Mandatory Recognition Procedure for Arbitral Awards?
— Stop it before it enters the EU !
As alluded to by Erik Sinander in his post on the judgment of the Grand Chamber of the CJEU in C‑600/23, Royal Football Club Seraing SA v. FIFA, et al. (“RFC Seraing”), the Court not only confirmed that the courts of EU Member States should have the possibility to review whether arbitral awards comport with EU public policy, but also ruled that arbitral awards should not produce effects before such review has been conducted.
The focus of the Court was on two specific effects: res judicata between the parties, and probative value vis-à-vis third parties. The Court reasoned on the finding that under the Belgian law of arbitration, arbitral awards produced certain effects immediately after being made, without prior review of whether any of the grounds for denying enforcement or recognition exists.
While I am not an expert in Belgian arbitration law, the findings of the Court echo and are consistent with the arbitration laws of many other States. Under French and Luxembourg arbitration laws, for instance, arbitral awards are res judicata on the very day when they are made, and they are more generally recognised (as opposed to enforceable) on that date. There is no requirement for any prior recognition procedure. In practice, whether the relevant award meets the requirement for recognition (ie whether any of the grounds for denying enforcement or recognition is met) will be verified incidentally, in judicial proceedings not concerned primarily with the award, but where the award will be relied upon by a party (for instance, to argue that it is res judicata).
In Seraing, the CJEU ruled that such immediate recognition of an arbitral award violates EU law. It concluded that:
the second subparagraph of Article 19(1) TEU, read in conjunction with Article 267 TFEU and Article 47 of the Charter, must be interpreted as precluding:
– the authority of res judicata from being conferred within the territory of a Member State on an award made by the CAS, in the relations between the parties to the dispute in the context of which that award was made, where that dispute is linked to the pursuit of a sport as an economic activity within the territory of the European Union and the consistency of that award with the principles and provisions of EU law which form part of EU public policy has not first been subject to effective review by a court or tribunal of that Member State that is authorised to make a reference to the Court of Justice for a preliminary ruling;
– probative value from being conferred, as a consequence of that authority of res judicata, on such an award within the territory of that Member State, in the relations between the parties to that dispute and third parties.
The conclusion would therefore seem to be that arbitral awards should not produce any effect within EU Member States before a review procedure could be made available to the parties. And indeed maybe to third parties.
Scope of the Obligation: Commercial Arbitration as well?
The first question raised by the judgment is that of its scope. The Court seems to insist on the fact that the relevant award was a CAS award which had decided a dispute linked to the pursuit of a sport as an economic activity within the territory of the European Union. It does so in the dispositive part of the judgment. It also does so by the structure of the judgment, which, after the Preliminary Considerations, has a first part which seems to be focused on arbitration in general, and a second focused on CAS arbitration.
This being said, I have not identified any part of the judgment where the Court actually says that the reasons for establishing a mandatory recognition procedure are only valid for sport arbitration. Quite to the contrary, it seems to me that all the reasons given equally apply to arbitration in general.
In particular, while the court repeatedly underscores that sport arbitration is, in effect, unilaterally imposed on athletes, it does not rely on this difference to reach any of its conclusions.
My sense, therefore, is that the scope of the judgment is much broader than sport arbitration. It applies to all forms of arbitrations, including most importantly commercial arbitration.
Scope of Obligation: Judgments?
Seraing is obviously concerned with the recognition of arbitration awards, not foreign judgments.
But one cannot help notice that the public policy exception equally applies for foreign judgments, including judgments from other Member States (see, eg, Brussels I bis Regulation, Article 45), and that it very likely includes European public policy.
There is, however, an important reason to distinguish between arbitral awards and judgments of other Member States. As the CJEU has ruled in London Steam-Ship, “the mutual trust in the administration of justice in the European Union (…) does not extend to decisions made by arbitral tribunals”. They cannot, therefore, be trusted to apply correctly rules of EU law.
In contrast, the principle of mutual trust entails that the courts of other Member States are to be trusted in their application of rules of EU public policy. It follows that the rules on recognition of judgments in the Brussels instruments, which do not require any prior review of the foreign judgment, can more easily be justified.
What about, however, an English judgment ruling on an intra-EU dispute subject to the fundamental principles of EU law? Sadly, the application of the principle of mutual trust with our British friends has been terminated, and it may well be that Seraing could impact the common law of judgments of the Member States.
Content of Obligation
Seraing tells us that the rules on immediate recognition of arbitral awards do not comport with EU law. How should they be amended then?
It seems that there are three possible ways forward.
The first is to establish a mandatory recognition procedure, without which arbitral awards cannot be recognised in Member States.
The second is to change the date at which awards are recognised and abolish the retroactive effect of the review procedure.
The third is to distinguish between the grounds of non recognition and craft a special regime for the public policy exception. It is not immediately clear to me how that could work.
Thank you, Gilles and Erik, for putting the spotlight on what is an increasingly unclear line of jurisprudence from the CJEU. One positive takeaway – based on the hyper-specific wording of the dispositive part, limited only to CAS arbitration – is that the Court now seems to be treading more carefully with regard to commercial arbitration. The AG’s opinion had been much broader.
I would be interested in your views on paras 99 and 100:
On the one hand, the dispositive part of the judgment very clearly states that no res judicata effect may be “conferred” on an arbitral award without prior review. I can confirm for Austria what you have already stated for France and Luxembourg – this occurs ipso iure when the award becomes effective.
But then, in paras 99 and 100, the Court does discuss the possibility of incidental review (cf the French version: “…d’obtenir, à titre incident…”), as long as the member state court is able to fully review the award for compatibility with fundamental EU law (para 101) and is able to dispose of the award’s res judicata effects with binding force (paras 103 and 104). This seems inconsistent with the dispositive part, if read at face value.
Could it be that the CJEU speaks of “conferring” res judicata, but actually means “giving effect” to res judicata? If understood in that sense, the practice of incidental review could be retained in a modified form.
I understand the judgment as it requires that an arbitral award at some point must be amenable to judicial review by a court that can refer questions to the CJEU. This judicial review may be limited in time. If the arbitral award is rendered in an EU member state and that EU member state has a limited period for challenging the award, the prerequisite must be met and no exequatur-like procedure is needed for the recognition in other EU member states. If the arbitral award is rendered outside the EU, the second-look prerequisite can never be met in that jurisdiction as a judicial review there will not be able to refer questions to the CJEU. This situation puts emphasis on how a foreign (i.e. extra-EU) arbitral award is recognized and enforced in the EU. To meet the second-look prerequisite in such a situation, it is probably necessary to have some sort of exequatur procedure.
It is always a useful exercise to compare the operative part (dispositive part) of a judgment with the court’s reasoning. Rule of thumb there is to interpret the operative part in line with the motives and related to the questions referred by the national court. In this case, I think a decisive factor behind the strict wording in the operative part is that the CAS has its seat outside the EU.
I am not sure I agree with this distinction, dear Erik.
I would not put too much emphasis on the difference of review of local and foreign awards. Often, the exact same grounds are available, and indeed the same public policy exception is available.
Thanks for pointing out to these variations between the English and the French versions. Clearly, the French version is more precise. That may be a consequence of inadequate translation, but the English language is also notoriously poor as far as procedure is concerned.
I see the slight tension between discussing ‘controle incident’ before saying that arbitral awards may not become, or be conferred res judicata before any actual review was conducted. It can be resolved, however, as follows. Seraing does not prohibit ‘controle incident’. It only prohibits that arbitral award produce effect before ‘controle incident’ was conducted by the court of a Member State. So, as far as res judicata is concerned, the key question becomes at what point of the new proceedings it can be raised. If it is required that the prior decision existed before the new proceedings were initiated, then you have a problem, since the arbitral award will only produce effect after the new proceedings were initiated and an incidental review was requested. But in jurisdictions were you can raise res judicata at any time (eg France), the change is limited.
There might be an impact on the Lugano Convention that does not require observance of “European ordre public”.
I confess that the application of the principle of mutual trust with respect to Switzerland and other Lugano States is not very clear to me…
I am not
In my view, the CJEU confined most of its observations to sports arbitration. I think for commercial arbitration, these findings do not disrupt the existing EcoSwiss framework.
Paragraphs 90 to 93 specifically emphasise the ‘specific features’ of sports dispute resolution. Herein lies, in my view, the distinction: the defining characteristic of sports arbitration is the sui generis and particularly extensive regulatory and supervisory powers, as well as the authority to impose sanctions (para. 93) of sports governing bodies, which extend to an indeterminate group of entities engaged in professional activities. By regulating market access for these entities, SGBs can make arbitration not only unilaterally imposed but also mandatory without an alternative choice. The CJEU expressly linked the mandatory nature of arbitration to these powers (p93). Only in this context can the more intrusive approach to arbitration (i.e. compensation, injunctive relief, interim measures), be justified; without such safeguards, the entities concerned would be subject to consequences of arbitration proceedings to which they had not consented. By contrast, in commercial arbitration, the EU courts’ role is different than protecting individual interests: they are tasked with upholding the EU legal order by ensuring the observance with EU public policy (p87) at the recognition and enforcement stage, as there arbitration is based on genuine free will.
Spill-over to other types of arbitration could only happen, in my opinion, for other private regulatory bodies (professional chambers?) with similarly extensive powers, but not for ordinary commercial arbitration.
Another interesting question is whether the arbitral award’s effects set in after actual review, or merely after the possibility of actual review i.e. the expiry of the possibility of an annulment action at the intra-EU seat.