International Arbitration 2019

Last Updated August 08, 2019

France

Law and Practice

Authors



Willkie Farr & Gallagher LLP has delivered legal advice to companies and individuals across a wide spectrum of business areas, industries, countries and cultures for more than a century. The firm has extensive litigation, arbitration and corporate capabilities, as well as a deep understanding of the investment sector. Willkie's knowledge of a region’s rules and regulations, financial and political regimes, and customs and culture enhance its ability to negotiate and close important matters, both transactional and contentious. The firm's lawyers have appeared before every major international arbitral institution (in both commercial and investment arbitrations) as well as ad hoc arbitrations under UNCITRAL and other rules. All of Willkie's litigation and arbitration attorneys are familiar with the complexities of public and private international law that impact arbitration and cross-border disputes. Willkie’s depth and international coverage means it is able to offer clients an advantage in planning for and resolving international disputes.

France has long been highly regarded as one of the most arbitration-friendly jurisdictions. It is common for both domestic and international business disputes to be resolved through arbitration. The key factors that have contributed to widespread recourse to arbitration are:

  • a modern arbitration law;
  • pro-arbitration case law;
  • non-interference from domestic courts;
  • a wide tool set of interim and protective measures that can be sought from domestic courts;
  • the ease and speed of enforcement; and
  • limited and narrowly construed grounds for set-aside.

Paris is home to the International Court of Arbitration of the International Chamber of Commerce (ICC), a leading arbitral institution, and several other prominent arbitral institutions, including think tanks and associations that promote arbitration.

On 7 February 2018, an International Chamber was set up at the Paris Court of Appeal (CICAP). The International Chamber is a viable alternative for parties wishing to avoid arbitrating their disputes. The key features of proceedings before the International Chamber are:

  • procedural flexibility, including with respect to the timetable of proceedings;
  • common law-inspired administration of evidence techniques, such as document production, greater reliance on written witness and expert statements and oral testimony;
  • the possibility to use English for certain aspects of the proceedings (all judges are English-speaking); and
  • low court fees (the maximum application fee is EUR235).

Note that, since January 2019, the CICAP is the competent jurisdiction for arbitration-related proceedings, namely set-aside proceedings regarding international arbitral awards rendered in Paris, and appeals on recognition and enforcement in France of foreign arbitral awards.

Furthermore, following the adoption in December 2016 of Law No 2016-1691 on transparency, anti-corruption and economic modernisation (the Sapin II Law), the procedure of enforcement of arbitral awards against foreign states is now strictly regulated. In particular, judicial authorisation is needed for forced execution and conservatory measures, and the Sapin II Law sets three conditions for such authorisation: (i) express waiver of immunity from enforcement by the state; (ii) reservation or allocation by the state of specific asset(s) to satisfy the claim in question; and (iii) award issued against the state in question, the asset is not used for non-commercial public services, and the asset is connected with the entity against which proceedings were launched. In a notable decision dated 10 January 2018 (Commisimpex v République du Congo), the French Cour de Cassation (French Supreme Court) ruled that these three criteria need to be taken into consideration even in enforcement proceedings that were initiated prior to the entry into force of the Sapin II Law. By this decision, the Cour de Cassation overturned its own precedent from 2015 in the same case that limited the sovereign immunity criteria in enforcement proceedings to express waiver of immunity.

Construction and engineering, energy, telecommunications, financing and insurance are the key industries where arbitration is used in France. Corporate disputes, as well as general distribution and intellectual property disputes, are also common.

The International Court of Arbitration of the International Chamber of Commerce (ICC), based in Paris, is the leading arbitral institution in France, and among the leading institutions globally. The latest revision of the ICC Arbitration Rules, incorporating an expedited procedure for smaller claims and enhancing transparency of the arbitration procedure, entered into force on 1 March 2017.

Other popular arbitral institutions are: the Centre for Arbitration and Mediation of Paris (CMAP), the French Arbitration Association (AFA) and the International Arbitration Chamber of Paris. There are several more specialised arbitration institutions, such as the Paris Maritime Arbitration Chamber and the French Reinsurance and Insurance Arbitration Centre. Among the recently created arbitration institutions oriented on online dispute resolution is Delos Dispute Resolution.

France has not adopted the UNCITRAL Model Law; in fact French arbitration law is considered to be less interventionalist and more user-friendly than the Model Law. French arbitration law went through a major reform by way of Decree No 2011-48 dated 13 January 2011, which consolidated most of the provisions related to arbitration in Book IV of the Code of Civil Procedure (CCP). Titles I and II of Book IV deal with domestic and international arbitration, respectively. In addition, several provisions of the Civil Code (articles 2059 and 2060, dealing with arbitrability), Commercial Code (articles L721-3 and L721-5), Code of Administrative Justice (Article L311-6) and Intellectual Property Code (Article L615-17) deal with arbitration.

While French law clearly distinguishes between domestic and international arbitration, many provisions of Title I apply to both (Article 1506 of the CCP). Arbitration is deemed ‘international’ when “international trade interests are at stake” (Article 1504 of the CCP). The criterion is economic, rather than legal – an arbitration is international when the underlying economic transaction involves a trans-border transfer of goods, money or know-how. The will of the parties, their nationalities, the law applicable to the merits of the dispute, and the location of the seat of arbitration are irrelevant.

Lastly, although there is no doctrine of precedent, the decisions of the Cour de Cassation and the Paris Court of Appeal have contributed to interpreting French arbitration law and ensuring that France is an arbitration-friendly jurisdiction.

Aside from the major reform of arbitration law that took place in 2011, there were relatively minor changes to French arbitration law. On 18 November 2016, Article 2016 of the French Civil Code was modified to open up domestic arbitration for non-professional parties, such as employees and consumers.

As of the date of this report, no further major reforms are underway or expected. However, as mentioned above, French courts are at the forefront of interpreting and developing arbitration law.

In international arbitration, there are no formal requirements for arbitration agreements, such as a requirement for an arbitration agreement to be in writing (Article 1507 of the CCP). Nor is there any requirement to specify the procedure for appointment of arbitrators in the arbitration agreement (Article 1508 of the CCP). Furthermore, an arbitration agreement can be incorporated into a contract by reference to another document, provided that consent of the parties is certain and effective. 

In contrast, domestic arbitration agreements must be in writing (Article 1443 of the CCP).

It is noteworthy that French courts do not resort to any national law to determine the parties’ consent to arbitrate or the validity and scope of an arbitration agreement (Cour de Cassation, 1st Civil Division, 16 March 2016).

Rights which parties cannot dispose of, such as those related to family or succession disputes or criminal law matters, cannot be submitted to arbitration (Article 2059 of the Civil Code). This applies both to domestic and international arbitrations.

A non-exhaustive list of disputes that cannot be referred to arbitration is provided in Article 2060 of the Civil Code, and includes: (i) status and capacity of individuals, (ii) disputes concerning certain public entities, and (iii) public policy matters. Progressively, French courts have reduced the scope of Article 2060 of the Civil Code in domestic arbitration. As to international arbitration, French courts have held that Article 2060 of the Civil Code is inapplicable (Cour de Cassation, 1st Civil Division, 2 May 1966).

Conversely, certain bankruptcy law matters, intellectual property disputes, as well as antitrust disputes (deemed sensitive or non-arbitrable in certain jurisdictions) may be referred to arbitration in France. This is with the caveat that the jurisdiction of an arbitral tribunal does not extend beyond civil law aspects – a tribunal, therefore, would not be empowered to impose administrative fines (Paris Court of Appeal, 14 October 1993).

Note that the negative effect of the compétence-compétence principle grants arbitral tribunals jurisdiction to decide on arbitrability of a dispute (Article 1465 of the CCP).

Where a French state court is seized in a dispute arising under an arbitration agreement, the court declines jurisdiction and enforces the arbitration agreement unless: (i) the arbitral tribunal is not yet seized; and (ii) the arbitration agreement is manifestly void or manifestly inapplicable (Article 1448 of the CCP, incorporating the negative effect of the compétence-compétence principle). French courts have adopted an extremely restrictive standard for the second condition, and any ambiguity is resolved in favour of arbitration (Paris Court of Appeal, 30 March 2016, Inthemix). 

Note that it is for the party that alleges the existence of an arbitration agreement to raise it before the court. This must be done before any defence on the merits, failing which it is considered that the party has waived its right to arbitration (Cour de Cassation, 2nd Civil Division, 22 November 2001). The French courts, therefore, cannot declare themselves incompetent ex officio. 

French law fully recognises the rule of separability and independence of arbitration agreements from underlying contracts (Article 1447 of the CCP). Even if the underlying contract is null and void, the arbitration clause will stand. French courts determine the existence and validity of arbitration agreements based on the parties’ intentions, independent of any domestic legal system (Cour de Cassation, 1st Civil Division, 20 December 1993, Dalico). Furthermore, there is a presumption of validity of arbitration agreements (Cour de Cassation, 1st Civil Division, 5 January 1999, Zanzi). An arbitration agreement can survive even when the underlying contract is deemed inexistent or to have never been concluded (Cour de Cassation, 1st Civil Division, 23 October 2005, Omenex; Cour de Cassation, 28 November 2006, So Good Int’l).

In domestic arbitrations, arbitrators must be individuals having full capacity, whereas legal entities can only administer arbitration proceedings (Article 1450 of the CCP; Cour de Cassation, Commercial Division, 9 April 2002, Philam). The number of arbitrators in a tribunal must be odd – if this is not the case, the tribunal must be completed (Article 1451 of the CCP).

No equivalent provisions exist for international arbitration.

There are no restrictions on the arbitrator’s nationality, licence to practice as an arbitrator or professional qualifications. However, arbitration clauses containing discriminatory provisions may be deemed contrary to public policy. Active judges may not act as arbitrators. Arbitrators are required to be independent and impartial (articles 1456(2) and 1506 of the CCP). The principle of party equality in appointing arbitrators is part of public policy (Cour de Cassation, 1st Civil Division, 7 January 1992, Dutco).

The arbitration agreement may designate the arbitrator(s) or provide for the procedure for their appointment, either directly, or by reference to arbitration rules (Article 1508 of the CCP).

The default mechanism for the appointment of arbitrators is as follows: (i) for proceedings with a sole arbitrator, the arbitral institution, or, in the alternative, the judge acting in support of the arbitration (juge d’appui) has appointing authority; (ii) in the case of a tribunal composed of three arbitrators, each party appoints one arbitrator, and the two co-arbitrators then appoint the president. Again, it falls upon the arbitral institution, or, in the alternative, the judge acting in support of the arbitration to proceed with appointment of a co-arbitrator (if a party fails to nominate him/her) or the president (if the two co-arbitrators fail to nominate him/her) (Article 1452 of the CCP). The same mechanism applies for multi-party arbitrations (Article 1453 of the CCP).

In international arbitration, the judge acting in support of the arbitration is usually the President of the Tribunal de Grande Instance of Paris (Article 1505 of the CCP).

Aside from 4.2 Default Procedures, the judge acting in support of the arbitration has jurisdiction to: (i) decide that there is no need to nominate arbitrators when an arbitration agreement is manifestly null (Article 1455 of the CCP), and (ii) decide on the challenge of an arbitrator (Article 1456(3) of the CCP).

Upon the constitution of an arbitral tribunal, a challenge of an arbitrator is to be submitted to the arbitral institution, or, in the alternative, the judge acting in support of the arbitration (Article 1454 of the CCP).

An arbitrator may be disqualified upon a unanimous decision by all parties to the dispute (Article 1458 of the CCP).

Prior to his or her appointment, an arbitrator must disclose any element likely to affect his or her independence or impartiality (Article 1456(2) of the CCP). This duty to disclose is a continuous one.

Failure by the arbitrator to disclose circumstances likely to affect his or her independence or impartiality is a ground for set-aside and denial of enforcement of the arbitral award (Cour de Cassation, 2nd Civil Division, 6 December 2001).

See 3.2 Arbitrability, above.

The arbitral tribunal has jurisdiction to decide on its own competence (articles 1465 and 1506(3) of the CCP). Both the positive and negative effects of the compétence-compétenceprinciple are recognised in France. French courts strictly comply with the negative effect of the principle.

See 3.2 Arbitrability, above.

Upon the constitution of the arbitral tribunal, its decision on jurisdiction is open for recourse only in ensuing set aside or enforcement proceedings. In other words, while the arbitral tribunal is seized and has not yet pronounced on its jurisdiction, a party cannot challenge its jurisdiction in local courts. If the tribunal decides on its jurisdiction in a separate award, it may be immediately challenged in local courts. However, this does not suspend the course of the arbitration.

For jurisdiction and admissibility questions, the standard of judicial review is de novo (Cour de Cassation, 1st Civil Division, 6 October 2010). French courts will therefore not be bound by the factual and legal findings of the arbitral tribunal.

See 3.3. National Courts’ Approach, above.

Although the default rule is that arbitration agreements are only binding upon the parties thereto (Article 1199 of the Civil Code), an arbitration agreement can be extended to third parties in the following scenarios:

  • parties directly involved in the performance of the contract who knew about the existence and scope of the arbitration clause (Paris Court of Appeal, 17 December 1997, later expanded to negotiation, performance or termination of the contract – Cour de Cassation, 1st Civil Division, 7 November 2012);
  • parties that were represented in the arbitration agreement (Paris Court of Appeal, 4 January 1980);
  • circumstances of contractual negotiation that made a party believe that a third party was part of the arbitration agreement (Paris Court of Appeal, 7 October 1999 and Paris Court of Appeal, 17 February 2011, Dallah).

In addition, a non-party to an arbitration agreement can compel a party thereto to arbitrate a dispute when the non-party is an assignee of the rights and obligations of the signatory to an arbitration agreement (Cour de Cassation, 1st Civil Division, 5 January 1999).

Lastly, third parties can join arbitration proceedings with unanimous consent of all parties to the arbitration agreement.

Once constituted, an arbitral tribunal may order any evidentiary, preliminary or interim measures it considers appropriate, accompanied by penalties (astreinte) (Article 1468 of the CCP). Nevertheless, provisional seizures (saisies conservatoires) and judicial securities (sûretés judiciaires) remain within the exclusive jurisdiction of national courts (Article 1468 of the CCP; Cour de Cassation, 2nd Civil Division, 8 June 1995, Hyproc).

An order by the arbitral tribunal for ex parte preliminary and interim relief will likely result in a set aside of the arbitral award in view of the tribunal’s duty to guarantee equality among parties and the adversarial principle (Article 1510 of the CCP).

Until the arbitral tribunal is constituted, domestic courts are empowered to order evidentiary measures, including on an ex parte basis, as well as other provisional and conservatory measures (articles 145 and 1449 of the CCP). Upon the constitution of the arbitral tribunal, domestic courts may only order provisional seizures and judicial securities (see 6.1 Types of Relief, above), as well as production of evidence from third parties (Article 1469 of the CCP, with permission from the arbitral tribunal). Recourse to local courts may also be required if a party to the arbitration proceedings does not voluntarily comply with the preliminary/interim relief granted by the arbitral tribunal.

French Law does not expressly provide for an emergency arbitrator. Since 2012, the ICC Rules provide for an emergency arbitrator procedure (Article 29 and Appendix V of the 2017 ICC Rules). French courts uphold the possibility to appoint an emergency arbitrator (if provided in the arbitration rules) as a matter of contract (Paris Court of Appeal, 29 April 2003).

No specific provision of French law addresses security for costs. The prevailing view is that an arbitral tribunal is empowered to order any provisional and interim measure that it deems appropriate (Article 1468 of the CCP) – including security for costs.

Parties are not restricted in choosing the procedural rules applicable to the arbitration proceedings, either in the arbitration agreement or at any time during the proceedings (articles 1464(1) and 1509 of the CCP). In case of default, the arbitral tribunal determines mandatory procedural rules, but otherwise may conduct the proceedings as it sees fit (articles 1464(1) and 1509(2) of the CCP). In any event, the tribunal has a duty to guarantee equality among parties and the adversarial principle (Article 1510 of the CCP; Cour de Cassation, 2nd Civil Division, 9 December 1981), and both the tribunal and the parties must act diligently, promptly and in good faith in the conduct of the arbitration (Article 1464(3) of the CCP).

Under French law, there are no specific procedural steps required.

In addition to 6.1 Types of Relief, an arbitral tribunal is empowered to: (i) order inquiry measures (ie, appointment of an expert), (ii) summon any person, party or non-party to the arbitration agreement, as a witness, and (iii) compel a party to the arbitration agreement to disclose evidence (Article 1467 of the CCP). An arbitral tribunal may secure compliance with its orders by ordering fines and penalties.

In addition to 7.1 Governing Rules, arbitrators have a duty to respect the scope of their mandate and to carry it out until completed (articles 1457 and 1506 of the CCP).

There are no particular qualifications or other requirements for legal representatives appearing in international arbitration proceedings in France. For instance, it is not required to retain local counsel for such proceedings (although this would be inevitable if provisional or interim recourse is sought before French courts). In fact, there is no obligation to be admitted to any Bar to act as counsel in such proceedings. Moreover, there is no obligation for the parties to be represented at all.

There are no specific or default rules of evidence that apply to arbitrations in France. An arbitral tribunal may "take all measures necessary" to determine the facts of the case as long as due process is respected (Article 1467 of the CCP). In practice, the tribunal’s approach to collection and submission of evidence depends on the legal backgrounds of the arbitrators.

With regard to witnesses, an arbitral tribunal may hear witness testimony from any person (including parties and their representatives), without administering oath (Article 1467 of the CCP; Paris Court of Appeal, 17 December 2009). Preparation of witnesses by counsel in international arbitration proceedings does not breach the core principles of the lawyer’s profession (Resolution of the Paris Bar Council, 26 February 2008).

Rules of evidence that apply to French domestic matters have no bearing on the rules of evidence that apply to international arbitral proceedings seated in France. The parties decide on the applicable rules of evidence, either directly or via a reference to rules of arbitral procedure.

The IBA Rules on the Taking of Evidence in International Arbitration are often referred to as guidance in arbitrations seated in France.

Unless otherwise agreed by the parties, an arbitral tribunal can order a party to produce documents, subject to penalties for non-compliance (Article 1467 of the CCP).

With permission from the tribunal, a party may seek from the competent judge an order for disclosure from a third party holding relevant evidence (Article 1469 of the CCP).

Contrary to domestic arbitration proceedings that are generally confidential (Article 1464(4) of the CCP, unless parties provide otherwise), international arbitration proceedings are not confidential. One way to avoid lack of confidentiality is to subject the arbitration to institutional arbitration rules that expressly provide for confidentiality. In contrast, the deliberations of the arbitral tribunal must remain confidential (articles 1479 and 1506 of the CCP).

There is no prohibition of using information disclosed in arbitration proceedings in subsequent arbitration or court proceedings.

In enforcement proceedings before domestic courts, the arbitration clause and the arbitral award itself will be sealed and therefore not part of the public record. 

An arbitral award must be made in writing (articles 1481 and 1506 of the CCP). An arbitral award must state:

  • the full names of the parties and their domicile/corporate address;
  • the names of parties’ counsel, if applicable;
  • the names of the arbitrator(s);
  • the date of the award and seat of the arbitration;
  • a succinct outline of the parties’ claims and arguments; and
  • the reasons upon which the award is based (articles 1481, 1482 and 1506 of the CCP).

An arbitral award must be signed by all arbitrators; when either the minority of arbitrators or the two co-arbitrators refuse to sign, this should be recorded in the award, and the remaining arbitrator(s) should sign (Article 1480 of the CCP).

In contrast with provisions on domestic arbitration, French law does not provide time limits on the delivery of the award or, more generally, the tribunal’s mandate as regards international arbitration.

French law does not contain any statutory limitations on the type of remedies an arbitral tribunal can award. As such, arbitrators can: (i) render declaratory relief; (ii) order a party to pay damages; (iii) issue injunctions.

Awarding and enforcing punitive damages remains uncertain, as they are unknown to French law and French courts. However, the Cour de Cassation decided that punitive damages (ordered by a US domestic court) are not contrary to French international public policy and therefore can be enforced provided they are not disproportionate to the damages suffered (Cour de Cassation, 1st Civil Division, 1 December 2010, Schlenzka).

French law does not regulate allocation of costs. Tribunals enjoy broad discretion in allocating costs among the parties. It can be said that prevalence is given to the ‘costs follow the event’ principle, either in full or partially.

Likewise, Tribunals enjoy broad discretion in ordering interest, including compound interest. If French law is applicable to the merits of the dispute, the interest rate and interest accrual start date are fixed by statute even if the underlying contract is silent on these points (Article 1153-1 of the Civil Code). Interest can be included both on the principal claim and costs.

International arbitral awards cannot be appealed, but can be set aside (Article 1518 of the CCP). Conversely, the enforcement order (exequatur) of a foreign arbitral award can be appealed (Article 1525 of the CCP). The moving party has one month as of the notification of the arbitral award; alternatively, the period is three months when the party is located outside of France (Article 1519 of the CCP).

French law provides only five limited grounds for setting aside international arbitral awards (Article 1520 of the CCP):

  • the arbitral tribunal declared itself wrongly competent or incompetent;
  • the arbitral tribunal was irregularly constituted;
  • the arbitral tribunal ruled without complying with its mandate;
  • the adversarial principles have not been respected; and
  • the award is contrary to international public policy.

Commencing a setting-aside procedure does not suspend the execution of the arbitral award (Article 1526 of the CCP).

In international arbitration, awards cannot be appealed in France (Article 1518 of the CCP).

By agreement, parties can waive their right to bring an action to set aside the arbitral award, but will in any event retain their right to appeal the enforcement order (Article 1522 of the CCP).

Decisions setting aside arbitral awards are rare, which confirms France’s pro-arbitration climate. French courts cannot review the merits of the case.

France is party to the following international treaties on enforcement and recognition of foreign awards.

  • The New York Convention (ratified on 26 May 1959). France has not made any reservations, save for reciprocity. However, by virtue of Article VII(1) of the Convention, certain provisions of the CCP prevail over the Convention as more favourable. By way of example, Article 1520 (setting out the limited grounds for set-aside of international arbitral awards) and Article 1507 of the CCP (not requiring that the arbitration agreement be in writing) are precisely more favourable that the corresponding provisions of the New York Convention. 
  • The European Convention on International Commercial Arbitration (ratified on 21 August 1967).
  • The Washington Convention on the Settlement of Investment Disputes (ratified on 16 December 1966).

A party seeking to enforce an arbitral award in France must seek an enforcement order (exequatur) from the competent Tribunal de Grande Instance (in Paris for foreign arbitral awards). The application for exequatur must be accompanied by the originals or copies of the arbitral award and the arbitration agreement, both translated into French, if needed (Article 1515 of the CCP).

Enforcement proceedings are conducted on an ex parte basis and usually take less than 30 days. Representation by a French-qualified lawyer is mandatory.

Setting-aside of an award at the seat of arbitration is not among the five grounds for denying enforcement of an arbitral award in France, as international awards are deemed to be disconnected from any domestic legal system (Cour de Cassation, 1st Civil Division, 10 June 1997, Hilmarton; Cour de Cassation, 1st Civil Division, 29 June 2007, Putrabali).

French courts deem a state’s consent to arbitration to be a waiver of its jurisdictional immunity (Paris Court of Appeal, 19 June 1998, Boulois) See also 1.2 Trends on sovereign immunity, above.

French courts adopt a restrictive approach in refusing recognition and enforcement of arbitral awards, the same as with setting-aside proceedings. The grounds for refusing recognition and enforcement are the same as those for setting-aside proceedings.

Class actions have been recently introduced into French litigation. No comparable provision exists or is contemplated for arbitration.

There are no ethical rules specific to international arbitration. French-qualified lawyers are bound by the French Bar’s Code of Ethics, the National Internal Regulation of Lawyer’s Profession of the French National Bar Council and the Code of Conduct for European Lawyers. In fact, the Paris Bar and the French National Bar Council recognise the particularities of international arbitration, and have even confirmed that preparing a witness for cross-examination does not fall within the general prohibition of witness preparation. 

In addition, the IBA Guidelines on Conflicts of Interest in International Arbitration and IBA Guidelines on Party Representation in International Arbitration provide guidance to counsel (as well as arbitrators and arbitral institutions).

There are no provisions under French law restricting or regulating third-party funding (TPF). The Paris Bar recently published rules to ensure compliance of TPF with French legal ethics. In essence: (i) counsel cannot enter into direct contact with the TPF or provide advice to them to avoid breaching attorney-client privilege; (ii) counsel are encouraged to disclose the existence of a TPF arrangement to the arbitrators to avoid conflicts of interest and hence a risk of annulment. The ICC and the Club de Juristes, a French legal think-tank, have similarly issued guidelines and reports on the subject.

French law does not expressly address consolidation of separate arbitral proceedings. French courts generally accept consolidation provided that all parties have given their implied or express consent thereto.

Further to 5.7 Third Parties, above, French law does not contain express provisions on third-party participation. Case law suggests that when the effect of the arbitration agreement cannot be extended to a third party, then that third party cannot join arbitration proceedings even if it has an interest in the case (Paris Court of Appeal, 19 December 1986).

Piercing of the corporate veil and alter ego doctrines are known to French courts. An award against the state may, in certain cases, be enforced against a state-owned company – for instance, when it is proven that the company is an alter ego of the state (Paris Court of Appeal, 3 July 2003, SNPC).

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Trends and Developments


Authors



Willkie Farr & Gallagher LLP has delivered legal advice to companies and individuals across a wide spectrum of business areas, industries, countries and cultures for more than a century. The firm has extensive litigation, arbitration and corporate capabilities, as well as a deep understanding of the investment sector. Willkie's knowledge of a region’s rules and regulations, financial and political regimes, and customs and culture enhance its ability to negotiate and close important matters, both transactional and contentious. The firm's lawyers have appeared before every major international arbitral institution (in both commercial and investment arbitrations) as well as ad hoc arbitrations under UNCITRAL and other rules. All of Willkie's litigation and arbitration attorneys are familiar with the complexities of public and private international law that impact arbitration and cross-border disputes. Willkie’s depth and international coverage means it is able to offer clients an advantage in planning for and resolving international disputes.

Although there is no doctrine of precedent under French law, the decisions of the French Cour de Cassation (the Supreme Court) and the Paris Court of Appeal (as well as, at times, other courts of appeal) have interpreted French arbitration law in such a way as to ensure that France is an arbitration-friendly jurisdiction. In recent years, French courts have rendered a multitude of decisions dealing with novel issues of arbitration law, including: (i) the enforcement of arbitral awards against foreign states; (ii) the setting aside of arbitral awards on international public policy grounds; and (iii) the liability of arbitrators and arbitral institutions.

Enforcement of arbitral awards against foreign states following the adoption of the ‘Sapin II law’

Following the adoption in December 2016 of Law No. 2016-1691 on transparency, anti-corruption and economic modernisation (the ‘Sapin II Law’), the procedure of enforcement of arbitral awards against foreign states is now strictly regulated in France.

In particular, judicial authorisation is needed for forced execution and conservatory measures; the Sapin II Law sets three conditions for such authorisation: (i) express waiver of immunity from enforcement by the state; (ii) reservation or allocation by the state of specific asset(s) to satisfy the claim in question; and (iii) the asset sought is not used for non-commercial public services, but is connected with the entity against which proceedings were launched.

In a notable recent decision, the French Supreme Court ruled that these three criteria need to be taken into consideration, even in enforcement proceedings that were initiated prior to the entry into force of the Sapin II Law, as they stem from customary law (Cass. 1ere civ., January 10, 2018, Commisimpex). By this decision, the French Supreme Court overturned its own precedent from 2015 in the same case that limited the sovereign immunity criteria in enforcement proceedings to express waiver of immunity (Cass. 1ere civ., 13 May 2015).

Setting aside of arbitral awards on international public policy grounds

While French law provides five limited grounds for setting aside international arbitral awards: (i) the arbitral tribunal declared itself wrongly competent or incompetent; (ii) the arbitral tribunal was irregularly constituted; (iii) the arbitral tribunal ruled without complying with its mandate; (iv) adversarial principles had not been respected; and (v) an award is contrary to international public policy – Art. 1520 of the Code of Civil Procedure. A trend has emerged towards greater control over arbitral awards involving fraud, bribery and corruption.

Prior to 2014, a violation of international public policy had to be “flagrant, effective and concrete” for an international arbitral award to be set aside. With the 4 March 2014 decision of the Paris Court of Appeal, the “flagrancy” requirement was dropped and the court held that all of the factual elements of a case need to be examined to determine if an award violates international public order in an “effective and concrete” manner (CA Paris, 4 March 2014).

More recently, the Paris Court of Appeal specified that a violation of international public order must also be “manifest.” In the seminal Belokon decision, the court set aside an investment treaty award in view of several ‘red flags’ pointing to money laundering activities that the investor was engaged in (CA Paris, 21 February 2017). Notably, the court undertook an exhaustive assessment of the facts of the case independent from the arbitral tribunal, noting that it was not bound by the tribunal’s factual findings. Similarly, in the MK Group decision, the court annulled an ICC arbitral award in view of a fraudulently obtained administrative approval for a share sale transaction (CA Paris, 16 January 2018). Here, instead of following the argument of the party seeking to set aside the award because administrative approval was allegedly obtained based on falsified documents, the court determined that the approval was in fact obtained based on a deliberate deception of the authorities in charge of that approval.

In the Alstom Transport case the Paris Court of Appeal went even further, ordering the parties to produce additional evidence (that was not produced in the underlying arbitration proceedings whereby the defendant parties were ordered to pay an outstanding portion of a commission under a series of ‘consultancy agreements’ to the claimant party) to determine whether the transaction in question involved influence peddling or bribery based on an exhaustive list of ‘red flags’ (CA Paris, 10 April 2018). The court then undertook an exhaustive analysis of the evidence produced and concluded that payments made under the ‘consultancy agreements’ were indeed destined for corrupt purposes, rendering the arbitral award in question unenforceable for breach of international public policy (CA Paris, 28 May 2019).

All these recent decisions were rendered by the Paris Court of Appeal, and it remains to be seen whether the trend towards greater control over compliance by arbitral awards with international public policy will be endorsed by the French Supreme Court. 

Liability of arbitrators and arbitral institutions

Save for a general obligation imposed both on arbitrators and the parties to “act expeditiously and in good faith in the conduct of the proceedings” (Art. 1464(3) of the French Civil Procedure Code), French law does not expressly regulate the liability (and immunities) of arbitrators and arbitral institutions. It is, therefore, through French case law and academic commentary that these liability and immunity rules have crystalised, taking into consideration the duality of the arbitrator’s function – both judicial and contractual. For the former, the French Supreme Court laid the ground rule in a 2014 decision, recognising that an arbitrator “benefits, as a judge, from judicial immunity and is therefore only liable for personal misconduct which, in order for him to be held liable, must be equivalent willful misrepresentation or constitutive of fraud, gross negligence or denial of justice” (Cass. 1ere civ., 15 January 2014). In other words, neither misjudgment nor a legal or factual error by an arbitrator would give rise to civil liability (see, most recently, CA Paris, 21 May 2019). For the latter, an arbitrator can, in principle, be liable for a serious breach of the arbitrator contract, such as breach of confidentiality, failure to disclose a conflict of interest, lack of independence and failure to request an extension of time to render the arbitral award (Cass. 1ere civ., 6 December 2005 and Cass. 1ere civ., 17 November 2010). Similarly, an arbitral institution is not immune from contractual liability when, for instance, it fails to organise the arbitration in accordance with its arbitration rules (CA Paris, 22 January 2009 and TGI Nanterre, 1 July 2010).

In a recent case, the Paris Court of Appeal was confronted with a civil liability claim brought by a party to an institutional arbitration seated in France against two consecutively appointed (and replaced) sole arbitrators and the arbitral institution itself (CA Paris, 2 April 2019).

By way of background, the first sole arbitrator seized the French courts in the course of the arbitral proceedings, seeking payment of his fees from a non-paying respondent party. This led to a complaint to the arbitral institution about the sole arbitrator’s independence and impartiality, which led to his replacement by a second sole arbitrator. In turn, the second sole arbitrator failed to render an award within the prescribed time limits and was, therefore, replaced by the arbitral institution who then appointed a third sole arbitrator.

With respect to the first sole arbitrator, the Paris Court of Appeal determined that the initiation of a court action seeking payment of the arbitrator’s fees was “untimely and wrongful” and was the direct reason for the arbitrator’s replacement. In turn, the arbitral institution was found to be in breach of its obligation to financially manage the proceedings because it let the sole arbitrator initiate court proceedings instead of doing this itself. The first sole arbitrator and the arbitral institution were found jointly liable for a portion of the party’s legal fees and arbitration costs, limited to proceedings that took place before the first sole arbitrator.

With respect to the second sole arbitrator, the Paris Court of Appeal decided that the failure to seek an extension of the time limit to render an award was in breach of the arbitrator’s duty of diligence. The arbitral institution, however, did not have an obligation to extend the time limit on its own initiative as this was not foreseen in the institution’s arbitration rules. The second sole arbitrator was found liable only for a portion of the party’s legal fees, while the arbitral institution escaped liability.

In another recent case, the French Supreme Court decided on an arbitrator’s liability in tort (as opposed to contractual liability) for rendering arbitral awards with the knowledge that no arbitration clause existed (Cass. 1ere civ., 28 March 2018). By way of background, the sole arbitrator had rendered five partial awards in a single ad hoc arbitration. These awards were subsequently annulled by French courts, given that the parties to the dispute did not sign an arbitration clause. The sole arbitrator then rendered five further partial awards in the same dispute, leading one of the parties to initiate a civil liability claim against the arbitrator. The French Supreme Court confirmed that the sole arbitrator could not have ignored the fact that his first five awards were annulled and that by proceeding with rendering five further awards the arbitrator caused monetary damages to one of the parties, for which he was found liable.

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Willkie Farr & Gallagher LLP has delivered legal advice to companies and individuals across a wide spectrum of business areas, industries, countries and cultures for more than a century. The firm has extensive litigation, arbitration and corporate capabilities, as well as a deep understanding of the investment sector. Willkie's knowledge of a region’s rules and regulations, financial and political regimes, and customs and culture enhance its ability to negotiate and close important matters, both transactional and contentious. The firm's lawyers have appeared before every major international arbitral institution (in both commercial and investment arbitrations) as well as ad hoc arbitrations under UNCITRAL and other rules. All of Willkie's litigation and arbitration attorneys are familiar with the complexities of public and private international law that impact arbitration and cross-border disputes. Willkie’s depth and international coverage means it is able to offer clients an advantage in planning for and resolving international disputes.

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Willkie Farr & Gallagher LLP has delivered legal advice to companies and individuals across a wide spectrum of business areas, industries, countries and cultures for more than a century. The firm has extensive litigation, arbitration and corporate capabilities, as well as a deep understanding of the investment sector. Willkie's knowledge of a region’s rules and regulations, financial and political regimes, and customs and culture enhance its ability to negotiate and close important matters, both transactional and contentious. The firm's lawyers have appeared before every major international arbitral institution (in both commercial and investment arbitrations) as well as ad hoc arbitrations under UNCITRAL and other rules. All of Willkie's litigation and arbitration attorneys are familiar with the complexities of public and private international law that impact arbitration and cross-border disputes. Willkie’s depth and international coverage means it is able to offer clients an advantage in planning for and resolving international disputes.

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