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Supreme Court Enforces Mandatory Alternative Dispute Resolution Clause - International Law Office

International Law Office

Arbitration & ADR - France

Supreme Court Enforces Mandatory Alternative Dispute Resolution Clause

May 22 2003

Background
Decision
Comment


With the continued development of alternative dispute resolution (ADR) techniques, parties increasingly specify in their agreements that, in the event of a dispute, they must attempt conciliation or mediation before initiating court proceedings or arbitration.

A special chamber of the French Supreme Court has specified the procedural penalty which applies when a party initiates a court action without first implementing conciliation proceedings mandated by a contractual clause. This judgment comes after several years of inconsistent decisions rendered by the different chambers of the Supreme Court on this issue (Supreme Court, Chambre Mixte, February 14 2003).

Background

Under French law, the procedural consequences of non-compliance with mandatory ADR has given rise to considerable debate in case law as well as among legal commentators.

Some have favoured the inadmissibility of any action brought before a court in breach of an ADR clause, or at least the stay of legal proceedings until the end of the ADR. The first argument in support of this position is the binding force of contracts. Should the action before a court be regarded as admissible, the contractual provision would in effect not be a binding obligation, but a mere statement of intent. It has further been argued that it is in the interest of the parties and the proper administration of justice to give the parties the opportunity to find a compromise before beginning a potentially long and risky litigation process.

Other commentators and certain cases have held in favour of the admissibility of legal action despite an ADR clause. It has been argued that to bar a legal right of action on the basis of contractual provisions would contravene the right to be heard by a court, which is recognized by the European Convention on Human Rights.(1) However, objections to this reasoning held that recourse to the courts is not barred by such clauses, but merely postponed. Another argument is a practical one: there is little to be expected from ADR proceedings in which one party takes part against its will. This would only delay the outcome of the dispute. Finally, it has also been stressed that to postpone the beginning of legal proceedings could be prejudicial to the claimant in the event of a short limitation period, since it is not clear what consequences the ADR proceedings may have in this respect, even though for some commentators the rule contra non valentem agere non currit praescriptio (limitation cannot run against a person who is unable to bring proceedings) would be sufficient to dispose of this risk.

These were the terms of the debate submitted to the French Supreme Court.

Decision

The ADR clause considered by the court read as follows:

"The undersigned undertake to submit the dispute, prior to any judicial instance, to conciliators, each party appointing one of them, unless they agree on the choice of a sole conciliator. The conciliators will endeavour to resolve the difficulties submitted to them, and to make the parties accept an amicable solution, within a maximum time limit of two months from their appointment. If an agreement is not reached, the courts of the seat of the company will have exclusive jurisdiction."

Disregarding this clause, the claimant began a legal action without implementing conciliation proceedings. The court of appeal declared the action inadmissible, as it was brought in breach of the ADR clause.

The Supreme Court confirmed this decision, in the following terms:

"A contractual clause, providing for compulsory conciliation proceedings before a court action may be initiated, the implementation of which suspends the limitation period until its outcome, renders an action inadmissible, and the court must apply it if the parties invoke it."

The court concluded that the claimant's action should be regarded as inadmissible on the basis of the contract unless and until conciliation proceedings were implemented.

Comment

It is now clearly stated that, as a matter of French law, any action brought directly before a court without implementing a mandatory ADR clause will be declared inadmissible. However, the action is inadmissible only until the ADR process is exhausted: should discussions take place but fail, there is no longer any basis to consider the action inadmissible.

The court does not clearly specify the extent to which it will verify compliance with the ADR clause. It is clear that the ADR proceedings must at least materially take place. However, it is unclear to what extent, if any, the parties are required to try, in good faith, to find a solution to the dispute.(2)

The procedural characterization adopted by the court implied that the rules governing this specific procedural objection should apply. This means in particular that the parties can raise such an objection at any stage of the proceedings. Further, the court disposes of any issue regarding limitation by expressly pointing out that any limitation period will be suspended until the outcome of the ADR proceedings.

The decision clearly favours the development of ADR techniques, and there is no doubt that these alternative methods, which already enjoy considerable success in domestic and international cases, will benefit from this clarification and the favourable position of the French courts.

One issue which the Supreme Court did not deal with is the effect of non-compliance with a mandatory ADR clause on the jurisdiction of arbitrators. However, if one applies the reasoning of the French Supreme Court, and considers that compliance with an ADR provision goes to the admissibility of the claim, then this might be analyzed as a purely procedural matter to be dealt with by the arbitrators themselves, and not subject to subsequent review by the courts.(3)

However, depending on how an ADR clause is drafted, it might also be analyzed as limiting the scope of the arbitration clause and therefore the arbitrator's jurisdiction. Non-compliance with such a clause could then be grounds for annulment of a subsequent award pursuant to Article 1502(1) of the New Code of Civil Procedure,(4) or possibly Article 1502(3) of the same code.(5)


For further information on this topic please contact Charles Kaplan or Emmanuelle Cabrol at Herbert Smith by telephone (+33 1 53 57 70 70) or by fax (+33 1 53 57 70 80) or by email (charles.kaplan@herbertsmith.com or emmanuelle.cabrol@herbertsmith.com).


Endnotes

(1) Pursuant to Article 6 of the European Convention on Human Rights:

"In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law."

(2) Such a requirement would, as a matter of substantive law, follow from the French Civil Code, Article 1134, which specifies that "[contracts] are to be performed in good faith".

(3) One example of this approach is the Irak v Hochtief case, in which the Paris Court of Appeal refused to overturn an award on the basis that time-limits in a FIDIC-style adjudication clause had not been complied with prior to commencing arbitration. The court considered this purely a matter of procedural formality, which concerned the implementation of the arbitration clause and not its validity or scope (Paris, December 1 1995, Rev Arb 1996 456).

(4) Pursuant to Article 1502(1):

"An appeal against the decision which grants recognition or enforcement is only open in the following cases: (1) If the arbitrator gave judgment in the absence of an arbitration agreement or on the basis of a void or expired agreement" (ie, also on the basis of an inapplicable arbitration agreement).

(5) Pursuant to Article 1502 (3), the appeal is also open: "(2) If the arbitrator's decision fails to comply with the terms of his reference" ("mission").


 


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