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13 December 2007
In the Norsolor(1) and Hilmarton(2) cases, the French Supreme Court ruled that an arbitral award can be enforced in France even if it has been set aside by the courts of the seat of arbitration. In two decisions made on June 29 2007, the court confirmed its liberal approach to recognition and enforcement of arbitral awards. In the first decision, the court granted leave to enforce an arbitral award which had been partially set aside in the country of the seat of arbitration.(3) In the second decision, the court held that leave could not be granted to enforce an award rendered following the partial setting aside of the first award given that they were irreconcilable.(4)
PT Putrabali Adyamulia, an Indonesian company, had concluded a contract for the sale of white pepper with a French company called Rena Holding (previously known as Est Epices). The contract between PT Putrabali Adyamulia and Rena Holding contained an arbitration clause providing that disputes would be submitted to arbitration according to the rules of the International General Produce Association (IGPA).
PT Putrabali Adyamulia filed a request for arbitration before the IGPA in London, claiming for payment by Rena Holding of the price of a consignment of white pepper that had been lost in transit.
The arbitrators dismissed PT Putrabali Adyamulia’s claim by rendering the first award on April 10 2001. In accordance with the provisions of the Arbitration Act 1996, PT Putrabali Adyamulia lodged an appeal on a point of law before the High Court of Justice.(5)
On appeal, the court partially set aside the first award and held that Rena Holding’s failure to pay the purchase price amounted to breach of contract.
Following the decision which partially set aside the first award, a second award was rendered on August 21 2003 whereby the tribunal ordered Rena Holding to pay PT Putrabali Adyamulia over €163,000.
After the second award was rendered, Rena Holding applied for leave to enforce the first award in France. On September 20 2003 the court of first instance in Paris granted leave to enforce the first award. This decision was confirmed by the Paris Court of Appeal on March 31 2005.
In the meantime, the court of first instance granted PT Putrabali Adyamulia leave to enforce the second award on February 10 2004. However, the court of appeal overturned this decision on November 17 2005.
PT Putrabali Adyamulia then filed a recourse against both decisions of the court of appeal before the Supreme Court.
The Supreme Court confirmed the court of appeal decision of March 31 2005, which had granted leave to enforce the first award. It also confirmed the court of appeal’s decision of November 17 2005, which had refused to grant leave to enforce the second award.
The Supreme Court confirmed leave to enforce the first award despite the fact that it had been set aside by the courts of the seat of arbitration
PT Putrabali Adyamulia challenged the court of appeal’s decision of March 31 2005 mainly on the following grounds:
The Supreme Court confirmed the court of appeal decision as follows:
“An international arbitral award, which does not belong to any state legal system, is an international decision of justice and its validity must be examined according to the applicable rules of the country where its recognition and enforcement are sought.”
The Supreme Court refused to grant leave to enforce the second award, as it was irreconcilable with the first.
PT Putrabali Adyamulia argued that the first award had been replaced by the second award and was therefore not res judicata (ie, an issue already settled in court). Furthermore, PT Putrabali Adyamulia argued that the first order granting leave to enforce had not been irrevocable at the time leave to enforce the second award had been sought and thus could not prevent leave to enforce the second award.
The Supreme Court ruled that the court of appeal decision of March 31 2005, which had granted leave to enforce the first award, was res judicata, thus making it impossible to grant leave to enforce the second award in France, which was irreconcilable with the first award.
The French courts’ policy according to which an arbitral award that has been set aside by the courts of the seat of arbitration can be enforced in France is based on the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and on French civil procedure.
Article V(1)(e) of the convention provides that recognition and enforcement of an award may be refused if:
“the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.”
The view can therefore be taken that an action to set aside brought before the courts of the seat of arbitration - whether resolved or pending - does not necessarily impose a refusal to recognize and enforce the award pursuant to the convention.(6)
Furthermore, Article VII(1) of the convention provides that:
“the provisions of the present convention shall not… deprive any interested party of any right; he may avail himself of an arbitral award in the manner and to the extent allowed by the law or the treaties of the country where such award is sought to be relied upon.”
Thus, the convention does not prevent a party from relying on more favourable domestic provisions.
In this regard, the setting aside of the arbitral award by the courts of the seat of arbitration is not one of the grounds set forth for refusing recognition and enforcement of an international arbitral award.(7) The French courts therefore consistently hold that an arbitral award can be enforced in France even if it has been set aside by the courts of the seat of arbitration.(8)
The underlying rationale of these rulings is that an arbitral award is an autonomous international decision. Therefore, the courts before which leave to enforce is sought shall not be bound by positions taken by a local judge, since the arbitral award is inherently international.
The reasoning of the Supreme Court in these two decisions is consistent with the approach adopted by French courts since Norsolor and Hilmarton. However, the practical concerns arising from such a ruling are obvious. Where two foreign arbitral awards are irreconcilable, the first to be granted leave to enforce will be enforceable in France, which may create the risk of a race for official recognition in France.
For further information on this topic please contact Elie Kleiman at Freshfields Bruckhaus Deringer by telephone (+33 1 44 56 44 56) or by fax (+33 1 44 56 44 00) or by email (firstname.lastname@example.org).
(8) Supreme Court, First Section, Norsolor, October 9 1984, Bull civ I 248; Supreme Court, First Section, Polish Ocean Line, Bull civ I 99, p 66; Supreme Court, First Section, Hilmarton, March 23 1994, Bull civ I 104; Paris Court of Appeal, January 14 1997, Chromalloy, Rev arb, 1997.395, note Ph Fouchard; Paris Court of Appeal, September 29 2005, Bechtel, RCDIP, 2006.387, note A Szekely.
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