Arbitration and the Draft Revised Brussels I

Submitted for publication to Journal of Private International Law, Hart Publishing

ARBITRATION AND THE DRAFT REVISED BRUSSELS I REGULATION:SEEDS OF HOME COUNTRY CONTROL AND OF HARMONIZATION?

Luca G. Radicati di Brozolo(*)

A. The freedom of member States in relation to arbitration and the potential for parallel proceedings and conflicting decisions................................................................................................................................................. 3B. The momentum towards reform........................................................................................................................ 5C. The policy options ................................................................................................................................................ 7

C.1 The abolition of the arbitration exception ............................................................................................ 8C.2 The expansion of the arbitration exception and the resurrection of anti-suit injunctions ........... 8C.3 The partial abolition of the arbitration exception and the introduction of some rules relating to arbitration in the Regulation..............................................................................................................................11C.4 An ad hoc instrument for the harmonization of arbitration law.....................................................12C.5 Maintaining the status quo .....................................................................................................................13

D. The Proposal........................................................................................................................................................13D.1 The new draft Article 29(4) and the related provisions ....................................................................13D.2 The avoidance of parallel proceedings and abusive litigation..........................................................15D.3 The non-seat courts obligation to stay proceedings. ........................................................................19

D.3(a) The mechanism.............................................................................................................................19D.3(b) The conditions for the stay: the definition of arbitration agreement..............................20

E. The implications of the proposed rule............................................................................................................23E.1 An innovative model for assessing the effects of arbitration agreements .....................................23E.2 The seeds of home country control in arbitration? ...........................................................................24E.3 The rule in practice: the essential role of the choice of the seat......................................................26

F. Other matters ......................................................................................................................................................27F.1 Jurisdiction on ancillary and setting aside proceedings.....................................................................27F.2 The circulation of judgments.................................................................................................................28

F.2(a) Judgments on the validity and effects of arbitration agreements.........................................28F.2(b) Judgments on the validity and effects of arbitral awards.......................................................30F.2(c) Judgments on the enforcement of arbitral awards .................................................................31F.2(d) Judgments on the merits .............................................................................................................32

G. An assessment .....................................................................................................................................................34G.1 Success in avoiding parallel actions and conflicts ..............................................................................34G.2 The view from a pro-arbitration perspective..................................................................................35G.3 The view from a conflicts purism perspective ...............................................................................38G.4 Conclusion ................................................................................................................................................39

The relation between arbitration and the Brussels I Regulation (Reg. (EC) 44/2001, the Regulation) has been controversial for years and was probably the most contentious facet

(*) Professor, Catholic University of Milan; Partner, Bonelli Erede Pappalardo, Milan-London; member

of the European Commissions Expert Group on the Interface between the Brussels I Regulation and Arbitration. This article is based on a presentation delivered at the fourth Journal of Private Interna-tional Law Conference, Milan, April 14-16, 2011. The views expressed are personal to the author who would welcome comments: [email protected].

2of the debate on the review of the Regulation.1 The discussion at times took on highly emo-tional and ideological overtones, seemingly implying a clash of cultures between the so-called arbitration community and the European Commission, which at one point was portrayed as bent on imposing its vision of arbitration and on reining in the freedom of member States in this area.

In its proposal for a review of the Regulation (the Proposal),2 the Commission fol-lows a moderate course, addressing only one, albeit the most serious, of the many debated issues, i.e. the prevention of parallel proceedings.3 On the whole the proposed solution en-shrined in Article 29(4) is workable, although it may not meet with unanimous approval, as indicated by the radically negative position of the European Parliament.4

This paper assesses the Proposal against the background of the discussion that pre-ceded it and of the available options, and highlights its main features as well as the broader implications for the relationship between arbitration and the Regulation and more generally EU law.

1 The literature on this topic is very extensive. In addition to the seminal contribution of H Van Houtte,

Why not include arbitration agreements in the Brussels jurisdiction regulation (2005) Arb. Intl 509, see for instance: A Mourre, Faut-il un statut communautaire de larbitrage ? (2005) ASA Bulletin 408;C Kassedjan, Le Rglement 44/2001 et larbitrage (2009) Rev. arb. 699; A Pullen, The Future of In-ternational Arbitration in Europe: West Tankers and the EU Green Paper (2009) Int. Arbitration L. Rev. 56 seq.; B Hess, Improving the Interface Between Arbitration and European Procedural Law: The Heidelberg Report and the EU Commissions Green Paper on the Reform of Regulation Brussels I (2010) Les Cahiers de lArbitrage/The Paris Journal of International Arbitration 17 (elaborating on a guest edi-torial on ConflictofLaws.net of 14 February 2010, followed by a discussion with A Mourre on KluwerArbi-trationblog, posts of 3, 12 and 22 March; P Schlosser, Europe - Is it Time to Reconsider the Arbitra-tion Exception from the Brussels Regulation ?(2009) Intl. Arb. Law Rev. 45; Ph Pinsolle, The Pro-posed Reform of Regulation 44/2001: A Poison Pill for Arbitration in the European Union ? (2009) Intl Arb. Law Rev. 62; R Fentiman, Arbitration and the Brussels Regulation(2007) Cambridge Law Journal 493; Ph Pinsolle, Les problmes cachs de la suppression de lexception darbitrage du Rgle-ment 44/2001 (2010) Les Cahiers de lArbitrage/ The Paris Journal of International Arbitration 31; U Mag-nus, P Mankowski, Brussels I on the Verge of Reform (2010) Zeitschrift fr Vergleichende Rechtswissen-schaft, 1, at 21-28; For an earlier contribution by the author on this topic see LG Radicati di Brozolo, Choice of court and arbitration agreements and the review of the Brussels I Regulation(2010) IPRax121. See also D Joseph, Choice of court and arbitration agreements, 2nd ed. (2010).

2 COM(2010)748 Final of December 14, 2010. 3 For a first assessment of the Proposal see M Illmer, Brussels I revisited - The European Commis-

sions Proposal COM(2010) 748 final, (2011) Rabels Zeitschrift 645; C. Kessedjan, Commentaire de la refonte du rglement n 44/2001, (2011) Rev. trim. dr. eur. 1 at 6-10; M. Benedettelli, Communitari-sation of international arbitration: a new spectre haunting Europe, forthcoming in (2011) Arb. Int.

4 See the draft report of the Committee on legal affairs (reporter T. Zwiefka) 2010/0383 (COD), http://www.contentieux-international.net/offres/file_inline_src/358/358_A_4254_17.pdf which contains a radical rejection of the Proposals solutions on this point, and specifically requests the elimi-nation of recital 20 and of Article 29(4) discussed below, as well as a broadening of recital 11 (see n 28below). See also the earlier Resolution of September 7, 2010 (2009/2140(INI)), para. 9-10. In contrast to this the opinion of the European Economic and Social Council of May 5, 2011 (INT/566) is much more positive, and actually calls for creating, as soon as possible, a supranational legal instrument for the recognition and enforcement of arbitration decisions (see para. 4.5 and 4.5.1).

3A. The freedom of member States in relation to arbitration and the potential for parallel proceedings and conflicting decisions

Today States, including EU member States, enjoy a very broad freedom in matters of arbitration5. The most important international instrument in this field, the New York Con-vention6 to which all member States are parties, does not provide for a complete regulation of arbitration and of arbitration-related court litigation and thereby leaves most issues to be determined by national law. As a matter of fact, the Convention does not even contain a pre-cise definition of an arbitration agreement or govern the conditions of its validity. At the same time, arbitration has remained outside the scope of harmonization within the European Union. Thus all questions relating to arbitration are addressed by the courts of member States applying their respective domestic law and the New York Convention, with no regard for how those questions are dealt with in other States. Moreover, there is no mechanism for the uniform application of the New York Convention, so that in practice there is consider-able room in different States for divergent interpretations and applications of the Conven-tion itself. The convergence in the approaches of national laws to arbitration has by far not eliminated all differences in how specific issues are addressed in each member State.

The fact that States remain largely unhampered in the way they and their courts deal with arbitration, and in particular with arbitration agreements and awards and with judg-ments relating to arbitration, has permitted a vigorous competition between legal systems,which has furthered the progress of arbitration, particularly in the member States. On the other hand, even within the European Union this leaves a potential for discrepancies as to the treatment of a given arbitration and, in turn, a risk of parallel proceedings and irreconcil-able decisions.

So far these issues have remained outside the scope of the Brussels jurisdiction and judgments regime (the 1968 Brussels Convention first and now the Regulation) by virtue of the so-called arbitration exception of Article 1(2)(d). The justification for the exception was in part that arbitration is governed by the New York Convention and by the 1961 European Convention on International Commercial Arbitration, which, however, are structurally inca- 5 For a comparative overview of the law of arbitration in different legal systems see J-F Poudret, S Bes-

son, Comparative Law of International Arbitration (London, Sweet & Maxwell, 2nd edn. 2007); G Born, In-ternational Commercial Arbitration (The Netherlands, Kluwer, 2009). For a further analysis by the author of the broader implications of the relations between arbitration and national legal systems see LGRadicati di Brozolo, The impact of national law and courts on international commercial arbitration (Mythology, physiology, pathology, remedies and trends) (2011) Cahiers de larbitrage/The Paris Journal of International Arbitration, []; L G Radicati di Brozolo, The control system of arbitral awards: Reflec-tions on Michael Riesmans Normative architecture of international commercial arbitration, forth-coming in (2011) ICCA Congress Series No 16, Proceedings of the 50th Anniversary Conference, [].

6 Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958.

4pable of dealing with these conflicts, and was to be the subject of a stillborn ad hoc harmoni-zation instrument.7 That exclusion can be taken as an indication of the original understand-ing that it was impossible to deal with arbitration in an instrument focused on jurisdiction and recognition of court judgments due to the lack of homogeneity between the two situa-tions. 8

Whatever the reasons for the exclusion, it is useful to list the main potential conflictsthat derive from it.

The first set of consequences relates to jurisdiction. For a start, the lack of harmonized jurisdictional criteria applicable to arbitration-related proceedings means that in principle there is no certainty as to which member State courts will have jurisdiction over the different types of proceedings that may be brought before a domestic court in relation to a given arbi-tration agreement or arbitration proceedings. These include proceedings for the granting of measures in support of arbitration (e.g. appointing or replacing arbitrators, evidentiary and provisional measures) and proceedings relating to the validity of arbitration agreements and to the validity of arbitral awards (typically setting aside proceedings). Combined with the ab-sence of an EU-wide lis pendens rule for arbitration-related court proceedings, this allows for the bringing of concurrent proceedings in different member States on these matters, which in turn is likely to lead to conflicting court judgments.

Perhaps more importantly, the absence of jurisdictional criteria, and more specifically of a harmonized approach to arbitral Kompetenz-Kompentenz, permits concurrent proceedings before arbitrators and national courts on the validity of an arbitration agreement and on the merits of a given dispute submitted concurrently to an arbitral tribunal and to a court. The outcome can be an award that is irreconcilable with a judgment of a member State court. The award will have to be recognized in the member States pursuant to the New York Conven-tion, while the judgment will circulate pursuant to the Regulation.

As to judgments, the Brussels regimes inapplicability to arbitration entails that a mem-ber State is not required to recognize the judgments of other member States on the validity and invalidity of arbitration agreements and of arbitral awards. This dovetails with the leeway that States have in assessing the criteria for recognizing and enforcing awards even under the

7 See the European Convention Providing a Uniform Law on Arbitration, done at Strasbourg, January

20, 1966, European Treaty Series, No. 56.8 See P Schlosser, Report on the Convention on the accession of the Kingdom of Denmark, Ireland and the United

Kingdom of Great Britain and Northern Ireland to the Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters and to the Protocol of its interpretation by the Court of Justice, [1979] OJ C 59, 92, para. 61; see also P Jenard, Report on the Convention on jurisdiction and the enforcement of judgments in civil and commercial matters signed at Brussels, 27 September 1968, id., 13.

5New York Convention9, which can result in an award being treated differently for these pur-poses in different member States.

With reference to judgments, it has also been debated whether under the Regulation member States are required to recognize a judgment on the merits rendered in another member State in disregard (or, more precisely, in alleged disregard) of an arbitration agree-ment. A further query is whether the obligation to recognize judgments under the Regulation applies to judgments conflicting with an award rendered in the requested State or recognized therein under the New York Convention.

B. The momentum towards reform

In practice this situation has not given rise to widespread problems, and for many years the few that did arise were easily and non-controversially dealt with by the Court of Justice.10

More recently there have been some well publicized cases of intra-EU conflicts on issues of arbitration. Interestingly, some have been between two jurisdictions that hold themselves out to be the most pro-arbitration within the EU, i.e. England and France.

Amongst the best known cases one may recall the Putrabali11 and Cytec v. SNF12 cases in which awards set aside respectively by the English and Belgian courts were enforced in France; the West Tankers and similar cases in which English courts enjoined the continuation of proceedings before the courts of other EU member States in alleged disregard of arbitra-tion agreements;13 the Fincantieri case14 in which the French courts declined recognition of an

9 See Radicati di Brozolo, The control system of arbitral awards, supra n 5.10 See Van Uden Maritime BV v Deco Line (Case C-391/95) [1998] ECR I- 7091 and Marc Rich & Co. AG v

Societ italiana Impianti PA (Case C- 190/89) [1991] ECR I- 3855. Mention must also be made of Eco Swiss v. Benetton (Case C-126/97) [1999] ECR I- 3055, which did not involve the then Brussels Con-vention, but nonetheless impacts on the relations between courts and arbitration, in that it lays down an obligation for member State courts to consider European competition law as a component of pub-lic policy when reviewing arbitral awards. See also the judgments mentioned infra, n 74. The judgments which denied the possibility for arbitral tribunals to request preliminary references to the European Court of Justice (starting from Nordsee v Reederei (Case C-102/81) [1981] ECR I- 1095) are not directly relevant to the present debate.

11 Socit PT Putrabali Adyamulia v. Socit Rena Holding, French Court of Cassation, 29 June 2007, (2007) Rev. arb. 507 (annotated by E. Gaillard); (2007) JDI 1236 (annotated by Th. Clay).

12 SNF v. Cytec, French Court of Cassation, 4 June 2008, (2008) Rev. arb. 473 (annotated by I. Fadlallah); SNF v. Cytec , Brussels Court of First Instance, 8 March 2007, (2007) Rev. arb. 303; Cytec v. SNF, Brussels Court of Appeal, 22 June 2009, (2010) Cahiers de larbitrage/Paris J. Intl Arb. 1818 (anno-tated by Radicati di Brozolo).

13 West Tankers Inc. v RAS Riunione Adriatica di Sicurta SpA (The Front Comor), [2005] EWHC (Comm) 454;West Tankers Inc. v RAS Riunione Adriatica di Sicurt Spa [2007] UKHL 4, [2007]. On a preliminary ref-erence by the House of Lords the issue was decided by the European Court of Justice, Allianz Spa (for-merly Riunione Adriatica di Sicurt Spa) & Anor v West Tankers Inc. (Case C-185/07) [2009] ECR I-663

6Italian judgment that had refused to uphold an arbitration agreement15; the National Naviga-tion case in which the English courts reached the opposite conclusion admitting the applica-bility of the Regulation to the recognition of a member State judgment even if supposedly disregarding an arbitration agreement16. A recent addition to this collection is the Dallah saga in which the English and French courts reached conflicting decisions as to the effects of an arbitration agreement on a non signatory, leading to the upholding of the award by the Paris Court of Appeal17 and its refusal of enforcement in England.18

An even more recent case is Yukos v. Rosnef which, insofar as relevant here, raises the question of the effects before the courts of a member State (specifically England) of certain pronouncements contained in a decision of another member State, which declared the en-forceability of an award annulled in a third State.19 To this list must be added a decision on the possibility of recognizing an award in England despite the fact that proceedings were pending in Spain on the validity of the underlying contract and of the arbitration agreement contained in it.20

(ECJ). The West Tankers decision has spurred a surfeit of commentary: see for instance P Sanmauro, Sense and Sensibility: reviewing West Tankers and dealing with its implication in the wake of the re-form of EC Regulation 44/2001, (2010) Journal of Private International Law 281, with further citations. The last act of this saga for the moment is West Tankers v. Allianz s.p.a. and Generali Assicurazioni S.p.a., [2011] EWHC 829 (Comm): for a brief preliminary comment see K Davies, Whereto now, the Italian Torpedo, Kluwerarbitrationblog, 16 May 2011.

14 Legal Department du Ministre de la Justice de la Rpublique dIrak v Fincantieri Cantieri Navali Italiani et alii, Paris Court of Appeal, 15 June 2006, (2007) Rev. arb. 90 (annotated by S Bolle); Soc. Fincantieri v Gov. Iraq, Genoa Court of Appeal, 7 May 1994, (1994) Rivista dellarbitrato, 505 (annotated by La China).

15 The same solution was upheld in ABCI c. Banque Franco-Tunisienne, [1996] 1 Lloyds Rep, 485, 488 and in National Navigation v. Endesa Generacion SA, [2009] EWHC 196 (Comm).

16 See National Navigation v. Endesa Generacion SA, [2009] EWCA Civ 1397. The Court of Appeal rejected, inter alia, the idea that a judgment which failed to give effect to an arbitration agreement alleged to be applicable in the case would be contrary to public policy for the purposes of Article 33 of the Regula-tion, which is of course in line with Article 35(3). See also Bundesgerichtshof, February 5, 2009, IXZB 89/06, (2009) IPRax, 428 holding that a member State judgment ordering the issue of a bank guarantee in respect of a claim recognized by an arbitral award does not for that reason alone fall out-side the scope of the Regulation.

17 Gouvernement du Pakistan c. Socit Dallah Real Estate & Tourism Holding Co, Paris Court of Appeal, 17 February 2011, (2011) Cahiers de larbitrage/Paris Journal of International Arbitration [].

18 Dallah Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan, [2010] UKSC 46, on appeal from : [2009] EWCA Civ 755. See G. Born, Dallah and the New York Conven-tion, Kluwerarbitrationblog, 7 April 2011; D Khanna, Dallah: The Supreme Courts Positively Pro-Arbitration No to Enforcement(2011) J. Intl Arb. 127.

19 See Amsterdam Court of Appeal, April 28 2009, Rev. arb., 2009, 557 ss. (upheld by the Supreme Court of the Netherlands, June 25 2010, in Yearbook of Commercial Arbitration, 2010, 423 ss. and Yukos Capital v. OJSC Rosnef Oil Company [2011] EWHC 1461 (Comm), as to which see Radicati di Brozolo, The control system, supra n. 5, para. D.3.

20 Sovarex S.A. v. Romero Alvarez, [2011] EWHC 1661 (Comm).

7Regardless of the actual frequency of such conflicts, observed through the prism of EU law this situation may appear as an unacceptable anomaly liable to breed chaos and, worse still, in conflict with the elegant and well crafted order of the Regulation and with the ideal of a Union-wide space of justice. It is not surprising that the Commission began to fo-cus on the issue, probably in part under the influence of a subtle distrust for arbitration. The issue was laid squarely on the table by the Heidelberg Report commissioned by the European Commission, which came out in favor of the outright suppression of the arbitration excep-tion.21 The report provided the inspiration for the Commissions Green Paper and Reportwhich put forward for discussion several proposals aimed, in its opinion, to ensure the smooth circulation of judgments in Europe and prevent parallel proceedings.22

The Heidelberg Report and the Green Paper provoked conflicting reactions, many openly hostile.23 The debate was further exacerbated by the European Courts West Tankersjudgment24 which outlawed anti-suit injunctions in support of arbitration. The solution en-shrined in that judgment was largely predictable and logical in the light of the spirit of the Regulation and of the underlying principle of mutual trust as evidenced in the Gasser and Turner judgments.25 Nonetheless, the decision was viewed by some almost as a tragedy and the product of an anti-arbitration bias that, by emasculating a cherished tool of English litiga-tors, would provoke havoc and favor anti-arbitration torpedoes, parallel litigation and con-flicting decisions.

C. The policy options

There are several policy options to tackle this conundrum. Each one has at some point been considered in the course of the past years.26 A brief analysis of their pros and cons serves as a useful premise to assess the Proposal.

21 B Hess, T Pfeiffer, P Schlosser, Report on the Application of the Regulation Brussels I in the Member States,

Study JLS/C4/2005/03, p. 49 seq.22 COM(2009) 175 final.23 See the works referred to in n 1 above.24 Supra, n 13. The West Tankers case has been the subject of endless academic discussion: for an over-

view with the main references see P Santomauro, Sense and Sensibility: Reviewing West Tankers and Dealing with its Implications in the Wake of the Reform of EC Regulation 44/2001 (2010) JPIL 281-325.

25 Gasser GmbH v MISAT Srl (Case C-116/02) [2003] ECR I- 14693; Turner v Grovit (Case C-159/02)[2004] ECR I- 3565.

26 For a review of some of the options from the perspective of the European Commission see the Commissions Impact Assessment of the proposal for the revised Regulation (SEC(2010) 1547 final).

8C.1 The abolition of the arbitration exception

One option is the pure and simple abolition of the arbitration exception contained in Article 1(2)(d) of the Regulation. This would presumably have the effect of bringing all arbi-tration-related proceedings and judgments under the purview of the Regulation. However, given the peculiarities of arbitration, the lack of a uniform approach to arbitration in the legal systems of member States and the fact that the Regulation is conceived to deal with court proceedings and not with arbitration, the mere abolition of the exception is unworkablewithout the introduction of some new rules to deal specifically with arbitration. As such, this solution was never seriously advocated and is therefore usually considered in the context of more far-reaching innovations, as discussed in Section C.3 below.

C.2 The expansion of the arbitration exception and the resurrection of anti-suit injunctions

At the opposite end of the spectrum is the expansion of the exclusion, to the point even of reversing the West Tankers decision and of reintroducing the power of member State courts to issue anti-suit injunctions in aid of arbitration, and to refuse recognition to judg-ments rendered in alleged disregard of an arbitration agreement.27 Not unsurprisingly, this position was inspired by English legal circles, preoccupied by the effects of the demise of anti-suit injunctions on the London arbitration market, and has been endorsed by the Euro-pean Parliament.28

Such a solution is unacceptable because it is irreconcilable with the principle of mutual trust between member State courts, which is at the core of the entire system of the Regula-tion, as confirmed by the Court of Justice in West Tankers.29 It is also unpalatable from a broader policy standpoint. Particularly since anti-suit injunctions are used almost only by English courts, allowing them would be tantamount to condoning what is viewed elsewhere as an imperialistic and condescending policy, whereby the courts of one country take it upon

27 A variant of this option is the one that consists in the sharpening of the wording of the expression:

See Magnus, Mankowski, supra n 1, 22 ff.28 According to the draft report (supra n 4) the following wording should be added in recital 11 of the

Commissions recast version: The whole matter of arbitration should be excluded from the scope of this Regula-tion. Consequently, this Regulation does not apply to any dispute, litigation or application which the parties have sub-jected to an arbitration agreement or settlement or which relates to arbitration by virtue of an international treaty. Likewise, this Regulation does not apply to any dispute or decision concerning the existence or validity of an arbitration agreement or settlement, or to any provisional or preventive measure adopted in the context of a dispute, litigation or ap-plication which the parties have subjected to an arbitration agreement or settlement or which relates to arbitration by vir-tue of an international treaty.

29 West Tankers (ECJ), supra n 13, para 30. The Court in West Tankers was, however, plainly wrong (at para 33) in referring to Article II(3) of the New York Convention in support of the prohibition of the granting of anti-suit injunctions in support of arbitration by States other than the one where the valid-ity of the arbitration agreement is contested.

9themselves to decide whether foreign courts or litigants are correctly applying the law of ar-bitration or fail to respect the basics of arbitration agreements and good faith.

In the flurry of arguments against abusive interference with arbitration it is sometimes overlooked that, in the absence of an objective overarching standard binding on all States for the assessment of the validity and effects of arbitration agreements, not all recourse to a court in the presence of an arbitration agreement is necessarily abusive. There are instances where the application of different laws and conceptions of arbitration by member State courts may lead to perfectly genuine divergences in solutions with regard to the same situa-tions (for example the existence, validity and effects of a given arbitration agreement). There-fore the fact that a party alleged to be bound by an arbitration agreement has recourse to the court of one member State, and that that court rejects an arbitration objection and decides to entertain jurisdiction, is not necessarily the product of bad faith litigation tactics or of a courts amenability to condone such tactics or of a lack of understanding of arbitration on the part of that court. In an identical situation, a more progressive30 vision of arbitration may consider valid and effective an agreement to arbitrate that would not be considered to exist or to be valid or binding on certain parties according to a more traditional or conserva-tive vision. The more progressive vision may rely on the need to give effect to the parties agreement and to the needs of international business. The more conservative vision might rely on the need for special evidence of consent to arbitration, or on the inarbitrability of certain types of disputes. Against such a backdrop, a dose of arrogance is implied in classify-ing a priori as an anti-arbitration torpedo what may simply be a more cautious approach taken by certain systems or the bringing of an arguably legitimate action.31

The possibility of a genuine diversity of positions on the same factual circumstances is interestingly illustrated by the Dallah case,32 with the added feature that this time it is the English courts that emerged as arbitration-unfriendly, at least on the reading of the situation

30 This term, like others used in this article, implies no value judgment. They are used simply as short-

hand definitions to refer to different conceptions of arbitration, all of which are equally legitimate in the absence of a detailed and binding uniform regime of arbitration for all States.

31 Given the lack of any generally applicable rule on jurisdiction over actions on the existence, validity and effects of arbitral agreements, there is manifestly no basis for the proposition that the courts of the seat (or of any other country for that matter) would have exclusive jurisdiction in respect of such actions, or even a sort of preferential title to adjudicate over them. A unilateral exercise of jurisdiction aimed at pre-empting the jurisdiction of other courts to rule on such matters is difficult to reconcile with the spirit of the Regulation. Since decisions on such questions impact directly on the jurisdiction of States, an exclusivity binding on all States can only derive from an international obligation. This is precisely the problem that the proposed draft Article 29(4) of the Proposal discussed below is de-signed to overcome. The same, incidentally, is true as well for forum selection agreements, so much so that a corresponding amendment to Article 23(1) of the Regulation is included in the Proposal.

32 See, supra nn 17-18.

10

by another member State court. In an ironic reversal of roles, the English courts ended up appearing conservative and anti-arbitration from the progressive French stance. That is because they took a position on the validity of an arbitration agreement that, from the view-point of the French system, appears formalistic and wrong as well as unfavorable to arbitra-tion.

In the light of this, and given that the same game can be played by different players, the liberty to resort to anti-suit injunctions is a recipe for chaos, which would be assured were other member State courts to resort to techniques similar to anti-suit injunctions or counter-anti-suit injunctions or even anti-arbitration injunctions to obtain the opposite re-sult.33 Once again Dallah provides food for thought if one imagines a somewhat different scenario based on similar circumstances, in which the Ministry of Religious Affairs, which the English courts held not to be bound by the arbitration agreement, instituted proceedings on the merits before those courts (for instance for negative declaratory relief). At that point the French courts would, from their perspective, have been justified in issuing an anti-suit injunction for breach of the purported arbitration agreement, assuming of course such a remedy were available to them. In a strange nemesis, it would have been the English courts that would have found themselves on the receiving end of an injunction in support of arbi-

tration.34

However much one may criticize the Commissions initial proposals, a resurrection of the power of member State courts to use anti-suit injunctions implied in an expansion of the Regulations arbitration exception has nothing to recommend it either and cannot provide an acceptable antidote to the problems at hand.

33 The fact that English courts tend to use anti-suit injunctions sparingly (see for instance Excalibur Ven-

tures v. Texas Keystone Inc., [2011] EWHC 1624 (Comm)) is not of itself sufficient to resolve the prob-lem of principle inherent in the perceived interference by the courts of one member State in the deci-sions of another court and in the fact that such inevitably judgments imply an assessment of the ac-tions of the courts of other member States.

34 The argument that anti-suit injunctions are necessary to protect arbitration is considerably weakened by Excalibur Ventures v. Texas Keystone Inc., [2011] EWHC 1624 (Comm). In that case an English court issued an injunction restraining arbitration in Texas, allegedly on the grounds of lack of evidence of the existence of an arbitration clause binding third parties. The decision may appear surprising when contrasted with the West Tankers case where the English courts adopted the opposite position, takingexception with the exercise of jurisdiction by the Italian courts in a case where there was likewise an issue of applicability of an arbitration clause to a third party. In Excalibur the English court seeking to exercise jurisdiction on the merits was in a similar anti-arbitration position as the Italian court in West Tankers, with the difference that the English court felt entitled to interfere with the foreign pro-ceedings. Disrespectful non English observers will certainly be quick to note that in Excalibur the en-joined arbitration was competing with the jurisdiction on the merits of the English courts whilst in West Tankers the enjoined court proceedings were competing with London as the seat of the arbitra-tion. This further example of the inherent subjectivity of the decisions of all courts and of the fact that at times they are not (or appear not to be) immune from mundane and self-serving considerations is the best evidence of the unacceptability within the Union of anti-suit injunctions.

11

C.3 The partial abolition of the arbitration exception and the introduction of some rules relating to arbitration in the Regulation

Another solution, which is the one proposed by the Heidelberg Report and considered in the Commissions Green Paper, is the so-called partial abolition of the arbitration excep-tion and the introduction of a number of specific rules into the Regulation to deal with the arbitration-related problems of jurisdiction and circulation of judgments.

That proposal has been the subject of so much discussion that it need not be dealtwith in detail here. As sketched in the Green Paper, it contemplated a special rule allocating jurisdiction in relation to proceedings in support of arbitration to the courts of the member State of the seat of the arbitration (particularly on the appointment of arbitrators and the set-ting up of the arbitral tribunal). As to jurisdiction, it would likewise have provided for the priority of the courts of the member State of the seat of the arbitration to decide on the exis-tence, validity and scope of arbitration agreements. This would have been coupled with a uniform conflict rule on the validity of such agreements submitting them to the law of the seat. It would have allowed the extension of the rules on provisional measures to arbitration. It would have brought under the Regulation the circulation of judgments on the validity of arbitration agreements and of judgments setting aside an award and merging (i.e. recognizing) an award into a judgment. Finally, it would have allowed the refusal of enforcement of judg-ments irreconcilable with an award enforceable under the New York Convention or, alterna-tively, have given exclusive jurisdiction to the courts of the seat to certify the enforceability of the award.

Such a proposal implied a significant regulation of several aspects of arbitration so far exclusively governed by national law and rightly came under heavy criticism35. To mention just some of the more problematic consequences, it would have entailed the repudiation of arbitral Kompetenz-Kompetenz, probably the most fundamental tenet of arbitration law,36 it would have introduced a conflict of laws rule which clearly has no place in an instrument on jurisdiction and circulation of judgments, it would have precluded altogether the enforce-ment of annulled awards.37

Overall, the initial proposal was dogmatic and inspired by an insufficient understanding of the peculiarities and needs of arbitration, of the differences between the member States 35 See e.g. Pinsolle, supra, n 1; for this authors criticism see Radicati di Brozolo, supra n 1, 124 seq.36 See Born, supra n 5, []; Poudret, Besson, supra, n. 5, []37 As is well known, this is a very complex issue, rich also in theoretical implications on the nature of

international arbitration: see, also for the requisite citations, Radicati di Brozolo, The control system of arbitral awards, supra n 5.

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arbitration laws, as well as of the underlying conceptual and practical complexities of the sub-ject matter which do not deserve to be brushed away by an inadequately pondered stroke of the legislators pen. Although touted as being inspired by a desire to favor arbitration38 and not for the sake of regulating arbitration,39 in the end the proposal would have done just that. It would have backhandedly rammed through a pervasive regulation of arbitration that would have prematurely stifled the freedom of member States in this realm and the healthy competition that goes with it, with the added complication of possibly leading to situations which in some cases member States might have found incompatible with their obligations under the New York Convention. It would have jeopardized the arbitration law acquis of some member States, which has contributed to the progress of arbitration and has been im-portant for the role of Europe on the world arbitration stage.

Some backers of the initiative tended to demonize the criticism leveled against the Commissions original proposal portraying it as the self-serving product of a libertarian and plutocratic lobby of arbitration practitioners. That does not take into account the fact that arbitration is an efficient dispute settlement tool greatly appreciated by business, but in the development of which States themselves have an interest. Because of the uncertainty gener-ated by it and the perception that it would have been harmful for arbitration in seats within the member States, at least in the short run the Commissions initial proposal might also have jeopardized the appeal of arbitration within the EU, to the advantage of competing ar-bitration venues outside the EU.

C.4 An ad hoc instrument for the harmonization of arbitration law

Taking stock of the difficulties in addressing the problems of arbitration in the Regula-tion, some have suggested that the only solution to tackle them is through a comprehensive regulation of arbitration, which would have to be introduced by way of harmonization. Leav-ing aside the problem of the legal basis for any intervention of the EU in this area, the idea is unworkable for an even more fundamental reason. As mentioned, the law and perhaps even more the conceptions of arbitration still differ conspicuously between member States, with some adopting a considerably more pro-arbitration stance than others for a vari-ety of reasons. At the present time any attempt at harmonization would either be doomed to failure or, worse, could result in a harmonization which would be unlikely to be at the more

38 This was certainly the spirit of the initial doctrinal proposal of Van Houtte, supra n 1, 517.39 Green Paper, Sec. 7, first paragraph.

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progressive levels. The result would be a setback for arbitration, with effects comparable to those of the Commissions proposal mentioned above, with no noticeable upside given the relative scarcity of major practical problems. The conceivable alternative of permitting flexi-bility to allow solutions more favorable to arbitration than the harmonized regime would not be viable, since it would not eliminate the risk of divergent outcomes that are at the heart of the proposals purporting to eliminate intra EU conflicts related to arbitration.

C.5 Maintaining the status quo

The last option was obviously to maintain the status quo. This course was inspired, on the one hand, by the belief that the problems that the advocates of change sought to address were not serious enough to justify tinkering with the existing solution. More fundamentally, it was inspired by an underlying pessimism as to the Commissions willingness to refrain from a maximalist approach and by a fear that the inclusion of rules on arbitration into the Regulation would prove to be a Trojan horse to bring arbitration within the EUs compe-tence, with the drawbacks discussed above.

It soon became apparent that this solution was not viable due to the strong political agenda of the Commission, for which a proposal on arbitration seemed to be an essential component of success in its drive for the review of the Regulation. Acknowledging this, and inspired by an if you cant beat them join them approach, many opponents of addressing arbitration in the Regulation felt compelled to convert to a mild reformism which was re-flected in the Commissions Group of Experts. Largely thanks to that Groups success in elaborating a minimalist solution that found its way into the Proposal, the original fears have been allayed for the moment.

D. The Proposal

D.1 The new draft Article 29(4) and the related provisions

The aim and scope of the Proposal on arbitration is set out in a new Recital 20 in the draft recast Regulation, which states that the the effectiveness of arbitration agreements should [] be improved in order to give full effect to the will of the parties and foresees the introduction of special rules aimed at avoiding parallel proceedings and abusive litigation tactics where the agreed or desig-nated seat of the arbitration is in a Member State.

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This goal is achieved essentially by the introduction of one new provision, Article 29(4), which lays down a specific lis pendens rule for arbitration and the first sentence of which reads as follows:

Where the agreed or designated seat of an arbitration is in a Member State, the courts of another Member State whose ju-risdiction is contested on the basis of an arbitration agreement shall stay proceedings once the courts of the Member State where the seat of the arbitration is located or the arbitral tri-bunal have been seised of the proceedings to determine, astheir main object or as an incidental question, the existence, validity or effects of that arbitration agreement40.

The following two sentences state, respectively, that the court whose jurisdiction is contested may decline jurisdiction immediately, if so prescribed by its national law,41 and must do if and when the existence, validity or effects of the arbitration agreement are estab-lished.42

This rule is complemented by a purely instrumental rule (Article 33(3)) whose only aimis to define the moment when an arbitral tribunal is deemed to be seized for the purpose of establishing lis pendens,43 and serves the same purpose as Article 33(1) of the Proposal for court proceedings. A further ancillary, and non-controversial, amendment is introduced in Article 36 (31 of the current text) on provisional and protective measures to codify the Van Uden44 solution according to which member State courts are permitted to grant such meas-ures even if the merits of the dispute are subject to arbitration.

For the rest, the draft maintains intact the arbitration exception of Article 1(2)(d), the wording of which had to be slightly modified to include a reference to the new lis pendens ruleand its ancillary provision. For the avoidance of doubt, the extent of the exclusion is driven home in Recital 11, which clarifies that the Regulation does not apply to the form, existence, valid-ity and effects of arbitration agreements, the powers of arbitrators, the procedure before arbitral tribunals, and

40 The last paragraph of Article 29(4) excludes the applicability of the provision to disputes relating to

insurance, employment and consumer contracts.41 This is the case notably in France: see Article 1448 of the French Code of Civil Procedure in force as

of May 1, 2011.42 Although the third sentence of Article 29(4) is silent on this, the only reasonable interpretation is that

the finding on the arbitration agreement which imposes on the court seized to decline jurisdiction can come both from the court of seat and from the arbitral tribunal (subject, in the latter case, to the re-view of the arbitral tribunals finding by the court of the seat).

43 That moment is defined as the one when a party has nominated an arbitrator or has requested the support of an institution, authority or a court for the constitution of the tribunal.

44 Van Uden, supra n 10.

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the validity, annulment, and recognition and enforcement of arbitral awards. This provisions makes ex-plicit the principles expressed in the Reports to the Brussels Convention.45

D.2 The avoidance of parallel proceedings and abusive litigation

On the whole, the adoption of the draft Article 29(4) can be an effective tool to avoid parallel proceedings and abusive litigation tactics, thereby achieving the more realistic goal embraced by the Commission once it abandoned its initial plan to establish hegemony over arbitration.

The way in which Article 29(4) does this is by requiring the courts of member States other than those of the seat of the arbitration (the non-seat courts )46 to stay proceedings when an arbitration objection to their jurisdiction is raised, provided that proceedings on the existence, validity or effects of the arbitration agreement are brought either before the courts of the seat or before an arbitral tribunal.

It is worth noting that the new rule does not expand the scope of the Regulation in re-lation to arbitration agreements. Already under the current regime the verification of the validity of an arbitration agreement that arises as an incidental question in proceedings covered by the Regulation (which is how the issue usually arises) falls within the scope of the Regulation. This principle was expressed by the Court of Justice in West Tankers,47 and is consistent with the holding in Marc Rich48 that, to determine whether a dispute falls within the scope of the Convention (now the Regulation), regard must be had to the scope and main subject of the proceedings. Under the new rule a court seized with the validity of arbi-tration agreement as an incidental question loses the power to make the first decision on that question if it is brought before the court of the seat or an arbitral tribunal.

The obligation to stay applies only if the seat is in a member State. This limitation is natural, given that the obligation to stay implies an element of mutual trust between the courts involved, since in most cases the seat courts role will ultimately be crucial to the deci-sion on the arbitration agreement. Such trust is not necessarily warranted when the courts of third countries are involved.

45 See above, n 8.46 This term to indicate the national court seized in the presence of an arbitration agreement is more

neutral than the one torpedo court (used by Illmer, supra n 3) which is unjustifiably derogatory for the reasons explained in Section C.2 above.

47 West Tankers (ECJ), supra n 13, para. 26. On this point the Court referred to the Evrigenis-Kerameus Report, [1986] OJ C 298, 1, at para. 35.

48 Supra n 10, para. 26.

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A further limitation to the obligation to stay is that it applies only if the seat in a mem-ber State is agreed or designated. As specified in Recital 20, this in principle means that the parties have specifically designated the seat in a member State themselves, or that such des-ignation has been made by the arbitral tribunal or by a third party agreed upon by the parties (typically by reference to arbitration rules)49 or by a national court competent under its law to designate the seat of the arbitration in the absence of agreement, which may have been seized by the party relying on the arbitration to designate the seat.50 Although in marginal cases this rule may prevent the proper functioning of the lis pendens rule, at least it avoids the convoluted and highly objectionable rule for the identification of the seat foreseen in the Heidelberg Report.51 In practice is simply puts an additional onus on the parties wishing to rely on arbitration agreements to decide on the seat up front.

The obligation to stay arises once the arbitral tribunal or the court of the seat hasbeen seized.52 The term once indicates that the stay is mandatory also if the seizing occurs after the proceedings are brought in the non-seat court. No time limit is specified for the seizing, but is it arguable that this must occur within the ordinary time limits for challenging jurisdiction under the law of the non-seat State, in order to ensure efficiency and predictabil-ity and to forestall wait and see strategies.53

As mentioned, this mechanism essentially eliminates the danger of parallel proceedingsand abusive litigation and should put to rest the concerns of the orphans of anti-suit injunc-tions after West Tankers. A party that relies on an arbitration agreement need not worry that the agreement will be thwarted by abusive recourse to the courts, because it has the ability to prevent the exercise of jurisdiction by such courts simply by starting arbitration proceedings. It will then be the party contesting the validity of the agreement or its applicability in the case

49 See for instance Article 16 of the LCIA Arbitration Rules; Article 14 of the ICC Rules of Arbitration;

Article 4 of the Milan Arbitration Chamber Rules; Article 16 of the Swiss Rules.50 See for instance Article 816 of the Italian Civil Procedure Code; Article 1717(1) Code Judiciaire Belge;

Article 1073(2) WBR.51 Supra n 21, para. 125 and Radicati di Brozolo, supra n 1, 125. 52 As mentioned, that moment is defined by Article 33(3) of the draft.53 See Illmer, supra n 3, 663. The draft Article 29(4) does not set a time limit for the court of the seat to

decide on the validity and effects of the arbitration agreement, similar to the new draft Article 29(2) which applies to lis pendens between courts and fixes a six month deadline and provides for consulta-tion between the courts concerned if the deadline cannot be respected. If the solution were considered workable in practice and adopted for lis pendens between courts, it would be reasonable to assume that the same rule should apply also in the case under discussion where the validity of the arbitration agreement is submitted to the court of the seat (so Illmer, ibid., 663). If it were assumed to apply also where jurisdiction is vested in an arbitral tribunal, the adoption of that rule would amount to introduc-ing a form of communication between the tribunal and a court which is not customary in arbitration.

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at bar that will have the onus of resorting to the court of the seat if it is not content to fight the matter out before the arbitral tribunal.

This solution strikes a sensible middle ground between the Heidelberg proposal, which seemed to impose on the party relying on the arbitration agreement the unreasonable obliga-tion to seize the courts of the seat, and the perhaps excessively pro-arbitration solution of the first scholarly proposal, which would have devolved the matter exclusively to the arbitral tri-bunal,54 thus adhering in full to the negative Kompetenz-Kompetenz which is unpalatable to most member States.55

The Proposal assumes that the courts of the seat will have jurisdiction to assess the va-lidity and the effects of the arbitration agreement. This assumption cannot necessarily be taken for granted. Since the criteria for jurisdiction in matters of arbitration are not covered by the Regulation due to the arbitration exception, and the lis pendens rule in Article 29(4) cannot be interpreted as attributing jurisdiction to the court of the seat, the issue would seem to have to be governed by the jurisdictional rules of the member State concerned. Since the seat of the arbitration is arguably the place of performance of the arbitration agreement, that might be a sufficient jurisdictional connecting factor under most member State laws.56 If, however, in a given case the seat court were not to have jurisdiction under its own rules, un-der Article 29(4) it would seem to be required to defer to the decision of the arbitral tribunal.

That said, before the court of the seat the party contesting the arbitration (i.e. the origi-nal plaintiff in the non-seat court) will usually petition for negative declaratory relief on the applicability of the arbitration agreement. This will probably be its only option in light of the ordinary lis pendens rule applicable to court proceedings (Article 29(1) of the draft, currently Article 27(1) of the Regulation), which will prevent the court of the seat from exercising ju-risdiction on the merits given that it will be second seized with respect to the non-seat courtinitially seized of the dispute. Even if the arbitration agreement is declared invalid, proceed-ings on the merits before the court of the seat will be possible only if the first proceedings are discontinued or the first court has declined jurisdiction. Moreover, the court of the seat may often lack jurisdiction over the merits pursuant to the Regulation if the seat was chosen for its neutrality with respect to the dispute. 54 Van Houtte, supra n 1, 520.55 Negative Kompetenz-Kompetenz postulates that national courts must always refer the question of arbitral

jurisdiction to the arbitrators, regardless of when the arbitrators are seized: See Born, supra n 5, 855; Poudret, Besson, supra n 5, para 458.

56 The fact that under most national laws the courts of the seat have jurisdiction over annulment actions does not necessarily mean that they also have jurisdiction over the validity of the arbitration agree-ments in the absence of jurisdiction on the merits: see Poudret, Besson, supra n 5, para []; Born, supran 5, []; Radicati di Brozolo, The impact of national law and courts, supra n 5, [].

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Whether bringing proceedings on the validity and effects of the arbitration agreement before the court of the seat is an option once the arbitration has been initiated will depend on the law of the member State concerned and on the particular variant of arbitral Kompetenz-Kompetenz to which it subscribes. This is because, since the Regulation only deals with con-flicts among member State courts, conflicts between the arbitration and the courts of the seatremain outside its scope and are left to the lex arbitri. That law may allow both proceedings to proceed in parallel or may require the court to stay its proceedings (or to decline jurisdiction) if the arbitration is already pending when it is seized.57 The combination of these factors may significantly raise the hurdles for the party seeking to contest the arbitration.

Once the arbitral tribunal or the court of the seat (or even both) has been seized, the non-seat court must suspend proceedings and await the decision on the existence or validity or effects of the arbitration agreement. If the validity is upheld, the non-seat court must de-cline jurisdiction, as required by the third paragraph of Article 29(4).58 The second paragraph of Article 29(4) permits the non-seat court to decline jurisdiction as soon as its jurisdiction is contested on the strength of the arbitration agreement, if its national law so prescribes, as is for instance the case of French law.59

If, on the other hand, the arbitration agreement is not upheld by the court of the seat, proceedings on the merits may be resumed in the non-seat court where they were originally brought. However, as discussed below,60 the Regulations inapplicability to the recognition of judgments relating to arbitration allows for the possibility that the arbitration agreement will be upheld by the non-seat court when proceedings are resumed before the non-seat court following the negative decision of the court of the seat on the validity or relevance in the given case of the arbitration agreement. This could occur if, contrary to the pessimistic ex-pectations of the party invoking the arbitration agreement, which induced it to seek a stay in the non-seat court and to bring the matter before the court of the seat, it turns out that the formers assessment of the arbitration agreement is more favorable than that of the latter.

57 On the different approaches of national laws to this question see Poudret, Besson, supra n 5, para 495;

Born, supra n 5, 1020.58 Were the court of the seat subsequently to hold the agreement invalid in a setting aside action (which

would probably only occur if the decision on the validity of the arbitration agreement was made by the arbitral tribunal), the non-seat court would again be free to exercise jurisdiction.

59 See Article 1448(1) of the French Code of Civil Procedure.60 Section F.2(a).

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D.3 The non-seat courts obligation to stay proceedings.

D.3(a) The mechanism

The goal of protecting arbitration agreements pursued by Article 29(4) could in princi-ple also have been achieved by means of a rule similar to the current Article 23 on choice of court (and its counterpart for arbitration agreements, i.e. Article II of the New York Conven-tion), coupled with the equivalent of the new Article 32(2) which gives priority to the chosen court in case of lis pendens. Such a solution would have had the advantage of preventing the exercise of jurisdiction by a member State court in contravention of the arbitration agree-ment simply by invoking the latter.

Under Article 29(4), instead, invoking the arbitration agreement is not enough. If the party relying on the agreement wishes to avoid litigating in a State court where it is sum-moned, it is almost forced to start proceedings itself. This it can do by going to arbitration, but this can be awkward, also from the point of view of costs, if it has no claims against the plaintiff in the non-seat court proceedings.61 In that case it may be more straightforward for it to bring declaratory proceedings on the existence, validity or scope of the arbitration agreement before the court of the seat. Of course, if the party relying on the arbitration agreement is convinced that its position will be upheld by the non-seat court, it retains the option it has today (when it is the only option), i.e. to fight the matter out before that court.However, if it is unsuccessful on the point, it risks a final judgment on the merits that would be enforceable under the Regulation.62

The perceived advantage of the lis pendens rule of Article 29(4) over the other solution is that it does not require the introduction of rules on the validity and effects of arbitration agreements, such as those contained in Article 23 on choice of courts and in Article II of the New York Convention. Introducing such rules into the Regulation would imply some meas-ure of harmonization of the rules on arbitration agreements, which are significantly different from one State to the other63 and thereby a curtailment of the freedom of each member State in this matter. The insertion of such rules in the Regulation would inevitably also permit and 61 Although the language of Article 29(4) would seem to require that the arbitral tribunal has been seized

of proceedings to determine, as their main object or as an incidental question, the existence, validity or effects of the arbitration agreement, a reasonable reading of the provision would not require the claimant in the arbitration to raise itself the issues relating to the arbitration, since the issue of the va-lidity would normally be brought up by the respondent (i.e. the plaintiff in the non-seat court). Nor of course could one reasonably maintain that, if the respondent failed to contest the arbitration agree-ment before the arbitrators the obligation to stay proceedings provided by Article 29(4) would not ap-ply.

62 Infra Section F.2(d). 63 For an overview see Born, supra n 5, 563; Poudret, Besson, supra n 5, para 300.

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even invite references to the European Court on issues of interpretation of the substantive and formal requirements of arbitration agreements.64 All that would be orthogonal to the intention not to regulate arbitration in the Regulation clearly asserted in Recital 11, according to which the Regulation does not apply to the form, existence, validity and effects of arbitra-tion agreements. The fear is obviously that any harmonization or intervention by the Court would result in a watering down of the more liberal conceptions on the notion and effects of arbitration agreements. These are a central element of the arbitration laws of some member States with a pre-eminent role in the world of international arbitration.

Under the Article 29(4) mechanism, it is the simple raising of an objection to jurisdic-tion on the score of an arbitration agreement, together with the bringing of proceedings on the arbitration agreement before the courts of the seat or the arbitrators, that blocks the non-seat court proceedings. This would seem to make a specific definition of an arbitration agreement unnecessary, and accordingly the freedom of member States to govern arbitration agreements as they want would seem to remain intact.

D.3(b) The conditions for the stay: the definition of arbitration agreement

It is not a foregone conclusion that, despite the intentions, this issue can in the long run be kept completely outside the scope of the Regulation, and of the jurisdiction of the Court of Justice. The proposed Article 29(4) poses a number of issues that might not insulate it completely from the scrutiny of the Court and that arise essentially from the lack of a defi-nition of arbitration agreement.

Particularly in the presence of still divergent conceptions on fundamental issues relat-ing to such agreements, a non-seat court in a member State without sophisticated knowledge of arbitration, or that does not espouse the more progressive and arbitration-friendly views on the nature, existence and scope of arbitration agreements, may legitimately find certain concepts alien. Confronted with what it could consider an outlandish objection, it could be puzzled, for instance, as to whether it must stay proceedings pursuant to Article 29(4) even where, for example, the very existence of the arbitral agreement raised before it is doubtful or the agreement is not in writing or is invoked against a non-signatory or in respect of a dis-pute that would not seem to be covered by the agreement on a strict construction or where there are potentially competing arbitration agreements. Similarly, with regard to arbitrability,the non-seat court could be perplexed as to whether the new provision actually requires it to

64 Such as those which led to the judgments of the European Court of Justice on the form in forum se-

lection clauses: Group Josi v Universal (Case C-412/98) [2000] ECR I- 5925; Coreck Maritim v Handelsveem (Case C- 387/98) [2000] ECR I- 9337; Mainschiffahrtsgenossenscharft v Le Gravires Rhnanes (Case C-106/95) [1997] ECR I- 911.

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stay proceedings even where the arbitration objection is raised in relation to a matter not considered arbitrable under the lex fori.65

There is more. Article 29(4) seems to provide that the mere raising of an arbitration objection is sufficient to force a non-seat court to stay proceedings. This could lend itself to abuses, which are the flip side of the ones decried by the opponents of court intervention in arbitration, and by the advocates of anti-suit injunctions in support of arbitration, that Article 29(4) is aimed to prevent. Taken literally, the rule would mandate the suspension of proceed-ings in the non-seat court even in the face of far-fetched or even spurious objections based on the existence of an arbitration agreement raised merely for tactical reasons. Examples of such objections would be the case where a party invokes an arbitration agreement contained in a contract that has absolutely nothing to do with the dispute (perhaps even one between third parties) or an agreement that is patently null and void or whose existence it is impossi-ble to demonstrate. It is therefore legitimate to query whether the non-seat court can be re-quired to stay proceedings whenever faced with a mere allegation, even if manifestly spuri-ous, that such an agreement is applicable to the dispute at hand. At present no system re-quires this, including the New York Convention66 or French law.67

Since such doubts would revolve around the interpretation of a provision of the Regu-lation, according to the principles on preliminary rulings the non-seat court could not be prevented from referring them to the Court of Justice.68 The simple statement in draft Re-cital 11 that the Regulation does not to apply to the form, existence, validity and effects of arbitration agreements, could hardly be taken to preclude the Court from ruling on the meaning of a term (arbitration agreement) of the Regulation, which is crucial to the func-tioning of the lis alibi pendens rule and, more generally, on the scope of the obligation to stay the proceedings before a member State court.

It is difficult to foresee how the Court would rule at that point. Prescribing recourse to some form of autonomous approach to the interpretation of the notion of arbitration agreement and of its substantive and formal requirements would be at odds with the postu- 65 Although arbitrability may be assessed under different laws depending on the context in which it

arises, there is little doubt that it falls to be assessed under the lex fori when it comes to assessing the validity of an arbitration objection (see Born, supra n 5, []).

66 See Article II(3) pursuant to which the courts obligation to refer the parties to arbitration does not apply if the arbitration agreement is null and void, inoperative or incapable of being performed. On this provision see Born, supra n 5, 95.

67 Supra n 41.68 The problem would not be avoided by assuming that a general principle prohibiting abus de droit could

to come into play in this situation. Convincing as this solution may seem, there is clearly nothing to stop a national court from submitting a preliminary reference on the bearing of that principle in the case before it.

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late that the Regulation, and European Union law, do not cover the form, existence, validity and effects of arbitration agreements and that such notions are to be left to national law.Nor, of course, is it conceivable to allow the non-seat court to rely on its own law, as was the case until now even under the New York Convention. Such a solution would defeat the en-tire exercise, because it would put the decision on the stay back in the hands of the non-seat court, thereby reopening the door to parallel actions.

One way out would be to compel the non-seat court to decide on the stay by assessing the merit of the arbitration objection according to the law of the member State of the seat. Such a solution, which amounts to a new conflict rule, would be analogous to the one fol-lowed for forum selection agreements by the 2005 Hague Convention on Choice of Court Agreements69 and introduced in Article 23 of the draft revised Regulation.70 This solution is unsatisfactory too because it still leaves the matter largely to the discretion of the non-seat court. The risks of such an approach are evidenced once again by the Dallah case,71 where the English courts purporting to apply French law reached a decision completely at odds with that reached by the French courts.

The only interpretation consistent with the letter and the spirit of the new provision is probably that the mere raising of an arbitration objection, together with the bringing of pro-ceedings before the arbitrators or the court of the seat, suffices to trigger the obligation to stay, leaving it to the arbitral tribunal or the court of the seat to decide whether there is a valid arbitration agreement applicable in the case at bar.

However, this would leave open the risk of abuse. That risk is not easy to eliminate,precisely due to the lack of consensus on the requirements for the validity and effects of arbi-tration agreements amongst the laws of member States, which may make it difficult to pin-point an abuse. As indicated above,72 an arbitration objection that may appear perfectly straightforward and genuine under a more conservative arbitration law may appear abusive under a more arbitration-friendly law. In this respect the situation is different from that of Article 23 on forum selection agreements, since in that case the conditions that must be satis-fied by such agreements are spelled out directly in the Regulation itself. Nor can recourse be 69 See Article 6(1).70 According to the revised Article 23, the chosen court shall have jurisdiction unless the [forum selec-

tion] agreement is null and void as to its substance under the law of that [i.e. the one of the chosen court] Member State (emphasis added).

71 Supra, n 18. The fact that the differences in national laws on arbitration agreements are considerably greater than those on choice of court agreements (admittedly because those have been harmonized for years by the Brussels regime) makes the solution envisaged for the latter less acceptable for arbitration agreements.

72 Section C.2.

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had to the extremely pro-arbitration solution of French law, which caters for abuse by allow-ing the court not to defer to arbitration where the arbitration agreement is manifestly inexist-ent or invalid73. Here again the prima facie test would be left to the non-seat court, with the potential for overly restrictive interpretations of the existence and validity of the arbitration agreement.

The lack of an easy and obvious fix to this conundrum leaves open the prospect of an intervention of the Court of Justice, which may well be forced to lay down some guiding principles that could eventually transmute into an embryonic regulation of the requirements of arbitration agreements. It can only be hoped that the Court will not be too heavy-handed and will adopt an approach that will avoid suppressing the more liberal conceptions regard-ing arbitration agreements, although there is no certainty that that will be the case. The Courts recent restrictive rulings on the effects of arbitration clauses in consumer contracts74

should not in themselves be viewed with excessive concern, as indicating an anti-arbitration bias, since consumer arbitration is a special case understandably viewed with suspicion in several legal systems.75

E. The implications of the proposed rule

E.1 An innovative model for assessing the effects of arbitration agreements

The proposed new lis pendens rule to settle conflicts between arbitration and court pro-ceedings within the EU has profound implications and a very innovative potential. Until now arbitration agreements and arbitrability were assessed by member State under their own law, including its conflict rules. The only standard to decide challenges to jurisdiction based on arbitration agreements, to stay proceedings and to compel arbitration was the forums arbi-tration law, which could differ significantly from other national laws given the considerable leeway States enjoy in interpreting Article II of the New York Convention. As a result, at present certain disputes, which some would argue should be submitted to arbitration, can

73 Supra n 41.74 Elisa Maria Mostaza Claro v Centro Mvil Milenium (Case C- 168/05) [2006] ECR I- 10421; Asturcom Tele-

comunicaciones SL v Maria Cristina Rodrguez Nogueira (Case C- 40/08) [2009] ECR I- 9579 (all ECJ).For the record, the validity of arbitration clauses in consumer contracts has very recently been upheld by the US Supreme Court in AT&T Mobility LLC v Conception, No. 09-893 of April 27, 2011.

75 See for instance R Drahozal, J Friel, Consumer Arbitration in the European Union and the United States (2002) 28 N.C. J. Intl L. & Comm. Reg. 357; M Bates, A Consumers Dream or Pandoras Box: Is Arbitration A Viable Option for Cross-Border Consumer Dusputes? (2004) 27 Ford. Intl L. J. 823. See also A Johnson, I Wildhaber, Arbitrating Labor Disputes in Switzerland (2010) J. Intl Arb. 631; B Castellane, Arbitration in Employment Relationship in France (2009) J. Intl Arb. 293.

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end up being decided by courts or being the subject of disruptive courts proceedings. The potential for disturbance is increased by the occasional resort to questionable litigation tactics and by the inefficiency of certain courts.

To prevent such occurrences the Commissions project eliminates the freedom of member State courts to decide themselves, applying their own law, on challenges to their ju-risdiction based on arbitration agreements, and bestows the power to resolve that issue upon the courts of the seat, as well as upon the arbitrators. Hence, unless by coincidence they are also the court of the seat, under Article 29(4) member State courts faced with an arbitration objection to their jurisdiction will be obliged to stay proceedings and to bow to the decision of the arbitrators or of another member State court on the validity of arbitration agreementsand on their effects on the forums power to adjudicate the dispute. In deciding on this issue the court of the seat is entitled to apply its own law, a foreign law identified by means of con-flict of laws or transnational rules (rgles matrielles). The arbitrators enjoy even more freedom.

Such an approach is unprecedented and may appear almost revolutionary, in that it de-prives courts of their traditional power to determine the scope and validity of arbitration agreements, and thus their own jurisdiction, according to their own standards.

Giving to the arbitrators the decision on the validity of an arbitration agreement, and therefore in practice on the ability of the agreement to oust the jurisdiction of the forum, is of course not a complete novelty, since it reflects the broadly recognized principle of Kompe-tenz-Kompetenz. Nevertheless, in the context of the new draft Article 29(4) Kompetenz-Kompetenztakes on almost the negative form accepted in France, but not, as recalled above, in most other countries. Under the new rule the non-seat member State court seized with the dispute does not even have the power to review the arbitrators decision which may oust its jurisdic-tion.

The solution laid down by Article 29(4) is even more innovative insofar as it imposes reliance on the decisions of the court of the seat. It is as yet unheard of that the court seized of the dispute must defer to the courts of another State to determine whether its own juris-diction can be ousted by an arbitration agreement.

E.2 The seeds of home country control in arbitration?

The curtailment of the freedom of member State courts to determine the effects of ar-bitration agreements on their jurisdiction is the price to pay for enhancing the effects and the protection of arbitration agreements, and more generally of arbitration as an efficient dispute

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settlement mechanism. As discussed below,76 the new mechanism has the ability to achieve this objective and to prevent concurrent proceedings before courts.

The proposed mechanism is novel in terms of arbitration law because it entails a sig-nificant increase in the role of the courts, and of the arbitration law, of the seat. Indeed, whilst the lex arbitri notoriously plays an important role in governing the arbitration,77 until now it could never influence the jurisdiction of courts of other countries. In this respect the new lis pendens rule, which requires deference to the decisions of foreign courts,78 presup-poses an element of mutual trust amongst courts. For this reason such a rule cannot be ex-trapolated on a general level, but it seems justified in the context of the EU, one of the founding elements of which is precisely the mutual trust by member States in each others courts and legal systems.

Thus, albeit new in terms of arbitration law, the proposed solution falls broadly into the classic mold of the home country control paradigm that is a central feature of much of EU law.79 As where it is applied in other sectors, so also in the context of arbitration this principle has a considerable innovative and liberalizing promise because it unleashes a further competition between legal systems beyond the one already determined by the New York Convention, and should lead to an evolution towards more pro-arbitration regimes as States compete to attract arbitrations seated on their territories.

The peculiarity in this case is that, contrary to the traditional model, the home country control of arbitral agreements by the courts of the seat is not accompanied by a minimum harmonization of the rules on such agreements. This means that member States must now rely entirely on the arbitration laws of other member States where the arbitrations are seated, and cease to be able to rely on their own conceptions, even for example when it comes to arbitrability, despite the absence of any Union-wide harmonization. On the other hand, it can be argued that there already exists a de facto minimum harmonization as to the protection and enforcement of arbitration agreements, which derives from the obligation to respect such agreements laid down by the New York Convention that is binding on all member States. This should dispel undue concerns that, in exercising their power to decide whether an arbi-tration agreement trumps the jurisdiction of the courts of another member State, the courts of the seat will decide on arbitrary or completely unforeseeable criteria. This admittedly does

76 See Section E.3.77 See Radicati di Brozolo, The impact of national law and courts, supra n 5, [].78 Mutual trust is owed to the decision of the court of the seat both if has decided itself on the validity

and effects of the arbitration agreement and if it has upheld a decision of the arbitrators on this point. 79 F Berry, S Hargreaves, European Union law (New York, Oxford University Press, 2nd edn, 2007), [].

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not rule out that, as indicated above, in some cases the results can go further, in terms of the acceptance of the effects of arbitration agreements, than might be expected from the per-spective of some member States. This is consistent with home country control.

At least as regards arbitrability, the concern as to the lack of harmonization is to some extent assuaged by the fact that the proposed new mechanism does not apply to arbitration in areas which might be particularly problematic, such as consumer, employment and insur-ance contracts.80

E.3 The rule in practice: the essential role of the choice of the seat

In the short term and in individual cases, the new system will not always be capable of ensuring the highest level of protection of arbitration agreements and of preventing concur-rent proceedings. The outcome of the potential conflicts will depend on the laws that come into play from time to time.

The result more favorable to the validity and effects of the arbitration agreement will be achieved when the seat is in a member State that takes a liberal stance in assessing those agreements. In such a case, proceedings before the courts of any other member State will be impossible even if they are brought in a State with a less favorable law or, put otherwise, with a more restrictive or formalistic interpretation of the requirements of such agreements, not to mention in a member State amenable to condoning spurious actions. The likely pro-arbitration decision of the courts of the seat will oblige the courts of the other States to grant a stay or to decline jurisdiction altogether, provided that the party relying on the arbitration agreement seizes the seat court or goes to arbitration. In that case the arbitration will not be threatened by concurrent court proceedings, at least within the EU.

The new rule may prove less helpful if the seat is in a member State whose pro-arbitration attitude cannot be taken for granted for whatever reason. If the court of the seat declines to uphold the arbitration agreement, the suit will be allowed to proceed before the courts first seized in another member State, or even before the courts of the State of the seat if the proceedings on the merits have been brought before them and they have jurisdiction under the Regulation. In that case it will be impossible to avoid concurrent proceedings if the arbitration goes on despite the courts refusal to uphold the arbitration agreement81.

The conclusion is evidently that much will depend on the choice of the seat by the par-ties. That choice is already extremely important today, but under the new provision it will be

80 Supra n 40. 81 For the implications of this situation see infra Section F.2(d).

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even more so because, if well considered, it should avert the risk of court proceedings which are either concurrent with the arbitration or may discourage the bringing of arbitration for fear of resultant complications. Even more than today, therefore, the parties would do well to ponder that choice carefully, also in the perspective of precluding court actions that risk derailing the arbitration.

Unfortunately the parties do not always pay sufficient attention to this issue. Addition-ally, in some circumstances at least one of them may not have a true ability to choose the seat, as may happen when contracting with a State or a public entity. In such cases the new draft rule of the Regulation is almost powerless to support the arbitration in the face of a hostile attitude of the courts of the seat. This is the unwanted consequence of foregoing the harmonization of arbitration law. Whilst this solution avoids diluting the more pro-arbitration achievements of some laws, it likewise does not avoid the possible pitfalls of the less favorable laws. The problem may slowly disappear if the competition inherent in the new mechanism leads to a pro-arbitration evolution in the member States that adopt a different attitude today. If it does not, the importance of the seat will remain paramount and parties will have to remain aware that, even within the EU, seating an arbitration in certain States will continue to entail risks for the arbitration.

The important difference compared to the present situation will be that seating the ar-bitration in a pro-arbitration member State will, instead, provide a robust protection for the arbitration that was heretofore not available.

F. Other matters

As discussed above, the draft revised Regulation contains no other material rules be-yond the one on lis pendens, and is therefore much more limited in scope than the original proposals. The consequence of this, combined with the restatement of the inapplicability of the Regulation to arbitration in Article 1(2)(d), is that all other matters pertaining to arbitra-tion will continue to be governed by the national laws of the member States.

F.1 Jurisdiction on ancillary and setting aside proceedings

Specifically, the draft does not contain rules on jurisdiction either for ancillary proceed-ings or for setting aside proceedings. Neither of these omissions is liable to lead to particu-larly serious conflicts or is otherwise problematic. Today the jurisdictional criteria for these proceedings are in practice harmonized in the laws of most States, and notably the member

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States, in that as a rule their courts will exercise jurisdiction exclusively in respect of arbitra-tions seated on their territory. Positive or negative jurisdictional conflicts on these points are therefore likely to arise only in the relatively exceptional cases in which the seat has not been designated by the parties or by the arbitrators or an arbitral institution82. In such a situation it is conceivable that the parties will resort to the courts of dif

Documents

Arbitration and the Draft Revised Brussels I