Out-Law / Your Daily Need-To-Know
Recent rulings by the courts in France have highlighted the scrutiny arbitrators can come under over perceived conflicts of interest, the challenges successful parties in arbitration can face in enforcing arbitral awards that give rise to issues of international public policy, and how French arbitration law can still be considered the governing law of an arbitration agreement even when parties have selected another country’s law to govern their contract.
Prominent decisions illustrating the French approach to independence and impartiality of arbitrators include a decision of the Paris Court of Appeal in January 2023 in which the court annulled an arbitral award after considering the fact that the arbitrator in the case had given a eulogy to honour a deceased counsel for one of the parties in the case, which suggested a close friendship between the two.
The Court of Cassation in France ruled in June last year that even if a party has unsuccessfully challenged the impartiality or independence of an arbitrator before the arbitral institution, this does not preclude the party from subsequently invoking the irregularity of the arbitral tribunal’s constitution before the French courts in the context of annulment proceedings.
In 2022, the Court of Cassation extended the French courts’ scrutiny of whether decisions by arbitrators violate international public policy, by lowering the standard for determining such a violation.
That case revolved around a dispute between a Latvian businessman and the state of Kyrgyzstan, which had placed the bank the Latvian businessman owned into administration and subsequent receivership. The Latvian businessman was initially awarded more than $15 million in damages after successfully arguing that the state’s actions had breached a bilateral international investment treaty between Latvia and Kyrgyzstan. The award was then annulled by French courts after concerns were raised that the money awarded to him were proceeds of crime arising from money laundering activities he had participated in. The Court of Cassation determined that the annulment was valid because it was founded on an approach designed to combat money laundering: allowing someone to benefit from the proceeds of money laundering represents a flagrant breach of international public policy.
A separate decision by the Court of Cassation later in 2022 addressed another matter of fundamental importance to parties in arbitration – which law governs their arbitration agreement.
The Court of Cassation in that case confirmed that where parties expressly choose a seat of arbitration in France, the way that the validity, effectiveness, transfer or extension of the arbitration clause is to be interpreted is to be governed by French arbitration law – even if the contract between the parties was otherwise governed by the law of another country, which in this case was the law of England and Wales. We previously addressed this case in more detail.
Co-written by William Brillat-Capello of Pinsent Masons.
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