The discussion on the position of arbitration in the Brussels Jurisdiction and Enforcement Regulation (Regulation 44/ 2001) has now reached the Committee on Legal Affairs of the European Parliament.

Just to remind those less familiar with the issue: the present Regulation, as well as the preceding Jurisdiction Convention, allowed courts in EU countries to assume jurisdiction over a contract in spite of an arbitration clause whenever that court decided that the arbitration clause, although binding under the law of the contract and the law of the seat of arbitration, was invalid under its domestic law. They can do so because Art. II of the New York Convention, that obliges state courts to refer disputes to arbitration whenever there is a valid arbitration agreement, does not indicate under which law that validity has to be assessed.

Belgian courts thus for instance frequently assume jurisdiction over the termination of Belgian distributor agreements, although governed by foreign law, because a mandatory 1961 statute forbids arbitration. On January 14, 2010 the Belgian Court of Cassation once more has confirmed that an arbitration clause in a distribution contract governed by Californian law and validly providing for ICC arbitration in Paris under the proper law of the contract and under the law of the seat of arbitration, was nevertheless null and void under the Belgian 1961 statute. Consequently the lower court was entitled to grant substantial compensation for termination under the Belgian 1961 statute. In the case at stake the Californian manufacturer had not even bothered to start an arbitration – probably because he considered the Belgian judgment unenforceable in the USA. Matters would be different when the manufacturer would have assets within the European Union and the Belgian judgment would have been enforceable all over the European Union under Regulation. He could have started the arbitration expecting that the arbitrators would not have granted compensation or less compensation under Californian law. The award, however, would have a limited impact. Its enforceability or recognition under the New York Convention would not block the enforcement of the Belgian judgment elsewhere in the European Union under Regulation 44/ 2001.

The English West Tankers decision, which lead to parallel proceedings before an Italian court and English arbitrators because the Italian court decided that under Italian law the arbitration clause was not effective, has drawn much international attention but is another illustration of the inconvenience of parallel proceedings.

The Jurisdiction Regulation will be amended by 2011. Whether and how the Regulation should avoid parallel arbitration and court proceedings as well as ignorance of the award at the enforcement stage, is being heavily debated for many months. The Heidelberg Report suggested to better integrate arbitration within the Regulation. In its Green Book the European, Commission solicited comments and suggestions from the arbitration community. The consultation was broad: over one hundred suggestions were submitted, going from a full integration of the arbitration process in the Regulation to its absolute exclusion.

It is interesting that the Committee on Legal Affairs of the European Parliament has opted for the latter extreme in its Report on the Implementation and Review of Regulation 44/2001 of a few days ago, i.e. June 28, 2010: the absolute exclusion.

The Committee thus wants to undo the Marc Rich decision. In that case the European Court had decided that a judgement on the merits remains under the Jurisdiction Convention, i.e. the predecessor of Regulation 44/2001, even when the respondent has objected to the state court’s jurisdiction because of an arbitration clause. The Committee would also exclude such judgment from the scope of the Regulation: “not only arbitration proceedings, but also judicial procedures ruling on the validity or extent of arbitral competence as a principal issue or as an incidental or preliminary question are excluded from the scope of the Regulation”. The practical implication of this approach would be that a judgment becomes not enforceable under the Regulation as soon as the Respondent invokes an arbitration clause – even if this clause would be blatantly invalid.

With regard to the court’s powers to sustain arbitration proceedings, the Committee clearly prefers the pre- West Tankers world where the seat of the arbitration had full autonomy to avoid court proceedings elsewhere:

“Whereas the various national procedural devices developed to protect arbitral jurisdiction (anti-suit injunctions so long as they are in conformity with free movement of persons and fundamental rights,….) must continue to be available and the effect of such procedures … must be left to the law of those Member States as was the position prior to the judgment in West Tankers”.

Although the Committee wants the new Regulation to absolutely exclude arbitration from its scope, it admits arbitration nevertheless through the backdoor. Whenever a judgment on the merits was rendered because the court deemed the arbitration clause invalid, the Regulation would deny enforcement whenever that court “disregarded a rule of the law of arbitration in the Member State in which enforcement is sought, unless the judgment produces the same result as if the law of arbitration of the Member State in which enforcement is sought had been applied”. Under the New York Convention an award may not be enforceable whenever under the law of the country of enforcement, there is no valid arbitration clause. For the Committee a judgment from an EU country would become unenforceable whenever, under the law of the country of enforcement, there would be a valid arbitration clause.

The Committee furthermore does not want to give exclusive jurisdiction to the court of the seat for ancillary court proceedings such as the nomination, challenges and replacement of arbitrators, the setting aside of the award:

“ Exclusive jurisdiction could give rise to considerable perturbations It appears from the intense debate raised by the proposal to create an exclusive head of jurisdiction for court proceedings supporting arbitration in the civil courts of the Member States that the Member States have not reached a common position thereon and that it would be counterproductive, having regard to world competition in this area, to try to force their hand”.

One can deplore that in this way courts of many jurisdictions may interfere with the arbitration proceedings. Probably it would be useful to define the ancillary proceedings which will be of the exclusive competence of the court of the seat while recognizing that other courts, with a sufficient link with the case, may take provisional measures.

The Committee’s proposal clearly opts for arbitration. As soon as an arbitration clause is at stake, each EU state is freed from the jurisdictional constraints of the Regulation. However, judgments rendered will nevertheless be enforceable under the Regulation in a court of another EU state as long as the view of that court on the validity and scope of the arbitration clause is compatible with that of the court which rendered the judgment.

The Committee is certainly not the whole European Parliament, which may reach completely different conclusions. Moreover, the European Commission most probably will elaborate its own proposal by the end of this year. However, the Committee’s report is certainly the start of intensive discussions among the Community bodies.

When discussing public policy, English lawyers like to quote the famous comment of an English judge in the early 19th century that “public policy is a very unruly horse, and once you get astride it you never know where it will carry you”.

Recent history shows how difficult it is to ride the ‘unruly horse’; most attempts to resist enforcement on grounds of public policy fail. But it remains a live issue, as the recent decision of the English court in Heinz v EFL illustrates.

Heinz revisits the thorny question of whether an enforcing court may re-open a decision of the tribunal in relation to an issue of public policy. This, of course, brings into play two potentially conflicting principles: the finality of arbitration awards and non-enforcement of awards which violate public policy.

Unsurprisingly, this issue has come up before in England, notably in three cases all dating from around 2000 – Westacre, Soleimany and Hilmarton.

Westacre concerned an attempt to resist enforcement in England of a Swiss award, on the basis of evidence which had not been produced at the hearing. This evidence was alleged to show, first, that the award had been procured by perjury and, second, that the contract was tainted by bribery.

On the perjury point, the Court of Appeal broadly speaking adopted the test applicable in English litigation, such that so-called “fresh evidence” may only be considered if it was not available to the party at the time of the hearing and is sufficiently strong that it may reasonably be expected to have been decisive at the hearing. On the basis of the facts of that case, it refused to consider the evidence.

As to the second point, the court found that it was clear from the award that the bribery allegation was rejected by the tribunal and refused to re-open the point. The award was therefore enforced.

Soleimany was different. It concerned an English arbitration which was conducted before the Beth Din, which applies Jewish law. It was apparent from the face of the award that the contract in question related to smuggling carpets and that the arbitrator considered that illegality was irrelevant as a matter of Jewish law. The English court found that it would be against English public policy to enforce an award which in turn enforces an illegal contract, but there was no question of re-opening the arbitrator’s findings of fact or law.

In Hilmarton, the attempt to resist enforcement of another Swiss award failed. For present purposes, it is sufficient to note that the English court commented that it would be “quite wrong” for it to entertain any attempt to go beyond the arbitrator’s “explicit and vital” finding of fact that there had been no bribery or corrupt activity. That left a question as to whether enforcement could be resisted in England on grounds of illegality under the place of performance which did not offend Swiss law (as the governing law of the contract) or Swiss public policy. The court held it could not and enforced the award. (There is an entirely separate discussion about how Hilmarton and Soleimany should be reconciled.)

That brings us then to Heinz. In the arbitration (which was seated in Hungary), EFL claimed damages in relation to three distribution agreements between it and third parties. Heinz argued that these distribution agreements were “shams”, entered into solely for the purpose of inflating EFL’s damages claim. The tribunal found that Heinz had not proved this allegation and awarded EFL damages in relation to those agreements.

Having failed to have the award set aside in the Hungarian courts, Heinz sought to prevent ELF enforcing the award in England on grounds of public policy. It argued – on the basis of fresh evidence it had gathered since the award – that the distribution agreements were forgeries.

The key issue was therefore whether Heinz was entitled to rely on the fresh evidence of forgery to counter the Tribunal’s finding as to the distribution agreements – that is, the first limb of the discussion in Westacre. On the facts, this boiled down to the question of whether the evidence was reasonably available to Heinz at the time of the hearing.

ELF argued that a reasonable solicitor could have discovered this evidence during the arbitration and that the “fresh evidence” test was not therefore satisfied. The judge held, however, that it was at least arguable that the proper test is whether Heinz and its solicitors should have discovered the evidence (i.e. whether they acted reasonably). He then found that it was arguable that Heinz’s failure to investigate “the opposite camp” before the hearing did not represent a failure to act reasonably.

Pausing there for some technical background, this was a summary judgment application, which meant that ELF had to show that Heinz’s arguments had no real prospect of success. The judge’s finding that Heinz’s position was arguable was therefore sufficient to dispose of the application, such that the case will now proceed to trial.

So what does Heinz mean? On its face, it is limited to cases where a party argues, based on fresh evidence, that an award has been obtained fraudulently. It is different, therefore, to cases like Hilmarton or the bribery limb of Westacre. But the point remains that alleging perjury or fraud in obtaining an award is still another way of seeking to re-open a tribunal’s findings of fact in enforcement proceedings. As was observed in the first instance court in Westacre, it represents an open invitation for a disappointed party to re-litigate a New York Convention award at the enforcement stage.

This invitation is, however, limited to situations where the disappointed party can point to fresh evidence. Much depends, therefore, on where the line is drawn in terms of the admissibility of such evidence. This should be explored at trial in Heinz, making it one to keep an eye on.

Having had their wings clipped by the European Court of Justice in West Tankers, the English courts have recently confirmed that there is life in the anti-suit injunction yet. In AES UST-Kamenogorsk Hydropower Plant LLP v UST-Kamenogorsk Hydropower Plant JSC [2010] EWHC 772 (Comm), Burton J granted anti-suit relief to restrain litigation in Kazakhstan even in the absence of any actual or intended arbitral proceedings.

Various disputes arising in connection with a twenty year concession agreement led, despite the existence of an arbitration agreement, to several sets of proceedings in the courts of Kazakhstan. One suit involved allegations by UST-Kamenogorsk Hydropower Plant JSC (”JSC”) that AES UST-Kamenogorsk Hydropower Plant LLP (”AES”) had failed to comply with certain requests for information regarding the concession’s assets. AES objected to the court’s jurisdiction on the basis of the arbitration clause. Its challenge was rejected, however, because in proceedings to which AES was not a party the Supreme Court of Kazakhstan had already found the arbitration agreement to be in conflict with Kazakh public policy.

AES then sought anti-suit relief from the English courts. It did so directly under the Arbitration Act (by section 44, the court has the same powers to grant injunctive relief in relation to arbitral proceedings as it does in connection with legal proceedings) and in the context of the court’s inherent jurisdiction to award injunctive relief where it is “just and convenient to do so” (section 37 of the Senior Courts Act 1981).

No “gateway” to the Arbitration Act in the absence of actual or contemplated arbitral proceedings: AES did not intend to commence its own arbitral proceedings, it merely wished to resist and prevent the continuation of the Kazakh proceedings. The court confirmed that no relief is available under the Arbitration Act in those circumstances: an application under s44 of the Arbitration Act can only be made by “a party or proposed party to the arbitral proceedings”.

Inherent jurisdiction of English courts to award anti-suit relief: The court was nevertheless prepared to protect AES’ contractual right to insist on arbitration. Burton J was “entirely satisfied” that the Court had jurisdiction to entertain a claim for a declaration and an anti-suit injunction because, as Lord Hobhouse had put it in Turner v Grovit [2002] 1 WLR 107 HL, the applicant was “relying upon a contractual right not to be sued in the foreign country . . . because of . . . an arbitration clause [and thus] he has by reason of his contract a legitimate interest in enforcing that right against the other party to the contract”.

No usurpation of tribunal’s jurisdiction: In this case, the applicant had also sought a declaration that the arbitration clause itself was valid and binding. The court drew a distinction between parties seeking to enforce an arbitration clause who subsequently intend to make a claim within it and those who simply seek to enforce their contractual right not to be sued other than in arbitration. In respect of the former, the court will respect the principle of non-intervention enshrined in section 1(c) of the Arbitration Act 1996, leaving the issue of the validity of the clause to the tribunal, unless and until a subsequent application under section 32 is made, while in the case of the latter, the intervention of the court to determine validity may be entirely appropriate.

In order to avoid any usurpation or ouster of the very arbitral jurisdiction invoked by AES, however, Burton J granted only a limited declaration; that JSC could not bring the claim, the subject matter of the Kazakh proceedings, or any other claim arising out of or in connection with the concession agreement, otherwise than by commencing arbitral proceedings.

In sum, the case comes as a welcome reminder in the post-West Tankers environment that the English courts will still act to protect a contractual right to arbitrate and that they are willing to do so even where the applicant does not itself wish to initiate arbitral proceedings.

Post authored by Sophie Lamb and Ruth Stackpool-Moore

An interesting issue regarding the enforceability of foreign arbitral awards, in relation to the provisions of the New York Convention of 1958 and its alleged conflict with domestic Greek Civil Code provisions in relation to conflict of laws and public policy doctrines arose in Greek jurisdiction. The matter is of specific interest as the dispute went all the way up to the Supreme Court for determining the viability of enforcing the particular foreign arbitral award in Greece.

The actual arbitration dispute arose in late 2004 in relation to a distribution agreement of 1998 between an American and a Greek company regarding medical equipment. The parties’ contractual arbitration clause called for an arbitration proceeding under the auspices of the International Center for Dispute Resolution of the American Arbitration Association. Both parties expressly submitted to arbitration after the dispute arose, and recognized the competence of the appointed sole arbitrator (the “Arbitrator”) to decide the matter.

The Claimant (the American company) filed a claim for the amount of 1.062.655,33 US$ while the Respondent (the Greek company) counter-claimed unspecified damages estimated at the time of filing to be between 1-5 million US$. The arbitration hearings took place between 15-18 August 2005 in the USA, and an interim decision was issued by the Arbitrator on the acceptance of the change of the claimant’s company name, which took place at that time. On 6 September 2005 a final reasoned arbitration award was issued. The Arbitrator decided in favor of the Claimant and determined that the total amount due to the Claimant was 1.137.117,00 US$.

When the Claimant attempted to enforce the award in Greece on the basis of the provisions of the NY Convention of 1958, it was met with resistance by the Respondent who filed various objections against its enforceability. Thus the matter went through all instances of civil courts’ jurisdictions in Greece and found its way to the highest level (Areios Pagos/ Supreme Court) in civil law matters.

The Supreme Court was called to examine various alleged legal flaws and issued a comforting decision to proponents of ADR of both domestic and international level, as it highlighted and supported the viability of enforcing foreign arbitral awards in Greece, a matter that for a number of years has been in real need of such clarification from the highest judicial body, for securing the smooth foreign arbitration awards enforcement in Greece.

The Supreme Court’s approach on the issues before it, which concentrated on whether there were any legal flaws in the earlier Court of Appeal’s ruling, was rather careful and well-balanced. The Court made it quite obvious from the beginning of its rationale that the purpose of the proceeding was not to re-examine the arbitral award on the merits, as an “appeal” against it is not allowed by law. Furthermore, the Court noted that the three-month deadline following the issuance of the foreign arbitral award had elapsed with neither party filing a request for rectification or vacation as provided by the relevant Affidavit and Rules of the International Center for Dispute Resolution of the American Arbitration Association.

As such the Court went through the various objections made by the Respondent on the issues related to the actual enforceability of the award in Greece, namely that the enforcement of the award violates the provisions of article 5(2)(b) of the NY Convention of 1958, and is against the public policy of Greece, and rejected, ab initio, the following three objections made by the Respondent holding that as per the earlier Court of Appeal’s decision that they did not relate to enforcement issues per se but rather attempted to re-examine the issues on the merits, namely:

a. that the arbitration award failed to take into account the provisions of Article 81 of the EEC which prohibits discriminative policies and hindrance of competition in terms of invoicing policies.
b. That the arbitration award violated the Directive 86/653 EC and the Greek Presidential Decree 219/1991 regarding damages afforded to distributors.
c. That the contractual party in the Distribution Agreement was a different entity to the company that acted as the Claimant in the actual arbitration proceeding.

The Court therefore turned its focus on the Respondent’s objection that

a. the arbitration award lacked reasoning and;
b. the scope of the arbitration clause did not encompass the dispute at issue and therefore that the Arbitrator lacked or exceeded its competence in determining the matter and issuing the arbitration award.

The Supreme Court focused on the earlier determination of the Court of Appeal’s decision and while it held that it partially and indirectly violated the relevant conflict of laws and public policy provisions of both the NY Convention of 1958 and the Greek Civil Code by failing to actually examine the above allegations in full prior to issuing its decision, it still affirmed the earlier ruling and held in favor of the enforcement of the foreign arbitral award as it determined that no conflict of laws or public policy considerations should preclude its enforcement. The Court found that the allegations on lack of reasoning and lack of “competence” relating to the arbitration proceeding were unsubstantiated and dismissible. In doing so the Supreme Court confirmed the enforceability and proper application of international arbitration principles and norms in the Greek jurisdiction and fortified the viability and effectiveness of international ADR proceedings in Greece.

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

Art. 207 of the Lisbon Treaty defines the new common commercial policy of the European Union, and states that it shall furthermore relate also to “foreign direct investments”. This provision has the appeal of an outright earthquake, given that the field of foreign investment, and in particular investment treaties, has always been the exclusive realm of the member states (at least in theory, the legal reality was different, though: the EU has concluded mixed free trade agreements with third states not only comprising matters of commercial policy, but also of investments). It has accordingly drawn the comments and critique of numerous scholars. Yet, to my mind it seems that this provision conceals more than it reveals: All we know so far is that the European Union will somehow take part in the foreign investment business in the future. The extent and the manner of its new role is widely unclear: The trouble starts with the term “direct foreign investment” itself, which is not defined. There are a number of other questions which are left unanswered by Article 207: What happens to existing BITs now that the competence to such treaties has – at least in part – been elevated to the EU level? Concededly, until the EU signs treaties of its own, there is little point in arguing that the member states have to cancel their existing BITs, but what happens if the EU does? Will there be parallel treaty structures in respect of direct and indirect investments? Or will there be joined treaties, negotiated and concluded by both the EU and the member states, originating from separate competences (I think, with regard to feasibility, this is the more likely option, especially with a view to the lack of competence of the EU to regulate matters of expropriation, cf. Art. 345 of the Lisbon Treaty)? When negotiating new investment treaties, will the EU take the position of an export- or an import-oriented state, given that the Union comprises both types of states?
Most of these questions require decisions to be made by the Commission and the ECJ, not so much because of legal considerations, but because the competence conferred by Art. 207 is too general and broad as to allow for a definite answer in either direction. It is this very indetermination of the competence, however, which is intriguing in that it allows for learned guesses on how the future of investment treaties in Europe could look. As an arbitration lawyer, I am personally most interested in the question of who would be liable and who would be eligible as a respondent in arbitration in the event a future EU investment treaty is breached.
If the investment treaty is signed by both the EU and the member states, i.e., a multilateral treaty (this is the scenario I would like to discuss, since it is, in my view the most probable one), there is, to my mind, a multitude of possible outcomes. The respondent and/or liable parties could possibly be:
1. only the entity which caused the breach, i.e., either the EU (in the case of a breach of EU officials, for example the competition authorities) or one or more infringing member states. This option would be inspired by a notion of the member states and the EU being coequal partners to the treaty and only severally liable.
2. The EU and the member state who breached the treaty. Such an option would, in legal terms, amount to several liability and attribution of a violation committed by a member state to the EU.
3. The EU and all of the member states, following a concept of joint and several liability.
4. The EU or the infringing member state, at the choice of the EU/member states. Such a mechanism would mirror the existing rule in s. 26 of the Energy Charter Treaty (“The communities and the member states concerned will determine who is a respondent party to arbitration proceedings (…)”.

Which will it be? I think that this depends first and foremost on the terms of the respective treaty, but which option would be desirable in terms of policy? Furthermore, in the absence of specific terms, the determination of liability and the status as respondent to investment arbitration proceedings might also require some deliberation as to the nature of the relationship between the EU and the member states in the context of multilateral investment treaties.

In a post last year we considered the English Court of Appeal’s judgment in the case of Dallah Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan [2009] EWCA Civ 755, where the Court of Appeal held that an order giving leave to enforce a French ICC arbitration award was rightly set aside by the High Court as it had been established, pursuant to section 103(2)(b) of the Arbitration Act 1996 (“the Act”), that as a matter of French law the respondent government was not a party to the arbitration agreement. The High Court and Court of Appeal agreed that an application under section 103(2) of the Act required a rehearing of the facts in contention (in Dallah the existence of an arbitration agreement), not just a review of the award.

It was suggested that Dallah highlighted a possible divergence between the apparent pro-arbitration and pro-enforcement attitude of English law, and the reality of practice before the English courts, where very limited deference is afforded to foreign arbitral awards in the circumstances of challenge to enforcement pursuant to section 103(2). As hoped, Dallah has now been granted leave to appeal to the Supreme Court, where the allocation of jurisdictional competence between the arbitral tribunal and the English courts – particularly as regards the finality of New York Convention awards – will hopefully be given close scrutiny.

Subsequent to Dallah, however, there have been a number of other cases that highlight the current tension between the English legal community’s pro-arbitration and pro-enforcement attitude, and the Act, which may allocate jurisdictional competence to the English courts rather than international arbitral tribunals. This blog briefly reviews several such decisions, namely three recent challenges to the substantive jurisdiction of international arbitral awards pursuant to section 67 of the Act.

Who is Most Competent? Section 67 of the Act and Finality of Arbitral Decisions in England

Similarly as with Dallah, recent case law from the English courts indicates that when considering challenges to the substantive jurisdiction of an award pursuant to section 67, the English courts will conduct a complete rehearing into the matter, not just a review of the tribunal’s determination. An arbitral tribunal’s ruling as to whether there is a valid arbitration agreement; whether the tribunal is properly constituted; and what matters were submitted to arbitration in accordance with the arbitration agreement, are all subject to being reopened and reheard on the merits before the English courts. Such challenges are available both at the enforcement stage, and as a preliminary question. Moreover, section 67 is a mandatory provision of the Act and parties agreeing to international arbitration in England cannot contract out of it.

In Republic of Serbia v Imagesat International NV [2009] EWHC 2853 (Comm) the High Court considered a challenge to the substantive jurisdiction of an ICC tribunal pursuant to section 67 of the Act. The tribunal, seated in England and applying English law, determined its jurisdiction as a preliminary issue in the arbitration. The ICC tribunal held that under the terms of reference it had substantive jurisdiction to deal with, among other things, the interesting question of whether Serbia had conferred on the ICC tribunal jurisdiction to determine if it was the “continuator/successor” of the former State Union of Serbia and Montenegro for the purposes of the latter’s contract with Imagesat, and thus whether it was a party to the arbitration agreement.

For present purposes we are interested in the High Court’s application of section 67 of the Act. In this regard the Court held, applying Azov Shipping Co. v Baltic Shipping Co., that in hearing a challenge under section 67 “it is for the court to determine whether the arbitrator had jurisdiction and whether he was correct in deciding that he did.” In undertaking this enquiry, the Court “does so without any preconception that the arbitrator made the right decision.” The Court in Serbia went further still, stating that the “arbitrator’s determination [as to jurisdiction] can only be provisional.” That sweeping pronouncement is difficult to reconcile with the proposition that arbitral awards are final and binding between the parties, subject to limited judicial oversight. Equally, the tenor of the pronouncement is in some tension with the notion that that judicial review of arbitral awards is limited, with substantial deference being afforded to the arbitrators’ decisions.

The English Court again considered its section 67 jurisdiction in Habas Sinai ve Tibbi Gazlar Isthisal Endustri AS v Cometal SAL [2010] EWHC 29 (Comm). The High Court did not consider it controversial that it would be conducting a rehearing of the arbitral tribunal’s determination on jurisdiction. In that case Habas applied to set aside an interim final arbitration award on jurisdiction, which determined that the parties had concluded an arbitration agreement. The contract in question did not contain an arbitration clause but provided that “All the rest [of the terms] will be same as our previous contracts,” of which there had been 14. The arbitral tribunal held that the reference to the terms of “our previous contracts” was to the terms of the 11 previous contracts between the parties, which were prepared by the respondent and contained London arbitration clauses (notwithstanding that the first three of the 14 contracts between the parties did not provide for arbitration).

Similarly, the February 2010 decision in Norscot Rig Management PVT Ltd v Essar Oilfields Services Ltd [2010] EWHC 195 (Comm) confirmed that a section 67 application involved a rehearing of the jurisdictional point. In Norscot Rig the applicant challenged the jurisdiction of the arbitrator to adjudicate certain set-offs and counterclaims by the defendant, Essar, in the arbitration. Those set-offs and counterclaims arose not by way of breach of the contract containing the arbitration agreement, but pursuant to breach of a second contract between the same parties, but which did not contain an arbitration clause. The arbitrator determined that he had jurisdiction under the arbitration agreement to determine the counterclaim. The High Court dismissed the section 67 challenge, holding that while the counterclaims did not “arise out of” the terms of the contract giving rise to the arbitration, they did “relate to” the contract under which the arbitration was commenced and therefore within the scope of the arbitration agreement.

Thus, as with the position under section 103, in considering a section 67 application, the Court is to undertake a full rehearing on the merits of the jurisdictional issue under challenge. This wide jurisdictional oversight again highlights a divergence between the apparent pro-arbitration and pro-enforcement attitude of the English legal community, and the very broad scope of the English High Court’s jurisdiction to hear section 67 challenges – where no deference is afforded to the international arbitral awards at issue.

Azov Shipping Revisited

In light of this tension it is worth returning to the leading authority on section 67 jurisdiction, Azov Shipping, and examining the High Court’s interpretation of its jurisdiction in that case. Notably, during the course of the Azov Shipping saga, on three separate occasions three justices of the High Court, Rix J (as he then was), Longmore J (as he then was) and Coleman J, each had opportunity to comment on the Court’s section 67 jurisdiction.

Rix J, the first of the three to interpret the scope of Court’s oversight function pursuant to section 67, held that it enabled the challenger “to present his case and challenge the opposing party’s case on the question of jurisdiction with the full panoply of oral evidence and cross-examination so that, in effect, the challenge becomes a complete rehearing of all that has already occurred before the arbitrator.” Rix J considered Lord Saville’s distinguished Departmental Advisory Committee Report on the Arbitration Bill 1996 (1996 DAC Report), stating that “[i]t is not as though the court is required to review a challenge to the arbitrator’s award on jurisdiction through the eyes of the arbitrator or on his findings of fact. As para 143 of the report on the Bill makes clear: ‘A challenge to jurisdiction may well involve questions of fact as well as questions on law.’”

Coleman J also justified a wide section 67 jurisdiction by reasoning that it “is intended to reflect the principles that, whereas an arbitrator has a limited jurisdiction of a provisional nature in line with the internationally accepted doctrine of Kompetenz-Kompetenz, his determination cannot be conclusive between the parties because of the nature of the intrinsic issue, for his jurisdiction can only be founded on the very mutual assent which is in issue.” That view was based on the 1996 DAC Report, which advised that clause 30 of the Bill (later to become section 30 of the Act) “states what is called the doctrine of Kompetenz-Kompetenz,” but that “clearly the tribunal cannot be the final arbiter of a question of jurisdiction, for this would provide a classic case of pulling oneself up by one’s own bootstraps.”

Reallocation of Jurisdictional Competence in England: Room For Debate

The 1996 DAC Report and the subsequent enactment of the Act marked a watershed in arbitration law in England, in particular the Act banished the position that arbitrators could do no more than express a view as to whether they had jurisdiction or not. Tribunals could now determine their own jurisdiction, including in a final award, subject to rights of challenge in the courts. The Act, however, did not go as far as to adopt the classic doctrinal conception of Kompetenz-Kompetenz, as the 1996 DAC Report might appear to suggest.
That original conception of Kompetenz-Kompetenz (under German law) was historically understood as recognizing an arbitral tribunal’s jurisdiction to finally decide questions regarding its own jurisdiction, without the possibility of subsequent judicial challenge or review. Instead, the Act adopts its own formulation of Kompetenz-Kompetenz (by way of both sections 7 (separability) and 30), just as almost every significant international arbitration jurisdiction has adopted (and continues to develop) its own unique concept of the doctrine, affording different degrees of priority and finality to an arbitral tribunal’s exercise of its Kompetenz-Kompetenz, or more accurately, its jurisdictional competence.

Recognizing this, together with the evolving law of international arbitration, there should continue to be debate about whether English law strikes the best balance between acceptable judicial oversight of the international arbitral process (so as to ensure it is not subject to abuses or practices that undermine its legitimacy as best practice for international dispute resolution), and the interests of party autonomy and the efficient and flexible resolution of international disputes.

In Azov Shipping, Rix J expressed a common pro-oversight sentiment, that “[u]ltimately, a question of justice, where it conflicts with a modest prejudice to expedition or increase in cost, must be given greater weight.” The other side of the coin is that none of the section 67 challenges in Azov Shipping, or the more recent Serbia, Habas Sinai or Norscot Rig cases were successful. In the words of Longmore J in Azov, the applicants, having already lost their jurisdictional challenges before the tribunal were “effectively now having a second bite at the same cherry.” It can readily be seen how parties can abuse the section 67 procedure, and it is questionable whether the interests of justice are served by providing recalcitrant parties with an instrument of cost and delay.

Just as importantly, the ability to require as of right a complete rehearing of jurisdictional issues (both fact and law) already determined by an arbitral tribunal, significantly undermines the cornerstones of the international arbitration regime, being procedural neutrality, judicial non-intervention, party autonomy, flexibility of procedures, and the finality and enforceability of arbitral awards. The potential for section 67 to erode the efficacy of international arbitration as an international dispute resolution procedure must also be considered alongside the stated purposes of the Act, which are to “obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense” and that “the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest.”

These recent cases should again promote debate about whether the Act strikes the right balance between these competing interests.

Gary B. Born and Timothy J. Lindsay

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.

Does a blind law professor intend to destroy the benefits of the New York Convention? Reading the post of Alexis Mourre, I was wondering whether I should react to it, as the post refers to my opinion at least incompletely. However, as I’m still convinced that a fair and open discussion is beneficial, I would like to make the following four annotations to his response: (1) I do not (longer) propose to delete the arbitration exception of the Judgments Regulation (JR) entirely; (2) the proposal of the Heidelberg Report is completely in line with Articles V and VII of the New York Convention; (3) the IBA Arbitration Committee’s proposals of enlarging the grounds of non-recognition under Article 34 JR run counter to the paramount objective of the current reform of the Regulation which shall abolish exequatur proceedings; (4) finally, despite of Alexis Mourre’s concerns, the proposals of the Heidelberg Report are compatible with the French practice of the negative “kompetenz-kompetenz”.

1. Alexis Mourre is not correct in stating that I am promoting a complete deletion of the arbitration exception in the Brussels I Regulation. It is true that this was the initial proposal of the Heidelberg Report. However, reacting to some of the critics on this proposal, I’ve modified my opinion. Just read the guest editorial at conflict of laws (an article which has been requested explicitly by A. Mourre for the Cahiers de l’Arbitrage by the way) where I suggested not to delete the arbitration exception of Article 1 (2) lit. d) JR entirely, but to replace it by a more restricted formulation.

The new provision shall clarify that the Regulation applies to declaratory relief under the (proposed) Articles 22 (6) and 27 (A) as well as to supportive measures under Articles 22 (6) and 31. For the sake of clarity, I would like to reiterate it here. The provision could read as follows:

“The Regulation shall not apply to ….
(d) Arbitration, save supportive measures and declaratory relief proceedings as provided for under Articles 22(6), Article 27A and Article 31.”

However, I would like to stress that this proposal does not change the basic idea of the Heidelberg Report which is found in the proposed Articles 22 (6) and 27A of the Judgment Regulation. The proposal is explained in detail in the guest editorial of 14 February 2010 at conflict of laws.

2. The main argument of Alexis Mourre relates to the inconsistent application of the New York Convention by the courts of its contracting parties. He stresses the fact that the New York Convention does not provide for a uniform law. I agree – but the objective of the NYC is certainly to provide for a uniform regime on the recognition of arbitral clauses and awards (this seems to me to be the reason why States ratified the convention). In this respect Alexis Mourre refers to Articles V (1) (c) (public policy clause) and VII (escape clause) of the New York Convention. He argues that these provisions clearly demonstrate that a different interpretation of the convention is still possible and is applied. Again, I agree. However, the real question is whether the EU-Member States are still free to interpret and apply the public policy exception of Article V NYC individually. In this respect, Alexis Mourre does not mention the ECJ’s judgment in case C-126/97, Ecco Swiss. In this case, the ECJ expressly urged the courts of the Member States to review arbitral awards under the NYC for their compliance with mandatory EU law (paras. 36 and 39). I suppose that Alexis Mourre agrees that the courts of all EU Member States must apply EU law in a coherent and uniform way. At present, most mandatory laws which apply in the context of the public policy exception of Article V NYC are found in EU law – I only mention the following examples: cartel law; company law; consumer protection law; further the principles of due process of law as well as procedural fairness (Articles 6 ECHR; 47 CFR). Accordingly, the public policy clause of Article V (1) (c) of the New York Convention must be interpreted coherently within the EU – eventually, the courts of the Member States must refer questions on the interpretation of mandatory EU law to the ECJ (Article 267 TFEU).

It must be mentioned here that this specific situation within the European Union is the main argument for the adoption of a regional regime in Europe aimed at supporting arbitration in the framework of the NYC. As I explained in the guest editorial on conflict of laws, a main reason for such a regional framework is the need of the European Judicial Area for a coherent enforcement of mandatory European law. This need also exists in the framework of arbitration (an argument not addressed by Alexis Mourre). In this respect the situation within Europe is distinctively different from the situation in so-called third states. The NYC plays a considerable role in the case law of the ECJ – but it is not regarded as a “distinct world” detached from the needs of the Internal Market – the ECJ held quite the contrary (see Ecco Swiss, para. 38). In addition, Article VII of the NYC does not give the green light to EU-Member States to derogate from mandatory EU-law in the context of the recognition of arbitral awards. In this respect, the decision of the Cour de Cassation in Putrabali seems to be doubtful in my opinion.

3. The third argument forwarded by Alexis Mourre relates to the proposals of the IBA Committee on International Arbitration regarding the reform of the Regulation Brussels I. According to these proposals, the grounds of non-recognition provided for in Article 34 of the Regulation should be enlarged and include arbitral awards. With all due respect, this proposal 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. This objective is clearly expressed by the first question of the EU-Commission’s Green Paper on the Reform – I do not want to discuss the issue here in more detail.

4. Finally, Alexis Mourre expresses concerns regarding the proper operation of the proposed Articles 22 (6) and 27A JR with regard to the French doctrine of the negative “kompetenz-kompetenz”. In this respect, he stresses the fact that a French juge d’appui does not give a declaratory judgment on the validity of an arbitration clause. The judge will send the parties to arbitration unless he finds that the clause is manifestly null and void. Again, the drafters of the Heidelberg Report were well aware of this practice in France. However, as French procedural law explicitly provides for declaratory relief in the context of arbitration (if the juge d’appui finds that the clause is manifestly void) it seems to me to be 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. 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 recognised in all other EU-Member States and the prevalence of the arbitration proceeding will be assured. I agree with Alexis Mourre that the proposal will entail a (limited) change of the practice in France. However, it seems to be feasible that the French courts will adopt their practice to the framework of Articles 22 (6) and 27A JR in order to preserve the importance of Paris as the “home of international arbitration”.