Arbitration meets human rights—the Pechstein saga and its implications for commercial disputes

Abstract

This article maps the future of commercial arbitration. With its decision in the Pechstein case, the European Court of Human Rights sanctioned the Swiss Federal Supreme Court for its rather generous approach towards the Court of Arbitration for Sport and imposed human rights restrictions on arbitration proceedings. The major upheaval is that Article 6 of the European Convention of Human Rights applies to ‘involuntary’ arbitrations with full force—including the right to a public hearing. Moreover, the concept of an involuntary arbitration agreement has not remained an oxymoron, as the court ruled that the agreements athletes must sign for their participation in sports competitions are to be classified as heteronomous. Building on this jurisprudence, the German Federal Constitutional Court held that even a serious imbalance of bargaining power may render arbitration agreements ‘involuntary’. Where does this case law leave commercial arbitration? One natural object of investigation is arbitration clauses in contracts that one party presents to the other on a take-it-or-leave-it basis; another is clauses included in the terms and conditions of undertakings that dominate the respective market in the sense of competition law. If such clauses were deemed to be heteronomous for the party on which they are imposed, arbitral tribunals would have to hold their oral hearings in public. Arguably, this would mean the end of commercial arbitration ‘as we know it’.

1. Arbitration under attack

For many years, the relationship between courts and arbitral tribunals was marked by peaceful and respectful coexistence. States regarded arbitration as a useful addition to the dispute resolution toolbox available to parties as it helped to relieve the burden bearing on public court systems. In recent years, however, the public and the judiciary have taken an increasingly critical attitude towards arbitration. Arbitration was characterized as ‘shadow justice’ or ‘parallel justice’ that operates behind closed doors and disregards basic principles of the rule of law.¹ Such concerns were initially directed only at a specific area of arbitration, namely investor-state disputes. During the negotiations on the Transatlantic Trade and Investment Partnership (TTIP) between the European Union (EU) and the USA, the settlement of such disputes through arbitration became the subject of public debate. Opponents pointed to an alleged lack of neutrality and democratic legitimacy of arbitrators and criticized the procedure for a lack of transparency,² in defiance of the fact that the United Nations Commission on International Trade Law (UNCITRAL) had already introduced its Transparency Rules for investor-state arbitrations in 2014.³ Within the EU, the Court of Justice of the European Union (CJEU) eventually put an end to intra-EU investment arbitration, holding that arbitration clauses in bilateral investment treaties between two EU member states are invalid as they jeopardize the uniform application and therefore the autonomy of EU law.⁴ Since then, the CJEU has extended its ban on intra-EU investor-state arbitrations to encompass claims based on the multilateral Energy Charter Treaty⁵ (ECT)⁶ as well as proceedings based on ad hoc arbitration agreements.⁷

Investor-state arbitrations, however, are not the only target of these developments. In June 2022, the German Federal Constitutional Court rendered a long-awaited decision in a case initiated by the German speed skater Claudia Pechstein. Once again, the focus was on the lack of transparency in arbitration, this time in sports-related disputes. Explicitly following the prior jurisprudence of the European Court of Human Rights (ECtHR), the Federal Constitutional Court held that the arbitration clause in an agreement between the athlete and the International Skating Union (ISU) was invalid because the chosen procedural rules of the Court of Arbitration for Sport (CAS) did not provide for a right to a public hearing.⁸ Given that the Federal Constitutional Court derived the need for public access to oral hearings before arbitral tribunals from provisions of German constitutional law, the question arises whether commercial arbitration exists in a kind of ‘splendid isolation’ that protects it from developments in other areas of arbitration, such as investor-state or sports arbitration, or whether the right to a public oral hearing must also be granted in proceedings in commercial matters.

Against this background, the objective of this contribution is to assess the implications of the latest rulings of the ECtHR and the Federal Constitutional Court for commercial arbitration. In a first step, the legal battle between Claudia Pechstein and the ISU, spanning over 13 years, will be recounted in brief (2). In the following part, the article will explore the constitutional foundations of arbitration as they have been developed in German constitutional law (3). The analysis then turns to the European Convention on Human Rights (ECHR) to examine the general requirements it imposes on arbitral dispute resolution (4) before examining the scope of these requirements, ie the types of arbitrations they apply to (5). All of this is intended to provide the basis for confronting the central issue, namely the impact of constitutional and human rights guarantees on commercial arbitration (6). The article concludes that the strict application of the principle of publicity of proceedings, as postulated by the ECtHR and the Federal Constitutional Court in the Pechstein case, rests on the specificities of sports arbitration and therefore cannot be extended to the field of commercial arbitration (7).

2. The Pechstein saga: an odyssey through arbitration and the courts

2.1. The competition ban and the proceedings before the CAS tribunal

It all started with a suspicious blood sample from the athlete during the 2009 World Speed Skating Championship in Hamar, Norway.⁹ The sample contained an unusually high amount of reticulocytes, ie immature red blood cells, which supply the organs with oxygen and whose increased concentration in the blood has a performance-enhancing effect.¹⁰ In the eyes of the ISU, the sports federation that organized the competition, the sample proved that Pechstein had violated the provisions of the World Anti-Doping Code, which is why it initiated disciplinary proceedings.¹¹ The disciplinary commission found that Pechstein was indeed guilty of a violation, annulled her results, and imposed a 2-year ban.¹²

Pechstein and the competent national sports federation, the Deutsche Eisschnelllauf Gemeinschaft e.V. (DESG), appealed against the decision of the disciplinary commission by initiating arbitration proceedings before the CAS. They argued that the high concentration of reticulocytes in Pechstein’s blood was not the result of doping but of a congenital health disorder that the athlete suffered from.¹³ But to no avail: the arbitral tribunal found that the blood sample was sufficient to prove a violation of the ISU’s doping regulations and confirmed Pechstein’s suspension.¹⁴ According to the tribunal, this suspension neither required any ‘direct’ evidence of an illegal substance nor proof of intentional or otherwise culpable conduct by the athlete.¹⁵

2.2. Setting aside and revision proceedings before the Swiss Federal Supreme Court

2.2.1. Setting aside proceedings against the arbitral award

Pechstein was not willing to accept the CAS award and initiated setting aside proceedings before the Swiss Federal Supreme Court pursuant to Article 190 Federal Act on Private International Law (PILA). Primarily, she based her challenge on the lack of independence of CAS tribunals,¹⁶ but she also invoked her right to a public hearing.¹⁷ Pechstein claimed that this right had been violated because the arbitral tribunal had rejected her request for a public hearing based on the fact that the CAS Code in force at the time did not permit public hearings.¹⁸

The Swiss Federal Supreme Court dismissed her objections regarding the independence of the CAS.¹⁹ In its earlier Gundel decision dating back to 1993, the Swiss Federal Supreme Court had expressed serious doubts as to whether the CAS could be regarded as a ‘genuine arbitral tribunal’, particularly with a view to proceedings in which the IOC itself was involved as a party.²⁰ This decision triggered the reform of the CAS in 1994, which removed the structural links between the CAS and the IOC and created the International Council of Arbitration for Sport as the governing body of the CAS.²¹ After this reform, the Swiss Federal Supreme Court no longer saw a good reason to doubt the classification of CAS tribunals as ‘genuine arbitral tribunals’,²² as the CAS was deemed to be ‘sufficiently independent’ of the International Olympic Committee (IOC).²³

Pechstein’s objection that her right to a public hearing had been violated was equally rejected by the Federal Supreme Court. It held that neither Article 30 (3) of the Swiss Federal Constitution nor Article 6 (1) ECHR necessitated such a public hearing, as these provisions were not applicable to voluntary arbitration proceedings.²⁴ Nonetheless, the Federal Supreme Court noted that in light of ‘the paramount importance of the CAS in the realm of sports, [it would] at least be desirable, with regard to the confidence in the independence and fairness of the decision-making process, for a public hearing to be held at the request of the athlete concerned’.²⁵

2.2.2. Revision proceedings against the arbitral award

After her request to set aside the award had been rejected, Pechstein attempted to challenge the CAS award by initiating ‘revision’ proceedings before the Swiss Federal Supreme Court.²⁶ Under Swiss law, a party may apply for this exceptional remedy, which is unknown to jurisdictions that have adopted the UNCITRAL Model Law on International Commercial Arbitration (UNCITRAL Model Law), in order to address serious miscarriages of justice or to align the outcome of the arbitration with the facts as they present themselves in the situation after the award has been rendered. With respect to the latter, Article 190a (1) (a) PILA requires that the applicant ‘has subsequently become aware of significant facts or uncovered decisive evidence that it could not have produced in the earlier proceedings despite exercising due diligence’.²⁷ Pechstein argued that the doctor of her national speed skating association, the DESG, had heard of a new diagnostic procedure through which it was possible to prove that her increased reticulocyte count was the result of a blood disorder.²⁸

Following its approach in the setting aside proceedings, the Swiss Federal Supreme Court rejected her arguments.²⁹ It stated that the athlete was unable to point to any newly discovered facts but relied on evidence that was alleged to have only been discovered after the award was rendered.³⁰ With regard to this new evidence, the court held that Pechstein had failed to demonstrate her inability, despite exercising due care, to submit this evidence during the earlier proceedings.³¹

2.3. The claims before the German courts

Pechstein’s battle against the suspension imposed by the ISU continued before the German civil courts. These proceedings were, at first, directed not only against the ISU but also against the athlete’s own national speed skating association, the DESG. Among other things, Pechstein sought a declaration that the ban was unlawful and claimed damages for loss of income.³² She submitted that she was entitled to bring these actions in court because the arbitration agreements concluded with the defendants had not been concluded voluntarily and were therefore invalid.³³ Furthermore, Pechstein argued that the impartiality of CAS arbitrators was doubtful and that the CAS procedure did not satisfy the requirements of the rule of law.³⁴

2.3.1. The judgment at first instance

The court of first instance in Munich followed Pechstein’s argument that the arbitration agreements were invalid because the athlete had not voluntarily accepted them.³⁵ The court held that, while the right of access to justice, guaranteed by the German constitution (cf Article 2 (1) and Article 20 (3) Grundgesetz (GG) or Basic Law), was subject to waiver, any such waiver needed to be based on an autonomous decision of the future claimant or defendant.³⁶ And an autonomous decision, in turn, required a position of genuine choice, so that the party was at liberty to choose one option or the other.³⁷ Pechstein, it was found, was presented with the arbitration clause, included in the registration form for a speed skating event, on a take-it-or-leave-it basis and thus had no other choice but to sign the agreement with the speed skating associations. If she had refused, she would not have been able to participate in (international) sports competitions, given that the national and international speed skating associations had a monopoly with a view to such competitions. For this reason, the court held that the conclusion of the arbitration agreement could not be regarded as an act of self-determination by the athlete but was rather imposed on her by the federations.³⁸

2.3.2. The judgment at second instance

The court of second instance, the Higher Regional Court of Munich (Oberlandesgericht München or OLG München), also considered the arbitration agreements between Pechstein and the speed skating associations to be invalid, but for other reasons. The mere fact that sports associations make participation in international sports competitions contingent upon the athlete signing an arbitration agreement was not enough for a finding of coercive behaviour and the exclusion of free choice.³⁹ However, the court held that the arbitration agreements between Pechstein and the speed skating associations violated competition law and were void for this reason.⁴⁰ As a result of the structure of international sports following the so-called Ein-Platz-Prinzip (an untranslatable German term, literally meaning ‘one court principle’),⁴¹ the ISU had a monopoly on the relevant market for world championships in speed skating and was thus bound not to abuse its dominant position⁴² by offering terms and conditions different from those that would have been offered in a competitive market.⁴³ The imposition of the arbitration agreement on Pechstein qualified as such an abuse of a dominant position,⁴⁴ particularly so because of the imbalance, in favour of the sports federations, in the constitution of CAS arbitral tribunals and their resulting lack of neutrality.⁴⁵ According to the court, the sole reason for the athletes to agree to CAS arbitration despite this imbalance was the monopoly position of the sports federations.⁴⁶

2.3.3. The Federal Court of Justice

Upon appeal by the ISU, the German Federal Court of Justice (Bundesgerichtshof—BGH) reversed the decision of the Munich court and found the arbitration agreement that Pechstein had signed to be valid and binding.⁴⁷ The BGH followed the Swiss Federal Supreme Court in accepting that CAS tribunals qualify as ‘genuine’ arbitral tribunals, as they overcome the minimum threshold of independence from both parties, particularly the sports federations.⁴⁸ Further, it held that Pechstein had waived her right to access the public courts voluntarily and therefore effectively. The court acknowledged that the ISU, as the sole organizer of world championships in speed skating, was a monopolist and therefore in a position to impose terms and conditions without the consent of the athlete.⁴⁹ Nevertheless, the court found that the arbitration agreement had been accepted voluntarily, as dispute resolution through arbitration was the only way to safeguard the uniform application of anti-doping rules throughout the world.⁵⁰ Based on the assumption that a fair competition in sports was in the best interest of the athletes themselves, the arbitration clause at issue was considered legitimate, and its imposition thus no abuse of a dominant position on the market.⁵¹

Finally, the court saw no violation of Article 6 (1) ECHR because Pechstein had voluntarily and therefore effectively waived the rights afforded by that provision.⁵² In doing so, it did not address the fact that during the CAS arbitration the athlete had unsuccessfully requested the oral hearing to be made accessible to the public.⁵³

2.4. The European Court of Human Rights

What followed, however, was the turning point in the Pechstein saga. Upon her complaint against the decisions of the Swiss Federal Supreme Court, the European Court of Human Rights (ECtHR) found that the CAS tribunal had violated the athlete’s right to a public hearing guaranteed by Article 6 (1) ECHR.⁵⁴ The judgment of the ECtHR builds on its established case law allowing waivers of Article 6 (1) ECHR guarantees through arbitration agreements, provided that the waiver is voluntary, lawful, and unequivocal.⁵⁵ Contrary to the Swiss Federal Supreme Court,⁵⁶ the ECtHR classified the consent of the athlete as heteronomous and involuntary so that the proceedings before the CAS had to comply with the requirements set out in Article 6 (1) ECHR in full.⁵⁷ The court concluded that Pechstein never voluntarily waived her rights enshrined in Article 6 (1) ECHR because the ISU’s dominant position allowed it to impose CAS arbitration on her.⁵⁸ The athlete was confronted with the choice of either signing the arbitration agreement or giving up her profession.⁵⁹ The ECtHR was careful to distinguish the case before it from arbitration agreements in commercial transactions in the form of contracts of adhesion, on the ground that, within commercial relationships, both parties always remained free to walk away from the particular transaction without putting their economic existence at risk.⁶⁰ Public hearings were found to be indispensable, particularly in anti-doping proceedings, given that such proceedings were likely to have massive adverse effects on the reputation of the athlete concerned.⁶¹

2.5. The German Federal Constitutional Court

While this successful challenge before the ECtHR was directed against the decisions of the Swiss Federal Supreme Court in the setting aside and revision proceedings, Pechstein also challenged the judgment of the German Federal Court of Justice which had confirmed the validity of the arbitration agreement by lodging a constitutional complaint with the Federal Constitutional Court (Bundesverfassungsgericht),⁶² relying on the right of access to justice.⁶³ And once again, Pechstein prevailed. Explicitly aiming for unity among the European human rights courts, the Federal Constitutional Court integrated the requirements of Article 6 (1) ECHR into the right of access to justice as defined in German constitutional law.⁶⁴ The Federal Constitutional Court held that the Federal Court of Justice had undervalued the right to a public hearing when interpreting the provisions of German competition law prohibiting the abuse of a dominant position on a respective market.⁶⁵ In assessing the merits, the court did not consider it relevant whether a public hearing would have been required in the specific arbitral proceedings at issue.⁶⁶ Rather, the decisive factor was that the CAS Code in force at the time when Pechstein’s case was pending did not provide for a right to a public hearing at all, not even in those cases in which granting such a right would have been required by Article 6 (1) ECHR.⁶⁷ The court concluded that the arbitration agreement between Pechstein and the ISU was invalid under the applicable German competition law.⁶⁸

Following the ECtHR, the Federal Constitutional Court classified the arbitration agreement as ‘involuntary’, which deprived it of its ability to effectively waive the right to a public hearing enshrined in both Article 6 (1) ECHR and, by implication, the German constitution. While it acknowledged that proceedings based on voluntary arbitration agreements could take place in camera,⁶⁹ it did not consider the agreement existing between Pechstein and the ISU to be voluntary. In explaining the voluntary/involuntary distinction, on which the outcome of the case depended, the Federal Constitutional Court referred to its case law on power imbalances between contracting parties that target contracts between businesses and consumers or workers respectively.⁷⁰ Pursuant to the court, the distinguishing factor is whether one of the contracting parties has so much bargaining power that it can determine the terms of the contract unilaterally.⁷¹ In the case of Pechstein, the Federal Constitutional Court found that the agreement to arbitrate was not the expression of an act of self-determination but of submission to the will of the other side.⁷²

3. Constitutionalization of arbitration

3.1. Constitutional law approval

The question as to whether arbitral dispute resolution is conducive to human rights principles, such as access to justice and a fair trial, or rather undermines these principles, engages constitutional law, and constitutions differ from one jurisdiction to another. In the USA, for example, the US Supreme Court has subscribed to an approach that looks at arbitration very favourably.⁷³ While this article cannot provide a survey of the many different systems of constitutional law, it seems worthwhile to examine the constitutional framework of Germany, as it is the jurisdiction whose courts were engaged in the course of Pechstein’s battle against the ISU and the CAS.

In Germany, Article 92 Basic Law entrusts judicial power to judges sitting on federal and state courts. Given that arbitration is not mentioned in this provision, some commentators were led to argue that private dispute settlement through arbitration is in fact unconstitutional.⁷⁴ However, there is no indication whatsoever in Article 92 Basic Law that would support this conclusion, as the function of the provision is merely to allocate authority between the different powers of government and not to exclusively reserve dispute resolution for the state.⁷⁵ The notion of a ‘judicial monopoly’ (Rechtsprechungsmonopol) of the public courts, which is being used in constitutional law, is therefore misguided.⁷⁶ The Federal Court of Justice has always and correctly acknowledged that arbitration is, in fact, part of the constitutional order.⁷⁷ Arbitration is firmly anchored within the Basic Law’s guarantee of private autonomy, enshrined in Article 2 (1), Article 12 Basic Law.⁷⁸ This recognition of a constitutional protection of arbitral dispute resolution is not a German particularity, as it exists equally in many other civil law jurisdictions, for example, in Italy and Spain.⁷⁹

While the constitution therefore enables and protects arbitration, it also sets limits to it. The Federal Constitutional Court has clarified that the state must ensure that arbitral tribunals provide effective legal protection and that arbitral proceedings are conducted in accordance with certain minimum procedural requirements of fair trial.⁸⁰ Primarily, this engages the legislature, but also the courts, in as much as they are called upon to enforce arbitration agreements or to recognize and enforce arbitral awards.⁸¹ As long as arbitral dispute resolution complies with the applicable constitutional guarantees, arbitration can be considered a valid alternative to the public court system. Both arbitration and court litigation offer parties the service of dispute resolution by an independent body in a fair procedure, in accordance with legal standards. Against this constitutional background, the drafters of the German Arbitration Reform Act of 1997/1998, which transposed the UNCITRAL Model Law into German law, considered arbitration and litigation in public court to be different but equivalent mechanisms of resolving disputes.⁸²

3.2. Supervision of arbitral proceedings

It is the very purpose of German arbitration law and, in fact, of any other national system of arbitration based on the UNCITRAL Model Law to ensure that arbitral proceedings offer effective legal protection and meet the minimum procedural requirements of the rule of law. Accordingly, Articles 10 ff UNCITRAL Model Law⁸³ supply provisions on the composition of the arbitral tribunal to ensure the neutrality and independence of arbitrators. The German law of arbitration not only copies the Model Law rules but provides an additional safeguard for securing the equal participation of the parties in the selection process. Should the arbitration agreement in question favour one party over the other, the disadvantaged party may request that the respective arbitrator or arbitrators be appointed by the competent public court instead.⁸⁴

With respect to the arbitral procedure, Article 18 UNCITRAL Model Law subscribes to the principles of equal treatment of the parties and the parties’ right to be heard. The arbitration rules of arbitral institutions further specify these requirements. The DIS Arbitration Rules 2018, for example, seek to guarantee the impartiality and independence of the arbitrators with the help of the detailed provisions of Articles 9 ff. The principle of equal treatment is postulated at the beginning of the provisions on the conduct of the arbitral proceedings (Article 21.1). If these rules on the composition of the arbitral tribunal or the procedural principle of equal treatment are violated, the arbitral award can be set aside by the competent court at the request of the disadvantaged party pursuant to Article 34 (2) (a) (ii), (iv) UNCITRAL Model Law.⁸⁵ Given that the grounds for setting aside and the grounds for refusal of exequatur are identical (cf Articles 34, 36 UNCITRAL Model Law),⁸⁶ an arbitral award that violates these safeguards cannot be recognized and enforced.

3.3. The creation of the ECtHR: a right to a public hearing

The constitutional law principles underlying the German law of arbitration have been confirmed by the European Court of Human Rights. According to the jurisprudence of the ECtHR, arbitration is based on the fundamental principle of private autonomy and is thus not a restriction but rather an expression of human rights, provided only that certain procedural minimum requirements are met.⁸⁷ The new element in the jurisprudence of the ECtHR is that the right to a public hearing counts as one of the minimal procedural guarantees that arbitration must comply with. This is particularly surprising as the confidentiality of arbitration is considered to be one of its central characteristics.⁸⁸ Accordingly, Article 44 (1) DIS Arbitration Rules 2018⁸⁹ provides that all participants in the arbitral process, including the staff of the DIS themselves, are obliged to observe the confidentiality of the proceedings unless the parties agree otherwise. By including such provisions in their arbitration rules, arbitral institutions meet the preferences of their users. Empirical studies have shown that one of the main reasons why parties choose to resolve their disputes through arbitration is that this is the only way they can obtain a legally binding decision without being forced to disclose confidential information to the public.⁹⁰

It would therefore create a significant problem for arbitration if the right to a public hearing were applicable to commercial disputes, too. However, this is not what the case law of the ECtHR demands. Rather, the decision in the Pechstein case has drawn a line that runs within the domain of arbitration. The relatively reserved supervisory framework described above only applies if both parties concluded the arbitration agreement voluntarily, but not if arbitration was imposed on the parties by law. For involuntary arbitration in this sense, the guarantees of Article 6 (1) ECHR apply in their entirety, including the right to a public hearing. The novelty created by the Pechstein decision is that arbitrations may be classified as ‘involuntary’ even if they are based on an agreement concluded by the parties.

4. The ECHR’s requirements for (involuntary) arbitration proceedings

The judgment of the ECtHR in Pechstein was squarely based on Article 6 (1) ECHR. In order to understand the decision, it is essential to know what Article 6 (1) ECHR means for arbitration, ie which requirements it imposes on legal proceedings of any kind, including arbitral dispute resolution. For the purposes of the following analysis, it will be assumed that Article 6 (1) ECHR applies to arbitration without any reservations, even though it will be shown in the next part of this article that a full application of Article 6 (1) ECHR is reserved for exceptional cases only.

4.1. Publicity of the oral hearing

The right to a public oral hearing is explicitly mentioned in Article 6 (1) ECHR. It is considered to include not only the right of every natural person to participate in the oral hearing but also the right of the media to send journalists who will then inform the public about the proceedings.⁹¹ This does not, however, include the right to create and publish an audio or video recording of the hearing.⁹²

The right to a public hearing is subject to two principal limitations. First, it does not extend to ancillary hearings that remain limited to technical issues of law or fact.⁹³ The ECtHR seems to believe that there is no legitimate reason for such issues to be drawn out into the public sphere. With a view to arbitration proceedings, this suggests that case management conferences, in which the tribunal discusses procedural matters with the parties and sets up a procedural timetable, can take place behind closed doors.

The second exception applies where the overriding interests of the parties, third parties, or the public require or justify the proceedings to remain confidential. Article 6 (1) clause 2 ECHR explicitly stipulates that the press and the public may be excluded from the entirety or a part of the proceedings ‘in the interests of morals, public order, or national security in a democratic society’, but also ‘where the interests of juveniles or the protection of the private life of the parties so require’, and finally ‘in special circumstances where publicity would prejudice the interests of justice’. To the extent that these exceptions do not apply, all hearings must be open to the public, as they usually are in the judicial, but not in the arbitral sphere.

4.2. The arbitral award

The right to a fair trial requires that the decision itself be motivated by reasons.⁹⁴ To meet this standard, the decision-makers must offer more than general considerations regarding the fairness or reasonableness of the outcome. This would also apply to decisions ex aequo et bono, which are permissible in arbitration pursuant to Article 28 (3) UNCITRAL Model Law.

The ECHR also extends the principle of publicity to the decision that concludes the proceedings in question. Article 6 (1) clause 2 ECHR explicitly states that judgments must be published. To the extent that Article 6 (1) ECHR applies to arbitral proceedings, the award must therefore be published in its entirety, ie including its reasoning.⁹⁵ While it is not necessary to read out the award in a public oral hearing, the public must nonetheless be granted a right to inspect it.⁹⁶ In commercial arbitration, where decisions usually remain confidential, this is not at all common practice. Article 44.1 DIS Arbitration Rules 2018, for example, explicitly extends the parties’ confidentiality obligations to the arbitral award.

4.3. Access to justice and costs

Article 6 (1) clause 1 ECHR enshrines the right of access to justice for the purposes of enforcing subjective rights or defending against claims raised by others. Legal obstacles that make access to justice more difficult and cumbersome than it would otherwise be raise concerns. This applies, for example, to court fees payable under the applicable procedural law at the time of the initiation of the proceedings.⁹⁷ According to the case law of the European Court of Human Rights, fees must not be disproportionate, which they are if, for example, they exceed the average annual salary in the respective jurisdiction.⁹⁸ While this standard obviously refers to individuals as claimants and thus cannot be applied in the context of commercial disputes between corporations, Article 6 (1) ECHR may still impose limits on the costs of commercial arbitration as well. After all, arbitration is oftentimes more expensive than litigation in public courts because arbitrators are compensated for their work by the parties, while judges sitting on public courts are remunerated for their services by the government through a modest salary, and court fees payable by the parties remain rather low.⁹⁹

4.4. Fair trial: equal treatment and the right to be heard

The core of the guarantees of Article 6 (1) clause 1 ECHR is the right to a fair trial. Reasoning from this right, the ECtHR has developed two sub-principles, namely the principle of equal treatment and the right to be heard.¹⁰⁰ Pursuant to Article 18 UNCITRAL Model Law¹⁰¹ and Article 21.1 DIS Arbitration Rules 2018, it is precisely these two principles that govern (DIS) arbitration proceedings seated in Germany. In this respect, the law of arbitration as it stands today and the standards of the ECHR are fully aligned. If the requirements of the ECHR nonetheless deserve attention, this is solely on the ground that they might be interpreted in a direction that is not congruent with the current law of arbitration. This problem is well known from EU law, where problems arise when the CJEU interprets a provision of an EU Directive differently from the interpretation of the corresponding provision of national law by a municipal court. Such conflicts of interpretation may arise in the relationship between European human rights law and national arbitration law, too.

5. Arbitration within the scope of the ECHR

Having examined the ECHR’s general requirements for mechanisms of dispute resolution, this part examines the conditions for their application. They deserve careful examination, as the ECtHR in its decision in the Pechstein case by no means declared Article 6 (1) ECHR fully applicable to arbitration proceedings. Rather, the court affirmed its nuanced case law on the relationship between Article 6 (1) ECHR and arbitration and added an important new feature.

5.1. Waiver of ECHR entitlements

Article 6 (1) ECHR grants individuals the right of access to a ‘tribunal established by law’ without specifically mentioning arbitration. Nonetheless, the ECtHR—like the German Federal Constitutional Court¹⁰²—generally has a positive attitude towards arbitration as a dispute resolution mechanism and acknowledges that it best serves the interests of the parties and relieves some of the burden on the public courts. In this respect, it stated that arbitration has ‘undeniable advantages’.¹⁰³ Furthermore, it should be noted that there is a close link between the guarantee of private autonomy in substantive law, including freedom of contract, and the procedural freedom to either enforce a civil claim in court or to refrain from doing so.¹⁰⁴ If, however, refraining from enforcing one’s rights is just as legitimate from a legal point of view as amicable settlement out of court, then it must be all the more legitimate to agree on an alternative mechanism of dispute resolution such as arbitration.

Although Article 6 (1) ECHR does not refer to arbitral tribunals explicitly, the ECtHR considers them to fall within its scope. One consequence of this is that arbitration is not contrary to the Convention for the simple reason that the decision-making body is not a public court.¹⁰⁵ At the same time, Article 6 (1) ECHR does not govern all kinds of arbitrations simply because arbitral tribunals are decision-making bodies.¹⁰⁶ Rather, the extent to which Article 6 (1) ECHR applies to arbitral tribunals varies depending on whether the arbitration is based on a voluntary agreement, or is imposed on the parties by statute. The requirements of Article 6 (1) ECHR do not, or at least not fully, apply to arbitration of the first variety, which is based on party autonomy, while they do apply to heteronomous arbitration imposed by law.¹⁰⁷ The doctrinal explanation for the far-reaching exemption of voluntary arbitration from the requirements of Article 6 (1) ECHR is that the arbitration agreement implies that the parties effectively waived the protections offered by Article 6 (1) ECHR. In the words of the ECtHR:

‘Article 6 therefore does not prevent the creation of arbitral tribunals for the purpose of deciding certain financial disputes between the parties. Nothing prevents the litigants from waiving their right to a court in favour of arbitration, provided that such waiver is free, lawful and unequivocal.’¹⁰⁸

For the ECtHR, it is thus crucial that the jurisdiction of the arbitral tribunal is based on a free, lawful, and unequivocal agreement to effectively exempt the arbitration in question from Article 6 (1) ECHR.¹⁰⁹ These three requirements are obviously designed to ensure that a party is not deprived of the protections of Article 6 (1) ECHR by way of a heteronomous decision. The imposition of arbitration on the parties by statute certainly qualifies as a heteronomous imposition of arbitration. But even if an arbitration is based on an agreement, which is prima facie valid, it may still be classified as involuntary. Certainly, an arbitration agreement to which one of the parties has agreed under duress cannot be considered a voluntary waiver of the guarantees of Article 6 (1) ECHR.¹¹⁰ If this standard has not been met, however, the parties may effectively opt out of the public court system and waive their rights under Article 6 (1) ECHR. Importantly, this also applies to the right to a public hearing.¹¹¹

5.2. Arbitration clauses in commercial contracts

According to the case law of the ECtHR, the mere fact that an arbitration clause is contained in the general terms and conditions of one of the contracting parties does not justify the assumption that the other contracting party did not accept it voluntarily. In a case involving claims against the European Organization for Nuclear Research (CERN) arising out of the construction of a particle accelerator, the construction companies that had won the contract in the tender process had no other choice but to agree to arbitration, given that CERN enjoys immunity before the state courts. Furthermore, the arbitration clause also contained a waiver of any recourse against the award before the public courts.¹¹² In finding that the waiver was voluntary, the ECtHR considered that the construction companies knew exactly what they were doing when they accepted CERN’s terms and conditions and that they were free to refrain from concluding the contract.¹¹³ In subsequent decisions, the ECtHR confirmed this position and consistently accepted arbitration clauses in general terms as voluntary waivers of Article 6 (1) ECHR protections.¹¹⁴ In Tabbane v Switzerland, which concerned a dispute arising out of a so-called ‘option agreement’ to establish an industrial and commercial partnership between a Tunisian businessman and the French company Colgate-Palmolive, the court highlighted that Mr Tabbane exercised his contractual freedom when he signed the arbitration clause and that there is no evidence that he acted under duress.¹¹⁵ Similarly, in Transado v Portugal, the ECtHR found that the applicant had voluntarily accepted the arbitration clause in the concession contract concluded with the Setúbal port authorities.¹¹⁶ In doing so, it also considered whether arbitration clauses were common in the respective branch of industry and type of contract.¹¹⁷

However, the court drew a line in a case where the minority shareholder of a corporation organized under Czech law sought the judicial review of the amount of his indemnification following the takeover of the corporation by its majority shareholder and its own squeeze-out, but was prevented from accessing the public courts because of an arbitration clause in the takeover agreement.¹¹⁸ The minority shareholder had neither agreed to the takeover nor was he involved in the negotiations of the takeover agreement. While the ECtHR acknowledged that the majority rule applies in corporations, it refused to qualify the arbitration clause in the takeover agreement as a voluntary waiver by the minority shareholder of the protections of the ECHR.¹¹⁹ After all, a submission to arbitration based on a clause that was agreed between third parties and to which the applicant before the court never consented to is involuntary and therefore well within the purview of Article 6 (1) ECHR.¹²⁰

5.3. Sports arbitration

The ECtHR’s decision in Mutu and Pechstein v Switzerland is consistent with this case law. Rather than placing arbitration clauses in the contracts and applications signed by athletes on the same footing as arbitration clauses arising from boilerplate terms, the court aligns sports arbitration with arbitration imposed by statute and thus refuses to classify them as autonomous, voluntary waivers of the guarantees of Article 6 (1) ECHR.¹²¹ However, the ECtHR was well aware of the difficulties of distinguishing arbitration clauses included in agreements between athletes and sports federations from those in general contract terms of private companies in business transactions. After all, in both cases, the arbitration clause is usually imposed on the other party in such a way that it can only avoid it by refusing to conclude the contract or participate in the respective competition—take it or leave it. Since the ECtHR has accepted arbitration clauses in general terms and conditions, one could have expected that the court would accept arbitration clauses in the sports sector, too. The ECtHR saw the problem and argued that, in contrast to professional athletes, companies confronted with arbitration clauses in commercial contracts could refuse to conclude the contract in question without risking their economic existence.¹²² While the court acknowledged that Pechstein could have refused to participate in the world championships organized by the ISU, it emphasized that she could have only done so only at the expense of giving up her profession.¹²³ Unlike in the case of private companies, which do not ‘cease to exist’ if they refuse to enter into a particular transaction, the ECtHR considered the drastic consequences that the refusal to accept the arbitration clause would have had for Pechstein to justify the conclusion that the arbitration agreement had been imposed on her. Hence, she had not effectively waived her rights under the ECHR.

5.4. Involuntary waivers under the ECHR

The ineffectiveness of the waiver of the guarantees of Article 6 (1) ECHR as such does not automatically render the arbitration agreement void.¹²⁴ Rather, it ‘merely’ leads to Article 6 (1) ECHR being applicable in full, meaning that the arbitral tribunal and the arbitration proceedings must comply with all its requirements.¹²⁵ Accordingly, the ECtHR’s decision in Mutu and Pechstein v Switzerland did not sound the death knell for sports arbitration, as the CAS quickly adapted its procedural rules and established the right to a public hearing, if only to the extent strictly required by the jurisprudence of the ECtHR.¹²⁶ Now, the CAS Code explicitly provides that, at the request of the physical person affected by the measure, disciplinary proceedings are to be heard in public, provided that there are no overriding interests that warrant proceedings in camera.¹²⁷

At the time of the ECtHR’s decision, however, the CAS Code did not provide for a right to a public hearing, and a corresponding request from the athlete had been rejected by the arbitral tribunal. Thus, Pechstein had neither waived her right to a public hearing beforehand, by ‘voluntarily’ signing a CAS arbitration clause, nor afterwards, during the proceedings, by agreeing to the confidentiality of the arbitration.¹²⁸ The ECtHR therefore found a violation of Article 6 (1) ECHR. In the proceedings before the ECtHR, this conclusion ‘only’ led to a claim for compensation against Switzerland, which the court limited to EUR 8000 because it found no causal link between the violation of the right to a public hearing and the damages for lost earnings in the amount of approximately EUR 4 million claimed by Pechstein.¹²⁹

5.5. Minimum requirements for voluntary arbitration

Even if the parties have voluntarily and effectively opted out of the jurisdiction of the state courts, arbitration does not remain entirely untouched by Article 6 (1) ECHR. Rather, the ECHR is intended to ensure that the arbitration clause and the proceedings comply with certain minimum requirements. The right to a public hearing, however, does not belong to this category and can therefore be waived effectively.¹³⁰ Not only can this waiver be declared beforehand, but also during the arbitral proceedings.¹³¹

On the other hand, certain fundamental procedural principles cannot be waived, not even by a fully autonomous decision. These include the requirement that the arbitral tribunal must be impartial and independent of the parties, the principle of equal treatment of the parties, as well as their right to be heard.¹³² The arbitration laws of the established arbitration centres as well as the arbitration rules of the leading arbitral institutions all comply with this reduced standard. In this respect, the ECtHR does not even consider it problematic that Swiss law allows the parties to international arbitration proceedings to exclude the right to initiate setting aside proceedings against the arbitral award (Article 192 PILA)¹³³ and therefore to exclude almost¹³⁴ any kind of judicial review beyond recognition and enforcement proceedings.¹³⁵ In reaching this conclusion, the court explicitly recognized as legitimate Switzerland’s intention to boost its attractiveness as a venue for arbitration by limiting court review.¹³⁶

6. Consequences for commercial arbitration

6.1. The relevant threshold

As explained above, the European Court of Human Rights distinguishes between voluntary arbitration and arbitration that was imposed on (one of) the parties, either by statute or by the other party. Only involuntary arbitration is subject to the strict regime of Article 6 (1) ECHR. In its decision in the case of Pechstein, the court classified sports arbitration as heteronomous even though the athlete had ‘agreed’ to an arbitration clause by signing a registration form for a speed skating competition. What was decisive for the court was that Pechstein had no other choice but to accept the arbitration agreement if she wanted to continue practicing her profession and avoid putting her economic existence at risk.¹³⁷

In its own Pechstein decision, the German Federal Constitutional Court followed the ECtHR’s approach and incorporated the right to a public hearing based on Article 6 (1) ECHR into the German constitution’s right to judicial protection, as developed under Article 2 (1) and Article 20 (3) Basic Law.¹³⁸ In doing so, however, the court did not, or at least not explicitly, adopt the ECtHR’s requirement that the athlete would have put her economic existence at risk had she refused to sign the arbitration agreement. Instead, the court fell back on its own definition of heteronomy from its previous case law on situations of power imbalances in contractual relationships: If one of the two contracting parties ‘has such a weight that it can de facto determine the content of the contract unilaterally, it is for the law to protect the fundamental rights of both contracting parties in order to prevent self-determination from turning into determination by others for one of the parties’.¹³⁹ What follows are references to its decisions on the protection of commercial agents,¹⁴⁰ on the invalidity of guarantees signed by close family members of the primary debtor,¹⁴¹ on prenuptial agreements,¹⁴² and on life insurance contracts.¹⁴³ This case law is based on the premise that a truly voluntary agreement, which the state must respect and enforce, is characterized by adequately balancing the interests of both parties.¹⁴⁴ The ‘principle of non-interference’ with private agreements is limited to those truly voluntary agreements negotiated between parties of roughly equal bargaining power.¹⁴⁵ However, it is the core insight of modern contract law that this condition cannot be taken for granted as, in reality, a truly voluntary agreement is the exception rather than the rule.¹⁴⁶ According to the Federal Constitutional Court, it is therefore a proper function of the law to react to the existing power imbalances between the parties in order to prevent a ‘one-sided allocation of duties and burdens’.¹⁴⁷

The criteria of the ECtHR on the one hand and the Federal Constitutional Court on the other for the application of human or fundamental rights requirements to private agreements are therefore not identical. While the European Court of Human Rights considers the power imbalance between the parties to be problematic only if the disadvantaged party would put its economic existence at risk if it withheld its consent, the Federal Constitutional Court believes that the ability of one party to unilaterally determine the terms of the contract is enough to justify the intervention of the courts. The latter criterion seems to cover much more ground than the one developed by the ECtHR.

It is difficult to determine whether the two courts in fact intended to apply different human rights standards when placing limits on private agreements. After all, the Federal Constitutional Court sought to implement the ECtHR’s case law and incorporate its requirements into the constitutional right to judicial protection, without highlighting or even hinting at a discrepancy in the relevant standards. In light of the inevitable vagueness of abstract principles, it would be pointless to merely compare the language used by the two courts. Instead, the following analysis will look at different scenarios in which the distinction between autonomy and heteronomy could become relevant for arbitration agreements concluded under circumstances marked by a power imbalance. The parts to follow will review arbitration clauses contained in the general terms and conditions of one of the contracting parties (2) and then those imposed by companies that have a dominant position in a specific market, as defined by competition law (3). Arbitration clauses in commitments communicated to the EU Commission within the context of merger control proceedings will also be addressed (4). While arbitration may be imposed by the law, this remains a rare exception (5). Lastly, the article will shed light on the potential implications of the CJEU’s recent case law on the compatibility of CAS arbitration with EU competition law, which, however, did not concern the publicity of the oral hearing (6).

6.2. Boilerplate arbitration clauses

6.2.1. The principle of judicial review

There is no doubt that arbitration agreements that were individually negotiated by the parties operating in free markets with fair competition are valid and enforceable. These lie at the heart of private autonomy as a core principle of private as well as constitutional law. Given that free and equal parties know best what is good for them, the ‘state must in principle respect the agreements made in the exercise of private autonomy’, as the Federal Constitutional Court confirmed.¹⁴⁸

In commercial practice, however, individually negotiated arbitration agreements are the exception. Arbitral institutions provide model arbitration clauses that parties can conveniently incorporate into their agreements. With respect to the relationship between businesses and consumers, including employees, the Federal Constitutional Court considers the judicial review of such boilerplate clauses to be a suitable means to ‘compensate for the lack of bargaining power’ of one of the parties.¹⁴⁹ This approach may help to explain a controversial peculiarity of German law, namely that general terms and conditions are subject to judicial oversight not only in dealings between businesses and consumers but also in transactions between two business enterprises (cf Section 310 (1) Sentence 1 German Civil Code).¹⁵⁰ This means that a clause imposed by one party is ineffective if it puts the other party at an unfair disadvantage.¹⁵¹ Such far-reaching court control of general terms and conditions in B2B contracts does not exist in jurisdictions such as England or Switzerland, which may be one factor explaining why German law is rather unpopular among commercial parties choosing a law to govern their transactions.¹⁵² Nonetheless, similar court control over contrats d’adhésion, even in business transactions, was introduced by the French legislator in 2016.¹⁵³ Furthermore, the same fairness issues that arise within the German law on general terms and conditions may also be raised under the rubric of general contract law doctrines aimed at addressing the exploitation of an existing power imbalance between the contracting parties, such as the doctrine of unconscionability in American contract law¹⁵⁴ or undue influence in English contract law.¹⁵⁵

Regardless of the doctrinal framework, any fairness control of private agreements requires that the conflicting rights of the parties be measured and weighed against each other.¹⁵⁶ Such an analysis opens the door to also consider the guarantees contained in Article 6 (1) ECHR, including the right to a public hearing.

6.2.2. Validity of pre-formulated arbitration clauses

The essential point for any fairness control that might be exercised by the public courts with a view to arbitration agreements, even if they are part of the general terms and conditions of (only) one party, is that these agreements are innocent, ie not objectionable from a fairness perspective. In Germany, it is settled case law that conferring jurisdiction upon an arbitral tribunal and excluding recourse to the public courts, in and of itself, does not put the other party at an unreasonable disadvantage, so that arbitration clauses pass the test of judicial scrutiny.¹⁵⁷ This is because the enforcement of private rights in public courts is considered to be only one of several legitimate ways of dispute resolution and hence does not serve as a legal benchmark against which private agreements should be measured.¹⁵⁸ Rather, in all developed jurisdictions, lawmakers, in passing arbitration acts or by adding provisions to the national codes of civil procedure, have in fact authorized the parties to derogate from the standard mode of judicial enforcement of private rights and opt instead for dispute settlement through arbitration. As the existence of this authorization confirms, the settlement of disputes by courts and by arbitral tribunals must be regarded as equivalent.¹⁵⁹ Furthermore, the definition of the writing requirement in Article 7 (2) UNCITRAL Model Law specifically addresses the situation where reference is made to an arbitration clause in another ‘document’, ie one that contains general terms and conditions. Thus, at least for the international community, it is common ground that arbitration clauses in general terms and conditions are valid and binding.¹⁶⁰ Even in contracts with consumers, it is possible to effectively agree on arbitration in the form of a boilerplate clause, provided only that the procedure complies with the provisions of the relevant arbitration law, as evidenced by the narrow definition of unfair arbitration clauses in the black list of Annex No. 1 lit. q) of Directive 1993/13/EEC on unfair terms in consumer contracts.¹⁶¹ These legislative decisions demonstrate that it would be wrong to classify arbitration clauses imposed by one party on the other through its general terms and conditions as unfair and therefore invalid.¹⁶² However, this arbitration-friendly conclusion only applies to clauses referencing a process that is fair and balanced in itself, as is true if the parties refer to the arbitration rules of one of the established arbitral institutions. If, on the other hand, the arbitration agreement allows for a one-sided composition of the arbitral tribunal or otherwise compromises the principles of equal treatment of the parties or their right to be heard, the fairness test may well lead to an invalidation of the agreement in question.¹⁶³

6.2.3. The impact of human rights law

The requirements imposed by human rights and constitutional law on arbitration clauses in general terms and conditions are not linked to the established standards of judicial review, as explained above. It is therefore not conceptually inconceivable to classify an arbitration clause that survived court control under national contract law as ‘involuntary’ for the purposes of human rights or constitutional law, the consequence being that it must satisfy the mandatory requirements of Article 6 (1) ECHR. This, in turn, would make the right to a public oral hearing before the arbitral tribunal available to the party on which general terms were imposed. Arbitration clauses that do not provide for a right to a public hearing, either because they do not explicitly acknowledge it or, more likely, because the arbitration rules of the institution that are referenced in the clause do not foresee a right to a public hearing, would be null and void due to a violation of Article 6 (1) ECHR.¹⁶⁴ Moreover, arbitral awards would be subject to setting aside proceedings under Article 34 (2) (a) (i) UNCITRAL Model Law or respective provisions of national law and could not be declared enforceable under Article 36 (1) (a) (i) UNCITRAL Model Law and the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1958 (New York Convention).

But how does the constitutional and human rights law concept of ‘voluntary’ arbitration agreements relate to contract law’s notion of boilerplate agreements? As a matter of language, it might be possible to say that any agreement that was not negotiated individually is tainted by elements of heteronomy and thus does not reach the threshold of ‘true’ voluntariness. However, this argument goes too far. While it is undoubtedly true that the party presented with the general terms of its opponent on a take-it-or-leave-it basis has no valid chance to modify the contract terms through bargaining, it still retains the option to walk away from the transaction, ie to withhold consent.¹⁶⁵ The argument that this option to withhold acceptance is not enough to justify the classification as an expression of party autonomy would ignore the competitive structure of markets, essentially abandon basic assumptions of a market economy and define large segments of the economy as fundamentally based on heteronomy. Accordingly, in cases unrelated to arbitration, the Federal Constitutional Court has considered contracts based on boilerplate clauses as an expression of private autonomy and has brought them into the scope of the guarantee of freedom of contract.¹⁶⁶

Similarly, the ECtHR has explicitly refused to classify contracts based on the general terms and conditions of one side only as involuntary for the other party.¹⁶⁷ According to the court’s case law, accepting an arbitration clause contained in the other party’s terms and conditions does not trigger the application of the full set of rights provided for in Article 6 (1) ECHR, and specifically not the right to a public hearing. The court was careful to distinguish the Pechstein case from commercial relationships by emphasizing that companies and merchants were always ‘free’ to refuse to enter into a contract with a more powerful party and to thus avoid acquiescence to an arbitration clause ‘imposed’ by this party.¹⁶⁸ The element that the ECtHR referred to when distinguishing the relationship between athletes and sports federations from commercial relationships between business enterprises was that, in the latter scenario, the companies would not ‘cease to exist’ if they refused to conclude the contract on the terms proposed by the respective other party.¹⁶⁹ While it is certainly correct that the refusal to accept the terms of a sports federation marks the end of the career of a professional athlete,¹⁷⁰ it cannot be ruled out that similar scenarios arise in the commercial sphere. Here, too, the firm rejection of the other party’s general terms and conditions may have severe economic consequences and even threaten the company’s survival. This may be the case, for example, where a business is dependent on scarce resources that are under the control of the other party, which is unwilling to drop the arbitration agreement included in its general terms. While this situation raises questions relating to the law of general business terms, competition law may protect the weaker party where the opponent dominates the respective market for the product or service in question.¹⁷¹ With a view to such cases, did the ECtHR mean to subject arbitration agreements in commercial contracts to the requirements of Article 6 (1) ECHR? This seems rather unlikely. It is true that the refusal to enter into a contract on the terms of the other party may have consequences that threaten the economic existence of a business corporation. But other than in relationships between athletes and sports federations, this is not a structural feature of commercial relationships. It seems that the ECtHR, when emphasizing the fact that commercial parties rejecting an arbitration clause in the general terms of the other side would not ‘cease to exist’, intended to distinguish between commercial transactions on the one hand and the relationship between athletes and sports federations on the other. In other words, the court intended to distinguish between classes of cases and not between the idiosyncratic fact patterns of particular disputes. The ECtHR therefore seems to have been cautious to emphasize that its decision remains limited to sports arbitration. The fact that the Federal Constitutional Court referred to its established case law on contractual imbalances in the commercial realm and thus imported an even broader definition is deplorable but does not warrant a different outcome.¹⁷²

6.2.4. Conclusion

Contracting through incorporating one party’s general terms and conditions is an act of self-determination and not an emanation of heteronomy. Arbitration clauses incorporated through general terms and conditions are based on voluntary agreements and therefore do not subject the arbitration to the strict regime of Article 6 (1) ECHR. Consequently, the mere fact that an arbitration clause was contained in a party’s general terms and conditions does not trigger the right to a public hearing.

6.3. Arbitration clauses in the terms and conditions of dominant undertakings

6.3.1. Pechstein as a case of competition law

Up to this point, the argument was made that the simple fact that an arbitration clause was ‘imposed’ together with the terms and conditions of the other contracting party was not enough to make it heteronomous. Now, the same question must be asked with a view to the general terms and conditions of undertakings that dominate the relevant market.

In its Pechstein decision, the Federal Constitutional Court considered the athlete’s constitutional right to judicial protection within the framework of German competition law, ie Section 19 Act against Restraints on Competition, which is the domestic equivalent to Article 102 of the Treaty on the Functioning of the European Union (TFEU), both provisions dealing with abuse of dominance.¹⁷³ The Constitutional Court held that the imposition of CAS arbitration, which, at the time, did not respect the right to a public hearing by an entity with a dominant position in the relevant market infringes competition law, so that the arbitration agreement was null and void.¹⁷⁴ This conclusion is consistent with the case law of the Federal Court of Justice according to which contracts that violate the prohibition of abuse of dominance are void under contract law’s general illegality clause.¹⁷⁵ However, it raises the question of whether arbitration clauses whose terms and conditions were drafted by private companies with a dominant position on the relevant market must also be considered heteronomous and therefore trigger the applicability of the full spectrum of Article 6 (1) ECHR guarantees, including the right to a public hearing. If this were the case, arbitration agreements choosing arbitral institutions, the rules of which do not provide for a right to a public hearing, would have to be deemed null and void due to a violation of European or domestic competition law. To avoid this consequence, arbitral institutions would be forced to include a right to a public hearing in their arbitration rules.¹⁷⁶ Furthermore, with a view to arbitration proceedings that are already under way and where one party requests a public hearing on the ground that the other party had a dominant position on the relevant market, the arbitral tribunal would seem to have no choice but to grant the request, as a matter of caution, at least unless the assertion of a dominant position was pulled out of thin air.

6.3.2. Publicity of proceedings as a protection against abuse of dominance?

Applying the Federal Constitutional Court’s ratio in Pechstein to arbitration agreements imposed by dominant undertakings in commercial relationships seems to find support in the purpose underlying the principle of publicity of oral hearings. The Federal Constitutional Court considers this principle to be an essential component of the rule of law, which is intended to protect the parties from miscarriages of justice. Its objective is to prevent an ‘adjudication in secrecy, withdrawn from public control’, to ensure ‘compliance with formal and substantive law’, and to guarantee ‘procedural justice in the sense of procedural guarantees for the parties’.¹⁷⁷ These considerations are aptly captured by the famous adage of the former US-American Supreme Court Justice Louis Brandeis: ‘Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants.’¹⁷⁸

6.3.3. Confidentiality does not constitute an abuse of dominance

Nonetheless, it would be a mistake to classify the confidentiality of oral hearings in arbitral proceedings between dominant undertakings and their customers as an infringement of competition law. One argument is of a practical nature: Arbitral tribunals are simply not in a position to determine whether a company has a dominant position in a specific market at a point in time prior to the oral hearing. Assessing the market power of a company is a complex task that troubles tribunals of any variety, including the public courts. This is particularly true in the European context, as Article 102 TFEU talks about dominance but does not provide specific requirements for a finding of such dominance. In this regard, German competition law is much more specific, establishing a presumption if the undertaking in question has a market share of at least 40 percent (Section 18 (4) Act against Restraints on Competition). But even here, it remains crucial to define the respective market in factual and geographic terms,¹⁷⁹ which cannot be done without conducting an analysis of complex economic data, a task normally performed by the competition authorities.¹⁸⁰ It is therefore unrealistic that an arbitral tribunal would be able to determine whether one of the parties is a dominant undertaking in the sense of Article 102 TFEU or German competition law in interlocutory proceedings and without an oral hearing. At most, it would be possible for the tribunal to consider and follow an already existing determination of the competent competition authorities. However, this would not allow for a uniform and consistent practice in arbitration, as the procedural consequences of an abuse of a dominant position can hardly depend on whether the competition authorities have already settled the issue or not. If, however, the mere assertion of an abuse of dominance by one of the parties to the arbitration were sufficient to necessitate a public hearing, this would certainly mark the end of commercial arbitration ‘as we knew it’.¹⁸¹

Secondly, it seems necessary to place the issue of a public oral hearing within a larger legal context. Arbitral tribunals are not fully autonomous, operating in a sphere of their own. While the New York Convention of 1958, in its Article II, aims to ensure that arbitration proceedings are not obstructed or undermined by interventions of the public courts of one jurisdiction or another, the arbitral award remains subject to court control, as provided for in Article V of the New York Convention as well as Articles 34 ff UNCITRAL Model Law. More specifically, it is trite law that the public courts remain authorized to review arbitral awards for potential violations of public policy (ordre public), Article V (2) (b) New York Convention, Article 34 (2) (b) (ii), Article 36 (1) (b) (ii) UNCITRAL Model Law.

Not so long ago, issues of competition law were deemed non-arbitrable as the involvement of the public interest seemed to preclude adjudication by privately appointed judges and in proceedings that usually remain confidential. In the USA, the judgment in the case of American Safety Equipment fleshed out competition law as an exclusive domain of the public courts,¹⁸² following the landmark decision of the US Supreme Court in Wilko v Swan, denying the arbitrability of claims under the 1933 Securities Act.¹⁸³ In Germany, a provision of the domestic antitrust act specifically prohibited arbitration agreements that went beyond creating a mere option to arbitrate. Pursuant to the former Section 91 Act against Restraints on Competition, ousting the authority of the public courts to the benefit of arbitral tribunals had to be considered invalid. During the last decades of the 20th century, however, the scepticism vis-à-vis arbitration greatly diminished and competition law opened up to private adjudication. In the USA, the landmark case of Mitsubishi Motors v Solar marked the turn of the tide. In Mitsubishi, the Supreme Court of the United States allowed disputes touching upon issues of competition law to go to arbitration.¹⁸⁴ The argument, made to the court in Mitsubishi, that the public interest standing behind competition law justified and required the control by the public courts was accommodated by reference to annulment and enforcement proceedings. It was enough, the court reasoned, that the public courts remained authorized to review the outcome of the arbitral proceedings in the form of the arbitral award. Likewise, the drafters of the bill that brought German arbitration law in line with the UNCITRAL Model Law repealed Section 91 Act against Restraints on Competition in reliance on court control over arbitral awards in proceedings for annulment as well as recognition and enforcement.¹⁸⁵

The judgment of the CJEU in the case of Eco Swiss v Benetton affirmed the arbitrability of issues involving EU competition law but insisted on an ex-post control of the arbitral award exercised by the public courts in proceedings for the setting aside or, as the matter may be, recognition and enforcement of the arbitral award.¹⁸⁶ The depth and intensity of this ex-post review of arbitral awards are not entirely clear as of yet. Within the EU and in non-European jurisdictions, two approaches compete, one minimalist and one maximalist.¹⁸⁷ The US Court of Appeals for the 7th Circuit is a promoter of the minimalist approach, as epitomized by its judgment in the case of Baxter International, Inc. v Abbott Laboratories.¹⁸⁸ The court committed to a decidedly restrictive standard of review that essentially was limited to making sure that the arbitrators had been aware that the competition law issues were ‘in the room’ and ‘took cognizance of them’.¹⁸⁹

With a judgment rendered in 2023, the German Federal Court of Justice positioned itself at the other end of the spectrum, requiring full review of arbitral awards under the lens of competition law. In a judgment involving the merger of two companies operating quarries, the Court of Justice held that public courts are not bound by the findings of arbitral tribunals with a view to issues of competition law.¹⁹⁰ Any objections dealing with the breach of competition law must therefore be heard ‘de novo’ in setting aside and enforcement proceedings. As such proceedings before the public courts are necessarily held in public,¹⁹¹ the right to a public hearing is always secured. With a view to competition law, the arbitral tribunal thus plays the role of a court of first instance.

The French Court of Cassation (Cour de cassation), in its own jurisprudence on the public policy control of arbitral awards, took off with Baxter and landed, if not close to, then within eyesight of the German Federal Court of Justice. Initially, in a judgment rendered in 2008, following the influential 1st Chamber of the Paris Court of Appeals,¹⁹² the Cour de cassation afforded the greatest liberty to arbitrators, carefully distinguishing public policy control from a review ‘de novo’ and drawing the line only where violations of competition law or other provisions involving public policy were obvious, effective, and specific (flagrante, effective et concrète).¹⁹³ However, in its subsequent jurisprudence, the Cour de cassation stepped back from this ‘minimalist’ approach and no longer insisted that the violation of the ordre public be obvious (flagrante).¹⁹⁴

Whatever the correct measure for court control of public policy may be, one thing seems clear: To the extent that the public interest requires a more or less thorough review of the arbitral award, such review is executed by a court of law within ordinary civil proceedings that include a public oral hearing as a matter of course. If this is so, it is difficult to postulate that the proceedings before the arbitral tribunal must be open to the public as well. Such a proposition would fly in the face of the liberalization of competition law with a view to arbitral dispute resolution in the wake of the US Supreme Court’s decision in Mitsubishi v Soler.¹⁹⁵ Likewise, the drafters of the bill that brought German arbitration law in line with the UNCITRAL Model Law and repealed Section 91 Act against Restraints on Competition¹⁹⁶ did so in reliance on court control of arbitral awards in proceedings for annulment or recognition and enforcement.¹⁹⁷

Against this background, an arbitration clause that provides for arbitration proceedings in accordance with the principles of equal treatment of the parties and fair trial, which is consistently the case if the arbitration agreement, as is common, refers to the arbitration rules of an established arbitral institution, does not constitute an abuse of dominance in the sense of European or national competition.¹⁹⁸ In essence, the same arguments that protect rank-and-file arbitration clauses from invalidation due to a power imbalance between the parties based on the law of general contract terms¹⁹⁹ also apply within the realm of competition law. In other words, contractual clauses that do not put the customer at an unfair disadvantage do not qualify, in and of themselves, as an abuse of a dominant position.

6.3.4. Conclusion

The reference of the German Federal Constitutional Court to a ‘power imbalance’ between the parties to an arbitration agreement might have been read to suggest that the principle of publicity of oral hearings will apply whenever one of the parties is a dominant undertaking in the sense of European or domestic competition law. As it turned out, however, such an interpretation would amount to a misunderstanding. The ECtHR was more aware of the pitfalls of interpretation than the Federal Constitutional Court and equipped its own judgment with safeguards, primarily by distinguishing the case of Pechstein from commercial relationships and limiting its reasoning to cases where the other party would put its ‘economic existence’ at risk if it refused to consent to the arbitration agreement. Outside the realm of professional sports with its one court principle,²⁰⁰ this is typically not the case.

6.4. Arbitration clauses in merger control commitments

Commitments to the European Commission, offered by the parties to a merger agreement, are a common means of addressing competition law concerns without blocking the merger.²⁰¹ Insofar as such commitments regulate the conduct of one or both merging parties vis-à-vis third parties, enforcement remains an important consideration. Without a doubt, the competent competition authorities, ie the EU Commission and the national competition offices, have the necessary powers to force a party to the merger to obey the commitments that it has made. But in addition to such public enforcement, private enforcement remains an option for the third party that is the victim of a breach of the commitments by the respective merger party and now asks for an injunction or damages. With a view to such third-party claims, it is standard practice of the EU Commission to include an arbitration clause in the commitments, referencing the rules on expedited proceedings of a respected arbitral institution.²⁰²

Similar to arbitration clauses in investor-state disputes, the arbitration agreement between the merger party in the role of the respondent and the third party in the role of the claimant is concluded only when the third party accepts the offer to arbitrate contained in the commitments by submitting a request for arbitration. However, there is no doubt that this arbitration agreement is—in a sense—imposed on the litigants because the respondent merger party had to agree to the arbitration clause in the commitments in order to obtain the approval of the merger by the Commission, and the third party cannot choose to litigate before the state courts instead.²⁰³ In line with the ECtHR’s case law, arbitration proceedings based on such arbitration provisions in merger control commitments might therefore qualify as ‘involuntary’. Nonetheless, it is being assumed that the confidentiality of these proceedings must be maintained,²⁰⁴ and the EU Commission itself publishes the arbitral awards only in a highly redacted and anonymised form.²⁰⁵ This practice can only persist if arbitration proceedings growing out of merger control commitments are classified as ‘voluntary’. A valid argument in support of this may be that, while the merger party has no option to negotiate away the arbitration clause, it still remains free to avoid the commitments, together with the arbitration clause, by walking away from the merger. In addition, the position of the third party is improved by the arbitration clause in comparison to what it would be without it, as, in this scenario, the only remedy would be to lodge a complaint with the Commission. It may be argued, therefore, that the benefit of private enforcement is encumbered with the arbitration clause from the time of its gestation so that the advantage conferred on the third party is somewhat diminished but continues to exist as an advantage.

6.5. Arbitration proceedings imposed by law

As the jurisprudence of the ECtHR reveals, arbitration imposed by statute does exist in the national laws of the signatory states to the ECHR, even though it remains a rare exception. In these instances, the guarantees of Article 6 (1) ECHR must be given full effect as, from the perspective of the parties, statutory arbitration is clearly involuntary. It seems that the German lawmakers, at least, have not yet understood the implications of the ECtHR’s jurisprudence, as in the single case of statutory arbitration that does exist,²⁰⁶ the statute refers to arbitration under the DIS Rules,²⁰⁷ which only provide for confidential proceedings.

6.6. Another view: sports arbitration before the Court of Justice of the European Union

Following the decisions of the ECtHR and the Federal Constitutional Court, the CJEU also had the opportunity to position itself with a view to sports arbitration.²⁰⁸ The judgment rendered on 21 December 2023 does not deal with the right to a public hearing but instead with the much more far-reaching issue of the general compatibility of CAS arbitration with European competition law. The underlying dispute concerned the question of whether certain regulations of (again) the ISU violate the cartel prohibition of Article 101 TFEU and are therefore null and void. These regulations require organizers of international speed skating competitions to obtain the prior authorization of the ISU²⁰⁹ and threaten athletes with a ban from ISU competitions if they have previously participated in competitions that had not received authorization from the ISU.²¹⁰ Any disputes between organizers and athletes on the one hand and the ISU on the other regarding prior authorization of events or the participation of athletes in ISU competitions were subjected to the exclusive jurisdiction of the CAS.²¹¹

The CJEU followed the European Commission’s position that the objective of these regulations is to restrict competition in the single market so that they are void under Article 101 TFEU.²¹² According to the court, the design of CAS arbitration, as elaborated in the rules of arbitration, further deepens this infringement.²¹³ The major concern of the CJEU was the insufficient court control over CAS tribunals, as CAS awards cannot be reviewed in a court of law for their compatibility with European public policy. As the CAS is located in Switzerland and hence outside of the EU, CAS awards are only subject to setting aside and revision proceedings before the Swiss Federal Supreme Court.²¹⁴ According to the remarkable case law of the latter, European competition law does not form part of the ‘ordre public international’ of Switzerland.²¹⁵ Furthermore, as the Swiss Federal Supreme Court is not a court of a member state and thus not entitled to refer questions on the interpretation of EU law to the CJEU in the preliminary reference procedure pursuant to Article 267 TFEU, the uniform interpretation and correct application of EU law cannot be guaranteed.²¹⁶ The court emphasized that these concerns are neither dispelled by the possibility of the national courts of the member states to review CAS awards incidentally in actions for damages nor by the ability of the national competition authorities to intervene.²¹⁷

As to the scope of this jurisprudence, the CJEU has expressly clarified that it does not apply to disputes between sports federations and athletes involving anti-doping violations like the one between Pechstein and the ISU, as these fall outside the scope of competition law.²¹⁸ Disputes between sports federations about the authorization of competitions and between federations and athletes about the denial of access to competitions, on the other hand, are certainly covered. Such disputes may not be resolved by arbitral tribunals seated outside the EU, so that the CAS, based in Lausanne, is not an option anymore. The consequences of this jurisprudence on other types of arbitration proceedings taking place outside of the EU are less clear. Are arbitration clauses in commercial contracts that locate the seat of the arbitration outside the EU invalid simply because the dispute involves European competition law? Are arbitral tribunals seated in Switzerland, the UK or another non-EU jurisdiction forced to terminate the proceedings and leave everything else to the public courts as soon as the respondent raises the competition law objection?—This would result in an even greater interference with commercial arbitration than the ECtHR’s and the Federal Constitutional Court’s ‘mere’ insistence on a right to a public hearing.

Such a far-reaching interpretation of the CJEU’s decision in ISU v European Commission, which would essentially limit commercial arbitration to EU venues, seems premature. Up to the present day, the court has repeatedly emphasized that it does not intend to restrict commercial arbitration²¹⁹ and that the correct application of EU competition law must and can be guaranteed in enforcement proceedings before the courts of the Member States.²²⁰ In fact, the same public policy control as in annulment proceedings at the place of arbitration is also available in the context of exequatur proceedings pursuant to Article V (2) (b) New York Convention. This mechanism is not mentioned in the CJEU’s ISU ruling at all, probably because the decision of the European Commission, which was the subject matter of the proceedings before the court, had pointed out that enforcement through the formal mechanism of the New York Convention is the rare exception in sports-related disputes. CAS awards are not enforced with the help of public courts and are therefore not subject to exequatur proceedings, simply because the sports federations can enforce any award in their favour by resorting to their own powers. Even worse, the standard CAS arbitration clauses imposed by the federations on athletes and organizers include waivers of the right to seek interim relief from the public courts, too.²²¹ Such ‘self-enforcement’ of the award by the winning party is simply not feasible in commercial disputes. Here, arbitral awards can be enforced within the EU only after a public court declares the award enforceable, which requires that the award does not infringe public policy, which it does if it violates Articles 101, 102 TFEU. And in contrast to an arbitral tribunal, the exequatur court is authorized to involve the CJEU in the proceedings through the preliminary reference mechanism of Article 267 TFEU. Thus, in the realm of commercial arbitration, the review of any arbitral award that shall be enforced within the Union by a public court within the Union is guaranteed, not only on paper but also on the ground, in the real world. Therefore, commercial arbitration does not risk undermining the policy considerations behind European competition law, even if the seat of arbitration is located outside the EU.

7. Conclusion: a special rule for sports arbitration

The decisions of the ECtHR and the German Federal Constitutional Court on ‘involuntary’ arbitration raise the question of whether power imbalances between the parties that negotiated such agreements are enough to qualify the arbitration as heteronomous. If so, a broad range of commercial disputes would fall within the purview of this jurisprudence, necessitating the arbitration proceedings to be open to the public. As confidentiality looms large in what users expect from arbitration,²²² this would be the end of commercial arbitration ‘as we knew it’.

Upon closer examination, it turned out that such fears, if not entirely implausible, are unwarranted. Apart from arbitration imposed by statute, the right to a public hearing remains limited to sports arbitration. Despite the unfortunate reference of the German Federal Constitutional Court to the ability of one party to unilaterally determine the content of the contract, this was not intended to create a general right to a public hearing. In the same vein, the ECtHR emphasized that Pechstein was faced with a situation in which she could either sign the arbitration agreement or cease to practice her profession and put her ‘economic existence’ at risk.²²³ This goes far beyond the imposition of arbitration clauses known from contracting on the basis of general business terms. Thus, acceptance based on ‘take it or leave it’ is not enough to trigger the right to a public hearing, together with the other guarantees of Article 6 (1) ECHR. To continue the metaphor, what is required is a situation of ‘take it or perish’. In commercial transactions between businesses, such an extreme situation will typically not occur. The conclusion of a contract incorporating general terms and conditions can therefore not trigger the requirements of Article 6 (1) ECHR. As it turned out, nothing changes if the arbitration clause is imposed by a dominant undertaking within the meaning of (European) competition law. The vast majority of commercial arbitrations can therefore still take place behind closed doors. And despite the recent jurisprudence of the CJEU on CAS arbitration, with a view to commercial cases the seat of the arbitral tribunal need not be located within the EU, not even when issues of European competition law come up. This is good news not only for Switzerland but also for London. However, only the future will tell whether the floodgates against the ‘publification’ of commercial arbitration will hold even if the sea level of judicial control continues to rise.

Footnotes