By: Eric Borysewicz1Eric Borysewicz is a partner in Baker & McKenzie’s Paris office and a member of the Litigation and Arbitration Practice Group there. He represents clients in international arbitrations under ICC Rules and other arbitration institutions. He focuses his practice on risk management issues, advising clients on major litigation involving industrial and infrastructure projects. He also assists clients in drafting and negotiating complex industrial and infrastructure project agreements, as well as in renegotiating existing agreements following an unforeseen change in circumstances. and Karim Boulmelh2Karim Boulmelh is a senior associate in Baker & McKenzie’s Paris office and a member of the Litigation and Arbitration Practice Group there. He appears in lawsuits related to commercial law and industrial risks before judicial courts and arbitral panels, whether under major arbitration institutions and rules (ICC, UNCITRAL, AAA, ICSID and OHADA) or under ad hoc arbitral tribunals. He handles litigation matters related to telecommunication services, energy and industrial gases, engineering and construction, aircraft and satellite industries.
A. Legislation, Trends and Tendencies
International arbitration in France is governed by the Decree of 13 January 2011, in force since 1 May 2011 (“the Decree”), which introduced Articles 1504 to 1524 into the French Code of Civil Procedure. No legislative changes were made to these provisions in 2015.
B. CASES
B.1 Revision of Award; Domestic and International Arbitration
This is the most widely publicized arbitration matter in years in France. The media and the general public have followed the numerous developments in this matter, which started back in 1992 when the well-known businessman Bernard Tapie and a number of companies controlled by him (the Tapie Group) granted a mandate to sell Adidas goods to a company affiliated to Crédit Lyonnais. There was an alleged breach of trust on the part of Crédit Lyonnais, which, through a complex scheme and various companies, purchased Adidas goods at the minimum price provided under the mandate, only to resell the goods to a third party at a very large profit immediately afterward. Arbitration proceedings were initiated under an arbitration agreement entered into between the Tapie Group and the publicly held entity holding the debts of Crédit Lyonnais after the bankruptcy of the latter.
An award was rendered on 7 July 2008 that upheld the Tapie Group’s position and ordered payment of damages to the Tapie Group in an amount in excess of EUR300 million plus interests.
Revision proceedings were initiated on the ground of undisclosed contact between one of the arbitrators and the Tapie Group. As revision proceedings are only available as regards domestic awards, the preliminary issue was to determine whether this matter qualifies as domestic or international arbitration. Under Article 15043Formerly Article 1492 of the French code of civil procedure, as applicable to these proceedings. of the French code of civil procedure, an arbitration is to be regarded as international arbitration as soon as it relates to the interests of international trade.
In a decision dated 17 February 2015,4Paris Court of Appeal, 17 February 2015 S.A.S. CDR Créances and others v. Mr. Bernard Tapie and others. the Court of Appeal of Paris ruled that this award is a domestic award, as this matter does not involve any “cross-border transfer of money or values” and thus does not relate to the interests of international trade.
This decision seems to significantly reduce the scope of international arbitration, as the Court ruled that a series of facts were irrelevant, including: i) the allegedly breached agreement was a mandate granted by a French company to find purchasers for the shares it owned in a foreign company; ii) the sale was to be made under German law; iii) the mandate was to be performed abroad; and iv) some of the alleged breaches took place abroad. On that basis, the Court ruled that an action for revision of the award was admissible and set aside the award. An appeal before the Cour de Cassation is pending, the outcome of which will be closely monitored by authors and practitioners.
B.2 Recognition and Enforcement of Foreign Arbitral Awards
Arbitration proceedings were initiated in London pursuant to an LCIA arbitration clause by two Irish companies (Ryanair and Airport Marketing Service) against a French state-owned company (SMAC). An arbitral award was rendered, for which the claimants sought recognition and enforcement (Paris Court of Appeal, 17 February 2015 S.A.S. CDR Créances and others v. Mr. Bernard Tapie and others.) in France before a judicial court. The ground for this action by the claimants was Article 1516 of the French Code of Civil procedure, which provides jurisdiction to the judicial court for granting exequatur without making any distinction between an international award or a domestic award, and regardless of the nature of the dispute, administrative or otherwise. SMAC challenged the decision granting the exequatur on the ground that the recognition and enforcement in France of an award rendered abroad should have been brought before administrative courts which have, in France, exclusive jurisdiction over state-owned entities. The French party invoked a precedent, the Inserm case, in which the Tribunal des conflits – a specific court that decides disputes related to conflicts of jurisdictions between judicial and administrative courts – ruled that when the dispute submitted to arbitration is related to “French mandatory rules of public law on the occupation of the public domain or according to the rules governing public expenditure that are applicable to public procurement, to public partnerships or to the delegation of public services, as such agreements are subject to a mandatory administrative regime that is of public policy,” an action for setting aside an award and subsequently for refusing exequatur in France is subject to the jurisdiction of the administrative court. In a recent decision,5Cour de Cassation, 8 July 2015, n° 13-25846, Sté Ryanair Ltd. v. Syndicat mixte des aéroports de Charente (SMAC). the Cour de Cassation rejected the argument and held that the New York Convention forbids any discrimination between domestic and international awards. The Cour de Cassation ruled that an international award is not related to any specific national judicial order and constitutes an international judicial decision. Therefore, under both the New York Convention and Article 1516 of the Code of Civil Procedure, the exequatur can only be granted by a judicial court and excludes review of the award on the merits by the judge, whether administrative or judicial. With this decision, the Cour de Cassation confirms its arbitration-friendly approach favoring arbitrability of administrative contracts and the recognition and enforcement of foreign awards and enters into open conflict with the more restrictive approach adopted by administrative courts, especially the Conseil d’Etat, as regards the arbitrability of international contracts entered into by state-owned entities. It is likely that the Tribunal des conflits will once again have to arbitrate between the two approaches.
B.3 Arbitrability of Tort Actions Related to Commercial Relations
Under French law, certain identified courts have specific and exclusive jurisdiction to hear disputes related to the termination of commercial relationships and anti-competitive acts. A French company, CCO, however, commenced an arbitration proceeding against its contracting party, Samarck, on the ground of the arbitration clause provided for in the manufacturing and distribution contract they had entered into. Samarck was held liable by the arbitral tribunal, and CCO was awarded damages. The issues at stake related to the abrupt termination of the commercial relationship by Samarck and some anti-competitive acts that caused harm to CCO. Samarck then commenced an action to set aside the arbitral award and invoked the violation of the allegedly exclusive jurisdiction of state courts to hear this matter. Samarck further argued that since these two types of actions are tort actions, they cannot be subject to arbitration. The Cour de Cassation dismissed the action and ruled that there is no legal provision that precludes the parties from having recourse to arbitration to hear such matters.6Cour de cassation, 21 October 2015, n° 14-25.080. On the contrary, the Cour de Cassation held that as long as the arbitration clause is drafted in terms so general that it includes all disputes arising out of the contract, there is no impediment to arbitration, regardless of the contractual or tort nature of the action.
B.4 Parties’ Joint Liability for the Payment of the Arbitrators’ Fees
A French company, GETMA, initiated arbitration against the Republic of Guinea under the OHADA Arbitration Rules. The parties and the members of the arbitral panel agreed on a certain amount of fees to be paid to the arbitrators. The arbitral award was then rendered, in which the arbitral tribunal ruled that both parties should equally bear the arbitration costs, including the arbitrators’ fees. GETMA paid its share of the arbitrators’ fees, representing half of the agreed-upon amount. However, the Republic of Guinea refused to pay its share. GETMA was invited by the arbitral tribunal to settle the Republic of Guinea’s half. GETMA refused to do so, claiming that the arbitral award mandated that they only had to pay half of the arbitrators’ fees. The arbitrators then commenced an action in summary proceedings (référé) against GETMA.
The Court of Appeal of Paris7Court of appeal of Paris, 30 June 2015, no 15/04910, MM. X, Y et Z versus Getma International (Getma) rejected GETMA’s argument and held that the arbitrator’s right to payment does not arise from the arbitral award, but from the arbitration contract (contrat d’arbitre) entered into between the parties and the arbitrators, under which payment was due to the arbitrators for their services. The Court of Appeal further held that under such a contract, both parties are severally and jointly liable for payment of the fees and that should a party fail to pay, the arbitrators are entitled to obtain full payment from the other party. This decision is quite innovative and, to the best of our knowledge, it is the first time that the concept of joint and several liability has been used in relation to an arbitration contract.
C. Costs In International Arbitration
C.1 Allocation of Costs
There is no specific provision of French arbitration law addressing the allocation of costs in international arbitration. Two general principles, however, serve as guidelines when dealing with the matter.
The first principle is that the parties to an arbitration clause are free to agree, in the contract, their own terms and conditions on allocation of costs. For instance, the parties could provide that the costs would be shared equally among them or that the losing party would bear the arbitration costs in totality. Also, reference to specific arbitration rules – such as the ICC Rules or LCIA Rules or others – in the arbitration agreement is deemed to constitute valid consent to the relevant provisions of those rules when dealing with arbitration costs.
The second principle is that the arbitral tribunal has discretionary power to decide on allocation of costs among litigants, within the boundaries of the agreed-upon terms between the parties, if any. This discretionary power flows from the judicial power of arbitral tribunals and is inherent to their mission.
In most cases, and absent any specific agreement between the parties, costs are generally borne by the unsuccessful party, whereas the successful party will recover all its costs. However, within this framework, arbitral tribunals have discretionary authority to allocate costs between the parties; this is particularly true when there exist circumstances under which it would be unfair to let one party bear all the costs.
The fairness concept is routinely used and invoked by arbitral tribunals to sanction the misconduct of a party during the proceedings, regardless of whether or not the party is the prevailing one. The behavior of the parties is scrutinized and taken into consideration in the allocation of costs. This can be the case when the conduct of a party is dilatory and obstructive, for example. Since the entry into force of the new ICC Rules in 2012, the most commonly used standard by arbitral tribunals (whether or not acting under said ICC Rules) when allocating costs is to determine whether the parties have conducted the proceedings in an expeditious and cost-effective manner.
Allocation of costs in arbitration is also directly related to the broader and more general issue of costs in arbitration and whether or not a party to an arbitration agreement could validly raise her or his incapacity to fund or pay arbitration costs to prevent an arbitration procedure. Only one decision rendered by the Commercial Court of Paris has ruled that an arbitration agreement should be considered null and void simply because the claimant did not have enough money to pay the costs of arbitration.8Trib. com., Paris, 17 May 2011, RG 2011003447, not published. This ruling has been criticized as being extreme, and other courts have instead examined the issue through the concept of denial of justice. In 2013, the Cour de Cassation ruled that the refusal of an arbitral tribunal to examine a counterclaim due to the fact that the advance on costs had not been paid was contrary to the right to access to justice and the equal treatment principle between litigants.9Cass. 1er civ., 28 mars 2013, n° 11-27.770. Some French scholars consider that when a party is exposed to a risk of denial of justice10Art. 1505 of the Code of Civil Procedure. due to the absence of funds to advance the costs of an arbitration, it may bring the difficulty to the Juge d’appui in order to find a solution (such as fundraising, revision of the arbitration costs requested, etc.)11M. de Fontmichel, Le financement de l’arbitrage par une partie insolvable, in W. Ben Hamidal et Th. Clay (ss dir.), L’argent dans l’arbitrage. Acte du colloque du 27 juin 2013, Lextenso, spéc. p. 46.
C.2 Security for Costs
Theoretically, under French law, it could be contemplated that security for costs may be granted as a provisional or interim measure taken either by a French state court (if the arbitral tribunal is not constituted yet) or by the arbitral tribunal once constituted. The ground would be Article 1449 of the French Code of Civil Procedure, which provides that the existence of an arbitration agreement shall not preclude a party from applying to a court for measures relating to the taking of evidence or provisional or conservatory measures when the arbitral tribunal has not been constituted. As a result, as long as an arbitral tribunal has not been constituted, a French court might order a party to provide security for the other party’s costs, based on this article. The tribunal arbitral will, however, have jurisdiction to order such measures once it is constituted, except when judicial security is to be ordered, such measure being, in any case, under the exclusive jurisdiction of the French judge. Nonetheless, to the best of our knowledge, French case law does not offer any example of security being granted solely for purposes of securing costs that may eventually be allocated by the arbitral tribunal.
C.3 Recovery of Costs
Under French law, all costs duly awarded by an arbitral tribunal in an arbitral award are recoverable. A res judicata effect is attached to the arbitral award, and all costs included in such an award, including outside counsel’s fees, can be recovered. The only procedural requirement is that the award be recognized as enforceable within the French territory; this is called the exequatur procedure, which is a quite simple and quick (approximately 15 days) ex parte procedure that does not raise significant difficulties. Once the exequatur is obtained, all enforcement measures to obtain payment from the debtor are available (attachments, securities, seizure, etc.)
As a matter of principle, French state courts do not question the arbitration costs as determined by the arbitral tribunal. Otherwise, this would be tantamount to a review of the award on the merits, which is strictly forbidden to the French judge. Nor do French state courts distinguish between the different types of costs allocated by an arbitral tribunal – lawyers’ fees, arbitrators’ fees, etc. The only exception is the specific situation where an arbitral tribunal determines and fixes in its award the amount of its fees.
In such a case, the Cour de Cassation ruled that there is no res judicata effect attached to the arbitrator’s determination of the amount of fees that are to be paid to arbitrators by the parties.122e civ., 28 Oct. 1987 : Rev. arb. 1988, 149, note Ch. Jarrosson. There can be no exequatur procedure applicable to this particular part of the award, and if a party considers that the fees that have been fixed by the arbitral tribunal are too high, this party may challenge the appropriateness of the determination before a French judge and raise a contractual claim against the arbitrators to prevent recovery of the arbitrator’s fees as determined in the award.
In practice, the abovementioned situation is relatively rare In administered arbitrations; arbitral tribunals cannot arbitrarily fix the amount of their fees (which often constitute an important portion of the arbitration costs), as it is generally the role of the arbitration institution to do so. Typically, the ICC determines the arbitration costs and fees on the basis of the amount in dispute, according to a specific scale that is part of the ICC Rules to which the parties have submitted their arbitration proceedings. In a situation where arbitration proceedings are not administered (e.g., ad hoc arbitration), it is for the arbitral tribunal and the parties to agree upon, from the outset, the arbitration fees that are to be received by the arbitrators. In practice, it is advisable that the terms of reference specifically address the issue and the practicalities of payment of the fees to the arbitrators. This, of course, does not preclude the arbitral tribunal from allocating arbitration costs (including their fees) according to the principles described above and determining which party shall bear them, nor does it prevent the prevailing party from recovering arbitration costs together with any other amount, such as damages, awarded by the arbitral tribunal.
It is the parties’ responsibility to submit exhaustive details of their costs: lawyers’ fees, arbitrators’ fees, translation costs, experts’ fees, travel and accommodation expenses, etc. In principle, the costs of a party’s in-house counsel and other party’s staff are recoverable as long as they can be duly justified. However, it is generally quite difficult to assess the costs related to the work performed by a party’s staff and employees in relation to an arbitration procedure. In practice, the parties to an arbitration are invited by the arbitral tribunal to file submissions on costs and produce actual evidence of the costs incurred (such as invoices as well as all documents justifying the costs). If the costs have not yet been incurred but can be determined with certainty – such as in the case of contingency fees – such types of costs can be taken into account by tribunals. In no circumstances should the arbitral tribunal determine the costs in favor of a party that fails to present its case regarding actual or even estimated costs.
In any event, parties to an arbitration should bear in mind that traditionally, only reasonable costs that have a direct link to arbitral proceedings will be recovered by the party.13W. Ben Hamidal, La détermination des frais de l’arbitrage, in W. Ben Hamidal et Th. Clay (ss dir.), L’argent dans l’arbitrage. Acte du colloque du 27 juin 2013, Lextenso, spéc. p. 128. As a result, an arbitral panel may refuse the recovery of costs when it appears that a litigant did not mitigate the expenses spent during the procedure.