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04 February 2021
France is an arbitration-friendly jurisdiction with a positive attitude towards enforcement of international arbitral awards. The enactment of Decree 2011-48 of 13 January 2011, which reformed French arbitration law, reinforced this positive approach.
One of the major innovations of Decree 2011-48 was Article 1526 of the Civil Procedure Code (CPC). Pursuant to said article, a motion to set aside an international arbitral award or an appeal against an order granting such award's enforcement (exequatur) no longer leads to an automatic stay of execution of the international arbitral award.
However, this innovation is accompanied by an important safeguard: if the international award's enforcement is likely to severely harm the rights of one of the parties, the first president of the court of appeal ruling in expedite proceedings or the pre-trial judge overseeing the case, once appointed, may stay or amend the award's enforcement (Article 1526(2)).(1)
The notion of 'severe harm to the rights of one of the parties' provided for in Article 1526(2) was mainly introduced to mitigate:
Said notion is thus placed at the crux of motions to stay or amend the enforcement of an international award in France, but it was not defined by the French legislature. In addition, as several authors have observed,(2) this is a new notion which is distinct from that which applies to domestic awards (ie, when the award is declared immediately enforceable by the arbitral tribunal) and judicial decisions, for which a stay or amendment of execution is subject to the "risk of manifestly excessive consequences".(3)
Therefore, the contours of this notion must be delineated by case law. The available jurisprudence – which has predominantly been rendered by the First Chamber, Pole 1 of the Paris Court of Appeal – provides important guidance as to the conditions which must be met for a stay or amendment to be granted, including the interpretation of 'severe harm to the rights of one of the parties'.
It is becoming clear that requests to set conditions for enforcement (eg, consignment, requests for bank guarantees and fixed deadlines) are accepted more often than requests to stay enforcement, which are in turn more difficult to obtain. Of the decisions examined in this article, most of them either dismissed the motion to stay or amend enforcement or solely accepted an amendment to enforcement, with the minority approving the motion to stay enforcement.
However, an analysis of the available decisions shows some evolution in the courts' approach. Although the courts which approved the motions to stay enforcement were initially restrictive in their approach towards severe harm to a party's rights, in 2014 the applicable requirements were somewhat watered down. Further, in March 2018 a new international chamber of the Paris Court of Appeal was granted jurisdiction over disputes relating to international contracts and, in particular, international awards. Although decisions by this chamber are still scarce, to date, its decisions on this topic seem to show a certain opening of factual possibilities, while at the same time confirming the restrictiveness of the court's examination.
This article clarifies the conditions which must be met for Article 1526(2) of the CPC to apply and sets out the evolution of the courts' interpretation of the notion of severe harm to the rights of one of the parties.
Before the enactment of Decree 2011-48, actions to have an award set aside or to appeal an exequatur order suspended the award's execution in France (former Article 1506 of the CPC). Following the enactment of Decree 2011-48 and pursuant to Article 1526 of the CPC, annulment proceedings against an award and appeals against an exequatur order no longer stay execution.
Article 1526 of the CPC reads as follows:
Neither an action to set aside an award nor an appeal against an enforcement order shall suspend enforcement of an award.
However, the first president ruling in expedited proceedings (référé) or, once the matter is referred to him or her, the pre-trial judge assigned to the matter (conseiller de la mise en état), may stay or set conditions for enforcement of an award where enforcement could severely prejudice the rights of one of the parties.
Thus, pursuant to Article 1526 of the CPC, a party may request a French judge to stay or set conditions for the enforcement of an award. When making such a request, the petitioner must prove that its rights will be severely harmed if the international award is enforced.
The courts will decide such requests on a case-by-case basis. As the notion of severe harm to a party's rights is not precisely defined,(4) the courts have a certain degree of discretion in this respect, and their interpretation of this notion has evolved over time.
According to the government, Article 1526 of the CPC aims to "strike a balance between the need to give full effectiveness to international arbitral awards and the protection of the rights of the parties".(5) Thus, judges must be trusted to strike the right balance between the need to ensure that international arbitral awards are efficient and to protect the losing party's rights.
According to case law, the notion of 'likely to severely harm the rights of one of the parties' differs from that of a 'risk of manifestly excessive consequences', which is required to stay enforcement of both domestic awards and judicial decisions.(6) Therefore, they must be assessed differently.(7)
When analysing the risk of manifestly excessive consequences (applying Article 524(2) or Article 1497 of the CPC), a French judge can consider not only the debtor's situation, but also the creditor's ability to repay.(8)
In this case, an inability on the part of the creditor to reimburse the debtor may be sufficient for a finding that there is a risk that execution would have manifestly excessive consequences.(9)
Conversely, severe harm to a party's rights is construed in a stricter manner than the economic risk incurred by a debtor, having regard to the creditor's ability to repay and the financial difficulties in which the debtor would likely find itself as a result of the immediate enforcement of the award. The courts require applicants to show a sufficiently serious risk of severe harm.
By way of illustration, as summarised by Pic,(10) the courts have granted requests for stay where the debtor's survival was at stake and requests for amendment of enforcement where the requesting party proved that enforcement would affect its financial stability or where the creditor failed to adequately guarantee restitution of the payments made by the applicant were the award to be quashed.
The assessment by the judge will not concern the chances of success of set aside proceedings, only the situation of the parties. Therefore, an argument based on the annulment proceedings' chance of success will generally not justify the risk of severe harm to a party's rights.
2011 to 2013: restrictive approach based on debtor's economic survival
In Mambo,(11) the debtor failed to establish that enforcement of the arbitral award would jeopardise its cash flow and risk placing it in an extremely difficult financial situation. Further, the court rejected the argument that the creditor's inability to reimburse the debtor was a ground to suspend or adjust the award on the grounds that:
the serious prejudice to the rights of a party must... be assessed more strictly than the economic risk run by the debtor in view of the creditor's ability to repay, or the financial difficulties in which he would be likely to find himself as a result of the immediate enforcement of the award.
Here, the court held that the fact that the creditor was a foreign company with no assets in France did not mean that it would be unable to reimburse the amounts if needed. Further, it noted that the company was guaranteed by the Malian state.
The applicant in Pierre Cardin(12) argued that in the absence of an amendment of the enforcement of the award, he would be deprived of the benefit of the right to appeal and the suspensive effect of the action for annulment which prevailed at the beginning of the proceeding (before the enactment of the 2011 decree). The applicant also suggested that the 2011 decree would have a retroactive effect, severely harming his rights. The court held that none of these reasons satisfied the conditions set out in Article 1526 of the CPC.
In CIEC Engineering,(13) the debtor claimed that enforcement of the award would lead to its insolvency, which, in turn, would deprive it of its right to appeal the exequatur order. Thus, in essence, enforcement of the award would deprive the debtor of its right to benefit from a two-stage procedure. However, the court held that the risk that enforcement would lead to the applicant's liquidation did not satisfy the conditions set out in Article 1526 of the CPC, as it did not prevent the debtor from pursuing its appeal since such procedure could be conducted by the liquidator.
The applicant had also claimed that that there were serious grounds for refusing to enforce the arbitral award on the basis of Article 6(1) of the European Convention on Human rights and international public policy – namely, that experts had refused to stay the proceedings pending the submission of a report of the appointed court expert on a problem of air conditioning and had decided based simply on quotations. The court rejected the argument that the applicant's right to a fair trial pursuant to Article 6(1) of the European Convention on Human rights was not seriously violated solely because it disagreed with certain conclusions of the arbitrators. For such a violation to occur, the arbitration process and its operation would have to be called into question.
Cotoni del Firello
The applicant in Cotoni del Firello(14) raised financial difficulties by producing a balance sheet that showed an extraordinary loss of €2,804,693 for the financial year and observations from its statutory auditors which emphasised the size of the debt that it had contracted from banks. It claimed that it risked insolvency proceedings.
Nonetheless, according to the first president of the court, enforcement of the award was unlikely to constitute serious prejudice to the rights of one of the parties. If insolvency were to be established on enforcement of the award, enforcement would not be the sole cause as the applicant was already experiencing serious economic difficulties.
In addition, the applicant raised alleged:
The court held that if the application for stay of enforcement could be based on a plea of fraud, bias on the part of two arbitrators and the award's unfairness, the public data produced to prove the links between two of the arbitrators and one of the parties did not prove severe harm to the rights of one of the parties.
2013 to 2018: more liberal approach based on risk of non-restitution by creditor
In SPIE Batignolles,(15) the court relied on a simple risk of restitution to order a stay of provisional execution. It mainly referred to the foreign elements (ie, party residing abroad and award pronounced abroad), which led it to suspend the provisional execution of the award in its 23 April 2013 decision.
In Fairtrade,(16) the court first reaffirmed that the risk of suspension of payments in the event of enforcement, if proven, is sufficient to justify the stay or adjustment of such enforcement. It then considered that the risk of non-restitution of funds by a creditor in case of annulment of an award in its favour was sufficient for ordering an amendment of enforcement.
The analysis in Farmex(17) was purely economical. The court noted that:
Notably, according to the decision, the creditor did not allege any significant harm resulting from the stay of enforcement.
In this case, the balance of harm test seemed to apply since compliance with the award would cause both material and irreparable harm to one party, whereas no comparable harm would be suffered by the other party if execution were stayed.
The decision in Pilliot(18) applied the same concept as Fairtrade. To order the suspension of enforcement, the court held that "having regard to the importance of the award imposed on him, the enforcement of the award is likely to jeopardize [the debtor's] continuing existence".
2018 onwards: opening of factual possibilities but confirmation of test's restrictiveness
Since 1 March 2018, the newly created international chamber of the Paris Court of Appeal has had competence over annulment proceedings concerning awards rendered in international arbitration proceedings. This new international chamber comprises different judges and its jurisprudence on this matter is limited. Although there is reason to believe that it will continue in the same direction as its predecessor, to date, it has rendered only a few public decisions.(19) Nonetheless, the new court's reasoning in those decisions – particularly in its first decision, which dismissed the stay and amendment of the enforcement of an international award against Russia – is interesting.
Oschadabank(20) concerned a public joint stock company, State Savings Bank of Ukraine (Oschadbank), which obtained an approximately $1.3 billion award (dated 26 November 2018) from an international arbitration tribunal (which was unanimous in its decision) in respect of its claims against Russia as compensation for loss of business and assets following the annexation of Crimea in 2014. Russia refused to participate in any of the proceedings, asserting that the tribunal did not have jurisdiction over the claims under the 1998 Ukraine-Russia bilateral investment treaty (BIT). The arbitration was seated in Paris and administered by the Permanent Court of Arbitration under the United Nations Commission on International Trade Law Rules 1976.
The case was brought under the BIT on the premise that Russia had assumed responsibility for the protection of Ukrainian investments in Crimea thereunder. While Oschadbank brought proceedings to enforce the award in various jurisdictions, Russia initiated a setting-aside application against the award at its seat in Paris. It also applied for stay of enforcement and essentially argued that enforcement had to be stayed because there was a significant risk that:
Oschadbank argued that the requirements for a stay were not satisfied and that it could be granted only if execution would cause irreversible damage. It also argued that the risk of enforcement to sovereign assets did not justify a stay of enforcement and was rather a question to be addressed by the judge of the place of enforcement of the award.
Russia ignored the economic approach previously followed by the courts in previous decisions.
The court ruled that a decision to enforce an international award:
However, the court also held that:
On that basis, the court dismissed Russia's application for a stay of execution, holding as follows:
It should also be noted that it is neither established nor even contented that the enforcement of the award could jeopardize the financial equilibrium of the Russian Federation [the debtor] with regard to the amount of its conviction, which must be assessed at the level of a State.
Lastly, the risk of non-reimbursement [by the creditor] is not characterized here since it is not contested that JSC Oschadbank is a bank owned by the Ukrainian State employing more than 29,000 people, and for which there is no evidence of financial difficulty.
The prospect of multiple global execution actions was not sufficient to justify a stay of the award. The judge disagreed that Russia would suffer significant damage if the award was enforced and ultimately set aside. It was neither established nor argued that the Russian economy would be affected by payment of the award. Further, the risk of non-recovery of monies was not sufficiently proven, as Oschadbank's status as a major state-owned entity was not contested. Therefore, the judge refused to grant the stay sought by Russia.
CSPI and Sanofi
On 30 June 2020 the international chamber of the Paris Court of Appeal rendered two new decisions on this matter, confirming that a stay of enforcement does not depend on the serious character of the set-aside request and must be assessed restrictively. However, the two decisions differ since one considers the stay enforcement based solely on an economic criterion (CSPI), while the other (Sanofi) considers different criteria.(21)
In CSPI, the court(22) relied on economic reasoning to reject the stay of enforcement but granted an amendment.(23) In addition, the court recalled the principle established in Oschadabank that the decision must be appreciated in concreto. The court ruled that when analysing the debtor's situation:
It must be established with sufficient evidence that the payment of this sum could seriously prejudice [the debtor's] rights to the point of leading to a permanent cessation of its activities.
As explained by Jourdan-Marquès,(24) the court therefore set a high threshold since the enforcement of the award had to lead, more or less, to a situation of cessation of payments. To do so, the court analysed the applicant's financial statement and noted that it held debts against third parties but had failed to act to recover them. Thus, the court refused to grant a stay of enforcement. Nonetheless, the court granted an amendment of the enforcement, this time by examining the creditor's situation. The court held that each party had been successful on the merits in two successive awards, and that the financial situation of the creditor, an offshore company registered in Mauritius with no infrastructure or employees, was uncertain.
In Sanofi,(25) the court supported the principles established in Oschadabank that a decision must be appreciated in concreto and that it does not require an assessment which is limited to the economic consequences of enforcement.(26) As summarised by Jourdan-Marquès, the court ascertained the solvency of both the debtor and the creditor. Going beyond mere economic considerations, the court also ruled out allegations of fraudulent behaviour on the part of the creditor, as the latter has already been the subject of a discussion before the arbitral tribunal.(27) The court in this case refused to grant stay of enforcement on the grounds that:
The latest decisions follow the earlier trend established by the former chamber of the Paris Court of Appeal. As such, the available French case law shows that a stay of enforcement of an international award will be decided on a case-by-case basis, and that the threshold for such a decision is high.
For further information on this topic please contact Luiza Saldanha at Freshfields Bruckhaus Deringer by telephone (+33 1 44 56 44 56) or email (firstname.lastname@example.org). The Freshfields Bruckhaus Deringer LLP website can be accessed at wwww.freshfields.com.
(1) Philippe Leboulanger, "Arrêt de l'exécution d'une sentence arbitrale internationale et risque de lésion grave, note sous Paris" (CME), 3 April 2014, in Revue de l'Arbitrage (Comité Français de l'Arbitrage; Comité Français de l'Arbitrage 2015, Volume 2015, Issue 1) pp 113 to 117.
(2) See I Michou, "L'exécution provisoire de la sentence internationale" in M de Fontmichel and J Jourdan-Marques, L'exécution des sentences arbitrales internationales (LGDJ, 2017), p 120; Pierre Pic, "La notion d'exécution 'susceptible de léser gravement les intérêts de l'une des parties' et 'le choix entre l'arrêt et l'aménagement de l'exécution immédiate des sentences'" Commentaire : (CA Paris, Ord CME) 17 December 2015; Fédération de Russie c/ Hulley Entreprises Ltd; Fédération de Russie c/ Veteran Petroleum Ltd; Fédération de Russie c/ Yukos Universal Ltd; in Cahiers de l'arbitrage - 4, 1 March 2017, p 951.
(4) Philippe Leboulanger, "Arrêt de l'exécution d'une sentence arbitrale internationale et risque de lésion grave, note sous Paris" (CME), 3 April 2014, in Revue de l'Arbitrage (Comité Français de l'Arbitrage; Comité Français de l'Arbitrage 2015, Volume 2015, Issue 1) pp 113 to 117.
(10) Pierre Pic, "La notion d'exécution 'susceptible de léser gravement les intérêts de l'une des parties' et 'le choix entre l'arrêt et l'aménagement de l'exécution immédiate des sentences'" Commentaire : CA Paris, Ord CME, 17 December 2015; Fédération de Russie c/ Hulley Entreprises Ltd; Fédération de Russie c/ Veteran Petroleum Ltd; Fédération de Russie c/ Yukos Universal Ltd; in Cahiers de l'arbitrage - 4, 1 March 2017, p 951.
(16) Paris, ord CME, 27 March 2014, 13/24165 cited in J Pelerin and L de Maria, "Le sursis à exécution de la sentence internationale ou étrangère en cas de recours (Article 1526(2))" in Cahiers de l'arbitrage, The Paris Journal Arbitration, 2014, p 783.
(17) Paris, ord CME, 3 April 2014, 13/22288. See J Pelerin and L de Maria's "Le sursis à exécution de la sentence internationale ou étrangère en cas de recours (Article 1526 (2))" in Cahiers de l'arbitrage, The Paris Journal Arbitration, 2014, p 783.
(18) Paris, ord CME, 4 July 2014, 14/12102 cited in J Pelerin and L de Maria's "Le sursis à exécution de la sentence internationale ou étrangère en cas de recours (Article 1526(2))" in Cahiers de l'arbitrage, The Paris Journal Arbitration, 2014, p 783.
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