Appeal court considers law governing objective arbitrability

Facts
Decision
Comment

In the context of a motion before a state court to refer a dispute to arbitration, the objective arbitrability of that dispute is governed by Greek law (as lex fori – the law of the forum) and not by the law that governs the arbitration procedure or agreement (lex arbitri). The governing law that should be used to decide whether a null and void arbitration clause may survive as a valid governing law clause is determined in accordance with the Rome Convention 1980 on the law applicable to contractual obligations.

Facts

A labour dispute arose between a shipping company and one of its employees, a crew member. The recruitment contract contained the following arbitration clause:

"Any dispute or difference arising out of or in connection with the present agreement will be resolved in accordance with the laws of England and Wales and the Rules of the International Chamber of Commerce by a tripartite arbitral tribunal."

The employee filed a claim before the Greek courts. The respondent company claimed that the Greek courts lacked jurisdiction, and that the dispute should be referred to arbitration following the parties' agreement. This was challenged by the employee, as Greek law stipulates that employment disputes are not arbitrable.

Decision

The Piraeus Court of Appeal, in an interim judgment, held that before referring the dispute to arbitration, the arbitrability of the dispute should be determined in accordance with English law. The court reserved its final judgment until proof of the content of English law was obtained.(1) It is unclear whether English law was held applicable as the law governing the arbitration agreement or as the law governing the arbitration procedure, as the wording of the clause was ambivalent in this respect.

The employee successfully sought to revoke the interim judgment. In a new interim judgment, the court held that the arbitrability of a dispute which is brought before the Greek courts, even when a foreign element is involved, is determined in accordance with Greek law. The court further held that as labour disputes are not arbitrable under Greek law, a clause providing for the arbitration of labour disputes was null and void. However, the court added that a question remained as to whether the clause could survive as a valid governing law clause, and thus the interpretation of the clause in this context and its existence and validity as a governing law clause should be determined in accordance with English law by virtue of Articles 8(1) and 10(1) of the Rome Convention.

Comment

This judgment dealt with objective (rather than subjective) arbitrability, as the question of arbitrability that was raised related to the subject matter and not to the parties of the dispute. The court followed the more conventional approach that objective arbitrability is determined in accordance with the lex fori.

Nevertheless, the law governing arbitrability is not approached in a uniform manner. First, the issue may arise before either a state court or an arbitral tribunal, with different considerations applying in each case. Furthermore, even before the state courts, the issue may arise at either the pre-award or the post-award stage, again with different considerations applying. As is the case under Article V(2)(a) of the New York Convention, Greek law deals only with the post-award stage – in particular, with enforcement of foreign arbitral awards. Under that provision (Article 903.2 of the Code of Civil Procedure), objective arbitrability is determined in accordance with Greek law. The admission of a foreign arbitral award to the Greek legal order seems to be the ratio for this solution.

However, it is not obvious that the same rationale applies at the pre-award stage. Certainly, the objective arbitrability of a dispute touches on the jurisdiction of a state court in the sense that it may restrict its scope in a particular case. While this is true when a state court would have jurisdiction but for the arbitration agreement, it is not so obvious when it would not have jurisdiction, in which case its jurisdiction would not be at issue. In such case there is little, if any, justification for determining objective arbitrability in accordance with the lex fori. The law governing the arbitration agreement, the law of the place of arbitration or even the law of the putative forum (ie, the law of the country whose state courts would otherwise have jurisdiction to hear the dispute) are all potential candidates. The court may even consider resolving the issue by applying autonomous principles or referring the case to the arbitral tribunal. The application of lex fori in the case at hand is justified as it falls under the first category, since the Piraeus Court of Appeal would otherwise itself have jurisdiction to hear the dispute.

The court also dealt with the issue of whether the null and void arbitration clause could survive as a valid governing law clause. This question also involved a conflict of laws issue. Applying the Rome Convention, the court held that English law should provide the answer. Article 8(1) of the convention states that "[t]he existence and validity of a contract, or of any term of a contract, shall be determined by the law which would govern it under this Convention if the contract or term were valid", while Article 10(1)(a) states that "[t]he law applicable to a contract by virtue of Articles 3 to 6 and 12 of this Convention shall govern in particular: (a) interpretation;... (e) the consequences of nullity of the contract".

Bearing in mind that Article 1(2)(d) of the convention expressly excludes arbitration agreements from its scope, there is an issue as to whether it applies to an arbitration clause that is null and void. In other words, how can the Rome Convention govern the validity and the consequences of the nullity of an arbitration agreement, as such an agreement is expressly excluded from the scope of the convention? That an arbitration agreement, whether in the form of a separate agreement or in the form of a clause contained in the main agreement, is an agreement autonomous and independent from the main contract is well settled on the basis of the universally accepted severability doctrine. A related issue arose under the Brussels Convention 1968 on jurisdiction and enforcement of judgments, which excludes arbitration. The European Court of Justice (ECJ) held that the Brussels Convention excluded arbitration in its entirety, and that the exclusion of arbitration extended not only to arbitration-related litigation, but also to litigation that involved as a preliminary issue the existence or validity of an arbitration agreement. The ECJ justified this approach by stating that it would run counter to the principle of legal certainty – one of the objectives pursued by the convention – if the exclusion of arbitration varied according to the existence or otherwise of such a preliminary issue.(2)

The principle of legal certainty is also an objective pursued by the Rome Convention(3) and its successor, EU Regulation 593/2008.(4) This should be the guiding principle in deciding whether the Rome Convention (and, for contracts entered into on or after December 17 2009, the regulation) applies to determine the validity or the consequences of nullity of an arbitration clause or agreement.(5) Thus, instead of applying the Rome Convention or the regulation, the courts should apply either their national conflict of laws rules or the substantive rules of their lex fori directly. In particular, if the arbitration clause is voidable, its validity should be determined in accordance with the putative applicable law (as a result of either an existing choice of law or the conflict of laws rules), as nullity of the clause has no retroactive effect. If the arbitration clause is null and void (as in the case at hand), its validity should be determined in accordance with the substantive rules of the lex fori; in this case, the clause would be null and void from the beginning and it would be problematic to determine the applicable law in regard to such an arbitration clause.

For further information on this topic please contact Antonios Tsavdaridis at IK Rokas & Partners by telephone (+30 210 361 6816), fax (+30 210 361 5425) or email ([email protected]).

Endnotes