Reviewing Arbitration Awards for Competition Law Violations

Posted by Social Science Research Network

Reviewing Arbitration Awards for Competition Law Violations William R Schubert (Heidelberg Center para America Latina)

Abstract: This article discusses the risk that international arbitration awards violating national competition laws will be enforced without having received reasonable scrutiny either during arbitration or in the national courts.

The risk that competition law violations may be authorized under the guise of enforceable arbitration awards is real, and it is a major policy problem. It is quite easy, for example, to use the international arbitration framework to enforce agreements that authorize anticompetitive activity among competitors in jurisdictions unrelated to the arbitral award (i.e., without power to review it). The problem is that competition law violations in jurisdictions unrelated to the award are unlikely to raise red flags. This is true from the perspective of both international arbitrators and national courts. Arbitrators generally will not raise issues ex officio unless they bear on enforceability of the award. For their part, national courts have thus far not interpreted violations of the competition laws in foreign jurisdictions as potential bars to enforcement.

The key to solving this policy problem is getting international arbitrators to identify at least the most serious types of competition law violations – which are the most likely to be deliberately omitted from the issues presented in the arbitration – on their own initiative.

To solve this problem, this article recommends that national courts implementing the New York Convention begin to recognize a narrow category of hard-core cartel activities (e.g., price fixing, bid rigging, agreed-upon output restraints, and territorial market allocation, which are universally condemned under national competition laws) as “international public policy.” Doing so will give international arbitrators the incentive to look for and resolve at least the most severe types of competition law issues in order to ensure that they are rendering an enforceable award.

That recommendation, while ambitious, does not imply a heightened standard for judicial review or a departure from the prompt enforcement procedures that courts ought to use under the New York Convention. This article maintains that national courts cannot and must not re-decide issues of fact and law already decided by international arbitrators. But it suggests that national courts should consider it a prerequisite to recognition and enforcement that international arbitrators have taken note of and decided at least the most severe types of competition law issues if they are alleged in court during annulment or enforcement proceedings. If national courts do this, they can create an environment in which universally-recognized principles of competition law are upheld in international arbitration. If they do not, there is a serious risk that international cartel activities may trample competition law enforcement around the world and make global markets less efficient.