Case law Developments in PIL

European Procedural Public Policy and (French) International Arbitration

On 30 September 2020, the French Supreme Court for private and criminal matters (Cour de cassation) issued a remarkable decision in the field of French international arbitration (Cass. Civ. 1st Chamber, 30 September 2020, no. 18-19.241).

The Court held that the power of the arbitral tribunal to determine its own jurisdiction based on Articles 1448 and 1506 of the French Civil Procedural Code shall not infringe consumers’ rights conferred by EU law. Therefore, an arbitration clause that is at odds with the requirements resulting form Directive 1993/13 concerning unfair terms in consumer contracts should be set aside by the courts.

EU Background

For those who are familiar with EU consumer law, the added-value of the decision may seem limited. Indeed, more than ten years ago, the European Court of justice ruled that national courts shall invalidate an unfair arbitration clause included in a B2C contract, on the basis of directive 1993/13 (Mostaza Claro, C-168/05 and Asturcom Telecomunicaciones SL, C-40/08). But the cases dealt with actions to set aside the arbitral award (for the first one) or to enforce it (for the second one); this means at the “post-award” procedural stage. Here, the French case concerns the prior phase of arbitration.

Facts and Issue

A French national sought the advice of a Spanish law firm for the succession of her father, opened in Spain. Despite the international reputation of the law firm’s mother company, the French client was not satisfied with the legal services provided for and sued the Spanish law firm for damages before French court. The law firm opposed an arbitration clause included within the legal services contracts concluded with her French client and, in the alternative, challenged the international competence of the court.

In response, the Court of Appeal set aside the arbitration clause on the basis of the prohibition of unfair terms in B2C contracts pursuant to Directive 93/13 (Article 3(1)) because the clause had not been individually negotiated. Then, the Court of Appeal recognised its jurisdiction pursuant to the Brussels I bis Regulation (Article 17(1)(c) and Article 18(1)). The law firm appealed to the French Supreme Court.

The main issue at stake, under French international arbitration law, was the implementation of the cornerstone principle of “jurisdiction to decide jurisdiction” (principe compétence-compétence) laid down in Article 1448 of the French Civil Procedure Code and applicable to international arbitration pursuant to Article 1506 of the same Code.

This principle has a twofold dimension. On the first hand, in case of dispute on the validity of an arbitration agreement, the arbitral tribunal has exclusive jurisdiction to assess its own jurisdiction. On the other hand, when such a dispute is brought before a court, such court shall decline jurisdiction. However, article 1448 provides for a narrow exception “if an arbitral tribunal has not yet been seized of the dispute and if the arbitration agreement is manifestly void or manifestly not applicable”.

Precedents and New Solution

Was the arbitration clause here “manifestly void”?

No, the law firm argued, as a comprehensive assessment by the Court of Appeal was needed to conclude to the unfair nature of the term. And this was indeed the position of the French Supreme Court so far, despite criticisms by the legal doctrine. In two famous cases, Jaguar (Cass. Civ., 1st Chamber, 21 May 1997) and Rado (Cass. Civ., 1st Chamber, 30 March 2004), related to B2C contracts, the French Supreme Court declined jurisdiction “in the absence of clear invalidity” of the arbitration clause and stated that the arbitral tribunal is entitled to apply any mandatory provisions commanded by the international public policy to assess its jurisdiction.

In the present case, the French Supreme Court overturns its jurisprudence and approves the decision of the Court of Appeal. However, the decision is taken outside the exception laid down in article 1448 (op. cit.). The solution is justified by the implementation of the “test of effectiveness” in the framework of the European principle of procedural autonomy. According to settled case-law of the Court of Justice:

“[…] in the absence of relevant Community rules, the detailed procedural rules designed to ensure the protection of the rights which individuals acquire under Community law are a matter for the domestic legal order of each Member State, under the principle of the procedural autonomy of the Member States, provided that they are not less favourable than those governing similar domestic situations (principle of equivalence) and that they do not render impossible in practice or excessively difficult the exercise of rights conferred by the Community legal order (principle of effectiveness)” (par. 24, Mostaza Claro, C-168/05).

As a consequence, the exclusive jurisdiction of arbitrators to assess the validity of an arbitration clause makes it more difficult for a claimant, in his/her capacity as European consumer, to benefit from his/her European rights, in particular in the present case the assessment of an arbitration clause under Directive 93/13. This is obviously a change of perspective, strongly documented by European case-law references in the ruling.

Assessment

In the present case, the French Supreme Court extends the principle of effectiveness into the prior stage of international arbitration proceedings. The control of an alleged violation of a European mandatory requirement by an arbitration clause shall therefore be undertaken ex ante to ensure the effectiveness of EU law.

It emerges from this decision that the autonomous nature of arbitration vis-à-vis State justice and national legal orders is incompatible with the autonomy of the European legal order. As arbitrators do not belong to any jurisdiction, shall we therefore assume, more globally, that they can never be trusted to implement European mandatory provisions, such as European consumer rights?

This decision is a key development from the French Supreme Court within a local legal framework that has traditionally shown a liberal as well as a favourable approach to international arbitration.

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