FRANCE
Eric Borysewicz and Karim Boulmelh
A. LEGISLATION AND RULES
A.1 Legislation
A new Decree no. 2019-1089 on the Certification of Online Conciliation, Mediation and Arbitration services, dated 25 October 2019 (“Decree”),[1] has been issued and aims at implementing article 4 of the Act on Programming and Reforming of the Justice (“Statute”).[2] Article 4 offers online platforms supplying conciliation, mediation and arbitration services the possibility to obtain a certification by a specific organism. Under the Decree, platforms wishing to obtain certification must submit an application before one of these certifying organizations.[3] Upon analysis of the application, the certifying organization will perform a documentation and on-site audit based on certain criteria such as confidentiality, protection of personal data, ethics, independence, impartiality, algorithmic treatment, etc. These criteria shall be specified by a ministerial order yet to be issued. At the end of the evaluation, the certifying organization may reject the application, request compliance within a given period, or grant certification for a renewable period of three years.
The Decree also provides for post-certification monitoring, with an obligation for the certified platforms to notify any modification concerning their legal status or the service performance to the certification organization. If the certification organization finds that the online platform no longer fulfills one or more of the conditions required by the certification standard, it may ask the online platform to comply with the requirements within a given period of time. Failure to do so may result in the withdrawal of the certification (a decision subject to appeal).
Pursuant to article 4 of the Statute and the provisions of the Decree, the certification offer is a first step towards the supervision of platforms providing online arbitration services. At this stage, certification is not mandatory for online arbitration services platforms. The French legislator aims however at putting in place a legal framework while at the same time avoiding to hinder the development of such online platforms.
No precise date has been scheduled for the entry into force of these provisions (even if the Decree provides for a deadline on 1 January 2021). The date of the entry into force will probably be specified by the forthcoming ministerial order.
A.2 Institutions, Rules and Infrastructure
There were no significant developments in the past year.
B. CASES
B.1 The Paris Court of Appeal’s Referral to the European Court of Justice for Clarification of the Notion of Investment under the ECT
In a decision dated 24 September 2019,[4] the Paris Court of Appeal decided to refer the question of interpretation of the notion of investment under the Energy Charter Treaty (ECT) to the European Court of Justice (ECJ) for a preliminary ruling.
In the case at hand, Energoalians, a Ukrainian company specializing in the production and supply of electricity, entered into a contract with a Moldovan public company, under which Energoalians was to supply electricity to the latter through an intermediary company. The Moldovan public company failed to pay the intermediary company. The debt of more than USD 18,000,000 was contractually assigned to Energoalians, which obtained a partial payment from the Moldovan public company. As the Moldovan public company failed to pay its remaining debt, Energoalians sought to obtain payment against the Moldovan public company before Moldovan and Ukrainian courts but failed to obtain any payment. Energoalians, therefore, turned to an ad hoc arbitration under the ECT considering that the Moldovan Republic violated its commitments under ECT notably through issuance of an administrative decision in 2000 and of an order of the Moldovan court of auditors in the energy and supply of power sector that would have allegedly interfered in Energoalians investment and rights to obtain payment from the Moldovan public company. By an award dated 25 October 2013 issued in Paris, the ad hoc tribunal found that the Republic of Moldova breached its international obligations under the ECT and ordered it to pay approximately USD 33,858,550[5] to Energoalians.
The Moldovan Republic filed an action to set aside the arbitral award before the Paris Court of Appeal which ruled in a decision dated 12 April 2016, that the arbitral tribunal lacked jurisdiction to hear the dispute between Energoalians and the Republic of Moldova by considering that the dispute was related to a debt that does not constitute an investment under the ECT. On 28 March 2018, the French Supreme Court quashed the appellate decision by ruling that the ECT does not provide precise criteria to qualify an investment and although the ECT contains a list of some types of investments, the said list is not exhaustive. After this decision, the Paris Court of Appeal heard the case again between the Moldovan Republic and Komstroy, the successor of Energoalians and issued the 24 September 2019 decision which is discussed herein.
The Court of Appeal of Paris noted that the question as to whether Energoalians (now Komstroy) made an investment within the Moldovan territory is critical for resolving the dispute. The interpretation of the notion of “investment” remains an issue that is highly discussed between the parties, even after the 28 March 2018 Supreme Court decision. Energolians contends that the notion of investment extends to a debt which may be considered as a contribution (“un apport“) in accordance with the large non-exhaustive definition of an investment of the ECT whereas the Republic of Moldova contends that the investor’s contribution (“apport”) must amount to a capital investment with an expected return in investments, which is not the case of a mere assignment of rights as in the present case. Therefore, and considering the interpretation difficulty of the notion of “investment”, the Court of Appeal of Paris decided to refer said issue to the ECJ for a preliminary ruling over the notion of investment under the ECT.
Indeed, the Paris Court of Appeal stated that the ECT, which has been signed by the European Communities on 23 September 1997, is a mixed agreement – i.e. under international public law, a treaty entered into by sovereign states or entities that creates rights and obligations for these signatories state but also to their parties. As such, the ECT enters into the category of acts of the institutions, bodies, institutions, offices or agencies of the Union. Within the meaning of article 267, b) of the Treaty on the Functioning of the European Union, and may be subject to a ruling of the ECJ for interpretation, on the preliminary ruling basis (“question préjudicielle“). On this ground, the Paris Court of appeal has considered it may use the faculty to refer to the ECJ for a preliminary ruling on the issue of the interpretation of the notion of “investment”. This decision has generated numerous critics and questions.[6] Indeed, for some authors, having recourse to the European treaties to justify the interpretation of another treaty, the ECT, which is theoretically of the same level of hierarchy raises a serious issue in terms of international public law.
The upcoming decision of the European Court of Justice on this preliminary ruling (question préjudicielle), the first one after the famous Achmea ruling[7], and the Paris Court of Appeal decision to be rendered on that basis are eagerly awaited, given the potential impact on investment arbitration law and practice.
B.2 A party that knowingly refrains from raising an irregularity before the arbitral tribunal waives the right to raise it as a ground to set aside the award before courts
By a decision dated 2 April 2019,[8] the Paris Court of Appeal refused to set aside an arbitral award rendered on 17 November 2015 in Paris in a case opposing an American citizen and two American companies, Schooner Capital LLC and Atlantic Investment Partners LLC (“Claimants”), on the one hand, to the Republic of Poland (“Poland”), on the other hand.
In 1994, the Claimants acquired shares in three polish companies (hereinafter referred to as F, Bolmar and AA) through an intermediary company named White Eagle Industries (WEI), incorporated in the United States of America. In 1995, they incorporated a Polish company named White Eagle Industries Poland in charge of collecting the commissions for management services from F, Bolmar and AA on behalf of WEI. These companies declared these commissions as deductible charges from the corporate tax and the value-added tax from 1994 to 1997. However, in 1996, the Polish tax administration initiated controls against F over the reality of these management services and, considering that the reality of these services was not proven, it ordered a tax adjustment for an amount of approximately USD 14,358,366[9]. F went bankrupt in 2003.
Subsequently, claimants brought an ICSID arbitration against Poland for an alleged violation of the BIT between the United States of America and Poland. Claimants argued that Poland unlawfully expropriated their investment in F, breached its commitment to ensure fair and equitable treatment and the complete security to their investment, and took arbitrary and discriminatory actions limiting their ability to freely use their investment. By an award dated 17 November 2015, the arbitral tribunal ruled that pursuant to article VI (2) of the BIT, part of the dispute was related to tax issues and did not concern an obligation related to the respect and the performance of an investment contract. By way of consequence, it ruled that it had no jurisdiction over the tax issues raised by the Claimants, and dismissed all other claims. On 2 December 2016, the Claimants filed an action to set aside the arbitral award before the Paris Court of Appeal, on the ground that the arbitral tribunal has wrongly declared itself incompetent, that it has ruled without complying with the mission entrusted to it and that the principle of contradiction has not been respected.
While this decision is particularly rich, we will only focus on the jurisdictional issue and the argument of irregularity raised for the first time before the Court of appeal.
Indeed, the Claimants raised two arguments: (i) the tax issues should not have been excluded by the arbitral tribunal because the State of Poland did not act in good faith when exercising its tax adjustments and (ii) the arbitral tribunal should have applied the most-favored-nation clause contained in the BIT.
The issue is that none of the two arguments was raised before the arbitral tribunal.
Article 1466 of the French Code of Civil Procedure[10] provides that: “A party which knowingly and for no legitimate reason refrains from raising, in due time, an irregularity before the arbitral tribunal, is deemed to have waived its right to raise such irregularity.” Usually, this provision is applied for procedural irregularities. The issue at stake was whether or not this provision can be invoked for an argument on the merits that was not raised in due time before the arbitral tribunal.
For the first time to our knowledge, the Paris Court of Appeal found that this provision is not limited to procedural irregularities but also applies to any irregularity or arguments on the merits of the case that should have been raised before the arbitral tribunal but was not. Thus, if a party knowingly refrains from raising a ground, such behavior will be construed as a waiver to ultimately raise the irregularity before courts. The only exception concerns the substantive international public policy which cannot be waived, whereas the procedural international public policy can be waived.
To have a clearer picture of this matter, attention should be paid to future decisions, specifically concerning the exception of international public policy irregularities.
B.3 The never-ending story of the EGPC-NATGAS case
On 21 May 2019,[11] the Paris Court of Appeal has rendered a third decision in this dispute that opposes Egyptian General Petroleum Corporation (EGPC) and National Gas Company (NATGAS), by which the judge confirmed the exequatur ordered on 19 May 2010 of the arbitral award rendered in Cairo on 12 September 2009.
In the case at hand, the arbitral award ordered EGPC to pay approximately USD 16,192,400[12] plus interest to NATGAS. The exequatur was ordered on 19 May 2010, and a legal battle against this exequatur order soon ensued. After two decisions of the Paris Court of Appeal successively confirming the exequatur order were quashed by the French Supreme Court, the case was referred back for a third judgment before the Paris Court of Paris as regards the validity of this exequatur order. The issue was whether the conditions for setting aside an arbitral award are the same in the case of a domestic foreign award and in the case of an international foreign award. EGPC, the claimant seeking the annulment of the exequatur order of the 12 September 2009 arbitral award, was indeed claiming that said award was a domestic one – i.e. an Egyptian internal award, which was annulled in its home country, Egypt, and that cannot be recognized and enforced in France.
The Paris Court of Appeal ruled that the provisions of article 1514 et seq. of the French Code of Civil Procedure, which governs the conditions under which a foreign arbitral award can be recognized and enforced with the French territory, apply to all foreign awards, regardless if they are domestic or international. The validity of a foreign award is thus to be examined according to the rules applicable in the country where its recognition and enforcement is requested — the exequatur’s purpose is to incorporate the foreign arbitral awards in the French legal order.
Therefore, recognition and enforcement of foreign domestic arbitral awards are subject to the same conditions as those applying to foreign international arbitral awards.
Furthermore, the Paris Court of Appeal stated that, pursuant to article VII, 1 of the New York Convention referred to by article 33 of the agreement on judicial cooperation in civil matters of 15 March 1982 concluded between the French Republic and the Arabian Republic of Egypt, the exequatur of an award in France cannot be refused on the ground that this award has been set aside by the Cairo Appeal Court. Indeed, current French case law considers that the annulment of an arbitral award in its home country does not constitute a ground for refusing the recognition and the enforcement in France of a foreign award, whether it be domestic or international in nature.
In addition, the Paris Court of Appeal considered that in the present case, the arbitration conducted under the aegis of the CRCICA was not “purely” domestic, emphasizing on some key international extraneous elements (foreign expertise, international financing) that tended to demonstrate that the dispute and the award rendered subsequently, are actually international by nature.
[1] Published in the Official Journal of the French Republic on 27 Oct. 2019.
[2] Statute no. 2018-2022 dated 23 March 2019.
[3] Certifying organizations are named on a list created by either the French Accreditation Committee (Cofrac) or any other accreditation organization signatory of a European multilateral mutual recognition agreement.
[4] Paris Court of Appeal, 24 Sept. 2019, n°18/14721.
[5] MDL 592,880,395, approximately equivalent to EUR 30,477,800.
[6] For example: J. JOURDAN-MARQUES, Arbitrage et question préjudicielle – la cour d’appel de Paris jette un pavé dans la mare, Chronique d’arbitrage Dalloz, 29 oct. 2019, pp. 1-5 ; T. CLAY, Panorama Arbitrage et Modes alternatif de règlement des litiges 2018-2019, Recueil Dalloz, 26 déc. 2019, pp. 2-3.
[7] Judgment of the Court (Grand Chamber), 6 March 2018, Case C-284/16, Slowakische Republik v Achmea BV.
[8] Paris Court of Appeal, 2 April 2019, n°16/24358.
[9] PLN 55,371,330, approximatively equivalent to EUR 12,928,651.
[10] Applicable to international arbitration through article 1506 Code of Civil Procedure.
[11] Paris Court of Appeal, 21 May 2019, n°17/19850.
[12] EGP 253,424,668.
