Choosing Arbitration: Why drafting a good clause is so important

Choosing Arbitration: Why drafting a good clause is so important

France is historically one of the most renowned places for Arbitration, thanks to its important Arbitration institutions that are based in Paris and Strasbourg. 

Nowadays Arbitration is the most widely used method to resolve international commercial disputes.

Indeed, in spite of its reputation as being a costly way to resolve disputes, Arbitration is now much more affordable than in the past, in particular thanks to the possibility offered by Arbitration institutions to have only one arbitrator and expedited proceedings. 

The Arbitration Clause  is a Dispute Resolution Agreement by which the parties agree to submit to Arbitration any disputes that may arise in connection with the contract or a group of contracts they have entered into. 

In France, this definition is provided by article 1442 of the Civil Procedure Code (CPC), as follows: 

“The Arbitration Agreement shall take the form of an Arbitration Clause or a Submission Agreement. 

An Arbitration Clause is an Agreement by which the parties to one or more contracts undertake to submit to arbitration any disputes that may arise in connection with such contract or contracts. 

A Submission Agreement is the agreement by which the parties to a dispute submit the dispute to arbitration”.

If you are about to sign an important commercial contract that includes an Arbitration clause, you may want to be sure that your Arbitration clause is valid and enforceable. 

It is then important to delve with the Essential Elements required for a valid and enforceable Arbitration Clause, using the French legal system as a model.

Essential elements of the Arbitration Clause under French Law

I) In Domestic Arbitration (French Law)

According to French Law, the Arbitration clause is an agreement between one or several parties (Contrat) and is subject to common Contract Law. 

However, 3 elements are necessary for a valid Arbitration clause under French Law:

  • Formal criterion*: it must be made in writing (article 1443 Code de Procédure Civile  – CPC). 
  • Substantial criterion: the parties must have unequivocally and clearly made the choice to use Arbitration as a dispute resolution method. 
  • Legal criterion: Arbitration shall be admitted by the law as a means to solve the dispute** .

* The written requirement is also met with a simple exchange of notes between the parties or if it is included in a document to which the main agreement refers to (article 1443 CPC).

**Arbitrabilité du litige : according to French Law, « All persons can compromise on the rights of which they have free disposal » (article 2059 of the Code Civil). Article 2060 prohibits Arbitration “on questions of status and capacity of persons, on those relating to divorce and legal separation, or on disputes concerning public bodies and, more generally, on all matters of public order. Also, certain French public bodies of industrial and commercial nature may be authorized by decree to be parties in arbitration proceedings.

II) In International Arbitration (French Law)

The same elements and legal limits for the validity and enforceability of the Arbitration Clause that we have seen in the previous paragraph for Domestic Arbitration also apply with regard to International Arbitration under French Law, apart from the following differences

→ The Written Form is (in theory) not a legal requirement. Unlike the Domestic Arbitration clause, the Arbitration Agreement related to international matters may not be in writing  (article 1507 CPC).

However, in order to obtain the enforcement of an International Arbitration award in France, the Arbitration Agreement must be in writing (article 1515 CPC), therefore the written form is always recommended. 

→ International Arbitration is for Business parties only: in theory, only businesses or individuals acting in the regular course of their business can be part to International Arbitration.

International Arbitration allows the parties to waive certain Domestic Arbitration rules: the parties to an International Arbitration may waive the application of certain French Domestic Arbitration rules*. With particular regard to the Arbitration Clause, parties to International Arbitration may waive the rule relating to the autonomous character of the Arbitration Clause** as well as the possibility of national courts to declare themselves competent in certain cases despite the existence of the Arbitration Clause***.

*See article 1506 CPC.

**Article 1447 CPC.

***Article 1448 CPC.

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This concludes the First  Part of our in-depth analysis on Arbitration in France. You can read the Second Part in the next post, where we will delve into the nuances between Domestic and International Arbitration, offering invaluable insights for those navigating the French legal landscape. 

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The opinion expressed in this article is for informational purposes only.

This article does not constitute legal advice.

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Should you have a similar tax issue, please contact us for an initial discussion of your case.

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