The declaratory award (on the tribunal’s jurisdiction) was made pursuant to an arbitration agreement contained in a bill of lading for the carriage of African Fertilizer’s cargo from Romania to Nigeria. The English court had given the claimant, Shipsnavo, leave to enforce the arbitration award and to enter judgment again the defendant, African Fertilizers.

The English court had previously issued an injunction restraining African Fertilizer from continuing an arbitration in Romania, as well an interim declaration that such arbitration proceedings, together with court proceedings commenced in Romania, were both in breach of the arbitration agreement.

Shipsnavo had sought an order for enforcement under s66 of the Arbitration Act 1996 because it was concerned that, should African Fertilizer be successful in its Romanian court proceedings, then it would seek to enforce that judgment under Article 34 of the Brussels Regulation 44/2001, notwithstanding the arbitration award. If Shipsnavo had already obtained an English judgment, then it could seek to resist the recognition of an irreconcilable judgment of the Romanian court.

African Fertilizers resisted the application on the ground that the English court had no jurisdiction to make such an order because the material terms of the award were in purely declaratory terms.

First, it argued that enforcement of an award of a purely declaratory nature is not possible (notwithstanding the ruling – albeit on appeal – in West Tankers). Second, it argued that a judgment entered under s66 of the 1996 Act does not constitute a judgment within the meaning of Article 34 of the Brussels Convention, relying on the ECJ case Solo Kleinmotoren v Boch.

The first limb raised questions of the distinction between “recognition” and “enforcement” in the context of New York Convention awards. African Fertilizers argued that the West Tankers decision was incorrect, that Shipsnavo really intended simply “recognition” of their award in order to defend any adverse Romanian court judgment, and enforcement was not appropriate. The court disagreed, aligning itself with the West Tankers decision and giving primacy to the party’s right to the benefit of the award. The court preferred the plain meaning of “enforce” in s66 of the Act, and cited both textbooks and case law in support of its jurisdiction to enforce a declaratory award.

The second limb was also rejected. The court distinguished the Solo Kleinmotoren decision as being a case about a court approved settlement, in which the ECJ held that a settlement agreement recorded in a court order is not a judgment for the purposes of Article 34(3). Beatson J commented that a settlement is essentially contractual, and while the “submission to arbitration is consensual, the outcome of the arbitration and contents of the award are not”. Further, there were public policy considerations. Citing Briggs on Civil Jurisdiction, Beatson J noted that an English court could not give “leave to enforce an arbitral award and then be required to recognise and enforce a foreign judgment which undermined or contradicted that arbitral award”.

However, there are public policy considerations not considered by the court. Shipsnavo’s objective in seeking to enforce the declaratory award was to pre-empt the enforcement of any irreconcilable judgment that may be given by the Romanian court. What happens if the Romanian courts do find in favour of African Fertilizers? The parties could each have irreconcilable judgments from England and Romania, arising from the same agreement.

While the pro-arbitration stance of the English courts is welcome, this approach can result in inconsistent judgments within Europe. It may be that the current proposals to reform the Brussels Regulation will go some way to temper this risk. The European Parliament’s Legal Affairs Committee (LAC) has proposed maintaining the arbitration exception to the Regulation, but with clarifications for the interface between arbitration and the courts. The first reading of the LAC’s report is reported to take place on 18 April 2012 and the process can take several years to pass through the European parliament. Are those reforms appropriate? And meanwhile, are there risks for the health of the inter-twining systems of justice that are arbitration and litigation?

The dispute involves a contract dated back to 1997 between a Swiss company (“ATEL”) and a State-owned network operator in Slovakia (“SEPS”). Pursuant to the contract, ATEL paid a considerable amount of construction costs for a line from Poland to Slovakia which had not yet been constructed. In return it would receive priority access to the line for a non-renewable period of 16 years. Slovakia itself was not a party to the contract and the party actually concluding the contract was SEPS’ predecessor.

This agreement and its application caught the European Commission’s (“EC”) attention on April 10, 2006; three years after Slovakia’s accession date of April 16, 2003. The EC sent a formal notice to Slovakia and a reasoned opinion shortly thereafter. The EC initiated action against Slovakia claiming that pursuant to a Directive (Articles 9(e) and 20(1) of Directive 2003/54), the contract in question was contrary to Slovakia’s obligations. Essentially, the EC argued that the contract granted ATEL discriminatory access to the transmission system involved.

The AG went through a set-by-step analysis considering the application of EU law as well as the Energy Charter Treaty and the applicable BIT, namely the Investment Protection Agreement. After considering the EU Law, the AG did conclude that the contract was discriminatory, but considered whether this discriminatory behavior fell under an allowed exemption.

The AG only briefly discussed the relevancy of the Energy Charter Treaty, rather quickly dismissing its relevance, but spent quite a bit of time interpreting the applicable provisions of the Investment Protection Agreement. In doing so, the AG considered the relationship between this BIT and the EU laws. The relevant treaty provision of the EC (Article 307) was determined to be applicable and the Investment Protection Agreement’s provisions were interpreted in light of its application.

Article 307 EC addresses the relationships between the pre-accession rights of third countries and remedying the “incompatibilities with the EU Treaty to which they might give rise on the other by the virtue of the obligation that Member States have to take all appropriate steps to eliminate incompatibilities between pre-accession agreements and EU obligations.” (See para. 72 AG’s Opinion).

The AG pointed out that Article 307 EC effectively codifies the old international law principle that a “subsequent treaty that conflicts with an earlier one cannot legally affect the rights of a State that is a party only to the earlier treaty.” (See para. 73 AG’s Opinion). By reaching this conclusion, the AG went on to conclude that since the pre-accession treaty rights of Slovakia are not affected by its subsequent accession into the EU, that Slovakia would have a defense against the discrimination claim.

The AG finally concluded, “This may lead to the conclusion that there is an international obligation within the meaning of Article 301(1) EC and that Slovakia cannot force SEPS not to follow the terms of the contract without infringing its obligations under the Investment Protection Agreement. The consequence of this is that such an obligation concluded before the entry into force of the Treaty, cannot be affected by the Treaty, and as such Slovakia cannot be held to be in breach of its obligations under Articles 9 and 20 of Directive 2003/54.” (See para. 107-8 AG’s Opinion).

Ultimately, this is an interesting example of the growing pains that the EU is undergoing as it re-considers the relationship BITs may have within its Member States. This may have addressed a third-party contract, but it also involved a Member States’ BIT obligations versus EC obligations. In this case, the loophole seems to be pre-accession and contracts pre-dated EC obligations.

Just as BITs have proliferated in recent years, so too have free trade agreements. There are approximately 380 free trade agreements now in existence, and yet the question of dispute settlement in the FTA context has rarely featured in the discussion. Sure, there have been NAFTA Chapter 20 cases, and the occasional ad hoc dispute–such as the Canadian-U.S. Softwood Lumber dispute. But international trade arbitration pursuant to FTAs is still in its infancy.

The recent EU-South Korea FTA signed last month may signal a new era of FTA arbitration. The dispute settlement chapter of this FTA combines features of both investment arbitration and the WTO DSU.

The procedures are similar to investment arbitration. There are provisions for the request for arbitration, establishment of an arbitral panel, rules on arbitrator conduct, rules governing proceedings, evidence gathering and hearings, time limits for the award, etc. There are a few unique provisions, such as drawing arbitrators by lot from a roster of fifteen, and adopting the seat of arbitration as either Seoul or Brussels, depending on which State is the complaining Party. But in most respects the procedures are familiar to other forms of arbitration involving States.

When it comes to remedies, however, the FTA arbitration rules are similar to the WTO. A non-complying State may offer compensation for a violation, or failing that, be subject to retaliatory countermeasures (i.e., increased tariffs). Those tariff increases may not exceed the level applied to other WTO members, but will result in the suspension of duty-free benefits under the FTA. Similar to the WTO, disputes as to compliance measures or deadlines are subject to further arbitration. The traditional recognition and enforcement questions under the New York Convention are irrelevant in this context.

Over 50% of all trade in goods occurs on a preferential basis. Like BITs, FTAs will continue to proliferate. Sophisticated dispute resolution mechanisms in FTAs are long overdue. The future portends a new world of international trade arbitration, and a growing international trade arbitration bar.

This development is one of several recent manifestations of the Commission’s opposition to the application of BITs between Member States of the European Union.

The question of the applicability of an intra-EU BIT was raised in the Eastern Sugar v. Czech Republic arbitration (Partial Award, 27 March 2007). In this case, two letters from the Commission were considered by the Tribunal. These included statements such as: “where the EC Treaty or secondary legislation are in conflict with some of these BITs’ provisions […] Community law will automatically prevail over the non-conforming BIT provisions”; “intra-EU BITs should be terminated in so far as the matters under the agreements fall under Community competence”; or “that Member States [should] exchange notes to the effect that such BITs are no longer applicable, and also formally rescind such agreements.” The Commission therefore considered that intra-EU BITs should be rescinded because they were superseded by EU law (notwithstanding the fact that EU law does not confer access to arbitration to investors).

In September 2008, the Commission intervened directly in two ICSID arbitration proceedings against Hungary (AES v. Hungary and Electrabel v. Hungary) by filing amici curiae briefs. It has been reported that the Commission took Hungary’s side by stating that the power purchase agreements between the investors and a Hungarian State-owned entity violated EC law as they could restrict competition, thereby not taking account of the protection granted to the investors by the investment treaty at stake. The Commission’s view, based on the supremacy of EC law over investment treaties, seems to leave little room for the application of investment treaties between Member States.

The Commission’s views were also expressed in more informal settings: during a conference on investment law and the European Union in Paris in April 2009, the Commission reiterated its views on the supremacy of EC law over intra-EU BITs. International law specialists held a different position, according to which questions relating to conflicts between treaties must be resolved by the application of the Vienna Convention on the Law of Treaties, including Article 59 which sets out conditions for a treaty to be terminated by the conclusion of a later treaty.

The two letters by the Commission analyzed by the tribunal in the Eastern Sugar case provide us with the reasons behind the Commission’s position.

In the first letter, addressed to the Czech Republic, the Commission advances the argument that “the application of intra-EU BITs could lead to a more favourable treatment of investors and investments between the parties covered by the BITs and consequently discriminate against other Member States, a situation which would not be in accordance with the relevant Treaty provisions.” What does this difference of treatment amount to? One element of BITs comes to mind: the right of investors to have recourse to international arbitration. Indeed, only EU investors whose State of origin has entered into a BIT with the host State would have access to international arbitration.

In the second letter, addressed to the Economic and Financial Committee, the Commission states that investors starting arbitration proceedings based on intra-EU BITs “could lead to arbitration taking place without relevant questions of EC law being submitted to the ECJ, with unequal treatment of investors among Member States as a possible outcome.”

Therefore, the Commission seems to consider that the application of intra-EU BITs, including access to arbitration, may be a source of inequality between EU citizens as well as a hindrance to the harmonized development of EC law.

During the April 2009 Paris conference, certain speakers criticized the Commission’s position and stressed the importance of access to arbitration in the build-up of a European area of freedom, security and justice. However, the recently reported intervention by the Commission in the Eureko v. Slovakia case confirms the Commission’s apparent opposition to arbitration under intra-EU BITs.

A measure of hope is to be found in the attitude of Member States and tribunals.

As highlighted by the Economic and Financial Committee in a 2008 report: a “clear majority of Member States prefer to maintain the existing [intra-EU BITs], in particular with a view to the provisions on […] investor-to-state dispute settlement.”

In addition, in the Eastern Sugar case, the arbitral tribunal stated that the BIT in question was not superseded by EC law because, inter alia, this was not expressly set out in the treaties marking the Czech Republic’s accession to the EU nor in the BIT; and the conditions set out in Article 59 of the Vienna Convention were not satisfied. Also, in the newly published AES v. Hungary award (Award, 23 September 2010), the tribunal stated that EC law, “once introduced in the national legal orders … is part of these legal orders” and that “a state may not invoke its domestic law as an excuse for alleged breaches of its international obligations.”

By Christophe von Krause and Florian Quintard

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.

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.

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”.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“A judgement shall also not be recognised:

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

Encore un effort, Messieurs les réformateurs….

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

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

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

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

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

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

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

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

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

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

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

Alexis Mourre

The case concerned a transportation agreement entered into by SOERNI and ASB for the transport by ASB of a motorboat from Libreville to Pointe Noire. The agreement between the parties did not contain any arbitration clause. However the parties also entered into a hold harmless letter, which made reference to an arbitration clause contained in a bill of lading. ASB initiated arbitration proceedings, arising out of the sinking of the motorboat, on the basis of the arbitration clause contained in the bill of lading. Ultimately the arbitral tribunal would rule in favour of ASB and order SOERNI to pay damages to ASB.

The arbitral award was enforced by the Paris First Instance Court in August 2006. However, on 20 December 2006, SOERNI filed an action before the Paris Court of Appeal to set aside the enforcement order. After the Paris Court of Appeal confirmed the enforcement order, on 15 May 2008 SOERNI appealed that decision to the French Supreme Court. SOERNI argued that it had not seen the arbitration clause before entering into the transportation agreement and that under French law an arbitration agreement incorporated by reference is not binding if a party is not aware of its contents when entering into a contract referring to it. SOERNI also argued that it had been represented by an employee who had no binding authority.

In its decision dated 8 July 2009, the French Supreme Court confirmed the validity of the arbitration agreement. The French Supreme Court declared that the question of whether a party is or is not validly bound by an arbitration agreement should be examined in light of the parties’ common intent, the requirement of good faith, and the belief that the person who signed the clause had the power to bind the company. In doing so, the Supreme Court did not discuss the law governing the arbitration agreement, but considered only the following relevant facts: (a) the hold harmless letter made a clear reference to the arbitration agreement, (b) the employee was ASB’s only contact during the negotiations, and (c) ASB had never been informed by SOERNI that the employee lacked the authority to bind SOERNI.

Thus, the French Supreme Court confirmed its position in the Dalico case (see Municipalité de Khoms El Mergeb v. Société Dalico, December 20, 1993, Case no. 91-16828) according to which the validity of the arbitration agreement depends primarily on the parties’ common intent, without reference to the law governing the contract or other national law. As in the SOERNI v. ASB case, the French Supreme Court chose not to apply a conflicts of law analysis when considering the validity of an arbitration agreement, but to turn to the relevant facts and examine the common intent of the parties, i.e., to apply the French substantive rules of international arbitration to the arbitration agreement. The French Supreme Court has adopted this position on a number of occasions previously (see L’Entreprise Tunisienne d’Activités Pétrolières (ETAP) v. Bomal Oil, November 9, 1993, Case no. 91-15194; Société anonyme Française Entrepose GTM pour les Travaux Pétroliers Maritimes (ETPM) v. Société anonyme Empresa Constructoria Financiera (ECOFISA), December 4, 1990, Case no. 88-13336).

This recent decision confirms, once again, the pro-arbitration approach of French courts.

By Christophe von Krause and Marily Paralika