Arbitration clause

Arbitration is a form of dispute resolution in which the parties to a contract agree to have their dispute resolved by a third-party decision-maker, rather than through litigation, and agree that this third party’s ruling will be binding on them.

The contract defines the applicable law or laws chosen by the parties (which are, in principle, national laws) and the conditions under which an action can be brought.

In the context of European Union (EU) law, an action could be brought before the Court of Justice or the General Court based on an arbitration clause contained in a contract concluded by or on behalf of the EU, whether governed by public or private law, which expressly provides (by way of derogation from the rules of ordinary law under which disputes arising out of such contracts are subject to the jurisdiction of the courts of the EU Member States) for jurisdiction to be exercised by one or other of the courts making up the Court of Justice of the European Union.

Thus, under Article 272 of the Treaty on the Functioning of the European Union (TFEU), the Court of Justice of the European Union is able to give judgment pursuant to any arbitration clause contained in a contract concluded by or on behalf of the EU, whether that contract be governed by public or private law.

Where there is a dispute between Member States which relates to the subject matter of the EU treaties and this dispute is submitted to the Court of Justice under a special agreement between the parties, the Court has jurisdiction, according to Article 273 TFEU.

Disputes to which the EU is a party are not to be excluded from the jurisdiction of the courts or tribunals of the Member States on that ground, except where jurisdiction is conferred on the EU courts by the treaties (under Article 274 TFEU).

Article 340(1) TFEU states that the EU’s contractual liability is to be governed by the law applicable to the contract in question.

The application initiating proceedings based on an arbitration clause, which can only be submitted by the parties to the contract (because third parties are not able to bring proceedings before the EU courts by virtue of such a clause), must be accompanied by a copy of the contract in question (Article 78(3) of the rules of procedure of the General Court).

If the arbitration clause does not provide for any restriction to this effect, the court seized, as the contract court, has extensive powers to examine, in fact and in law, all aspects of the dispute submitted to it by the parties and, where appropriate, to order all necessary measures requested by the latter.

The court may:

interpret certain provisions of the contract in the light of the applicable law;
be seized of the proper performance of their contractual obligations by the parties and may, as such, compel them to perform their contractual obligations or to compensate the injured party, by ordering them to pay damages, if the non-performance of these obligations has led to damage;
require the parties to pay for additional services not initially provided for in the contract;
order the judicial termination of the contract in case of non-performance, specifying the consequences of such a termination.

The EU courts may also be called upon to rule on the validity of the contract and may then declare it invalid.