When examining those conditions in respect of, first, the existence in the latter Member State of a court better placed to hear the case and, second, the best interests of the child, the court of the first Member State must take into consideration the existence of proceedings for the return of that child which have been instituted pursuant to the first paragraph and point (f) of the third paragraph of Article 8 of the [1980 Hague] Convention on the Civil Aspects of International Child Abduction […] and in which a final decision has not yet been delivered in the Member State to which that child was wrongfully removed by one of his or her parents”.

Source: https://curia.europa.eu/juris/document/document.jsf?text=&docid=275389&pageIndex=0&doclang=EN&mode=req&dir=&occ=first&part=1&cid=4466841

CEPD / Parlement et Conseil
Droit institutionnel
Le recours du Contrôleur européen de la protection des données (CEPD) contre le règlement Europol modifié est irrecevable

Tim Wöffen (University of Osnabrück) kindly made us aware of the Proposal for a Directive on European cross-border associations, adopted on 5 September by the Commission. The proposal aims to facilitate cross-border activities of non-profit associations in the EU and to improve the functioning of the Internal Market by removing legal and administrative barriers for non-profit associations that operate or wish to operate in more than one Member State. With regard to private international law, Articles 4 and 22 et seq seem particularly relevant. The public is invited to give their comments until November 1st.

Tim offers some initial thoughts (in German) here.