The ICC partial award had been quashed by a 12 February 2009 judgment of the Court of Appeal of Paris, because the chairman of the arbitral tribunal, a well-known international arbitrator who is part of one of the world’s largest law firms, had failed to disclose certain links between his firm and one of the parties’ group.

Tecnimont had however raised before the Court an estoppel argument based on the fact that the arbitrator had already been unsuccessfully challenged before the ICC Court of Arbitration for the very same grounds that were invoked before the Court of Appeal, and that such challenge was belated pursuant of Article 11(2) of the Rules for having been made more than 30 days after the date when the party making the challenge had been aware of the facts upon which it was based. According to Tecnimont, the consequence was that the challenging party (Avax) was precluded from objecting to the independence and impartiality of the arbitrator.

The Court of Appeal, however, did not accept this argument on the basis that the grounds for challenge would in fact not have been known to Avax before the award was rendered.

The French Supreme Court (Cour de cassation), in a judgment handed down on 4 November 2010, disagreed with such findings and held that “almost all the adduced [grounds for challenge] were included in the request for challenge notified on 14 September 2007 [to the ICC]”.

As a consequence, the Supreme Court held that the Court of Appeal had modified the terms of the dispute, in breach of article 4 of the French Code of Civil Proceedings.

Article 4 provides that “the subject matter of the dispute is determined by the parties’ allegations”; the case law of the Supreme Court consistently holds, in this respect, that a Court of Appeal which bases its decision on facts different from those submitted by the parties violates Article 4. In this case, the annulment decision rendered by the Court of appeals of Paris is quashed, but the matter is remitted to the Court of appeals of Reims, which will have to decide on the validity of the award.

The Supreme Court does not express any view as to the existence of a bias such as to justify the setting aside of the award for lack of independence and impartiality of one of the arbitrators, which constitutes in French law an irregularity in the constitution of the arbitral tribunal [Article 1502-2 of the French Code of Civil Proceedings].

As a consequence, the conclusion reached by the Court of Appeal of Paris, according to which the links between the arbitrator’s law firm and one of the parties constitutes a conflict of interest, is not criticized as such. In this respect, certain authors have wondered whether the Court of Appeal’s decision should be understood as implying that any failure to disclose relevant circumstances should as such justify a challenge (Th. Clay, rev arb 2009-3, p. 193). We do not believe that to be the case, and the reference by the court of Appeal to a “conflict of interest” simply means that the circumstances in dispute were such as to cast serious doubts in the eyes of a reasonable and informed third party as to the arbitrator’s independence and impartiality. From this perspective, the Court of Appeal findings as to the existence of an appearance of bias is, in our view, consistent with previous case law as well as with the established international arbitration practice as embodied the IBA Guidelines on conflicts of interest in international arbitration (General Standard 2.b).

Neither has the Supreme Court expressed any views as to whether non-compliance with the procedure established by the applicable institutional rules should have any bearing in setting aside proceedings.

Nevertheless, by holding that all the grounds for the challenge in dispute were present in the application made to the ICC, the Supreme Court implies (as the ground for annulment of the Paris court decision would otherwise be deprived of any relevance) that the Court of Appeal should have examined and decided Tecnimont’s argument that such challenge was belated and that Avax should therefore be considered as having waived its right to challenge.

The Court of Appeal decision, in this respect, was highly unsatisfactory. If the parties accepted institutional rules setting time-limits for challenges, why should such time-limits not be enforced by the judge? (see my 19 May 2009 blog; see also in the same sense, Th. Clay, case note op. cit., p. 196). Institutional rules accepted by the parties are incorporated in the arbitration agreement and are as such binding upon the parties. As a consequence, a breach of a provision such as the thirty-days time-limit provided in Article 11 (2) of the ICC Rules of arbitration should be treated as a waiver of the right to challenge, which waiver should prevent any later request to set aside the award on the same grounds.

It is equally unsatisfactory that the decision made by the institution on the challenge be thrown in the waste basket by the judge. Much time is devoted by the parties in arguing these matters before the institution, and institutions carefully weight the parties’ arguments to decide the challenge in the most appropriate manner. In this respect, the IBA recommendation that equal standards be applied to challenges at all stages of the proceedings in order to determine whether grounds for disqualification of an arbitrator exist or existed should be recalled. The facts and circumstances alone are relevant to that effect, and not the current stage of the proceedings or the consequences of the withdrawal (IBA Guidelines, Explanation to General Standard 3(d)). As a consequence, there would be no impediment for the Court of Appeal in setting aside proceedings to give due consideration to the reasons why a challenge was rejected by the institution.

The problem is, of course, that the ICC, like other institutions, does not provide reasons for its challenge decisions. This matter is currently being discussed in the context of the ongoing revision process of the ICC rules of arbitration. Some institutions do provide reasoned decisions, including ICSID, DIS, VIAC, LCIA, NAI and PCA. Reasoned decisions may certainly add to the burden of institutions, and in some instances slightly delay the process; they, however, add confidence in the arbitral process and, more importantly, provide the court in setting aside proceedings with useful information that it can rely on.
Going further, one can wonder whether it is satisfactory to re-litigate before the judge the same challenge discussed before the institution. Would it not be more appropriate to treat challenge decisions rendered by arbitral institutions as if they were awards? Institutional decisions on challenges are in theory of an administrative nature, and they therefore have no res judicata. The nature of those decisions can however be discussed for, at the difference other decisions made by arbitral institutions, they arguably meet the standard of jurisdictional decisions as adopted in many jurisdictions: they are made by a neutral third party (the arbitral institution) and they settle a dispute of a legal nature (whether grounds for disqualification of an arbitrator exist).

Certainly, admitting the jurisdictional nature of such decision would further increase the time and costs of the arbitration, as such an evolution would imply that the parties be granted a reasonable opportunity to present their views before the institution. However, it would spare the parties the burden of litigating twice the same issues. One could imagine that such “challenge awards” could be in turn be the subject of an immediate and expeditious judicial review. Such an evolution may require some amendments to the applicable arbitration laws, but the effort is probably worth making as it would avoid the risk, which is perfectly illustrated by Tecnimont, of having to throw away years of arbitral proceedings and millions of dollars in legal costs, which risk is even compounded when, as in Tecnimont¸ the annulled award resurrects like Lazarus out of its cave, until when it may again disappear if the Court of appeals of Reims decides that the award should be quashed anyway…

Alexis Mourre

There is of course plenty of anecdotal evidence that party-appointed arbitrators sometimes misbehave. Jan Paulsson cites the case of an arbitrator having communicated to his appointing party confidential information on the tribunal’s deliberations, the apparently admitted bias of one of the arbitrators in the Loewen arbitration, and other examples. Yet, no sound case can only rest on examples. The broader picture is however, Paulsson argues, that party-appointed arbitrators generally lack impartiality. Evidence of that general situation of bias would be that dissenting opinions are almost invariably written by the arbitrator appointed by the losing party. What better evidence could there be that they systematically favor the side they owe their nomination to, and can therefore not be trusted for full impartiality? And what better demonstration could ever be found that the link between the arbitrator and his appointing party is the original sin that needs to be eradicated in order for arbitration to rise to the level of a fully impartial and trustworthy system of resolving disputes?

Jan Paulsson’s proposal, of course, leads to displacing the perceived problem of bias from the individual appointees to the arbitral institutions: it is solely the inability to trust the arbitral institutions to appoint good arbitrators that would ultimately justify that parties retain control over the constitution of the arbitral tribunal; unfortunately, according to Jan Paulsson, “only a few arbitral institutions can make credible claims to legitimacy”. As a consequence, “the organizations that call themselves arbitral institutions need to look at themselves and ask why it is that they are so exposed to suspicions of poor selection of arbitrators, and maybe even worse: cronyism and other forms of corruption”.

Jan Paulsson’s description of the arbitral institutional landscape is perhaps a bit harsh, but whatever the reality may be, he proposes no other solution than to “dismantle” the “empty edifices” that most arbitral institutions in his view are. Yet, this is not a result that is likely to be easily achieved. Arbitration is an opened and free market, and there is no regulatory authority that could grant arbitral institutions license to operate. In addition, any attempt to reach some sort of worldwide regulation of the way arbitral institutions appoint arbitrators – assuming that such a regulation could ever be achieved – would probably produce entirely undesirable results and ultimately be worse that the illness that it would be supposed to cure.

Arbitration offers a wide range of options to its users. Parties can retain full control over the arbitration by opting for ad hoc arbitration. They can also choose rules that allow them to appoint the arbitrators while ensuring some degree of control by the institution. Other institutions, like the LCIA, offer the kind of entirely neutral process in the constitution of the arbitral tribunal that Jan Paulsson advocates. Some, like the NAI, use in an effective manner list procedures to appoint all arbitrators in cooperation with the parties. The ICC is midway: the parties can appoint “their” arbitrator, but unless they agree on the contrary the chair will be appointed by the institution. Each institution has its own specificities, and is very much keen to maintain these differences as a means of identifying itself on a highly competitive market. Why should those differences disappear? This variety of offers is an advantage to the consumers of arbitration, provided they are well advised. The market will ultimately select the most efficient system.

The fact is that the market seems to have little appetite for a ban on unilateral appointments. Many institutional rules have been recently revised, and none moved from unilateral to institutional appointments. The ICC is currently revising its rules, and it is unlikely to apply to all arbitrators the current default rule providing for the chairperson’s appointment by the ICC Court.

As said above, the ICC Rules provide that chairpersons are appointed by the institution. Yet, on the 337 chairs appointed in 2009, 21 were selected by the parties and 172 by the co-arbitrators, representing 57% of the total of appointments. The percentage of chairs appointed by the parties or the co-arbitrators (as opposed to those appointed by the Court) was 58.7% in 2007 and 57.3% in 2008. In almost 60% of the cases, the parties therefore agreed to depart from the default rule providing for an institutional appointment, which seems to indicate a strong willingness to retain some degree of control over the constitution of the arbitral tribunal.

The LCIA is equally interesting, as its rules provide for the appointment of all arbitrators by the LCIA Court. Its figures are all the more telling that the LCIA is well-known for the high quality of its appointments. During the course of 2009, the LCIA Court made a total of 502 individual appointments to a total of 220 tribunals. Of these 502 individual appointments, 199 were made by the parties, 54 chairs were appointed by the co-arbitrators, and the remaining 249 were made by the LCIA Court: in more than 50% of the cases, the parties thus agreed to depart from the institutional appointment in spite of the impeccable reputation of the institution.

It may well be that such a situation should be explained by comfort in the status quo rather than sound analysis by the parties of their genuine interests. And Jan Paulsson is certainly right in much of his criticism of unilateral appointments. It is true that many party-appointed arbitrators tend – in a more or less subtle manner – to favor their appointing party. It is also true that in extreme cases, partisan co-arbitrators de facto turn a three members tribunal into a one member tribunal in which the chair decides the award without listening to his colleagues. It is equally true that a higher lever of collegiality may be reached when all arbitrators have been appointed by a neutral body, thus leading to an award of greater quality. And there are other potential advantages of all arbitrators being appointed by the institution, such as the ability to select individuals having special skills, such as engineers or accountants, to sit with lawyers in the tribunal.

The question, however, is whether banning unilateral appointments will increase the level of confidence by the parties in the arbitral process and contribute to improve the quality of arbitrators and awards.

It is often said that unilateral appointments contribute to the acceptance of arbitration by ensuring that the tribunal fully understands the culture of each party. Jan Paulsson is however correct in saying that cultural divides in arbitration have diminished and that parties now have significant common grounds in what they expect in the resolution of their dispute. In addition, arbitral institutions are perfectly capable of addressing that concern by appointing arbitrators from different cultures.

But unilateral appointments serve a broader purpose: by appointing an arbitrator, the parties – rightly or wrongly – get a sense of proximity with the process. Unilateral appointments give the parties the impression that they control the arbitration, and that is an important difference between arbitration and court litigation. The parties’ trust in the arbitral process is not the arithmetical addition of each individual party’s own trust in its own appointee; it is more a matter of collective trust in the system as a whole, a trust which rests on a variety of factors, amongst which the perception of proximity and control is an important one. From that perspective, little comparison can be drawn between arbitration and the experience of international courts.

It should also be borne in mind that by having each of them selecting an arbitrator, the parties manage to retain a high degree of control on the appointment of the decisive person, i.e. the chair. Most of the times (either because the applicable rules so provide or because the parties agree to derogate any rule on the contrary), chairpersons are appointed by the co-arbitrators or by the parties in consultation with the co-arbitrators. And it is generally accepted that, as an exception to the general prohibition of ex parte contacts with the parties, it is not improper for party-appointed arbitrators – provided of course all parties play by the same rules and that there is an appropriate level of transparency – to liaise with their appointing party as far as the appointment of the chair is concerned (and of course limited to such matter). Skilled arbitrators know how to manage the appointment process, in a more or less formal manner, in order to reach a result that will satisfy not only themselves, but also the parties and their counsels. And the possibility for each arbitrator to discuss the appointment of the chair with its appointing party is an essential element of the success of that process. In addition, a considerable amount of time is often devoted by party-appointed arbitrators to these consultations with the parties and their counsels, which institutions would not be able to do, at least not to the same extent. In sum, an institutional appointment is unlikely to be as consensual and satisfactory to all parties as one which is made as a result of a carefully tailored consultation process involving all participants.

A general ban on unilateral arbitration could have undesirable consequences. It could create a distance between the arbitral community and the users of arbitration. Arbitrators would look less at the parties and more at the institutions, which all have their own degree of internal politics and their bureaucracy. The risk would exist that arbitrators progressively move from their current culture of services providers, close to the needs and requirements of the users, to a culture of arbitral public servants or, even worse, of arbitral politicians. No one has to gain from such an evolution.

Ultimately, arbitration is only as good as the arbitrators are, and this principle also applies to party-appointed arbitrators. There is nowadays widespread awareness, amongst the users of arbitration, that hired guns do them more harm than good. Save in exceptional circumstances, whatever the perceived strengths of their case are, parties want to appoint arbitrators who will be listened and respected within the tribunal. And parties know that the standing and reputation of experienced international arbitrators depend from their capacity to exercise independent judgment when deliberating with their colleagues. As a consequence, party-appointed arbitrators tend to be selected more for their reputation of impartiality and integrity than for their supposed willingness to support their appointing party’s thesis.

It is certainly true that party-appointed arbitrators often feel that they should do their best in order to make sure that the arguments of “their” party have been fully and seriously considered. But why should that be improper? The genuine dynamics of a well organized deliberation rests on the tribunal carefully analyzing each of the arguments raised by the parties, and it can only be beneficial to both parties that each arbitrator points to questions that may have been overlooked or insufficiently considered.

All this is not to say that that the current practice is totally immune from defects. It is true, as Jan Paulsson points outs, that unanimity awards are not always achieved in principled ways, and that tribunals sometimes attempt to compromise. But such instances are limited, and such compromises are generally reached on the allocation of costs, an area in which tribunals enjoy a fair level of discretion. It is also true that dissenting opinions are most of the times written by the arbitrator whose appointing party loses. But dissenting opinions are rare and most of the times self-contained. Jan Paulsson finally points to instances in which unscrupulous arbitrators offered iniquitous bargains in the tribunal’s deliberations, but no general conclusion should be drawn from exceptional and highly reprehensible misconduct of that kind.

The true question is whether a party-appointed arbitrator is capable of exercising independent judgment. The answer is that experienced and reputable international arbitrators do. And if they don’t, they quickly lose their reputation and cease to be interesting potential nominees for well advised parties. Certainly, many inexperienced arbitrators will not rise to that standard. But they do more harm to the parties which appoint them than to the system as a whole. The bottom line is that if parties really want to enhance their chances of success, they should appoint experienced, impartial, arbitrators rather than super-advocates. Jan Paulsson’s proposal rests on the premise that parties are not capable of doing so. I believe, on the contrary, that the progresses of arbitral culture around the world commands a different answer; but the deepest values of international arbitration will not fully make their way in the business community if the users do not regard themselves as part and parcel of the system, something unilateral appointments greatly contribute to.

Ultimately, the problem of partisan arbitrators is more a survivance of progressively disappearing old misconceptions than the expression of structural faults of a dispute resolution system that is diverse and should remain so. Eliminating the evil of partisan arbitrators is more a matter for continuing education and dissemination of the international arbitration culture than for sweeping reforms such as a ban on unilateral appointments.

In 2008, the Arbitration Committee of the International Bar Association has formed a Task Force on Counsel Ethics in International Arbitration for the purpose of investigating the different and often contrasting ethical and cultural norms, standards and disciplinary rules that may apply to counsel in international arbitrations. As part of the Task Force’s information-gathering mission, it has prepared a survey to solicit the input and experiences of international arbitration practitioners – including the the users of arbitration, members of arbitral institutions, counsel and arbitrators – regarding specific cases where ethical conflicts and other issues arise and whether the lack of international guidelines in counsel ethics undermines the fundamental protections of fairness and equality of treatment and the integrity of international arbitration proceedings.

The survey of the Task Force on Counsel Ethics in International Arbitration is available here . Answers to the survey should be provided by September 15, 2010.

I urge all practitioners to contribute to this important project.

Alexis Mourre

The applicability of 28 U.S.C. § 1782 to international arbitration has generated an interesting debate, especially on this blog (see lastly G. Born’s post, L. Reed’s post, E. Triantafilou’s post, adde, Y. Lahlou, l’applicabilité de l’article 28 USC 1782 à l’arbitrage commercial international, Gaz. Pal., 2009-3). The debate is essentially concerned with the question whether an international arbitral tribunal constitutes a “foreign tribunal” for purposes of § 1782 (see the recent: In re Application of Chevron, 2010 WL 1801526, at *6 (S.D.N.Y. May 6, 2010 and Roger Alford’s blog). Conflicting solutions on this issue have been rendered in the United States (against the application of § 1782 to international arbitration see e.g.: National Broadcasting Co. Inc and NBC Europe v. Bear Steans & Co., Inc et al, 165 F.3d 184 (2d Cir. 1999); El Paso Corp. v. La Comision Ejecutiva Hidroelectrica del Rio Lempa No 08-20771, 2009 US App. Lexis 17596 (5th Cir. Aug. 6 2009); In re Arbitration in London, England, No. 09-C-3092, 2009 US Dist. Lexis 49827. For the application of § 1782 to international arbitration see e.g. In re Oxus Gold plc, MISC 06-82-GEB, 2007 WL 1037387 (D.N.J. April 2,2001), In re Roz Trading Ltd, 469 F. Supp. 2d 1226; In re Hallmark Capital Corp., 534 F Supp. 2d 951 (D. Minn. 2007), Comisión Ejecutiva, Hidroeléctrica del Río Lempa v. Nejapa Power Co., LLC, No. 08-135, 2008 WL 4809035, at *1 (D. Del. Oct. 14 2008).

A related, and somewhat minor question, has however attracted little interest, and that is whether costs incurred by the party to an arbitration procedure in court proceedings based on § 1782 (“the Discovery costs”) may be treated as costs of the arbitration and allocated by the arbitral tribunal. The question will be relevant to the parties since, as it is known, costs are not refunded to the prevailing party in the context of Discovery court proceedings in the United States.

The critical issue is whether the Arbitral Tribunal has jurisdiction to allocate Discovery costs as costs of the arbitration.
The first element of answer may be found in the arbitration agreement.
Proceedings related to a Discovery application in aid of the arbitration may well be considered as a dispute arising out or relating to the underlying contract. Hence, there should not be any difficulty to admit that, in principle, Discovery applications are related to the contract. As a consequence, a broadly formulated arbitration clause (such as a clause worded as follows “all disputes arising out of or in connection with the present contract shall be finally settled through arbitration by one or more arbitrators”) may well be construed as applying to Discovery costs. This is not the end of the story, however.

A first argument against the arbitral tribunal’s jurisdiction to apportion Discovery costs is that applications for Discovery in aid of the arbitration applications usually involve third parties in possession of the evidence sought. Such circumstance, however, should not be relevant as long as the parties in dispute in the arbitration are also parties to the Discovery court proceedings.
Another possible objection relates to the concept of “costs of the arbitration”.

In the context of UNCITRAL or institutional arbitration, it should be seen whether the applicable arbitration rules permit to treat such costs as costs of the arbitration.

It is for example doubtful that, under Article 38 of the 1976 UNCITRAL rules, Discovery costs can be treated as costs of the arbitration. Article 38 provides that “the term ‘costs’ includes only: (a) the fees of the arbitral tribunal to be stated separately as to each arbitrator and to be fixed by the tribunal itself in accordance with article 39; (b) the travel and other expenses incurred by the arbitrators; (c) the costs of expert advice and of other assistance required by the arbitral tribunal; (d) The travail and other expenses of witness to the extent such expenses are approved by the arbitral tribunal; (e) the costs for legal representation and assistance of the successful party if such costs were claimed during the arbitral proceedings, and only to the extent that the arbitral tribunal determines that the amount of such costs is reasonable; (f) Any fees and expenses of the appointing authority as well as the expenses of the Secretary-General of the Permanent Court of Arbitration at the Hague”.

The new 2010 UNCITRAL rules, however, include a new wording of § (e) below. The new Article 40 (e) of the Rules now provides that costs include “the legal and other costs incurred by the parties in relation to the arbitration to the extent that the arbitral tribunal determines that the amount of such costs is reasonable”. Arguably, Discovery costs are costs incurred “in relation to the arbitration”. As a consequence, Discovery costs would be treated as costs of the arbitration.

The ICC rules, with respect to costs, provide in Article 31(3) that “The final Award shall fix the costs of the arbitration and decide which of the parties shall bear them or in what proportion they shall be borne by the parties”. Article 31(1) also provides that the costs of the arbitration include the “reasonable legal and other costs incurred by the parties for the arbitration”. Such a provision does not seem to encompass costs incurred “in relation” to the arbitration. It is generally admitted, however, that arbitrators have wide discretion in apportioning costs. Whether such discretion could be used to allocate Discovery costs remains to be seen.
The LCIA rules confer to an arbitral tribunal the power to “order in its award that all or part of the legal or other costs incurred by a party be paid by another party” (Article 28.3). However, this provision seems to relate to the costs incurred in the arbitration, and would thus not apply to costs incurred in court proceedings. The ICDR rules refer in Article 31 to “the costs of arbitration”. Although the rules also provide for a non-exhaustive list of what “may” be included as such costs, , the concept of costs of arbitration is arguably not equivalent to that of costs incurred “in relation to” the arbitration. The same observation applies with respect to Article 38 of the Swiss Rules.

Another possible ground to recover Discovery costs could be as damages for breach of the arbitration agreement. It is unlikely that the lex arbitri would prevent a party from seeking Discovery in aid of the arbitration, but it may well be that the arbitral tribunal enjoined the party from doing so or from pursuing an application made without the tribunal’s leave.

A U.S. court has, in this respect, decided that § 1782 application suppose the consent of the arbitral tribunal (see In re Bacock Borsig AG, 583 F. Supp. 2d a 233 (D. Mass. 2008)). Such principle is healthy as Discovery applications – as they include leave to depose witnesses and suppose broad discovery – are likely to be inconsistent with the tribunal’s procedural directions. In such a scenario, an application made in disregard of the tribunal’s directions or order would constitute a breach of the arbitration agreement insofar as the arbitration agreement obliges the parties to cooperate in good faith to the proceedings. There should be no valid reason why such a breach could not give rise to damages.

Alexis Mourre/Alexandre Vagenheim

In that respect, French law has traditionally been said to be restrictive in permitting arbitration for administrative law disputes.

In France, under Article 2060 of the Civil Code, domestic disputes involving the State, as well as public entities (such as municipalities) and public establishments may not be referred to arbitration. Article 2060 provides, to that effect, that “there can be no arbitration […] in disputes concerning public collectives and public entities”. However, this provision has since long been excluded by the Cour de cassation (highest French jurisdiction in civil matters) as far as international disputes are concerned (Cour de cassation, 1re civil chamber, 2 May 1966, Galakis). The Court held on that occasion that “the State is not prohibited from concluding arbitration agreement in international matters”.

In 1975, a new provision was added to Article 2060 of the Civil Code, whereby “certain categories of public entities of an industrial and commercial character can be authorised to arbitrate by decree”. However, pursuant to an opinion given by the Conseil d’Etat (highest French jurisdiction in administrative matters), this provision is applied in a very restrictive manner and only authorises such entities to enter into an arbitration agreement after the dispute has arisen (compromis d’arbitrage).

The question then arose of the capacity of the French State and public entities to validly enter into an arbitration agreement with the American company Walt Disney in the contracts related to the construction of the Eurodisney Park.

In its Walt Disney opinion of 6 March 1986, the Conseil d’Etat pointed out that legal entities of public law could not circumvent the rules determining the jurisdiction of the French administrative courts if the dispute touches upon rules of French administrative law that are considered as being of public policy. It came to the conclusion that the contract envisaged with Walt Disney “resorts to the French domestic legal order” and can therefore not contain a valid arbitration clause, which would be null and void as a matter of public policy.

It therefore appeared that the Walt Disney opinion tended to restrict, in spite of the Cour de Cassation’s ruling in Galakis, the arbitrability of international disputes touching upon administrative law. In fact, the Walt Disney contract was certainly to be considered as international pursuant to Article 1492 of the French Code of Civil proceedings, as it involved the interests of international trade.

Since then, there has been considerable debate on how to open arbitration in France to public law disputes. On 7 April 2006, the Ministry of Justice commissioned a working group to consider the future of arbitration in the context of administrative law. The working Group issued its report (called the Labetoulle report, by the name of its author) on 13 March 2007 (Rev. arb., 2007, Vol. 3: p. 651, on which see J.-L. Delvolvé, Une véritable révolution inaboutie, remarques sur le projet de réforme de l’arbitrage en matière administrative ; and S. Lemaire, Rapport du groupe de travail, ib.).

The Labetoulle report proposed to abolish the prohibition preventing public bodies from agreeing to arbitrate, as set out in article 2060 of the Civil Code. As a result, a draft law was prepared in order to “broaden the possibility for recourse to arbitration for public bodies and to clarify the procedural regime of arbitrations involving public law” (Rapport du groupe de travail sur l’arbitrage en matière administrative, 13 mars 2007 in Rev. arb., 2007, Vol. 3, p. 651). This report was nonetheless criticized in the arbitration community for it set a special regime for the arbitration in administrative cases, distinct from that prevailing under the Code of Civil Procedure for other arbitrations. As a consequence, difficult issues of characterisation would arise, in particular in the context of an international arbitration, to define what would and what would not be an “administrative arbitration”. The Labetoulle report, however, has not so far been converted into law.

A particular and sensitive aspect of that debate is the allocation of jurisdiction between administrative and civil courts to hear challenges.

As it stands, challenges against international awards are brought before the Court of Appeal of the place of the arbitration, pursuant to Article 1505 of the Code of Civil Procedure, which court applies the rules provided for challenges by the French Court of Civil proceedings.

However, the question whether administrative courts should have jurisdiction in cases involving mandatory administrative laws has never been clearly settled.

This issue was however raised in the recent Inserm case.

A dispute arose between the French National Institute for Health and Medical Research (Inserm), a French public entity, and a Norwegian foundation, with respect to an international cooperation agreement. The agreement provided for inter alia the construction in France of a building dedicated to research in neurobiology. It included an arbitration agreement.

A dispute arose, and the French party seized a French court, which declined to hear the case because of the existence of an arbitration agreement between the parties. Subsequently, the Inserm requested the Paris First Instance Tribunal to appoint an arbitrator.

The arbitrator was appointed and rendered an award in favour of the Norwegian company. A challenge against the award was brought before the Paris Court of Appeal. The Paris Court of Appeal decided (Inserm v. Association Fondation Letten F. Saugstad, Paris Court of Appeal, 13 November 2008, Rev. arb., 2009, Vol. 2, p. 389) that it had jurisdiction to hear the challenge, but rejected it on two grounds. Firstly, it found that the prohibition for States and State entities to arbitrate was limited to domestic contracts, and secondly that, pursuant to the principle of validity of arbitration clauses admitted in French law, the prohibition to arbitrate was not part of international public policy.

However, an action was also brought in parallel by the French party before the French administrative courts, which were requested to annul the award on the basis that the arbitration agreement was null and void.

The case was directly called to the French highest administrative jurisdiction, the Conseil d’Etat.

The question was therefore to determine which of the two judicial bodies, civil or administrative, had jurisdiction to hear the matter in the last resort.

The Conseil d’Etat decided that there were reasonable doubts with respect to the allocation of jurisdiction between civil and administrative courts, and it therefore decided to raise the case to the Tribunal des conflits, which is the French jurisdiction empowered to settle a conflict of jurisdiction between civil and administrative courts.

The Tribunal des conflits rendered its judgement on 17 May 2010. That decision has given rise to a certain level of criticism in the French arbitration community (See Th. Clay, Les contorsions byzantines du Tribunal des conflits en matière d’arbitrage, JCP G, n° 21, 2010, p. 1045, and E. Gaillard, Le Tribunal des conflits torpille le droit français de l’arbitrage, ib., p. 1096).

The Tribunal des Conflits decided that “a challenge against an arbitral award rendered in France on the basis of an arbitration agreement contained in a contract concluded between an entity of French public law and a foreign company, which contract has been performed on the French territory and which concerns the interests of international trade, is to be brought before the court of appeal where the award is rendered pursuant to article 1505 of the Code of Civil Procedure even if the contract is to be characterized as administrative according to French domestic law”.

The Tribunal however added that “the situation is different where a recourse brought under the same circumstances implies that the award be reviewed according to French mandatory rules of public law on the occupation of the public domain or according to the rules governing public expenditure that are applicable to public procurement, to public partnerships or to the delegation of public services, as such agreements are subject to a mandatory administrative regime that is of public policy. A recourse with respect to those contracts is subject to the jurisdiction of the administrative court”.

In other words, a challenge against an international award concerning an international administrative contract which involves the application of the mandatory rules of French administrative law is to be brought before the administrative court rather than before the civil court as it is normally the case. With respect to that particular dispute, the Tribunal found that the civil courts have jurisdiction, but the door is left open to the administrative jurisdiction if French administrative law’s mandatory rules are at stake.

It would certainly have been preferable if the Tribunal des conflits had clearly established that all international awards, even if they relate to administrative mandatory laws, are subject to the rules for vacatur provided by the Code of Civil proceedings and to the jurisdiction of the civil courts of the place of the arbitration. After all, such is the case when mandatory rules of another nature are at stake (such, for example, as European mandatory rules), and there is no real logic to treat administrative mandatory law differently. From that perspective, the decision is certainly a missed opportunity. It is, in addition, likely to increase the procedural difficulties in challenges against contracts concluded with the French State or with French State entities and that are performed in France. Ultimately, it is likely that parties will tend to place the seat of the arbitration in those contracts out of France in order to avoid these difficulties.

It should be noted, however, that the decision does not do much more than clarifying the situation as it resulted after the Walt Disney episode. Since Walt Disney, very little difficulties arose with respect to the jurisdiction of the French civil courts to hear challenges against international awards involving French public entities, and it is to be hoped that no more will arise after the decision of the Tribunal des conflits. If this is the case, hopefully, the Labetoulle report and the Inserm case will remain a storm in a teacup.

Alexis Mourre/Alexandre Vagenheim

The Paris court of first instance (Tribunal de Grande Instance) has in recent months rendered two interesting decisions in this respect. These two decisions address the issue whether and to what extent French courts can interfere with the arbitral proceedings, in particular when relief is sought in summary proceedings on the basis of an alleged risk of imminent or irreparable harm. In both sets of proceedings, the arbitrators were directly sued.

The first of these two cases led to an order of the Paris court of 6 January 2010 (S.A. Elf Aquitaine and Total v. Mattei, Lai. Kamara and Reiner). The claim amounted to an aggressive attempt to derail an ongoing arbitration by requesting the court to enjoin the arbitrators from pursuing the proceedings. The underlying dispute in the arbitration was concerned with a cooperation contract concluded between Elf Neftgaz, a subsidiary of Elf Aquitaine, and certain Russian parties. The basis for the request was that a shareholders’ assembly of Elf Neftgaz had decided the liquidation of said company. The Russian parties subsequently made an application to the president of the Paris tribunal of commerce to appoint an ad hoc representative for Elf Neftgaz to the effects of the arbitration they were about to commence against such company. The court accepted such request and appointed an ad hoc representative for Elf Neftgaz. The arbitration commenced with its seat in Paris, and the court appointed representative nominated an arbitrator on behalf of Elf Neftgaz. However, the judgment having designated the ad hoc representative was thereafter retracted upon request of Elf Aquitaine. Although such decision was appealed by the Russian parties, Elf Aquitaine and Total seized the court in summary proceedings (référé) against the three arbitrators (who were the only named defendants) to obtain an injunction to interrupt the arbitration. The request was based on the contention that Elf Neftgaz’s arbitrator had been appointed by a representative deprived of powers and that the continuance of the arbitration in spite of the withdrawal of the court decision having nominated Elf Neftgaz’s representative would be such as to cause irreparable harm.

The case leading to the Paris First Instance Tribunal decision of 29 March 2010 (Republic of Equatorial Guinea v Fitzpatrick Equatorial Guinea, de Ly, Owen and Leboulanger) was concerned with a contract for the construction of a highway. A dispute arose between the parties, and Fitzpatrick initiated ICC arbitration. Like in the Elf case, the seat of the arbitration was in Paris. The Republic challenged the Arbitral Tribunal’s jurisdiction on the basis that the arbitral agreement and the laws of Equatorial Guinea imposed to exhaust local judicial remedies before arbitration could be initiated. The Republic also submitted that Fitzpatrick had been placed in insolvency proceedings in Equatorial Guinea and that only the receiver appointed by the local court had powers to represent it. The arbitral tribunal rendered a partial award upholding its jurisdiction, and proceeded to instruct the merits in the second phase of the arbitration. Meanwhile, the partial award was challenged before the Paris Court of Appeal. Based upon such challenge, the Republic made an application before the Arbitral Tribunal to stay the arbitration. The Arbitral Tribunal rejected such application and the Republic started summary proceedings to enjoin the arbitrators from continuing the arbitration until the Court of appeal decision in the setting aside proceedings.

Both sets of proceedings were initiated pursuant to article 809 of the Code of Civil Procedure, which provides that “The president [of the Tribunal of First Instance] may always, even if the request is subject to serious objections, order in summary proceedings such conservatory or protective measures that may be necessary to prevent imminent harm or to put an end to a manifestly illegal trouble”.

In the Elf case, the claimants alleged that the arbitration should not proceed for the judgment having designated the representative of a party had been retracted. As a consequence, the nomination of an arbitrator by such party was invalid, thus jeopardizing the entire constitution of the arbitral tribunal. The respondents objected that French law does not permit courts to deliver injunctions to an arbitral tribunal, and that based upon the negative aspect of Kompetenz-Kompetenz, arbitrators have exclusive jurisdiction to rule upon their own jurisdiction, the courts’ assessment being postponed until a possible challenge against the award, with the consequence that courts are deprived of any power to assess the arbitrators’ jurisdiction once the arbitral tribunal is constituted.

The court endorsed such arguments and decided that, once the arbitral tribunal is constituted, it is only for it to decide on its own jurisdiction, and that it is as a consequence for the arbitral tribunal to decide the consequences of the withdrawal of the court nomination of a party representative on the regularity of its own constitution: “notwithstanding the effect of the withdrawal of the order having designating the [party representative] and the irregular designation of two or three of the arbitrators, the question of the existence of this arbitral tribunal or of the regularity of its constitution falls exclusively within the jurisdiction of the arbitral tribunal, which excludes that the court be seized in summary proceedings”.

The court adopted the same principles in the Republic of Equatorial Guinea case.

The Republic argued that the arbitral tribunal manifestly lacked jurisdiction because the arbitral agreement and the local law requested exhaustion of local remedies. Based on such contention, it developed several arguments. First, it argued that it would suffer an imminent and irreparable harm if the arbitration were to proceed for the award on the merits would be rendered before the Court of Appeal has a chance to rule on the challenge against the interim award on jurisdiction. Although the claimant conceded that the award on the merits could not be enforced in France until such challenge is decided (in particular because the challenge stays the enforcement of the award under French law), it would nevertheless be faced with the risk of enforcement abroad. In addition, the ICC Court of Arbitration had requested the Republic to pay an additional advance on costs, which the Republic might not be able to recoup would the award be ultimately quashed. Finally, the Republic had lodged a criminal complaint on the ground of an alleged forgery, and it submitted that all proceedings should be stayed pending the criminal proceedings. The respondent raised a number of objections. First, the claim supposed that the court would express a view on the arbitral tribunal’s alleged lack of jurisdiction which had already been decided in the partial award, thus violating the res judicata of said award (awards have in France res judicata since they are rendered – Article 1476 of the Code of Civil Proceedings). Second, like in the Elf case, it submitted that the arbitral tribunal enjoys an absolute priority to decide issues relating to its jurisdiction. In addition, French courts are deprived of any jurisdiction to interfere with the arbitral proceedings and cannot give injunctions to an arbitral tribunal, even though it sits in France. Third, French law clearly sets the principle that a challenge against a partial award on jurisdiction does not stay the arbitral proceedings and the arbitral tribunal can therefore proceed to instruct the merits even though setting aside proceedings are pending (notably, Cass. 19 March 2002). Finally, the criminal proceedings that the Republic had instrumentally started do not have the effect of staying the arbitral proceedings (Cass. 25 October 2005).

The court rejected the application. It admitted that: “Article 809 of the Code of Civil Proceedings may be the basis for an order in summary proceedings [to prevent imminent harm or to put an end to a manifestly illegal trouble] even if the arbitral tribunal is already constituted and courts are deprived of jurisdiction to decide the dispute”. But such an order can only be taken “to secure the enforcement of the arbitral award” and the court can therefore not “order the arbitrators to stay the proceedings” as “to order such a measure would constitute an interference with the arbitral proceedings which does not fall within the jurisdiction of national courts, even in summary proceedings”.

These two decisions confirm in very clearly terms that in no circumstance is the court authorized to interfere in any manner with arbitral proceedings (in an earlier order dated 24 June 2004, the Court of Paris had already decided that “in no circumstance”, and “whatever the legal grounds invoked”, has the court any power to order an arbitral tribunal to stay its proceedings – TGI Paris, 24 June 2004, LV Finance Group, Rev. Arb. 2005, p. 1037).

In sum, French courts may only intervene in support of the arbitration and in the limited cases provided by the law. In no circumstance can they entertain instrumental claims aimed at staying or disrupting the arbitration.

A bon entendeur…

Alexis Mourre/Alexandre Vagenheim

1. Professor Hess now introduces a very significant change in the Heidelberg proposal.

In his 14 February post on ConflictsofLaw.net, he had acknowledged that “the proposal of the Heidelberg Report to delete the arbitration exception entirely maybe goes too far”.

Professor Hess now proposes for the first time an alternative to the Heidelberg proposal by drafting Article 1-2 (d) of the Regulation as follows “The Regulation shall not apply to… (d) Arbitration, save supporting measures and declaratory relief proceedings as provided for under Articles 22(6), Article 27A and Article 31”.

In other words, the arbitration exception would not de deleted, as initially proposed by the Heidelberg Report, but maintained, save for ancillary proceedings (proposed new Article 22(6)), for the proposed new declaratory action (new Article 27A), as well as for provisional and conservatory measures (Article 31).

The question which immediately arises is therefore: what about court decisions which do not fall within the three limited exceptions to the exception? Will a court decision on the validity of an arbitration agreement or of an award still be excluded from the scope of the Regulation?

Normally, one would tend to answer positively to that question. If the arbitration exception is maintained (although with limited exceptions), it is hard to see why a judgment annulling an award should be recognized under the Regulation. Putrabali would thus survive to the new Regulation.

And what about a judgment on the validity of the arbitration agreement? Here, a distinction would have to be made.

In case of a judgment rendered at the seat of the arbitration in the context of the proposed new declaratory action, one would have to admit, under the amended Hess proposal, that it should be recognized under the Regulation.

If, on the contrary, the judgment is not rendered at the seat (or rendered at the seat but not in the context of a declaratory action), what would the situation be?

Then, March Rich is likely to survive.

If the main scope of the action giving rise to the judgment is the validity of the arbitration agreement, the judgment would thus presumably fall outside the scope of the Regulation.

But the situation would be more difficult in the case of an interim judgment on the validity of the arbitration agreement rendered by a court seized on the merits. There, as it is known, the Court of Appeals of Paris answered by excluding the application of the Regulation in Fincantieri (Paris, 15 June 2006, Legal Department du Ministère de la Justice de la République d’Irak v/ Sociétés Fincantieri Cantieri Navali Italiani, Finmeccanica et Armamenti e Aerospazio, Rev. Arb. 2007.90, note Bollée), while the English Court of Appeals admitted that the Regulation is applicable in Endesa (National Navigation Co c. Endesa Generacion SA, [2009] EWCA Civ 1397 ). Which of those two solutions should prevail?

Professor Hess, however, seems to follow an entirely different line of reasoning. He in fact rejects my proposal for a safeguard clause inspired from Article IX of the Geneva Convention (new Article 34A). Let me recall that my proposed clause would read as follows:

“A judgment shall also not be recognized:

(a) if it has been rendered in disregard of a valid arbitration agreement that is valid under the law of the country of recognition;
(b) as regards judgments rendered on the validity of an award, if (i) it has not been rendered by the courts of the country where the arbitration has its seat, or (ii) in case of annulment of the award, if it was not made on one of the grounds set out in Article V(1)(a) to (d) of the New York Convention”.

Such proposal was made on the assumption that the arbitration exception would be entirely deleted, with the consequence that a judgment rendered in a Member State deciding on the validity of an award would fall within the scope of the Regulation and would have to be recognized (possibly with no formalities or requirement of exequatur under the new regime).

It would however become unnecessary in case the arbitration exception is maintained with limited exceptions, as suggested by Professor Hess. In such case, a judgment deciding on the validity of an arbitral award should in fact fall outside the scope of the Regulation and have to be recognized under the general private international rules of the country of recognition.

Professor Hess, however, does not reject my proposal on the basis that it becomes unnecessary under the limited arbitration exception that he suggests.

In order to justify his rejection of such a provision, Professor Hess states that it would “completely runs counter the objective of the ongoing reform of Brussels I which shall reduce the grounds of non-recognition and replace exequatur proceedings by the principle of mutual trust”.

One has therefore to understand that, under Professor Hess proposed limited arbitration exception, a judgment rendered in a Member State on the validity of an arbitral award would have to be recognized under the principle of “mutual trust”.

Why it should be so is unclear. But if this assumption is correct, and although Professor Hess declares that he “[does] not want to discuss the issue in more detail”, the question deserves much more attention.

For example: under the New York Convention, awards may be annulled at the seat, and courts in other countries may only refuse recognition on the limited grounds provided in Article V. Let us now imagine a Member State court in a country other than the seat of the arbitration which would annul a foreign award. This is by no means an unimaginable situation. It has occurred in India and elsewhere (See recently: Venture Global Engineering v. Satyam Computer Services Ltd, Supreme Court of India, 10 January 2008). Under Professor Hess’ suggestion (if I understood him well), such a decision would have to be automatically recognized under the Regulation in all other Member States. I trust that Professor Hess will accept that this would be plainly incompatible with the New York Convention.

Second example: a court in a EU Member State where the seat of the arbitration is located and which is also a member of the Geneva Convention of 1961 annuls an award for reasons not contemplated by Article V (1) (a) to (d) of the New York Convention. Recognition of said decision is sought in another Member State which is also a party to the Geneva Convention. Based on the principle of “mutual trust”, automatic recognition would prevent the enforcement of the arbitral award, in breach of Article IX of said Convention when applicable.

It is thus evident that, if the arbitration exception is to be totally or partially deleted in a way that would include judgments on the validity of an arbitral award in the scope of the Regulation, exceptions would need to be framed in order to make the Regulation compatible with the New York and Geneva Convention and to take into account the specificities of arbitration.

2. Let us now turn to the other punctus doli of the Hess/Heidelberg proposal: the automatic lis pendens provision of Article 27 and the proposed declaratory action.

I have expressed the legitimate concern that the proposed new Article 27A will not be compatible with the negative effect of Kompetenz-Kompetenz, as it is applied for example in France.

I have accordingly proposed to vary the proposed new Article 27A of the Regulation as follows:

“A court of a Member State shall stay the proceedings once the defendant contests the jurisdiction of the court with respect to the existence and scope of the arbitration agreement (i) if a court of a Member State that is designated as the place of the arbitration is seized for declaratory relief in respect to the existence, the validity, and/or scope of that arbitration agreement, or (ii) if a judge at the seat of the arbitration has been seized to put the arbitration in motion or has been seized of a difficulty relating to the constitution of the arbitral tribunal, or (iii) if an arbitral tribunal, sitting in or outside the European Union, has been seized of said question”.

Professor Hess maintains that “French procedural law explicitly provides for declaratory relief in the context of arbitration (if the juge d’appui finds the clause is manifestly void)” and adds that “it seems to me possible that a French juge d’appui who is seized by a party under Article 22 (6) JR will stay his proceedings and send the parties to arbitration”. Professor Hess adds that “If the arbitral tribunal finds that the clause is effective, it may give an interim award. The French juge d’appui can endorse the award (by a declaratory judgment). This judgment will be recognized in all other EU-Member States and the prevalence of the arbitration proceedings will be assured”.

Such statements are a bit confusing. As explained in my blog, proceedings before the juge d’appui are my no means comparable to declaratory proceedings. The juge d’appui does not take any decision on the validity of the arbitration agreement. He just puts the arbitration in motion (for example by appointing an arbitrator) unless the arbitration agreement is manifestly null and void. If the judge is seized on the merits, he will decline jurisdiction (not stay his proceedings) and refer the parties back to arbitration unless the clause is manifestly null or inoperative. There is no possible “stay” of the proceedings before the juge d’appui. Either the arbitration agreement is manifestly null or inoperative, and he will not put the arbitration into motion, or it is not, and he will send the parties to submit their jurisdictional objections to the arbitral tribunal.

Whatever Professor Hess meant in his analysis of the situation before the French juge d’appui, he seems to be in agreement that, in presence of an action in the merits before a Member State court where it is argued that the arbitration agreement is null and void, or even manifestly null and void, a judge in another Member State where the arbitration has its seat could nevertheless put the arbitration in motion by for example appointing an arbitrator. In such a scenario, the arbitration could proceed with no need for the judge to “endorse the award by a declaratory judgment” along the lines suggested by Professor Hess.

This is welcomed and – if this understanding is correct – Professor Hess should agree that Article 27A should be amended as suggested above.

3. I also have pointed out that the proposed declaratory action will not prevent situations of lis pendens between an action in the merits in breach of an arbitration agreement and an action to enforce an award in a country other than the seat, thus de facto obliging the parties to return to the old requirement of double exequatur that he New York Convention has suppressed.

To that effect, I have proposed a new Article 27B drafted as follows: “Article 27 shall not apply to the court of a Member State requested to enforce an arbitration award”.

Professor Hess did not comment this proposed new article. I hope he is also in agreement with this proposal.

4. Finally, I would like to make some comments on Eco Swiss and the public policy defense to enforcement, as this issue seems to be at the root of our disagreements.

Professor Hess maintains that “the objective of the NYC is certainly to provide for a uniform regime on the recognition of arbitral clauses and awards”. With due respect, I disagree. The scope of the NYC is to provide for a minimum threshold of recognition, not to unify the regime of recognition of arbitral clauses and awards.

Professor Hess then wonders “whether the EU-Member States are still free to interpret and apply the public policy exception of Article V NYC individually”. Professor Hess’ answer to that query is that: “the public policy clause of Article V (1) (c) of the New York Convention must be interpreted coherently within the EU” and that “eventually, the courts of the Member States must refer questions on the interpretation of mandatory EU law to the ECJ (Article 267 TFEU)”.

This calls for two observations.

First: as a general matter, I of course agree that, within the EU, courts should as much as possible apply EU mandatory laws in a coherent and uniform manner.

But, with due respect, this is not the issue which is debated with respect to the application of the public policy exception in the context of courts review of arbitral awards.

The true issue is that of procedural autonomy, i.e. whether Members States can be more or less intrusive in their review of arbitral awards. As I have shown in a recent study (note to SNF v Cytec, Cass. 4 June 2008, Clunet 2008, 1107), most jurisdictions in the EU would set aside an award only in case of a manifest or a flagrant breach of public policy (like in the Thalès case, a decision which is criticized by some, but which is rightly approved by most, including by such authors as Professor Schlosser, see: Articles 81 and 82 EC Treaty and Arbitration: a German perspective, Cahiers de l’arbitrage, 2009-1, p. 22,).

This is not the place to discuss whether this is appropriate and compatible with EU law. My view is that Eco Swiss permits Member States to restrict their review of awards. Eco Swiss, in deciding that courts must quash an award based on EU public policy if they would quash it based on their domestic public policy, sets a rule of equivalence according to which EU mandatory rules should not be treated differently than EU public policy. It thus permits courts to exercise limited review (or no review at all) of the compliance of an award to both domestic and EU mandatory rules.

Second: It is hard to understand why the need for a coherent and uniform enforcement of EU mandatory laws by courts within the EU is at all relevant in the context of a debate on the revision of the Regulation and the possible suppression of the arbitration exception.

The Heidelberg proposals (in their original version or as they are now amended by Professor Hess) provide no answer to that question because the scope of the Regulation is procedural and does not address issues of substance. Under the Regulation as it could to be amended by the suppression of the exequatur (an evolution that Professor Hess seem to welcome), a judgment having disregarded EU mandatory laws would have to be recognized exactly like a judgment having made a correct application of the same.

Likewise, the Regulation does not address referrals under Article 267 TFEU.

Those issues may be interesting in the context of a discussion on a new instrument providing for a uniform regional regime on arbitration, but they are entirely irrelevant to the revision of the Regulation.

The Heidelberg proposal has been followed by a Green Paper of the European Commission and by a public consultation, which has given rise to numerous reactions from the arbitration community. Many of these reactions expressed a variety of serious concerns on the impact that the extension of the scope of the Regulation to arbitration related court litigation could have. Those concerns relate to possible conflicts between the Regulation and the New York Convention due to the automatic recognition of judgments invalidating arbitration clauses and arbitral awards for reasons inconsistent with the New York Convention, as well as to the recognition of judgments inconsistent with an arbitration awards. They also relate to possible lis pendens situations between proceedings initiated in breach of an arbitral award and proceedings to set the arbitration in motion or to enforce an award. Finally, the suggestion that the lis pendens rule of Article 27 of the Regulation could be set aside in case of a declaratory action before the courts of the country where the arbitration has its seat raises legitimate concerns with respect to the negative effect of the competence-competence principle, as well as to the rush to courts that it might provoke (on these concerns, see the responses to the Commission’s public consultation, and in particular the position taken by the International Bar Association Arbitration Committee, see also our previous post on these issues).

Those concerns, according to Prof. Hess, are misplaced. In an article posted on www.conflictsoflaw.net , which will soon be also published in the 2010-1 issue of the Cahiers de l’arbitrage/The Paris Journal of International arbitration, Prof. Hess submits that they stem from a “misunderstanding” of his intentions (footnote 32). He also promises that “the implications of the proposal will be rather limited” and that “the present state of affairs will largely remain unchanged”. With due respect, this is wishful thinking. The deletion of the arbitration exception, if adopted, will on the contrary have profound and unpredictable consequences on the law of arbitration in EU Member States.

Prof. Hess’ is quite keen to convince the arbitration community that his proposal is arbitration friendly. The Heidelberg proposal would indeed be thought to offer post-West Tankers an alternative to anti-suit injunctions in order to protect arbitration against torpedo actions (“the starting point of the Heidelberg Report was the West Tankers decision of the ECJ”). Yet, it is doubtful that drafters’ primary intention was to remedy West Tankers, for the Heidelberg Report was drafted and published many months before the sinking by the ECJ of pro-arbitration anti-suit injunctions. At any rate, there are good reasons to believe that the medicine would be worst than the illness it is suppose to cure.

Prof. Hess’s confidence that his proposal is innocuous seems to be based on the assumption that “the New York Convention provides for a uniform law”, and that there is thus “a general assumption that the courts of its contracting parties will apply its provisions equally”. As all courts of the Union should be trusted in an equal manner, “there is no reason to oblige the courts of a contracting party in a regional framework to verify the validity of the agreement individually”. In other words, mutual trust between Members States would command to give the same deference to all courts decisions in the Union, which may be fine in Aldous Huxley’s best of all worlds, but is probably far from the reality of the Union. Prof. Hess himself recognises, by the way, that the distrust towards State intervention in arbitration proceedings has been caused by “the limited degree of uniformity created by the New York Convention which does not entirely eliminate differences between the national jurisdictions”, which acknowledgement is rather difficult to conciliate with the assumption that the New York Convention “provides for a uniform law”.

Be as it may, there should be no serious argument that there is indeed no “general assumption” that courts in Member States apply the New York Convention “equally”. It is indeed not the case. Quite to the contrary, there are considerable differences in the way different jurisdictions apply the New York Convention. This is, first, because the generality of the terms of the New York Convention permit courts to disregard its spirit while formally complying with its literal terms (for example by applying a wide interpretation of the concept of public policy). And, second, because the New York Convention is not a convention of uniform law (like, for example, the Vienna CISG). Its scope is not to replace the national laws on arbitration, but to provide for a minimal threshold for the enforcement of arbitration agreements and foreign arbitral awards. As such, the Convention permits Member States to apply more favourable rules. In short, the Convention’s application and interpretation falls back on national arbitration law (on the nature of the New York Convention and the more-favourable rule see A. Mourre, A propos des articles V et VII de la Convention de New York et de la reconnaissance des sentences annulées dans leur pays d’origine: où va-t’on après les arrêts Termo Rio et Putrabali ? rev. arb. vol. 2008, Iss. 2 pp. 263-298 ). On the contrary, international works such as the successful UNCITRAL Model Law are model uniform instruments with a defined aim to harmonize national arbitration legislations.

It is in any case rather doubtful that, as submitted by Prof. Hess, “the prevalence of the New York Convention would be ensured by Article 71 JR, guaranteeing the New York Convention’s priority as a so-called ‘special convention’”. If it were so, French courts would retain the possibility of enforcing in France, based on article VII of the New York Convention, an award annulled in another Member State, which is the exact contrary of what the Heidelberg report intends to achieve. Article 71 refers to special conventions relating to court jurisdiction and enforcement of judgments in special matters, which arguably does not encompass the New York Convention.

It would therefore be necessary, for the sake of clarity, to add to Article 71 an additional provision stating that: “Nothing in the present Regulation will affect the proper operation of the New York Convention”.

One of the difficulties with the Heidelberg proposals is that it ignores the variety of cultures and legal realities that characterize arbitration. The Heidelberg Report is indeed impregnated by the idea that, if there is a dispute on the validity or enforceability of the arbitration agreement, it is for the courts to decide such dispute upfront. However, such a perspective, which is present in the laws of the United Kingdom and Germany, is totally absent in the French and Swiss perspectives (and Switzerland is now about to adopt the negative effect of Kompetenz-Kompetenz regardless of the seat of the arbitration – see Georg von Segesser/Dorothee Schramm latest post for an update on the legislative works being done in this respect). The way Prof. Hess approaches the problem is telling: the Heidelberg proposal does “not intend to increase satellite or parallel litigation in cases where the arbitration clause is undisputed” [emphasis added]. And he further considers that, would the Heidelberg proposals be adopted, “when the arbitration agreement is undisputed, parties may immediately initiate arbitration proceedings without any recourse to State courts” [emphasis added]. Considering that the parties may start their arbitration if they agree that there is a valid arbitration agreement is hardly an innovative proposition. But the reverse of the medal is interesting: if there is no agreement, courts should step in before the arbitration is started. Of course, from that perspective, the suggested declaratory action fits nicely in the picture.

Prof. Hess concedes that “even if the clause is disputed, Member States shall be free to provide a system of negative competence-competence where the arbitral tribunal decides on the validity of the clause”. This is acknowledged: the Regulation as amended would not invalidate Article 1458 of the French Code of Civil Proceedings. Whilst this might provide some comfort, Prof. Hess is however totally silent on the operation of article 27 of the Regulation in case of a conflict between an action in the merits in breach of the arbitration agreement and an action to put the arbitration in motion before the juge d’appui at the seat of the arbitration (e.g. the French juge d’appui. The question is of course relevant in case of an ad hoc arbitration where the parties did not select an appointing authority).

The easy answer could of course be that the decision of the juge d’appui according to which the arbitration shall proceed is a court decision and is thus able to set aside the lis pendens principle according to the proposed new article 27A. Is that so sure?

The proposed new article 27A is clear: it says that the lis pendens principle will be set aside “if a court of a Member State that is designated as the place of the arbitration in the arbitration agreement is seized for declaratory relief in respect to the existence, the validity, and/or scope of that arbitration agreement”. First, arbitration agreements which do not provide for the seat of the arbitration would be left unprotected. But more importantly, declaratory relief is what it is (unless the Commission intends to change the concept): a declaration, in the present case a declaration that the arbitration agreement is valid or enforceable. A French juge d’appui however takes no such decision. When seized of an action to put the arbitration in motion (and the same applies if the court is seized on the merits), a French court will limit itself to ascertain that the arbitration agreement is not manifestly null and void or inoperable. And this is a very demanding standard for parties who submit that there is such a manifest nullity or inoperability: according to French case law, it can only be so if the alleged nullity or inoperability is evident and does not need any complex analysis of the facts (see recently Cass. 1st Civ. 7 June 2006, Jules Verne c/ Sté ABS, rev. arb. Vol. 2006 Iss. 4, pp. 945 – 953 , note E. Gaillard, JDI Vol. 2006 Iss. 3 pp. 1384, note A. Mourre). Courts have been as far as deciding that the juge d’appui can only declare the arbitration agreement manifestly void or inoperable if there is no possible contrary solution (on this issue, see O. Cachart, Le contrôle de la nullité ou de l’inapplicabilité manifeste de la clause compromissoire, rev. arb. Vol. 2006 Iss. 4, pp. 893 – 908). Otherwise, it is for the arbitral tribunal to decide. There is, in other words, no declaration from the French juge d’appui as to the validity or applicability of the arbitration agreement.

In sum, the proposed new article 27A will not prevent a party having first started merit proceedings in breach of the arbitration agreement, and submitting before the court seized in the merits that the arbitration agreement is manifestly void or inoperative, from relying on the lis pendens rule to impose a stay to the French juge d’appui having to decide that the arbitration agreement is not void or inoperative.

In order for the Heidelberg proposal not to hamper the operation of the negative effect of competenz-competenz, the new Article 27A would have to be drafted as follows:

“A court of a Member State shall stay the proceedings once the defendant contests the jurisdiction of the court with respect to the existence and scope of the arbitration agreement (i) if a court of a Member State that is designated as the place of the arbitration is seized for declaratory relief in respect to the existence, the validity, and/or scope of that arbitration agreement, or (ii) if a judge at the seat of the arbitration has been seized to put the arbitration in motion or has been seized of a difficulty relating to the constitution of the arbitral tribunal, or (iii) if an arbitral tribunal, sitting in or outside the European Union, has been seized of said question” (accordingly, see the IBA position paper, § 25-28).

The issue that then arises is of course that many jurisdictions, like France, take quite a liberal approach as to the applicability of the arbitration agreement to non signatories, with the consequence that the above proposition would lead to generalise in the European Union the French arbitration friendly conception that arbitral tribunals have a priority in assessing their own jurisdiction, including with respect to non signatories. Are Prof. Hess and the Commission ready to endorse that principle? That would certainly be a considerable step forward for the laws on arbitration in Europe.

Another aspect of the lis pendens conundrum regards the enforcement of awards. Presumably, Prof. Hess’ proposed Article 27A would prevent any lis pendens situation between an action in the merits in breach of the arbitration agreement and an enforcement action at the seat of the arbitration. As a matter of fact, in case of a dispute on the award’s validity at the seat of the arbitration where a party would base its argument on the invalidity of the arbitration agreement, the court would be required to decide whether said agreement is indeed valid or enforceable, and its decision would be taken as equivalent to the declaration required by the proposed article 27A. But what if enforcement is sought in another country? The proposed Article 27A would then not protect the award and the Regulation’s automatic stay provision would then have the effect of preventing a party from enforcing the award.

It would therefore be necessary to include in the Regulation a new Article 27B as follows: “Article 27 shall not apply to the court of a Member State requested to enforce an arbitration award” (accordingly, the IBA position paper, § 40).

Finally Article 34 of the Regulation would need to be amended so to avoid the automatic recognition of judgments having disregarded a valid arbitration award or annulled an arbitral award on the basis of local standards. A new article 34A would therefore need to be included, as follows:

“A judgement shall also not be recognised:

a) if it has been rendered in disregard of an arbitration agreement that is valid under the law of the country of recognition;
b) as regards judgments rendered on the validity of an award, if (i) it has not been rendered by the courts of the country where the arbitration has its seat, or (ii) in case of annulment of the award, if it was not made on one of the grounds set out in Article V (1) (a) to (d) of the New York Convention” (accordingly, see the IBA position paper, § 40).

Encore un effort, Messieurs les réformateurs….

It is clear that challenges of awards based on alleged distortions of competition have the potential of frustrating the parties of what they bargained for by agreeing to arbitrate: a one stop shop allowing them to resolve their dispute in a fast, efficient and final manner. A balance thus needs to be found between the principle of finality of awards and the public interest to an effective protection of competition. In France, the trend has been set by the famous Thalès case, where the Paris court of appeal found that an award can be quashed only where its solution entails an “effective and flagrant” violation of international public policy. Although criticised by certain authors as an undue limitation to the court’s powers to review the award under substantive public policy, the limited control posited by Thalès has now been endorsed in different ways by two recent court decisions in France and Belgium.

The first decision was rendered by the Court of Appeal of Brussels on 22 June 2009 and is part of the SNF v. Cytec saga. The other is from the French Court of Appeal of Paris and was handed down on 22 October 2009 in Halyvourgiki v. Linde. Both decisions confirm in different ways that courts should exercise restraint when entertaining a challenge based on an alleged breach of European competition law.

The SNF v. Cytec dispute (on which, A. Mourre and L. Radicati di Brozolo, Revue de l’arbitrage, 2007, 304 and A. Mourre, Revue de l’arbitrage, 2009, 594) arises from the termination by SNF of a long term supply agreement of a raw material called AMD, based on its alleged anti-competitive effects. The contract provided for ICC arbitration in Brussels. Cytec started an arbitration with the aim of challenging the contract’s termination and seeking damages, and SNF alleged before the arbitrators that the contract not only violated Article 81 EC [now article 101 of the TFEU] but was also an abuse of its dominant market position. Two awards were rendered in Brussels in 2002 and 2004 under the aegis of the ICC rules. The arbitrators decided in a partial award that one of the contracts indeed violated Article 81 of the EC Treaty since it had the effect of foreclosing SNF from the AMD market. The tribunal also decided that both parties were responsible for the nullity of the contract and that liability should thus be equally shared between them. In the final award, the tribunal nevertheless held that SNF had not established its losses and thus awarded damages only to Cytec, in an amount that roughly matched those that such company had initially sought for the termination of the contract.

SNF challenged the decisions on the basis that the award of damages to Cytec in an amount roughly equivalent to its initial claim amounted to giving effects to the annulled contract, and that in so doing the tribunal breached Articles 81 and 82. On 8 March 2007, the Tribunal of Brussels quashed the awards on the basis that the tribunal’s reasoning was inconsistent for it had on the one hand admitted that the contract was contrary to public policy and on the other hand awarded Cytec damages in amount equivalent to those that it had initially sought to compensate its allegedly wrongful termination. It is worth noting that, in parallel, Cytec had sought the enforcement of the awards in France and obtained its exequatur from the court of Paris. After subsequent proceedings, the Paris court of appeal (23 March 2006) and the French Supreme Court (4 June 2008, Clunet 2008, 1107, note A. Mourre) rejected SNF’s challenges against the exequatur by holding that enforcement of a foreign award could only be denied in case of a “flagrant and effective” violation of international public policy, that the solution given to the dispute by the awards did not materialise such a flagrant breach, and that SNF’s allegations that the contract had anti-competitive effects amounted to an attempt to reopen a debate on the merits that had been finally settled by the arbitrators.

Indeed, at this stage of proceedings, the decisions of the French court of cassation and the Belgian first instance tribunal illustrated the stark opposition between the so-called minimalist and maximalist approaches of the award’s scrutiny. The French position was certainly in accord with the dominant view, in and outside the European Union, that awards should only be quashed in case of manifest and egregious breaches of international public policy. In Switzerland, it is well known that the Swiss Federal Tribunal held in Tensacciai (TFS, 8 March 2006) that awards can only be quashed in case of breach of the most fundamental principles which form the basis of any legal order, and that competition law is not part of such “truly” international public policy. In the United States, courts have repeatedly upheld a pro-arbitration stance and decided that the award can only be quashed for breach of the law on competition if the arbitrator purposely ignored it when making the award (U.S. Court of Appeals, 5th Circuit, American Central Eastern Texas Gas Company v. Union Pacific Resources Group and Duke Energy). In another case, the 7th Circuit found that a mistake in the arbitral tribunal’s application of the competition law is not a ground on which to set aside an award (16 Jan. 2003, Baxter International Inc. v. Abbott). The High Court of New Zealand has also endorsed minimal review of awards under competition law (Gvt. Of New Zealand v. Mobil Oil, YCA 1988, 638). In Italy, both the court of appeal of Milan in Tensacciai (8 March 2006) and Florence (Nuovo Pignone, 21 March 2006) clearly stated that the scrutiny should be limited to verifying that the arbitrators duly considered the competition law issues and held that a misapplication of such rules is not tantamount to a violation of international public policy. In Sweden, the Svea court of appeal held in 2005 (Rep. of Latvia v. Latvijas Gaze) that the concept of public policy should be given a narrow application in the context of the review of an arbitral award and that a violation of competition law can only lead to an annulment in “obvious cases”. Although there is to our knowledge no case dealing precisely with a challenge based on European antitrust law in England, the Court of appeal in Westacre has clearly set the yardstick in favour of finality. Case law in Germany is still unsettled, with decisions in favour (OLG Düsseldorf, 21 July 2004) and against (OLG Thüringen, 8 August 2007) an in-depth review of the arbitrators findings, but well known authorities have supported the Thalès approach (P. Schlosser, Articles 81 and 82 EC-Treaty and Arbitration: A German Perspective, Cahiers de l’arbitrage, 2009-1, 25). Likewise, in Spain, although we are not aware of any case on point, leading judges have clearly expressed the view that court review of awards should be limited to the most egregious breaches of public policy and should never lead the court to revisit the arbitrators’ findings as to the facts of the case (A. G. de Paredes, L’annulation des sentences arbitrales en Espagne: à propos de la non révision au fond des sentences et du contrôle du respect de l’ordre public en droit espagnol: Cahiers de l’arbitrage, 2007-3, 27).

From that perspective, the stand of the Brussels court of first instance in SNF in favour of an in-depth review of the arbitrators’ findings in order to ensure a proper application of the law on competition was certainly isolated. To our knowledge, only once has a court entered into the exercise of revisiting the arbitrators’ findings in the merits (Court of appeal of The Hague, 24 March 2005, Marketing Displays International, for a critical analysis, A. Mourre and L. Radicati di Brozolo, Towards Finality of Arbitral Awards: Two Steps Forward and One Step Back, JOIA 2006, 180). Belgian courts have however now joined the mainstream pro-arbitration approach by annulling the Brussels court of first instance ill-grounded annulment decision.

In a 22 June 2009 decision, the Brussels’ Court of appeal (Revue de l’arbitrage 2009, 574, with a note by A. Mourre), has in fact clearly confirmed that “the judge before which the award is challenged should not verify the accuracy of the arbitrators’ reasoning and cannot substitute his own valuation of the case to that of the arbitral tribunal. The Court of appeal adds that “the mission of the judge reviewing an award is to verify the regularity and the legality of the award: as a matter of principle, the review has to be performed to the exclusion of any revisiting of the merits of the case and only on the limited grounds set by Article 1704 of the Judicial Code if any such ground has been invoked”. And it rightly concludes that “the grounds developed by a party which pursues a complete revisiting of the merits of the case by asking the judge to reassess the consequences of the nullity of a contract in a manner different than the arbitrators’ appraisal are not part of public policy”.

The Brussels Court of appeal approach is thus very close to that of French courts, as confirmed by a very recent and unpublished 22 October 2009 decision of the Paris Court of appeal in Linde Aktiengesellschaft v. Halyvourgiki. The two companies had entered into an agreement for the production of liquid gas by Linde in a steel plant belonging to Halyvourgiki, the gas being destined to the industrial needs of said plant. While Halyvourgiki argued that the contract included an implied exclusivity provision preventing Linde to sell the gas to other customers, Linde submitted that no such exclusivity provision had been agreed between the parties. Linde however raised before the arbitral tribunal no argument based on the invalidity of the alleged exclusivity agreement under the rules of competition. In its award, the arbitral tribunal found that, based on trade customs in these type of contracts for the production of gas on the customer’s site, the manufacturer is indeed under the obligation to reserve the full production made on site to the owner of the plant. The award was challenged before the Paris Court of appeal by Linde, who raised at this stage and for the first time the argument that the implied exclusivity agreement was a vertical restraint and that, given the parties’ shares of the relevant market, it did not fall under the relevant block exception. Linde also submitted that the implied exclusivity provision had the effect of distorting the operation of the liquid gas market in Greece and led to an increase in prices and to reinforcing the market power of its main competitors. The argument was based on lengthy and highly complex expert reports analysing the structure of the liquid gas market in Greece and in Europe, the structure of the prices, and the evolution of the main gas manufacturers’ market shares over a span of several years both in Greece and in Europe. Linde’s argument was disputed by Halyvourgiki both on the basis of arbitration law (the alleged misapplication of European competition law is not ground for quashing the award) and on the ground of competition law (as Halyvourgiki disagreed with Linde’s economic analysis, notably the identification of the relevant market and the parties’ market shares).

It should also be noted that the case was much more driven by economic analysis than Thalès was, for the exclusivity in dispute was a vertical restraint (as opposed to a horizontal one) which did not imply any breach per se of the law on competition but an alleged illegality based on the economic effects of the transaction.

In its decision, the Court of appeal fully endorsed the Thalès doctrine and held that the challenge amounted to an attempt to reopen a debate on the merits which should have taken place before the arbitral tribunal, that the control was restricted to the solution given tot the dispute by the arbitral tribunal in its award, and that the alleged anti-competitive effects of the agreement in dispute did not amount to a flagrant and manifest breach of international public policy.

The thrust of both the Brussels and Paris courts decision is that the award, if rendered by a competent arbitral tribunal in a regular procedure where both parties had the benefit of due process, has an intrinsic authority which should be acknowledged and recognised as such by the reviewing judge. There is nothing revolutionary there, as this is exactly the basis upon which the doctrine of private international law has established limited review of foreign judgments since more than fifty years. From that perspective, the limited review of awards under substantive public policy differs from the control performed by courts as to the jurisdiction of the tribunal. In fact, the authority of the award supposes that is has been rendered on a valid arbitral agreement. This explains why the nature of the limited review of awards under substantive public policy is sometimes characterized as “extrinsic”, as opposed to the review of the arbitral tribunal’s jurisdiction, which is “intrinsic” in the sense that it implies a review of the reasons given by the arbitrators to establish their jurisdiction.

Alexis Mourre

1. Is Arbitral Jurisprudence anything more than a myth?

At the core of the question raised in the title of this blog is the much debated question of the existence of precedent in international commercial arbitration, the answer to which is in turn dependent on different philosophical conceptions of that means of dispute resolution. Do international arbitrators apply the law chosen by the parties in the same way a national court would do? Or is international arbitration a free-standing system of international justice relying on a body of legal rules of its own? Are international arbitrators only concerned with the case before them, or do they feel compelled to adhere to past arbitral solutions for the sake of consistency? In sum, is arbitral jurisprudence anything more than a myth? (see on these issues the seminal lecture of G. Kauffmann-Kohler, Arbitral Precedent: Dream, Necessity of Excuse? The 2006 Freshfields Lecture, Arb. Intern. 2007, Vol. 23, n°3, p. 357). One point in respect to which almost all authors seem to agree is that “persuasive precedent”, rather than precedent in the meaning of the doctrine of stare decisis, is the concept that can be applied to arbitration. Persuasive precedent can be defined as the de facto tendency for an international arbitrator to accept what has been consistently decided in a significant number of past arbitral decisions. It would therefore be misconceived to apprehend the concept of precedent in arbitration with the same perspective as that applied to courts. The jurisprudence of state courts present characteristics of homogeneity in a hierarchical system that arbitral case law does not and cannot have. Yet, international commercial arbitration produces decisions which are not the product of a given municipal judicial system: they are autonomous decisions issued by tribunals which have no forum and which are not rooted in the judicial system of the seat of the arbitration (see the recent Putrabali decision of the French Supreme court of 29 June 2007 which defines international arbitration award as an “international decision of justice, Rev. Arb. 2007.507 note E. Gaillard). These decisions are referred to by other arbitrators, and they may in certain cases persuade future tribunal to adhere to previous solutions. Arbitral precedent is no more and no less than this capacity of past arbitration awards to convince future tribunals to adhere to the solution they embody. The proper question should therefore not be whether arbitral precedent exists, but how and when it does operate.

2. How does persuasiveness of past awards operate?

The persuasiveness of past arbitration awards implies to a certain extent that international arbitrators see themselves as part of a group of international adjudicators which role and raison d’être is to fulfil the particular needs of the international business community, and perceive arbitration as a free-standing and autonomous system of international justice. If the idea of such a free-standing system of international justice is accepted, it is perfectly understandable that international arbitrators try to be as consistent as possible with past decisions of other international tribunals. Such effort of consistency is not driven by a structural homogeneity of arbitration as a dispute resolution system, or by the hierarchical situation in which arbitrators would find themselves. There is no such homogeneity or hierarchy in international arbitration. The driving force of arbitral precedent is rather the arbitrators’ desire to meet the parties’ legitimate expectation that their dispute will be resolved by international adjudicators according to internationally accepted procedures and from an international perspective. That is to say: resolved in a way that is not a mere imitation of what municipal judges would do. The idea that opting for arbitration as an international means of resolving business disputes implies the adhesion to a justice which is to a certain extent different from that of courts not only as regards procedure but also as to the perspective adopted for the resolution of substantive law issues. Accepting the dynamics of arbitral precedent as a tool for consistency and as a rule-making instrument cannot go without accepting the specificity of arbitration, not only as regards procedure, but also the way substantive issues are dealt with. On the other hand, arbitration cannot be thought as a truly autonomous system of justice without accepting the role and existence of arbitral precedent. Precedent in arbitration and arbitral autonomy are two closely intertwined concepts.

3. Is Precedent the product of the intrinsic qualities of one or more particularly well-reasoned awards?

The precedential effect of arbitral awards is a phenomenon which analysis is fraught with difficulties. However, arbitral case law is a reality in practice, albeit an imperfect one. Past solutions have some impact on the thinking of arbitrators having to resolve future cases, even though they may not be referred to in their awards. In this respect, the quality of the reasoning of a particular award may of course play a role in the thinking of future tribunals. Yet, in the views of the authors, good reasoning is no driving factor of arbitral precedent. Precedent in international arbitration is not – or not only – the product of the intrinsic qualities of one or more particularly well-reasoned awards. It is not, either, the product of the arbitrators’ own will, although some show a certain tendency to include obiter dicta in their awards. Arbitral precedent is a pure phénomène d’entraînement. And it is all the more difficult to define that it is most of the times difficult to analyse the exact role that reference to past cases played in the arbitral tribunal’s reasoning. While an arbitral tribunal might refer to a given solution adopted in one or two particularly well reasoned awards as a mere illustration of its reasoning, the same solution will, if adopted in similar terms by five, six or more awards rendered in comparable cases, have not only an illustrative value but also a compelling effect. This is not to say that solutions given in a consistent line of awards will always be perceived as binding in future cases. Their relevance will of course depend from the rules of law applicable to the case. From this perspective, procedural issues should be distinguished from questions of substance.

As far as issues of procedure are concerned, it is beyond doubt that solutions adopted in past arbitration awards are likely to be considered as precedents by arbitrators. Decisions on procedural issues or questions of arbitral jurisdiction are the natural ground for the emergence of arbitral jurisprudence because arbitral tribunals have the first say on these issues and, arbitral tribunals having no forum, will generally not resolve them by reference to any particular national law. A similar conclusion may be drawn as far as issues of applicable law are concerned, as it is generally admitted that, in absence of a choice of law, arbitral tribunals can resolve the dispute by referring to the rules of law they believe to be appropriate. As far as issues of substance are concerned, reference to arbitral precedents will be possible when, absent a choice-of-law, the arbitral tribunal decides to apply transnational principles, trade usages. If non-national rules of law are to play any role in the adjudication of international trade disputes, arbitral precedents cannot but be an important source – albeit not exclusive – of the same. Even in presence of a choice-of-law may arbitral precedents play a role in the resolution of the dispute? For instance, arbitral precedent may well play a role when a particular legal issue has not yet been settled in the particular applicable law. International conventions providing for substantive rules of law will also be the natural field for the application of arbitral jurisprudence. This is all the more so when said conventions, like the CISG, present the characteristic of being detached of national laws as far as their interpretation is concerned. The assumption that reference to arbitral precedents would not be conceivable in respect to substantive issues in presence of a choice-of-law is therefore incorrect. Arbitral jurisprudence may be a source of legal rules in a number of different fields, including in respect to issues of substantive law and when a national law is applicable to the dispute.

4. Why do arbitral awards need to be available?

The concept of arbitral precedent naturally raises the issue of the availability of arbitration awards. The fundamental importance of the publication of arbitration awards derives from the fact that, absent of a doctrine of stare decisis in arbitration, arbitral precedent will only operate in presence of a repetition of identical solutions in a number of different cases. Precedent in arbitration is, from that perspective, a rule-making mechanism comparable to that of trade usages. For that rule-making mechanism to operate, it is necessary that arbitration awards be available in sufficient quantity to permit the emergence of trends and the distinction of lines of identical or similar solutions. In other words, in order for past awards to be perceived as binding, there needs to be something close to what has been defined as path dependency for state courts, i.e. the accumulation of identical or similar solutions able to generate a phenomenon of imitation. The persuasiveness, which supposes an exemplary value and, as a consequence, a judgement on the value of a particular decision, often needs to be combined with quantity. Precedential value could only be given to a consistent line of decisions. The same applies to arbitral awards. In order for arbitral awards to have precedential effect, it is therefore necessary that awards be known and available. The main condition for arbitration awards to have a precedential effect is therefore that such awards be known and accessible in sufficient quantity, in other words that they be systematically published. If arbitration is to remain the normal avenue for resolving business disputes, it needs to provide the business community with greater predictability of the possible outcome of trade disputes. In turn, better knowledge of arbitral jurisprudence would allow the business community to have a clearer idea of the realities and advantages of arbitration. This is of course not to say that arbitrators should be deprived of their discretion in the resolution of each particular case. But such discretion in assessing the facts and determining the appropriate rules of law is in no way incompatible with the availability of a body of arbitral precedents upon which tribunals could rely if appropriate.

Yet, and although a precise study remains to be made on the question, it would appear from a superficial survey of published arbitration awards that arbitrators rarely rely on arbitral precedents.

5. Why is reliance on arbitral precedents not frequent?

The reason is in our view to be found in the lack of transparency of commercial arbitration as a dispute resolution system. How can an arbitral tribunal ever conclude that consistent past arbitration awards express a rule of law or a trade usage when the overwhelming majority of arbitration awards are unknown? The proportion of court decisions which are made available to the public through publications in official bulletins, legal publications and on the internet is quite representative of the overall jurisprudential production of a given judicial system. The same cannot be said of arbitration. Save a very limited number of exceptions, almost no ad hoc commercial awards are published, whereas such awards probably represent a very consistent part of the total volume of arbitration decisions rendered each year in the world. Arbitral institutions are therefore the exclusive source of published arbitration awards. Yet, only a small minority of arbitral institutions do publish awards. Yet, this publication policy of some institutions only covers a small minority of the total volume of awards rendered each year.

6. Should all awards be published?

It is of course true that an important part of rendered awards may not present any interest, as they only settle issues of fact. Likewise, decisions rendered in commodity arbitrations or in ex aequo et bono (amiable composition) do not present any interest to the effect of setting a precedent. It is nonetheless out of doubt that the volume of published cases is not representative of the global reality of international arbitration. Awards are published randomly, depending on whether they have been rendered under the aegis of one of the institutions having a publication policy. In addition, the availability of information depends on the editorial policy of these arbitral institutions. The issue is however not how arbitration awards are selected for publication, but whether there should at all be any such selection, except for awards that are manifestly deprived of any interest. Publications that are driven by the desire to treat certain specific issues of general interest that the editor has sought to cover will not, because of the subjectivity of the editor’s policy and the limited range of issues covered, allow the creation of a data base sufficient to treat a wider range of questions. It should also not be overlooked that awards are frequently published under the form of summaries or in extracts, which frequently happens to be insufficient to make a finding possible.

7. Should awards be published with the names of the arbitrators?

Most of the times, it is not the case. Yet, at the difference of court decisions, knowing the arbitrators’ identity may be relevant to the effect of a proper understanding of the decision’s reasoning. Judges are part of a hierarchical and unified judicial body, so that their decisions are more the emanation of the judicial system to which they belong than their individual creation: what matters is more the circuit, the court or particular section of the court which issued a decision. Conversely, awards are rendered by individuals selected for their personal credentials and reputation, who have no forum and whose decisions are not subject to the control of any superior court. Such individuals will frequently have published extensively, and expressed opinions in respect to issues addressed in their awards. Knowing who they are can therefore be important information for a proper understanding of their findings. The high reputation of certain arbitrators may enhance the value of an award in the eyes of their peers. It can of course be submitted that the publication of awards with the names of the members of the arbitral tribunal could have in turn entails a multiplication of obiter dicta by arbitrators desiring to promote their own “jurisprudence”. It could also be feared that the publication of arbitrators’ names could have the effect of dissuading arbitrators to take bold positions. Yet, the example of investment arbitration, were awards are made public with the names of the members of the tribunal, shows that these inconveniencies, as real as they may be, do not outweigh the advantages of putting a complete, unabridged information at the disposition of parties and arbitrators.

8. How could a mass publication of complete, unabridged awards be achieved?

A model could certainly be the CLOUT data base. CLOUT is an information system based on a 1988 Uncitral decision, established for collecting and disseminating information on court decisions and arbitral awards relating to conventions and model-laws that have emanated from the work of the Commission. The scope and purpose of such system, as explained by the Uncitral’s user guide, is “to promote international awareness of such legal texts elaborated or adopted by the Commission, to enable judges, arbitrators, lawyers, parties to commercial transactions and other interested persons to take decisions and awards relating to those texts into account in dealing with matters within their responsibilities and to promote the uniform interpretation and application of those texts“(Doc.A/CN.9/SER.GUIDE/1/Rev.14 February 2000). Why couldn’t a similar system be instated to promote the international awareness of arbitral precedent in commercial arbitration? A new data base with that precise scope could easily be organised under the aegis of the Uncitral, with the same successful system than that which has been used for CLOUT. Awards could be submitted to the secretariat, which would then ensure that the names of the parties and any non relevant or secret information be deleted, exactly in the same way as this is done for published decisions of the European Commission in the field of mergers. The secretariat would also ensure that there is no opposition from the parties to their award being published online a certain period of time after it was rendered. Such a system would allow the progressive constitution of a wide data base which, provided an efficient index and search system be available, would constitute the necessary basis of the elaboration of a true system of arbitral precedent.

9. Is confidentiality a valid objection to the publication of arbitration awards?

It may however be submitted that a systematic publication of complete awards would go against the privacy and confidentiality of arbitration. The argument is in our opinion not a decisive one.

Many arbitration rules provide that arbitration awards should not be published without the consent of the parties. (see Uncitral Rules at Article 32 § 5, Article 43 § 3) of the Swiss Rules, Article 27 § 4 of the AAA Rules, article 34 of the ICDR rules, Article 30 § 3 of the LCIA Rules). A similar provision can also be included in the arbitration agreement itself, or in the terms of reference. In presence of such a provision, it is out of doubt that requirement of consent has to be complied with prior to publication. This does not mean, of course, that publication will in practice be impossible. In fact, such rules do not in general provide that consent should be given in written form. Implied consent after proper notice to the parties may therefore be sufficient to the effect of permitting the publication of the award. Certain precautions should in any case be taken prior to any publication of an arbitration award. No publication should clearly take place if the parties are still litigating. A certain period of time should also have elapsed after the award is rendered (the ICC practice of waiting at least three years before publishing an award seems in this respect particularly healthy). In addition, the award, although published in its entirety, should be expurgated of any potentially confidential or secret information contained therein, which inclusion is not necessary to the comprehension of the decision. This certainly includes the names of the parties involved in the arbitration, the names of third parties, as well as – unless necessary to the understanding of the award, such as data relating to market shares and turnover in antitrust cases – most of the economical and financial information contained in the award.

10. Is there really an overriding principle of confidentiality?

In absence of a provision expressly requiring the parties’ consent to publish the award, the issue is whether a rule to that effect can be deducted from an express or implied rule of confidentiality applicable to the arbitration. Most arbitration statutes do not expressly provide for a general principle of confidentiality. Arbitration statutes may provide for rules applicable to the protection of business secrets, or the secrecy of deliberations (as Article 1469 of the French new code of civil proceedings), but they do not embody a general rule preventing the publication of arbitration awards. As to arbitration rules, those which do not provide for specific rules applying to the publication of awards do not either, in general, contemplate a general principle of confidentiality. The ICC Rules refer, in Article 20.7, to the protection of business secrets and, in Article 21.3, to the privacy of the hearings. The rules of arbitration of the Vienna Chamber also limit themselves to the protection of business secrets. These provisions would not, for themselves, stand in the way of the publication of awards. Certain authors have however submitted that arbitration would be subject to an implied general principle of confidentiality. Such an implied principle of confidentiality would be a necessary consequence of the parties’ consent to arbitrate, be part of the lex mercatoria, or constitute a transnational rule of international arbitration.

The fact however that most arbitration statutes do not embody such a general principle of confidentiality could be seen as an indication that there is no such general principle. Quite on the contrary, the solutions adopted with respect to confidentiality are very different from one jurisdiction to another. In fact, far from expressing a general acknowledgement of the implied confidentiality of arbitration, case law seems to be oriented on the opposite direction in many jurisdictions.

The principle according to which hearings are held in camera is for example justified by the parties’ desire to protect the serenity of the debates. The confidentiality of the documents produced in the arbitration is justified by the need to preserve business secrets, etc. From that perspective, one could wonder what would be the rationale of preventing the publication of an award years after it was rendered if the names of the parties and any potentially secret or confidential information has been removed. There is no uniform conception of confidentiality in arbitration. The notion varies with the situations and functions which it is supposed to cover and does not even apply equally to all participants in arbitral proceedings. Positing that arbitration is la chose des parties and that the award belongs to the litigants is clearly not sufficient to prevent its publication. An award is not only the ultimate product of the parties’ arbitration agreement. It is not solely a private document. It is also a jurisdictional decision which may, to a certain extent, affect the public, and in which the business community at large has an interest. There are many instances in which disclosure of information relating to arbitration is required and permitted. Statutes applicable to listed companies may require the parties to publish financial information or when parties are compelled to disclose the award for the purpose of enforcement or annulment proceedings. A party may find itself in the obligation to produce the award to defend a claim, or to protect its interest or image. These are cases in which a counterbalancing interest imposes disclosure rather than secrecy.

Likewise, the public interest in the development of arbitral case law, in the enhancement of the quality of arbitration, and in providing transparency and predictability to the business community should override the principle of confidentiality as far as the publication of arbitration awards is concerned.

Alexis Mourre/Alexandre Vagenheim

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