A. LEGISLATION AND RULES
A.1 Legislation
Arbitrations seated in Belgium are governed by the Belgian Law on Arbitration (BLA), which is set out in part VI of the Belgian Judicial Code (BJC). There has been no significant change to the BLA in the year under review, and there are currently no changes under consideration or being proposed at the legislature’s level.
However, noteworthy is the entry into force of Book V of the Belgian Civil Code (BCC) as of 1 January 2023. One of the most notable evolutions included in the latter is undoubtedly article 5.74 BCC, which introduces the concept of hardship into Belgian contract law. Pursuant to this provision, each party to a contract may ask the other(s) to renegotiate their agreement in order to adapt or even terminate it when unforeseen circumstances render its performance so excessively burdensome that it would be unreasonable to demand its execution. In case of such hardship, the matter may be settled in court if no agreement can be found between the contracting parties. The judge may adapt the contract or terminate it in whole or in part. The matter is decided by the judge as in summary proceedings and while awaiting its decision, parties must continue to perform the contract. As parties remain free to depart from the abovementioned principle, it is expected that the application of this new provision will be excluded or that the mechanism will be adapted. A reference to the Belgian Centre for Arbitration and Mediation Rules of Adaptation of Contracts may, in that regard, be particularly useful.
A.2 Institutions, rules and infrastructure
The Belgian Centre for Arbitration and Mediation (CEPANI) is the largest and most well-known arbitration and mediation institution in Belgium.
Amended arbitration rules apply since 1 January 2023 and replace the rules as set out in the 2020 regulations. The new regulations have been published on the CEPANI website and can be found here: https://www.cepani.be/wp-content/uploads/2023/02/Cepani_Brochure_05_NL_80-web.pdf.
Article 15.1[1] now includes a consideration for diversity and inclusion, which is on equal footing with other considerations such as availability, qualification and ability to act as arbitrator in a given case. This new rule solidifies CEPANI’s recently adopted D&I Policy and Commitment which have a broader scope than gender alone. The CEPANI Board also created a standing Diversity & Inclusion Committee based on a recommendation from the working group tasked with continuing to develop initiatives to further improve the diversity and inclusion role that CEPANI seeks to play.
B. CASES
B.1 Belgian Court sets aside Polish Investment Treaty Award for breach of FET obligation through denial of justice
On 18 February 2022, the Brussels Court of First Instance (“Court“) set aside an Investment Treaty Award concerning a claim brought against Poland under the US-Poland BIT. The Court decided that the arbitral tribunal violated Belgian international public policy by ruling that there was a failure to guarantee a fair and equitable treatment (FET) because the Polish Supreme Court (“Supreme Court“) denied justice through its arbitrary and discriminatory decision. This is the first time that a Belgian court has set aside an Investment Treaty Award.
Back in 2015, US-based Manchester Securities Corporation (MSC) brought arbitration proceedings against a decision of the Supreme Court under the BIT. In December 2018, the arbitral tribunal decided that MSC was denied justice by the Supreme Court and that Poland had breached the FET clause and must therefore pay damages. As the seat of the arbitration proceedings was Brussels, Poland brought setting aside proceedings in the Court.
The parties did not exclude set aside proceedings, even though article 1718 BJC foresees this possibility for arbitrations with a seat in Belgium between parties who have no connection with Belgium, as at stake in the present case. This is also possible for awards that are contrary to Belgian international public policy.
The Court confirms that only the (Belgian) international public policy and not Belgium’s internal public policy rules can serve as set aside grounds, but that the prohibition to deny justice forms part of Belgium’s international public policy as a principle of international law recognized by article 6 ECHR (due process rights).
It also explains that international arbitration proceedings may not serve as appeal proceedings to reverse decisions of national courts and that the bar for showing denial of justice is high and requires the proof of a generalized breakdown of an entire national judicial system. Proof of a factual or legal error by an individual judge is not sufficient to show denial of justice, which essentially contains bad faith rather than a judiciary mistake.
The Court notes that the arbitral tribunal found that the Supreme Court’s position was arbitrary and discriminatory because it had reached different decisions in related proceedings, but it did not establish a structural breakdown of the Polish judiciary system or fraudulent behavior or bad faith by the Supreme Court. The Court underlines that the fact that the Supreme Court had reached these different decisions should not have allowed the arbitral tribunal to make findings of discrimination by the Polish court system, which has no binding precedents. Additionally, the arbitral tribunal had exceeded its marginal appreciation powers by examining the Supreme Court’s interpretation of the principles of social co-existence. Consequently, the arbitral tribunal, in fact, acted as an appeal judge to the Supreme Court.
As the imperfect or erroneous nature of one single judicial decision is insufficient to demonstrate the failure of an entire judicial system, the arbitral tribunal was wrong to consider that the Polish Supreme Court had denied justice by adopting a discriminatory attitude towards MSC. Hence, the Court finds that the arbitral award breaches the Belgian international public policy and sets aside the award.
The ruling raises some controversy since some question whether the Court exceeded the limits of its competence to merely verify if the award complies with international public policy. Other concerns were raised questioning the tension between Belgium’s obligation as an EU member state to recognize judgments of other member states as part of the principle of mutual trust and as a contracting state under the New York Convention to recognize and enforce arbitral awards. However, it seems that both obligations require Belgium to apply the same test: recognize and enforce the judgment or arbitral award, unless that is manifestly contrary to public policy in Belgium.
MSC has announced that it will appeal the decision in the Belgian Supreme Court, meaning further proceedings and developments are to be expected.
B.2 Assessment of the final binding nature of arbitral awards
On 10 February 2022, the Belgian Supreme Court clarified the application of article V(1)(e) of the New York Convention. This provision describes the conditions under which the recognition and enforcement of arbitral awards may be refused under the New York Convention. The competence of the Supreme Court is thereby limited to an assessment of the applicable legal principles.
The judgment was delivered in the context of a long-standing dispute between the Czech Republic and blood plasma company Diag Human SE, which the parties had contractually subjected to arbitration under Czech law. A partial award on the merits of the case was passed in favor of Diag Human SE in 2002, followed by a definite award in 2008. Diag Human SE had sought to enforce this award in many jurisdictions, including Belgium. This ultimately gave rise to legal proceedings, resulting in the judgment of the Supreme Court in 2022.
The basic rule laid down by the New York Convention is that contracting states must recognize such awards as binding and enforce them in accordance with the procedural rules of the territory where the award is relied upon. However, Article V(1)(e) provides that such recognition and enforcement may be refused upon request of the adverse party if (inter alia) the latter furnishes proof that the award is not yet binding upon the parties or has been set aside.
In the case at hand, the Czech Republic challenged the enforceability of the arbitral award in court on the basis that it would not yet have binding force. The Brussels Court of Appeal (“Court of Appeal“), however decided in 2019, as an exception to other jurisdictions, that the award could be validly enforced in Belgium. This was based on an assessment of Czech law which led to the conclusion that the award had in fact obtained binding force. The Court of Appeal dismissed the fact that the award had been subject to a legal remedy in the Czech Republic that confirmed its nonbinding nature because this remedy had not been recognized or enforced in Belgium in accordance with the New York Convention.
In its judgment, the Supreme Court first confirmed that the binding nature of an arbitral award must be assessed on the basis of, in order of priority: (1) the arbitration agreement, (2) the law appointed in the arbitration agreement, or (3) the national laws of the jurisdiction where the award was rendered. Although the Court of Appeal was correct in applying Czech law based on the arbitration agreement, the Supreme Court held that it had erred in its substantive assessment by concluding that the award was final, which was in fact, not the case.
Secondly, the Supreme Court clarified that, when assessing whether an arbitral award had become binding under the New York Convention, the national court must examine (i) whether such award has been the subject of a legal remedy in the jurisdiction where it was pronounced, and (ii) what the consequences of such legal remedy are for the binding nature of the award. This also applies if that legal remedy is not recognized or enforced in the national legal order, in which case the existence of such remedy must be considered as a fact of law.
The Supreme Court therefore ruled that the Court of Appeal had incorrectly dismissed the fact that the award had been subject to legal remedy in the Czech Republic, and was thus considered binding under the applicable national law. Consequently, the judgment at hand was annulled.
B.3 The right to fair trial and arbitrators’ right to refuse witness testimonies
In a judgment dated 27 January 2022, the Brussels Court of First Instance provided guidance on the application of arbitration proceedings, in particular with respect to arbitrators’ obligation to state reasons for a decision (not) to grant a request for oral witness testimonies.
The judgment concerned an appeal against an arbitral award rendered by CEPANI in Brussels, which (inter alia) decided on the validity of the dissolution of a temporary limited liability company under Belgian law. Both parties had presented arguments and exhibits regarding the conditions whereunder such dissolution may take place. Amongst others, the appellant had submitted a written legal opinion of a professor on this topic and additionally requested permission for an oral witness testimony by this professor for further explanation.
The arbitral tribunal refused this request, indicating that (i) the appellant had already devoted a considerable part of its brief of arguments and exhibits to this topic, (ii) the legal principles by themselves were not disputed, and (iii) the remaining question was of a factual nature rather than a legal one.
The appellant disputed this refusal and sought annulment of the award before the Court, arguing that the right to a fair trial (article 6 of the ECHR) and in particular, the right to be heard by an impartial tribunal and its right of defense had been violated. The appellant also invoked Article 1699 of the Belgian Judicial Code, which confirms the principle of equal treatment and the right of defense in arbitration. The appellant thereby referred to the fact that the tribunal had agreed to hear all witnesses of the counterparty in contrast to its own request.
The Court confirmed the application of the abovementioned principles to arbitration but clarified that article 6 ECHR does not explicitly guarantee a party’s right to call witnesses in arbitration. It explained that the provision merely requires that proceedings are fair as a whole, including in the manner by which requests for witness testimonies are treated. In particular, the tribunal must formally respond to such (valid) requests, and refusal decisions should be sufficiently motivated and not arbitrary.
Additionally, the Court confirmed that a different treatment in allowing witness testimonies of parties may in theory, constitute an infringement of the principle of equality of arms. Nevertheless, it also emphasized that, in accordance with Belgian law, arbitral tribunals may freely assess the admissibility of evidence as well as the evidentiary value attached thereto.
In light of these principles, the Court ultimately decided that the tribunal did not breach the appellant’s right to a fair trial by dismissing its request for a witness testimony. The tribunal was deemed sufficiently informed to rightfully decide that such witness testimony was unnecessary, considering that the appellant had been able to (extensively) put forward its arguments during the arbitration by (i) the documentation on this matter, (ii) the oral arguments presented during a “conference” with the tribunal, (iii) the extensive pleadings on the legal opinion during the hearing. Furthermore, the motivation of the award revealed that the legal opinion had been taken into account in the tribunal’s decision. Therefore, the appellant’s right of defense had been sufficiently safeguarded.
Finally, the Court also ruled that the principle of equality between parties had not been violated. A tribunal may balance and assess the relevance of a party’s request for witness testimonies in light of the outstanding legal question. In this case, this permitted the tribunal to refuse a witness testimony by a legal expert whilst nevertheless admitting testimonies of factual witnesses of the other party.
By consequence, it was ruled that the tribunal had respected the legal principles mentioned above and the rights of the appellant were thus not harmed. Therefore, the arbitral award remained valid.
[1] Article 15.1: “The Appointments Committee or the President shall appoint or confirm the Arbitral Tribunal in accordance with the following rules. It shall take into account, inter alia, the availability, the qualifications and the ability of the arbitrator(s) to conduct the arbitration in accordance with the Rules, and considerations of diversity and inclusion.”
