Court's Limited Power to Annul Competition Law Rulings by Arbitral Panel - International Law Office

Facts
Arbitration
Court Proceedings
Appeal Court Decision
Comment

On June 22 2009 the Brussels Court of Appeal ruled that it is competent to review an arbitral decision if the decision threatens public order. Therefore, it could decide whether the arbitration panel's decision in the case before it was contrary to Articles 81 and 82 of the EC Treaty. However, the court held that it could not annul or review a decision of an arbitration panel that was concerned merely with an award of damages between parties to an agreement that had been declared void on the grounds of infringement of EU competition law.

Facts

In 1991 two chemicals manufacturers - Cytec, based in the Netherlands, and SNF, based in France - signed a supply agreement that required SNF to purchase a minimum quantity of the chemical monomer acrylamide from Cytec.

In 1993 Cytec and SNF signed a new agreement whereby SNF was required to purchase all of the monomer acrylamide needed by its factory in Saint-Etienne if this quantity exceeded 17,000 tonnes. The agreement was concluded for eight years and was governed by French law. It contained an arbitration clause which stated that disputes would be settled by International Chamber of Commerce arbitration in Brussels.

In January 2000 SNF informed Cytec that it believed the 1993 agreement to be in breach of Articles 81 and 82. It requested the immediate termination of the agreement. Arbitration proceedings were initiated a few months later.

Arbitration

The arbitration proceedings were divided into two phases. In the first phase, the arbitration panel ruled on the dispute between the parties, but would not rule on whether damages were payable or what the amount of damages should be - these two questions would be answered in the second phase of the proceedings and would be the subject of a second ruling by the same panel.

The first ruling held that the 1993 agreement was in breach of Article 81(1), as it aimed to prevent SNF from entering the market for monomer acrylamide. Therefore, the agreement was declared null and void.

In the second ruling, the arbitration panel ordered SNF to pay Cytec over €10 million in damages for:

• the fact that Cytec had been unable to execute the 1991 agreement, under which the purchase volumes exceeded those of the 1993 agreement, until 1995;
• the loss of the opportunity to sell monomer acrylamide to SNF between 1995 and 2000 at an average European price; and
• interest on the amounts above.

The arbitration panel determined the amount of the damages based on the situation in which the parties would have found themselves had the 1993 agreement not been signed.

Court Proceedings

On May 19 1995 SNF filed a request with the Brussels Court of First Instance to have the arbitration panel's rulings declared null and void. The court found the request to be admissible and well founded; it therefore annulled the rulings. Cytec appealed to the Brussels Court of Appeal.

Belgian law states that the courts may annul arbitral decisions only for the reasons specified in the Judicial Code, which provides for annulment "if the arbitration panel's ruling threatens public order".

Appeal Court Decision

The appeal court stressed that it was not its responsibility to:

• decide whether the arbitration panel's justification for its decision was relevant;
• replace the arbitration panel's opinion with its own; or
• review or annul an allegedly bad ruling.

Rather, the court could annul a ruling only if it threatened public order. It was not disputed that Articles 81 and 82 cover public order.

However, the court stated that by annulling the 1993 agreement, the arbitration panel had eliminated the only anti-competitive part of the agreement (ie, the eight-year period), and had allowed SNF to enter the market in question. The arbitration panel's ruling thus complied with Article 81 and no evidence had been submitted that Article 82 had been infringed.

Acknowledging the principle of limited competence with regard to arbitral decisions, the court stated that it was not competent to rule on other aspects of the case, including the award of damages.

SNF filed a complaint before the French courts, based on French competition law, but the complaint was rejected by the court. A complaint to the European Commission was also unsuccessful.

Comment

The final irony is that SNF, the party that originally asked for the agreement to be annulled because it breached competition law, is still required to pay over €10 million in damages to Cytec because the agreement was anti-competitive. This sum allegedly exceeds the amount that it would have had to pay under the agreement had the agreement run for its full term. It is unknown whether an appeal will be lodged before the Supreme Court.

For further information on this topic please contact Carmen Verdonck or Louise Depuydt at ALTIUS by telephone (+32 2 426 1414), fax (+32 2 426 2030) or email (carmen.verdonck@altius.com or louise.depuydt@altius.com).