Is there a duty to arbitrate in good faith? Is there a need for a Code of Ethics in international arbitration? Those are certainly amongst the most important questions for the future development of the law and practice of arbitration. They have been hotly debated in occasion of certain recent and much publicized cases. And in its keynote address to the last ICCA Congress in Rio, Doak Bishop argued that existing codes of conduct for lawyers are not up to the task. There is no doubt that this debate will strongly develop in coming years.

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

As is well known, Section 1782(a) provides that a “the district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal”.

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

The arbitrability of a dispute is not generally limited to private law. In many countries, including Germany and Switzerland, it is admitted that arbitration can also bear on claims derived from public law, and in particular on rights conferred upon by contracts subject to administrative law. Arbitrability of such disputes may however be more problematic in countries, like France, where the administrative jurisdiction plays an important role in the judicial system alongside with civil courts.

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

In recent years, there has been increasing concern about court orders aimed at preventing a party from initiating, continuing or participating in arbitration proceedings (see notably, IAI Series on International Arbitration, no 2, Anti-Suit Injunction in International Arbitration, E. Gaillard ed., 2005; ICCA Congress Series, No 13 International Arbitration 2006, Back to Basics?, A. J. Van Den Berg, Kluwer Law Int 2007).

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

I am grateful to Professor Hess for his comments on my 3 March 2010 blog. It greatly contributes to advancing the debate. However, it also perfectly illustrates the difficulties of a proposition – the total or partial deletion of the arbitration exception in Regulation 44/2001 – that has not been sufficiently thought through.

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.

Professor Hess is the author of the chapter of the Heidelberg Report on the interplay between arbitration and the Regulation 44/2001 (“the Regulation”). As such, and quite understandably, he actively promotes the suggestion that the arbitration exception should be deleted from 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….

In holding that “Article 85 of the [EU] Treaty [now article 101 of the Treaty on the Functioning of the European Union – TFEU] constitutes a fundamental provision which is essential for the accomplishment of the tasks entrusted to the Community and, in particular, for the functioning of the internal market”, and that “the provisions of Article 85 of the Treaty may be regarded as a matter of public policy within the meaning of the New York Convention”, the European Court of Justice in Eco Swiss (Case C-126/97, 1 June 1999) has created the potential for a flood of challenges against awards for alleged misapplications of the law of competition. The risk caused for arbitration by the characterisation of European competition law as a matter of public policy under the New York Convention has further increased with the growing acceptance and importance of economics in competition policy and decision making, for economic thinking and economics models have never proven to be perfect guides, and may lead to highly unpredictable results. In addition, economic analysis is fundamentally fact-driven and the marriage between competition law and the doctrine of public policy in arbitration inevitably has the potential to lead the reviewing court to revisit the case on the merits. Being a matter of public policy, it may be considered that the arbitral tribunal’s findings should not bind the court reviewing the award. In addition, bad faith litigators are rewarded, as European courts will generally entertain a challenge based on competition law even if the complaining party never raised any such argument during the arbitration proceedings. Finally, given the broad scope of competition law, any award based on a contract of a certain importance may be challenged on the basis of a market power analysis showing that said contract has the effect of distorting the proper functioning of competition on the relevant markets. Then, instead of performing a limited review of the award, the court finds itself dragged into a complex dispute which may never have been argued before, where it is requested to review massive evidence, including expert reports, on market shares, structure of prices, etc…

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?
2. How does persuasiveness of past awards operate?
3. Is Precedent the product of the intrinsic qualities of one or more particularly well-reasoned awards?
4. Why do arbitral awards need to be available?
5. Why is reliance on arbitral precedents not frequent?
6. Should all awards be published?
7. Should awards be published with the names of the arbitrators?
8. How could a mass publication of complete, unabridged awards be achieved?
9. Is confidentiality a valid objection to the publication of arbitration awards?
10. Is there really an overriding principle of confidentiality?

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

The already much debated Paris Court of appeal judgment in Tecnimont, rendered on 12 February 2009, has put into light the dangers arising from the lack of uniformity in the field of conflict disclosure. The Paris Court of appeal has quashed a partial award 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 circumstances that did not exist at the time of his appointment and which he subsequently had not been aware of. No one in the arbitration community can seriously doubt of the total impartiality of that arbitrator. Yet, the award has been annulled, with the consequence of throwing in the garbage a carefully drafted 400 pages award, years of efforts and millions of Dollars in legal costs. Such an outcome would seem absurd, however, the reverse situation would have been equally questionable, leading to admit that an arbitrator can at the same time be judge and member of a law firm providing legal assistance to one of the parties.

The issue of conflict disclosure in international arbitration cannot be addressed from the narrow perspective of a particular national litigation culture. Has the time now come to meet that goal from a truly international perspective? And, if yes, is there on the marketplace a better instrument to achieve that objective than the IBA Guidelines? Institutional decisions on challenges should at the same time be dealt with in such a manner that they be transparent and final, and that parties are not left to re-litigate before courts an issue that they believed was addressed by the institution years before. The harsh consequences of the Paris Court of appeal decision in Tecnimont tells us that the fate of awards having requested years of work and millions of Dollars cannot any longer be left to the hazards of a party becoming aware by chance, in a press release or by attending a conference, of a circumstance that the arbitrator did not disclose when accepting its appointment.

The already much debated Paris Court of appeal judgment in Tecnimont (SA J&P Avax SA v. Société Tecnimont SPA, court of appeal of Paris, 12 February 2009, Rev. Arb. 2009.186, note Clay) has put into light the dangers arising from the lack of uniformity in the field of conflict disclosure. The Paris Court of appeal has quashed a partial award 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 circumstances that did not exist at the time of his appointment and which he subsequently had not been aware of. No one in the arbitration community can seriously doubt of the total impartiality of that arbitrator. No one, either, can doubt of his good faith and his generally acknowledged high moral standards. Yet, the award has been annulled, with the consequence of throwing in the garbage a carefully drafted 400 pages award, years of efforts and millions of Dollars in legal costs. Such an outcome would seem absurd at first glance to anyone. The reverse situation, however, would have been equally questionable, leading to admit that an arbitrator can at the same time be the judge and a member of a law firm providing legal assistance to one of the parties, its parent company or subsidiaries. At a time when transparency and ethics are – rightly – one of the main concerns of the arbitral community, leaving such situations unsanctioned could have devastating consequences. If the recent financial crisis tells us something, it is that trust is a volatile commodity: it is built in decades of efforts, but it can also vanish overnight.

At the core of the problem is the obligation to disclose. The issue is well known to all arbitrators. Disclosures are needed to enable the parties to exercise their right to challenge. In the absence of a proper level of disclosure, the tribunal’s impartiality and independence would solely rest on the appointee’s discretion, with no possible form of control of circumstances that are and will most of the time remain unknown to the parties. The parties would be left to rely on the arbitrator’s impartiality and independence as an act of faith. But not all parties can be asked to share blind faith in the arbitral community, and more and more users of international arbitration are increasingly vocal to ask for more transparency. On the other side, over-disclosure should be avoided. As Molière showed us, excessive rigor can at times hide a deeply vicious soul. And, leaving aside the ridicule of requesting arbitrators to disclose whether they have twenty years ago shared the same college classroom with a relative of one of the parties, suspicion has never allowed building trust. Quite to the contrary, suspicion feeds suspicion. A balance thus needs to be found.

From this perspective, we submit that the IBA Guidelines were entirely right in their submission, ten years ago, that ‘existing standards lack sufficient clarity and uniformity in their application’ (IBA Guidelines, Introduction). The situation is no different today. And the problems remain unsolved. The active role of global law firms in arbitration is only one of them. The professionalization of many arbitrators, some of whom now practice in arbitration boutiques, is another. The need to protect professional liability and the increasingly adversarial behaviour of many counsels compounds the difficulties.

The facts in Tecnimont are telling. The arbitration was administered by the ICC. At the time of accepting his appointment, the arbitrator disclosed that his firm has represented the parent company of one of the parties in a concluded case in which he had never been involved. During the proceedings, apparently after attending a conference, one of the parties’ counsel became aware that the law firm of the arbitrator was assisting on various projects a company which had since then been acquired by the other party’s mother company. That party made a challenge against the arbitrator, which the ICC rejected for reasons which were not revealed. Meanwhile, the arbitral tribunal had rendered a partial award on the principle of responsibility, which was challenged and annulled pursuant to Article 1502-2 of the French Code of Civil Proceedings on the ground that the arbitrator had failed to comply with his duty of disclosure.

Interestingly, the other party had argued that the challenge had not been made within the 30 days time-limit provided by Article 11 of the ICC Rules of arbitration, and the court of appeal held that this time-limit was only applicable before the institution and not before the court.

The first remark to be made at this juncture is that the distinction between institutional and judicial challenges is highly unsatisfactory. If the parties accepted institutional rules that set time-limits for challenges, why should such time-limits not be enforced by the judge? Let us go one step further: once the institution decides a challenge, why should the parties re-litigate the same issue years later before the judge? Would it not be more appropriate to treat challenge decisions rendered by arbitral institutions as if they were awards?

This would of course suppose that such decisions be rendered by neutral third parties and that each party have a sufficient opportunity to present its case before the institution. It also supposes, in addition to those requirements of due process, that challenge decisions be reasoned and that the reasons be given to the parties. From this perspective, the LCIA made a step in the right direction when it decided to publish sanitised extracts of its challenge decisions. We hope that the publication will soon come out.

The second remark is that, as noted by the IBA ten years ago, there is remarkable uncertainty as to the level of disclosure that is required from arbitrators in each single case. The UNCITRAL Model Law, as most national laws, is mute on this important issue, with the result that each court builds its own requirements on a case-by-case basis, in a manner that necessarily lacks uniformity and fails from providing a satisfactory level of certainty to arbitrators and predictability to parties.

As for the rules of arbitral institutions, they present common features, but diverge on important aspects. It is of course widely accepted that an arbitrator must disclose all circumstance which can affect its appearance of independence and impartiality in the eyes of the parties, and that this duty is a continuous one. Most of the rules, however, adopt a purely subjective requirement, leaving the arbitrator to decide the circumstances to be disclosed, while others, like the ICDR Rules, provide for an objective test, with a list of questions for the arbitrators to answer in its declaration of acceptance. The result is that the same situation may be disclosed under some rules of arbitration but not pursuant others, which is not satisfactory.

From this standpoint, a remarkable exercise of balance and transparency is that undertaken by the IBA in its 1999 Guidelines on Conflict of Interest in International Arbitration. Of course, the Guidelines do not satisfactorily address all issues. Of course, they are imperfect in many respects. But they are unique in that they address at the same time the need for balance in the level of disclosure requirement, the requirement of legal certainty and the legitimate expectation of transparency of the users of international arbitration. The Guidelines also conciliate the subjective test, by requiring arbitrators to disclose “facts or circumstances that may, in the eyes of the parties, give rise to doubts as to the arbitrators’ impartiality or independence”, and the objective test by instating presumptions based on the well-known red, orange and green lists.

The IBA Guidelines are also adapted to the needs of international arbitration. The recent rejection by the American Bar Association Dispute Resolution Section of the widely circulated “Best Practices for Meeting Disclosure Requirements Under the RUAA and Similar Arbitrator Disclosure Standards” shows that the issue of conflict disclosure in international arbitration cannot be addressed from the narrow perspective of a particular national litigation culture. The proposed ABA guidelines were certainly driven by an overly judicial culture, and they have as such – and rightly – been rejected by the arbitral community, starting by the College of Commercial Arbitrators, the Chartered Institute of Arbitrators and other practitioners interested in preserving the United States as an attracting venue for international arbitrations. One leading figure ironically declared that the draft should be stamped BBR ‘Burn Before Reading’. This almost unanimous rejection of the text shows that any attempt to set international standards for conflict disclosure should take into account the transnational culture of international arbitration.

Has the time now come to meet that goal from a truly international perspective? And, if yes, is there on the marketplace a better instrument to achieve that objective than the IBA Guidelines? Why not imagine that the main international arbitral institutions jointly decide to adopt the Guidelines by reference in their rules? And why not imagine that the UNCITRAL Arbitration Rules, which are currently under revision, also include a reference to the Guidelines? Of course, this would not be sufficient to address all issues. As said above, institutional decisions on challenges should also be dealt with in such a manner that they be transparent and final, and that the parties are not left to re-litigate before the court an issue that they believed was addressed by the institution years before.

The mere contention that every arbitration procedure is different and has its specificities should not hide that there is need for transparency, predictability and legal certainty in international arbitration. The harsh consequences of the Paris Court of appeal decision in Tecnimont tells us that the fate of awards having requested years of work and millions of Dollars in costs, and in which the interests involving nine or ten figures claims are disposed of, cannot any longer be left to the hazards of a party becoming aware by chance, in a press release or by attending a conference, of a circumstance that the arbitrator did not disclose when accepting its appointment.

Alexis Mourre/Alexandre Vagenheim

The Paris Court of appeal, on 25 September 2008, and the Swiss Federal Tribunal, on 5 December 2008 have rendered two interesting decisions. These two decisions address issues of primary importance, such as the “extension” of the arbitration agreement, joinders, and the scope of review by courts of award having declined the tribunal’s jurisdiction.

These two decisions raise a number of interesting questions.

Firstly, in countries where (as opposed to Switzerland), the law does not provide that the wrongful denial of jurisdiction of arbitral tribunals is a ground for annulment, the question raised is whether awards having declined the tribunal’s jurisdiction over parties bound by the arbitration agreement (even non signatories), can nonetheless be set-aside on other grounds, such as excess of powers or breach of the tribunal’s mandate?

Secondly, should courts entertaining such challenges proceed to a full review of the award or should the control be limited?

The next logical issue is that of the consequences of the annulment of awards on jurisdiction on subsequent awards rendered by the same arbitral tribunal and between the parties. This problem will arise when jurisdiction has been dealt with in a partial award. Does the nullity of the partial award entail the nullity of subsequent awards?

The Swiss Federal Tribunal has amended the award to extend the arbitration agreement included in the employment agreement to the signatories of the sales contract, which had not been included in the arbitration. This is an important step forward towards the admission of joinders in arbitration, an issue that is still debated amongst authors. Two important issues arise here. First, does the Swiss Federal Tribunal decision dispose of the jurisdictional issue? Has it res judicata with respect to the joined parties? Or should the jurisdiction issue be re-litigated with respect to such parties, as they did not have an opportunity to defend themselves on whether or not they are bound by the arbitration agreement?

“Extension” of the Arbitration Agreement, Joinders, Review of Awards Declining Jurisdiction and Public Policy: News from Paris and Lausanne

The Paris Court of appeal, on 25 September 2008, and the Swiss Federal Tribunal, on 5 December 2008 (see on the Swiss case, Georg von Segesser and Philipp Meier, Arbitration Clauses: Interpretation and Extension to Non-Signatories, Kluwer arbitration blog), have rendered two interesting decisions. These two decisions address issues of primary importance, such as the “extension” of the arbitration agreement, joinders, and the scope of review by courts of award having declined the tribunal’s jurisdiction.

The case leading to the Paris Court of appeal decision (Paris, 25 Sept. 2008, Joseph Abela Family Foundation) relates to a dispute between relatives who were shareholders of a Liechtenstein holding company. The bylaws of that holding company included an arbitration agreement providing for ICC arbitration. Years later the constitution of said company, a dispute arose between family members and shareholders of the holding company, with respect to the sale of certain assets. After having rendered a first award deciding that French law was applicable to the arbitration agreement, the arbitral tribunal rendered a second partial award whereby it declined its jurisdiction with respect to three of the respondents on the basis that they were not signatories of the arbitration agreement. A third partial award then decided on certain issues of time-limitation. The second and third partial awards were successively challenged (under French law, a challenge is immediately admissible against a partial award).

While the Court of appeal dismissed the challenge against the third partial award, it upheld the challenge against the second partial award declining jurisdiction. After having proceeded to an in-depth analysis of the circumstances of the case, the Court of appeal concluded that the three excluded respondents, even if non-signatories, were in reality bound by the arbitration agreement, mainly because of their implication in the performance of the contracts which were the subject-matter of the dispute.

Interestingly, the applicable provision of the French Code of civil proceedings does not contemplate the nullity of an award declining the tribunal’s jurisdiction. Article 1502-1 of the Code only provides that an award can be set aside if the arbitrators decided “with no arbitration agreement or on the basis of an invalid or expired arbitration agreement”. As a consequence, the nullity was decided on the basis of another provision of the Code, namely Article 1502-3, which permits setting aside an award if the arbitrators did not comply with their terms of reference.

The solution is neither original nor new in French law. On several occasions, French courts based the nullity of an award having declined the tribunal’s jurisdiction on the violation of the arbitrators’ terms of reference (See Paris, 16 June 1988, Rev. Arb. 1989, p. 309, note Jarrosson; Paris, 21 June 1990, Rev. Arb. 1991, p. 96, note Delvolvé; Paris, 7 July 1994, Rev. Arb. 1995, p. 108, note Jarvin; Paris, 26 Oct. 1995, Rev. Arb. 1997, p. 553). The ground of violation of the arbitrators’ terms of reference, which was used by the Paris court to fill the gap of Article 1502-1° of the Code, can be compared to that of excess of powers in Article 52 of the Washington convention. (”It is settled that an ICSID tribunal commits an excess of powers not only if it exercises a jurisdiction which it does not have under the relevant agreement or treaty and the ICSID Convention, read together, but also if it fails to exercise a jurisdiction which it possesses under those instruments“, 3 July 2002 Ah Hoc Committee Decision in Vivendi v. Argentina, § 86; for a criticism of that decision, see Suarez Anzorena, in Annulment of ICSID Awards, IAI Series on International Arbitration, n°1, p. 149 seq.). In commercial arbitration, the situation is however not as clear as it may be in investment disputes under the ICSID Convention. Both the NY Convention, the Geneva Convention and the Model Law only contemplate, as a ground for annulment, the invalidity of the arbitration agreement, or the fact that the award deals with a dispute not contemplated by or no falling within the terms of the submission to arbitration, or the fact that the award contains decisions on matters beyond the scope of the submission to arbitration. Literally, those grounds for annulment do not encompass the case in which the arbitral tribunal declines its jurisdiction in breach of a valid arbitration agreement. It can be noted, in this respect, that Article 16-1 of the Model Law also only refers to cases in which the arbitral tribunal retains its jurisdiction, as opposed to cases in which it declines jurisdiction over a particular dispute.

Excluding courts’ review on decisions of tribunals’ declining jurisdiction in breach of an arbitration agreement is of course not satisfactory. A party is either bound by the arbitration agreement or not. In the former case, other parties bound by the arbitration agreement have a right to arbitrate against that party, and any decision denying such right needs to be set aside. It is neither in the power nor in the discretion of an arbitral tribunal to exclude from the arbitration a party to which the arbitration agreement is indeed applicable.

The case leading to the Swiss Federal Tribunal decision of 5 December 2008 (4A_376/2008) relates to a shares purchase agreement. The agreement provided for the transfer of certain shares of company B. Ltd. by a company C. Ltd. (who owned the shares in its capacity of trustee of a beneficiary D) to a purchaser A. Party B was mentioned in the contract as director and creditor. The sales contract provided for arbitration by “the Arbitration Court of the International Chamber of Zürich in Lugano”.

On the same date, company B. Ltd. and A entered into an employment agreement, including the same arbitration agreement as in the sales contract. A dispute arose between A and company B. Ltd. under the employment agreement. Company B. Ltd. started ICC arbitration proceedings on the basis of the arbitration agreement contained in the contract.

Respondent A first objected that the arbitration agreement was pathological and did not provide for ICC arbitration, but for the arbitration of the Zürich Chamber of commerce. The Swiss Federal Tribunal, having decided that the arbitration was an international one pursuant to Swiss law, upheld the jurisdiction of the ICC sole arbitrator by holding that in case of doubt, the arbitration agreement has to be construed according to the parties will and that it was in the case beyond doubt that the parties had intended to submit their dispute to an arbitration institution; the question was in fact to interpret the parties will as to which institution they referred to in their agreement. The Swiss Federal Tribunal held on this point that the history of the negotiations between the parties demonstrate their clear intention to refer to ICC arbitration. The arbitration agreement having been concluded in 2006, i.e. two years after the entry into force of the Swiss Rules, the clause could not have been read as a reference to the arbitration of the Zürich Chamber (as the parties would in such a case have referred to the Swiss Rules).

The award was alternatively challenged by A on the ground that the sole arbitrator had declined jurisdiction over the sales contract and its parties (namely, company C. Ltd., B and D). The sole arbitrator had in fact decided that arbitration being based on consent, third party intervention cannot occur without the consent of all interested parties noting that the ICC Rules do not provide for any procedural mechanism for third party intervention. The sole arbitrator as a consequence held that the parties to the arbitration were only company B. Ltd. (claimant) and A (respondent), and that third parties D., company C. Ltd. and B. (signatories to the sales contract) could not be joined thereto.

The Swiss Federal Tribunal, as the French court did, disagreed with the Tribunal’s finding on jurisdiction. The Tribunal first stated that when dealing with an issue of jurisdiction it “freely examines the issues of law, including preliminary issues, that determine the jurisdiction or lack of jurisdiction of the arbitral tribunal“, and by so doing the court does not become, “an appellate tribunal” (§ 6). Further, the Swiss Federal Tribunal decides that when the arbitral tribunal deals with issues of jurisdiction, it has the duty “to decide who are the parties bound by the arbitration agreement and decide whether the arbitration agreement should be applied to non signatories” (§ 8.3). The decision thus clearly confirms, as provided by Article 190-2 (b) of the Swiss Private International Law Act (PILA) that an award declining the arbitral tribunal’s jurisdiction can be fully reviewed.

The Swiss Federal Tribunal also recalls that “Swiss case law – the law applicable in the present case – has already acknowledged the possibility of extending the arbitration agreement to non signatories, in spite of the fact that the written form is one of the requirements for the validity of the arbitration agreement pursuant to Article 178 PILA. Such an extension can occur in cases of assignment, or transfer of a debt. It has also been admitted that, in particular cases, the requirement of form can be satisfied by the conduct of the parties involved. For example, when the third party has interfered in the performance of the contract including the arbitration agreement, its conduct allow to conclude, on the basis of conclusive factual evidence, that such party intended to accept the arbitration agreement (DTF 134 III 565, par. 3.2 and quotes)” (§ 8.4).

The Swiss Federal Tribunal then proceeded to a careful examination of the facts and decided that the two contracts were closely intertwined, and were the expression of a same contractual operation. According to the Swiss Federal Tribunal, the employment agreement (on which basis the arbitration was started was instrumental to the performance of the sales agreement (in that it provided for non competing obligations which had to be enforced until transfer of the shares occurred, as well as for certain provisions relating to the management of company B. Ltd., see for more details on this case: Georg von Segesser and Philipp Meier, Arbitration Clauses: Interpretation and Extension to Non-Signatories, Kluwer arbitration blog ). The Swiss Federal Tribunal concluded that a breach of the employment agreement had correlative consequences on the performance of the sale agreement.

As a consequence, the Swiss Federal Tribunal decided that “in view of the intense participation of D, B, and company C. Ltd. in the negotiation of the employment agreement and their role in the performance of said agreement, such parties are bound by the arbitration agreement included in said contract, which content is, besides, identical to that included in the sales contract“.

These two decisions raise a number of interesting questions.

Challenge of decisions declining jurisdictions

In countries where (as opposed to Switzerland), the law does not provide that the wrongful denial of jurisdiction of arbitral tribunals is a ground for annulment, the question raised is whether awards having declined the tribunal’s jurisdiction over parties bound by the arbitration agreement (even non signatories), can nonetheless be set-aside on other grounds, such as excess of powers or breach of the tribunal’s mandate? The answer should, in our view, be positive. A party trying to enforce an arbitration agreement would otherwise be deprived of any recourse leading to a potential form of denial of justice.

The extent of review: minimalist vs. maximalist

Should courts entertaining such challenges proceed to a full review of the award or should the control be limited? The Paris Court of Appeal decision has been criticised as amounting to a review of the merits (Clay, Dalloz 2008, n°44, pp. 3117-3118). But it is generally accepted that the judge, when reviewing an award having declared its jurisdiction, can proceed to a full review of the award in fact and in law (in France, see Civ. 6 January 1987, Plateau des Pyramides, Rev. Arb. 1987, p. 469, note Leboulanger; Paris, 23 October 2003, Rev. Arb. 2006, p. 149; Paris, 15 May 2008, Rev. Arb. 2008, p. 344). The reason behind allowing full review on the issue of jurisdiction is that the arbitral tribunal would otherwise have the possibility to create its own jurisdiction ex nihilo, which is unsustainable. Why should the control be more limited when the arbitral tribunal wrongly declines its jurisdiction?

The issue as to the extent of review of courts seized of an annulment action has given rise to an intense debate among French scholars and created a division between those in favour of a minimalist approach, among which the present authors, and those clearly favouring a maximalist approach. The terms of the debate were however substantially different and the reasons militating for or against one conception were concerned with substantive public policy, as opposed to procedural public policy. The precedent is now in French law set up by the much-debated Thales case (see Radicati Di Brozolo, L’illicéité “qui crêve les yeux”: critère du contrôle des sentences au regard de l’ordre public international, Rev. Arb. 2005, p. 529 contra Seraglini, L’affaire Thalès et le non usage immodéré de l’exception de l’ordre public, Cahiers de l’arbitrage, Recueil Vol. III, p. 87) and the recent confirmation by the French Cour de cassation in the SNF v. Cytec case (Civ. 4 June 2008, Rev. Arb. 2008, p. 473, note Fadlallah; JDI. 2008, pp. 1107, note A. Mourre ), which decided that the violation of international public policy should be blatant, effective and concrete. It is however submitted that the terms of this debate cannot be imported to grounds of procedural public policy, including those relating to the Tribunal’s jurisdiction. When it comes to ascertaining an arbitral tribunal’s jurisdiction, courts have full power to review in fact and in law whether a tribunal rightfully accepted and, for present purpose, wrongfully declined jurisdiction over the subject matter of the dispute and over all the parties deemed to be bound by it, whether original signatories or attracted to the arbitration by extension of the arbitration agreement.

The effects of the annulment of partial awards on subsequent awards

The next logical issue is that of the consequences of the annulment of awards on jurisdiction on subsequent awards rendered by the same arbitral tribunal and between the parties. This problem will arise when jurisdiction has been dealt with in a partial award. Does the nullity of the partial award entail the nullity of the subsequent awards? There is probably no general answer to this question (in this respect see A. Pinna, L’annulation d’une sentence arbitrale partielle, Rev. Arb. 2008, pp. 615 seq.). If the award is quashed because the arbitration agreement is invalid, all subsequent awards rendered on the basis of such clause will logically be null and void. If, on the contrary the award is partially set aside because the arbitration agreement was not applicable to certain parties, but applicable to others, subsequent awards may stand in respect to such other parties. The situation of an award having wrongfully declined jurisdiction is a bit different. In the Abela case, the Paris Court of appeals rejected the challenge against the third partial award, dealing with issues of time limitation. The question is then: is that third partial award applicable to the parties in respect to which the arbitral tribunal had (wrongfully) declined its jurisdiction? That would certainly be difficult to accept, as those parties did not participate to the phase of the proceedings leading to the third (not quashed) partial award. Should the conclusion not be that the same issues would have to be re-judged with respect to those third parties? But is the arbitral tribunal still impartial to decide the same issues a second time? If not (and assuming another tribunal would have to be appointed), isn’t there a risk of conflict of decisions? Certainly, all those issues should be considered with care by arbitral tribunals considering a bifurcation.

The path towards joinder of third parties in commercial arbitration

The Swiss Federal Tribunal has amended the award to extend the arbitration agreement included in the employment agreement to the signatories of the sales contract, which had not been included in the arbitration (company C. Ltd., D and B). This is an important step forward towards the admission of joinders in arbitration, an issue that is still debated amongst authors (see Mourre, L’intervention des tiers à l’arbitrage, Cahiers de l’arbitrage, Recueil, Vol. I, pp. 100 – 109 and Rev. Brasil. Arb. pp 76 – 97). Two important issues arise here. First, does the Swiss Federal Tribunal decision dispose of the jurisdictional issue? Has it res judicata with respect to the joined parties? Or should the jurisdiction issue be re-litigated with respect to such parties, as they did not have an opportunity to defend themselves on whether or not they are bound by the arbitration agreement? The second issue regards the applicable institutional arbitration rules (in case, the ICC Rules). How can the Swiss Federal tribunal’s decision to modify the award and join third parties be conciliated with the Rules? Should the Rules be amended to include a joinder provision? Such a joinder provision exists in the Swiss Rules. In the case of the ICC Rules, it may however have to take into account the role of ICC Court of arbitration in deciding prima facie whether the arbitral agreement is applicable. This is indeed the solution adopted in the new ICC model clause for trusts disputes (ICC Bull Vol. 19/No2, 2008). Any joinder provision would also have to take into account the principle of equality of the parties in the constitution of the arbitral tribunal, as established by the French Supreme court in Dutco (Civ, 7 January 1992, Rev. Arb. 1989, p. 470, note P. Bellet). It remains to be seen whether or not this path will be followed…

Alexis Mourre/Alexandre Vagenheim