JUDGMENT OF THE COURT

1 June 1999 (1)

(Competition — Application by an arbitration tribunal, of its own motion, ofArticle 81 EC (ex Article 85) — Power of national courts to annul arbitrationawards)

In Case C-126/97,

REFERENCE to the Court under Article 234 EC (ex Article 177) by the HogeRaad der Nederlanden (Netherlands) for a preliminary ruling in the proceedingspending before that court between

Eco Swiss China Time Ltd

and

Benetton International NV

on the interpretation of Article 81 EC (ex Article 85),

THE COURT,

composed of: G.C. Rodríguez Iglesias, President, P.J.G. Kapteyn, J.-P. Puissochet,G. Hirsch and P. Jann (Presidents of Chambers), G.F. Mancini, J.C. Moitinho de

Almeida (Rapporteur), C. Gulmann, J.L. Murray, D.A.O. Edward, H. Ragnemalm,L. Sevón and M. Wathelet, Judges,

Advocate General: A. Saggio,

Registrar: H. von Holstein, Deputy Registrar,

after considering the written observations submitted on behalf of:

—    Eco Swiss China Time Ltd, by P.V.F. Bos and M.M. Slotboom, of theRotterdam Bar, and S.C. Conway, Attorney-at-Law admitted to the Districtof Columbia and Illinois Bar,

—    Benetton International NV, by I. Van Bael and P. L'Ecluse, of the BrusselsBar, and H.A. Groen, of The Hague Bar,

—    the Netherlands Government, by M.A. Fierstra, Deputy Legal Adviser in theMinistry of Foreign Affairs, acting as Agent,

—    the French Government, by K. Rispal-Bellanger, Head of the Subdirectoratefor International Economic Law and Community Law in the Legal AffairsDirectorate of the Ministry of Foreign Affairs, and R. Loosli-Surrans,Chargé de Mission in the same directorate, acting as Agents,

—    the Italian Government, by Professor U. Leanza, Head of the ContentiousDiplomatic Affairs Department in the Ministry of Foreign Affairs, acting asAgent, assisted by I.M. Braguglia, Avvocato dello Stato,

—    the United Kingdom Government, by J.E. Collins, Assistant TreasurySolicitor, acting as Agent, assisted by V.V. Veeder QC,

—    the Commission of the European Communities, by C.W.A. Timmermans,Deputy Director-General, W. Wils and H. van Vliet, of its Legal Service,acting as Agents,

having regard to the Report for the Hearing,

after hearing the oral observations of Eco Swiss China Time Ltd, represented byP.V.F. Bos, L.W.H. van Dijk and M. van Empel, of the Brussels Bar; of BenettonInternational NV, represented by H.A. Groen and I. Van Bael; of the NetherlandsGovernment, represented by M.A. Fierstra; of the French Government,represented by R. Loosli-Surrans; of the Italian Government, represented byI.M. Braguglia; of the United Kingdom Government, represented by S. Boyd QCand P. Stanley, Barrister; and of the Commission, represented byC.W.A. Timmermans, W. Wils and H. van Vliet, at the hearing on 7 July 1998,

after hearing the Opinion of the Advocate General at the sitting on 25 February1999,

gives the following

Judgment

1.

    By order of 21 March 1997, received at the Court on 27 March 1997, the HogeRaad der Nederlanden (Supreme Court of the Netherlands) referred to the Courtfor a preliminary ruling under Article 234 EC (ex Article 177) five questions on theinterpretation of Article 81 EC (ex Article 85).

2.

    Those questions have been raised in proceedings brought by BenettonInternational NV ('Benetton‘) for stay of enforcement of an arbitration awardordering it to pay damages to Eco Swiss China Time Ltd ('Eco Swiss‘) for breachof a licensing agreement concluded with the latter, on the ground that the awardin question was contrary to public policy within the meaning of Article 1065(1)(e)of the Wetboek van Burgerlijke Rechtsvordering (hereinafter referred to as 'theCode of Civil Procedure‘) by virtue of the nullity of the licensing agreement underArticle 81 EC (ex Article 85).

The national legislation

3.

    Article 1050(1) of the Code of Civil Procedure provides:

'No appeal shall lie from an arbitration award to a higher arbitration tribunalunless otherwise agreed by the parties‘.

4.

    Article 1054(1) of the Code states:

'In making their awards, arbitration tribunals shall apply rules of law‘.

5.

    Article 1059 of the Code provides:

'1.    An arbitration award, whether complete or partial, shall not acquire theforce of res judicata unless it is a final award. It shall acquire that force from thedate on which it is made.

2.    However, where, in accordance with the agreement between the parties, anappeal may be made to a higher arbitration tribunal against a complete or partialfinal award, that award shall acquire the force of res judicata as from the date onwhich the time-limit for appealing expires or, if an appeal is lodged, from the date

on which the decision is given in the appeal proceedings, if and in so far as thatdecision upholds the award appealed against.‘

6.

    As regards judicial review of arbitration awards, Article 1064 of the Code of CivilProcedure provides:

'1.    An action contesting (a) a final arbitration award, whether complete orpartial, against which no appeal may be made to a higher arbitration tribunal or (b)a final arbitration award, whether complete or partial, made on appeal to a higherarbitration tribunal may be brought only by way of an application for annulmentor a request-civiel in accordance with the provisions of this section.

2.    An application for annulment shall be made to the Rechtbank, at theregistry of which the original of the award must be lodged pursuant to Article1058(1).

3.    A party may lodge an application for annulment as soon as the award hasacquired the force of res judicata. The right to bring an action shall expire threemonths after the date of lodgement of the award at the registry of the Rechtbank. However, where the award, endorsed with an order for its enforcement, is servedon the other party to the proceedings, that party may, notwithstanding the expiryof the period of three months referred to in the previous sentence, lodge anapplication for annulment within three months from the date of such service.

4.    An application may be lodged for annulment of an interim arbitration awardonly together with the application for annulment of the complete or partial finalarbitration award.

...‘.

7.

    Article 1065 of the Code provides:

'1.    Annulment may be ordered only on one or more of the following grounds:

    (a)    there is no valid arbitration agreement;

    (b)    the arbitration tribunal has been constituted in breach of theapplicable rules;

    (c)    the arbitration tribunal has failed to comply with its terms ofreference;

    (d)    the award has not been signed or does not state the reasons on whichit is based, contrary to the provisions of Article 1057;

    (e)    the award or the manner in which it has been made is contrary topublic policy or accepted principles of morality.

...

4.    An award may not be annulled on the ground referred to in paragraph 1(c)above if the party pleading that ground took part in the proceedings without raisingit in those proceedings despite having been aware that the arbitration tribunal wasfailing to comply with its terms of reference.‘

8.

    Finally, Article 1066(1) and (2) of the Code of Civil Procedure provides that anapplication for annulment does not operate to stay enforcement of the award, butthe court seised of such an application may, if a stay is justified and at the requestof either party, order a stay of enforcement pending a definitive decision on theapplication for annulment. An application for a stay must be based on theexistence of a reasonable prospect that the arbitration award will be annulled.

The main proceedings

9.

    On 1 July 1986 Benetton, a company established in Amsterdam, concluded alicensing agreement for a period of eight years with Eco Swiss, established inKowloon (Hong Kong), and Bulova Watch Company Inc. ('Bulova‘), establishedin Wood Side (New York). Under that agreement, Benetton granted Eco Swiss theright to manufacture watches and clocks bearing the words 'Benetton by Bulova‘,which could then be sold by Eco Swiss and Bulova.

10.

    Article 26.A of the licensing agreement provides that all disputes or differencesarising between the parties are to be settled by arbitration in conformity with therules of the Nederlands Arbitrage Instituut (Netherlands Institute of Arbitrators)and that the arbitrators appointed are to apply Netherlands law.

11.

    By letter of 24 June 1991, Benetton gave notice of termination of the agreementwith effect from 24 September 1991, three years before the end of the periodoriginally provided for. Arbitration proceedings were instituted between Benetton,Eco Swiss and Bulova in relation to the termination of the agreement.

12.

    In their award of 4 February 1993, entitled 'Partial Final Award‘ (hereinafter 'thePFA‘), lodged at the registry of the Rechtbank (District Court) te 's-Gravenhageon the same date, the arbitrators directed inter alia that Benetton shouldcompensate Eco Swiss and Bulova for the damage which they had suffered as aresult of Benetton's termination of the licensing agreement.

13.

    When the parties failed to come to agreement on the quantum of damages to bepaid by Benetton to Eco Swiss and Bulova, the arbitrators on 23 June 1995 made

an award entitled 'Final Arbitral Award‘ (hereinafter 'the FAA‘), which waslodged at the registry of the Rechtbank on 26 June 1995, ordering Benetton to payUSD 23 750 000 to Eco Swiss and USD 2 800 000 to Bulova by way ofcompensation for the damage suffered by them. By order of the President of theRechtbank of 17 July 1995, leave was given to enforce the FAA.

14.

    On 14 July 1995, Benetton applied to the Rechtbank for annulment of the PFAand the FAA on the ground, inter alia, that those arbitration awards were contraryto public policy by virtue of the nullity of the licensing agreement under Article 81EC (ex Article 85), although during the arbitration proceedings neither the partiesnor the arbitrators had raised the point that the licensing agreement might becontrary to that provision.

15.

    The Rechtbank dismissed that application by decision of 2 October 1996,whereupon Benetton appealed to the Gerechtshof (Regional Court of Appeal) te's-Gravenhage, before which the case is pending.

16.

    By application lodged at the registry of the Rechtbank on 24 July 1995 Benettonalso requested that court to stay enforcement of the FAA and, in the alternative,to order Eco Swiss to provide security.

17.

    By order of 19 September 1995 the Rechtbank allowed only the alternative claim.

18.

    Benetton lodged an appeal against that decision. By order of 28 March 1996 theGerechtshof essentially allowed the primary claim.

19.

    The Gerechtshof took the view that Article 81 EC (ex Article 85) is a provision ofpublic policy within the meaning of Article 1065(1)(e) of the Code of CivilProcedure, infringement of which may result in annulment of an arbitration award.

20.

    However, the Gerechtshof considered that, in the proceedings before it for stay ofenforcement, it was unable to examine whether a partial final award such as thePFA was in conformity with Article 1065(1)(e) of the Code of Civil Procedure,since Benetton had not lodged an application for annulment within three monthsafter the lodging of that award at the registry of the Rechtbank, as required byArticle 1064(3) of the Code of Civil Procedure.

21.

    Nevertheless, the Gerechtshof took the view that it was able to examine the FAAin relation to Article 1065(1)(e), particularly as regards the effect of Article 81(1)and (2) EC (ex Article 85(1) and (2)) on the assessment of damage, since to awardcompensation for damage flowing from the wrongful termination of the licensingagreement would amount to enforcing that agreement, whereas it was, at least inpart, void under Article 81(1) and (2) EC (ex Article 85(1) and (2)). Theagreement in question enabled the parties to operate a market-sharingarrangement, since Eco Swiss could no longer sell watches and clocks in Italy andBulova could no longer do so in the other countries which were then Member

States of the Community. As Benetton and Eco Swiss acknowledge, the licensingagreement was not notified to the Commission and is not covered by a blockexemption.

22.

    The Gerechtshof considered that, in the procedure for annulment, the FAA couldbe held to be contrary to public policy, and therefore decided to grant theapplication for a stay in so far as it related to the FAA.

23.

    Eco Swiss brought proceedings in cassation before the Hoge Raad against thedecision of the Gerechtshof and Benetton lodged a cross-appeal.

24.

    The Hoge Raad observes that an arbitration award is contrary to public policywithin the meaning of Article 1065(1)(e) of the Code of Civil Procedure only if itsterms or enforcement conflict with a mandatory rule so fundamental that norestrictions of a procedural nature should prevent its application. It states that, inNetherlands law, the mere fact that, because of the terms or enforcement of anarbitration award, a prohibition laid down in competition law is not applied is notgenerally regarded as being contrary to public policy.

25.

    However, referring to the judgment in Joined Cases C-430/93 and C-431/93 VanSchijndel and Van Veen v SPF [1995] ECR I-4705, the Hoge Raad wonders whetherthe position is the same where, as in the case now before it, the provision inquestion is a rule of Community law. The Hoge Raad infers from that judgmentthat Article 81 EC (ex Article 85) is not to be regarded as a mandatory rule whichis so fundamental that no restrictions of a procedural nature should prevent it frombeing observed.

26.

    Moreover, since it is not disputed that the question whether the licensingagreement might be void under Article 81 EC (ex Article 85) was not raised in thecourse of the arbitration proceedings, the Hoge Raad considers that the arbitratorswould have gone beyond the ambit of the dispute if they had inquired into andruled on that question. In such a case, their award would have been open toannulment pursuant to Article 1065(1)(c) of the Code of Civil Procedure, becausethey would have failed to comply with their terms of reference. Furthermore,according to the Hoge Raad, the parties themselves could not have raised thequestion of the possible nullity of the licensing agreement for the first time in thecontext of the proceedings for annulment.

27.

    The Hoge Raad states that such rules of procedure are justified by the generalinterest in having an effectively functioning arbitration procedure and that they areno less favourable to application of rules of Community law than to application ofrules of national law.

28.

    However, the Hoge Raad is uncertain whether the principles laid down by theCourt in Van Schijndel and Van Veen, cited above, also apply to arbitrators,

particularly since, according to the judgment in Case 102/81 Nordsee v ReedereiMond [1982] ECR 1095, an arbitration tribunal constituted pursuant to anagreement under private law, without State intervention, is not to be regarded asa court or tribunal for the purposes of Article 234 EC (ex Article 177) and cannottherefore make references for a preliminary ruling under that article.

29.

    The Hoge Raad explains that, under Netherlands procedural law, where arbitratorshave settled part of a dispute by an interim award which is in the nature of a finalaward, that award has the force of res judicata and, if annulment of that interimaward has not been sought in proper time, the possibility of applying for annulmentof a subsequent arbitration award proceeding upon the interim award is restrictedby the principle of res judicata. However, the Hoge Raad is uncertain whetherCommunity law precludes the Gerechtshof from applying such a procedural rulewhere, as in the present case, the subsequent arbitration award, the annulment ofwhich has been applied for in proper time, proceeds upon an earlier arbitrationaward.

30.

    In those circumstances, the Hoge Raad der Nederlanden decided to stayproceedings and to refer the following questions to the Court for a preliminaryruling:

'(1)    To what extent is the ruling of the Court of Justice in Joined CasesC-430/93 and C-431/93 Van Schijndel and Van Veen v SPF [1995]ECR I-4705 applicable by analogy if, in a dispute concerning a private lawagreement brought before arbitrators and not before the national courts, theparties make no reference to Article 85 of the EC Treaty and, according tothe rules of national procedural law applicable to them, the arbitrators arenot at liberty to apply those provisions of their own motion?

(2)    If the court considers that an arbitration award is in fact contrary to Article85 of the EC Treaty, must it, on that ground and notwithstanding the rulesof Netherlands procedural law set out in paragraphs 4.2 and 4.4 above[according to which a party may claim annulment of an arbitration awardonly on a limited number of grounds, one ground being that an award iscontrary to public policy, which generally does not cover the mere fact thatthrough the terms or enforcement of an arbitration award no effect is givento a prohibition laid down by competition law], allow a claim for annulmentof that award if the claim otherwise complies with statutory requirements?

(3)    Notwithstanding the rules of Netherlands procedural law set out inparagraph 4.5 above [according to which arbitrators must not go outside theambit of disputes and must keep to their terms of reference], is the courtalso required to allow such a claim if the question of the applicability ofArticle 85 of the EC Treaty remained outside the ambit of the dispute inthe arbitration proceedings and the arbitrators therefore made nodetermination in that regard?

(4)    Does Community law require the rules of Netherlands procedural law setout in paragraph 5.3 above [according to which an interim arbitration awardthat is in the nature of a final award acquires the force of res judicata andis open to appeal only within a period of three months following lodgementof the award at the registry of the Rechtbank] to be disapplied if this isnecessary in order to examine, in proceedings for annulment of asubsequent arbitration award, whether an agreement which an interimarbitration award having the force of res judicata has held to be valid maynevertheless be void because it conflicts with Article 85 of the EC Treaty?

(5)    Or, in a case such as that described in Question 4, is it necessary to refrainfrom applying the rule that, in so far as an interim arbitration award is inthe nature of a final award, annulment of that award may not be soughtsimultaneously with that of the subsequent arbitration award?‘

The second question

31.

    By its second question, which is best examined first, the referring court is askingessentially whether a national court to which application is made for annulment ofan arbitration award must grant such an application where, in its view, that awardis in fact contrary to Article 81 EC (ex Article 85) although, under domesticprocedural rules, it may grant such an application only on a limited number ofgrounds, one of them being inconsistency with public policy, which, according to theapplicable national law, is not generally to be invoked on the sole ground that,because of the terms or the enforcement of an arbitration award, effect will not begiven to a prohibition laid down by domestic competition law.

32.

    It is to be noted, first of all, that, where questions of Community law are raised inan arbitration resorted to by agreement, the ordinary courts may have to examinethose questions, in particular during review of the arbitration award, which may bemore or less extensive depending on the circumstances and which they are obligedto carry out in the event of an appeal, for setting aside, for leave to enforce anaward or upon any other form of action or review available under the relevantnational legislation (Nordsee, cited above, paragraph 14).

33.

    In paragraph 15 of the judgment in Nordsee, the Court went on to explain that itis for those national courts and tribunals to ascertain whether it is necessary forthem to make a reference to the Court under Article 234 EC (ex Article 177) inorder to obtain an interpretation or assessment of the validity of provisions ofCommunity law which they may need to apply when reviewing an arbitration award.

34.

    In this regard, the Court had held, in paragraphs 10 to 12 of that judgment, thatan arbitration tribunal constituted pursuant to an agreement between the partiesis not a 'court or tribunal of a Member State‘ within the meaning of Article 234

EC (ex Article 177) since the parties are under no obligation, in law or in fact, torefer their disputes to arbitration and the public authorities of the Member Stateconcerned are not involved in the decision to opt for arbitration nor required tointervene of their own accord in the proceedings before the arbitrator.

35.

    Next, it is in the interest of efficient arbitration proceedings that review ofarbitration awards should be limited in scope and that annulment of or refusal torecognise an award should be possible only in exceptional circumstances.

36.

    However, according to Article 3(g) of the EC Treaty (now, after amendment,Article 3(1)(g) EC), Article 81 EC (ex Article 85) constitutes a fundamentalprovision which is essential for the accomplishment of the tasks entrusted to theCommunity and, in particular, for the functioning of the internal market. Theimportance of such a provision led the framers of the Treaty to provide expressly,in Article 81(2) EC (ex Article 85(2)), that any agreements or decisions prohibitedpursuant to that article are to be automatically void.

37.

    It follows that where its domestic rules of procedure require a national court togrant an application for annulment of an arbitration award where such anapplication is founded on failure to observe national rules of public policy, it mustalso grant such an application where it is founded on failure to comply with theprohibition laid down in Article 81(1) EC (ex Article 85(1)).

38.

    That conclusion is not affected by the fact that the New York Convention of10 June 1958 on the Recognition and Enforcement of Foreign Arbitral Awards,which has been ratified by all the Member States, provides that recognition andenforcement of an arbitration award may be refused only on certain specificgrounds, namely where the award does not fall within the terms of the submissionto arbitration or goes beyond its scope, where the award is not binding on theparties or where recognition or enforcement of the award would be contrary to thepublic policy of the country where such recognition and enforcement are sought(Article V(1)(c) and (e) and II(b) of the New York Convention).

39.

    For the reasons stated in paragraph 36 above, the provisions of Article 81 EC (exArticle 85) may be regarded as a matter of public policy within the meaning of theNew York Convention.

40.

    Lastly, it should be recalled that, as explained in paragraph 34 above, arbitrators,unlike national courts and tribunals, are not in a position to request this Court togive a preliminary ruling on questions of interpretation of Community law. However, it is manifestly in the interest of the Community legal order that, in orderto forestall differences of interpretation, every Community provision should begiven a uniform interpretation, irrespective of the circumstances in which it is to beapplied (Case C-88/91 Federconsorzi [1992] ECR I-4035, paragraph 7). It followsthat, in the circumstances of the present case, unlike Van Schijndel and Van Veen,Community law requires that questions concerning the interpretation of the

prohibition laid down in Article 81(1) EC (ex Article 85(1)) should be open toexamination by national courts when asked to determine the validity of anarbitration award and that it should be possible for those questions to be referred,if necessary, to the Court of Justice for a preliminary ruling.

41.

    The answer to be given to the second question must therefore be that a nationalcourt to which application is made for annulment of an arbitration award mustgrant that application if it considers that the award in question is in fact contraryto Article 81 EC (ex Article 85), where its domestic rules of procedure require itto grant an application for annulment founded on failure to observe national rulesof public policy.

The first and third questions

42.

    In view of the reply given to the second question, there is no need to answer thefirst and third questions.

The fourth and fifth questions

43.

    By its fourth and fifth questions, which can be examined together, the referringcourt is asking essentially whether Community law requires a national court torefrain from applying domestic rules of procedure according to which an interimarbitration award which is in the nature of a final award and in respect of whichno application for annulment has been made within the prescribed time-limitacquires the force of res judicata and may no longer be called in question by asubsequent arbitration award, even if this is necessary in order to examine, inproceedings for annulment of the subsequent award, whether an agreement whichthe interim award held to be valid in law is nevertheless void under Article 81 EC(ex Article 85).

44.

    According to the relevant domestic rules of procedure, application for annulmentof an interim arbitration award which is in the nature of a final award may bemade within a period of three months following the lodging of that award at theregistry of the court having jurisdiction in the matter.

45.

    Such a period, which does not seem excessively short compared with thoseprescribed in the legal systems of the other Member States, does not renderexcessively difficult or virtually impossible the exercise of rights conferred byCommunity law.

46.

    Moreover, domestic procedural rules which, upon the expiry of that period, restrictthe possibility of applying for annulment of a subsequent arbitration awardproceeding upon an interim arbitration award which is in the nature of a final

award, because it has become res judicata, are justified by the basic principles ofthe national judicial system, such as the principle of legal certainty and acceptanceof res judicata, which is an expression of that principle.

47.

    In those circumstances, Community law does not require a national court to refrainfrom applying such rules, even if this is necessary in order to examine, inproceedings for annulment of a subsequent arbitration award, whether anagreement which the interim award held to be valid in law is nevertheless voidunder Article 81 EC (ex Article 85).

48.

    The answer to be given to the fourth and fifth questions must therefore be thatCommunity law does not require a national court to refrain from applying domesticrules of procedure according to which an interim arbitration award which is in thenature of a final award and in respect of which no application for annulment hasbeen made within the prescribed time-limit acquires the force of res judicata andmay no longer be called in question by a subsequent arbitration award, even if thisis necessary in order to examine, in proceedings for annulment of a subsequentarbitration award, whether an agreement which the interim award held to be validin law is nevertheless void under Article 81 EC (ex Article 85).

Costs

49.

    The costs incurred by the Netherlands, French, Italian and United KingdomGovernments and by the Commission, which have submitted observations to theCourt, are not recoverable. Since these proceedings are, for the parties to themain proceedings, a step in the action pending before the national court, thedecision on costs is a matter for that court.

On those grounds,

THE COURT,

in answer to the questions referred to it by the Hoge Raad der Nederlanden byorder of 21 March 1997, hereby rules:

1.    A national court to which application is made for annulment of anarbitration award must grant that application if it considers that the awardin question is in fact contrary to Article 81 EC (ex Article 85), where itsdomestic rules of procedure require it to grant an application forannulment founded on failure to observe national rules of public policy.

2.    Community law does not require a national court to refrain from applyingdomestic rules of procedure according to which an interim arbitration

award which is in the nature of a final award and in respect of which noapplication for annulment has been made within the prescribed time-limitacquires the force of res judicata and may no longer be called in questionby a subsequent arbitration award, even if this is necessary in order toexamine, in proceedings for annulment of a subsequent arbitration award,whether an agreement which the interim award held to be valid in law isnevertheless void under Article 81 EC (ex Article 85).

Rodríguez IglesiasKapteyn Puissochet Hirsch Jann Mancini Moitinho de Almeida Gulmann Murray Edward            Ragnemalm            Sevón Wathelet

Delivered in open court in Luxembourg on 1 June 1999.

R. Grass

G.C. Rodríguez Iglesias

Registrar

President

1: Language of the case: Dutch.