On Thursday, 13 January 2011, France revealed its long-awaited new arbitration law. The décret n° 2011-48 portant réforme de l’arbitrage, was published in France’s Official Journal, alongside a report commenting on the reform. The new law can be found here, as well as the accompanying commentary here.

The reform concerns both domestic and international arbitration and the new provisions will comprise Articles 1442 to 1527 of the French Code of Civil Procedure. The new law becomes effective and applicable as of 1 May 2011, except for a number of specifically enumerated provisions which apply only if the arbitration agreement was entered into, the arbitral tribunal constituted, or the award rendered, after that date.

The French arbitration community has long lobbied for this updated of the law, the first overall reform of French arbitration legislation since the 1980s. The reform keeps with the long-standing tradition of innovative and arbitration-friendly arbitration law in France, which has contributed to establishing Paris as one of the world’s most popular seats of arbitration.

The aim of the new law is to sustain Paris’ leading role in international arbitration. The accompanying official report states that “after thirty years, the reform appeared necessary to consolidate case law [in the area], as well as to complement the existing text and conserve its efficacy.” The report also specifically draws attention to the fact that the new law has “integrated some provisions inspired by foreign laws which have proven useful.”

By codifying well-established French case law, the reform also significantly enhances the accessibility of French arbitration law for foreign users and observers. For instance, Article 1447 codifies the fundamental principle of the autonomy of the arbitration agreement, according to which the arbitration clause remains unaffected even if the underlying contract is found void. The provision states that “[t]he arbitration agreement is independent from the contract it relates to.”

Another example of codifying existing case law can be found in Article 1466. According to this provision, which is clearly inspired by previous French case law as well as the common law concept of estoppel, a party who – in knowledge of the facts and without any legitimate excuse – fails to invoke an irregularity of the arbitral process in due course, is prevented from doing so at a later stage.

The new law also contains some important innovations which will surely be subject of abundant commentary on this blog and elsewhere. For instance, Article 1522 contains a significant and substantial change concerning the parties’ ability to waive their right to seek annulment of an award in front of the national courts at the seat of the arbitration. Article 1522 provides that “the parties may, by specific agreement, waive at any time their right to challenge the award [by way of annulment].” This new provision will become effective for arbitration agreements entered into after 1 May 2011.

According to the report accompanying the new law, the parties’ waiver under Article 1522 does not affect, however, their right to appeal any decision to enforce the award in France. The report also explains that Article 1522 was inspired by “existing foreign law.” Indeed, a few jurisdictions with pro-arbitration statues permit the parties to waive or exclude judicial review of the award by way of annulment proceedings. For instance, Swiss and Belgian law permit such waivers as long as the parties are foreign, i.e., have no connection to Switzerland/Belgium respectively. Contrary to Belgian or Swiss law, however, the new French provision grants the right to exclude judicial review in annulment proceedings not only to foreign but also to French parties.

Another notable innovation is contained in Article 1526, which provides that a challenge of the award does not automatically result in suspension of enforcement proceedings. Rather, according to Article 1526 para. 2, a suspension has to be specifically requested and is granted only if the enforcement would be highly detrimental to the rights of the party requesting the suspension. The report accompanying the new law notes that the aim of this provision is to discourage bad faith annulment proceedings which seek to delay the enforcement of fully valid and legitimate awards. Article 1526 will apply to awards rendered after 1 May 2011.

Without any attempt to draw an exhaustive list, further clarifications or changes in the new law include the fact that (i) international arbitration agreements – contrary to the solution contained in the New York Convention – do not have to meet any particular form requirements (Article 1507); and (ii) the original of the award is no longer required with the petition for seeking exequatur; rather, it is now sufficient to present a copy which fulfils “the conditions required to establish its authenticity” (Article 1515).

Finally, some changes which are not supposed to introduce any substantive modifications according to the official accompanying report, will nonetheless not go unnoticed. For instance, one of the grounds for challenging an award has been significantly re-worded. While Articles 1504/1502-2 previously referred to the fact that the tribunal “has rendered the award without an arbitration agreement or based on an arbitration agreement that was void or expired,” Article 1520-2 instead now allows setting aside of the award if the tribunal “has mistakenly declared itself to have or not to have jurisdiction.”

Overall, the new law has been well-received so far by the arbitration community. The very first reactions described the reform as innovative and trend-setting. Interestingly, the French newspaper Les Echos has quoted the French Justice Minister, Michel Mercier, as saying that the new law is also aimed at keeping the ICC headquarters in Paris. Mr. Mercier said that in enacting the new law, “[t]he government had paid particular attention to the situation of the international chamber of commerce.” He concluded that Paris was the premier place in the world for arbitration and that the new law would ensure that it continued to thrive.

By Maxi Scherer and Gary Born

One of the oft quoted advantages of arbitration is the perceived certainty that the national courts of New York Convention states should enforce an arbitral award unless one of the limited grounds for refusal is met. However, the relationship between national courts and arbitration is far from straightforward. In particular, one notable area where there are differing views amongst a number of supposedly ‘pro-arbitration’ states is whether or not an arbitration award that has been set aside by the national courts at the seat of the arbitration can then be enforced in another jurisdiction. Indeed, despite a number of high-profile cases in various jurisdictions, this issue is far from settled.

This issue has been thrust into the limelight recently by the decision of the Tribunal de Grande Instance in Paris to recognise a Russian arbitral award in favour of Mr Nikolay Maximov. In this case, Mr Maximov sought enforcement of an arbitral award in his favour for almost US$300 million against Novolipetsky Steel Mill (NLMK). The award had been issued by the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (ICAC) in accordance with a share sale and purchase agreement between Mr Maximov and NLMK. However, the award was subsequently set aside by the Moscow Arbitrazh Court (whose judgment was upheld by the Federal Arbitrazh Court of the Moscow District and the Supreme Arbitrazh Court). The reasons for setting aside the award included a ruling that disputes arising out of an agreement aimed at the transfer of shares cannot be resolved by arbitration because corporate disputes are not arbitrable as a matter of Russian law. In any event, notwithstanding the decision of the Russian courts (which, in itself, has proved to be controversial), Mr Maximov sought enforcement of his award in France. On 16 May 2012, the Tribunal de Grande Instance in Paris concluded that the fact the award had been set aside by the Russian courts was not sufficient to refuse recognition in France. The court said that the ICAC award was a valid arbitration award which had been procured in accordance with the parties’ agreed contractual method and it should therefore be recognised and enforced.

This post seeks to summarise the contrasting positions taken by a number of ‘pro-arbitration’ European jurisdictions in relation to the enforcement of awards that have been set aside by the courts of the seat. The starting point for any debate on such issues is Article v. of the New York Convention, which sets out the circumstances in which recognition and enforcement of an arbitral award ‘may’ be refused. These circumstances include where the award has been set aside or suspended by the competent authority of the country in which the award was made (Article V(1)(e)). On a plain reading of the language of the New York Convention, the word ‘may’ denotes an option and, therefore, there should in theory be no bar to a state recognising and enforcing an arbitral award if it has been set aside at the seat of the arbitration. Indeed, a number of states take such view. However, a significant number of states also take the contrasting view and will not recognise or enforce such awards. The reason for this is that the central issue in this debate does not turn on the language of the New York Convention alone. Rather, it depends on the response to a much more basic (and arguably more controversial) question, namely: what is the role of the seat of the arbitration?

There are two main views. The first view is that the seat of the arbitration is chosen for little more than the sake of convenience. Arbitral tribunals need not operate like the national courts of a particular state simply because they have their seat there. Arbitrators do not derive their powers from the state in which they have their seat, but rather from the sum of all the legal orders that recognise, under certain conditions, the validity of the arbitration agreement and the award. It is for such reasons that it can be said that arbitrators have no forum per se and it follows, therefore, that decisions of the national court at the place of the arbitration should have no (or very little) bearing on the validity of the underlying award.

This first view is dominant in a number of civil law countries, most notably France. In the seminal Hilmarton case, the Court of Cassation ruled that a Swiss arbitral award was of an international nature, meaning that it was not attached to the Swiss legal order and thus continued to exist despite its annulment at the seat of arbitration. In the subsequent (and equally well known) Putrabali case, the Court of Cassation affirmed the Hilmarton principle and stated that an international arbitral award is an international decision grounded in a non-national, arbitral legal order and, therefore, its annulment by a state court has no bearing on its enforcement in another state. There have been a number of other similar decisions, and it is now well established that the French courts will enforce an arbitral award even if it was set aside by the courts at the seat. Indeed, the Maximov decision is the latest example of this ever increasing bank of case law (although the decision may yet be appealed).

The Dutch courts take a similar approach to the French. The best known example is the case of Yukos Capital v. Rosneft, where the Amsterdam Court of Appeal held that the fact that a Russian court had set aside a Russian arbitral award was not sufficient to prevent enforcement in the Netherlands. Moreover, in this particular case, the Court of Appeal noted that there was evidence that the decision of the Russian court was partial and dependent and was clearly influenced by the Russian state’s ‘campaign’ against the claimant. In such circumstances, the Court of Appeal was able to assist the claimant in seeking justice. Interestingly, Mr Maximov sought to enforce his ICAC award in the Netherlands last year, but his application was rejected at first instance. This decision is currently being appealed to the Amsterdam Court of Appeal.

Indeed, for a period of time last summer, it even looked like Russia (not traditionally viewed as a pro-arbitration state) might join France and the Netherlands as being prepared to enforce arbitral awards that have been set aside by the national courts at the seat of the arbitration (Ciments Français v. Sibirskiy Cement). It should be noted, however, that this decision was based on an analysis of Article IX(2) of the Geneva Convention which limits the application of Article V(1)(e) of the New York Convention by providing that the fact an award has been set aside will only be relevant if the reason it was set aside was one of an exhaustive list of reasons set out in Article IX(1) of the Geneva Convention. The Geneva Convention will only apply, however, if the state of the award’s origin, the state of enforcement, and the place of residence of all parties to the arbitration agreement are all signatories to the Geneva Convention. In any event, the decision of the Russian court has since been successfully appealed.

In contrast, the second view is that the seat of the arbitration is almost equivalent to the municipal jurisdiction’s forum. Under this view, the law of the seat governs the arbitration agreement and will govern the formation and composition of the tribunal as well as the procedure and form of the award. The courts at the seat oversee the proper functioning of the procedural aspects of the arbitration and, therefore, at the end of the process have the power to confirm or set aside the award. In other words, under this approach, the seat anchors the arbitration to the legal order of the state in which it takes place.

This second view is similar to the position taken by the English courts. In particular, the English courts have traditionally taken the view that where a foreign arbitral award has been annulled by a court of the seat, the English courts are unable to recognise or enforce that award as the act of annulment creates an issue estoppel (Yukos Capital SARL v. OJSC Rosneft Oil Co). However, it should be noted that following the recent decision in Sulamerica v. Enesa, under English law the law of the arbitration agreement will not automatically be the law of the seat. Rather, the court will look to determine the law of the arbitration agreement by reference to: (i) express choice; (ii) implied choice; and (iii) close connection – which may or may not be the law of the seat.

The German approach accords closely with that of the English courts and prohibits enforcement of such awards, save where the court judgment setting aside the award must be recognised under German procedural law (examples of such situations include where the respondent was not served properly, or where the foreign judgment is irreconcilable with German public policy). Germany is also a signatory to the Geneva Convention, which, as noted above, limits the application of Article V(1)(e) of the New York Convention in certain circumstances.

In conclusion, it appears unlikely that there will be consensus on this issue in Europe (or, indeed, worldwide) any time soon. In the meantime, therefore, litigants like Mr Maximov will have to hope that if their award is set aside by the national courts in the country in which the award was made that their counterparty has assets in a jurisdiction such as France or the Netherlands that may still permit enforcement of the award.

By Maxi Scherer and Sophia Lange¹

On 26 September 2012, the French Cour de Cassation handed down a judgment in the Rothschild case which invalidated a unilateral jurisdictional clause under Council Regulation (EC) No 44/2001 of 22 December 2000 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (the “Brussels Regulation”).² Running counter to the evolution seen in common law countries, for instance the United Kingdom and the United States, the French ruling is preceded by national court decisions in Bulgaria and Russia that have struck down unilateral arbitration clauses on grounds of unconscionability – in what has been described as a judicial ‘power grab’.³

This series of cases has attracted great attention and stirred concern as to the effectiveness and validity of unilateral dispute resolution clauses which are commonly used in certain industries, such as the banking and finance sectors. This post is based on a presentation given by one of the authors at a recent conference dedicated to the discussion of the Rothschild judgment which took place at the British Institute of International and Comparative Law (BIICL).⁴

Although unilateral dispute resolution clauses vary in shape and nature, they have in common that they offer a unilateral (or one-sided) option granting to only one party a choice in which forum to bring the dispute. Building on this common feature, one can distinguish between different types of unilateral clauses. While some are ‘pure’ unilateral jurisdictional clauses (offering one party the choice between various national state courts), others may contain an arbitration option (giving one party the choice between arbitration and national courts).

In the Rothschild case, the Cour de Cassation was asked to consider the validity of a unilateral jurisdiction clause obliging only one of the parties to bring its case in a specific court, while the other was free to select “any other court of competent jurisdiction”. Mrs X, a French national residing in Spain, had opened a bank account at the Luxembourg based private bank Edmond de Rothschild Europe (“Rothschild”) through an intermediary finance company affiliated with Rothschild and based in Paris. Following an alleged decline in the financial performance of her investments, Mrs X brought an action for damages against both Rothschild and the intermediary before the Paris courts.

The defendants challenged the jurisdiction of the Paris courts relying on the following jurisdiction clause:

“Potential disputes between the client and the Bank shall be subject to the exclusive jurisdiction of the Courts of Luxembourg. In the event the Bank does not rely on such jurisdiction, the Bank reserves the right to bring an action before the Courts of the client’s domicile or any other court of competent jurisdiction.”⁵

Rothschild argued that this clause was entirely compatible with Article 23 of the Brussels Regulation which provides at paragraph 1:

“If the parties, one or more of whom is domiciled in a Member State, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction. Such jurisdiction shall be exclusive unless the parties have agreed otherwise.”

Following the first instance court, the Paris Court of Appeal, on 18 October 2011, rejected this analysis and found the unilateral jurisdiction clause to be null and void.⁶ According to the Paris Court of Appeal, although the Brussels Regulation permits a clause which gives one party an option to choose between different jurisdictions, such a clause may not allow one party to have “discretion to select whatever jurisdiction it wishes.”⁷

The Cour de Cassation upheld the Court of Appeal’s decision, but shifted the focus from the discretionary to the “potestative” nature of the clause:

“… by reserving the Bank’s right to bring an action in Mrs X’s place of domicile or ‘in any other court of competent jurisdiction’, the clause only restricted Mrs X, who was the only party obligated to commence proceedings in Luxembourg; accordingly, the Court of Appeal correctly determined that the clause was potestative in nature, for the sole benefit of the Bank, and therefore was contrary to the objectives and the finality of the prorogation of jurisdiction provided for in Article 23 of the [Brussels] Regulation.”⁸

Under French law, the doctrine of “potestativité” describes a situation in which performance of a contract is made subject to the occurrence of a condition precedent entirely within the power of only one of the contracting parties to cause to occur or to prevent.⁹ In applying the concept of “potestativité” and holding that the unilateral jurisdictional clause was invalid, the ruling presents a departure from an earlier decision of the Cour de Cassation: the court had held that where it was the common intention of the parties to provide only one of them with the right to choose whether to litigate or go to arbitration such a clause was not objectionable.¹⁰

The different view taken by the French Supreme Court in the Rothschild decision is surprising, and arguably ill-founded for the following reasons.

First, in applying the French concept of “potestativité”, the court seemed to have implicitly ruled that French law governed the substantive validity of the jurisdictional clause. It did so notwithstanding the fact that Luxembourg law was both the law of the designated court and the law chosen by the parties to govern the contract. While the law governing the substantive validity of jurisdictional clauses under the current version of the Brussels Regulation is far from certain,¹¹ the application of French law seems far-fetched and has rightly been criticized.¹² Under the recast Brussels Regulation, due to enter into force in 2015, Article 25 will replace Article 23 to the effect that the substantive validity of a jurisdiction clause will be governed by the law of the chosen forum which would in this case have pointed to Luxembourg law rather than French law.¹³

Second, the French court seems not to have considered, or at least not discussed, the fact that Article 23 expressly provides that a choice of jurisdiction “shall be exclusive unless the parties have agreed otherwise” (emphases added). Article 23 of the Brussels Regulation thus recognises the parties’ right to provide for non-exclusive choice of jurisdiction agreements.¹⁴ The question whether, or to what extent, the parties’ autonomy under Article 23 also includes the possibility to provide for unilateral jurisdictional clauses was simply not discussed in the French decision.¹⁵

Third, what may have influenced the French Supreme Court’s decision is that the clause in dispute lacked specificity in granting Rothschild the right to bring an action “in any other court of competent jurisdiction” (echoing the Paris Court of Appeal’s emphasis on the full discretion granted to the bank “to select whatever jurisdiction it wishes”). The Rothschild case could therefore be read as prohibiting only such unilateral jurisdictional clauses where the party benefiting from the option has an unlimited choice of fora, whereas unilateral clauses arguably remain valid if the unilateral option is circumscribed to a limited number of precisely defined jurisdictions (for example, the domicile of the investor).¹⁶

Applying this rationale to the jurisdictional clause in the contract between Mrs X and Rothschild, one might argue, however, that the clause at hand did not contain an unlimited choice of fora. The clause designated “the client’s domicile or any court of competent jurisdiction” (emphasis added), which arguably limited Rothschild’s options to those courts having jurisdiction under the Brussels Regulation, i.e. most probably the courts of Spain where Mrs X was domiciled or the courts of Luxembourg where the services were performed. The French Supreme Court did not discuss whether the addition of the “competent jurisdiction” language was a sufficiently precise criterion to limit the party’s jurisdictional options.¹⁷

Fourth, the Rothschild decision may also be explained by the court’s desire to protect an arguably weaker party, Mrs X, against a counter-party of unequally bigger bargaining power. However, the Brussels Regulation contains a specific regime for the protection of weaker parties (in particular, Articles 15-17 concerning consumers), including concerning abusive jurisdictional clauses, and such regime was not applied and not even discussed in the French decision.

For all the above mentioned reasons, the French decision seems ill-founded and it is unclear whether the Court of Justice of the European Union, on a similar matter brought before it, would follow the French approach.

The French courts, however, are not alone in having recently invalidated unilateral dispute resolution clauses. Mirroring the French decision, in September 2011, the Bulgarian Supreme Court struck down a unilateral choice of court clause in a loan agreement on the grounds that such clauses may be interpreted as purporting a “potestative right” which is not permitted under Bulgarian law.¹⁸

Adopting a different approach, the Russian courts have also recently held that a unilateral arbitration clause in the context of standard form contracts was invalid on grounds of unconscionability.¹⁹ The disputed agreement between CJSC Russian Telephone Company (“RTC”) and Sony Ericsson Mobile Telecommunications Rus LLC (“Sony Rus”) for the sale of mobile telephone equipment contained a dispute resolution clause which provided Sony Rus with the right to commence arbitration or litigation to resolve disputes between the parties, while RTC only had a right to arbitrate. Unlike the Cour de Cassation in Rothschild which invalidated the clause in its entirety, the Supreme Court of the Russian Federation turned the unilateral option into a bilateral one. Consequently, both parties had the options provided for unilaterally in the clause, i.e. both parties were able to bring the dispute either to arbitration or before the Russian courts.

Previously, Russian courts had considered several cases commenced by foreign banks on the basis of a relevant optional jurisdiction clause and upheld such clauses as valid and binding. The hope was that these decisions constituted a trend indicating that Russian courts were increasingly willing to respect “freedom of contract” principles embedded in the Russian Civil Code. Instead, commentators have expressed concern that the Russian courts may strike down optional jurisdiction clauses in an attempted “power grab” to defend the sovereignty of Russian courts from encroachment by foreign jurisdictions.²⁰

In contrast, the English courts have confirmed the validity of unilateral jurisdictional clauses under English law.²¹ Indeed, courts in the UK appear to have taken the view that rendering the parties’ unilateral dispute resolution clauses unenforceable would be an unacceptable interference with the principle of party autonomy, as long as the parties’ intention to provide for an unilateral option is clearly established. The situation in the US is similar.²²

In sum, while national courts in common law jurisdictions have upheld the validity of unilateral dispute resolution clauses, the recent decisions of the highest courts in Bulgaria, Russia and France have gone in the opposite direction of invalidating unilateral option clauses. An uneven landscape has thus emerged and parties with existing unilateral jurisdiction clauses should be put on notice that judgments or arbitral awards rendered on the basis of a unilateral jurisdiction clause may face enforcement challenges in some jurisdictions. It remains to be seen whether the question will be referred to the Court of Justice of the European Union, and in the meantime, parties should be advised that unilateral options will have to be carefully drafted and exercised.

In a blog earlier this year (see my blog of 12 March 2013), I expressed concerns about a Dubai Court of First Instance ruling (see Case No. 489/2012, ruling of the Dubai Court of First Instance of 18 December 2012) that in complete disregard of the prevailing provisions of the New York Convention (see Convention on the recognition and enforcement of foreign arbitral awards, done in New York on 10 June 1958, as ratified and hence implemented in UAE law by UAE Federal Decree No. 43 of 2006) and the Bi-lateral Enforcement Convention between the UAE and France (see Convention on Judicial Cooperation and the Recognition and Enforcement of Judgments in Civil and Commercial Matters between the United Arab Emirates and the French Republic, as ratified by UAE Federal Decree No. 31 of 1992) refused enforcement of a trilogy of arbitration awards rendered under the auspices of the International Chamber of Commerce (ICC) International Court of Arbitration in France. The question I then asked as to whether it was all “back to square one” can now be answered in the affirmative: In its recent ruling of 18 August 2013 (see Case No. 156/2013, ruling of the Dubai Court of Cassation), the Dubai Court of Cassation affirmed that both the Court of First Instance and the Court of Appeal (see Case No. 40/2013, ruling of the Dubai Court of Appeal of 31st March 2013) were essentially correct in their refusal of enforcement. The only consolation that remains is that the Dubai Court of Cassation’s approach may have been politically motivated and will therefore – it is to be hoped – remain an isolated instance in the UAE courts’ more recent enforcement practice, which has embraced the meaning and scope of the terms of the New York Convention and other bilateral enforcement instruments (see my previous blog of 21st November 2012).

To recap, in essence, the initial application before the Dubai Court of First Instance related to the enforcement of a total of three awards rendered under the ICC Arbitration Rules in Paris in ICC reference no. 5277/RP/BGD, one preliminary award in relation to a discrete finding of fact, a final award on the merits and an award on costs. In the final award, the ICC tribunal awarded the Claimant, la Compagnie Française d’Entreprises S.A (CFE), several million US$ for outstanding payments for works performed in the construction of the Canal de Jonglei in South Sudan. The award debtor, the Ministry of Irrigation of the Republic of Sudan (which in turn forms part of the Sudanese Government), ultimately refused to perform the awards voluntarily, hence the application for enforcement to the Dubai Courts. The Court of First Instance found against the award creditor, refusing enforcement of the awards on the basis that (i) it did not have jurisdiction over the award debtor, which essentially was a foreigner without domicile in the United Arab Emirates and that (ii) the subject obligation, i.e. the agreement to construct the Canal de Jonglei, had been concluded and carried out abroad and hence outside the UAE. According to the Court of First Instance, neither Article 21 nor Article 235 of the UAE Civil Procedures Code could therefore be engaged and as a consequence the UAE Courts lacked proper jurisdiction of enforcement. To the best of my recollection, no mention at all was then made of the potential role of the New York Convention or the UAE-France Bi-lateral Enforcement Convention and the fact that these set a very low jurisdictional threshold, requiring no more than membership of the enforcing jurisdiction and possibly the location of assets of the award debtor in the enforcing jurisdiction (if that). Essentially, in the terms of any of the applicable international enforcement instruments, enforcement is based on a couple of minimum authentication requirements going to the originality and authenticity of the arbitration award and/or the underlying arbitration agreement.

Upon closer review, it appears from the Dubai Court of Cassation’s ruling that not only the Dubai Court of First Instance, but also the Dubai Court of Appeal had given short shrift to the terms of the New York Convention and the UAE-France Bi-lateral Enforcement Convention. In the words of the Dubai Court of Cassation, the Dubai Court of Appeal “did not heed the substantive defence [going to the application of the prevailing provisions of the New York Convention and the UAE-France Bi-lateral Enforcement Convention] and held [instead] that the execution of the arbitration awards in question is subject to Article 21 and 235 of the UAE Civil Procedures Code […]” (my translation). Despite recognising in principle the importance of Article 238 of the UAE Civil Procedures Code, which gives preference to the application of international enforcement instruments, including in particular the New York Convention, the Dubai Court of Cassation then continued its own reasoning in the following terms:

“Article 3 of [Federal Decree No. 46 of 2006] provides that ‘each contracting country must recognize arbitral awards as binding awards and must execute the same according to the procedural rules applicable in the territory in which enforcement of the award is being sought, according to conditions specified in the following articles, where no more severe conditions or higher fees or charges than those imposed upon recognition or execution of local arbitral awards may be specified or imposed upon recognition of arbitral awards subject to such agreement.’ Article 15 of Agreement of Judicial Cooperation and Recognition and Execution of Judgments in Civil and Commercial Affairs between UAE and Republic of France, under Federal Decree No. 31 of 1992, published in the Official Gazette on 10/12/1992, provides that ‘procedures aiming at execution of a judicial judgment shall be subject to the law of the country, where subject of the judgment may not be subject to any examination by judicial authorities in the country in which execution is sought […].’ This indicates that foreign judgments and arbitral awards must be executed according to the procedural rules applicable in the country in which execution is being sought. Whereas the provision of Article 21 of the [UAE] Civil Transactions Law provides that ‘rules of competency and all procedural matters shall be subject to the law of country in which the case is initiated or procedures are followed.’ Article 19(1) of the [UAE] Civil Procedures Law provides that ‘provisions of this law shall apply to all civil, commercial and personal status cases initiated before courts of the country.’ Article 21 [of the same Law] provides that ‘courts shall be competent to examine cases against any foreigner who does not have a domicile or a place of residence in the country in the following cases: 1. if he has a selected residence in the country, […] 3. if the case is related to a concluded or executed commitment or to a commitment subject to a condition to be executed in the country.’ [Sub]paragraph (d) of the second clause of Article 93 of the [UAE] Civil Transactions Law provides that ‘an artificial person shall have an independent domicile, where such domicile shall be the place in which its management center is located. Regarding artificial persons having their headquarters outside and having activities inside [the UAE], their management center according to the law of the country shall be in the place of local management.’

Read together, the above provisions confirm – as established by this Court – that international competency of courts is for public order, where courts of the country are not competent for examining cases initiated against foreigners who do not have a domicile or place of residence herein, unless the case is related to a commitment which has been concluded or executed or subject to a condition to be executed in the case, or unless the foreign artificial person has the main management center outside the country and has a branch in the country if the dispute is related to a matter connected to such branch.

Whereas the above has been the case and whereas the judgment of the Court of First Instance supported by the appealed judgment has been based, when ruling with lack of competency of Dubai Courts to examine the case, upon what has been specified in its minutes that ‘it has been established by papers that the Ministry of Irrigation (appellee) in the Republic of Sudan does not have a domicile or place of residence in the UAE and that the commitment has been made and executed outside UAE’, whereas those reasons are palatable and have origin in papers and are consistent with sound application of procedural rules applicable in the country and the New York Convention and [the UAE-France Bilateral Enforcement Convention], hence all reasons of appeal shall be deemed as baseless.” (my translation)

The wording of the Dubai Court of Cassation leaves no doubt that it is trying to imply into the relevant articles on enforcement under the prevailing Conventions a meaning they do not have and that essentially restricts the scope of application of the relevant enforcement instruments to situations in which the UAE Courts would have subject-matter or personal jurisdiction in any event. Taken to its logical conclusion, this – in turn – leads the proper enforcement of foreign awards within the meaning and spirit of the New York Convention or the UAE-France Bi-lateral Enforcement Convention ad absurdum and blatantly disregards the intended role of Article 22 of the UAE Civil Transactions Code and of Article 238 of the UAE Civil Procedures Code, which – read together – exempt the domestic rules on jurisdiction for enforcement from application in the context of international conventions. Against this background, it is to be hoped that the present ruling will remain confined in its application to its own proper facts and not serve as a basis for a re-writing of the UAE court’s more recent pro-enforcement history.

On 29 April 2014, the French Cour de cassation made a decision on the criteria a multi-tiered dispute resolution clause (“multi-tiered clause”) should meet to render claims inadmissible if disregarded.¹

In this case, Medissimo, a pharmaceutical company, entered into a contract with Logica, an IT company, to outsource the maintenance of a software program and the writing of two others. Alleging breaches in the performance of the contract, Medissimo initiated proceedings before the French courts against Logica for damages. Logica argued that Medissimo’s claim was inadmissible on the basis that it had failed to comply with the amicable dispute resolution clause in the contract prior to initiating proceedings.

The French Cour de cassation held that a mere mutual agreement to attempt to resolve a dispute without any particular conditions as to its implementation is not a mandatory condition precedent to the right to refer the claim to a judge, which thus does not render the claims inadmissible if disregarded.²

This article provides a brief overview of the current trend as regards multi-tiered clauses in France.

1. Freeze!

By way of background, multi-tiered clauses (or escalation clauses) are means by which parties to a contract can resolve amicably – or at least try to – a dispute without going to court or before an arbitral tribunal. The idea is to “freeze” a situation and take the time to negotiate, with or without the help of a third party, prior to the commencement of litigation or arbitration proceedings.

Multi-tiered clauses “help to facilitate dispute management and reduce time and costs“³ to the extent that if successful, litigation or arbitration can be avoided; and if unsuccessful, negotiation/conciliation encourages the parties to think over their dispute, on what they really want, what they need, what they can agree to, and may help them to keep a cool head before resorting to formal, time-consuming and costly proceedings.

In Medissimo v. Logica, the questions put before the French Cour de cassation were as follows:

1. Is an escalation clause mandatory? If so, to what extent?
2. If a party does not comply with a multi-tiered clause, how should the breaching party be sanctioned.

The Court answered these questions by looking at the wording of the clause agreed upon by the parties.

2. You have the right to remain silent

If the parties have agreed to submit their dispute first to “conciliation” without specifying the procedure in relation to it, the clause may be considered binding upon the parties but may not lead to the inadmissibility of claims brought by a party who has failed to comply with the escalation clause by bringing the dispute directly before a judge.

Part of the doctrine⁴ considers that Medissimo v. Logica supplements a landmark decision made by the Cour de cassation in 2003 holding that the claims of a party who failed to comply with an amicable dispute resolution clause set as a mandatory condition precedent to initiating proceedings before a judge are inadmissible.⁵ From now on, though, only certain multi-tiered clauses will be truly binding and others will not.⁶ The inadmissibility of the claims would be dependent on the wording of the multi-tiered clause in relation to the following questions:

• Is the amicable dispute resolution clause mandatory?
• Is the amicable dispute resolution clause a condition precedent to the right to refer a claim to litigation or arbitration?
• Is the amicable dispute resolution clause procedure sufficiently detailed?

Another part of the doctrine asserts that the 2003 decision already acknowledged implicitly that the amicable dispute resolution procedure needed to be sufficiently detailed as to its implementation for the claims to be considered inadmissible, and that the 2014 decision does not represent a new development.⁷

In any event, the conditions have now been clearly and expressly set out by the Cour of cassation.

Recently, on 16 May 2011, the Swiss Federal Tribunal also ruled that for a conciliation clause to be mandatory, the wording of the clause should be sufficiently detailed to express the parties’ intention that conciliation should be considered a condition precedent to the right to refer their dispute to litigation or arbitration.⁸ In this case, the Federal Tribunal noted that the conciliation clause only stipulated a “conciliation attempt” without any precision as regards its procedure. It thus found that it was impossible to know what should have been the nature of the procedure and came to the conclusion that the conciliation was only subsidiary in nature.

In light of the above, one can conclude that even if the parties have willingly undertaken to resort to conciliation, without further detail, before initiating arbitration or litigation proceedings and made it a condition precedent to any legal action, this clause may have no real effect in practice if it is not sufficiently detailed. Indeed, even if a judge were to consider the clause mandatory, he would not be in a position to hold, as it currently stands, that the claims are inadmissible and/or allow the aggrieved party to claim damages for this contractual breach.⁹

The solution is quite different if the parties have elaborated on the procedure applicable under the multi-tiered clause.

3. What you write can and will be used in a court of law

Together, the 2003 and the 2014 decisions of the Cour de cassation make it clear that when the escalation clause provides for a detailed procedure, the claims would be inadmissible if the clause is not complied with.

These decisions finally settled a question which had been debated among the different chambers of the Cour de cassation over the years. For instance, the first civil Chamber of the Cour de cassation¹⁰ and the social Chamber¹¹ ruled, on the one hand, that a court action initiated by a party without first complying with a conciliation clause would not be inadmissible. On the other hand, the second civil Chamber¹² held the exact opposite.

The 2003 decision of the mixed Chamber of the Cour de Cassation and the 2014 decision of the commercial Chamber put an end to this debate on the basis of articles 122 and 124 of the French Code of Civil Procedure. A contractual clause establishing a mandatory conciliation procedure is lawful and binding upon the parties until the end of the conciliation procedure. Failing to comply with the clause would constitute a “fins de non-recevoir“.¹³The claims could be declared inadmissible without entering into the merits of the case and without requiring the party raising the plea to prove any damage. The parties would still need to raise this plea, as a judge cannot raise this defence on his own motion.¹⁴

Yet, the Cour de cassation failed to indicate what wording would lead a judge to consider that (i) an escalation clause is mandatory and (ii) the procedure contained therein is sufficiently detailed to render the claims inadmissible if a party does not comply with it. Authors and practitioners can only guess which criteria could be relevant, for example: (i) the use of the word “shall” to suggest that the amicable dispute resolution clause is mandatory, (ii) a third party’s intervention (either as a mediator or conciliator), including the nomination process or appointing authority, (iii) the starting point of the conciliation (notification), and (iv) a period of time that the conciliation should last before resorting to litigation/arbitration.¹⁵

Across the Channel, the Commercial Courts have dealt with this question this year in Emirates Trading Agency LLC v Prime Mineral Exports private Limited.¹⁶ Their approach was slightly different.

The dispute resolution clause in that case provided as follows:

“In case of any dispute or claim arising out of or in connection with or under this LTC […], the Parties shall first seek to resolve the dispute or claim by friendly discussion. Any party may notify the other Party of its desire to enter into consultation to resolve a dispute or claim. If no solution can be arrived at in between the Parties for a continuous period of 4 (four) weeks then the non-defaulting party can invoke the arbitration clause and refer the disputes to arbitration“.

The Court found on the basis of the wording of the clause that:

1. The use of the word “shall” indicated that the obligation is mandatory. Such “friendly discussions” were thus a condition precedent to the right to refer a claim to arbitration;
2. Any party had the possibility to notify the other of its desire to enter into consultation to resolve a claim. The use of the word “may“, in distinction from the word “shall” in the first part of the clause, indicated that this was not a mandatory obligation;
3. If, notwithstanding the friendly discussions to resolve the dispute required by the first part of the clause, no solution could be found for a continuous period of 4 weeks, then arbitration could be invoked; and
4. Such an agreement is enforceable in the public interest, first, “because commercial men expect the court to enforce obligations which they have freely undertaken” and, second, “because the object of the agreement is to avoid what might otherwise be an expensive and time consuming arbitration“.

These recent decisions highlight the need to grant special attention to escalation clauses for parties contemplating first resorting to an amicable dispute resolution before resorting to litigation or arbitration, particularly regarding the level of detail in drafting them.

The enforcement of awards following a decision at the seat remains a controversial issue in international arbitration. Should an enforcement court follow the decision of the seat court, or can the enforcement court reach a different conclusion? US courts and French courts continue to take different approaches to this issue.

US courts will defer to a decision at the seat of arbitration unless the decision ‘violates basic notions of justice’. Accordingly, if an award is set aside at the seat of arbitration, a US court will refuse enforcement of the award under Article V(1)(e) of the New York Convention, absent a showing of serious impropriety by the seat court. For example, in the recent case of Thai-Lao, the Southern District of New York refused to enforce an award that had been set aside by the Malaysian High Court. The Court found nothing to suggest that the Malaysian court had ‘violated basic notions of justice’, and therefore deferred to the Malaysian court’s decision. This lies in contrast to the case of Pemex last year, where the same court enforced an award that had been set aside by the Mexican courts. The Court held that the Mexican court did ‘violate basic notions of justice’ because (among other things) it retrospectively applied a prohibition on arbitrability in favour of a Mexican party. Outside an exceptional case like Pemex, however, US courts are unlikely to enforce awards that have been set aside at the seat of arbitration.

In contrast to the deferential approach of the US courts, French courts disregard the decisions of seat courts altogether. In a series of cases, French courts have enforced awards that have been set aside or suspended at the seat of arbitration. The French courts have provided two justifications for their approach. First, French domestic law does not recognise the setting aside or suspension of the award as a ground for refusing enforcement. Second, French courts consider that an international arbitral award is not ‘anchored’ or ‘integrated’ in the seat of arbitration. Therefore, the views of seat courts on the validity of the award simply have no bearing on whether the award should be enforced in France.

Some commentators (especially Professor Emmanuel Gaillard) favour the French approach. In Gaillard’s view, international arbitration is a transnational legal order in which no state should have the final say on the validity of the award. Accordingly, each enforcement court should be entitled to form its own view on the validity of the award, regardless of what the courts at the seat of arbitration may think.

However, disregarding the views of seat courts is undesirable from a policy perspective. First, ignoring decisions at the seat is likely to lead to re-litigation of the same or similar issues across multiple jurisdictions. This undermines the perceived efficiency of international arbitration. Second, in some cases the clear intention of the parties is for the courts at the seat to have the primary say on the validity of the award. If such an intention is found to exist, then the views of the seat court should arguably be respected. Third, as has been well documented, the French approach of disregarding decisions at the seat increases the risk of conflicting awards. If an award is set aside at the seat and the tribunal proceeds to render a second award, should not only the second award be enforceable? Under the French approach, both awards are enforceable.

In light of these difficulties with the French approach, the approach of the US courts is preferable. That is, enforcement courts should defer to the decisions of seat courts, save in exceptional cases where the seat court is shown to have violated basic notions of justice. Courts in other jurisdictions appear to be warming to this approach. In the recent Australian case of Gujarat, for example, the award debtor challenged an award in the English courts on the ground of procedural unfairness. The English courts rejected the challenge and upheld the award. Undeterred, the award debtor sought to resist enforcement in Australia on the same procedural grounds. The Australian Court found that there was no procedural unfairness, but held that, in any event, it would generally be inappropriate to depart from the decision of the English court. Australian courts are therefore taking a similar approach to the US courts, deferring to decisions at the seat in all but exceptional cases.

The inconsistent approaches taken by enforcement courts to decisions at the seat is not ideal. It creates uncertainty for the parties about the effects of a decision at the seat and undermines the efficiency of international arbitration. In the search for a solution to this issue, several commentators, including Albert van den Berg, have proposed a ‘new’ convention that would take the review of arbitral awards out of the hands of national courts. This proposal, loosely based on the ICSID Convention, would give an international body exclusive jurisdiction to review arbitral awards. Once an award received confirmation from this body, it would be automatically enforceable in contracting states. An international consensus in favour of such reform, however, is not guaranteed and would take considerable time to emerge. Meanwhile, enforcement courts should follow the approach of the US courts. A policy of deference to the seat of arbitration, save in exceptional cases, makes the most sense.

For many years, the standard of review by French courts of awards rendered in international arbitration proceedings on grounds of violation of international public policy has been controversial. Scholars have debated the relative merits of a “minimalist” as opposed to a “maximalist” approach. In court decisions, the “minimalist” approach prevailed.

In the area of competition law, the “minimalist” standard of review found expression, perhaps most famously, in the 2004 Paris Court of Appeal decision in SA Thales Air Defence v. GIE Euromissile and SA EADS France (1er Ch., sect. C, 18 November 2004) with the requirement that relevant breach of international public policy be “flagrant, actual and concrete” (“flagrante, effective et concrète”) on the face of the award. This standard was also applied by the French Cour de cassation in Sté SNF v. Sté Cytec Industries BV (1er Ch. civ., 4 June 2008), a challenge to an exequatur order alleging a breach of competition law. Proponents of the “minimalist” approach consider this standard to be justified by principles such as the finality of arbitration awards and the prohibition of the revision of awards on their merits by the courts. Critics have argued that the requirement of a “flagrant” breach of international public policy on the face of the award has led to a formalistic standard of review, which amounts to no real review at all.

Since the 2009 decision of the Paris Court of Appeal in the Schneider case, affirmed by the Cour de cassation in February 2014, it appeared that the same “minimalist” standard of review was also applicable with respect to the challenge of an award on the basis of allegations of corruption (cf. Sté M. Schneider Schältegerätebau und Elektroinstallationen GmbH c. Sté CPL Industries Limited, Paris CA, 10 September 2009; Cour de cassation, 1er Ch. civ., 12 February 2014). The ruling in Schneider departed from earlier decisions in challenges to awards based on corruption allegations. Previous case law permitted a review of the law and the facts insofar as they related to the application of the relevant rule of public policy (cf. Sté European Gas Turbines SA v. Sté Westman International Ltd, Paris CA, 1er Ch., 30 September 1993).

Decided shortly after the Cour de cassation ruling in Schneider, three recent Paris Court of Appeal decisions now suggest that the courts may, at least in the case of allegations of corruption, return to the previous position allowing for fuller review of facts and law in relation to the grounds for challenge. Most striking in these decisions is the absence of the word “flagrant” in the standard of review that has been applied.

In the first of these decisions, Sté Gulf Leaders for Management and Services Holding Company (“Gulf Leaders”) v. SA Crédit Foncier de France (“CFF”), rendered on 4 March 2014, the Court formulated the standard of review as follows:

“Where it is claimed that an award gives effect to a contract obtained by corruption, it is for the judge in set aside proceedings, seized of an application based upon article 1520-5° of the Code of Civil Procedure, to identify in law and in fact all elements permitting it to pronounce upon the alleged illegality of the agreement and to appreciate whether the recognition or enforcement of the award violates international public policy in an actual or concrete manner.” (Paris CA, Pôle 1, Ch.1)

The Gulf Leaders case involved a loan (USD 157.5 million) granted by CFF, payable in three tranches, and the subject of a USD 4.5 million underwriting fee. After payment of the first two tranches, CFF, for various reasons, refused to pay the third tranche and rescinded the loan contract, claiming repayment of the funds.

CFF commenced ICC arbitration proceedings against Gulf Leaders to recover the outstanding amount. Gulf Leaders contended that the loan contract was a product of corruption and therefore void for illegal cause, a defence that would have enabled it to avoid restitution. According to Gulf Leaders, CFF’s payment of a USD 4.5 million fee to a Panamanian company, Riveroca, was a hidden commission (allegedly financed through the underwriting fee, said to have no basis), paid in view of the relationship between the company’s manager and the CEO of Gulf Leaders at the time. The Tribunal found that corruption had not been proven and rendered an award in favour of CFF. Gulf Leaders challenged the award on grounds of violation of international public policy.

After reviewing the Tribunal’s reasoning, the Court of Appeal considered the facts in light of its own definition of corruption in the conclusion of a private contract. Since it was not alleged that Riveroca’s manager worked for Gulf Leaders, nor that Gulf Leaders’ CEO had received any commission or advantage, the Court concluded that corruption had not been established. Further, it found that Riveroca’s manager had participated in contract negotiations with representatives of Gulf Leaders, suggesting no concealment of activities, and he had been engaged by CFF as a Middle East expert. It was therefore only after conducting its own review of the facts on the record, and applying the relevant principle of law, that the Court dismissed the application.

In the second decision, Congo v. SA Commissions Import Export (“Commisimpex”), the Paris Court of Appeal applied the same standard of review (Pôle 1, Ch. 1, 14 October 2014). Commisimpex involved a 1992 agreement providing for a payment schedule for the repayment of debts owing by Congo to the claimant, a supplier in the context of public works. The arbitration proceedings involved a claim by Commisimpex based on a 2003 agreement, providing for an additional debt, and founded upon a letter dating from 1992, said to have recorded decisions taken at meetings in that year. The 1992 letter had apparently disappeared and was “rediscovered” in 2003. Congo alleged that this letter had been falsified. It also contended that the 2003 agreement could only be explained by “a general climate of corruption”, of which Commisimpex had taken advantage, and was therefore void for illegal cause. Further, Congo questioned whether the signatories of the 2003 agreement had the requisite powers. In a majority decision, the Arbitral Tribunal rejected Congo’s arguments and enforced the 2003 agreement.

In set aside proceedings on grounds of violation of international public policy, Congo advanced three arguments: (i) the 2003 agreement was void for illegal cause; (ii) the arbitral tribunal’s finding that a debt was owed had no evidentiary basis; and (iii) the signatories of the 2003 agreement lacked the requisite powers.

Applying the same standard of review as the Court in Gulf Leaders, the Paris Court of Appeal examined the reasoning of the tribunal and provided its own analysis of the facts to conclude that Commisimpex had not shown that the award gave effect to a contract that was obtained through corruption. The Court added that it could not be accepted, without ruining the binding force of contracts, that a State could free itself of contractual obligations by alleging “a general climate of corruption” within its administration without specifying the individuals involved and without the alleged beneficiaries being prosecuted. The Court refused to consider the second and third arguments (above) advanced by Congo on the basis that they were an invitation to the court to revise the award on the merits, which is not permitted in set aside proceedings.

Most recently, the Paris Court of Appeal in SAS Man Diesel & Turbo France (“Man Diesel”) v Sté Al Maimana General Trading Company Ltd (Pôle 1, 1er Ch., 4 November 2014) applied the same standard of review to dismiss an appeal of an exequatur order regarding an award rendered in Switzerland (an application to set aside was dismissed by the Swiss courts). Among the grounds advanced, the appellant alleged that the enforcement of the award in France would violate international public policy since the relevant contract was tainted with corruption. After an analysis of the facts, the Court concluded that corruption had not been proven.

This trilogy of decisions from the Paris Court of Appeal suggests a shift towards more substantive review of awards on grounds of violation of international public policy, at least in cases of corruption. An application to set aside has been filed with the Cour de cassation in the Gulf Leaders case and such applications could still be filed in relation to the decisions in Commisimpex and Man Diesel. It therefore remains to be seen whether this approach will be upheld by the Cour de cassation. Should this be the case, another matter still to be determined is whether the requirement that the violation of international public policy be “flagrant” will be eliminated with respect to the review of awards in cases other than those involving allegations of corruption, as many scholars have recommended.

If the Gulf Leaders test is upheld, one of the future challenges for the courts will be to determine the extent to which an examination of the facts can and should involve going behind the findings of fact of the arbitrators, particularly where witness evidence is involved and the tribunal has had the benefit of observing the relevant witnesses. Weighing competing interests of finality of arbitration awards and safeguarding the fundamental values that are meant to be protected by international public policy (the content of which may also be debated) is an exercise where the right balance is often difficult to discern.

On 5 November 2014, the French Cour de Cassation, overruled a decision of the Paris Court of Appeal for having reversed the burden of proof in a case involving a non-participating party. With this victory before the French Supreme Court, Yukos Capital (“Yukos”) is one step closer to the enforcement of an arbitral award against Otkrytoye Aktsionernoye Obshestvo Tomskneft Vostochnoi Neftyanoi Kompanii (“Tomskneft”).

The French Cour de Cassation decision is one of the main chapters in the Yukos saga in which Yukos is trying to recover its assets under several loan agreements executed with Yukos Oil’s (now liquidated) former subsidiaries (including Tomskneft), which were later acquired by the Russian State oil company Rosneft (“Rosneft”).

In 2006-2007, in different arbitration proceedings, Yukos was granted (i) over US$400 million against Yuganskneftegaz by an International Commercial Arbitration Court (MKAS) Arbitral Tribunal, (ii) over US$100 million plus post-award interest against Samaraneftegaz by an ICC Arbitral Tribunal, and (iii) approximately US$145 million plus post-award interest against Tomskneft by an ICC Arbitral Tribunal. Yukos succeeded in the enforcement of the awards against Yuganskneftegaz but is still trying to collect interest before English courts. It was denied enforcement against Samaraneftegaz before Russian courts.

The French Cour de Cassation was requested to rule on the award granted against Tomskneft rendered by an ICC Sole Arbitrator, Robert Briner (a former President of the ICC Court), in 2007 granting approximately $US145 million to Yukos.

During the arbitration proceedings, Tomskneft, after having challenged the existence of the arbitration agreement between the parties, had refused to participate.

After the award was rendered, Yukos applied for its enforcement in Russia, Singapore, Ireland and France.

In Russia, the Federal Commercial Court for the District of Tomsk refused enforcement of the award on the grounds of public policy, holding that the contract was illegal.

In Singapore, the proceedings are still pending.

In Ireland, in March 2014, the High Court refused enforcement of the award stating that a foreign arbitral award should have a sufficient link with the forum State. In particular, the Irish High Court stated that:

“It is a case with no connection with Ireland. There are no assets within this jurisdiction. There is no real likelihood of assets coming into this jurisdiction. This is the fourth attempt on the part of the applicant to enforce this award. There is little to demonstrate any “solid practical benefit” to be gained by the applicant. The desire or entitlement to obtain an award from a “respectable” court has already been exercised in the courts of France and is underway in the courts of Singapore” (a KluwerArbitration blog post is available here).

On the contrary, in France, the absence of assets was not sufficient for refusing enforcement, which was granted in 2010. Tomskneft appealed the enforcement order.

In the appeal proceedings against the enforcement order, Tomskneft contended that the Sole Arbitrator had violated the fundamental principle of due process by failing to properly notify his procedural orders. In particular, Tomskneft argued that it had been deprived from its right to be heard because it had not received a number of communications from the Sole Arbitrator, including (i) procedural order n. 1 related to the modification of the provisional timetable, extending the time limits granted to the parties to file their briefs, (ii) procedural order n. 2 inviting the parties to a hearing, and (iii) other communications addressed to the parties.

On 15 January 2013, the Paris Court of Appeal refused the enforcement on the grounds of breach of due process by the Sole Arbitrator holding that there were no sufficient elements to prove the effectiveness of the notifications (decision available in Albert Jan van den Berg (ed.), Yearbook Commercial Arbitration 2013, Vol. 38, pp. 373 – 375).

Yukos filed an appeal before the French Cour de Cassation.

Before the Cour de Cassation, Yukos alleged that (i) Tomskneft had failed to prove that it had never received procedural orders, letters and other documents from the Sole Arbitrator, (ii) neither the 1998 ICC Rules, nor the French arbitration law provide for the arbitrator or the ICC to keep the receipts of the notifications addressed to the parties, (iii) the Sole Arbitrator ensured that Tomskneft had the opportunity to participate in every stage of the arbitral proceedings, and (iv) a party, which decided to not take part in an arbitration, could not invoke – at the enforcement stage – the lack of due process if it was not raised during the arbitration proceedings.

Tomskneft maintained that it had not received proper notification of the Sole Arbitrator’s correspondence.

On 5 November 2014, the Cour de Cassation overruled the Paris Court of Appeal decision refusing the enforcement of the award and found that the burden of proof lies with the party alleging the breach of due process, i.e. Tomskneft. The case is now to be heard before the Versailles Court of Appeal.

The Cour de Cassation considered that the award made specific reference to all postal receipts (DHL) – and their dates – confirming the proper notification of all communications to both parties. It was therefore for Tomskneft to prove the alleged lack of receipt of such communications but it failed to do so.

Hence, pursuant to the Cour de Cassation “the Court of Appeal reversing the burden of proof violated the legal provisions …”.

In an annex to its decision, the Cour de Cassation also relies on the principle of estoppel by holding that a non-participating party cannot object to an irregularity that was not brought up in the course of the arbitration proceedings.

In this respect, Yukos Capital vs. Tomskneft case is perfectly in line with the French case law: the fact that a party does not participate in arbitration proceedings does not necessarily lead to a violation of due process and thus to setting aside the arbitral award, if the non-participating party was given the opportunity to take part in the proceedings (CA Paris, 24 March 1995 in Revue de l’Arbitrage 1996, p. 259, available here). In another similar case, the Paris Court of Appeal ruled that where a party was regularly informed of the arbitration proceedings but willingly decided not to take part, then it was prevented from invoking any irregularities regarding the arbitration proceedings (CA Paris, 21 April 2005 available here).

With its decision, the French Cour de Cassation firmly reiterates that a party alleging the violation of due process is the party bearing the burden of proof. But the decision is not only about burden of proof: the French Cour de Cassation expressly sanctions the bad faith of the non-participating party bound by the arbitration agreement and emphasizes the parties’ duty to procedural loyalty in the arbitration proceedings.

Non-participating parties are thus clearly on notice when it comes to dilatory tactics. This is welcome.

The decision can be found here.

The views and opinions expressed herein are those of the author alone.

The views expressed in this article are those of the author alone and should not be regarded as representative of, or binding upon ArbitralWomen and/or the author’s law firm.

There are a number of questions that influence how arbitration treats cases in which an award is challenged successfully. A court overturns an award declining jurisdiction, but what’s next? The easy answer, and certainly the practical one is for the arbitrator to resume the case and render an award on the merits.

When trying to justify why this should be so, the easy answer becomes more complicated. To clarify the justification of this seemingly obvious answer, the following thoughts and conclusions prompted this note. Hopefully, you will feel moved to comment and equally share your views.

A. Is the arbitrator still around? – This is not litigation after all

In cases of more than two parties or more than one issue or both, in which the arbitrator declines jurisdiction for a party or an issue, the arbitrator is still on hand, assuming the decision is rendered as an award which can be decided by the courts while the remainder of the arbitration is either ongoing or stayed. In all other cases, the arbitration is for all practical terms concluded.

When an arbitration is concluded, the arbitrator turns back into a normal person and is no longer an arbitrator. This process is technically called functus officio. Functus officio begins when the arbitrator concluded her business. It is argued that this is the same moment and the same extent to which res judicata begins. Unaffected by functus officio are possibilities to (i) interpret, (ii) correct, (iii) supplement or (iv) revise an award.

Resuming arbitration could thus be based on interpretation, correction, supplementation or revision duties of an arbitrator. The first two are directed at minor clerical errors or a clarification of what had already been stated. These two are not directed at an entire absence of an award on the merits. They are inapplicable to awards purely on jurisdiction. The third and fourth options are more promising. Is making a decision on the merits, which has not been rendered before, an addition to the award? Alternatively, could this process be qualified as revising an existing final award, when it does not merely supplement but entirely change the outcome? I suggest that it is neither.

Arbitrations, which are neither stayed nor continued, but end without any decision on the merits, leave nothing to be supplemented. The merits were entirely excluded. Merits have not been decided and thus needs to still be decided upon, so that the extent of the supplementation would equal a full merits decision. This is not a supplementation but a entirely new award. The same is true for revision.

Arbitrations which are stayed or continued, while a judicial decision on a jurisdictional issue is pending, could possibly produce effects which require supplementation or revision. This is only true insofar as any decision, beyond the jurisdictional one, had been taken and such decision would be altered by the decision on the “new” merits. Only in such cases would a technical revision be appropriate and serve as basis for the arbitrator to re-take the case. This cannot be taken as the general rule. As a note aside: if a decision had been taken without a party that should have been in the proceedings, it violates due process with regard to this party and the decision must be set aside.

In short, resuming the arbitration cannot be based on (i) interpretation, (ii) correction or (iii) supplementation. Resuming arbitration previously dismissed for want of jurisdiction can be based on (iv) revision only if a previous merits award forms an integral part of an already rendered award. In most cases these awards will have to be set aside in any case, so that a revision is not an appropriate remedy.

Once an award is overturned the case returns to the “unsolved” status. The legal effect of anything decided evaporates. In short, the award still needs to be made, and the arbitrator returns to her status ex tunc, and is not functus officio. The arbitrator’s source of the authority to resume the case is clear: the original arbitration contract.

What happens if the arbitrator is no longer available? Can an arbitrator decline on the basis that she already rendered an award? One would hope that here the rules are settled. They are not. I decline commenting on the precise duties of an arbitrator here It is only clear that the arbitrator needs to decide all issues put before her. One could argue that the arbitrator fulfilled her duties with the jurisdictional award, even when that is overturned.

Regarding decisions on jurisdiction, the duty of the arbitrator is more than merely making one decision. In jurisdictional issues, the arbitrator has competence-competence and the first bite at the apple when it comes to deciding what and who becomes part of arbitration and thus is subject to her obligation. However, in no jurisdiction and especially in light of the New York Convention’s permission of review concerning jurisdiction (to a limited extent), the arbitrator’s discretion on her decision is limited.

A part of arbitration is that the arbitrator knows that by accepting to serve, competence-competence is subject to review. The mandate may be slightly different from what she thought and decided initially. This is decidedly different from a decision on the merits. From a contractual point of view (no matter the jurisdiction of the arbitrator’s contract or the seat of the arbitration), she remains contractually bound to decide the case, even after she initially declines jurisdiction, if a competent court disagrees.

The arbitrator is not liberated from her duty to decide by the concept of arbitrator immunity in cases of declined jurisdiction. I decline to comment on the exact extent of arbitrator immunity. The basic tenant is that the arbitrator is immune for claims based on the performance of their adjudicative functions. In short, an arbitrator does not have to be perfect or even right when making decisions on matters before her, unless she acts in bad faith. Given that a jurisdictional award would be set aside, an arbitrator who declines to resume a case because she declined jurisdiction and was overturned would most likely be considered bad faith. Another twist is the issue of a court of enforcement rather than a court of original jurisdiction of the seat orders a “remand”.

Assuming that a contractual duty as outlined above exists, two practical problems rear their heads:

One should be very reluctant to force an arbitrator into specific performance., If unwilling, the arbitrator effectively ceases to be the arbitrator and cannot be forced to come back. The remedy for a violation of contract in an arbitrator contract is damages, not specific performance.

Two, even if specific performance (i.e., a remand) was ordered, it is often the result of a judgment or order by a court in which the parties are combatting the award and to which the arbitrator is not a party.

French courts decided that the arbitrator is not party to a judgment on the validity of on award. (Judgment of 16 December 1997, Van Luijk v. Société Commerciale Raoul Duval, 1999, Rev. Arb. 253 (French Cour de Cassation civ 1e.)) A traditional remand is not possible, as the court has no jurisdiction to decide the actions of a party foreign to the litigation. Under English law, where the arbitrator’s contract is interpreted as part of the underlying arbitration agreement (Compagnie Européenne de Céréales SA v. Tradax Exp. SA (1986) 2 Lloyd’s Rep. 301 (Q.B.)), including the arbitrator, the remand binding would be possible. However, English law is the exception.

Technically, if there were a reluctant arbitrator, a new case would have to be brought to order her compliance, in so far as this is possible in the jurisdictions involved.

Having discussed that the arbitrator is not functus officio when an award on jurisdiction is set aside, I would like to conclude with examples from one of my own jurisdictions. Even though Switzerland orders parties to return to original arbitrator (see e.g. Swiss Federal Court 4A_433/2009), there are issues of potential partiality, especially when a (partial) decision on merits had already been made (so in the United States Murchison Capital Partners, L.P. v. Nuance Communications., Inc., 760 F.3d 418 (5th Cir., July 25, 2014).

A general answer to “remand” the case to the original arbitrator cannot be sufficient. Sometimes it may be appropriate – nay – necessary to re-appoint another panel, or even let the courts decide. In my view, in the narrow realm of jurisdictional cases, a remand to the original arbitrators seems the most appropriate.

As is common in arbitration, the variations are colorful. The inquiry – what’s next? – can be answer like this: If a court overturns a decision on jurisdiction, the contractual obligation of the arbitrator re-ignites ex tunc. However, she cannot be forced to take the case again by the court setting aside the jurisdictional award.

Gregory Travaini

Herbert Smith Freehills LLP For Herbert Smith Freehills

No less than two years ago, in a series of related judgments (the NML Ltd et al. v the Republic of Argentina saga), the French Court of cassation gave greater protection to state immunity from execution.¹ A new turning point in the French approach towards this matter has been reached with the decision of the French Court of Cassation dated 13 May 2015, in the long running dispute between the Republic of Congo (“Congo”) and the Congolese company Commissions Import Export SA (“Commisimpex”).²

This article provides a brief overview of the issue of waivers of immunity from execution under French law.

I. Previously on State v. Investor…

To enforce an award against a State, an investor has to determine (i) which assets are held for public purposes and which are held for commercial or economic activities and (ii) for the former, whether the State waived its sovereign immunity from execution.

France, like many other countries around the globe, found that States could not invoke immunity against enforcement measures when targeted assets are of a purely commercial nature.³ Failing a specific and express waiver, a State could rely on its sovereign immunity to resist enforcement measures against diplomatic assets.⁴

Readers will recall that, in 2013, the French Court of Cassation went a step further by upholding Argentina’s immunity despite an express waiver.⁵ In short, it first held that non-diplomatic assets such as monies related to tax, social security and oil royalty claims owed by French companies to Argentina through their local branches were assets for public purposes and would thus be immune from execution provided that Argentina had not waived its sovereign immunity. Then, the French Supreme Court found that a waiver of immunity from execution had to be “express and specific” by mentioning the assets or the category of assets over which the waiver is granted, thereby limiting the efficiency of waivers.

Confusion with a tinge of criticism arose.⁶ Why shouldn’t an express general waiver bind a State if it chooses to insert one?

II. An unexpected twist

Commisimpex, a Congolese company, prevailed in 2000 and in 2013 in two ICC arbitration proceedings seated in Paris against Congo. The awards settled disputes between the parties in relation to (i) several contracts for public works concluded in the 1980s and that Congo had failed to pay, and (ii) an agreement regarding payment of Congo’s debts, which Congo also had failed to execute. The arbitral tribunals ruled in Commisimpex’s favour.

Commisimpex sought to enforce the first award against Congo by seizing a number of accounts held in Paris in the name of the Congo’s diplomatic mission and delegation to UNESCO.

In 2012, the Versailles Court of Appeal held that under customary international law, diplomatic missions benefit from an autonomous form of immunity from execution, which can only be waived in an express and specific manner. Although Congo had expressly indicated that it had waived its right to invoke “any immunity of jurisdiction as well as any immunity of execution”, the Court found that this waiver could not be construed as “express and specific” and thus upheld Congo’s immunity from execution measures.

Commisimpex brought the case before the French Court of Cassation, which had to decide whether, in order to be effective, Congo’s waiver of immunity from execution should have specifically referred to the assets or the category of assets over which the waiver is granted.

The first Chamber of the Court of Cassation, the same chamber which had, in 2013, held that a waiver of immunity from execution had to be express and specific by mentioning the assets or the category of assets over which the waiver is granted, reversed the Versailles Court of Appeal’s decision and found that “international customary law does not require a waiver of the execution immunity to be anything else than express” and remanded the case before the Court of Appeal of Paris.⁷

Given the broad terms of this decision, it appears that the French Court of Cassation has abandoned the requirement that a waiver be “specific” and simply requires that it be express, thereby reverting to a more flexible approach to questions of sovereign immunity.⁸

The lack of consistency among French decisions on immunity waivers questions the very existence of any established practice on this issue.⁹ Therefore, reference made to “international customary law” or “principles of international private law”¹⁰ by the French Court of Cassation may be confusing. For the sake of clarity and predictability, it may be time for the French approach towards sovereign immunity from execution to be set in stone, or at the very least be consistent.

The United-Kingdom and the United States of America have already enacted Laws on State immunity, nearly 40 years ago. A presumption of immunity from execution exists save (i) any consent of the State concerned, or (ii) on property which is for the time being in use or intended for use of commercial purposes.¹¹ The US Foreign Sovereign Immunities Act even states that “the foreign state has waived its immunity from attachment in aid of execution or from execution either explicitly of by implication…”.¹²

Is it time for France to take the lead in Europe and enact general legislation on State immunity? To be continued…

More from our authors:

The post State 1 – Investor 1: Bring it on! appeared first on Kluwer Arbitration Blog.

Emilio Paolo Villano and Katarzyna Sadrak

EDGE Legal, Brussels

On the 7th of July 2016 the Court of Justice of the European Union (“Court” or “CJEU”) published the judgment in the Genentech case (Case C 567/14), awaited with great interest both by IP and competition practitioners, on one side, and by arbitration practitioners, on the other.

IP and competition law practitioners’ interest lies in the Paris Court of Appeal’s application to the CJEU for a preliminary ruling on the question whether the payment of royalties for a licence referring to a patent that has successively been revoked with retroactive effect is incompatible with the provisions of Article 101 TFEU.

As for arbitration practitioners, the interest lies in the fact that that the above mentioned request for a preliminary ruling was addressed within the context of a proceeding for the setting aside of an ICC arbitral award on the basis of its alleged incompatibility with EU law. Also, in his Opinion to the Court, Advocate General Wathelet dealt extensively with the highly debated topic of what standard of review must be applied by the national courts of EU Member States when checking for the compatibility of international arbitral awards with the EU competition law regime.

Before discussing the implications of the Genentech judgment from the arbitration practitioner’s standpoint, it is worth analysing the case in its entirety.

Genentech Inc. acquired from Berhingwerke AG (now Hoechst) a worldwide non-exclusive license for the use of patents related to some pharmaceutical technology. Genentech complied with its obligation to pay a one-off fee and a fixed annual research fee for the use of such technology. However, it never paid the running royalty (equivalent to 0.5% of the net sales of the finished products) it committed to. Consequently, Hoechst and Sanofi-Aventis Deutschland (its subsidiary) commenced an ICC arbitration seated in Paris. Genentech claimed that the contractual provision on running royalties was null and void on the basis of Article 101(2) TFEU, as it required the licensee (Genentech) to pay such royalties even though the patents were revoked with retroactive effect. The sole arbitrator did not share Genentech’s view and (according to the text quoted in the Opinion of AG Wathelet) considered that “any payments made under the licence agreement could not be reclaimed and any payments due thereunder remained due where the patent had been revoked or was not infringed by the licensee’s activity.”

Genentech filed to the Court of Appeal of Paris an application for setting aside the award, raising again the argument that the payment of royalties related to a revoked patent is prohibited under Article 101 TFEU and, consequently, the arbitral award itself is incompatible with public policy provision forming part of the EU competition law regime. Genentech’s application for setting aside was largely based on the Eco Swiss jurisprudence of the CJEU, which established that Article 101 TFEU is part of the public order within the meaning of the New York Convention and that “where its domestic rules of procedure require a national court to grant an application for annulment of an arbitration award where such an application is founded on failure to observe national rules of public policy, it must also grant such an application where it is founded on failure to comply with the prohibition laid down in Article [101 TFEU].”

The Paris Court of Appeal, being uncertain on the interpretation of EU competition law, asked the CJEU to render a preliminary ruling on the following question:

‘Must the provisions of Article 101 TFEU be interpreted as precluding effect being given, where patents are revoked, to a licence agreement which requires the licensee to pay royalties for the sole use of the rights attached to the licensed patent?’

The answer of the Court to this question was straightforward. Since Genentech had the right to unilaterally terminate the license agreement, this did not constitute breach of competition law rules, even though it provided for an obligation to pay royalties for the granting of rights attached to a patent subsequently revoked with retroactive effect. The Court made reference to its judgment in the Ottung case (Case C-320/87) and confirmed that:

“[…] Article 101(1) TFEU does not prohibit the imposition of a contractual requirement providing for payment of a royalty for the exclusive use of a technology that is no longer covered by a patent, on condition that the licensee is free to terminate the contract.”

What drew the attention of arbitration practitioners to the Genentech case is, first, that a French court was again confronted with a request for the setting aside of an arbitral award on the basis of its alleged incompatibility with EU competition law rules, and, second, that  AG Wathelet dealt quite extensively with such an issue in his Opinion to the Court.

French courts have been, since 2004, considered the most fervent supporters of what has been called the “minimalist” approach to the review of arbitral awards. In both the Thalès v Euromissiles and the SNF v Cytec case, the French courts held that, in order to successfully invoke the incompatibility with the EU competition law regime as a ground for the annulment of an arbitral award, such incompatibility must be “flagrante, effective et concrete”. If those three conditions are not met, French courts should not be allowed to look any further into the award and cannot, thus, set aside an award that is not manifestly and egregiously in breach of public policy provisions. The approach taken by the French courts has been heavily criticized by many scholars and, in some other courts of EU Member States, the maximalist approach has prevailed. The Court of The Hague in the Marketing Display International (MDI) case has, for instance, taken the maximalist approach and exercised a fully-fledged review of the arbitral award in order to verify its compatibility with the EU competition rules, without limiting its scrutiny of the award to the most blatant and manifest breaches of these provisions.

The second aspect that drew the attention of arbitration practitioners is that AG Wathelet, in his Opinion on the Genentech case, considered that

“[…] limitations on the scope […] of the review of international arbitral awards such as those under French law mentioned by Hoechst and Sanofi-Aventis as well as by the French Government — namely the flagrant nature of the infringement of international public policy and the impossibility of reviewing an international arbitral award on the ground of such an infringement where the question of public policy was raised and debated before the arbitral tribunal — are contrary to the principle of effectiveness of EU law.”

In essence, AG Wathelet considered that a minimalist standard of review of arbitral awards that only sanctions blatant and serious breaches of EU competition law, such as the one applied by French courts, is not compatible with the principle of effectiveness of the application and enforcement of EU law. The AG pointed out that “either there is an infringement of Article 101 TFEU, in which case the agreement between undertakings at issue is automatically void, or there is no infringement at all. […] it makes no difference whether the infringement of the public policy rule was flagrant or not. No system can accept infringements of its most fundamental rules making up its public policy, irrespective of whether or not those infringements are flagrant or obvious.”

Since the issue of the standard of review of arbitral awards was not, strictly speaking, part of the question raised by the Court of Appeal of Paris in its request for a preliminary ruling, the CJEU did not follow the reasoning of the AG in this topic and, consequently, the Genentech judgment remained silent on this highly debated question.

The Genentech case can certainly be regarded as a missed opportunity for the CJEU to clarify its position on the aforementioned issue. Nonetheless, this case consolidates the opinion of those who consider that French courts have, in the last years, already abandoned the pure minimalist approach. In fact, by requesting the CJEU for a preliminary ruling on the interpretation of Article 101 TFEU, the Paris Court of Appeal clearly considered the possibility of setting aside an arbitral award on the basis of a breach of EU competition law that was not manifest or flagrant, since an authentic interpretation of EU law proved to be necessary in order to understand whether an actual breach existed or not. Moreover, in three recent cases where French courts were requested to set aside arbitral awards on the basis of alleged corruption, the French judges seem to have abandoned their previous jurisprudential approach under which a breach of international public policy must be “manifest” or “flagrant” in order to be successfully invoked as a valid ground for annulment of an award.

The debate between minimalists and maximalists is probably not over yet, but a perceptible trend toward the abandon of the pure minimalist approach can be certainly detected, at least in the practice of French courts.

More from our authors:

The post The Genentech Case: A Missed Opportunity? appeared first on Kluwer Arbitration Blog.

Maxi Scherer

Wilmer Cutler Pickering Hale and Dorr LLP For WilmerHale

On Thursday, 13 January 2011, France revealed its long-awaited new arbitration law. The décret n° 2011-48 portant réforme de l’arbitrage, was published in France’s Official Journal, alongside a report commenting on the reform. The new law can be found here, as well as the accompanying commentary here.

The reform concerns both domestic and international arbitration and the new provisions will comprise Articles 1442 to 1527 of the French Code of Civil Procedure. The new law becomes effective and applicable as of 1 May 2011, except for a number of specifically enumerated provisions which apply only if the arbitration agreement was entered into, the arbitral tribunal constituted, or the award rendered, after that date.

The French arbitration community has long lobbied for this updated of the law, the first overall reform of French arbitration legislation since the 1980s. The reform keeps with the long-standing tradition of innovative and arbitration-friendly arbitration law in France, which has contributed to establishing Paris as one of the world’s most popular seats of arbitration.

The aim of the new law is to sustain Paris’ leading role in international arbitration. The accompanying official report states that “after thirty years, the reform appeared necessary to consolidate case law [in the area], as well as to complement the existing text and conserve its efficacy.” The report also specifically draws attention to the fact that the new law has “integrated some provisions inspired by foreign laws which have proven useful.”

By codifying well-established French case law, the reform also significantly enhances the accessibility of French arbitration law for foreign users and observers. For instance, Article 1447 codifies the fundamental principle of the autonomy of the arbitration agreement, according to which the arbitration clause remains unaffected even if the underlying contract is found void. The provision states that “[t]he arbitration agreement is independent from the contract it relates to.”

Another example of codifying existing case law can be found in Article 1466. According to this provision, which is clearly inspired by previous French case law as well as the common law concept of estoppel, a party who – in knowledge of the facts and without any legitimate excuse – fails to invoke an irregularity of the arbitral process in due course, is prevented from doing so at a later stage.

The new law also contains some important innovations which will surely be subject of abundant commentary on this blog and elsewhere. For instance, Article 1522 contains a significant and substantial change concerning the parties’ ability to waive their right to seek annulment of an award in front of the national courts at the seat of the arbitration. Article 1522 provides that “the parties may, by specific agreement, waive at any time their right to challenge the award [by way of annulment].” This new provision will become effective for arbitration agreements entered into after 1 May 2011.

According to the report accompanying the new law, the parties’ waiver under Article 1522 does not affect, however, their right to appeal any decision to enforce the award in France. The report also explains that Article 1522 was inspired by “existing foreign law.” Indeed, a few jurisdictions with pro-arbitration statues permit the parties to waive or exclude judicial review of the award by way of annulment proceedings. For instance, Swiss and Belgian law permit such waivers as long as the parties are foreign, i.e., have no connection to Switzerland/Belgium respectively. Contrary to Belgian or Swiss law, however, the new French provision grants the right to exclude judicial review in annulment proceedings not only to foreign but also to French parties.

Another notable innovation is contained in Article 1526, which provides that a challenge of the award does not automatically result in suspension of enforcement proceedings. Rather, according to Article 1526 para. 2, a suspension has to be specifically requested and is granted only if the enforcement would be highly detrimental to the rights of the party requesting the suspension. The report accompanying the new law notes that the aim of this provision is to discourage bad faith annulment proceedings which seek to delay the enforcement of fully valid and legitimate awards. Article 1526 will apply to awards rendered after 1 May 2011.

Without any attempt to draw an exhaustive list, further clarifications or changes in the new law include the fact that (i) international arbitration agreements – contrary to the solution contained in the New York Convention – do not have to meet any particular form requirements (Article 1507); and (ii) the original of the award is no longer required with the petition for seeking exequatur; rather, it is now sufficient to present a copy which fulfils “the conditions required to establish its authenticity” (Article 1515).

Finally, some changes which are not supposed to introduce any substantive modifications according to the official accompanying report, will nonetheless not go unnoticed. For instance, one of the grounds for challenging an award has been significantly re-worded. While Articles 1504/1502-2 previously referred to the fact that the tribunal “has rendered the award without an arbitration agreement or based on an arbitration agreement that was void or expired,” Article 1520-2 instead now allows setting aside of the award if the tribunal “has mistakenly declared itself to have or not to have jurisdiction.”

Overall, the new law has been well-received so far by the arbitration community. The very first reactions described the reform as innovative and trend-setting. Interestingly, the French newspaper Les Echos has quoted the French Justice Minister, Michel Mercier, as saying that the new law is also aimed at keeping the ICC headquarters in Paris. Mr. Mercier said that in enacting the new law, “[t]he government had paid particular attention to the situation of the international chamber of commerce.” He concluded that Paris was the premier place in the world for arbitration and that the new law would ensure that it continued to thrive.

By Maxi Scherer and Gary Born

More from our authors:

The post Long-Awaited New French Arbitration Law Revealed appeared first on Kluwer Arbitration Blog.

Valentine Chessa and Nataliya Barysheva

Castaldi Partners

The issues of impecuniosity and access to justice arise cyclically in different jurisdictions and under different forms. Recently, the debate has been raised again in France.

On 24 May 2016, the Paris Court of Appeal quashed a decision of the French juge d’appui (judge acting in support of the arbitration) enjoining the ICC to reintroduce claims that had been withdrawn by the ICC following the parties’ failure to pay the advance on costs (ICC v. S.A.R.L. Projet Pilote Garoubé, Paris Court of Appeal, 24 May 2016, no. 15/23553, available here).

At the outset, the dispute arose between Garoubé and the State of Cameroon out of the termination of a concession contract for the exploitation of a protected territory in the North of Cameroon. Garoubé filed a request for arbitration with the ICC and the parties agreed to fix the place of arbitration in Paris (France).

During the course of the arbitration proceedings, both parties failed to pay the global amount of the advance on costs fixed by the ICC Court. The ICC thus fixed separate advances on costs, pursuant to the ICC Rules. Article 30.4 of the 1998 ICC Rules provides:

“When a request for an advance on costs has not been complied with, and after consultation with the Arbitral Tribunal, the Secretary General may direct the Arbitral Tribunal to suspend its work and set a time limit, which must be not less than 15 days, on the expiry of which the relevant claims, or counterclaims, shall be considered as withdrawn. Should the party in question wish to object to this measure, it must make a request within the aforementioned period for the matter to be decided by the Court. Such party shall not be prevented, on the ground of such withdrawal, from reintroducing the same claims or counterclaims at a later date in another proceeding.”

Therefore, in compliance with this provision, failing the corresponding payment by the parties, the ICC informed the parties of the withdrawal of their respective claims. As a result, the case was entirely withdrawn.

On 12 June 2015, Garoubé started proceedings against the ICC before the President of the Tribunal de grande instance of Paris, acting as juge d’appui against the decision of the ICC to withdraw the parties’ claims. The State of Cameroon was not a party in these proceedings.

On 16 November 2015, the President of the Tribunal de grande instance of Paris, acting as juge d’appui, stated that, although it was not its role to interfere in the activity of the arbitral tribunal or the arbitral institution, it nonetheless had jurisdiction if there was a risk of denial of justice. On this basis, the juge d’appui held that it was “manifest” that Garoubé was facing financial difficulties. Therefore, the judge concluded that, taking into account the circumstances of the case and the financial situation of Garoubé, the decision of the ICC to withdraw the parties’ claims represented an obstacle to Garoubé’s access to justice.

The ICC was thus ordered by the juge d’appui to (i) reinstate the claims of Garoubé, (ii) lift the suspension over the arbitral tribunal’s activities, and (iii) invite the arbitral tribunal to issue a partial award on liability.

This decision arrived as a bombshell in the French arbitration landscape. The surprise was due to a number of puzzling elements: the wide interpretation by the French judge of its intervention in case of denial of justice, the uncertain assessment of the impecuniosity (the decision only says that it was “manifest” without referring to any criteria on which to rely on) and the unprecedented injunction made to an arbitral institution.

In December 2015, the ICC filed an appeal for abuse of power, which is the only possible recourse available in French procedural law against an order of the juge d’appui.

Before the Paris Court of Appeal, the ICC thus argued that the juge d’appui had exceeded its powers and requested the annulment of the order of 16 November 2015. In particular, the ICC alleged that the juge d’appui only has the power to rule over the constitution of the arbitral tribunal and the extension of the time limit to issue the award in cases in which the arbitration is not submitted to a specific arbitral institution. The ICC then went on arguing that the juge d’appui, in any event, committed a breach of due process by failing to hear the State of Cameroon and the members of the arbitral tribunal.

On the other side, Garoubé argued that the appeal for nullity filed by the ICC was inadmissible and the abuse of power by the juge d’appui was not established because the judge had (i) not interfered in the arbitration proceedings nor in the application of the ICC Rules by the institution, and (ii) simply ordered the ICC to take necessary actions to prevent a denial of justice.

The Court of Appeal ultimately quashed the decision of the juge d’appui and decided that the assessment of the ICC advance on costs mechanism does not fall under the jurisdiction of the juge d’appui. The Court of Appeal’s decision is based on the following grounds:

– abuse of power, as the juge d’appui only has jurisdiction to rule over the constitution of the arbitral tribunals and the extension of the time limit to render arbitral awards; and

– breach of due process, as the juge d’appui examined both parties’ claims without hearing the other party to the arbitration proceedings.

Therefore, the parties seeking to overturn a decision taken by an arbitral institution must file a request before the ordinary judge having jurisdiction over the contract between the parties and the arbitral institution and not before the juge d’appui.

The Court of Appeal’s decision interestingly sheds light on the limits of the powers granted to the French juge d’appui in case of denial of justice. In other words, the provisions on denial of justice are not a blank cheque to the French juge d’appui. Rather, pursuant to the Court of Appeal, they are limited to the constitution of the arbitral tribunal. This decision thus confirms that the intervention of the judge acting in support of the arbitration is subsidiary and cannot be substituted to the arbitration institution when it comes to the administration of the proceedings (see also in this respect the order of the Tribunal de grande instance of Paris of 23 June 1988).

However, by quashing the juge d’appui’s order on purely procedural and jurisdictional grounds, the Paris Court of Appeal avoided the perilous issue of impecuniosity. As a result, if Garoubé’s claims were taken before the proper judge, the ICC could still potentially be enjoined to reintroduce claims already withdrawn. Although it seems likely that the judge having jurisdiction over the contract between the parties and the arbitral institution will decide that the provisions of the ICC Rules – and in particular the decision on withdrawal of claims – shall apply, the issue of the denial of justice remains wide open.

The Paris Court of Appeal decision is in line with French case law as far as the non-interventionist approach is concerned. In the Lola Fleursf decision, for instance, the French judge has strictly applied the competence-competence principle even where one of the parties was impecunious and considered that the impecuniosity of a party does not per se prevent the arbitration agreement to apply (Paris Court of Appeal, 26 February 2013, no. 12/12953).

However, when it comes to access to justice, the position of the French courts is less clear. At the stage of set-aside proceedings, in the Pirelli decision, the French Supreme Court held that the refusal of the arbitral tribunal to consider the counterclaims of a party that failed to pay the advance on costs may infringe the right of access to a judge and the principle of fair and equal treatment of the parties (Pirelli, Cour de cassation, 1e civ., 28 March 2013, no. 11-27.770).

Contrary to the Pirelli decision, in the Garoubé case, both claimant and counterclaimant failed to pay the advance on costs fixed by the ICC. A decision to withdraw both parties’ claims and counterclaims due to such failure is obviously less prejudicial and is less likely to amount to a breach of due process.

Having said that, should Garoubé decide to bring the matter before the ordinary French judge, it remains to be seen how it will examine the impecuniosity issue. It will have to balance on the one hand the performance of the contract between the ICC and the parties and on the other hand the effectiveness of the access to justice.

All in all, this matter should be watched closely as the fate of impecunious parties in arbitration proceedings seated in France may also have an impact elsewhere.

* CASTALDIPARTNERS, the views expressed are those of the authors alone.
The authors would like to thank Antonio Musella, Counsel at CASTALDIPARTNERS, for his valuable insights.

More from our authors:

The post Impecuniosity And Denial Of Justice: Walking On Eggshells appeared first on Kluwer Arbitration Blog.

Saria María Moreno Sanchez

MIDS Geneva LL.M. in International Dispute Settlement

The fact that foreign States are normally entitled to immunity from enforcement before national jurisdictions pursuant to customary international law, has always been the stumbling block in the enforcement of arbitral awards against them.

In France to the date State immunity from enforcement has been regulated by case law, but a new Bill on transparency, anti-corruption and modernisation (Sapin II) has been adopted to insert provisions aimed at implementing customary international law on sovereign immunity from enforcement into the French Civil Enforcement Procedure Code.

The National Assembly has recently decided to intervene by codifying these provisions after the Cour de Cassation Decision of 13 May 2015, relied on the U.N. Convention on Jurisdictional Immunities of States and their Property (U.N. Convention), which is not yet in force, to determine when State property may be subject to post-judgement measures. The Court reached its decision on the basis that the U.N. Convention reflects the current criteria for State immunity.

The draft article reads as follows:

Article 59

Following article L. 111-1 of the Civil Enforcement Procedure Code the subsequent articles are added:

Article L. 111-1-1. Provisional and enforcement measures shall only seize Foreign States property if a preliminary judicial authorization has been issued.

 Article L. 111-1-2. Provisional or enforcement measures against property of a foreign State cannot be authorized by a judge unless one of these conditions is satisfied:

 1° The State has expressly consented to the taking of such measures;

 2° The State has allocated or earmarked property for the satisfaction of the claim which is the object of that proceeding;

3° A decision or an arbitral award has been rendered against a State and it has been established that the property is specifically in use or intended for use by the State for other than government non-commercial purposes and has a connection with the entity against which the proceeding was directed…

On 15 November 2016, the Senate objected to the adoption of Sapin II before the Constitutional Council, stating that article 59 was incompatible with the rights guaranteed by the French Constitution as it impairs creditors’ rights in a manifestly excessive manner.

The requirement for preliminary judicial authorisation for the enforcement of awards, provided in Sapin II, was one of the significant points considered by the Senate to be irreconcilable with urgent enforcement measures. The Senate argued that under the Sapin II provisions, State creditors aiming to enforce an award in France would be obliged to obtain a judicial authorization from local courts, thereby hampering the enforcement of any measure targeting the property of foreign States in France.

In the Senate’s view, this would inevitably lead to the relocation of movable assets by foreign States and will put the burden of proof on States’ creditors as they will be bound to demonstrate before a local court that the property at stake is solely for commercial purposes.

Although Sapin II was intended to implement the U.N. Convention, the Senate highlighted that integrating a preliminary judicial authorisation for enforcement measures was not envisaged by the U.N. Convention and is therefore contrary to the right to enforce judicial decisions guaranteed by the Constitution and by the European Court of Human Rights.

On 8 December 2016, the Constitutional Council decided that article 59 is consistent with French Constitution provisions and therefore rejected the Senate’s objection. The Constitutional Council stated that the judicial authorization ensures compliance of the legal conditions required for the enforcement measures and thereby protects public interest.

After the Bill is enacted, the perception of Paris as one of the top arbitration jurisdictions in the world may be affected due to provisions hindering the enforcement of awards against property covered by State immunity protection. It has already been acknowledged that France may try to follow the path of the ‘Yukos Law’ passed in Belgium, which also requires foreign States’ creditors to obtain a judicial authorization for the attachment of foreign States’ assets.

To require States’ creditors to preliminarily prove that foreign States’ property is not sovereign could imply imposing a high threshold for foreign States’ creditors. It will likely be difficult for creditors to discharge that burden of proving that the property they seek to attach is undeniably used for commercial purposes. This may mean that the pendulum is swinging back slightly towards absolute immunity from enforcement.

Overall, the amendment to the French Civil Enforcement Procedure Code reflects France’s intention to embrace the undertakings provided by the UN Convention, in situations where grating attachment against foreign States’ assets will be inappropriate. Likewise, it will enable national courts to ensure enforcement measures against State property in appropriate cases. Nevertheless, if the Senate is correct, Sapin II may be going too far in requiring a preliminary judicial authorization for enforcement of measures against property subject to State immunity.

More from our authors:

The post Are State Creditors Defeated by State Immunity from Enforcement in France? appeared first on Kluwer Arbitration Blog.

Natasha Peter

In a judgment of 24 May 2017 (Biogaran v International Drug Development, case n° 15-25.457), the commercial chamber of the French Cour de Cassation (Supreme Court) considered the question of whether a counterclaimant is bound by the requirements of a “multi-tier” dispute resolution clause. The clause in question required the parties to mediate as a precondition to court proceedings, but the court ruled that the defendant could nevertheless pursue a counterclaim that had not been submitted to mediation.

Since at least 2003 (with the landmark judgment of a mixed chamber of the Supreme Court in case n° 0019.42), the French courts have been clear that escalation clauses are in principle capable of imposing negotiation, conciliation or mediation as a condition precedent to litigation or arbitration. However, they have been equally clear that these clauses will only have this effect if they are drafted in terms that are mandatory, unambiguous and sufficiently specific. The decision in Biogaran v International Drug Development is a novel application of this line of reasoning.

The case originated in a claim brought by Biogaran in the Paris commercial court for alleged non-payment of sums due under a pharmaceuticals contract. According to the contract terms, the parties were required to conduct amicable negotiations of any dispute for a period of 60 days. If this did not succeed, the dispute was to be submitted to a mediator who would have a further 60 days to attempt to resolve it, “failing which the parties would submit to the jurisdiction of the Paris court” (free translation).

Biogaran complied with the amicable dispute resolution and mediation requirements before filing its court claim. The defendant, International Drug Development, responded with a counterclaim for termination of the contract – an issue which had not been considered in the mediation. The Paris court of appeal held that the counterclaim was barred for failure to comply with a condition precedent.

In overturning this decision, the Supreme Court reasoned that at the time when counterclaim was made, the proceedings had already been “commenced” (as that term is defined in Article 53 of the French Code of Civil Procedure). It was therefore irrelevant whether the contract required a mediation as a condition precedent to the commencement of proceedings. The question was rather whether it specifically imposed a precondition to the filing of a counterclaim – and without express wording to this effect, the court was not prepared to find that it did.

A careful consideration of the wording of a multi-tier dispute clause is already a recurrent feature of French jurisprudence on the subject. In a number of cases, the Supreme Court has refused to let vaguely worded clauses stand in the way of a party’s right of access to the courts, requiring, for example, that a contractual condition precedent must specify how the negotiation was to be conducted (see the decision of 29 April 2014, n° 12-27.004), and that it must be expressed in mandatory terms (see, for example, its decision of 29 January 2014, n°13-10833).

More recently, however, there have been a number of occasions on which the Supreme Court has found that the hurdle for imposing such a condition precedent has been met. A frequently cited decision is that of the mixed chamber of the Supreme Court on 12 December 2014 (Proximmo v Arnal-Lafon-Cayrou, n° 13-19.684, which has been followed, for example, in case n° 15-17.989 of 6 October 2016 and case n° 16-16.585 of 29 March 2017). The court held that a claim made by a firm of architects was barred because the claimant had not respected a contractual requirement to submit any dispute to conciliation by the order of architects before taking it to court. Notably, the court also held that this failure could not be remedied by the claimant submitting the dispute to the professional body while the litigation was on-going. The contractual requirement had to be complied with before the court action was started. Unlike in some other jurisdictions (such as England & Wales and Switzerland, to name only two examples), the French courts will thus not simply stay the proceedings in order to allow an escalation clause to be complied with – although if a claim is struck out, the claimant is usually free to start a fresh action once it has complied with the necessary preliminary requirements.

In Biogaran the court broke new ground in applying these principles to a counterclaim, but its reasoning is coherent with the previous jurisprudence. In Proximmo v Arnal-Lafon-Cayrou, the court’s refusal to grant a stay to allow the claimant to remedy its default was motivated by the fact that (at least on the facts of that case) the mediation had to be conducted before the court was seized of the case, so a stay would not overcome the problem. In Biogaran, given that the court was already seized, the requirement no longer applied.

Biogaran is particularly interesting given the sparsity of decisions on this subject in other jurisdictions. Certain jurisdictions seem to have adopted a similar line to the French court – for example, the Kansas Court of Appeals in Vanum Construction Co. Inc. v Magnum Block LLC (case no 103,385 of 10 December 2010) decided that a contractual clause which required mediation “as a condition precedent to arbitration or the institution [of] legal or equitable proceedings by either party” did not oblige the defendant to mediate before filing a counterclaim, because the mention in the clause of the “institution” of proceedings referred only to the commencement of a lawsuit and not to the filing of a counterclaim. Conversely, in the context of a FIDIC Red Book dispute resolution clause, the Bulgarian courts (in decision No. 1966 of 13 October 2015, commercial case No. 4069/2014) upheld an arbitral award refusing to consider the contractor’s counterclaims when the contractor had not first referred them to adjudication.

The English courts have adopted a more nuanced view, finding that as a matter of discretion they can exceptionally allow parties to bring additional claims (which presumably must include counterclaims) in the context of on-going litigation proceedings, without first complying with contractual dispute resolution provisions. The issue was considered by the English High Court, also in the context of a construction dispute, in the case of Connect Plus (M25) Limited v Highways England Company Limited [2016] EWHC 2614 (TCC). The claimant in that case argued that some of the issues before the court had not been considered by an expert, in breach of a contractual requirement. On the facts, the court disagreed, but it went on to say that if it were wrong, it would “unusually” exercise its discretion against staying the proceedings to allow these issues to go to expert determination, because the allegedly “new” claims were too closely interwoven with the pre-existing claims to allow any sort of sensible division between them. It is clear from the judgment, though, that the more usual approach would be for the English courts to stay any new claims until the relevant contractual preconditions had been complied with.

The issue is also expressly dealt with in some arbitral procedural rules. For example, both the Institution of Civil Engineers Arbitration Procedure (rule 5.2) and the Construction Industry Model Arbitration Rules (rule 3.5) expressly grant the arbitral tribunal jurisdiction over issues that are connected with and necessary for the determination of the dispute, irrespective of whether there has been compliance with any condition precedent to arbitration.

Nevertheless, absent any guidance in the rules of arbitration or applicable case law, counterclaimants are still left with a large degree of uncertainty as to their obligations, particularly where (as is often the case) the wording of the contract is not crystal clear. And of course the question of the continuing relevance of an escalation clause after a court or tribunal has been seized is not confined to situations where there is a counterclaim. Parties who have complied with a contractual precondition in respect of one aspect of their dispute are often faced with the question of whether their compliance was extensive enough. Are they required to submit exactly the same claim to the court or arbitration tribunal as was considered in the negotiation, mediation or adjudication? Or do they have some latitude to amend their arguments or even add new claims at a later date? These questions are of quite some practical importance given that parties often only engage lawyers when they file for litigation or arbitration, so the nature of the dispute will frequently evolve at that stage.

Although one should not attempt to read too much into a single decision, particularly one that does not have the force of binding precedent, the reasoning of the French Supreme Court in the Biogaran case proposes an interesting approach to this question. It suggests that there is distinction to be drawn between preconditions to commencing proceedings and preconditions to joining additional claims to proceedings that have already commenced. At least when the escalation clause is worded in general terms, one might infer that once proceedings have been commenced, the clause is no longer applicable to additional claims between the same parties (counterclaims or otherwise). This has the advantage of ensuring that once proceedings have been started, the court or tribunal has more scope to determine all the issues between the parties in a single set of proceedings. Very often, this will give effect to the underlying aim of the parties when they agreed to the escalation clause – that their dispute be resolved efficiently and with a minimum of cost.

Nevertheless, as we have seen, the French courts will pay close attention to the wording of the escalation clause itself (as of course will tribunals and courts in other jurisdictions), so each case must be considered on its own terms.

More from our authors:

Arbitrators as Lawmakers by Dolores Bentolila € 180

The post Escalation Clauses – Where Do They Leave the Counterclaimant? appeared first on Kluwer Arbitration Blog.

Ioana Knoll-Tudor

Jeantet

In 2010, the Commercial Court of Paris created a specialised international and European court chamber in order to judge all international complex commercial cases in the first instance. Although French procedural rules continue to apply before this court chamber, evidence and oral debates can take place in a foreign language, if the judges and the parties so agree. Judges of this special chamber are competent, both linguistically and substantially, to adjudicate complex international commercial cases. Parties cannot elect this special chamber to hear their dispute, they can only chose the Commercial Court of Paris as the competent jurisdiction. Once the dispute is submitted to the Commercial Court, it is distributed among the different court chambers. Disputes with an international character are more likely to be heard by the international chamber (although in practice it is difficult to predict if that will be the case). If the decision in first instance is appealed, the ordinary procedure designates the Paris Court of Appeal as competent to hear the case since no international chamber exists at the Court of Appeal.

Background

On 7 March 2017, the French Minister of Justice asked the High Legal Committee of the financial market of Paris (HLCP) to prepare a report on the opportunity of creating court chambers specialised in hearing international commercial litigation disputes within the Paris Court of Appeal.
This initiative aimed at increasing French jurisdictions’ international visibility, especially for those businesses choosing London to solve their disputes. The success of the Commercial Court of London with foreign companies is a reality: each year, 80% of the cases submitted have at least one foreign party and in almost 50% of these cases both parties are foreign companies. Moreover, in the UK, the market of commercial litigation legal services, represented a total of 16 billion euros in 2016. The success of London in the field of commercial litigation is justified, among others, by the UK’s access to the mechanisms of mutual recognition of awards among the Member States of the European Union. This access will certainly be modified once the UK will no longer be part of the EU.

The report of the HLCP was rendered on 15 May 2017 and proposed the creation of specialised court chambers competent to judge all international commercial disputes, including the recourses against international arbitral awards.¹⁾In France, the Paris Court of Appeal is generally competent to hear all actions against international arbitral awards and against exequatur procedures of international arbitral awards or awards rendered abroad. All such actions initiated after 1 March 2018 will take place in front of the International Chamber.
The agreements creating an international court chamber within the Paris Court of Appeal (the « International Chamber ») have been signed on 7 February 2018 and define the procedure applicable before these specialised court chambers, both in first and second instance.

What Are the Cases Judged by the International Chamber?

The International Chamber will be competent for hearing appeals introduced against decisions rendered by the international court chamber of the Commercial Court of Paris, between a French and a foreign entity as well as between two foreign entities, or whenever a foreign law is applicable to the dispute.

The competence of these international court chambers should be automatic whenever at least one of the parties is a foreign entity or a foreign law is applicable to the dispute. If either of these two criteria is fulfilled, the contractual designation of the Commercial Court of Paris should be sufficient to have the case heard by these international court chambers. Parties can also make a specific reference to these court chambers in the contract.

What Are the Particularities of the International Chamber?

The creation of the International Chamber allows France to have two degrees of jurisdiction in front of which international commercial disputes can be heard according to adapted procedural rules, partly in English and by experienced and highly qualified judges.

• The use of English or of another foreign language during the procedure

In front of the International Chamber, in accordance with the agreement of the parties:
– all documentary evidence can be presented in the language chosen by the parties without need for a translation,
– witnesses, experts, parties and foreign lawyers will be able to intervene orally in the chosen language²⁾As a default rule, pleadings will be held in French.,
– all procedural acts will be drafted in French,
– the award will be drafted in French, with a sworn translation in English.
The possibility to chose English in front of these court chambers will not only save time and expenses – because the parties will no longer have to produce sworn translations – but will also give access to a larger pool of international lawyers and experts.

• Qualified judges

The specialised court chambers will be composed of permanent judges, experienced in commercial, financial and economic cases, with a knowledge of the main foreign applicable laws but also able to use English during the procedures. In addition to these permanent judges, the possibility of having highly qualified part-time judges is currently under discussion.

• Adapted procedure

The procedure in front of the specialised courts will be shorter and more efficient, with, for example, time extensions more difficult to obtain than in front of ordinary courts. Judges will define procedural timetables in close cooperation with the parties and their representatives.

A large place will be given to testimonial evidence: witnesses and experts can be called to testify in court, to answer questions by the judges, and be cross-examined by the parties’ counsels (which is currently not a common feature of French commercial litigation).

• Recognition and enforcement of French decisions

In the context of Brexit, the fact that France will continue to benefit from the automatic recognition and enforcement of the French decision in all Member States is an advantage. The UK’s exit from the European Union will also mean that it will no longer be integrated in the EU legal system. In practice, all decisions rendered in London will have to be submitted to the exequatur procedures of each Member State, in order to be recognised and enforced.

• Start of the operations

The International Chamber will be operational as soon as its President and his/her two advisers will be appointed by the Superior Council of Magistrates. All procedures initiated after 1 March 2018 will be heard by the International Chamber.

• An increased choice of French law

The International Chamber will judge cases in which a foreign law is applicable to a dispute, but also cases in which French law has been chosen by the Parties, whenever at least one party is not French. The authorities expect that once these specialised court chambers become operational and popular with the Parties, French law will be chosen more frequently as the governing law of international contracts.

Similar European Initiatives

The French initiative to set up court chambers specialised in international commercial litigation in which English can be used is not unique. Similar projects are ongoing in different EU countries. The Irish bar is in talks with large solicitor firms in Dublin and the solicitors’ professional body in order to see how to best market the Irish legal system abroad. In the Netherlands, the new Netherlands Commercial Court is due to open in 2018 with English and Dutch as the languages of the proceedings, specialised Dutch judges and effective and shorter proceedings. The Brussels International Business Court should be operational in 2018, with proceedings and judgements in English, no appeal possible and a procedure inspired by international arbitration. Finally, also in 2018, the regional court of Frankfurt will establish an English-speaking chamber for commercial matters, in front of which – if the parties so request – the dispute can be litigated in English.
France hopes to benefit from the eminent place it already occupies in international arbitration and litigation. The ICC and its Arbitration Court are based in Paris and the only ICSID hearing facilities outside of Washington D.C. are in Paris. The market of legal services counts an important number of law firms offering strong international arbitration and litigation practices and court costs remain rather modest compared to the high quality of services delivered. The success of these different European specialised court chambers will depend on the procedural features offered to the Parties, but most importantly on the trends that will emerge from the case law and which will allow international litigators to make an informed choice.

More from our authors:

Arbitration in Belgium: A Practitioner’s Guide by Edited by Niuscha Bassiri, Maarten Draye € 185

Shaparak Saleh and Yann Dehaudt-Delville

The views expressed herein are the personal views of the authors and do not reflect those of their law firm.

In France, until recently, rules governing the issue of sovereign immunity from enforcement, and in particular those setting out the scope and conditions under which such immunities apply, derived from case law. Although relevant international instruments (e.g. the 1961 Vienna Convention on Diplomatic Relations and the 2004 Convention on Jurisdictional Immunities of States and their Property) occasionally served as the basis for court decisions, the legal regime governing sovereign immunity from enforcement remained uncodified. It was hence subject to significant fluctuations.

On 9 December 2016, a statute known as “Sapin II” was promulgated. It has been enshrined through Articles L. 111-1-1, L. 111-1-2 and L. 111-1-3 of the Code of Civil Enforcement Proceedings, which currently regulate most of the issues pertaining to sovereign immunity from enforcement in France.

In a notable decision dated 10 January 2018 rendered in the landmark Commisimpex v République du Congo case (No 16-22.494), the Supreme Court has made clear that, although they do not apply to enforcement measures performed prior to their entry into force, the abovementioned provisions should nonetheless be considered when ruling on such measures. Making an explicit reference to new articles L. 111-1-1, L. 111-1-2 and L. 111-1-3 of the Code of Civil Enforcement Proceedings, the Supreme Court decided that a State’s waiver of its immunity from enforcement in relation to its diplomatic assets had to be specific and express so as to be valid. By so ruling, the Supreme Court overturned its own precedent rendered in the same case on 13 May 2015, which held that “customary international law only requires that such waiver be made expressly to be effective” (No 13-17.751).

In the Commisimpex v République du Congo case, Commisimpex, a Congolese company, was seeking the enforcement of an ICC award against the Republic of the Congo in France. Commisimpex was relying on the Republic of the Congo’s written promise that it would finally and irrevocably waive any immunity from jurisdiction and from enforcement in the context of the settlement of the dispute. On this basis, in October 2011, Commisimpex attached bank accounts held at Société Générale under the name of the Congolese diplomatic mission and the country’s delegation to UNESCO in Paris.

On 15 December 2011, the first instance court of Nanterre lifted the attachments. The Versailles Court of Appeal upheld the first instance court’s decision on 12 April 2012 (No 11/09073). The Court held that, under customary international law, foreign States’ diplomatic missions enjoy an autonomous immunity from enforcement, which can only be waived by expressly and specifically providing that the waiver shall be effective against assets protected by diplomatic immunity. The court thus considered that the Republic of Congo’s general waiver did not specifically relate to diplomatic assets.

The Versailles Court of Appeal’s decision was in line with consistent case law coined by the Paris Court of Appeal on 10 August 2000 in the Commpagnie Noga d’importation et d’exportation v Embassade de la Fédération de Russie case (No 2000/14157). The mentioned case law considered that a general waiver of immunity from enforcement was not sufficient for a State to waive its immunity vis-à-vis the assets of its embassies and diplomatic missions abroad. Diplomatic immunity from enforcement was thus consistently held to be independent from general State immunity from enforcement. Accordingly, even where a State had waived its immunity from enforcement, diplomatic immunity still applied, unless the State had expressly provided otherwise (the “Noga test”). This doctrine was based in turn on the principle of State sovereignty, on a particular reading of the 1961 Vienna Convention on Diplomatic Relations (CA Paris, 10 August 2000, No 2000/14157), and on customary international law (Cass civ 1, 28 September 2011, No 09-72.057).

Commisimpex filed a recourse against the Versailles Court of Appeal decision before the French Supreme Court, contending that there was no legal basis for the Court of Appeal’s finding. In a decision dated 13 May 2015, the Supreme Court quashed the Versailles Court of Appeal’s ruling and remanded the case to the Paris Court of Appeal. The Supreme Court held that customary international law only requires an express waiver of immunity (as opposed to an express and specific waiver). This finding applied even in relation to diplomatic assets. While the 13 May 2015 Commisimpex decision was also based on customary international law, it nevertheless arrived at an opposite conclusion to the Versailles Court of Appeal decision and traditional case law, which applied the Noga test and hence considered that diplomatic assets should be afforded a specific protection.

On 30 June 2016, the Paris Court of Appeal, to which the Commisimpex case was remanded, accordingly held that customary international law only requires that a waiver of immunity from enforcement be made expressly to be effective. The Paris Court of Appeal thus considered that the attachments performed by Commisimpex on the bank accounts of the Congolese diplomatic mission and the country’s delegation to UNESCO in Paris were valid. To reach this decision, the Paris Court of Appeal strictly followed the Supreme Court’s instructions by adopting the exact same rationale.

One would thus have expected that the Republic of the Congo’s challenge against the 30 June 2016 ruling of the Paris Court of Appeal be dismissed by the Supreme Court. However, in a last unanticipated turn-about, the Republic of Congo’s petition was upheld by the Supreme Court.
In its 10 January 2018 decision, after having summarised the procedure set out above, the Supreme Court observed that the Paris Court of Appeal had complied with its 13 May 2015 ruling. The Supreme Court then made lengthy reference to new Articles L. 111-1-1, L. 111-1-2 and L. 111-1-3 of the Code of Civil Enforcement Proceedings, emphasizing that these statutory provisions require that a State’s waiver of its immunity from enforcement in relation to its diplomatic assets has to be specific and express in order to be valid. Interestingly, along with this new statute, the Supreme Court also referred to the 1961 Vienna Convention on Diplomatic Relations (reference that it had abandoned in its 13 May 2015 decision).

The Supreme Court then ruled that “these statutory provisions, which subject the waiver of its immunity from enforcement by a foreign State to the double condition that such waiver be express and specific, contradict the isolated doctrine resulting from the 13 May 2015 ruling, but enshrine prior case law [i.e. case law promoting the Noga test] […]; yet, these provisions apply only to enforcement measures performed after their entry into force and hence do not apply to the present dispute; nonetheless, as regards State sovereignty and the preservation of States’ diplomatic representations, given the compelling necessity to deal with identical situations in an identical manner, the purpose of consistency and legal certainty demands to apply prior case law as comforted by the new legislation”.

On this basis, the Supreme Court quashed the Paris Court of Appeal’s 30 June 2016 ruling and confirmed the 15 December 2011 judgment of the Nanterre first-instance court that had lifted Commisimpex’s attachments (not remanding the case to any further court).

The 10 January 2018 decision is worth reporting in two respects.

First, taking a conservative view on procedural points, one could have expected that the Supreme Court would dismiss the Republic of the Congo’s challenge, given that the Paris Court of Appeal had followed the French Supreme Court’s ruling in the 13 May 2015 decision. In order to depart from its 13 May 2015 precedent and apply its previous and established case law that promoted the Noga test to this issue, the Supreme Court not only overturned its own recent ruling in this case, but it also referred to such ruling as having generated an “isolated approach”, which strongly contrasted with prior established case law.

Second, in light of the extensive reference made to the new statute and the substance of the decision, one may argue that the Supreme Court retroactively applied new Articles L. 111-1-1, L. 111-1-2 and L. 111-1-3 of the Code of Civil Enforcement Proceedings to the Commisimpex case, despite these statutory provisions not providing for their retroactive application. However, on a formal level at least, the Supreme Court was mindful to base its decision on the application of prior case law, rather than on the new legislation (although the court underlines that its prior case law that championed the Noga test was indeed comforted by the new legislation). The Supreme Court proffered a policy argument, emphasizing that in a matter of public interest, the consistency of solutions should prevail, although, in the present case, this led to overriding a private party’s enforcement rights (in the absence of any vested right of the parties to the stability of court decisions).

Finding comfort in the inapplicable provisions of the “Sapin II” statute to operate a turn-about and apply a judicial doctrine previously relinquished, the Supreme Court has sought to reassemble the diplomatic shield it had shattered in 2015.

More from our authors:

Arbitration in Belgium: A Practitioner’s Guide by Edited by Niuscha Bassiri, Maarten Draye € 185

Youssef Nassar

A unilateral option clause (“UOC”) can take many forms. It may grant its beneficiary the exclusive right to choose between litigation and arbitration when a dispute arises, or to choose to litigate before a specific jurisdiction, while constraining the non-beneficiary to a specific forum or a specific mode of dispute settlement. Consequently, UOCs are undoubtedly exclusively advantageous to one of the parties and they are frequently used in specific industries, such as banking and construction.

Due to a lack of statutory guidance as well as judicial approaches that fall on opposite ends of the spectrum, the validity of UOCs remains susceptible to a great deal of uncertainty and debate. Courts that uphold their validity rely on party autonomy. Courts that reject such validity rely on a wide array of arguments. This essay briefly analyzes the arguments used by courts rejecting the validity of UOCs and concludes that none constitutes adequate basis for invalidation.

1. The potestative nature of an option clause

The first argument for the invalidity of UOCs, and possibly the least convincing and most criticized, is that a UOC is potestative. The concept of “caractère potestatif” is used in French law to describe a situation where performance of a contract is subject to a condition precedent the fulfillment of which falls within the discretion of one of the contracting parties.

In 2012, the French Cour de Cassation in Rothschild held that a UOC is a potestative condition and invalidated it. The UOC in the case granted exclusive jurisdiction over any disputes to the courts of Luxembourg, while maintaining the bank’s right to bring an action before the courts of the client’s domicile or any other court of competent jurisdiction. The obligation of each party to submit to the jurisdiction of the contractually chosen court was not subject to any condition. Further, “the ability of one party to bring actions before any court which would otherwise have lawful jurisdiction over the other party does not impose any obligation on such other party.” ¹⁾Martin Gdanski & Marc Robert, The validity of unilateral hybrid clauses has become less certain under French law, Norton Rose Fullbright (2012).  Additionally, the UOC cannot be considered to impose a condition upon which the performance of the contract is dependent.

In relying on the concept of potestative, the Cour de Cassation also used domestic legal principles to interpret the applicable EU provision where it had no basis to do so. In fact, this goes against the purpose of the Brussels Regulation, which is to provide a uniform and predictable legal framework.

2. Lack of mutuality (consideration)

Consideration requires a ‘bargained-for exchange.’ “It is a common law doctrine of ‘mutuality of obligation’ that ‘either both must be bound, or neither is bound.’”²⁾Cristopher Drahozel, Nonmutual Agreements to Arbitrate, 27 J. Corp. L. 537, 538 (2002). While both parties must manifest assent for a contract to be formed, that manifestation need not be symmetric in time, place, or form. Contract provisions need not give the parties the same positions, and it is rather illogical to require this. It is enough that value be given on both sides. If the law required the terms of contracts to be symmetrical such that the parties merely traded the same thing for the other, no exchanges would take place.

The only context in which this argument would work is if the UOC is severed from the rest of the agreement when assessing consideration. This proposition is as absurd as requiring specific consideration for any other clause in the agreement.

The circumstances that one of the provisions in an integrated agreement grants certain rights to only one of the parties does not in other instances render that provision ineffective for lack of consideration or mutuality, as long as appropriate consideration can be found in other provisions of the agreement or elsewhere.There appears to be no good reason for deviating from this rule merely because an arbitration, rather than some other, clause is involved.³⁾Hans Smit, The Unilateral Arbitration Clause: A Comparative Analysis, 20 American Rev. Int. A. 391, 401 (2009).

However, courts rejecting the validity of unilateral arbitration agreements based on lack of mutuality seemingly adopt this specific approach. The clause is severed from the agreement and assessed separately. Inevitably, it is found lacking in consideration and, consequently, invalidated. “Severability” was developed in a different context for a different purpose and it is inapplicable in this respect. “It is a rule developed to effectuate the salvation, not the condemnation, of arbitration clauses.” ⁴⁾ Id.

Ultimately,“it is sufficient to note that under general rules of contract law, consideration should be present, but need not be adequate … the unequal position[s] of the parties, including presumably the imbalanced consideration, should not be grounds for invalidity.”⁵⁾Deyan Draguiev, Unilateral Jurisdiction Clauses: The Case for Invalidity, Severability or Enforceability, 31 J. Int’l Arb. 19, 41 (2014).

3. Violation of EU law

In addition to its reliance on the widely criticized potestativedoctrine, the court in Rothschild       held that UOCs were in violation of article 23 of the Brussels I Regulation concerning “prorogation of jurisdiction” (the equivalent of article 25 in the Recast Brussels Regulation). This interpretation was rejected by many and, although the issue has never been considered by the European Court of Justice (“ECJ”), some commentators are of the view that, had the matter been referred to the ECJ, it may well have concluded that the Cour de Cassation misinterpreted Article 23. The Cour de Cassation in Rothschildheld that the UOC was contrary to “the finality of the extension of jurisdiction provided for in Article 23” and its objectives.⁶⁾Supra note 1.

The UOC exclusively enabled the bank to bring an action before the courts of the domicile of Mrs. X, the courts of Luxembourg or any other court of competent jurisdiction. Despite potentially being numerous, these options are both limited and foreseeable. Further, article 23 explicitly states that the parties may agree on conferring exclusive jurisdiction unto courts other than those of competent jurisdiction. In that sense, Article 23 is the “epitome of party autonomy, as declared in recital 14 to the Brussels I Regulation … [its] primary purpose … is to establish an avenue in favor of choosing a competent court other than the normally competent court under the rules of the Regulation.”⁷⁾Supra note 5, at 37. Therefore, the position of the Cour de Cassation that the clause in Rothschildwas not compatible with the object and purpose of the Brussels I Regulation is based on a misinterpretation of the Brussels I Regulation.

4. Equality of treatment and unconscionability

Prima facie a UOC is imbalanced, as it serves the interests of only one party. “This designation potentially follows the natural lack of balance between the parties, especially regarding their bargaining power. In effect, one of the parties to the clause has to ‘adhere’ to the unfavorable terms of the clause.”⁸⁾Supra note 5, at 33. This gives way to two grounds for invalidity: imbalance between the parties and unconscionability.

With respect to the first ground for invalidity, it has been submitted that UOCs violate article 6 of the European Convention on Human Rights pertaining to the right to a fair trial. The Supreme  Arbitrazh Court of Russia in the Sony Ericsson case has also implied that the “right to equality of arms” is violated by a UOC. In essence, the argument here, whether articulated in the contours of article 6 of the European Convention on human Rights or otherwise, pertains to the right to a fair trial. More specifically, the right to have equal opportunity to present one’s case before a court. This argument is based on a misinterpretation or a misunderstanding of the concept in question. The principle of “a fair trial” means that the parties have equal procedural rights (due process) once the proceedings have begun. In other words, equal footing before a specific forum not with regards to the choice of forum.

The second ground for invalidity is that of unconscionability. It may be argued that it is unconscionable “for a party to exploit its economically powerful position or the ignorance of the party who agrees to a unilateral arbitration clause without understanding the unfair advantage it gives to its contract partner by insisting upon acceptance of a unilateral arbitration clause.” ⁹⁾Smit, supra note 3, at 404. This argument is not convincing for a number of reasons. First, an agreement may include a number of imbalanced clauses and lack of balance is rarely a per se ground for invalidity. Secondly, submitting to this argument would lead to the absurd result of invalidating a great number of agreements simply because they contain a clause that is favorable to one of the parties. Finally, a defense of unconscionability requires both procedural and substantive unconscionability. Procedural unconscionability is manifested by unfair surprise. It is difficult to argue that such a condition is satisfied in the context of UOCs where both parties negotiated the agreement and accepted the UOC.

5. Conclusion

Despite the variety of arguments, none constitutes acceptable grounds to invalidate UOCs. On the other hand, the argument for upholding their validity is well established. Neither arbitral tribunals nor courts deciding on the validity of a UOC should curb or contain party autonomy absent adequate grounds to do so. Without explicit statutory guidance, however, it seems that the debate will continue on.

More from our authors:

Arbitration in Belgium: A Practitioner’s Guide by Edited by Niuscha Bassiri, Maarten Draye € 185

Eduardo Zuleta and María Camila Rincón

In June 2019, Colombia’s Constitutional Court (the “Court”) issued a communication informing its decision on the constitutionality of the BIT between Colombia and France (the “BIT”) signed on July 10, 2014. In an unprecedented decision, the Court adjudged that the BIT is compliant with the Colombian Constitution (the “Constitution”) but conditioned its ratification to the state parties’ issuance of a joint interpretative note of several provisions, including those regarding fair and equitable treatment (“FET”), national treatment, most favored nation (“MFN”), and expropriation.

In the past, the Court subjected the approval of the FTA between Colombia and South Korea to the issuance of a unilateral interpretative declaration to interpret section A(2) of Annex 8C so as to preserve the powers of the Colombian Central Bank. However, this is the first time that the Court conditions the approval of several clauses of the BIT to the adoption of a joint interpretative declaration, or in absence thereof, to a renegotiation of the BIT.

Three out of nine justices of the Court issued dissenting opinions basically considering that the Court exceeded its constitutional powers.

The Court’s decision

The Court considered, generally, that the BIT is compliant with the Constitution. Nonetheless, it concluded that certain interpretations of the text of the BIT may be inconsistent with constitutional principles such as the obligation to provide equal treatment to foreign and national investors and their investments, and not to discriminate the former vis-à-vis the latter. In turn, the Court warned that to ratify the BIT, the state parties had to either adopt a joint interpretative declaration or renegotiate the treaty to comply with the decision of the Court.

Fair and Equitable Treatment

Article 4 of the BIT provides that:

“Each Contracting Party shall accord fair and equitable treatment in accordance with applicable international law to investors of the other Contracting Party and its investments in its territory. For greater certainty the obligation to accord fair and equitable treatment includes, inter alia:

a) the obligation not to deny justice in civil, criminal or administrative proceedings in accordance with due process;

b) the obligation to act in a transparent, non-arbitrary and discriminatory manner as regards investors from the other contracting Party and its investments”. This treatment is consistent with the principles of foreseeability and legitimate expectations (…)”.

The Court concluded that the language of this clause is vague and undetermined and therefore contradicts constitutional principles of legal certainty and good faith. Hence, this provision must be interpreted by the state parties to clarify whether “international law” refers to customary international law, treaty law, or both, and if it refers to customary international law, to which “instruments” does custom refer to. Moreover, the Court considered that the expression “inter alia” must be interpreted restrictively, in an analogical and not additive sense. Finally, it concluded that the concept of “legitimate expectations” is compliant with the Constitution only to the extent that (a) the expectations arise from specific and repeated acts carried out by the host state to induce an investor to make or maintain investments in its territory; and (b) the expectations are breached as a result of the investment being affected by abrupt and unexpected changes made by public authorities.

National treatment and MFN

Akin to other national treatment and MFN clauses included in multiple International Investment Agreements ratified by Colombia, Article 5 of the BIT provides that each contracting party shall grant to the investments of investors of the other contracting party made in its territory, a treatment not less favorable than that accorded, in like circumstances, to investments of its own investors or to investments of investors of another third state. According to Article 5(3) of the BIT, this obligation does not prevent the contracting parties from adopting justified, necessary and proportional measures to guarantee public order in the event of serious threats to fundamental interests of the states.

For the Court, the terms “similar circumstances” and “necessary and proportional” are vague and uncertain. According to the Court, the former must be interpreted in a way that encompasses all relevant circumstances –including differentiated treatment directed to pursue legitimate public policy objectives– and the latter should be interpreted in a way that respects the autonomy of national authorities to guarantee public order and protect legitimate public policy objectives.

Also, the Court concluded that the practice accepted by some international investment tribunals to import through the MFN clause provisions from other treaties ratified by the host state of the investment, threatens the powers of the President of Colombia to direct international relations and negotiate treaties, as embodied in Article 189.2 of the Political Constitution. Consequently, the Court declared the expression “treatment” to be compliant with the Constitution insofar as it is interpreted to preserve the competences of the President.

Expropriation

Article 6(2) of the BIT provides for the definition of indirect expropriation. Under this provision, a case-by-case analysis must be performed in order to determine whether a measure or series of measures adopted by one of the contracting parties constitute indirect expropriation, considering, among others, the consequences of the measure in the legitimate expectations of the investor. Furthermore, it provides that measures adopted to safeguard legitimate public policy objectives do not constitute an indirect expropriation insofar as such actions are necessary and proportional.

The Court found that the expressions “legitimate expectations” and “necessary and proportional” pose difficulties due to their vagueness and dissimilar application by international investment tribunals. Accordingly, it concluded that these terms must be interpreted under the same conditions required by the Court as regards Article 4 with respect to the concept of “legitimate expectations”, and Article 5 regarding the expression “necessary and proportional”.

Preliminary Comments

Although the full text of the judgment has not been released yet by the Court, the official communication reporting the decision raises several questions and comments. The following is a brief initial reaction to the official summary issued by the Court. But of course, it will be necessary to wait for the full text of the judgment to perform a full evaluation of the Court’s reasoning.

In its analysis of Article 4 of the BIT, the Court emphasized on the need to specify which are the “instruments” comprising customary international law in order to clarify the concept of “international law”. This request is far from clear. The Court seems to assume that customary international law is contained in a set of treaties or international instruments. If this is the case, the task entrusted to the contracting parties by the Court is almost impossible to comply with since there is no set of treaties or instruments that embodies customary international law.

Additionally, the Court does not explain how it comes to what appears to be its own definition of “legitimate expectations”. There is no reference in the Court’s communication to the interpretation of the BIT in the light of the Vienna Convention on the Law of Treaties (VCLT), to which both Colombia and France are parties.

As to the MFN clause contained in article 5 of the BIT, the clarifications requested by the Court seem more as requests for modifications or additions to the BIT than mere interpretative declarations. The Court demands the MFN clause to be interpreted so as to bar the possibility of importing of provisions incorporated in other international investment agreements (IIAs). While, Article 5(4) of the BIT already excludes the application of the MFN clause to import clauses of “definitions” (such as Article 1 of the BIT) or dispute settlement mechanisms incorporated in other IIAs, the BIT does not exclude substantive–or any other–provisions. Thus, the question is whether broadening the scope of limitations to the MFN clause as requested by the Court, would constitute an addition to the BIT rather than an interpretation.

This decision has dramatically changed the Court’s longstanding position regarding IIAs and may have several effects.

First, if the Parties wish to pursue the ratification of the BIT, the representatives of Colombia and France will have to negotiate again either a joint interpretative declaration or the language of the BIT. The question, of course, is whether France will follow the Court’s requests.

Second, the judgment of the Court may become evidence of state practice on how Colombia interprets provisions such as “similar circumstances” or “legitimate expectations”. For better or worse, this may have an impact on on-going and future investment arbitrations against Colombia.

Third, the Court drew a red line for Colombia in the negotiation and ratification of IIA. It is most likely that the Court will not approve similar clauses as the ones incorporated in the BIT without further interpretation. The bottom-line question is whether this judgment opens the door for the Court to impose on Colombia’s executive branch, and particularly on the President as head of the international relationships of Colombia, the Court’s views as to the contents of future IIAs.

Conclusion

The official communication suggests that the Court abrogated the competence to redefine the text of certain provisions of the BIT invading the competence granted to the President of Colombia by the Constitution. Furthermore, it seems that most of the interpretations requested by the Court cannot be addressed through a joint interpretative declaration but require an amendment to the treaty and therefore a new negotiation of its terms. The complete decision may, or may not, shed light on the position of the Court and on whether it exceeded its powers.

More from our authors:

Arbitration in Belgium: A Practitioner’s Guide by Edited by Niuscha Bassiri, Maarten Draye € 185

Under French law, the principle is that both a request to set aside an award and an appeal of a decision upholding enforcement (ordonnance d’exequatur) have no suspensive effect (Article 1526(1) of the Code of Civil Procedure, ‘CCP’), so that an international arbitral award is immediately enforceable. However, as an exception, stay or adjustment of enforcement can be granted if such enforcement is “susceptible to severely prejudice the rights of a party” (Article 1526(2) of the CCP). Introduced by the 2011 French reform on arbitration, this provision is aimed at avoiding dilatory proceedings initiated by a party in bad faith to undermine the enforcement of an international arbitration award.

Since its entry into force, Article 1526(2) CCP has been subject to the interpretation of the Parisian judges. Although the provision has first been interpreted very restrictively, the Court has since softened its approach. The recent decision issued on 22 October 2019 (No. 19/04161) by the new international section of the Paris Court of Appeal (16^th chamber, 5^th section) is remarkable as it takes a halfway nuanced stand.

Underlying Arbitration Proceedings and the Request to Stay Enforcement

In the case at stake, the motion to stay enforcement of the award was filed by the Russian Federation on February 2019, following an unpublished Permanent Court of Arbitration (PCA) award rendered on November 2018, which granted US$ 1.1 billion to Oschadbank, a Ukrainian state-owned bank, for the expropriation of its assets in Crimea by the Russian Federation. The request was finally denied by the Court of Appeal.

In support of its application, the Russian Federation claimed that Article 1526(2) CCP’s conditions were met in light of the risk that its rights (and in particular its right to immunity from execution) would be prejudiced by:

• Oschadbank’s attempts to enforce the award in states that do not guarantee appropriate protection to its immunity from execution (in particular in Ukraine, where the Kiev Court of Appeal has considered in another case that a BIT arbitration clause was a waiver to the immunity from execution),
• the mass enforcement campaign that it would have to face in several states given that it possesses assets worldwide, as well as
• the risk of non-restitution of amounts already recovered by the bank.

Russia also sustained that enforcement would be in breach of its immunity from execution as enshrined in Article L.111-1-1 of the Code of Civil Enforcement Procedure (issued from the recent 2016 ‘Loi Sapin II’).

Oschadbank opposed that:

• Article 1526(2) aims at preventing irreversible damage to the debtor pending a decision on the request to set-aside, and that
• the risk of enforcement on sovereign assets is not of a nature to justify a stay of enforcement and is rather a question to be addressed by the judge of the place of enforcement of the award.

Oschadbank finally claimed that a risk of “severe prejudice” on the parties’ rights within the meaning of Article 1526(2) CCP is assessed in concreto by the jurisprudence, on the basis of a purely economic and accountable analysis of the situation.

The Court’s Oschadbank Decision

In its writ, the pre-trial judge (conseiller de la mise en état) first considered that “although the provision’s wording does not require an assessment of the sole economic consequences of the enforcement” (para. 38), a request to stay enforcement proceedings is to be “restrictively” assessed in order to give its full effect to Article 1526(1) of the CCP. In line with the Court’s previous jurisprudence (8 mars 2012, No. 12/02299, Pierre Cardin; 29 January 2015, No. 14/21103, Gold Reserve), it recalled that stay or adjustment of enforcement does not depend on the serious character of the set-aside request.

Notably, the judge ruled as a general guideline that:

“This effective interpretation of Article 1526(2) leads to subordinate the benefit of the stay or the adjustment to an in concreto assessment of the severe prejudice on the rights that the enforcement of the award is likely to generate, so that this risk must be, at the date of the judge’s ruling, sufficiently characterised and that it cannot derive from Article 1526 of the Code of Civil Procedure an option for the judge to grant a party the right to object to the enforcement of an award on a general, abstract or hypothetical ground” (para. 39, free translation from the author).

This statement greatly clarifies the assessment to be conducted under Article 1526(2) of the CCP. Accordingly, the applicant to the motion must establish that:

• there is a risk related to the enforcement of the award;
• such risk is sufficiently characterised at the date of the ruling on the request;
• such risk is likely to generate a severe prejudice on the rights of one of the parties.

The Court examined Russia’s allegations in light of these conditions. It first found that the fact that some foreign laws would not protect Russia’s right to immunity from execution is not a “sufficient” ground for the purpose of characterising a risk of severe prejudice, adding that such a risk is to be assessed by the judge of the place of enforcement. It then turned on to the circumstance that Oschadbank could envisage to initiate enforcement actions in several states and considered that this is not a “relevant” ground either. It specifically noted that in the present case no enforcement action had been engaged by the Ukrainian bank with the effect to severely prejudice Russia’s right to immunity from execution.

Interestingly, the Court also noted that “it is not established nor even sustained that enforcement of the award would be likely to compromise Russia’s financial sustainability” (para. 43, free translation from the author) thus highlighting the great relevance of this argument in order to characterize a risk of severe prejudice under Article 1526(2) of the CCP. The Court then observed that there was no risk of non-restitution since it had not been established that the Ukrainian bank was in financial difficulty. On this basis, the request was denied.

A Well-Balanced Decision

In light of the Court’s previous case law, this decision appears particularly well-balanced.

On the one hand, it confirms the Court’s departure from its previous highly-restrictive approach that prevailed until 2013, and that led the Court to rule for instance that the “severe prejudice to the rights” under Article 1526(2) of the CCP was to be assessed “more restrictively” than the sole economic risk or potential financial difficulties incurred by the debtor, i.e. that it was necessary to establish that immediate enforcement would jeopardise the cash flow and put the company in an extremely difficult situation (18 October 2011, No. 11/14286, Mambo Commodities), or that the risk of becoming insolvent and filing bankruptcy and to be deprived of the right to challenge effectively the award does not constitute a severe prejudice of rights since it would not prevent the debtor from pursuing the action to set aside the award through the receiver (13 July 2012, No. 12/11616, CIEC Engineering).

The conditions established by the Court offer more flexibility to the judge seized of a request to stay enforcement. In particular, the requirements that the risk be “sufficiently characterised” and “likely to generate” a severe prejudice of rights seem to cover a broader range of situations and are thus less far-reaching for the applicant. This is further confirmed by the Court’s express statement that the scope of its assessment shall not be exclusively limited to the economic consequences of the enforcement, although no particular guidance is provided in this regard.

The Court’s choice of an in concreto assessment also guarantees that the judge focuses on concrete elements regarding both the situation of the parties and the consequences of the enforcement, which was not always the case with the previous jurisprudence (see, e.g., 23 April 2013, No. 13/02612, Spie Batignolles Nord and 27 March 2014, No. 13/24165, Fairtrade, that granted adjustment of enforcement on the sole basis that restitution could be highly random given that it was a foreign-seated arbitration and that the enforcing party was located abroad).

On the other hand, the decision remains consistent with the spirit and rationale of Article 1526(2) of the CCP, as well as the recent case law of the Court, which only after 2013 started to grant stays or adjustments of enforcement on the basis e.g. that there is a risk of suspension of payments (27 March 2014, No. 13/24165, Fairtrade), that enforcement would constitute a threat on the award debtor’s financial sustainability (3 April 2014, No. 13/22288, Farmex), or that there were allegations of fraud during the arbitration and the award creditor lacks guarantees of restitution (4 July 2014, No. 14/12102, Assurance Pilliot; 3 October 2013, No. 13/07263, CMN).

Indeed, it first confirms that the “severe prejudice on rights” is mainly to be construed from an economic perspective, paying particular attention to (i) the financial sustainability of the applicant, (ii) economic difficulties that the applicant could face in case of immediate enforcement as well as (iii) the risk of non-restitution. Further, in light of the Court’s express prohibition of “general, abstract or hypothetical grounds”, it is now clear that general legal considerations that, for instance, the law of the place of enforcement does not guarantee immunity from execution, or that the applicant is likely to face enforcement actions worldwide are of no relevance unless an economic risk is sufficiently characterised (i.e. it is established that enforcement actions having such effect have already been initiated).

In conclusion, this decision should be welcome as it is consistent with the Court’s traditional restrictive approach, and at the same time provides for a clear framework that was lacking up to now. This framework ensures a more-flexible assessment meanwhile affording high protection to the award creditor and ensuring that enforcement-delaying tactics remain precluded. This approach seems particularly suitable when the stay of enforcement has been initiated by an entity that is so financially powerful (e.g., a State or a global company) that there is no chance that enforcement proceedings create an economic risk.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of BETTO PERBEN PRADEL FILHOL, nor those of its clients.

More from our authors:

Construction Arbitration in Central and Eastern Europe: Contemporary Issues by Edited by Crina Baltag & Cosmin Vasile € 167