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The European & Middle Eastern Arbitration Review 2009


Tim Portwood

Bredin Prat

10 December 2008

A fly on the wall at any Paris arbitration practice risks falling off, numb at the countless times it will have heard of international arbitral awards being 'delocalised', 'a-national', 'transnational', 'supranational', 'floating', 'deterritorialised' — anything but embedded in a national legal regime. The fly will be able to recite by heart how the French Cour de Cassation started it all off.

The trilogy of decisions beginning in 1984 with Norsolor,1 passing to Polish Ocean Line in 19932 and ending with Hilmarton in 19943 would buzz in the fly's mind like a mantra as would the Paris Court of Appeals' decision in Chromalloy in 1997,4 in which the reasoning that 'the award… is an international award which, by definition, is not integrated in the legal order of that State [read the State of the place of arbitration] so that its existence remains established despite its being annulled and its recognition in France is not in violation of international public policy' has almost become set in stone.

The more attentive fly could even cite the legal bases of the movement as being the most favourable rule provision in article VII of the 1958 New York Convention (albeit that history shows that this rule was not originally designed or even envisaged to become the basis of the delocalisation of international arbitration awards) and more provincially the absence from the exhaustive list of grounds for annulment of an international arbitral award in article 1502 of the French New Code of Civil Procedure of the annulment of the award in another state (albeit that on other rules of statutory interpretation, this section could lead to the exactly opposite conclusion).

The practical effect of such delocalisation in France for parties to an international arbitral award is, as the Court of Appeal in Chromalloy pointed out, that even if the award is annulled by the courts of the place of arbitration or has been refused recognition by the courts of another State, such award remains alive and kicking and ready for recognition and enforcement in France if none of the other New York Convention inspired grounds for non-

recognition apply.

The delocalisation movement has gained ground throughout Europe although its coverage is not comprehensive. Flies on the walls of arbitration practices in Belgium and Austria for instance would be familiar with the refrain. Those on English walls might fall off not out of boredom but from shock at the idea. As F A Mann has put it,5 arbitration only exists if the place of arbitration allows it. If the courts of that place have annulled the award, then the award will have ceased to exist for good. For the English practitioner's counterparts in France, Belgium and Austria, arbitration is, however, a private activity. It is a fact. It can be liked or disliked; approved or disapproved; favoured or disfavoured; but it still continues to exist. It does not need to be empowered ex ante by the courts of any state.

The French Cour de Cassation and Courts of Appeal have continued to support the movement in three recent decisions.

DAC v Bechtel

The first is a decision of the Paris Court of Appeal on 25 September 2005 in La Direction Générale de l'Aviation Civil de L'Emirat de Dubai (DAC) v Société International Bechtel Co.6

Pursuant to an arbitration agreement, DAC and Bechtel submitted a contractual dispute to a sole arbitrator sitting in Dubai under UAE law. The sole arbitrator's award was issued on 20 February 2002. On 21 October 2003 the Paris High Court issued an order enforcing the award against DAC. On 15 May 2004, the Dubai Cour de Cassation annulled the arbitral award for procedural irregularities. DAC then lodged an appeal in the Paris Court of Appeal against the enforcement order.

DAC relied on two principal arguments. First it argued that under the 1991 France-UAE Treaty on mutual enforcement the arbitral award should be treated as a judicial decision such that, under that Treaty, only arbitral awards that can no longer be appealed in the UAE and can be enforced in their country of origin could be recognised and thus enforced in France (as is the case for judicial decisions). Second, DAC argued, on similar reasoning, that enforcement of an award that could still be the subject of challenge in its country of origin was contrary to international public policy and therefore not capable of enforcement in France under article 1502-5 of the French New Code of Civil Procedure.

Both of DAC's arguments were rejected by the Paris Court of Appeal. First the Appeals Court held that arbitral awards and judicial decisions should not be assimilated for the purposes of the local remedies exhaustion rule in the France—UAE enforcement treaty. Arbitral awards from the UAE were not subject to such a requirement before they could be enforced in France. The Court held that any such rule would be incompatible with the fundamental principles of arbitration law in France that are enshrined in article 1502 of the New Code of Civil Procedure, whose aim is to ensure the effectiveness of international arbitration awards in general — a principle that was not, so the Court held, obstructed by the France—UAE Treaty. To deal with the fact that the award had been annulled in the UAE, the Court of Appeal went further and ruled that the judicial effect of an annulment decision by a local court of any level was strictly limited to the territory of such court's jurisdiction (in the present case, the UAE) and did not have to be recognised or be given any weight by the courts elsewhere such as in France. The terms adopted by the Paris Court of Appeal merit reproduction in full:

the annulment decision of the Court of Cassation in Dubai… cannot be made the object of recognition in France; judgments delivered pursuant to an annulment proceeding, like execution orders, do not have international effects because they apply only to a defined territorial sovereignty, and no consideration can be given to those judgments by a foreign judge pursuant to an indirect proceeding….7

By characterising decisions of the courts that annul arbitral awards as having limited territorial effect, the Court of Appeal managed to avoid (at least technically) the risk of rendering a judgment that was contrary to the terms of the France—UAE Treaty. Second, and following on from its first finding, the Court of Appeal held that the international public policy ground cited by DAC was misconstrued and did not apply.

The Court of Appeal's reasoning seems to go beyond that of the French Cour de Cassation in Hilmarton. In Hilmarton, the Cour focused on the status of the arbitral award in the international legal order. Because the award once issued had become part of that international legal order, independent of any particular national system, any decision by a national court annulling the award only extinguished the award within that national system, even if the nationality of the court was that of the seat of arbitration. The award's status in the international legal order was untouched. The award continued therefore to exist and could still be recognised and enforced in any other national legal system. In DAC, the Court of Appeal seems to have switched its focus from the international status of the award and concentrated on the purely national status of the judicial annulment decision. This switch was of course necessary because the Court of Appeal had to deal with the standing of the Dubai Court's annulment decision under the France—UAE enforcement treaty that seemed to require such decision's recognition and enforcement in France (rather than the more typical case of a request for recognition and enforcement of an annulled arbitral award at common law). Whether such switch is judicious, however, is questionable (and the interpretation of the France—UAE enforcement treaty that was required of the Paris Appeals Court to conform with the Hilmarton delocalisation theory of arbitral awards leaves something to be desired) although should depend upon the precise terms of the applicable enforcement treaty in any given case and thus may not be an issue of generalised concern.

A simple extension of the factual scenario in the DAC case echoes the circumstances in Hilmarton. Having seen the first arbitral award annulled by the UAE Court of Cassation, the parties could well have embarked on a second arbitral proceeding on the same dispute and obtained a new arbitral award which may have been inconsistent with the terms of the first (annulled) award. That second award could then have been the subject of enforcement proceedings in France. The French courts could therefore have been faced with proceedings for the enforcement of two inconsistent awards arising out of the very same dispute between the very same parties. Which award should be preferred? The French Cour de Cassation in Hilmarton chose the first award. That award was an international award existing in the international legal order and thus untouchable by a local judicial decision of annulment. Enforcement of the second (inconsistent) award would, on the reasoning of the Cour de Cassation in Hilmarton, have been contrary to the principle of res judicata. The result is not necessarily satisfactory. Does the res judicata principle bear the hallmark of a rule of international public policy such that its breach is grounds for non-recognition under the New York Convention and national rules inspired thereby? The provincial meaning and application of the res judicata principle would suggest a negative response. The Hilmarton reasoning would not therefore necessarily prevent two contradictory awards from existing at the international level, leaving it to the parties to shop among the various available fora for enforcement of one or other of the awards. Such a situation does not necessarily achieve the effectiveness to which the French Court of Appeal gave lip service at least in its decision in DAC.

PT Putrabali Adyamulia v Rena Holding

The second decision was rendered by the French Cour de Cassation on 29 June 20078 and involved just such a scenario. An arbitral award issued in London had been set aside by the High Court of England and Wales in the same capital city. Enforcement was sought in France.

The underlying dispute was between a French company, Est Epices, and an Indonesian company, PT Putrabali Adyamulia. Goods sold by Putrabli to Est Epices had been lost in transit. Est Epices refused to pay for them. Putrabali issued arbitration proceedings in London under the parties' arbitration agreement for the price. The arbitral award rejected Putrabali's claim. Putrabali challenged the award before the English High Court on a point of law under the 1996 Arbitration Act. The challenge was admitted and the award set aside in part. Putrabali issued a second set of arbitration proceedings in London on the same facts and this time succeeded in obtaining a favourable arbitral award ordering Est Epices to pay a certain sum of money.

Est Epices sought recognition of the first award in its favour in France. The Paris Court of Appeal declared that award enforceable in March 2005. Putrabali appealed to the Cour de Cassation. In a first judgment dated 29 June 2007, the Court dismissed the appeal applying the reasoning in Hilmarton — the award was admitted into the international legal order and thus untouchable by the English court's partial annulment.

At the same time, Putrabali sought enforcement of the second arbitral award in its favour in France. In November 2005, the Paris Court of Appeal held that the award could not be declared enforceable on res judicata grounds, again applying the reasoning in Hilmarton. Putrabali appealed to the Cour de Cassation. In a second judgment of 29 June 2007, the Cour de Cassation confirmed the Court of Appeal's decision. Recognition of the first award precluded recognition of the second on the grounds that the first award was protected by the principle of res judicata.

SNF v Cytec

The third decision is that of the Cour de Cassation in SNF v Cytec,9 which has several interesting aspects (in particular on annulment on international public order grounds in the sphere of EU competition law) in addition to its recantation of the Hilmarton mantra.

A contractual dispute between the parties had been submitted to arbitration in Brussels. In a first award, the arbitral tribunal cancelled a supply contract that it found to be contrary to article 81 of the EC Treaty as anti-competitive. The tribunal found also that one of the parties, Cytec, did not have a dominant position on the relevant market and therefore could not have been the author of an abuse in the terms of article 82 of the EC Treaty. Pursuant to its finding that the contract was cancelled, the tribunal ruled that the parties may be entitled to indemnification for the resulting losses. The parties brought a second set of arbitration proceedings seeking indemnification. Again in an award issued in Brussels, SNF was ordered to pay damages to Cytec. SNF's own claim for damages was dismissed.

SNF succeeded in having both awards set aside by the Belgian courts. Cytec managed on the basis of the Hilmarton precedent to obtain an order for the enforcement of both awards from the High Court of Paris as the French judge was not affected by the Belgian decision of annulment. The Paris Court of Appeal not surprisingly confirmed the decision of the High Court on 23 March 2006. The Court of Appeal's decision was then appealed to the Cour de Cassation. It is interesting to note that the Hilmarton reasoning was considered to be sufficiently engrained that SNF did not seek to challenge the Appeals Court decision on those grounds. The other grounds are considered more fully below.

Readers may, by now, be wondering why, if the 'delocalisation' principle is so firmly established in the French international arbitration order (as the SNF v Cytec case suggests), is it worth making any mention of what has become one of the Cour de Cassation's truisms. The reader would indeed have good cause to pose the question if it were not for the seismic effects of movements abroad in Brussels.

The Schlosser report

Council Regulation (EC) No. 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters is under review by the Commission as required by article 73 of that Regulation. Article 1(2) of the Regulation excludes arbitration (and, as case law has developed, arbitration-related judicial decisions) from its scope. At the time that the Regulation and its predecessor in spirit, the 1968 Brussels Convention, were devised, it was widely believed that the 1958 New York Convention ensured the recognition and enforcement of arbitral awards in an efficient manner and was working well. There was therefore no need to apply the somewhat different principles forged by the Brussels Convention and subsequently the Regulation for the enforcement and recognition of judgments to arbitral awards.

The Regulation's review by the Commission has led to the publication of a report under the signatures of Professors Burkhard Hess, Thomas Pfeiffer and Peter Schlosser of the University of Munich (the Schlosser report). Contrary to the overwhelming responses to a questionnaire distributed to persons (lawyers, judges and businessmen engaged in European cross-border litigation) from 24 member states, the professors conclude and propose that the exclusion of arbitration from article 1(2) of Regulation 44/2001 should be deleted.

The very fact that such conclusion and proposal go against the findings of the grass-roots study is disconcerting in and of itself. Equally disconcerting is the authors' apparent rejection of their own finding that the original reasons for the exclusion of arbitration and judicial proceedings relating to arbitration from the scope of the 1968 Brussels Convention and the subsequent Regulation (EC) No. 44/2001 remain perfectly valid. What seems to have weighed heavily upon the professors' minds are alleged residual problems associated with the application of Regulation (EC) No. 44/2001 in relation to the 1958 New York Convention despite the authors' own admission that the frequency with which such problems are encountered is 'very seldom'. The report cites four alleged practical problems. The authors' concern over these problems is, however, so misplaced and lacking in depth that the serious misgivings voiced by the Parisian arbitration community10 over the potential effects of the Schlosser report seem more than justified. The four alleged practical problems are as follows:

  • the possibility of concurrent contradictory national judgments within the EU on the validity of a given arbitration agreement, since such judgments fall outside the harmonising effects of the Regulation. The authors would prefer to see such risk abolished through the harmonisation of such national judgments. They therefore recommend including arbitration (together with all arbitration-related court proceedings) within the scope of the recognition and enforcement rules of Regulation 44/2001;
  • possible concurrent contradictory ancillary measures ordered by national courts in aid of any given arbitration proceeding regarding, for instance, the appointment of the tribunal, the grant of provisional relief or the collection of evidence. Again the authors advocate abolishing such risk by conferring exclusive jurisdiction over supportive measures on the courts of the member state of the seat of arbitration;
  • the risk of inconsistent treatment within the EU of court judgments rendered in violation of a valid arbitration clause. The courts of some member states consider such judgments to violate public policy and thus refuse those judgments recognition, while others afford such judgments the benefit of Regulation (EC) No. 44/2001; and
  • the risk of conflict between concurrent arbitration and national court proceedings on account of differences between the laws of the member states over the requirements for the validity of arbitration agreements.

To resolve the last two problems, the report's authors recommend first granting supremacy to the courts of the member state of the seat of arbitration to rule on disputes relating to arbitration clauses and secondly establishing a uniform European rule for determining the place of arbitration. The uniform rule minted by the report stipulates that the place of arbitration will be first as agreed upon by the parties, or, absent such an agreement, as determined by the arbitral tribunal or, failing either of the foregoing, as decided exclusively by the court of the capital city of the designated member state that, if not otherwise designated, is to be the court that would have general jurisdiction over the dispute under Regulation 44/2001 if there were no arbitration agreement.

As noted above, the report has received a hostile reception among the French arbitration community. The French National Committee of the ICC set up a working group under the chairmanship of Mr Philippe Pinsolle (member of the Paris Bar), to provide observations on the Schlosser report. The group comprised Paris-based French arbitration practitioners. The result is a scathing, 14-page attack on the report in the form of a series of observations, which can be read either in French or English, concluding that the proposals of the Schlosser report 'will have the opposite effect it had set out to have, namely a growing disinterest of the parties for places of arbitration located in the European Union'. Each of the four recommendations of the report is rejected outright. The working group recommends instead maintaining the exclusion of arbitration (and with it arbitration-related court proceedings) in article 1(2)(d) of Regulation (EC) No. 44/2001, which effectively means jettisoning the other three recommendations as well.

The criticism voiced by the ICC working group has sound theoretical justification. The first criticism is that the recommendations of the Schlosser report are based upon a misconception of exactly what it is in an arbitration that requires recognition and enforcement by the courts. The report focuses wrongly on the recognition and enforcement of the arbitration agreement whereas, as enshrined in the enforcement system established by the 1958 New York Convention, it is more appropriate and effective to concentrate on the recognition and enforcement of the arbitral award.

A second conceptual error identified by the working group is the assimilation in the report of arbitral tribunals with state judges subjecting both to the law of the seat of arbitration. The authors of the report see the courts of the seat of arbitration as having exclusive authority over any such arbitration. Such a concept is radically opposed to the ever-developing and widely accepted notion of the Kompetenz—Kompetenz rule and in particular its negative effects (namely, it is the arbitral tribunal that has primacy over the scope of its jurisdiction such that the national courts should defer to the tribunal's finding even if seized first). It would also toll the death-knell for the Hilmarton line of case law — no longer would the courts of a member state be entitled to enforce an arbitral award that had been annulled by the courts of the seat of the arbitration. Awards would cease to be delocalised or a-national. The report effectively advocates the nationalisation of international arbitral awards.

The working group suggests further that the automatic recognition by the member states of court decisions in arbitration matters will have the effect of aligning European case law with that of the member state whose legislation is least favourable to arbitration. Although in practice this suggestion is perhaps exaggerated, there is a hard nub of truth in the argument that much greater weight would, if the Schlosser report's recommendations were applied, have to be given Europe-wide to decisions by the courts of jurisdictions that have a less favourable attitude than is the case under the 1958 New York Convention, thereby downgrading Europe's status as a generally receptive and competitive forum for arbitration proceedings.

More significant on the public international law front is the ICC working group's observation that the automatic recognition rule recommended by the Schlosser report would place certain member states in breach of their international law obligations under the 1958 New York Convention. Article I(3) of the New York Convention enables signatory states to reserve their obligations under the Convention exclusively to legal relationships that are considered as commercial by their national laws. A number of states have adopted this reservation. The refusal by the courts of a member state that has made the reservation to enforce an arbitral award in a non-commercial matter would, under the recommendations of the Schlosser report, be automatically enforceable in all of the other member states of the EU — including those of states that accept enforcement under the Convention even in non-

commercial matters. The latter states would therefore be forced into a breach of their obligations under the 1958 New York Convention by the proposed automatic recognition rule. The ICC working group cites a similar risk with respect to the obligations of states that are signatories to the 1965 Washington Convention that established the ICSID.

The idea of concentrating provisional measures in the courts of the seat of arbitration is yet another recommendation of the Schlosser report that misunderstands the exigencies of an international arbitration proceeding, as the ICC working group points out. Evidence, assets, witnesses, etc, are only rarely found at the seat of the arbitration that has been chosen for its neutrality as between the parties. More typically they are in home state of one or other of the parties. Effectively having to pass by the courts of the seat of arbitration would obviously strip many such measures of their effectiveness as well as having the undesirable consequence of increasing time and costs.

Finally, the ICC working group attacks the default rule proposed in the Schlosser report for determining the seat of arbitration (it being noted at present that no such default rule exists in the majority of the national rules of the member states or in the rules of the major arbitration institutions). The working group's criticism focuses on the difficulty of applying conventional private international law rules on jurisdiction to an arbitration agreement such that the group concludes that the proposed rule would at best be 'useless'. The criticism is justified but can go further. If there is one overriding principle in a party's choice of the seat of arbitration, it is neutrality. By applying conventional private international law rules on jurisdiction to identify the place of arbitration, such neutrality would in nearly all cases be annihilated since the courts with jurisdiction would in most cases be those of the place of residence of one or other of the parties.

One of the members of the ICC working group has written against the Schlosser report, urging international practitioners Europe-wide to rise up against the report. He poses the following question:

Why is that whenever the European institutions focus on arbitration, the result is generally negative? In spite of the undertaking made in the Treaty of Rome (article 220, which has become article 293) pursuant to which, within the European Community arbitral awards should be treated in the same manner as judicial decisions, each time an organ of the EU takes a measure regarding arbitration, the result is against the interests of the latter.11

It can only be hoped that the EU institutions will get it right this time and not take a measure that is contrary to the interests of Europe as a forum for international arbitration. We can but wait and see what Brussels' reception of the Schlosser report and its caustic criticism will be.

Annulment for breach of international public order:

a high hurdle

The European law theme continues with a review of the other aspects of the decision of the Cour de Cassation in SNF v Cytec.12 The decision is of interest given its reinforcement of the limited scope of the ground for annulment or non-enforcement of an arbitral award under the 1958 New York Convention (or national rules inspired thereby) on the basis that the award constitutes a breach of international public order and the place that European Community competition law fills when such ground is applied.

As noted above, an arbitral tribunal sitting in Brussels had issued a first award in a dispute between SNF and Cytec cancelling a supply contract that it found to be anti-competitive in breach of article 81 of the EC Treaty. The tribunal also found that Cytec did not hold a dominant position on the relevant market and thus could not be found liable for an abuse under article 82 of the EC Treaty. In a second award following a second arbitration proceeding, the arbitral tribunal ordered SNF to pay Cytec damages and dismissed Cytec's claim on the basis that it had not suffered any recoverable losses. SNF challenged before the Cour de Cassation orders enforcing the awards that had been upheld by the Paris Court of Appeal. The ruling of the Cour de Cassation was rendered on 4 June 2008.

The ruling echoes an earlier decision of the Paris Appeals Court regarding both the conditions applying to the annulment of an international arbitral award for breach of international public order and the place of European Community competition law in that order in the matter of SA Thalès Air Defence v GIE Euromissile & SA EADS France.13

In Thalès, the parties had not raised before the arbitral tribunal the issue of whether the impugned agreement was in breach of EC competition law. The resulting award made no findings in that respect. In enforcement proceedings before the Paris Court of Appeal, it was argued that the arbitrators should have raised the competition law issue ex officio and that if they had done so they would have found that the impugned contract should have been declared null and void (as in SNF v Cytec). The Appeals Court ruled that the ground for annulment in article 1502(5) of the French New Code of Civil Procedure on the basis of a breach of international public policy could only apply if the breach was 'flagrant, real and concrete'. In the circumstances of the case, the Court found that none of these criteria had been established. There were therefore no grounds for objecting to the enforcement of the award.

The facts of SNF v Cytec differed from those in Thalès. In SNF v Cytec, breaches of European Community competition law had been pleaded before the arbitral tribunal and evaluated in the tribunal's awards. The gist, therefore, of the case against enforcement was:

  • the tribunal had in fact wrongly applied applicable European Community competition law when it found that SNF did not enjoy a dominant position on the relevant market and ordered the payment of damages for what had been found to be an anti-competitive practice; and
  • by wrongly applying European competition law, the tribunal had committed a breach of international public order such that its award should not be enforced in France.

The Cour de Cassation rejected SNF's appeal. Given that the tribunal had applied the agreed applicable law, namely European Community competition law, there was no scope on a claim against enforcement for the French courts to censure the award for a wrong application of that law. This of course is trite law under article 1502 of the New Code of Civil Procedure. The Cour de Cassation then confirmed the Paris Court of Appeal's reading of article 1502(5), such that any breach of international public order through the enforcement of an arbitral award must be flagrant, real and concrete before it can constitute a ground for non-enforcement of the award. The Cour found on the facts as pleaded that SNF had failed to demonstrate any such flagrant, real and concrete violation of international public order, adding that an error in the law of reparation does not itself concern international public policy and can only be rectified by a revision of the merits of the award which, again, the enforcing judge cannot do.

Two lessons are to be learned from these decisions. First, European Community competition law is arbitrable, notwithstanding the place it enjoys in the realm of international public policy; second, however, in order to succeed in annulling or challenging the enforcement of an arbitral award involving an erroneous application of European Community competition law before the French courts, a party must succeed in demonstrating that the violation of international public order caused by such wrongful application is flagrant, real and concrete — clearly a high hurdle to straddle.

The Thalès case raised issues of estoppel. A series of recent decisions of the French courts have continued to reinforce the relevance of that rule in the context of international arbitration and proceedings for annulment or enforcement as discussed in last year's contribution to this study. Given the earlier discussion of the conceptual nature of the use of estoppel by the French courts in the arbitration field, only a brief résumé of two of the recent examples of the application of the principle is given here.

Estoppel — in vogue

In a decision handed down on 7 February 2008 in Crédirente v Compagnie générale de garantie,14 the Paris Court of Appeal rejected two grounds raised by Crédirente for annulling an arbitral award rendered against its interests. The first ground raised by Crédirente was that one of the arbitrators lacked the necessary independence to act. The Court of Appeal gave the challenge short shrift once it was established that Crédirente's questioning of the arbitrator's independence had been placed on the record some 15 months before it sought in a second volley to have its objection sustained. Applying the principle of estoppel in the sense that a party cannot act incoherently or inconsistently with its previous actions, the Court of Appeal found that Crédirente's silence after having raised the issue of independence amounted to acceptance such that it could not subsequently rely on the claim as a ground for challenging the arbitrators' award. A second ground of challenge raised by Crédirente was that the tribunal had failed to obtain an extension of the period of time in which the award had to be rendered. Once again, the principle of estoppel proved to be Crédirente's downfall. Having agreed with the other party to an extension of the tribunal's mission, Crédirente was estopped from subsequently arguing that the original time period for the tribunal's mission had expired with the effect that the tribunal's decision was rendered out of time. The reference by the Court of Appeal to the notion of estoppel to reject this second ground of annulment is superfluous since all that was needed was for the Court of Appeal to apply the parties' agreement to extend the tribunal's mission to dispose of Crédirente's claim. It seems that the principle has acquired a certain cachet and is in vogue in the Parisian judicial circles.

The Paris Court of Appeal's use of the principle of estoppel in its judgment rendered on 28 February 2008 in Liv Hidravlika DOO v Diebolt15 is more noteworthy than the Crédirente ruling and carries with it a weighty reminder for parties and counsel alike to put aside court-room niceties when asked (as frequently happens) by the tribunal during the course of a proceeding (and in particular at hearings) whether they have any objections to the way in which the proceedings have been conducted either procedurally or on the substance. The Court of Appeal was seized with a claim for the annulment of an arbitral award in a contractual dispute over intellectual property rights, one of the bases of which was an alleged failure by the tribunal to have given the applicant the right to make submissions on the method for the calculation of loss adopted by the tribunal in its final award. The Court of Appeal dismissed the application, ruling that the principle of estoppel prevented a party from relying upon a ground for annulment that it had the opportunity to raise in the course of the arbitral proceedings but failed to do so. The message is therefore clear. If invited by the tribunal to comment on the conduct of the proceedings, a party must place all of its cards face upwards on the table and voice all of its concerns, whether procedural or substantive, if it wishes to protect its armoury of arguments subsequently to attack the final award at the enforcement stage. It would of course be up to the tribunal then to deal with any issue raised that could subsequently jeopardise the enforceability of the award. Failure by the tribunal to do so would strengthen the applicant's subsequent case for annulment.

Costs — the bitter pill for frivolous annulment applications

Finally, this year's glance at some of the developments in French arbitration law would be seriously lacking if mention were not made of a remarkable costs decision rendered by the Paris Appeals Court in annulment proceedings on 6 March 2008.16 In a cutting critique of the applicant's case, the Court of Appeal found that no proof of any of the limited grounds for annulment in the New Code of Civil Procedure had been established: the award had been rendered in a timely manner, the applicant having consented to each and every extension of time and thus was estopped from arguing otherwise; the award bore no sign of a lack of impartiality on the part of the tribunal with the applicant having failed to take any steps to challenge the tribunal's independence as and when the circumstances arose such that again it was estopped from arguing otherwise in the annulment proceedings; no breach of international public order had been established with the applicant simply trying to dress up a review of the merits in international public policy clothing. The applicant having filed 222 pages of submissions in support of a totally meritless claim for annulment, the Court of Appeal awarded the respondent E75,000 in costs (notwithstanding the short shrift with which the respondent had itself answered the case). The lesson is obvious: the French courts no longer take kindly to frivolous claims for annulment given the very limited grounds on which annulment is available under the NCPC and the well-established case law explaining the substantive requirements of those grounds. Counsel, beware!


1. Norsolor, Cass Civ 1 , 9 October 1984, Rev arb 1985.431, note B Goldman; English translation in Yearbook Commercial Arbitration XI (1986) p484.
2. Polish Ocean Line, Cass Civ 1, 10 March 1993, Rev arb 1993.255, note D Hascher.
3. Hilmarton, Cass Civ 1, 23 March 1994, Rev arb 1994.327, note Ch Jarrosson; English translation in Yearbook Commercial Arbitration XX (1995) p663; Cass Civ 1, 10 June 1997, Rev arb 1997.376, note Ph Fouchard, English translation in Yearbook Commercial Arbitration XXI (1997) p696.
4. Chromalloy, Paris Court of Appeal, 14 January 1997, Rev arb 1997.395 note Ph Foucard; 125 JDI 750 (1998) note E Gaillard; English translation in Yearbook Commercial Arbitration XXII (1998) p691.
5. F A Mann, 'Lex Facit Arbitrum', Liber Amicorum for Martin Domke (M Nijhoff, La Haye, 1967), p157.
6. La Direction Générale de l'Aviation Civile de l'Emirat de Dubai v Société International Bechtel Co, Paris Court of Appeal, 1C, 29 September 2005, 2004/07635.

7. Author's free translation from the French original.
8. PT Putrabali Adyamulia v Rena Holding, Cass. Civ 1, 29 June 2007, Les Cahiers d'Arbitrage no. 2007/2, Gaz Pal. 17 July 2007, p44.
9. Société CNF SAS v Société Cyntec Industries B, Cass Civ 1, 4 June 2008, Gaz Pal 2 July 2008 , p39.
10References — ICC Working Group, Lazareff, etc.
11. Serge Lazareff, Gazette du Palais, 29 June to 1st July 2008, p3; author's free translation from the French.
12See above.
13. C. Paris (1st Chamber, Section C), 18 November 2004, RTD com. 2005, p263, note E Loquin; JDI 2004, no. 2, p357, note A Mourre.
14. Court of Appeal of Paris (1st Ch, C), 7 February 2008, RG no. 06/1279, Gaz Pal 2-3 July 2008, p32.
15. Court of Appeal of Paris (1st Ch. C), 28 February 2008, RG no. 05/10577, Gaz Pal 2-3 July 33.
16. Court of Appeal of Paris (1st Ch. C), 6 March 2008: Concurrence SA v Sony France SA, RG no. 06/14765, Gaz Pal 2-3 July 34.