2022 proved to be another critical year for arbitration in France. Despite some concerning decisions, the pro-arbitration stance of the French courts remains undisputable, while the ICC – headquartered in Paris – still stands out as the most preferred arbitral institution. This report reviews noteworthy arbitration-related developments and provides a round-up of decisions related to French arbitration over the past year.
The Arbitration Agreement and its Implementation
The Principle of Compétence-Compétence
One of the peculiarities of French international arbitration law is the recognition of and the scope granted to the negative effect of the Compétence-Compétence principle.
If proceedings are brought before a State court despite the existence of an arbitration clause that is not manifestly void or manifestly inapplicable, the negative effect of the Compétence-Compétence principle prohibits the State court from ruling on the jurisdiction of the arbitral tribunal before the latter has had the opportunity to do so, and requires the court to find that it lacks jurisdiction.
Despite the fact that the negative effect of Compétence-Compétence occupies a fundamental place in French arbitration law, the Court of Cassation ruled in Marioff Corporation that, while parties may not waive the negative effect of Compétence-Compétence in domestic arbitrations, they may do so in international arbitrations. Consequently, signatories of an international arbitration agreement may authorize the State court to rule on the validity and efficiency of the arbitration agreement before or while the arbitral tribunal does so. However, in its decision, the court emphasized on the need for such derogation to be expressed and unequivocal.
Extension of the Arbitration Agreement to Third-Party Funders
The Paris Court of Appeal, in a brief but informative excerpt, reflected upon the possibility for a third-party funder to be brought into – and elevated to the status of a party to – arbitration proceedings.
The leading decision on the extension of the arbitration agreement in French arbitration law is the so-called “ABS” decision of the Court of Cassation, according to which “the effect of the international arbitration clause extends to the parties directly involved in the performance of the contract and the disputes that may arise therefrom”.
In Privinvest, far from categorically ruling out the prospect of an arbitration agreement extending to a third-party funder, the Paris Court of Appeal recognized this possibility, provided that the appellants not only establish the involvement of the third-party funder in the proceedings, but also prove that such involvement is not inherent to the operation of a third-party funder. The court emphasized that only exceptional circumstances could allow a similar extension to occur.
The Impecuniosity of a Party to the Arbitration Agreement
Under French law, the negative effect of the Compétence-Compétence principle does not apply if the arbitration clause is manifestly void or manifestly inapplicable.
In Carrefour Proximité France, the Court of Cassation decided that, when it is not demonstrated that a prior attempt to initiate arbitration proceedings had failed due to the lack of financial resources of a party, the latter’s impecuniosity cannot, in itself, characterize the manifest inapplicability of the arbitration clause.
In other words, impecunious parties bound by an arbitration agreement must attempt to resolve their disputes through arbitration first. It is only if such an attempt fails due to a party’s lack of financial resources that French State courts may accept to hear the dispute, thus protecting the impecunious party from a denial of justice.
The Refusal by a Party to Pay its Share of the Advance on Costs
In Tagli’Apau, to further ensure that financial issues do not result in a denial of justice, the Court of Cassation decided, on the basis of the principle of procedural fairness, that a party that paralyzes the arbitral proceedings by refusing to pay its share of the advance on costs is not entitled, when summoned to appear before State courts, to invoke the jurisdiction of an arbitral tribunal and challenge that of the State court.
The Law Applicable to the Arbitration Agreement
The Court of Cassation has reiterated the well-established principle according to which arbitration agreements are subject to the so-called “substantive rules” (“règles matérielles”), among which the rule specifying that the existence and efficiency of an arbitration agreement are to be assessed – subject to the mandatory rules of French law and international public policy – on the basis of the parties’ common intention, without it being necessary to refer to any national law.
However, in Kout Food, the court innovates by adding an exception to the application of this substantive rule where the parties have expressly submitted the validity and effects of the arbitration agreement to a particular national law.
Absent an express choice by the parties as to the law applicable to the arbitration agreement per se, French courts will assess the validity and efficiency of the arbitration agreement without a reference to any national law, including that of the underlying contract.
Enforcement and Annulment Proceedings
Jurisdiction of the Arbitral Tribunal
Under French law, an award can be set aside if the arbitral tribunal “wrongly upheld or declined jurisdiction”. The distinction between jurisdiction and admissibility is therefore paramount. In two decisions, the Paris Court of Appeal favored admissibility over jurisdiction, therefore limiting its control.
In Aktor, the Court considered that whether an arbitral tribunal deciding on the alleged non-compliance of a party with a decision of a dispute adjudication board (DAB) may rule on other claims than those ruled upon by the DAB is a matter pertaining to admissibility, not jurisdiction.
Similarly, the Court ruled in Rusoro that the investor’s compliance with time limitation and amicable settlement of the dispute provisions under the Canada-Venezuela BIT does not affect the arbitral tribunal’s jurisdiction under this treaty.
Despite these remarkable restrictions to its power of review, the Court confirmed in Schooner that arguments pertaining to the arbitral tribunal’s jurisdiction can be raised for the first time during setting-aside proceedings as long as the party raised objections to jurisdiction during the arbitration proceedings, in full line with the heavily criticized decision of the Court of Cassation of 2020 in the same matter.
In view of the current war in Ukraine, it is also worth mentioning that the Court of Cassation has reinstated a USD 1.1 billion investment treaty award against Russia in favor of Oschadbank (a Ukrainian State-owned bank), which had its Crimean assets expropriated. The French Supreme Court considered that the temporal condition set out in Article 12 of the Russia-Ukraine BIT pertained to the merits of the case and thus was not reviewable in an action to set aside.
Arbitrators’ Independence and Impartiality
A number of decisions rendered by the Paris Court of Appeal make it clear that the court now considers arbitration rules as the primary source to assess an arbitrator’s duty of disclosure. As such, the Paris Court of Appeal will refer primarily to the criteria set out in the arbitration rules rather than those set out in the Code of Civil Procedure to assess whether an arbitrator has violated their duty of disclosure.
For instance, the Paris Court of Appeal has referred several times to a criterion provided in the ICC Note to parties and arbitral tribunals on the conduct of the arbitration under the ICC Rules of Arbitration, according to which the arbitrator or prospective arbitrator may need to disclose a “professional or close personal relationship with counsel to one of the parties or the counsel’s law firm.” It concluded that:
- The common participation of an arbitrator and a counsel in scientific works or activities are not likely to characterize the existence of a “close personal relationship” and are therefore not likely to trigger the arbitrator’s duty to disclose since the latter have taken place in a purely academic context (Pizzarotti);
- The fact that an arbitrator and a counsel have co-chaired a conference does not imply the existence of a “professional or close personal relationship” as the relationship can at most be described as academic (Billionaire).
International Public Policy
On 23 March 2022, the Court of Cassation finally delivered its opinion on what should be the intensity of French courts’ control of international public policy. Following years of heated debates, the French Supreme Court ruled in Belokon that an award must be set aside if the violation of international public policy that would result from its recognition or enforcement is “blatant”.
Beyond this change in semantics (the Paris Court of Appeal previously required a “manifest, effective and concrete” violation of international public policy), it is now clear that the Court of Cassation allows the annulment judge not only to re-examine the facts and the arbitral tribunal’s legal analysis thereof but also to further extend the debate, if appropriate.
With this decision, the French Supreme Court seriously challenges – at least regarding international public policy – the prohibition of a substantial review of the award, a driving principle of French arbitration law that clearly made Paris one of the most popular seats for international arbitrations.
Is the protection of the French legal order’s interests worth it, notably regarding the fight against corruption and money laundering? Yes, according to the Court of Cassation.
Remarkably, the Paris Court of Appeal immediately endorsed the Belokon ruling in Groupement Santullo, issued less than two weeks later.
Belokon was further confirmed in Sorelec, where the Court of Cassation enigmatically extended its ruling to all five grounds for setting aside an award under French law as listed in Article 1520 of the Code of Civil Procedure. A clerical error or another step forward? Time will tell.
Arbitration, European Union, and European Court of Human Rights
The fall-out of the landmark Achmea decision by the Court of Justice of the European Union (CJEU) eventually reached France: in two decisions, the Paris Court of Appeal strictly complied with the case law of the CJEU, as set out in Achmea and confirmed in Komstroy and PL Holding.
In Slot and Strabag, the Paris Court of Appeal set aside two Paris-seated arbitral awards involving Poland, under respectively the Poland-Czech Republic BIT and the Poland-Austria BIT. Interestingly, the French judge meticulously applied the Achmea solution, while the applicable BITs did not expressly provide for the application of EU law, unlike the Netherlands-Czech and Slovak Federative Republic BIT in Achmea.
For better or for worse, investment arbitration based on intra-EU BITs is dead and buried for French Courts, in line with the ruling of the CJEU.
Finally, in a more down-to-earth matter, the European Court of Human Rights held in Lucas v. France that France had violated Article 6(1) of the Convention by ruling that annulment proceedings were inadmissible under French law because they had not been electronically initiated through the notoriously cumbersome – yet mandatory – “RPVA” platform.
Although this platform was recently upgraded, this is a welcome reminder that formal requirements shall not prevent litigants from being entitled to a fair trial.
ABOUT THE AUTHORS:
Florian Renaux is an international arbitration associate at TALMA Dispute Resolution in Paris. Florian focuses on international commercial and investment arbitration, most notably in the defense, energy, and high technology sectors. He also often acts as counsel before French courts in commercial disputes and peri arbitral matters. Florian is a graduate of the Geneva Graduate Institute of International and Development Studies (IHEID) and Panthéon-Sorbonne University (Paris I).
Karim Zein is a member of the New York bar and an international arbitration associate at Simmons & Simmons (Paris office). His practice focuses on international commercial and investment arbitration, in particular, international arbitrations in the oil & gas, energy, banking and automotive sectors. He holds a Master of Laws degree (LL.M) from Harvard Law School, a Master of Laws degree (Master 2) in international business law from Université Paris II Panthéon-Assas, and an LL.B in Lebanese and French laws from Université Saint-Joseph de Beyrouth.