Supreme Court reiterates autonomy of the international arbitral legal order - International Law Office

International Law Office

Arbitration - France

Supreme Court reiterates autonomy of the international arbitral legal order

January 19 2012

Introduction
Background
Decision
Comment


Introduction

International arbitration is a matter in which conflicting conceptions meet. Among these, the transnational approach systemised by Professor Emmanuel Gaillard, which considers arbitration as an autonomous "transnational legal order",(1) sits alongside the mono-local approach espoused by F A Mann, pursuant to which every arbitration is governed by the national legal order of the seat,(2) and the decentralised approach, under which arbitration is anchored in a plurality of national legal orders – namely, the law of the seat of arbitration and the laws of the jurisdictions where enforcement of the award is sought.

The expression 'arbitral legal order' was first used in legal scholarship in 1993.(3) The term was intended to refer to a coherent collection of rules. In 2001 the expression 'arbitral legal order' was chosen to emphasise the autonomy of arbitration and its transnational nature.(4) The transnational theory is not the prevailing trend among French scholars. However, renowned authors who champion it have often influenced French courts.

Judicial support for the transnational approach is found in the Putrabali rulings, in which the French Supreme Court affirmed the existence of an arbitral legal order independent of any national legal order, qualifying an arbitral award as an "international judicial decision" enforceable in France despite its prior annulment by the court of the seat of the arbitration.(5)

The Supreme Court recently offered a further illustration of the transnational approach in a decision of October 12 2011, which is consistent with the Putrabali rulings.(6) The Supreme Court held that the arbitral proceedings in question were detached from the French judicial order, since the tribunal's seat was located in Sweden and proceedings were governed by the United Nations Commission on International Trade Law (UNCITRAL) rules. The French courts were therefore prevented from intervening in the proceedings.

Background

A dispute arose between French company Elf Neftegaz and Russian company Interneft. In 1992 the two parties signed a cooperation agreement for the exploration and operation of hydrocarbon fields in Russia, which was countersigned by the minister for fuel and energy of the Russian Federation and representatives of the regions of Saratov and Volgograd. The agreement included an arbitration clause which provided that disputes would be decided through ad hoc arbitration under UNCITRAL rules by three arbitrators, with Stockholm as the seat of arbitration, English as the language of the proceedings and the Arbitration Institute of the Stockholm Chamber of Commerce as the appointing authority.

In 2009 – 17 years later – Interneft and the regions of Saratov and Volgograd (the Russian parties) sought to initiate arbitration proceedings against Elf Neftegaz. However, Elf Neftegaz, a subsidiary of the French company Elf Aquitaine and later of Total, had been dissolved and liquidated several years prior and removed from the French Companies Registry. In an ex parte application dated July 28 2009, the Russian parties requested an order from the president of the Commercial Court of Nanterre, where Elf Neftegaz had been incorporated, to name an ad hoc legal representative to represent the liquidated company. An ad hoc legal representative was named on August 6 2009, who in turn appointed an arbitrator. The arbitral tribunal was constituted on September 4 2009 with the appointment of the presiding arbitrator.

Elf Neftegaz and Total (the French parties) first successfully challenged the validity of the order naming Elf Neftegaz's ad hoc representative on the grounds of inaccuracies in the ex parte application. The president of the Nanterre Commercial Court retracted the order and appointed a new ad hoc representative of Elf Neftegaz. The French parties thus challenged the appointment of the arbitrator designated by the first ad hoc representative before the Paris Court of First Instance, claiming that his appointment did not exist since the July 28 2009 order was rendered invalid.

In addition, the French parties tried to bar the three arbitrators from pursuing their mission in the context of interim proceedings (action en référé) introduced before the Paris court. The French parties argued that the arbitration proceedings were a sham that was purported solely to carry out extortion against them. To stop the arbitral proceedings, the French parties cited the principle of fraus omnia corrumpit ('fraud corrupts everything'). It is in this context that the decision discussed in this update was rendered.

The Paris Commercial Court dismissed the application for lack of jurisdiction. On November 5 2010 the Paris Court of Appeal upheld that decision, finding that the French courts could not intervene in arbitration proceedings if such intervention would serve as an obstacle to their progress, when the seat of the arbitration was located in Stockholm and the proceedings were governed by the UNCITRAL rules. As such, the appeal court held that the French parties' action was inadmissible, which in turn led Elf Aquitaine and Total to file for recourse against that decision before the Supreme Court.

Decision

The Supreme Court confirmed the Court of Appeal's holding on October 12 2011, asserting that:

"it does not fall within the powers of the French courts to intervene in arbitration proceedings to hinder their progress when the arbitral tribunal before which the proceedings are held is seated in Stockholm according to the procedural rules defined by UNCITRAL."(7)

The Supreme Court held that it lacked jurisdiction.

Comment

Fraud, invoked by the French parties, was left unexamined by both the appeal court and the Supreme Court, as the debate centred instead on the question of whether the French courts had the power to intervene.

Unsurprisingly, the Supreme Court confirmed that the French courts were not entitled to intervene in the arbitration proceedings. The Supreme Court justified the non-interference by French courts on the grounds that the arbitration proceedings were "autonomous". The court held that the arbitration proceedings were international in nature, with no link to France whatsoever.

International arbitration
In order to support its ruling, the Supreme Court characterised the relevant arbitration proceedings as international. The Supreme Court referred to the following list of elements that, when taken together, formed a body of evidence which proved that the arbitral proceedings were international in nature:

  • the location of the arbitral seat in Stockholm;
  • the use of UNCITRAL rules;
  • the selection of English as the language of the proceedings; and
  • the selection of the foreign arbitral appointing authority, the Arbitration Institute of the Stockholm Chamber of Commerce.

By doing so, the Supreme Court did not follow the classic approach of searching for the cross-border flow of funds to determine whether arbitration is international. Instead, the Supreme Court championed this factual body of evidence technique.

Confirmation of non-interference of French courts
The Supreme Court held that the court of appeal was right in deciding that "it is not within the powers of French courts to intervene in international arbitral proceedings".

This ruling is not surprising. In international arbitration, the intervention of French courts as juge d'appui (ie, acting in support of the arbitration) must be justified by a sufficient connection between the arbitration and the French legal system(8) – except in the event of a denial of justice.(9) In any event, the power of a juge d'appui is limited to a series of grounds that are meant to ensure that the juge d'appui will support, and not prevent, the arbitration proceedings. In the case at hand, no connection existed with France, except for the fact that one of the parties was a French national.

The fear of intrusive intervention in the arbitral process demonstrates the French courts' respect for the sanctity of international arbitration. Deciding otherwise would have contradicted the Supreme Court's consistent case law relating to international arbitration. Hence, since the arbitral tribunal had its seat in Stockholm and since the arbitral proceedings were not governed by French law, the Supreme Court unsurprisingly held that the French courts were prevented from interfering in the proceedings in any way.

Justification of non-interference by reference to autonomous arbitral order
This decision heralds new grounds on which to justify the French courts' non-interference in international arbitration proceedings. The new grounds refine the notion in Putrabali of a 'decision of international justice' by characterising the arbitral proceedings themselves as autonomous, thus making the leap from the arbitral award to the arbitral proceedings. International arbitral proceedings are presented as if they occupy an impenetrable space which is dissociated from the French legal realm.

Confirmation of French theory of arbitration
Debate around the notion of the existence of an international arbitral legal order continues. As Jan Paulsson argues, the Putrabali decisions – and thus, the October 12 2011 decision as well – establish a rule for the French legal order, and the French legal order alone. These decisions do not demonstrate "the existence of an autonomous 'arbitral legal order'", since they are nothing but "the reaction of a single national legal order of the multiplicity of orders which may have the occasion to play a role in the life of an arbitration".(10) In other words, this decision confirms the Supreme Court's view that, from a French law perspective, an autonomous international arbitral legal order exists – a development that applies only to the French legal order.

Taking it not as proof of the existence of an autonomous arbitral legal order, but rather as proof that the French courts confirm the autonomy of such an order, this decision forms part of the Supreme Court's case law promoting both international arbitration and the effectiveness of the arbitral process. French scholars have traditionally developed arbitration in France by drawing on their experience as counsel. Their role is enhanced as French legislators and judges complete the process by anchoring the institutional production of arbitration law and rules in the decidedly avant-garde French culture of arbitration.(11)

For further information on this topic please contact Elie Kleiman or Claire Pauly 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 claire.pauly@freshfields.com).

Endnotes

(1) E Gaillard, Legal Theory of International Arbitration (2010).

(2) F A Mann, "Lex Facit Arbitrum", in P Sanders (ed), International Arbitration Liber Amicorum for Martin Domke (1967), 157.

(3) E Gaillard, Legal Theory of International Arbitration (2010), 39, citing D Cohen, Arbitrage et société (1993), 21.

(4) T Clay, L'Arbitre (2001), pp 211-228, cited in E Gaillard, Legal Theory of International Arbitration (2010), 39.

(5) French Supreme Court, First Civil Section, June 29 2007, 05-18053 and 06-13293.

(6) French Supreme Court, First Civil Section, October 12 2011, 11-11058. The French Supreme Court reproduced the court of appeal's decision word for word; see Paris Court of Appeal, Pole 1, Section 4, November 5 2010, 10/01117.

(7) French Supreme Court, First Civil Section, January 26 2011, 09-10.198. See X Delpech, "Confirmation de l'autonomie de l'ordre juridique arbitral international", Dalloz Actualités, October 25 2011.

(8) J-L Delvolvé, G H Pointon and J Rouche, French Arbitration Law and Practice (2009), Paragraph 151.

(9) Article 1505 Paragraph 4 of the French Code of Civil Procedure (as amended by the decree of January 13 2011 reforming the law governing arbitration).

(10) J Paulsson, "Arbitration in Three Dimensions" (2010), LSE Working Papers, p 13.

(11) T Ginsburg, "The Culture of Arbitration" (2003), 36 Vand J Trans L 1335.


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