From PLI’s Course Handbook
International Arbitration 2009
#18221
4
why choose paris as the seat for
your next arbitration? the view
from the eiffel tower
Carmen Núñez-Lagos
Bredin Prat
130 rue du Faubourg Saint Honoré
75008 Paris, France
Tel. +33 (0) 1 44 35 35 35
Carmen Núñez-Lagospractices international arbitration at Bredin Prat in Paris. She is admitted before both the Paris and Madrid bars.
Prior to joining Bredin Prat in 2007, Carmen practised with a major Spanish law firm where she had extensive experience as counsel in international commercial arbitration and litigation in Europe, the USA and the Middle Eastunder (ICC, ICSID, AAA, GAFTA, TAS and Spanish Arbitration Court rules). She was also a senior in-house legal counsel for a major telecom company in Spain. She was educated at the Universities of Exeter (LLM 1990), Bologna (Italy) and Zaragoza (Spain, License 1989) and was a law lecturer at universities in Spain and in the USA. She has published several articles on the subject of international litigation and arbitration and is a frequent speaker in international conferences. She currently also acts as an arbitrator in ICC arbitrations.
She is a member of the ICC Spanish national committee panel of arbitrators, of the Madrid Chamber of Commerce roster of arbitrators, of the Executive Committeeof the French chapter of the Spanish arbitration cluband of the ICC France anti-corruption commission. Carmen is fluent in Spanish (native speaker) French, English and Italian.
Why choose Paris as the seat for your next arbitration?The view from the Eiffel Tower
Carmen Núñez-Lagos
Bredin Prat, Paris
Of all “pro-arbitration” legal systems, none is more orientated towards thesettlement of international commercial disputes by international commercial arbitration than France.The Frenchlegal and business community is one of the foremost advocates of international arbitration, viewing arbitration as the usualway to resolve disputes in an international and globalised environment.
When choosing the seat for your arbitration your main concern should, generally speaking, be whetherinterference from the national courts of the seat of arbitration will preventyou from giving effect to the arbitration agreement and obtaining an award within a reasonabletime period. This article describes the approach to the regulation of arbitrations held in Paris, which greatly limits the level of court involvement in the arbitration process.As discussed in this article, theFrenchlegal environment is very supportiveof the conductof arbitral proceedings in accordance with the intentions of the parties and the arbitrator’s discretion and authority. As a result, it can be said without hesitation that Parisis a user-friendly seat for international arbitration that respects and recognises the arbitration process as a truly international arbitration procedure and, hence, should be considered as a great choice for your next arbitration.
a)The significance of the seat of arbitration
What is the significance of the seat of arbitration? On what basis should you choose one placeover another?
While such questions may not be at the forefront of your mind during contractual negotiations, as the Paris Court of Appeal has observed[1],the choice of aseat for your arbitration is “a purely legal concept”which carries many practical consequences. For example,the choiceof a particular seat is still considered in many countriestoempowerthe courts of the chosencountry to set aside the arbitral award. It may also affect the enforcement ofthe awardin other jurisdictions. Consequently, the adoption of a particular seat is a decision that should be made with careful consideration.
The laws of the seat of arbitration are significant as they provide the recognition and support to the arbitral process. It is particularly important that thechosen legal environment respects the parties’ agreement to resolve their dispute by arbitration, and grantsthe parties the freedom to choose their arbitrators,to determine the procedural rules they are subject to, and to select the rules applicable to the merits of the dispute. Other relevant considerations include (i) whether, in the absence of agreement between the parties, the arbitrator is given extensive freedom to determine applicable procedural rules or the rules applicable to the merits; and(ii) whether the national laws of the seat allow the arbitrator the freedom to decide on his own jurisdiction in priority to any national court. In addition, it is worth noting that the laws of some jurisdictionsmay allow the selection of a separate jurisdiction for the consideration of an action to set aside the award. At the foundation of these considerations are two key issues: 1) wheredoes the arbitrator derive hispowers from to issue an award? (i.e. does the arbitrator dispense justice in the name of the state that is the seat of the arbitration, or is the arbitrator detached from any particular forum); and 2) howdoes the arbitral award gainits binding force? (i.e. is it solely through the recognition of the award by the state of the seat of the arbitration, or is it by the numerous jurisdictions willing to recognize and enforce the award, or is it, as some have suggested, through the existence of an “autonomous arbitral order”).
As stated, the French arbitration community has led the way in the development ofan international arbitrationprocess relatively free from state interference. In relation to the first issue, the understanding of theFrenchcourts is that the arbitrator has no forumand so does not dispensejustice in the name of theState hosting the arbitration. Instead,and in relation to the second issue, the arbitrator derives his legal force from all the legal systems that are willing to enforce its award. Backed by the modern approach to international arbitration used by practitioners, French scholars[2]have recentlysupported the view thatthe powers of an arbitrator deriveindeed from a posited “arbitral legal order”, completely detached from any particular legal system.This autonomousarbitral legal order does not correspond to the national laws of the state of the seat of arbitration,nordoes it correspond to the national lawsapplicable in the place of enforcement of the award. It exists in an independent sphere that is separate from national laws and jurisdictions. Accordingly, the French Cour de Cassationin a seminal decision“Putrabali[3] has definedthe concept of “international award”. In “Putrabali”, the Cour de Cassation stated that“an international award is a decision of international justice, not linked to any national legal order, the validity of which may be reviewed in accordance with the rules applicable in the country where its recognition and enforcement is sought”.
It is the first time a court of justice defines the concept of “international award” and is stated in the most explicit manner. Consequently,an international award is defined as a decision of international justice which relates to an autonomous international legal order.
As will be explained in the remainder of this article, French arbitration law is designed to recognise and support the arbitration process to its full extent. It provides a framework for self-regulation of the arbitral process within which the parties and the arbitrators are given complete freedom to determine the rules governing their arbitration.The one “missing piece of the jigsaw” in terms of giving absolute freedom to parties to determine the course of their arbitration in France is that it is not yet possible for the parties to waive their rights to set aside the award. This issue is discussed in more detail below.
b)What are the principles of international arbitration in France?
In France, aprincipalpoint of reference for international arbitratorsis the French conception of the fundamental requirements of justice in international commerce. These requirements are embodied in the “substantive rules of international arbitration”, which are constantly developed by decisions of the Frenchcourts. Further, French international arbitration law is embodied in 6 articles of the New Code of Civil Procedure(“NCPC”)(articles 1492 to 1497). Thesearticles of the NCPCdeal with the composition of the arbitral tribunal, arbitral procedure and the law applicable to the merits of arbitraldisputes.Theyare treatedas rules applicable to international arbitration, and, as a result, are applicableto(i) any international arbitration with France as its seat, (ii) any arbitration governed by French law,and (iii) any arbitration held outside of France if an order enforcingor setting aside the award is sought in France.
A key feature of arbitration in Paris is that court assistance is highly “centralized”.French arbitrations are overseen by a handful ofspecialist judges sitting in Paris, who are extremely experienced in dealing with arbitration matters.To illustrate, actions relating to the formation of anarbitral tribunal are heard before the President of the Paris First Instance Court,and actions to set aside an arbitral award are heard beforethe Paris Court of Appeal. In both cases, the Cour de Cassation is the ultimate jurisdiction to settle any challenge. Thus,one benefit of choosing Parisas the seat of arbitration is that there is no risk of finding oneself before a judge inexperienced in international arbitration matters.
In light of these general observations, let us consider some specificrules applicable to the arbitral process in France relating to (I)the effectiveness of the arbitration agreement, and (II)the limits of the court intervention in the arbitral process.
- Effectiveness of the arbitration agreement
a)The “Jules Vernes” decision: the autonomy of arbitration agreement from national laws
In France the concept of autonomy of the arbitration agreement is used not only to refer to the “separability” of the arbitration agreement from the main contract, which is granted[4], but also to refer to the autonomy of the arbitration agreement from all national laws.In its recent “Jules Vernes” decision[5],the Cour de Cassationstatedthat “the principle of autonomy of the international arbitration agreement is a substantive rule of French international arbitration law which upholds the legality of the arbitration agreement without reference to any national law”[6]. This does not mean that arbitration agreements aretreated as lacking a governing law. Rather, such agreements areconsidered to be independent from the various national laws which would otherwise apply following a conflict of laws approach.
Essentially, the notion of “separability” of the arbitration agreement from the main contract denotes the idea that the arbitration agreement is unaffected by events related to the main contract. As a result,an arbitration agreement will not necessarily be governed by rules of the same nature and origin as those governing the main contract. The question is whether the rules governing the arbitration agreement should be selected by the choice of law rules, in which case a given national law will be applicable, or whether those rules are independent from the national law applicable.French courts avoid the choice of law selection and understand that the existence and the validity of the arbitration agreement are to be examined solely in the light of transnational substantive rules adapted to the international nature of arbitration, and that are considered to be, by the French legal system, fundamental requirements of justice. As a result, it can be said that the arbitration agreement is autonomous from any national law.
A further consequence of this approach is that the French courts are willing, in certain circumstances, torecognizean award made on the basis of an arbitration agreement that is considered ineffective in another jurisdictions. This is a logical consequence of the fact that the French courts assess the validity of an arbitration agreement without reference to national laws.Where an arbitration agreement has been found ineffective in a particular jurisdiction due to applicable national laws, it may nonetheless be found effective in France.
b)The “Bomar Oil” decision: the validity of an arbitrationclauseincorporated by reference
The French courts are willing to give effect to an arbitration clause contained in general terms and conditions incorporated by reference by a contract, even if such clause is not explicitly referred to in the contract. This contrasts with some other jurisdictions, in which it has been held that an arbitration clause in a standard set of terms and conditions may only be validly incorporated by reference if the parties explicitly refer to the arbitration clause.The French position is confirmed by the“BomarOil”decision of 1993[7], in which the Cour de Cassation stated: “in the field of international arbitration, an arbitration clause,if not mentioned in the main contract, may be validly stipulated by written reference to a document which contains it, for instance general conditions or a standard-form contract,when the party against which the clause is invoked was aware of the contents of this document at the moment of concluding the contract and when it has, albeit tacitly, accepted the incorporation of the document in the contract”. Thus, the Cour de Cassationestablished a substantive rule according to which a valid arbitration agreement may beconcluded by reference to general terms and conditions including an arbitration clause, if the parties have the necessary awareness of the contents of such terms and conditions. This gives an indication of the willingness of the French courts to recognize the validity of arbitration agreements in a wider range of circumstances than elsewhere.
It has been suggested that this approach gives rise todifficulties with article II of the New York Convention, which requires each contracting state to recognize arbitration agreements concluded by way of an “agreement in writing”, which is defined as “an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams”[8]. Prima facie, this could be interpreted toexclude the sort of “tacit” consent to arbitration recognized by the Cour de Cassation in “Bomar Oil”. However, the French courts have decided thatthe “Bomar Oil” approach is permitted by article VII of the New York Convention, which states: “the provisions of the present Convention shall not… deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extend allowed by the law or the treaties of the country where such award is sought and relied upon”.This provision, referred to in Franceas “the most favourable right” has been interpreted as allowing a wider approach to the recognition of arbitration agreements, because of the statement that the Convention is not intended to deprive parties of the benefit of domestic laws more favourable to the arbitration process. As a result, the French courts recognize the validity of an arbitration agreement incorporated by reference, subject to the relatively liberal conditions stated above.
c)The “ABS” decision: the circulation of an arbitration agreement in a chain of contracts
The French courts have also taken abroad approach to theenforcement of an arbitration agreement in the context ofan international chain of contracts. Where a sequence of contracts transfer ownership rights in a given product across international borders, the French courts have held that if the original sale contract contains an arbitration clause, the ultimate buyer of that product may be able to bring a direct arbitral action against the original seller at the other end of the chain. In its ABS decision of 27 March 2007[9]the French Cour de Cassation ruled that: “In a chain of contracts where rights of ownership are transferred, the arbitration clause is automatically transferred in as much as it is accessory to a right of action, such right of action itself being accessory to the substantive rights transferred, without regard to the homogenuous or heterogenuous nature of this chain”.
In so finding, the Cour de Cassation has decided that the rules of law governing the transferability of the clause must be determined by a method other than that used to determine the rules applicable to the contracts themselves. A direct arbitral action in an international chain of contracts, is that set as a substantive rule of international arbitration. Unsurprisingly, this approach has been controversial and is the subject of a significant amount of debate in France. However, for the purposes of the present paper it will suffice to note that in the circumstances described above an ultimate end-user may be able to rely on an arbitration clause contained in the initial sale agreementof which it was not an initial signatory.
- Effectiveness of the arbitral process: the limits to court intervention
a)The “Jules Verne” decision: the negative effect of the competence-competence principle as a mandate addressed to the French judge in all circumstances
The support ofthe arbitral process in Francecan be further seenin the way French law deals with the principle of “competence-competence”, which dictates that an arbitrator should be allowed to exercise its power to rule on its own jurisdiction before any court does so. In France, this principle has been taken to its logical conclusion: where an arbitrator has been engaged to rule on his jurisdiction, any courts to which the matter might otherwise have been referred to are required to refrain from examining the arbitrator’s jurisdiction before the arbitrator has had the opportunity to do so[10].
In itsrecent “Jules Vernes” decision, the French Cour de Cassation reaffirmed this principle, and took it a step further, statingthat “the principle of the validity of international arbitration agreement and the principle according to which it is for the arbitrator to rule on his own jurisdiction are substantive rules of French international arbitration law which establish, on the one hand, the validity of the arbitration clause irrespective of any reference to a national law, and on the other hand, the efficiency of arbitration by permitting the arbitrator faced with a challenge to his jurisdiction to have priority to decide the challenge. The combination of the principles of validity and competence-competence prohibit,as a consequence, the French judge from carrying out a substantive and thorough review of the arbitration agreement, irrespective of where the arbitral tribunal has its seat. The permitted extent of the judge’s examination of the arbitration clause, before being asked to review its existence or validity in the context of anaction brought against the award, is whether that clause is manifestly null or inapplicable”.
This means that the negative effect of competence–competence is now a substantive principle of international arbitration law in France, according to which, the court, whether the seat of the arbitration is in France or not,mustrefrain from rulingon the jurisdiction of the arbitrator, unless the arbitration agreement is manifestly null or inapplicable.As a result, the courtis required to limit its review to a prima facie determination that the agreement is not manifestly null or inapplicable. So, once again the idea that arbitration is an autonomous process is protected and court interference is limited[11].