International Arbitration in a Nutshell

Arbitration is the usual method of resolving disputes in international trade.

The main reasons why parties resort to arbitration are the neutrality, finality and efficiency of arbitration proceedings.

Arbitration is the freedom of the parties. Exercising this freedom means that the parties must make choices. Making choices requires to be involved and proactive. It is therefore important to make the right choices before the start of the arbitration proceedings when drafting the arbitration agreement. Then, it is necessary to select the appropriate arbitrator(s), in addition to the choice of counsel that will represent such party during the proceedings.

The rules of French arbitration law can be found in Book IV of the Code of Civil Procedure, in the wording resulting from Decree No. 2011-48 of January 13, 2011 which details the internal arbitration regime (Title I, articles 1442 to 1503) and that of international arbitration (Title II, articles 1504 to 1527). In addition, the Civil Code devotes its title XVI to the arbitration agreement (Articles 2059 to 2060).

Under French law, any arbitration involving the interests of international trade is international [Article 1504 of the Code of Civil Procedure]. This is an economic criterion.

The domestic arbitration system is quite similar to that of international arbitration, and many provisions are common to them. Article 1506 of the Code of Civil Procedure contains the indication of the provisions which appear in the Part dedicated to internal arbitration which are also applicable in matters of international arbitration.

Article 2059 of the Civil Code establishes the principle that one can resort to arbitration for the rights of which one has free disposal. In reality, this it is about pecuniary (economic) rights. Non-economic rights are excluded from the field of arbitration (subjective rights inherent in the human person: personal status, capacity, filiation, marriage, divorce, legal separation, nationality, image rights, right to privacy, right to a name, etc. as well as criminal law, tax law, etc.) as well as disputes involving public authorities and public establishments [Articles 2059 and 2060 of the Civil Code] (with numerous exceptions under specific laws or decrees, for example SNCF, Poste, France Telecom, EDF, GDF etc., “Euro Disneyland” law). It is not a rule of incapacity for these people but a delimitation of the arbitrability of certain questions. Finally, in its last version (the third) dating from 2016, article 2061 of the Civil Code, lays down the principle that one must have consented to recourse to arbitration and specifies that when one of the parties has not contracted in the context of his professional activity, the clause cannot be opposed to him. This is a matter of acceptance of the clause and not of validity.

The arbitration agreement [Article 1442 of the Code of Civil Procedure] can take two forms. It is either an arbitration clause or a “compromis”. The arbitration clause is the clause agreed in a contract for all possible future disputes relating to this contract (also called the arbitration clause in practice). The “compromis” is the specific agreement entered into between the parties when a dispute has arisen, that is specific to a single dispute, and which must identify subject of the dispute [Article 1445 of the Code of Civil Procedure]; it may intervene at any time, including during the pendency of proceedings before a state court [Article 1446 of the of Civil Procedure].

French law enshrines a substantive rule which is that of the autonomy of the arbitration agreement [Article 1447 of the Code of Civil Procedure]. The arbitration agreement is independent of the contract to which it relates and is not affected if such contract is void.

French Courts thus held that "under a substantive rule of international arbitration law, the arbitration clause is legally independent of the main contract which contains it directly or by reference. Its existence and its effectiveness are assessed, subject to the imperative rules of French law and international public order, according to the common will of the parties, without it being necessary to refer to a state law" (See, for example, Paris Court of Appeal, 4 April 2023, RG n° 22/07777, SA Bunge Geneva v SAS BZ Grains). 

As a matter of principle, under a substantive rule of international arbitration law, the arbitration agreement is legally independent of the main contract in which it is contained (directly or by reference). As a result, its existence and effectiveness are assessed, subject to the mandatory rules of the French law and international public order, according to the common will of the parties.  It follows that it is not necessary to refer to a state law, unless the parties have expressly submitted the validity and effects of the arbitration agreement itself to such law.

Same arbitration agreement, same facts, same case but two opposite decisions by French and English courts (Kabab-Ji v. Kout Food case, Cour de cassation, 28 September 2022, nº20-20.260), on the law applicable to the arbitration agreement. This decision is of particular interest because the contract was governed by English law, which the Cour de Cassation decided was not to be applied to the arbitration agreement and because the outcome is the opposite of the solution that prevails before English courts. The material rule of the principle of autonomy led French courts to decide that the law applicable to the arbitration agreement is to be decided according to the law of the seat, while English courts consider that it is to be decided according to the law of the contract, with the consequence that one court upheld the award and the other denied enforcement. As part of the changes introduced by the draft legislation to implement the reforms proposed to the Arbitration 1996 Act (to become law in 2024) is an important change regarding the law governing an arbitration agreement: absent express party agreement otherwise, the law governing an arbitration agreement is the law of the seat of the arbitration (this is a reversal of the UK Supreme Court’s decision in Enka v Chubb [2020] UKSC 38, where the court held, that absent an express choice, the law governing the contract containing the arbitration agreement shall be considered as the implied choice made by the parties).

When drafting the arbitration clause, it is desirable to carefully consider the choice of the seat of arbitration (also called place of arbitration). 

The seat of arbitration is crucial and has important legal consequences at all stages of the arbitration proceedings and after the award is rendered.

As a practical matter, the choice of the seat has no consequences on the place where the hearings will be held, because these can be held in any place deemed convenient by the participants in the procedure.

It is the seat which determines the jurisdiction of the state courts which may intervene, for example, in the event of difficulty with the composition of the tribunal or the dismissal or replacement of an arbitrator (in the event of institutional arbitration, it is the institution which takes care in the first place of these questions).

In addition, unless the parties have agreed otherwise, it is the seat that controls the law of the procedure (and possibly the law applicable to the merits, the law applicable to the arbitration clause, the rules of conflict of laws). 

Whatever the place where the hearings are held, it is the seat which constitutes the place where the award is deemed to have been rendered, with the consequence that it is also the seat which determines the jurisdiction of the state courts before which any action to set aside the award will be brought.

Finally, the seat can also impact the law that is applicable to the arbitration agreement. 

It is therefore essential to choose a seat located in a country whose law and case law are favourable to arbitration.

The parties are at liberty to opt for ad hoc arbitration or to submit their arbitration proceedings to the arbitration rules of an arbitration institution.

Ad hoc arbitration requires the parties to provide a very detailed arbitration agreement with the rules of procedure that are to be applied in due course. They can also rely on rules such as those of UNCITRAL; the arbitration is ad hoc because no arbitration rules of an institution are applicable and the parties and the arbitrators are the only participants, and the advantage is to have a body of rules known in advance and that reflects generally accepted practices. Another possibility is to rely on the arbitral tribunal to set the applicable rules. It is then a question of choosing experienced arbitrators. The conduct of the proceedings is in any case under the authority of the arbitral tribunal.

The other possibility is to provide that the arbitration will be institutional, that is to say that it will be conducted in application of the rules of an institution. The parties place their arbitration under the aegis of an organization that administers arbitration proceedings, generally governed by the arbitration rules that it has developed.

There is a wide variety of competing institutions in the main arbitration centres in Europe, Asia, Africa, the Middle East and in the Americas. The ICC, AAA (and its international branch ICDR), CIETAC, HKIAC, DFIAC, LCIA, SIAC, CCS and the Swiss Chambers of Commerce (SAIC now Swiss Arbitration Centre) are the main arbitration institutions. The Permanent Court of Arbitration based in The Hague is also a renowned institution, which intervenes when at least one of the parties is a State, a State-controlled entity, or an intergovernmental organization.

Some arbitration centres provide for on-line dispute resolution, such as the Electronic Business Related Arbitration and Mediation (eBRAM) Hong Kong based platform.

There is also a multiplicity of more local or specialized arbitration centres (regarding maritime arbitration, grain or food trade, or in financial matters). Some institutions have adopted the UNCITRAL Arbitration Rules, while most have developed their own rules. Most of the rules are updated periodically and converge to include provisions relating to multi-party arbitrations, consolidation of arbitrations, emergency measures, expedited procedures.

The role of the institution is more or less important according to its arbitration rules, but in no case does it have a jurisdictional function and the mission of deciding on the merits of a dispute is attributed to the arbitral tribunal.

In addition to the publication of the arbitration rules, the role of the arbitration institution consists mainly in assisting the parties in the resolution of certain procedural difficulties, such as the constitution of the arbitral tribunal and the supervision of the proper conduct of the arbitral proceedings.

The decision by which the arbitral tribunal decides the dispute is called an arbitral award. The arbitration award has the force of res judicata with respect to the claims adjudicated in that award [Article 1484 of the Code of Civil Procedure] and puts an end to the dispute. The arbitral tribunal is no longer vested with the power to rule on the claims so adjudicated in the award as soon as it is rendered [Article 1485 of the Code of Civil Procedure].

One dispute can require that several awards are made, each one ruling on an aspect of the dispute. The awards are called partial awards and the last on final award. However, any award, including a partial award, is "final" because an award adjudicates the dispute or the part of the dispute to which it relates and cannot be modified by the arbitral tribunal or by a state court.

An arbitrator is called upon to make decisions on purely procedural questions without prejudging the merits of the dispute; after having heard the parties, he proceeds by procedural orders which decisions are not subject to appeal or cancellation, and which he can modify or revoke later.

At the start of the proceedings, the arbitral tribunal agrees with the parties on procedural rules and a procedural timetable which are recorded in one or more orders. During the proceedings, in addition to possible changes to the procedural timetable, the arbitral tribunal has to decide, in the form of orders, questions relating to the admissibility of a document, requests for the production of documents, as well as questions of the language in which documents are communicated, extensions of time, or questions of confidentiality, etc.

The principle in domestic arbitration is that there is no appeal possible unless the parties have agreed otherwise [Article 1489 of the Code of Civil Procedure]. On the other hand, in international arbitration there is no possible appeal [Article 1518 of the Code of Civil Procedure].

An arbitral award cannot be subject to appeal or review on the merits; it can only be challenged by an action for setting aside which must necessarily be brought before the courts of the seat of the arbitration, or during recognition (“exequatur”) and enforcement proceedings of the award before the courts of the place where the enforcement of the award is sought. The grounds are exhaustively listed in the Code of Civil Procedure, and the same grounds are applicable for an action to set aside or for the recognition of the award [Article 1492 of the Code of Civil Procedure for internal arbitration and Article 1520 of the Code of Civil Procedure for International Arbitration].

Decree No. 2011-48 of January 13, 2011 reforming arbitration: https://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000023417517&categorieLien=id

French Code of Arbitration - Commentary (Code de l'arbitrage commenté, Lexis Nexis, Thomas Clay, 2nd edition 2021, Maximin de Fontmichel)

Le droit français de l'arbitrage, LGDJ Lextenso 2023, Matthieu de Boisséson, Clément Fouchard, Jessica Madesclair

UNCITRAL Model Law on International Commercial Arbitration (1985 – 2006 amendments): http://www.uncitral.org/uncitral/fr/uncitral_texts/arbitration/1985Model_arbitration.html

New York Convention: Convention on the Recognition and Enforcement of Foreign Arbitral Awards, concluded in New York on June 10, 1958: http://www.newyorkconvention.org/

New York Convention Guide, Convention for the recognition and enforcement of foreign arbitral awards, concluded in New York on June 10, 1958: text, ratifications and accessions, Guide and library of case law and doctrine on the UNCITRAL website: http://newyorkconvention1958.org/