Welcome back to the continuation of our exploration into Arbitration in France.
In the First Part, we discussed the historical significance and the evolving affordability of Arbitration, highlighting the critical role of the Arbitration Clause.
We also delved with the essential elements of the Arbitration clause under French Law.
In the Second Part, we delved with the key distinctions between Domestic and International Arbitration under French Law.
In this Third Part, we will discover a few, interesting details about the validity and characteristics of an Arbitration Clause.
We will also go through our recommendations with regard to the contents of the Arbitration Clause as well as a few, useful tips for the Arbitration clause to be as good as possible. Join us as we discover the various contents an Arbitration Agreement may have and and their implications.
With regard to the Validity and Characteristics of an Arbitration Agreement under French Law, it is worth pointing out what follows:
I) Quality of the Parties in Domestic Arbitration
Under French Law, it is no longer needed for the validity of the clause in Domestic Arbitration that both parties are Business parties, and namely parties acting in the course of their own business. By means of the Law for the Modernization of the Judicial System (Law 18 November 2016 – J21), Private, Non–Business parties are now allowed to use Domestic Arbitration in order to solve their disputes, within the boundaries drawn by the law (see supra footnote 2).
Indeed, the new version of article 2061 of the French Civil Code states as follows:
“The Arbitration Clause must have been accepted by the party against whom it is invoked, unless that party has succeeded to the rights and obligations of the party who initially accepted it.
Where one of the parties has not entered into the Arbitration Clause in the course of his or her professional activity, the clause cannot be claimed against him or her.”
Therefore, the previous legal prohibition for any non-professional parties to use Arbitration as the method to solve their disputes has been repealed; however, the non-business party that has signed a contract including an Arbitration clause may choose to waive the Arbitration clause and opt for the ordinary judicial proceedings.
As an example, any party signing an insurance policy as a consumer and, therefore, out of the scope of its professional activity, may now validly sign an Arbitration Clause with its insurance company; however, in case a dispute arises, the non-professional, consumer party can still choose to waive Arbitration and opt for normal judicial proceedings.
Conversely, this freedom of choice does not belong to the business party, that is bound to Arbitration once the choice has been made.
II) Arbitration is an irreversible choice
Once you have made the choice to use Arbitration to solve potential disputes in a transaction you entered into in the normal course of your business, be aware that the consent you have given to Arbitration cannot be unilaterally withdrawn.
This means that if you accepts to go for Arbitration, you cannot opt for judicial proceedings when a dispute arises, unless the other party agrees to terminate the Arbitration agreement.
III) The Arbitration clause is an independent agreement
The Arbitration clause is independent from the main contract to which it is attached; if the main contract is void or inapplicable or terminated for any reason, the Arbitration clause survives to it (Article 1447 CPC).
However, in International Arbitration, the independent character of the Arbitration Clause may be waived (see PART II – Understanding the Nuances : Domestic vs International Arbitration in France).
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IV) The Submission Agreement must contain an additional, essential element
In case the Arbitration agreement is signed after the dispute has arisen, the Submission Agreement, in order to be valid, shall also determine the object of the dispute (article 1445 CPC).
Recommended Contents of an Arbitration Clause
In PART I and PART II, we have seen the Essential Elements and limits in order for an Arbitration clause to be valid and enforceable under French Law.
However, beyond the Essential Elements, there are a few items that can definitely help secure that the Arbitration process goes smoothly in case a dispute arises between the parties.
Indeed, when a dispute has already arisen, it might be the worst time to find an arrangement on the Arbitration rules!
That is why an effective Arbitration Clause should include the following:
- The Choice of the Applicable Arbitration Procedural Rules, by making reference to customized Arbitration procedure rules (Ad Hoc Arbitration) or to an Arbitration institution rules. The Procedural Rules define the legal framework of the proceedings and are distinct from the Substantive Law, which governs the merits of the dispute. It is important to make sure that the Arbitration institution you choose is correctly identified in the Arbitration Clause and that this institution accepts to be appointed to manage the Arbitration proceedings in case of dispute.
- The Methods for the Constitution of the Arbitration Tribunal, by indicating in particular the number of arbitrators (1 or 3). As to the choice of the arbitrators, the designation method is usually indicated in the Procedural Rules of the chosen Arbitration institution. The chosen Arbitration institution usually appoints the arbitrator(s).
- The Place of Arbitration, which usually coincides with the seat of the chosen Arbitration institution. It is recommended that the place of Arbitration is situated in a country that has signed and ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (signed on June 10th 1958). Indeed, the place of Arbitration determines the “nationality” of the award for its recognition in another signatory country. It is also important that the place of Arbitration is situated in a country that offers an Arbitration-friendly legislation (substantive and procedural), which is conducive to the effectiveness of the Arbitration proceedings.
- The Language of the Arbitration Proceedings, which is usually the language of the commercial relations between the parties.
- The Substantive Law Applicable to the Merits, which will be the law applicable to the merits of the dispute on the basis of which the arbitrator(s) will make its (their) decision on the dispute.
- The Right of Appeal. Usually the parties agree that the decision of the Arbitration tribunal (the award) is final and cannot be appealed. Under French Law,”the award is not subject to appeal unless the parties agree otherwise (article 1489 CPC). In case the parties agree upon the Right of Appeal of the award, they may choose to bring the case before the competent Court of Appeal or an Appellate Arbitration Tribunal. In this latter case, the parties shall make sure that bringing the appeal before an Appellate Arbitration Tribunal is permitted by the applicable procedural law of the jurisdiction of the place of the Arbitration.
A Few, Final Tips
- Choice of the Substantive Law applicable to the merits of the Arbitration. It is important that the Arbitration clause is drawn up keeping in mind which Substantive Law will be applicable to the merits of the Arbitration in order for the award to be enforceable in the country where the chosen Substantive Law applies. Usually the merits of the Arbitration proceedings are ruled by applying the Substantive Law governing the main Contract, that includes the Arbitration clause.
- Adopting the Model Clause of the Chosen Arbitration Institution. When you have already an idea of the Arbitration institution that you would appoint to manage the Arbitration proceedings, it is recommended to use the Model Arbitration Clause proposed by the chosen institution.
- Mediation / Expertise Board Assessment before Arbitration (Multi-Step Clause). An Arbitration clause may include the obligation or the possibility of conducting Mediation proceedings between the parties before going to Arbitration.
In a Multi-Step Clause, the possibility of Mediation may be articulated in various manners: from simply including the possibility to resort to Mediation at any time before or during the Arbitration proceedings, to the obligation of Mediation before commencing Arbitration or conducting Mediation proceedings in parallel with the Arbitration proceedings.
The parties may also decide to include the possibility of having an Expertise or Dispute Board to assess the dispute before entering the Arbitration proceedings.
As an example, the following is a standard Model Arbitration Clause proposed by the European Court of Arbitration – Cour Européenne d’Arbitrage:
Any dispute arising from the relationships between the parties to this contract shall be determined by one arbitrator who will be chosen in accordance with the Arbitration and Internal Rules of the European Court of Arbitration being part of the European Centre of Arbitration having its seat in Strasbourg, and which are in force at the time the application for arbitration is filed, and of which adoption of this clause constitutes acceptance. The seat of arbitration shall be ____. The language of the proceedings shall be ______. Applicable rules of substantive law shall be _______________
Further Model Clauses are available at this link.
The European Court of Arbitration has its seats in Strasbourg and Paris.
This concludes the Second Part of our in-depth analysis on Arbitration in France. If you missed the first part you can read it now here.
In the third and final part of this series of articles on the arbitration clause in France you will find more details and our final recommendations.
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