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Arbitrators cannot seek a ruling on the constitutionality of statutory provisions - International Law Office

International Law Office

Arbitration & ADR - France

Arbitrators cannot seek a ruling on the constitutionality of statutory provisions

October 13 2011

Introduction
Background
Decision
Comment


Introduction

Pursuant to Law 2009-1523, since March 1 2010 the ordinary French courts can challenge the constitutionality of a statute or statutory provision through a specific procedure called 'la question prioritaire de constitutionnalité' (QPC), which may be translated as 'a priority ruling on constitutionality'.(1) The reform has made it possible for the Supreme Court, if so requested by a party, to exercise its discretion to seek a ruling from the Constitutional Council on the conformity of a statutory provision with the Constitution. Similarly, Article 23-1 of Order 58-1067, which implements an organisational law on the Constitutional Council (as amended by the 2009 law) has made it possible for French lower courts "falling under the jurisdiction of the Supreme Court", if so requested by a party, to ask that court to consider whether the Constitutional Council should be required to make such a ruling. However, the reform was silent on the issue of whether arbitral tribunals enjoy similar rights to ask the Supreme Court to refer a matter to the Constitutional Council.

In a decision of June 28 2011 the Supreme Court found no basis for such rights to be allowed to arbitrators. The court ruled that the arbitrator appointed by the head of the Paris Bar (known as the 'bâtonnier') in a dispute between a lawyer and a law firm was not entitled to apply to the Constitutional Council to rule on the conformity of a statutory provision with French constitutional law.(2) In the reported case the court dealt with the specific regime of arbitration by the bâtonnier. However, the court took the broad view that arbitrators in generalshould not be entitled to refer a QPC to the Constitutional Council.

Background

A dispute arose between a lawyer and the law firm where she had been employed as a partner, and arbitration proceedings were commenced regarding the terms of the lawyer's departure – in particular, the valuation of the departing partner's interest in the partnership. One party argued that the provision of the Civil Code dealing with the valuation of shares (ie, Article 1843-4) was contrary to French constitutional law and asked the arbitrator to refer a QPC to the Supreme Court. The arbitrator attempted to make a constitutional application to the Constitutional Council through the Supreme Court by posing the following question to the court:

"Does Article 1843-4 of the French Civil Code violate the rights and liberties guaranteed by Article 16 of the Declaration of the Rights of Man and of the Citizen, which are fundamental principles recognised by the rights and laws of the Republic, reaffirmed by the Preamble of the Constitution of 1946, to which the Preamble of the Constitution of 1958 refers. As such, does Article 1843-4 of the French Civil Code substantially impair one's right to exercise an efficient challenge before a jurisdiction?"

The procedural background of the dispute (ie, arbitration proceedings before the head of a French local Bar and the specific QPC regime) requires some explanation.

Arbitration before the bâtonnier
The bâtonnier has jurisdiction to hear disputes relating to, among other things, lawyers' employment contracts, self-employed contracts and termination agreements,(3) as well as disputes between lawyers regarding the exercise of their profession,(4) provided that the mandatory prior conciliation phase has failed. The bâtonnier may delegate this function to any previous bâtonnier or to any current or previous member of the Bar Council. In the case at hand, such a delegation had taken place.

Arbitration before the bâtonnier or by a person designated by him or her is statutory and compulsory. It is therefore sometimes referred to as 'forced arbitration'.(5)

QPC regime
The Constitutional Council is the only body entitled to decide whether a statute or a statutory provision is constitutional. Since March 1 2010 a party to proceedings in civil or administrative matters may challenge the constitutionality of a statutory provision. Such an application must be made to the court before which the case is pending, which decides whether to refer it to either the highest body for civil matters (the Supreme Court) or the highest body for administrative matters (the Conseil d'État). The Supreme Court ultimately decides whether the issue raised by one of the parties must be referred to the Constitutional Council.

At both stages of this double filtering system, the courts apply a three-pronged test in order to decide whether to pass on the application, as follows:

  • The constitutional challenge must be directed at a statute that is either applicable to the pending proceedings or to the dispute, or relied on by the claimant. In other words, the statute must be linked in some way to the proceedings in the course of which the application is made, so that the outcome of the application has an effect on the outcome of the dispute.
  • The statute must not have already been declared unconstitutional by the Constitutional Council, unless a change of circumstances has occurred since the Constitutional Council made its decision not to abrogate the law (eg, if a new constitutional law was adopted after the Constitutional Council's decision).
  • The third test varies depending on whether the filter is exercised by a lower court(6) or by the Supreme Court.(7) A lower court must ensure that the issue raised by way of a QPC is not frivolous, while the Supreme Court must ensure that the issue is new or sufficiently serious.

There is no review of the Supreme Court's decision not to refer a QPC, which effectively gives the court full discretion in this respect.

Decision

On June 28 2011 the Supreme Court dismissed the constitutional application made by the arbitrator as inadmissible. It therefore refused to allow the arbitrator's question to be put to the Constitutional Council.

The rationale behind the court's decision was that because arbitrators derive their exclusive jurisdiction from the common intention of the parties, an arbitral tribunal is not a "court falling under the jurisdiction of the Supreme Court".

Comment

The terminology used by the court in its decision appears broad in light of the very specific issue at hand – namely, arbitration by a person appointed by the head of the Paris Bar in a dispute between a lawyer and her law firm. The court used broad language that sends a clear indication that arbitrators in general – and not only the slightly idiosyncratic procedure dealing with professional disputes before the bâtonnier – have no standing to bring a QPC. The concise nature of the decision and the general terminology used by the court leave no room for doubt: the solution adopted by the court would also apply in circumstances where the parties have entered into an arbitration agreement. Indeed, the court appears to have set out a general principle whereby all arbitral tribunals are denied standing to apply to the Constitutional Council to enquire about the conformity of statutory provisions with French constitutional law. This is true if one agrees with legal scholars who consider that arbitration by the head of the French Bar, because it derives from statute and not from agreement, shares more similarities with judicial proceedings before a national court of first instance than with arbitration proceedings.(8)

Only courts whose decisions the Supreme Court has jurisdiction to review can bring a constitutional challenge before it. Because the Supreme Court has no right to review the substance of arbitral awards,(9) an arbitral tribunal does not pass the test. This is even more true in relation to international arbitral awards, as the Supreme Court has ruled that such awards are international decisions and therefore belong to no state legal system, which means that their validity must be examined in light of applicable rules of the country in which recognition and enforcement are sought.(10) To put it differently, according to the French conception of international arbitration, an arbitral tribunal does not belong to the French or any other national legal order.

A parallel can be drawn between the decision of the Supreme Court and the position of the Court of Justice of the European Union (ECJ) in relation to the possibility for arbitrators to request a preliminary ruling under Article 267 of the Treaty on the Functioning of the European Union.(11) The ECJ has held that arbitrators cannot be considered "a court or tribunal of a Member State" for the purposes of this provision.

However, the ruling of the French Supreme Court may seem difficult to reconcile with the 2008 decision of the European Court of Human Rights (ECHR) in Regent Company v Ukraine.(12) In that case the ECHR held that an arbitral tribunal must comply with the guarantees set out under Article 6 of the European Convention of Human Rights, which provides that "in the determination of his civil rights and obligations… everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law". The ECHR held that:

"Article 6 [of the Convention] does not preclude the setting up of arbitration tribunals in order to settle disputes between private entities. Indeed, the word "tribunal" in Article 6 § 1 is not necessarily to be understood as signifying a court of law of the classic kind, integrated within the standard judicial machinery of the country."

Accordingly, an arbitral tribunal is to be regarded as a tribunal for the purposes of Article 6(1) of the convention, but is not a court or a tribunal of a member state which can request a preliminary ruling under the Treaty on the Functioning of the European Union, nor a jurisdiction which can make a constitutional application to the French Constitutional Council.

The court's decision in the case at hand comes as no surprise: clues that an arbitrator would not be able to make a QPC were visible in a 2009 Parliamentary Report.(13) In the report the first president of the Supreme Court stated that arbitrators must be precluded from applying to the Constitutional Council to enquire about the conformity of statutory provisions with French constitutional law. The first president explained that entities recognised as 'jurisdictions' under Article 6(1) of the convention (eg, the financial markets and competition regulators) cannot make a constitutional application because even though these entities have the power to render decisions, which in some instances can ultimately be appealed before the Supreme Court, they cannot be assimilated to "a court falling under the jurisdiction of the French Supreme Court".

In the case at hand, the court justified its decision that an arbitral tribunal was not "a court falling under the jurisdiction of the French Supreme Court" by referring to the fact that arbitrators derive their power from the common intention of the parties. Indeed, arbitrators are considered to be private judges whose powers derive from the parties' contract. They do not belong to a national judicial order and, as such, do not fall under the authority of any state.(14) The opposite is true for litigation before national courts, which involves judges chosen by public authorities who derive their jurisdictional power from the latter.

As a result of the June 28 2011 decision, parties which choose to solve their disputes by way of arbitration rather than litigation before the domestic courts are deprived of the possibility of applying to the Constitutional Council to enquire about the conformity of statutory provisions with French constitutional law.

In an article published in 2008, one legal author expressed the view that an arbitral tribunal should not be entitled to make a constitutional application to the Constitutional Council, stating that:

"it would be an excess of power for the international tribunal to refer to the Conseil constitutionnel (if it could) because its jurisdictional duty is to apply French law; this duty is not to be delegated to the national Conseil constitutionnel."(15)

Although the June 28 2011 decision has addressed the issue of whether an arbitrator can make a QPC, a number of questions remain unanswered.

First, can an arbitral tribunal declare a law unconstitutional? In this respect, legal scholars have put forth divergent views. One scholar declared that "an international tribunal empowered to apply French law cannot silently bow to a text without ruling on an allegation that it is unlawful under a norm which as a matter of French law has a higher status". As a result:

"when applying a national law, an international tribunal cannot be precluded from considering the effect of the highest norms of that law simply because lower norms do not create particular domestic avenues for such examination."

Another legal scholar has adopted a different position in this respect by taking the view that an arbitral tribunal should not be allowed to make a ruling on the conformity of a statute with a French constitutional law given that the Constitution provides that the Constitutional Council is the only entity entitled to do so.(16) In addition, according to this scholar, an arbitral tribunal would be able to disregard only the relevant provisions of the law, whereas the powers vested in the Constitutional Council enable it to abrogate the law.

A further question to be addressed is whether the judge acting in support of the arbitration (the 'juge d'appui')could make a QPC, given that, unlike arbitrators, such a judge does not lack authority and is attached to the French judiciary. If so, could the arbitral tribunal ask for the juge d'appui's assistance by asking him or her to raise a QPC in its stead? It seems unlikely that the juge d'appui, who holds limited powers pursuant to Decree 2011-48 reforming the law governing arbitration (as codified in Article 1451 and following of the Code of Civil Procedure) has the power to make a constitutional application.(17)

Similarly, in the event of an appeal (in a domestic arbitration, where the parties have expressly agreed that the award may be appealed) or an action to set aside the award or to vacate the order granting recognition (in an international arbitration), would the French appellate court be entitled to file a constitutional application with the French Supreme Court?(18) This issue may arise if, for instance, a party were to claim that an award violates international public policy because it is allegedly irreconcilable with a mandatory statutory provision and if the other party argued that the said legal provision is unconstitutional.

Finally, in an international arbitration, would it be possible to set aside an award on the grounds that the arbitral tribunal's ruling was based on a statute or statutory provision that has been declared unconstitutional after the award was made? This would be the case only if, as a result of the abrogation of the law, the award ought to be set aside on the basis of one of the five limited grounds provided for under Article 1520 of the Code of Civil Procedure.(19) This issue may arise if the abrogation of the law resulted in the award being contrary to international public policy or if, as a result of the abrogation, the court considered that the arbitral tribunal had exceeded the scope of its remit.

The Supreme Court's decision that arbitrators are not entitled to make a QPC is consistent with the position adopted by the French courts: arbitrators do not belong to the national judicial order and, as such, do not fall under the authority of any state. The logical result is that they are precluded from applying to the Constitutional Council to enquire about the conformity of statutory provisions with French constitutional law.

For further information on this topic please contact Elie Kleiman or Shaparak Saleh at Freshfields Bruckhaus Deringer by telephone (+33 1 44 56 44 56), fax (+33 1 44 56 44 00) or email (elie.kleiman@freshfields.com or shaparak.saleh@freshfields.com).

Endnotes

(1) Law 2009-1523 of December 10 2009.

(2) Cass com, June 28 2011, 11-40.030.

(3) Article 7 of Law 71-1130 of December 31 1971 reforming judicial and legal professions.

(4) Article 21 of Law 71-1130.

(5) G Flécheux, "L'arbitrage du bâtonnier - Un exemple d'arbitrage forcé", Rev arb 1990, pp 101-114; B Moreau, "L'arbitrage du Bâtonnier", Rev arb 1993, pp 361-376.

(6) Article 23-2 of Order 58-1067 of November 7 1958 implementing an organic law on the Constitutional Council, as amended by Law 2009-1523 of December 10 2009.

(7) Article 23-4 of Order 58-1067.

(8) H Ader and A Damien, Règles de la profession d'avocat, (3rd ed), Dalloz Action 2010, p 213, para 24.101.

(9) Paris Court of Appeal, March 12 1985, D 1985 IR 467, obs Julien; Supreme Court, First Civil Section, October 6 2010, D 2010, 2442, obs Delpech.

(10) Supreme Court, First Civil Section, Putrabali, June 29 2009, 05-18.053 and 06-13.293. For further details please see "Supreme Court confirms liberal approach to enforcement of awards".

(11) European Court of Justice, Nordsee, Case C-102/82, March 23 1982 (see in particular para 14).

(12) European Court of Human Rights, Regent Company v Ukraine (773/03), April 3 2008, para 53.

(13) Report 1898 of September 3 2009 on the application of Article 61-1 of the Constitution (see in particular pp 179-180).

(14) E Gaillard, Legal Theory of International Arbitration, Martinus Nijhoff Publishers, 2010.

(15) J Paulsson, "Unlawful Laws and the Authority of International Tribunals", ICSID Review – Foreign Investment Law Journal, Vol 23, No 2, 2008, p 215.

(16) P Mayer, "L'arbitre international et la hiérarchie des normes", Rev arb 2011, pp 362-384.

(17) Decree 2011-48 of January 13 2011 reforming the law governing arbitration.

(18) E Kleiman and J Spinelli, "La réforme du droit de l'arbitrage, sous le double signe de la lisibilité et de l'efficacité", Gazette du Palais, January 26 2011. For further details please see "New arbitration law reform: the market's verdict".

(19) Article 1520 of the Code of Civil Procedure.


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