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22 Mar 2010

Arbitrating competition law disputes

by Michael Underdown

Can competition law disputes be resolved by arbitration? In this article we will examine two themes: the so-called arbitrability of competition law disputes, and the case for the Australian Competition and Consumer Commission (ACCC) to use external arbitration.

Arbitrability of competition law

This issue arises where there is a competition law dispute that is referred to arbitration pursuant to an arbitration clause and the parties have agreed to a foreign choice of law provision.

Normally, it is not possible to agree to exclude the operation of the Trade Practices Act 1974 (Cth) (TPA). This is because of the public policy nature of the TPA.

At the same time, the International Arbitration Act 1974 (Cth), which adopts the UNCITRAL Model Law on International Commercial Law, also implements public policy.

In the light of the widespread use of TPA claims in commercial litigation in Australia, two questions arise:

  • Does transnational public policy trump domestic public policy?
  • May a foreign arbitration tribunal consider a TPA claim when Australian law is not the governing law of the contract?

For a long time, there was reluctance to arbitrate competition law disputes because they were seen as the province of the various competition authorities, and particularly as a uniform approach was considered desirable, which could not be guaranteed if these matters were arbitrated behind closed doors. But times changed and both the Supreme Court of Victoria, in Stericorp Ltd v Stericycle Inc [2005] VSC 203, and the New South Wales Court of Appeal, in Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160, have upheld the right to submit TPA claims to arbitration.

In the former case, the Supreme Court of Victoria held that TPA "claims (could) and should be arbitrated, as the parties (had) agreed". Arbitration clauses extended to statutory causes of action.

In the latter case, the judge at first instance (Justice Cole) found that, because the proper law of the contract was that of England (and Wales), relief could not be claimed under the TPA. The NSW Court of Appeal rejected this argument on the grounds that the parties were "unlikely to have intended that different disputes (arising out of the contract) should be resolved before different tribunals". The Court of Appeal cited the case of Mitsubishi Motors Corp v Soler Chrysler-Plymouth Inc 473 US 614, 105 S Ct 3346 (1985), in which the United States Supreme Court held that antitrust claims under the Sherman Act 1890 were arbitrable before a Japanese arbitration tribunal when the proper law of the contract was Swiss. In that case, Justice Blackmun for the majority said: "To be sure, the international arbitral tribunal owes no particular allegiance to the legal norms of particular states; hence, it has no direct obligation to vindicate their statutory dictates. The tribunal, however, is bound to effectuate the intentions of the parties". The equivalent European case is Eco Swiss China Time Ltd v Benetton International NV [1999] ECR 1-3055 (C-126/97) while that in the United Kingdom is ET Plus SA & Ors v Welter & Ors [2005] EWHC 2115 (Comm).

The arbitrability of TPA claims can, of course, be made clear by the parties explicitly providing for determination of any TPA claims when drafting the arbitration clause.

In Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192, Justice Allsop delivering the lead judgment, ruled that it was for the arbitrator to decide how the TPA claims would be addressed, reversing an earlier position he had taken in Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Ltd [2005] FCA 1102 on the grounds that, with the benefit of hindsight, he did not believe it right to fetter the operation of the arbitration clause.

More recently, Justice Gilmour, in Clough Engineering Limited v Oil & Natural Gas Corporation Ltd [2007] FCA 881, accepted that "the parties could not have considered that the foreign jurisdiction/arbitration clause (in this case, Indian law) would apply to a TPA claim". This was precisely the argument rejected by the NSW Court of Appeal 10 years earlier, and the decision is clearly contrary to the trend that has emerged in the Australian courts over the past decade accepting the arbitrability of TPA claims.

ACCC and external arbitration

The ACCC engages in arbitration in the cases of access (to essential services) disputes under Part IIIA of the TPA and telecommunications disputes under Part XIC.

Quite rightly, the ACCC distinguishes so-called "access arbitrations" from "typical commercial arbitrations" of the kind discussed above. The biggest difference, of course, is that while commercial parties choose to insert arbitration clauses in their contracts and choose the procedural rules, arbitrators and venue, etc., the TPA imposes arbitration on the parties to a dispute even if the ACCC's determination is reached "through the application of specific statutory criteria".

But does this power need to be exercised by the ACCC? Would it not be better exercised by an independent, external arbitral tribunal, following ad hoc or institutional procedures, rather than by a body which is judge, jury and executioner, along with all the other roles it performs? This is what is happening in Europe.

The European Commission relies on commitments to submit third party disputes to arbitration in many merger control contexts. Clearances are conditional on such commitments. The benefit to the Commission is that monitoring of the merger is shifted to the private sector, freeing up public resources. Third parties can have recourse to arbitration as well as claiming civil damages.

Of course, the European Commission has a very different view of its role to the ACCC, so it is unlikely that any of us will be arbitrating access issues any time soon.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.