Arbitration in France & the UK: who has the upper hand?

Arbitration in France & the UK

In the aftermath of Brexit, which has made the enforcement of civil and commercial courts judgments, from the European Union (‟EU”) (and France, in particular) to the United Kingdom (‟UK”), and vice versa, much more difficult and opaque, the option to resolve disputes by way of arbitration has become more appealing. Indeed, as explained in our article ‟Alternative dispute resolution in the creative industries”, arbitral awards are recognised and enforced by the Convention on the recognition and enforcement of foreign arbitral awards 1958 (the ‟New York convention”), a convention to which both France and the UK are parties of, and which remains unaffected by Brexit. It is therefore now easier to enforce arbitral awards from France to the UK, and vice versa, than to enforce civil and commercial courts judgments from France to the UK, and vice versa. Let’s check who has the upper hand, between France and the UK, by checking each country’s key features in their respective arbitration systems. In other words, which jurisdiction is best, to resolve disputes by way of arbitration?

1. Leading national, regional and international arbitral institutions based out of France and the UK

France, and in particular Paris, has been a long established arbitration centre worldwide, with the International Chamber of Commerce’s (‟ICC”) International Court of Arbitration founded in 1923, under the leadership of the ICC’s first president Etienne Clementel.

Since, many more arbitral institutions have set up shop in Paris, as follows:

The UK, and in particular London, was an even earlier adopter of arbitration, and became an arbitration centre, with:

  • JAMS International, which is the UK’s offshoot of North American arbitration institution, JAMS, founded in 1979 in California, United States of America;
  • Sports Resolution, a London-based dispute resolution institution for sports founded in 1997.

The main arbitration hearing facilities for in-person hearings, in Paris, are:

The main arbitration hearing facilities for in-person hearings, in London, are:

Both London and Paris also offer reprographic facilities, in reasonable proximity to the above-mentioned arbitration hearing facilities, as well as local providers of court reporting services and local interpreter services for simultaneous interpretation between English and the local language, if it is not English.

2. Key features of the French and UK arbitration frameworks

Most of the rules applicable to arbitration are set out in the French code of civil procedure (‟CPC”). French arbitration law distinguishes between rules applicable to domestic and international arbitration even though some provisions are applicable to both, pursuant to article 1506 CPC. Pursuant to article 1504 CPC, arbitration is considered to be ‟international” when the interests of international trade are at stake. The distinction matters, since rules applicable to international arbitration are more liberal.

With regard to both domestic and international arbitration, France created a dedicated judge (‟juge d’appui”) who has jurisdiction over arbitration-related issues and who acts in support of arbitral proceedings. Such judge may assist the parties in the constitution of the arbitral tribunal if any problem arises, especially in ad hoc proceedings, as the judge’s role is limited in proceedings governed by institutional rules. In addition, the Paris court of appeal recently created a dedicated international chamber exclusively focused on appeals against first-instance decisions in cross-border commercial matters, and some other specific matters such as the annulment proceedings against international arbitral awards handed down in Paris, as well as challenges against enforcement orders, in order to ensure coherent case law. Similarly, the French ‟cour de cassation” (supreme court) systematically assigns such proceedings to its first civil division.

The Arbitration Act 1996 (the ‟Act”) regulates arbitrations seated in England, Wales and Northern Ireland. The Act is currently being reviewed by the Law Commission, which published its first consultation paper in September 2022, to ensure that the Act remains ‟best in class” (the ‟Report”). The Report suggests reforms related to confidentiality, discrimination, arbitrators’ duty of disclosure, arbitrators’ immunity and other changes and clarifications envisaged by the Law Commission.

Applications in support of arbitrations are made in the specialised courts of the Business and Property Court of the High Court of Justice, typically in the Commercial Court or the Technology and Construction Court. These courts consist of judges who are suitably experienced in arbitration and commercial matters.

2.2. Civil law / common law environment

France is a civil law system. However, many arbitrations seated in Paris are subject to foreign laws, such as English law. Some arbitral practitioners, including arbitrators, are familiar with general common law concepts.

The UK is a common law system.

2.3. Party to international conventions

Both France and the UK are parties to the New York convention, as mentioned in the introduction, as well as to the ICSID convention which entered into force on 14 October 1966 (the ‟ICSID convention”).

2.4. Confidentiality of arbitrations

Pursuant to article 1464 CPC, which relates to domestic arbitrations, arbitration is confidential unless otherwise agreed between the parties (this confidentiality obligation extends to the names of the arbitrators, the arbitral institution, the legal counsels and the seat). With respect to international arbitration, no French legal rules provide for a general obligation to confidentiality for international arbitration. Therefore, parties must enter into a confidentiality agreement, provide for confidentiality in their arbitration agreement or choose an institution which rules expressly set out that arbitral proceedings are confidential. However, article 1479 CPC provides that members of the arbitral tribunal must keep their deliberations secret, be it in domestic, or international, arbitrations.

There is no express provision for confidentiality in the Act. However, English law generally recognises the confidentiality of arbitral proceedings, subject to limited exceptions. For example, documents used in arbitration proceedings may be disclosed where ordered by the court, or in cases where such disclosure is necessary for a party to establish or protect his/her legal rights. In the Report, the Law Commission proposed that the Act should not codify English law on confidentiality in arbitration, concluding that it is an area best left to be addressed by the courts. This is for two reasons: (i) arbitration is used in a variety of instances and there is a trend towards transparency in some types of arbitrations (i.e. investor-state disputes), and (ii) existing case law on confidentiality is still evolving and not yet ready to be codified.

2.5. Ability to hold meetings and/or hearings outside the seat and/or remotely

With respect to the ability to hold meetings and/or hearings outside the seat and/or remotely, nothing prevents them from being held, under French law. Pursuant to article 1464 CPC (domestic arbitration) and article 1509 CPC (international arbitration), proceedings are governed by the rules set out in the arbitration agreement itself, or by the institutional rules that the arbitration agreement refers to, but they have to be conducted in accordance with essential procedural principles of French law (in particular, due process, adversarial proceedings, right to be heard and to present defence, etc.).

Under section 34(2)(a) of the Act, the parties are free to hold meetings and/or hearings outside the seat. This also applies to remote meetings and/or hearings.

2.6. Ability to claim for reasonable costs incurred for the arbitration, as well as interests

Arbitrators may award interest on any monetary claim, which will be added to the principal upon enforcement in France.

Pursuant to article 1231-7 of the French civil code, interest at the French statutory rate will automatically apply and be added to the principal, when the enforcement of an international award is sought in France, unless moratory interests have already been granted under the arbitral award.

There is no legal provision limiting the jurisdiction of the arbitral tribunal to hand down a decision on costs incurred in the arbitration (including counsel and experts’ legal fees). Therefore, parties may claim before the arbitral tribunal for costs incurred in the scope of the arbitration.

Pursuant to section 49 of the Act, an arbitral tribunal has the power to award interest (simple or compound) as it considers appropriate, subject only to the freedom of parties to exclude or limit this power.

Pursuant to section 63(5)(a) of the Act, unless the tribunal or court determines otherwise, the successful party will be allowed to claim a ‟reasonable amount in respect of all costs reasonably incurred”. Pursuant to section 60 of the Act, parties are free to agree on cost allocation but any pre-dispute agreement that one party must pay the cost of the arbitration regardless of the outcome is unenforceable.

2.7. Statute of limitations for civil claims

Pursuant to article 2224 of the French civil code, the default statute of limitations period applicable to civil actions is five years from the day on which the claimant learnt, or should have learnt, about the facts enabling him/her to exercise his/her right. In contractual matters, it is considered that such a 5-year period starts to run from the date of occurrence of the damage.

Pursuant to section 5 of the UK limitation Act 1980, actions in contract must generally be brought within six years from the time when the cause of action arose (i.e. the date of the breach of contract).

2.8. Requirement to retain counsel

There is no formal requirement to retain local counsel for the arbitration itself, in France. However, should the need arise to request a French state judge to decide on certain arbitration-related issues (such as the constitution of the arbitral tribunal or emergency injunctive relief), or to enforce arbitral awards in France, retaining local counsel is necessary.

Similarly, there is no requirement to engage local counsel for arbitration proceedings in the UK. However, parties must retain local counsel (barristers or solicitor-advocates) to appear before the English courts for any ancillary court proceedings. This also applies to claims for enforcement of awards in England.

2.9. Availability of ex parte pre-arbitration interim measures

Pursuant to article 1449 CPC, which is applicable to both domestic and international arbitration, the existence of an arbitration agreement does not prevent a party from seeking pre-arbitration interim or conservatory measures before a French state court as long as the arbitral tribunal has not been appointed. Such measures can be ordered to gather evidence before commencement of the arbitral proceedings. A party who seeks other interim or provisional measures, such as a freezing order (‟mesures conservatoires”) or constitution of escrow accounts reserves (‟séquestres”), shall have to demonstrate urgency.

Pre-arbitration interim measures are available from the English courts, and the courts will grant these ex parte (without notice) in limited, but appropriate, cases. These are usually for urgent situations where a delay may prejudice the right of a party seeking the interim measure. However, these are subject to a subsequent inter partes (on notice) hearing to determine whether the interim measure should remain in place. The grant of such interim measures is limited to situations where the arbitral tribunal or institution holding those powers either ‟has no power or is unable for the time being to act effectively” (section 44(5) of the Act). It is not uncommon for a court to grant such interim measures.

2.10. Enforcement of arbitral awards

An international arbitral award can only be enforced in France if it is rendered effective by an enforcement order called ‟exequatur”. This procedure is non-adversarial and only allows the French judge limited control. Indeed, the judge is solely requested to verify if the award whose enforcement is sought does exist, and whether it is not manifestly contrary to the French definition of international public policy. The cases where French judges refuse to grant an exequatur are very rare.

An application for leave to enforce an award should be made in an arbitration claim form (N8) pursuant to rules 62.3 and 62.18(1) of the UK’s Civil Procedure Rules (‟CPR”). The arbitration claim form should be supported by an affidavit or witness statement containing the information specified in rule 62.18(6) of the CPR and exhibit originals or copies of the arbitration agreement and the award (rule 62.18(6)(a) of the CPR). Originals or duly certified copies of these documents must be submitted if the award is a New York convention award (section 102(1) of the Act). The claimant must also submit two copies of a draft court order granting permission to enforce the award to be served on the defendant. The order must contain a statement of the defendant’s right to apply to set aside the order within 14 days (or such longer period as the court directs) and a statement that the award will not be enforced until that period has expired or any application made by the defendant within the time limit has been finally disposed of (rule 62.18(7), (9) and (10) of the CPR). If the claimant seeks to enforce an award providing for post-award interest, the claimant must also file a statement of interest containing the information specified in rule 62.19(1) of the CPR.

2.11 Grounds for annulment of arbitral awards

There are no additional grounds for the annulment of international awards to those based on the criteria for the recognition and enforcement of awards under the New York convention. On the contrary, French law is more liberal than the New York convention as the annulment of the award at the seat of arbitration is not ground for refusing its enforcement or recognition in France. In domestic arbitration, as an additional condition, the award must be signed and state the reasons for the decisions therein, its date, the name(s) of the arbitrator(s) and it must be adopted by a majority vote if the tribunal consists of more than one arbitrator.

Under article 1526 CPC, neither an action for annulment against an award, nor an appeal against an order granting exequatur, automatically suspend enforcement proceedings. However, a party may request suspension and/or adaptation of enforcement by filing a petition with the first president of the court of appeal, or the judge in charge of managing the proceedings (‟juge conseiller de la mise en état”), once such judge is appointed by the court of appeal. In order to succeed, the applicant must demonstrate that enforcement is likely to lead to ‟manifestly excessive consequences” (e.g. enforcement can lead to debtor’s insolvency or a serious risk of non-recovery of funds in case the award is annulled and/or the order granting exequatur is reversed).

Also, contrary to the vast majority of other jurisdictions, the annulment of the arbitral award at the seat of arbitration is neither a ground, nor a significant factor, to prevent such award from being recognised or enforced in France. Indeed, French arbitration law considers that the award is not attached to the seat of arbitration, but rather forms part of an ‟arbitral legal order” distinct from state jurisdictions’ legal orders, and that its annulment at the seat has no impact on its validity.

With respect to grounds for annulment of awards additional to those based on the criteria for the recognition and enforcement of awards under the New York convention, section 69 of the Act allows the courts to annul an award where it has been successfully appealed on a point of law arising from the tribunal’s award (and only where the court is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration). The point of law is limited to any questions of law of England and Wales or Northern Ireland. A party can therefore only appeal where the law of England and Wales and Northern Ireland was the law applicable to the merits of the dispute.

However, annulment proceedings do not typically suspend enforcement proceedings. The English courts do have the power to adjourn an enforcement action where there is an ongoing annulment proceeding at the seat, pursuant to section 103(5) of the Act, but this is not automatic. As a condition of adjournment, English courts may impose an order for security on the party seeking adjournment.

English courts will generally abide by a decision on annulment made by the supervisory court at the seat of arbitration. As such, English courts will usually refuse enforcement of an arbitral award that has been annulled at the seat. However, in limited situations, English courts may depart from this approach, for example where the foreign court’s set-aside decision was ‟so extreme and incorrect as not to be open to [that foreign] court acting in good faith”. This indicates that a very high hurdle must be met by a party seeking the enforcement of an award which has been annulled by the court of the seat.

To conclude, while both France and the UK seem to have established and sturdy legal frameworks to organise arbitral proceedings, and empower arbitrators to hand down their arbitral awards, France seems to have the upper hand, in terms of enforcing arbitral awards not matter what, on its soil. Indeed, the UK is more squeamish, if foreign awards have been annulled at the seat of the arbitration. However, it is possible that the upcoming reform of the Act will reinforce the ability of parties to enforce arbitral awards in England & Wales, in the near future.

Crefovi’s live webinar: Arbitration in France & the UK – who has the upper hand? – 1 October 2022

 

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