A. LEGISLATION AND RULES
A.1 Legislation
On 13 July 2023, the French National Assembly (Assemblée Nationale) voted in favor of Article 19-1 of the Ministry of Justice Orientation and Programming Bill 2023-2027, which confers confidentiality on legal consultations by in-house counsel in civil, commercial and administrative matters. While this “legal privilege” has long been called for by legal departments, the Conseil National des Barreaux (CNB)[1] had adopted a resolution reaffirming its opposition to the bill, stating that it would establish a new regulated profession and weaken lawyers’ professional secrecy, causing harm to businesses and individuals.[2]
However, on 16 November 2023, the French Constitutional Council(Conseil constitutionnel)invalidated the provisions relating to this French version of “legal privilege.” It ruled that the provisions in question were introduced by amendment and have no connection with the article to which they relate, i.e., Article 19 of the initial bill, which concerns the diploma required to become a French-qualified lawyer.[3] The French Constitutional Council found that this provision violates the French Constitution. As a result, the proposal to render the legal opinions of in-house counsel confidential was rejected.
A.2 Institutions, rules and infrastructure
There have not been any significant developments in the past year.
B. CASES
B.1 Disputes relating to international trade are not arbitrable when they involve a French public entity
The French Conseil d’État — the highest administrative court in the country — has rendered an important decision on 17 October 2023 by which it confirms that it has no intent to deviate from its current restrictive approach regarding the arbitrability of disputes arising out of public law contracts or contracts entered into with a public entity, irrespective of the fact that such contracts may relate to international commercial trade.
In 2008, the Syndicat Mixte des Aéroports de Charente (SMAC) — a French public entity — entered into two agreements with Ryanair and its subsidiary, Airport Marketing Services, to establish a scheduled air service between London-Stansted and Angoulême airports starting in the spring of that year. These agreements were subject to French law and included a provision that any dispute “arising out of or in connection with the Agreement, including any question concerning its existence, validity or termination,” that is not resolved amicably would be settled through arbitration at the LCIA.
In 2010, Ryanair informed SMAC by letter that it would no longer provide the air service between London and Angoulême, thereby terminating the marketing services agreement between SMAC and Airport Marketing Services.
Ryanair and Airport Marketing Services commenced arbitration proceedings before the LCIA. The arbitral tribunal ruled that the airport services contract had been validly terminated and ordered the termination of the marketing services contract.
The two companies requested the enforcement of the LCIA award before the Administrative Tribunal of Poitiers, certainly because SMAC is a public law entity. The Administrative Tribunal rejected the request for enforcement. However, it found that the recourse to arbitration was unlawful, in particular, because it failed to comply with the principle according to which public entities are prohibited from having recourse to arbitration unless an exception is provided for by express legislative provisions or, where applicable, by the stipulations of international agreements duly incorporated into the domestic legal system.[4] This decision was later upheld by the Administrative Court of Appeal of Bordeaux, which also refused the enforcement of the LCIA award on the ground that recourse to arbitration is prohibited for public entities.[5]
Ryanair and Airport Marketing Services raised an appeal before the Conseil d’État, which ruled that “the enforcement of an arbitration award rendered based on a contract concluded between a French public law entity and a foreign entity, performed on French territory but involving the interests of international trade, cannot be authorized by the administrative court if it is contrary to public policy.”[6]
The Conseil d’État further considered that “it follows from the general principles of French public law that, subject to derogations arising from express legislative provisions or, where applicable, from the stipulations of international conventions duly incorporated into the domestic legal order, legal persons governed by public law may not circumvent the rules establishing the jurisdiction of national courts by deferring to an arbitrator the resolution of disputes to which they are a party.”
It added that “it is for the administrative court, when seized of an application for enforcement of an arbitration award, to ensure that arbitration has not been initiated in disregard of these principles.”
In the present case, the Conseil d’État held that the mere fact that a public entity — here, SMAC — had entered into a contract for the purposes of international trade — here, the airport services contract and the marketing services contract — does not entail that the principle prohibiting public entities from resorting to arbitration is not applicable. In other words, the principle still applies.
Furthermore, the Conseil d’État held that the provisions of Article V of the New York Convention do not prevent French administrative tribunals from refusing to enforce an arbitral award relating to a dispute that was not arbitrable.
The Conseil d’État upheld the Bordeaux Court of Appeal decision and confirmed its reasoning as to the non-arbitrability of an international trade dispute involving a French public entity.[7]
B.2 Admissibility of illegally obtained evidence and the procedural fraud as a ground to set aside an arbitral award
The dispute arose out of a contract entered into between two companies from the Hisense Group (Hisense International Co. LTD, based in Hong Kong, and Hisense Import and Export Company Limited, based in China) (“Hisense“) and [AJ] Industrial Company SAE, an Egyptian company (“[AJ]“). Following the termination of the contract by Hisense on 25 December 2015, [AJ] commenced an ICC arbitration in Paris pursuant to the arbitration clause contained in the contract.
On 19 October 2021, the arbitral tribunal rendered a final award in favor of [AJ], ordering Hisense to pay a total amount of USD 32.4 million for the contract’s wrongful termination.
On 26 November 2021, Hisense filed an action for the annulment of the ICC award before the Paris Court of Appeal on the grounds of international public order violation. According to Hisense, [AJ] committed procedural fraud before the arbitral tribunal as it withheld documents essential to the resolution of the dispute despite Hisense’s requests for their production.
Hisense produced documents before the Court of Appeal establishing the fraud committed by [AJ]. [AJ] objected to the production of said documents as they were illegally obtained and should, therefore, be dismissed by the court. It submitted that the documents were stolen from [AJ], that they were obtained by its former director, [GV], in the course of and for the sole purpose of performing his employment contract with [AJ], and that he kept them after leaving [AJ] in 2015 and then passed them on to Hisense, without authorization.
By its decision dated 17 October 2023,[8] the Court of Appeal restated the principle according to which evidence obtained through an unlawful process is inadmissible unless there is a legitimate reason for its production, it is essential to the enforcement of a party’s right, and it does not disproportionately infringe the rights of the other party in relation to the objective pursued. The court further exercised its full discretionary power to assess the probative value and merits of said evidence. In this case, the court considered that the produced documents should not be disregarded. In reaching this conclusion, the Paris Court of Appeal reasoned as follows: “Assuming […] that the said documents were obtained by [an unlawful] method […], these factors must be weighed against the aim pursued which, in the present case, is to demonstrate the existence of a procedural fraud consisting in the dissimulation from the arbitrators during the arbitration of documents that are decisive for their decision, which would be likely to constitute a breach of international public policy; such a purpose, therefore, presents a superior interest justifying the admissibility of the said documents, without disproportionately infringing the rights of the other party in the light of the objective pursued, the Court having, in any event, full discretion to assess their probative value and their merits in the light of the alleged infringement.”
The court further stated: “The authenticity of those documents is not disputed and the alleged unfair practices (unauthorized copying and disclosure of documents belonging to [AJ]) are not disproportionate to the protection of international public policy at issue.”
As regards the merits of the request for annulment of the award, Hisense argued that [AJ]’s maneuvers and lack of sincerity in (not) producing documents that were essential to the resolution of the dispute led the arbitral tribunal to make an incorrect assessment of liability and quantum and that the dissimulation of said documents, therefore, had an impact on the calculation of compensation. As a result, Hisense requested the court to set aside the award as it violates international public order. It further pointed out that the documents discovered after the award could not be discussed before the arbitral tribunal nor taken into account in its merits analysis, so that knowledge of those documents by the Paris Court of Appeal does not contravene the principle of non-review of the merits of arbitral awards by the annulment judge.
The Paris Court of Appeal reasoned that procedural fraud committed in an arbitration proceeding might be sanctioned on the grounds of violating international public policy. It presupposes that false documents have been produced, that false testimony has been taken or that documents relevant to the resolution of the dispute have been fraudulently dissimulated from the tribunal. Procedural fraud justifies setting aside the award only if it affects the award, i.e., if it is decisive.
The court concluded that, in the present case, since the alleged dissimulation of documents and the assessment of the factors that enabled the tribunal to determine liability and damages were the subjects of an adversarial debate during the arbitration proceedings, the tribunal’s decision was not the result of fraud but of an informed assessment of the accuracy, merits and scope of the documents submitted to it, an assessment which is not for the court to review.
The court thus rejected Hisense’s request for annulment.
This decision emphasizes the importance of balancing a party’s right to invoke evidence and the principle of loyalty in administering evidence. It further highlights that for the annulment proceedings based on international public policy violation to be successful, it is crucial to demonstrate that the allegations of procedural fraud were decisive in the arbitral award: with or without the evidence at issue, the outcome of the award would have been different.
B.3 A pending appeal or criminal proceeding in foreign courts cannot be used as a ground to justify a stay of the annulment proceedings before French courts
The dispute concerns the performance of a shareholders’ agreement signed on 24 February 2012 by China Communications Construction Company Ltd (“CCCC“) and Algerian shareholders, which contains an arbitration clause subjecting all related disputes to the ICC.
Following the failure to resolve the dispute amicably, the Algerian shareholders brought proceedings before an Algerian local court against CCCC. The latter invoked the arbitration clause contained in the shareholders’ agreement and requested the dismissal of the claim as the Algerian local court arguably did not have jurisdiction to resolve the case.
On 8 July 2019, the Algerian court accepted jurisdiction and declared the arbitration clause null and void. On 1 February 2023, the Algiers Court of Appeal overturned this decision. The Algerian shareholders challenged the Algiers Court of Appeal’s decision before the Algerian Supreme Court. The proceedings before the Algerian Supreme Court are still pending.
In the meantime, CCCC initiated arbitration proceedings before the ICC based on the arbitration clause. On 16 September 2021, the arbitral tribunal issued an award confirming its jurisdiction to resolve the case, which was then subject to setting aside proceedings before the Paris Court of Appeal.
In 2021 and 2022, the Algerian shareholders lodged criminal complaints against CCCC before an Algerian court for forgery of documents and attempts to defraud a court.
The Algerian shareholders then requested a stay of the annulment proceedings before the Paris Court of Appeal pending the outcome of these criminal proceedings and the appeal before the Algerian Supreme Court.
By its decision dated 28 September 2023,[9] the Paris Court of Appeal dismissed the Algerian shareholders’ request for a stay of the annulment proceedings. It found that neither a pending foreign criminal procedure nor an appeal before a foreign court can serve as grounds to order a stay of the annulment proceedings of an arbitral award in France. The Paris Court of Appeal ruled: “According to the third paragraph of [A]rticle 4 of the Code of Criminal Procedure, the commencement of the criminal action does not require the suspension of the judgment of other actions brought before the civil court, of whatever nature, even if the decision to be taken in the criminal proceedings is likely to have an influence, directly or indirectly, on the outcome of the civil proceedings.” It further stated that “[t]he existence of an appeal against the Algiers Court of Appeal’s ruling of 1 February 2023 cannot further justify the stay. An international arbitration award, which is not linked to any national legal system, constitutes an international legal decision whose legality is examined in the light of the rules applicable in the country where its recognition and enforcement are sought. The decisions of the Algerian courts, none of which is exequatur in France, have no bearing on the action before the Court in these proceedings.”
The court added that the documents subject to the criminal proceedings were not relied upon by the arbitral tribunal when deciding the case.
Under these circumstances, the court decided that the stay was unnecessary for the “proper administration of justice.”
B.4 The amiable compositeur in international arbitration
On 26 September 2023, the Paris Court of Appeal rendered two decisions in two annulment cases regarding an arbitral tribunal’s power to act as an amiable compositeur.
In the Air Canada case,[10] the Paris Court of Appeal stated that “[a]miable composition is a contractual waiver of the effects and benefits of the rule of law, with the parties losing the prerogative to demand its strict application, and the arbitrators receiving the corollary power to modify or moderate the consequences of this rule where equity or the common interest of the parties so require.”
In this case, the Paris Court of Appeal dismissed Venezuela’s request to set aside an ICSID award[11] rendered on 13 September 2021, ordering Venezuela to pay Air Canada the total sum of USD 26.3 million. Venezuela contended that the award should be annulled because the arbitral tribunal ruled as an amiable compositeur where the parties did not give it the power to do so. According to Venezuela, the arbitral tribunal ruled as amiable composition in assessing Air Canada’s claims as it has set aside the four-month time limit provided for by Venezuelan law in the event of administration’s silence and has opted for an administrative practice instead. The tribunal believed that applying the rule of law in this case would be inequitable; the tribunal has also rejected the Venezuelan law that provides for the application of the exchange rate on the day of the transfer of funds. Instead, it has based itself on the exchange rate that was in effect in 2013 However, the Paris Court of Appeal dismissed the request for annulment by reasoning that “the arbitrator does not deviate from his mission if he uses the freedom granted to him by the law applicable to the dispute.” It continued: “[T]he use by an arbitral tribunal of a discretion conferred on it by the applicable rule to decide on a claim not being sufficient to qualify this power as amiable composition.” Accordingly, in the eyes of the Paris Court of Appeal, the arbitral tribunal had not acted as an amiable compositeur; rather, it ruled in light of its discretionary powers conferred to it by law. It concluded that Venezuela was asking the court to assess the merits of the case and to review the award, which exceeds the court’s power.
In the ITM Alimentaire international case,[12] the parties entrusted the arbitral tribunal with the role of amiable compositeur. An application to set the award aside was lodged by one of the parties to the arbitration on the grounds that the arbitral tribunal did not act as an amiable compositeur.
In its ruling, the Paris Court of Appeal pointed out that “the arbitral tribunal, to which the parties have entrusted the mission of ruling asamiable compositeur, must emphasize in its award that it has taken equity into account.” The court further emphasized that the annulment proceedings do not lead to a “review of the relevance of the reasoning of the arbitral tribunal ruling as anamiable compositeur, given the principle that review of the merits of the award is prohibited.” In other words, the principle is that the appeal court simply examines the arbitrator’s reasoning to verify that the arbitrator’s solution was based on equity and fairness.
The Paris Court of Appeal concluded, in this case, that “the arbitral tribunal examined the claim in light of the provisions of European Union law and French law, before considering whether equity required a different solution. The tribunal thus complied with its role asamiable compositeur, and the court did not have to verify the relevance of its assessment in equity.” Therefore, the annulment request was rejected.
B.5 An award is not directly enforceable if the action for annulment has been deemed inadmissible
By its decision dated 29 January 2015, a French court of appeal declared the annulment request of an arbitral award rendered on 15 November 2013 by a sole arbitrator ruling as amiable compositeur admissible. It was later set aside by a decision dated 18 January 2018.[13] On 26 September 2019, the French Cour de cassation quashed the two decisions and judged that the annulment request was inadmissible.[14]
Several asset-seizing procedures were initiated to enforce the arbitral award. These procedures were subsequently challenged before the Paris enforcement judge, who rejected the applicant’s request to stop the asset seizure, considering that the award was enforceable since the French Cour de cassation declared the annulment action inadmissible.[15] An appeal was lodged against this decision before the Douai Court of Appeal, which confirmed the Paris enforcement judge’s decision. The Douai Court of Appeal had to answer the following question: Does Article 1498(2) of the French Code of Civil Procedure[16] apply to an action for annulment that has been declared inadmissible?
Article 1498(2) of the Code of Civil Procedure states that “the dismissal of the appeal or of the action for annulment confers exequatur on the arbitral award or on those of its provisions that are not affected by the court’s censure.”
The Douai Court of Appeal adopted a broad interpretation of the article, stating that “the term ‘dismissal’ used in this way must be understood in the broad sense and include both cases where the action for annulment is declared inadmissible and cases where it is rejected after examination of the irregularities invoked by the author of the action on the basis of [A]rticle 1492 of the Code of Civil Procedure.” It added that “insofar as an action for annulment has been brought, the Court of Appeal, as judge of the action for annulment also becomes, as it follows from the aforementioned provisions of Article 1499, judge of the exequatur and its decision, when it is unfavorable to the author of the action for annulment, for whatever reason, must allow, in application of Article 1498 paragraph 2, the forced execution of the arbitral award without obliging the person who benefits from it to apply for exequatur in accordance with the procedure of Article 1487.”[17]
On 7 June 2023, the French Cour de cassationoverturned the Douai Court of Appeal’s decision. According to the Cour de cassation it follows from Article 1498, paragraph 2, of the Code of Civil Procedure that a judgment declaring an action to set aside an arbitral award to be inadmissible does not render the award enforceable and does not exempt a person who wishes to enforce the award from obtaining an enforcement order from the court, once the existence of the arbitration agreement and the absence of a clear breach of public policy have been verified, as provided for in Articles 1487 and 1488 of the Code of Civil Procedure.[18]
In other words, the party seeking to enforce the award must still undergo the standard exequatur procedure even though the set-aside proceedings were judged inadmissible.
B.6 The failure to comply with a multi-tiered clause is an admissibility issue and not a jurisdictional one and, therefore, cannot constitute a basis for setting aside an award
The French Cour de cassation has recently confirmed that a violation of a mediation clause is not subject to review by the annulment judge and, therefore, cannot be used as a ground to seek the annulment of the award.[19]
The dispute concerned a contract containing a multi-tiered clause requiring the parties to resort to mediation before initiating arbitration proceedings. The claimant referred to arbitration without exhausting the mediation phase first. The respondent thus challenged the arbitral tribunal’s jurisdiction.
The arbitral tribunal upheld its jurisdiction in a partial award dated 10 September 2018 and invited the parties to conduct mediation in parallel.
The respondent initiated an annulment action before the Paris Court of Appeal. The latter held that, while it is generally true that a clause in a contract instituting a compulsory prior mediation phase constitutes a bar to arbitral proceedings, the fact remains that in the present case, the arbitral tribunal upheld jurisdiction. It further stated: “The failure to comply with the mediation clause, in this case, is therefore not a ground for dismissal that does not fall within the jurisdiction of the Court of Appeal, but constitutes a fact that must be considered when assessing whether there has been a breach of Article 1492(1) of the Code of Civil Procedure.”[20]
The French Cour de cassation overturned the Paris Court of Appeal decision, thereby confirming the well-established French case law, which considers that a breach of a prior mediation clause does not constitute a jurisdictional issue but rather an issue of inadmissibility that cannot be subject to review by the annulment judge and, consequently, is not a valid ground for setting aside an arbitral award.
[1] French National Bar Council.
[2] CNB resolution on the confidentiality of in-house counsel consultations dated 3 July 2023.
[3] French Constitutional Council, Decision n° 2023-855 DC dated 16 November 2023.
[4] Poitiers Administrative Tribunal, 15 December 2020, n° 1900269.
[5] Bordeaux Administrative Court of Appeal, 30 March 2022, n° 21BX00596.
[6] Conseil d’État, 17 October 2023, n° 465761.
[7] Conseil d’État, 17 October 2023, n° 465761.
[8] Paris Court of Appeal, 17 October 2023, n° 21/20796.
[9] Paris Court of Appeal, 28 September 2023, n° 21/18611.
[10] Paris Court of Appeal, 26 September 2023, n° 21/20965.
[11] The proceedings were brought under the ICSID’s Additional Facility rules; the standard ICSID rules were therefore not applicable. The parties accepted the protocol relating to the procedure applicable before the International Chamber of the Paris Court of Appeal giving it jurisdiction to hear an arbitral award annulment action.
[12] Paris Court of Appeal, 26 September 2023, n° 20/10405.
[13] Douai Court of Appeal, 18 January 2018, N° 13/06684.
[14] French Cour de cassation, 26 September 2019, n° 18-14.708.
[15] Arras Judiciary Tribunal, 1 July 2021, N° 20/01101.
[16] This article applies to domestic arbitration; however, an identical provision is provided for international arbitration (Article 1527 (2) of the French Code of Civil Procedure) rendering the commented decision also applicable to international arbitration.
[17] Douai Court of Appeal, 3 February 2022, n° 21/03889.
[18] French Cour de cassation, 7 June 2023, n° 22-12.757.
[19] French Cour de cassation, 1 February 2023, n° 21-25.024.
[20] Paris Court of Appeal, 23 November 2021, n° 18/22099.
