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LUXEMBOURG

Annie Elfassi, Sabrina Salvador and Eve Tullio

A. LEGISLATION AND RULES

A.1       Legislation

International arbitration in Luxembourg continues to be governed by the Code of Civil Procedure, Title I. “Of the arbitrations”, issued from the Law of 24 February 2012. However, a new draft law number 7671 (“Draft Law“) for amending the arbitration procedure under the New Code of civil procedure has been deposited on 15 September 2020 and is currently under discussion at the Chamber of Deputies. The Draft Law mainly reconstitutes the international arbitration regime rules under French law that served as a reference model for the proposed text. The Draft Law is based on existing rules, namely French law and the UNCITRAL rules on international commercial arbitration, and identifies a corpus of the most appropriate rules with an aim to constitute the best possible draft text based on two fundamental choices relating to the content.

The first choice as to the substance retained by the authors of the Draft Law allows recourse to arbitration and associate a series of restrictions as to the scope of the rules in order to exclude a certain number of disputes that should not fall under traditional arbitration. The Draft Law expressly excludes from arbitration any matters likely to undermine the protection which certain categories of litigants can claim, such as in Consumer law, Labor law, Leases or Status of persons. The second element taken into consideration by the authors is the absence of distinction between domestic arbitration and international arbitration as it exists under French law. The authors considered this distinction inappropriate for Luxembourg given that arbitration in Luxembourg is often international and certain sensitive matters are already excluded from arbitration.

The draft law structures the provisions of the Code of Civil Procedure relating to arbitration into several chapters.

Chapter I “Arbitrability” details the matters that cannot be submitted to arbitration. It also states that the opening of a bankruptcy procedure has no impact on the validity of an arbitration agreement. Nevertheless, disputes arising from collective proceedings are inarbitrable.

Chapter II is relating to the “Arbitration Agreement”. This chapter lays down the principle of consensualism (no specific form required for the arbitration agreement). It also defines the different types of arbitration agreements: the arbitration clause (signed before any dispute) and the compromis (which is agreed upon by the parties once the dispute has already been raised). As such, the parties may submit a dispute to arbitration at any time, even after proceedings have been instituted before a state court. Chapter II also lays down the principles of separability and autonomy of the arbitration clause. It establishes the principle of jurisdiction-competence (the arbitral tribunal may rule on its own jurisdiction), the negative effect of which is reduced as compared to French law, since the referral to the arbitral tribunal does not automatically exclude the jurisdiction of the state court except where the arbitration agreement is found to be manifestly null or inapplicable. The negative effect is excluded in cases in which the illegality of recourse to arbitration would be raised because of the inarbitrability of the dispute. Conversely, the lack of jurisdiction resulting from the arbitration agreement cannot be raised by the state court on its own initiative.

The new article 1227(4) of the draft law also gives the court jurisdiction to grant interim measures of protection or measures of inquiry when it appears that the arbitral tribunal would not be able to effectively grant the measure sought. Those interim measures can be granted:

  • prior to the constitution of the arbitral tribunal
  • after its constitution, for certain measures that cannot, by definition, be granted by an arbitral tribunal due to its lack of power of constraint (for example, a garnishment).

Unlike French law, the text does not exclude the jurisdiction of the state judge for the sole reason that the arbitral tribunal would be constituted.

Chapter III of the draft law details the provisions applying to the arbitral tribunal. Based on UNCITRAL law (article 20), the draft law allows the seat of arbitration to be determined by the will of the parties or, alternatively, by the arbitral tribunal.

Contrary to the current Luxembourg law on arbitration, which does not enact any limitations as to the arbitrator’s qualifications, article 1228-1 of the draft law requires that the arbitrator be a natural person with legal capacity. If, however, the appointee is a legal person, the legal person is only vested with the power to appoint the arbitrator. The parties are free in their method of appointing arbitrators. However, the text takes up the provision of article 1227 of the current Code of Civil Procedure which provides that three arbitrators shall be appointed as substitute arbitrators in the absence of a choice by the parties. The arbitrators are required to be independent and impartial, and therefore have an obligation of disclosure (article 1228-6 of the draft law). They are also required to continue their mission, except in the case of legitimate impediment (article 1228-9 of the draft law).

The reform broadly enshrines the notion of the “support judge” (juge d’appui), who intervenes in particular :

  • in the constitution and functioning of the arbitral tribunal, in particular in the absence of an agreement, as a substitute for the person in charge of the arbitration. For example, the court may be seized if one of the parties has not appointed an arbitrator within one month (as opposed to eight days under current Luxembourg law).
  • in the event of a challenge of an arbitrator, as a substitute for the person in charge of the arbitration (within one month from the discovery of the cause of challenge).
  • if the dispute is unenforceable or if for any other reason the arbitration agreement is null and void or unenforceable, then the support judge will say there is no need to appoint an arbitrator. This decision, which terminates the arbitration proceedings, may be appealed under the expedited procedure.

Chapter IV focuses on the support judge. It enshrines the international jurisdiction of the Luxembourg judge acting as support judge if the seat of the arbitration is Luxembourg, the parties have provided for the application of the Luxembourg procedural law, the parties have expressly agreed on the competence of the Luxembourg judge as support judge, or there is a significant link between the dispute and Luxembourg.

Chapter V deals with the arbitral procedure. Article 1231 refers to the principle of jurisdiction, according to which the judge must decide the dispute in accordance with the rules of law. However, this principle is subject to two adjustments:

  • in international matters, the applicable rules are those chosen by the parties or, failing that, those which the court considers appropriate by reference to the ordinary rules of private international law
  • contrary to the Luxembourg state judge, the arbitrator can be appointed in equity (amiable compositeur).

As regards the date from which arbitration is introduced, the new article 1231-1 of the draft law retains the date of dispatch of the request. However, this date is to be distinguished from the date of referral to the arbitral tribunal.

The new draft law also offers some flexibility to the parties in the arbitral proceedings, since they may determine the procedure to be followed in the arbitral proceedings, either directly or by reference to a set of rules or rules of procedure. The text also establishes the principle of adversarial proceedings and equality of arms, as well as the principle of confidentiality.

Unless otherwise agreed by the parties, the arbitral tribunal may also order interim measures of protection for the parties (subject to those falling within the exclusive prerogative of the state court, as mentioned above). For such measures to be effective, they must be enforceable in the same way as decisions on the merits of the dispute.

The arbitral tribunal may continue its work in the event of default by one of the parties. The tribunal may also decide on a suspension of the arbitration, which does not terminate the arbitration.

Finally, one of the new rules here concerns the possibility for third parties to intervene in the arbitration proceedings.

Chapter VI covers the arbitral award. The deliberations of arbitral tribunals are secret, as are those of state courts. However, arbitrators must give reasons for their awards, unless the parties waive them to do so. The arbitral award has the authority of res judicata with respect to what it decides.

In the event of claims for compensation for material errors and omissions or for failure to decide a claim, the parties may apply to the arbitral tribunal:

  • within a period of three months, to the arbitral tribunal or to the courts before which the award is invoked; or
  • at the end of this three-month period, before the courts before which the award is invoked.

Finally, Chapter VII focuses on the enforcement of the arbitral award and means of appeal. The draft law creates a distinction between awards rendered in Luxembourg and awards rendered abroad.

For awards rendered in Luxembourg :

  • the exequatur procedure is a simplified procedure
  • the only ground for refusal at the stage of the request for exequatur is public policy
  • the order refusing exequatur may be appealed to the Court of Appeal. In this proceeding, the Court of Appeal (rather than the Tribunal d’arrondissement, as under current law) may be seized by the other party with an application to set aside the award. This application for setting aside the award does not have a suspensive effect, although the Court of Appeal may stop or modify the enforcement of the award if such enforcement is likely to seriously prejudice the rights of one of the parties.
  • the order for enforcement cannot be appealed autonomously
  • but Luxembourg awards may be the subject of an application for annulment before the Court of Appeal on grounds that are exhaustively enumerated. This application entails recourse against the order of exequatur if it has been issued.
  • Luxembourg judgments cannot be opposed, appealed or appealed to a court of cassation before a state court
  • Luxembourg awards may be subject to third-party opposition before the Court of Appeal.

For awards handed down abroad :

  • the exequatur procedure is a simplified procedure
  • the grounds for refusal are exhaustively listed (the grounds for setting aside a Luxembourg award)
  • the order of exequatur or refusal of exequatur may be appealed to the Court of Appeal
  • the order of exequatur or refusal of exequatur may be the subject of an application for review before the Court of Appeal on grounds that are exhaustively enumerated
  • the foreign award may be appealed against before the Court of Appeal, for reasons that are exhaustively listed (the grounds for refusal of exequatur and for revision of Luxembourg awards)
  • the foreign award may be the subject of a third party objection before the Court of Appeal.

 A.2       Institutions, rules and infrastructure

The new Arbitration Rules of the Arbitration Center of the Chamber of Commerce of Luxembourg came into force on 1 January 2020. These new rules carry out a thorough revision of the rules applicable before the Arbitration Centre. They are applicable to all proceedings brought before the Arbitration Centre from that date, unless the parties have agreed that the previous version of the rules would apply.

All of the changes made as part of this revision are intended to increase the efficiency of the arbitration process and to meet the new expectations of the parties with respect to arbitration. With this new tool, the goal of the Arbitration Center is to provide companies with a modern and efficient tool for settling disputes.

The Arbitration Rules are amended as follows:

A.2.1    The content of requests for arbitration, answers to a request and counterclaims

The new rules of arbitration give more details about what should be included in a claimant’s request for arbitration, in addition to the relevant arbitral agreement and the relevant particulars concerning the number of arbitrators and their choice (article 3):

  • the “description, and addresses of the parties” implies their number, emails, and the address of their representatives in the arbitration proceedings (article 3-1.-a)).
  • the Request of arbitration shall include a statement of the relief sought together with the amounts of any quantified claims and, to the extent possible, an estimate of the monetary value of any other claims (article 3-1.-c)).
  • the Request of arbitration shall include all relevant particulars and any observations or proposals as to the place of the arbitration, the applicable rules of law and the language of the arbitration (article 3-1.-f)).

The new Rules also provide for a guideline as to what should be included in the Answer to the Request and in the Counterclaim, if such Counterclaim is formed (article 4).

A.2.2    Third parties to an arbitration

If a third party requests to intervene in the arbitration proceedings or if one of the parties seeks to have a third party joined, then this third party or party must submit a request for joinder to the Secretariat. The date on which the request is received by the Secretariat shall be deemed to be the date of the commencement of arbitration by or against the additional party. Unless otherwise agreed by all parties, no additional party may be joined after the confirmation of the appointment of an arbitrator (article 6).

The New Rules also mention what should be included in the request (case reference of the existing arbitration, details of each of the parties and of the additional party, and other information required by article 3 paragraph 1 for Request of Arbitration).

A.2.3    Multiple parties

In case an arbitration takes place between multiple parties, each party may make a claim against any other party, subject to the limitation set out in article 15 paragraph 4 that no party shall make new claims which fall outside the limits of the terms of reference unless it has been authorized to do so by the arbitrator (article 7).

A.2.4    Multiple contracts

The New Rules mention arbitrations based on multiple contracts. Claims arising out of in connection with more than one contract may be made in a single arbitration:

  • if the parties have agreed to have recourse to arbitration under the Rules and;
  • if the parties to the arbitration have agreed to have their claims decided within a single arbitration proceeding.

However, arbitration agreements concerning matters that are not related to one another give rise to a presumption that the parties have not agreed to have their claims decided within a single arbitration proceeding.

The New Rules specify that differences concerning the applicable rules of law or the language of the proceedings do not give rise to any presumption as to the incompatibility of the arbitration agreements (article 8).

A.2.5    Consolidation of arbitration

Two or more arbitration proceedings pending under the Rules may be consolidated into a single arbitration proceeding, at the request of a party:

  • where the parties have agreed to the consolidation; or
  • where all of the claims in the arbitration proceedings are made under the same arbitration agreement;
  • where the claims in the arbitration proceedings are made under more than one arbitration agreement, the arbitration proceedings are between the same parties, the disputes in the arbitration proceedings arise in connection with the same legal relationship and the Council finds the arbitration agreement to be compatible.

In deciding whether to consolidate, the Council may take into account any circumstances it considers to be relevant, including whether one or more arbitrators have been confirmed or appointed in more than one of the arbitration proceedings and, if so, whether the same or different persons have been confirmed or appointed.

When arbitration proceedings are consolidated, they shall be consolidated into the arbitration that commenced first, unless otherwise agreed by the parties (article 9).

A.2.6    Emergency measures prior to the constitution of the arbitral tribunal

The new Rules of Arbitration introduces an emergency procedure allowing the parties to request urgent conservatory or interim measures of protection that cannot wait for the constitution of an arbitral tribunal on the merits. Before the file is transmitted to the arbitrator, and in appropriate circumstances even thereafter, the parties may apply to any judicial authority for interim or conservatory measures. The application of a party to a judicial authority for such measures or for the implementation of any such measures ordered by an arbitral tribunal shall not be deemed to be an infringement or a waiver of the arbitration agreement and shall not affect the relevant powers reserved to the arbitrator in this respect. Any such application
and any measures taken by the judicial authority must be notified without delay to the
Secretariat. The Secretariat shall inform the arbitrator (article 20).

A.2.7    Interim measures after the constitution of the arbitral tribunal

Unless the parties have otherwise agreed, as soon as the file has been transmitted to the arbitrator, it may, at the request of a party, order any conservatory or interim measure it deems appropriate in the form of an order or of an award, as the arbitrator considers appropriate (article 21).

A.2.8    Simplified proceedings

The new Rules of Arbitration also create a simplified procedure allowing the parties to settle disputes whose amount does not exceed one million euros, or for which the parties have agreed to use this simplified procedure, more quickly and less expensively. The parties can, however, agree to opt-out of provisions on simplified proceedings (article 22).

A.2.9    Correction and interpretation of the award; remission of awards

The arbitrator may correct a clerical, computational or typographical error and submit it to approval to the Council within 30 days of the date of the award. A party can apply for the correction of an error of the same kind or for the interpretation of an award within 30 days of the notification of the award; if so, the Secretariat will grant the other party a time limit, not exceeding 30 from the receipt of the application, to submit any comments thereon. Within 30 days following the expiration of the time limit for the receipt of any comments from this other party or within such other period as the Council may decide, the arbitrator shall submit its decision on the application in draft form to the Council.

A.2.10  Waiver

The new Rules of Arbitration include a Waiver clause, stating that if a party proceeds with the arbitration without raising objection to a failure to comply with any provisions of the Rules, or of any other rules applicable to the proceedings, any direction given to the arbitrator, or any provision agreed under the arbitration agreement relating to the constitution of the arbitral tribunal or the conduct of the proceedings, it shall be deemed to have waived its rights to object.

B. CASES

We have chosen a recent decision about the exequatur of an arbitration award in Luxembourg courts. This is a judgment of the Court of Appeal, 8th Chamber, 5 November 2020, sitting in matter of exequatur of an arbitral award rendered by the ICC about litigation between the Republic of Greece and an American company.

B.1       Facts

The Republic of Greece and the American company (“Company 1“) had entered into a business relationship under which the company had to design and install a security system for the Olympic games and operate the network. Company 1 hired a subcontractor (“Company 2“) to carry out the most important part of the project. The Republic of Greece finally decided not to approve the final security system designed, and partially terminated the agreement. Company 1 therefore initiated arbitration proceedings at the ICC and claimed the outstanding amounts. The Greek Republic, for its part, requested reimbursement of the full costs of the contract.

B.2       Procedure

The ICC issued an award on 2 July 2013, ordering the Republic of Greece to pay approximately USD 48 million to Company 1. The Republic of Greece then brought an action for the annulment of the arbitral award before the Athens Court of Appeal. The first Athens Court of Appeal annulled the arbitral award, but the Greek Supreme Court overturned the appeal. The second Athens Court of Appeal dismissed the action for annulment of the arbitral award.

Company 1 then filed a request for the enforcement of the arbitral award before the President of the Tribunal d’Arrondissement of Luxembourg. The President of the Tribunal d’Arrondissement of Luxembourg granted the exequatur of the arbitral award by an order of 17 January 2019. The Republic of Greece filed an appeal against the order.

B.3       Parties claims

The Republic of Greece asked the Court of Appeal of Luxembourg to cancel the order of the Tribunal d’Arrondissement granting the exequatur of the arbitral award, on the grounds that the award gives force to a contract which had been obtained through corruption, since Company 2, a subcontractor, had participated not only in the elaboration of the project but also in its conclusion and therefore had an important financial interest in the realization of this project. In its view, this would constitute a violation of Luxembourg public policy and of article V-2, b) of the New York Convention.

B.4       Legal issue

This case deals with the extent of the power of control of the Luxembourg judge of exequatur over an arbitral award that one party claims to give force to a convention obtained through corruption.

B.5       Solution of the court

Both Greece (arbitration site) and Luxembourg (where the exequatur is sought) are parties to the New York Convention, therefore this Convention is applicable.

Article V(2)(b) of the New York Convention allows a court to which recognition or enforcement of an award is sought to refuse it if it is contrary to the public policy of that country. While the New York Convention does not explicitly define “public policy”, the recommendations of the International Bar Association specify that “international public policy” may refer to the set of principles and rules adopted by a State which, by their very nature, may frustrate the recognition or enforcement of an arbitral award made in the context of international commercial arbitration, where recognition or enforcement of that award would result in its violation, either at the end of the proceedings at the conclusion of which the award was made (procedural international public policy) or because of the content of the award (substantive international public policy). It is up to the party who invokes that the arbitral award is contrary to public policy to establish its allegations. While the public policy exception allows the national courts to examine the award on the merits, the scope of that examination is limited and does not allow the party invoking that violation to present its arguments again on the merits or to invoke the erroneous nature of the decision.

In the present case, the Court of Appeal of Luxembourg finds that the Republic of Greece does not provide for any information that was not previously submitted to the arbitrators. It does not establish that Company 2  committed acts of corruption in order to induce the Republic of Greece to conclude the disputed agreement with Company 1, nor does it establish that Company 1 was aware of or participated in such acts of corruption.

As the existence of bribery actions was not established, the Court of Appeal of Luxembourg rejected the application of the Republic of Greece and confirmed the tribunal’s decision that granted exequatur of the arbitration award.

Author

Annie Elfassi is a partner in Baker McKenzie's Luxembourg office. Annie Elfassi is a renowned expert in Dispute Resolution matters. She has advised clients in relation to disputes involving contract law, corporate law and intellectual property rights as well as arbitration, for more than 19 years. She handles all aspects of cases involving shareholder disputes, companies' directors or managers, breach of contract, breach of fiduciary duty and/or fraud and implements strategy for recovery of debts on behalf of clients. Annie Elfassi can be reached at [email protected] and + 352 261844 209.

Author

Sabrina Salvador is a senior associate in Baker McKenzie's Luxembourg office in the Litigation practice group.

Author

Eve Tullio is a trainee in Baker McKenzie's Luxembourg office in the Litigation practice group.