A. LEGISLATION AND RULES
A.1 Legislation
France decided to withdraw from the Energy Charter Treaty (ECT). This development has a major importance in French legislation. The ECT was signed following the end of the Cold War in 1994, and France ratified it on 1 September 1999. While nine French investors have brought claims against other ECT signatories, France has only been sued once in September 2022 under this treaty. On 21 October 2022, President Macron announced France’s intention to withdraw from the ECT. According to the president, the ECT is incompatible with the country’s climate commitments and efforts to decarbonize the energy sector by 2030 as set out in the Paris Agreement.
On 1 December 2022, the Minister of Europe and Foreign Affairs officially notified the withdrawal of France from the ECT to Portugal, which, in its capacity as depositary of the agreement, acknowledged receipt on 7 December 2022. According to article 47(2) of the ECT, the withdrawal takes effect one year after the date of receipt of the notification of withdrawal by the depositary. Thus, France’s withdrawal from the ECT will take effect on 8 December 2023. However, and interestingly, this does not mean that all arbitration claims arising from the ECT are automatically extinguished. Indeed, under the “sunset clause” provided for in article 47(3) of the ECT, investments made until the effective date of withdrawal continue to be protected for 20 years after withdrawal.
A.2 Institutions, rules and infrastructure
There have not been any significant developments in the past year.
B. CASES
B.1 The autonomy and independence of the arbitration clause in the absence of an express will of the parties
On 28 September 2022, the French Cour de Cassation rendered an important and awaited decision for the international arbitration community in the Kabab-ji/Kout Food case. In July 2001, Lebanese company Kabab-Ji and Kuwaiti company Al-Homaizi Foodstuff Co. WWL (“Al-Homaizi”) entered into a ten-year franchise agreement to operate the “Kabab-Ji” restaurant brand in Kuwait. The franchise agreement, as well as the agreements concluded with each restaurant, provided for the application of English law and contained an arbitration clause providing for ICC arbitration. In 2004, Al-Homaizi informed Kabab-Ji of the restructuring of the group through the creation of a Kuwaiti holding company, Gulf and World Restaurants & Food, which became Kout Food Group (KFG). The contracts expired in 2011. On 27 March 2015, Kabab-Ji initiated arbitration proceedings against KFG. By an award on 11 September 2017, the arbitral tribunal accepted jurisdiction and extended the arbitration clause to KFG (even though it was not a signatory of the contracts and the arbitration clauses) because it was directly involved in the performance of the contracts. The arbitral tribunal ordered KFG to pay Kabab-Ji the unpaid license fees and damages for loss of opportunity.
KFG brought an action before the French courts to set aside the award. KFG alleged that the arbitrators did not have jurisdiction because, according to the applicable law (English law), KFG was not a party to the arbitration agreements. In the meantime, Kabab-Ji sought to enforce the award in England. The English courts held that English law is applicable to the contracts and, therefore, to the arbitration clauses. The English courts thus concluded that KFG was not a party to the franchise agreement and the arbitration agreement, found that the arbitral tribunal did not have jurisdiction over the dispute and refused to recognize the arbitral award in England.
The French courts, however, adopted an opposite position. The Paris Court of Appeal, in its decision of 23 June 2020,[1] recently confirmed by the Court of Cassation in its decision of 28 September 2022,[2] reiterated an established French law principle according to which an arbitration agreement, by virtue of its autonomy and independence, is not subject to the law governing the main contract in the absence of an express will of the parties to that effect. The French courts concluded that the arbitration clause is not subject to English law but is governed by the common will of the parties. Since, in this case, the parties did not choose the arbitration agreement’s governing law, the French courts gave full force to the parties’ agreement as to the seat of arbitration by applying the substantive rules of the seat to the arbitration agreement. The French courts concluded that the arbitration agreements between Kabab-Ji and Al-Homaizi should be extended to KFG, which was involved in the performance of the contracts. Therefore, the French courts refused to annul the arbitration award.
This case highlights the differing views of French and English courts as to the extension of the arbitration clause to non-signatory third parties. In that regard, the choice of law applicable to the main contract and the choice of the seat of the arbitration will be crucial. Defining them clearly in the agreement will increase the chances of recognizing or enforcing the award. This case also invites the drafters of an arbitration clause to specify the law applicable to the arbitration agreement itself.
B.2 French courts broaden the scope of their review of alleged breaches of international public policy
Another decision of the French Cour de Cassation, dated 23 March 2022, is of major importance as it puts an end to the debate amongst scholars and arbitration practitioners as to the proper standard of review to be applied by French courts to determine potential violations of international public policy by arbitral awards. In 2007, following a tender, Mr Belokon, a Latvian citizen, acquired the Kyrgyz bank, Insan Bank, which became Manas Bank. Following the change of regime in the Kyrgyz Republic in April 2010, Manas Bank was placed under provisional administration, then under receivership, until its insolvency was declared in July 2015.
Mr Belokon initiated ad hoc arbitration proceedings in Paris under the Latvia-Kyrgyz BIT. On 24 October 2014, the arbitral tribunal accepted its jurisdiction under the Bilateral Investment Treaty (BIT) and found that the Republic of Kyrgyzstan had breached the fair and equitable treatment standard contained in the BIT. The tribunal ordered the Republic of Kyrgyzstan to pay the sum of USD 15,020,000 and to transfer its shareholding in Manas Bank to Mr Belokon.[3]
The Kyrgyz Republic filed an action for annulment in Paris on the grounds that recognition or enforcement of the award would be contrary to international public policy. The Paris Court of Appeal annulled the award. It explained that while it was not for the court to verify whether the decisions to place the Manas Bank under provisional administration and then under receivership were lawful under Kyrgyz law, it had the power to determine whether the recognition and enforcement would be contrary to French principles of international public policy. From this standpoint, the court found that the recognition and enforcement of the award in France would allow Mr Belokon to benefit from the proceeds of money laundering.
In its decision of 23 March 2022,[4] the Court of Cassation dismissed the appeal and stated that the Court of Appeal:
“had accurately deduced that the recognition or enforcement of the award, which would have the effect of giving Mr. K [Mr. Belokon] the benefit of the proceeds of criminal activities, was a characterized violation of international public policy.”
Traditionally, when reviewing an award, the French courts required the violation of international public policy to be “flagrant, actual and concrete”[5] to lead to the annulment of the arbitral award. Said requirement has not been reaffirmed since 2014.[6] This decision has now undoubtedly broadened the scope of the French courts’ review in annulment proceedings. This new standard of review was later followed by the Paris Court of Appeal in the Groupement Santullo case.[7]
B.3 French courts broaden the criteria for assessing compliance with international public policy
This case is essential in assessing compliance with international public policy. On 12 March 2013, French company Sorelec initiated arbitration proceedings under the Franco-Libyan BIT. The dispute concerned the performance of a contract concluded between Sorelec and the Ministry of Education of the State of Libya for the construction of schools and housing. A memorandum of understanding and arrangement relating to the arbitration proceedings had been concluded between the parties. It resolved the dispute by determining the amount of Sorelec’s claim. Sorelec commenced arbitration proceedings to obtain the homologation of the protocol. On 20 December 2017, a partial award was rendered condemning Libya, under the terms of the protocol, to pay a certain sum within a certain period of time. The award also provided that in the case of default, Libya would be liable to pay a higher amount.
As the partial award was not complied with within the time limit, the arbitral tribunal issued a final award on 10 April 2018 ordering Libya to pay the increased amount and apportioning the costs of the arbitration.[8] On 26 January 2018, Libya sought to set aside the partial award before the Paris Court of appeal on the grounds that, inter alia, the protocol had been obtained by unlawful and corrupt means and was, therefore, contrary to international public policy. The Court of Appeal annulled the award based on serious, precise and consistent evidence of corruption, mainly linked to the situation in Libya in 2016.
On 7 September 2022,[9] the Court of Cassation upheld the Court of Appeal’s decision and recalled the absence of limitation of the judges’ powers in determining, at law and in the pattern of facts, all elements likely to reveal a violation of international public policy, including by examining exhibits that had not previously been submitted to the arbitrators. Moreover, it held that the appeal judge was not required to investigate whether Libya had been disloyal in not raising the issue of corruption before the arbitral tribunal since “respect for substantive international public policy cannot be conditioned by the attitude of a party before the arbitrator.” This judgment was particularly noteworthy because it broadens the criteria for assessing compliance with international public policy as long as there is a suspicion of corruption, and confirms the absence of any limitation of the judges’ powers to investigate all the elements relating to the alleged breach of international public policy.
B.4 The impecuniosity of a party does not render an arbitration clause manifestly inapplicable
French company CPP Le Mans Distribution entered into a franchise agreement with French company Prodim (which became the company Carrefour Proximité France) and into a supply agreement with CSF France, both contracts containing an arbitration clause. On 25 October 2019, CPP and its manager brought an action before the Rennes Commercial Court against Carrefour Proximité France, CSF and Selima, a subsidiary of the Carrefour group and an associate of the franchised company, alleging that they were the victims of anti-competitive practices.
Carrefour and Selima argued that the state courts did not have jurisdiction, invoking the arbitration clauses. By judgment rendered on 26 January 2021,[10] the Commercial Court accepted jurisdiction. According to the court, to settle the claim, it has to consider not only the franchise and supply agreements but also the articles of association: these contracts are connected and should be considered as a whole. The court deducted that the arbitration agreements (only contained in the franchise and supply agreements) were manifestly inapplicable because the dispute cannot be settled without considering the articles of association, which do not contain an arbitration clause. CPP appealed and argued that the arbitration clauses were inapplicable due to CPP’s inability to pay the arbitration costs. The Court of Appeal considered that the impecuniosity of a party does not render an arbitration clause inapplicable. It added that it is up to the arbitral tribunal and the parties to avoid any risk of denial of justice when faced with a litigant with limited financial means.[11]
In a decision dated 28 September 2022,[12] the Court of Cassation rejected the appeal, recalling the principle of Kompetenz-Kompetenz and article 1448 of the Code of Civil Procedure.[13] The Court of Cassation reiterated the reasoning of the Court of Appeal and considered that the lack of payment is not, in itself, such as to characterize the manifest inapplicability of arbitration clauses. This case is interesting insofar as it confirms that impecunious parties may not attempt to escape arbitration proceedings simply by invoking their alleged inability to pay the costs.
B.5 The waiver of the Kompetenz-Kompetenz principle in international arbitration should be express and unequivocal
In this noteworthy case, French courts had to determine whether the well-established principle of Kompetenz-Kompetenz could be waived. French company Ponant entered into a shipbuilding contract with Italian company Fincantieri, which entrusted the classification of a vessel to Bureau Veritas. Both contracts included arbitration clauses. Fincantieri ordered diesel generators from Finnish company Wärtsilä Finland and a firefighting system from Finnish company Marioff Corporation.
A fire broke out on the vessel in the engine room off the Falkland Islands. Ponant’s insurers sued Fincantieri, Bureau Veritas, Wärtsilä Finland and Marioff Corporation before the Commercial Court of Mata’Utu (Wallis and Futuna), the vessel being registered in Wallis and Futuna. Bureau Veritas and Marioff Corporation raised an objection for lack of jurisdiction of the state courts, invoking the arbitration clauses in the shipbuilding and classification contracts. On 10 September 2020, the Noumea Cout of Appeal noted that the arbitration clause was not manifestly null and void or manifestly unenforceable, and that the arbitral tribunal had already been seized. Thus, the dispute had to be heard through arbitration according to article 1448 of the Code of Civil Procedure.
Before the Court of Cassation, the Bureau Veritas and Marioff Corporation argued, on the basis of article 1448 of the Code of Civil Procedure, that according to the Kompetenz-Kompetenz principle, when faced with an arbitration agreement, a state court shall decline jurisdiction unless the arbitral tribunal is not yet seized and if the arbitration agreement is prima facie void or unenforceable. Ponant’s insurers, on the other hand, contended that by choosing to seat the arbitration in London and, therefore, the application of English law to the arbitral proceedings, the parties intended to waive the Kompetenz-Kompetenz principle set out in article 1448.
In a decision dated 9 March 2022[14], the Court of Cassation rejected the appeal and held that in matters of international arbitration, the waiver of the Kompetenz-Kompetenz principle must be express and unequivocal. It held that the mere designation of London as the seat of arbitration and of English law as the law of the arbitral proceedings should not be considered as an express and unequivocal waiver of the Kompetenz-Kompetenz principle.
B.6 The close friendship between an arbitrator and one of the party’s counsel should be disclosed.
An ICC partial award was rendered on 10 November 2020 in a case between Cameroonian company Douala International Terminal and Cameroonian public company Port Autonome De Douala.[15] On 14 December 2020, Port Autonome filed an action for annulment before the Paris Court of appeal on the basis of the irregular constitution of the arbitral tribunal. Indeed, after discovering an article published by the president of the tribunal, Port Autonome alleged that the latter had, with the deceased counsel of Douala, Mr. Emmanuel Gaillard, a close relationship which he never disclosed before his appointment.
The Paris Court of Appeal[16] qualified the personal links between the president of the tribunal and Douala’s counsel as “close.” It also held that this publication referred to a relationship that went beyond simple friendship since the president of the tribunal stated that he consulted Mr Gaillard “before any important choice.” The court further found that if the “exaggerated” tribute and praise were not likely to raise a reasonable doubt in the parties’ minds as to the arbitrator’s impartiality, the close personal links could lead the parties to think that the president of the arbitral tribunal might not be fully independent in rendering the award. The Paris Court of Appeal concluded that it was the responsibility of the president of the arbitral tribunal to mention the existence of this relationship in his declaration when accepting his appointment and found that the arbitral tribunal was constituted irregularly. As a result, the award was set aside by the Paris Court of Appeal.
B.7 The mere knowledge of the arbitration agreement by a company’s legal representative, who did not sign it, does not necessarily characterize a manifest inapplicability of the arbitration agreement.
Belgian company Lota Conseils and Cypriot company Baferton Trading signed two engagement letters with the aim of enabling the latter to acquire a third company. Lota claimed that the manager of Baferton had personally acquired the third party company instead of their own company to evade the payment of fees due to Lota, and therefore sued them for tort before the Tribunal de Grande Instance. The manager argued that the state courts did not have jurisdiction, relying on the arbitration clauses stipulated in the engagement letters. The Paris Court of Appeal rejected the jurisdictional objection, holding that the arbitration clauses limit their effects to the parties having signed the engagement letters, i.e., the two companies, and that the mere knowledge of these clauses by the manager, who intervened in these acts in their capacity as legal representative of their company, was not sufficient to render them enforceable against them.
On 28 September 2022, the Court of Cassation[17] overturned the decision, considering that the Court of Appeal had violated article 1448, paragraph 1, of the Code of Civil Procedure. Indeed, while arbitration clauses limit their effects to their signatories, the mere knowledge of these clauses by the new legal representative of a party does not characterize the manifest inapplicability of the arbitration clauses. In other words, the arbitration clause may be extended to the company legal representative, even though they did not sign said clause, if they were involved in the performance of the contract and the dispute.
B.8 An acquisition of a debt arising from a contract for the supply of electricity, which is not connected with an investment, does not constitute an “investment” under the ECT.
A dispute arose out of the performance of a series of contracts entered into in 1999 for the supply of electricity to the Republic of Moldova. Moldtranselectro, the Moldovan state-owned company in charge of the operation of the national electricity network, failed to pay the full amounts due to Derimen Properties Limited, a company registered in the British Virgin Islands, under a power supply contract dated 24 February 1999. By a contract dated 30 May 2000, Derimen assigned this debt on Moldtranselectro to Energoalians, a Ukrainian private company specialized in the production and distribution of electricity. Energoalians initiated, on 8 July 2010, ad hoc arbitration proceedings alleging the violation by the Republic of Moldova of certain obligations arising from the ECT to which Moldova and Ukraine are parties, as well as from the Moldova-Ukraine BIT. By an award rendered in Paris on 25 October 2013, the arbitral tribunal recognized its jurisdiction and considered that the Republic of Moldova had breached its international commitments. The president of the arbitral tribunal issued a dissenting opinion on jurisdiction.
The Republic of Moldova filed an action for annulment before the Paris Court of Appeal. On 12 April 2016, the court annulled the award on the grounds that the arbitral tribunal lacked jurisdiction. It stated that the dispute did not relate to an investment within the meaning of the ECT because there was no contribution to the economic development of the host state. By a decision dated 28 March 2018, the Court of Cassation annulled the 2016 judgment, holding that “the provisions of this treaty do not specify the criteria characterizing an investment, but only list, in a non-exhaustive manner, assets considered as investments” and that the Court of Appeal added a condition that the treaty does not provide for.
On 24 September 2019, the Paris Court of Appeal submitted to the European Court of Justice (ECJ) the question of whether a claim arising from a contract for the sale of electricity, which did not involve any contribution by the investor in the host state, can constitute an “investment” within the meaning of the ECT. In a decision dated 2 September 2021, the Grand Chamber of the ECJ found that:
“an acquisition, by an undertaking of a Contracting Party to that treaty, of a claim arising from a contract for the supply of electricity, which is not connected with an investment, held by an undertaking of a third State against a public undertaking of another Contracting Party to that treaty, does not constitute an ‘investment’ within the meaning of the ECT.”
On 10 January 2023[18], the Paris Court of Appeal annulled the award, finding that it is bound by the interpretation of the ECJ according to which the claim is associated with a simple sale transaction, without any investment being characterized. The court further found that the consideration of the geopolitical, economic and legal context that presided over the conclusion of these agreements, put forward by the defendant, is not such as to modify this assessment.
B.9 An arbitration clause contained in an intra-European BIT must be annulled due to its contradiction with EU law
The dispute arose from several measures taken by the Polish judicial and administrative authorities that allegedly had an adverse effect on an Austrian investment in Poland. In a partial award on jurisdiction rendered on 4 March 2020, the arbitral tribunal accepted jurisdiction under the arbitration clause included in the Poland-Austria BIT. On 16 September 2020, the Republic of Poland challenged the award before the Paris Court of appeal on the grounds that the arbitral tribunal lacked jurisdiction.
The Court of appeal[19] examined the jurisdiction of the arbitral tribunal in light of the Achmea decision[20] and held that the arbitration clause provided for in article 8 of the BIT could not constitute a basis for the jurisdiction of the arbitral tribunal, as it was in contradiction with EU law. As a result, the court set aside the award. This decision is similar to the Paris Court of Appeal decision in the Slot case[21]. Both courts decided that an award rendered by an arbitral tribunal which had accepted its jurisdiction under an arbitration clause contained in an intra-European BIT must be annulled on the ground of the lack of jurisdiction, as the consent to arbitration given by an EU Member State in an intra-European BIT violates EU law. The future will tell whether other French and national courts will adopt a similar position.
[1] Paris Court of appeal, 23 June 2020, n° 17-22943
[2] Cour de cassation, 28 September 2022, n° 20-20.260
[3] Valeri Belokon v. Kyrgyz Republic, 24 October 2014, PCA Case No. AA518
[4] Court de Cassation, 23 March 2022, n° 17-17.981
[5] Paris Court of Appeal, 18 November 2004, n° 2002/19606; Cour de Cassation, 4 June 2008, n° 06-15.320
[6] Paris Court of Appeal, 4 March 2014, n° 12/17681 14 October 2014, n° 13/03410; 16 January 2018, n° 15/21703; 28 Mai 2019, n° 16/11182
[7] Paris Court of Appeal, 4 April, 2022 n° 20-03242
[8] Sorelec v. Libya, 10 April 2018, ICC Case No. 19329/MCP/DDA
[9] Cour de Cassation, 7 September 2022, n° 20-22.118
[10] Rennes Commercial Court, 26 January 2021, n° 2019F00381
[11] Paris Court of Appeal, 30 June 2021, n° 21/02568
[12] Cour de Cassation, 28 September 2022, n° 21-21.738
[13] When a dispute arising from an arbitration agreement is brought before a state court, the state court shall declare itself incompetent unless the arbitral tribunal has not yet been seized and the arbitration agreement is manifestly null and void or manifestly unenforceable.
[14] Cour de Cassation, 9 March 2022, n° 20-21.572
[15] Douala International Terminal (DIT) v. Port Autonome de Douala, 10 November 2020, ICC Case No. 24211/DDA
[16] Paris Court of Appeal, 10 January 2023, n° 20-18330
[17] Cour de Cassation, 28 September 2022, n° See here
[18] Paris Court of appeal, 10 January 2023, n° 18-14721
[19] Paris Court of appeal, 19 April 2022, n° 20-13085
[20] ECJ, 6 March 2018, C‑284/16
[21] Paris Court of appeal, 19 April 2022, n° 20-14581
