A. LEGISLATION AND RULES
A.1 Legislation
A.1.1. The arbitration reform has come into force
On 25 April 2023, the Arbitration Law reforming the Luxembourg arbitration legal framework came into force. This reform aims to further enhance Luxembourg’s appeal as a trusted arbitral seat and to bring Luxembourg closer to meeting international standards in relation to the arbitration procedure. Inspired by the 2006 UNCITRAL Model Law, Belgian arbitration law and French arbitration law, the new provisions reshape arbitration — from the arbitration agreement to the enforcement of an arbitral award.
A.1.1.1. Efforts to lighten the validity of the arbitration agreement
The new provisions on the validity of an arbitration agreement mirror Luxembourg’s efforts to strengthen its pro-arbitration stance.
Under Luxembourg Arbitration Law, an arbitration agreement is no longer subject to any written form requirement (Article 1227 of the New Code of Civil Procedure). This implies that the arbitration agreement may be entered into in any form as long as the content of the agreement can be recorded.
Moreover, the Arbitration Law enshrines the separability doctrine under which an arbitration agreement will be treated as an agreement independent from the underlying contract (Article 1227-2 of the New Code of Civil Procedure). This provision puts an end to the jurisprudential inconsistency with respect to the application of the separability doctrine in Luxembourg.
Lastly, the Arbitration Law confirms the application of the well-established kompetenz-kompetenz principle. This principle empowers the arbitral tribunal to rule on its own jurisdiction and to decide on issues, including the existence and the validity of the arbitration agreement (Article 1227-3 of the New Code of Civil Procedure).
Pursuant to the new provisions, a Luxembourg court must refer a dispute to arbitration if the dispute is subject to an arbitration agreement. While this referral may be made at the request of a party, the wording of Article 1227-3 may suggest that domestic courts, on their own initiative, may refer the dispute to arbitration. In any event, the arbitral tribunal has exclusive jurisdiction on its own jurisdiction. However, under Article 1227-3, the Luxembourg court retains jurisdiction to conduct a review of the arbitration agreement: (i) if the subject matter of the dispute may not be arbitrable; or (ii) if the arbitration agreement is manifestly void or manifestly not applicable. In other words, the domestic courts only have jurisdiction to conduct a prima facie review of the arbitration agreement.
A.1.1.2. Enhancing the efficiency of arbitral proceedings in Luxembourg-seated arbitrations: the establishment of a support judge whose mission is to help the arbitration proceedings
The Arbitration Law enshrines the role of the support judge, who is tasked to facilitate the arbitration proceedings and settle any procedural issues (Articles 1229 and following of the New Code of Civil Procedure). This judge will have jurisdiction for any claims arising out of or related to arbitral proceedings, including arbitrator appointments, arbitrator challenge, interim relief, evidence disclosure, and denial of justice. To increase the speed and efficiency of the arbitral procedure in Luxembourg, the decision of the support judge cannot be subject to appeal.
A.1.1.3. Enhancing the efficiency of arbitral proceedings in Luxembourg-seated arbitrations: setting out a default procedure for multiparty arbitrator appointments
The Luxembourg Arbitration Law is one of the few arbitration laws that provide for a default procedure for multiparty arbitrator appointments (Article 1228-4 paragraph 3 of the New Code of Civil Procedure). Such provision is more than welcomed. In an ad hoc multiparty arbitration, there is a risk of a breach of equality of the parties in the arbitrator appointment process if the parties on the claimant’s side or the respondent’s side cannot agree on a joint arbitrator. That breach could lead to the annulment of the arbitral award. The Arbitration Law addresses such risk. Article 1228-4 paragraph 3 empowers the arbitration administrative body (selected by the parties) or the support judge to appoint all arbitrators if there is failure to appoint a joint arbitrator by the parties on the claimant’s side or on the respondent’s side.
A.1.1.4. Empowering the arbitral tribunal to grant interim measures, excluding attachment order
The Arbitration Law gives the arbitral tribunal the power to grant interim measures (Article 1231-9 paragraph 3 of the New Code of Civil Procedure). The domestic courts remain competent: (i) prior to the constitution of the arbitral tribunal; (ii) when the arbitral tribunal cannot grant such measures, including the issuance of the attachment order; and (iii) if the parties so agree.
A.1.1.5. Setting out a more liberal regime for enforcement of Luxembourg-seated arbitral awards and foreign arbitral awards
The Arbitration Law narrows the challenge of a Luxembourg-seated arbitral award to six grounds: (i) the arbitral tribunal wrongly upheld or declined jurisdiction; (ii) the tribunal was irregularly constituted; (iii) the arbitral tribunal ruled without complying with the mandate conferred on it; (iv) the award violates public policy; (v) the award failed to state the reasons on which it is based, unless the parties agree otherwise; and (vi) the due process requirement was violated (Article 1238 of the New Code of Civil Procedure). Similarly, if the New York Convention or any international convention dealing with the recognition and the enforcement of a foreign arbitral award does not apply, the Arbitration Law narrows the grounds to resist enforcement of a foreign arbitral award in Luxembourg (Article 1246 of the New Code of Civil Procedure). Moreover, it should be noted that under Article 1246, the setting aside of an arbitral tribunal at the seat of arbitration is not a ground to refuse the enforcement of the foreign arbitral award. This raises the issue of whether the Luxembourg Arbitration Law offers a more liberal regime than the New York Convention.
A.1.2. Luxembourg has sent its notification of withdrawal to the Depositary of the Energy Charter Treaty
On 26 June 2023, Luxembourg sent its written notification of withdrawal from the Energy Charter Treaty (ECT). According to the secretariat of the ECT, the exit will take effect on 17 June 2024.[1] However, like many investment agreements, the ECT includes a sunset clause ensuring that the treaty should continue to apply to any investments already made for a period after the withdrawal becomes effective. Article 47(3) of the ECT provides: “The provisions of this Treaty shall continue to apply to Investments made in the Area of a Contracting Party by Investors of other Contracting Parties or in the Area of other Contracting Parties by Investors of that Contracting Party as of the date when that Contracting Party’s withdrawal from the Treaty takes effect for a period of 20 years from such date.”[2]
Accordingly, investments in the energy field made ahead of Luxembourg’s effective withdrawal from the ECT should continue to benefit from the protection of the treaty for a 20-year period.
B. CASES
B.1 A specific forum selection clause prevailed over an arbitration clause contained in an underlying contract
In a decision dated 24 October 2023, the Luxembourg Court of Appeal upheld a forum selection clause over an arbitration clause, both of which were contained in different contracts but related to the same economic transaction.[3] In this case, the parties had entered into a shareholders and investment agreement that included an arbitration clause stipulating that “all disputes arising in connection with this agreement or its validity shall be finally settled in accordance with the Arbitration Rules of the German Institution of Arbitration (DIS).” Subsequently, the parties, performing their obligation under the shareholders and investment agreement, entered into several shareholder loans. According to one of these agreements, one party to the shareholders and investment agreement agreed to lend a certain amount of money to another party to the same agreement. That loan agreement provides a forum selection clause in the case of disputes arising out of or in connection with the agreement — in favor of the Luxembourg courts. A dispute arose between the parties to the loan agreement, and the claimant brought the matter before the Luxembourg courts. The respondent promptly challenged the jurisdiction of the domestic courts on the ground that under the shareholders and investment agreement, the arbitral tribunal had sole jurisdiction to rule on the dispute. The respondent contended that the loan agreement was concluded pursuant to the provision of the shareholders and investment agreement and was therefore part of a global economic transaction governed by the shareholders and investment agreement. According to the respondent, as the loan agreement was connected to the shareholders and investment agreement, the arbitration agreement containing in the latter should have applied to the former, and consequently, the arbitral tribunal should have had jurisdiction over the dispute. The Luxembourg court rejected such reasoning.
In its rationale, the Luxembourg court first noted that the Shareholder and Investment Agreement contained an arbitration clause. However, the judges immediately added that by inserting a forum selection clause in favor of the Luxembourg court, the parties had shown their intent to have disputes arising out of the Loan Agreement settled by domestic courts.
Therefore, the forum selection clause contained in the specific contract takes precedence over the arbitration clause contained in the underlying contract governing the global economic transaction.
[1] Energy Charter Treaty, Media, News, Written notification of withdrawal from the Energy Charter Treaty, 30 August 2023.
[2] ECT, Article 47(3).
[3] Luxembourg Court of Appeal, No. CAL-2022-00282 of the docket, 24 October 2023.
