The post below was written by Sylvain Bollée, who is Professor at Paris 1 Panthéon-Sorbonne University. It is the fourth contribution to the EAPIL online symposium on the English Law Commission’s proposed reform of the law governing arbitration agreements. The other posts are written by Alex Mills, Manuel Penades, George Bermann, Matthias Lehmann and Giuditta Cordero-Moss.
Readers are encouraged to participate in the discussion by commenting on the posts.
For a French lawyer, the Law Commission’s proposal concerning the determination of the law governing the arbitration agreement is of particular interest. It comes a little less than a year after the decision rendered by the French Court of Cassation in the Koot Food Group case (Civ. 1st, 22 September 2022, No. 20-20.260), in which the French and English courts were notoriously divided on the contemplated issue.
Without going into the details of the solutions found in English case law, their key points can be summarized (albeit with a degree of approximation) – as follows: 1) the parties are free to choose the law applicable to the arbitration agreement; 2) a choice of law clause stipulated in the matrix contract will generally be held applicable to the arbitration agreement; 3) in the absence of any choice of law, the arbitration agreement will generally be governed by the law of the seat chosen by the parties.
In order to understand the French approach, it is important to bear in mind that it is primarily based on the rejection of any conflict-of-laws reasoning and, supposedly, the application of any national law to the arbitration agreement. French courts directly apply “substantive rules” (règles matérielles) which, to a large extent, seek to give effect to the parties’ common intent to submit their dispute to arbitration. In reality, this “substantive rules method” inevitably amounts to applying rules that are a creation of the French legal system. Thus, in the final analysis, it is not so much the application of legal rules from national sources that is set aside, but rather conflict-of-laws rules and all foreign laws (and also, at least in theory, the application of French law rules applicable to domestic situations). The Dalico judgment (Civ. 1st, 20 December 1993, No. 91-16.828), which is the landmark decision on the subject, does not bring this out so clearly. But that is indeed the methodological approach which, in principle, prevails before French courts. Obviously, the underlying policy is to favour the validation of arbitration clauses and, by implication, the enforcement of arbitral awards.
One question is whether the parties may still choose to submit their arbitration agreement to a foreign law. As a matter of principle, the French Court of Cassation has answered in the affirmative. But the existence of such an electio juris is not easy to establish: according to the terms of its judgment in Koot Food Group, “the parties must have expressly submitted the validity and effects of the arbitration agreement itself to such a law”. This entails that a choice of law clause stipulated in the matrix contract, with no specific indication as to its applicability to the arbitration agreement, will not be regarded as sufficient. As a result, the application of the substantive rules method will likely not be overturned in the vast majority of cases.
The Law Commission’s proposal would significantly narrow the gap between the English and French solutions. Of course, from a methodological point of view, there is still a profound divergence: the English approach does not deviate from conflict-of-laws reasoning in the first place, whereas the French approach only grants it a secondary role. But if one looks at the solutions in terms of their practical results, two points of convergence stand out.
The first is a strict limitation of the cases in which the existence of a choice of law clause applicable to the arbitration agreement will be deemed to be established. An express choice will be required, and it will not be sufficient to refer to the existence of a choice of law clause in the matrix contract.
This immediately gives rise to an objection: why exclude the possibility of an implied choice? If the arbitrator or the judge is convinced that the parties have implicitly agreed on the application of a certain law, is it not unfortunate that he or she is obliged to disregard this implicit choice? Of course, one should not be too quick to dismiss the prima facie advantages of the solution: it is expected to close the door to overly subtle discussions, costly litigation and, in the end, what is perceived as legal uncertainty. But can this objective really be achieved? Only to a limited extent, because the existence of an express choice might also be debated. My colleague Dr Manuel Penades rightly raised this point in his contribution and I will take one of his examples here: what will be decided in the case where the matrix contract contains both a choice of law clause the scope of which (as per its very wording) is “the Agreement”, and a clause that defines “the Agreement” as all the clauses contained in the contractual document (which, by hypothesis, will include the arbitration clause)? Commercial contracts regularly include such provisions and I suspect reasonable people might disagree about the existence of an express choice in the considered scenario.
Besides, it would seem to be in the nature of things that a choice of law clause included in the matrix contract should apply to the arbitration agreement, as long as it does not turn out that the parties intended otherwise. In this respect, it has been convincingly objected to the Law Commission’s proposal that it disregards the normal expectations of the parties (see the Final report, paras 12-32 et seq.). As a matter of fact, international contracts very often contain choice of law clauses, which tend to support the view that the parties are keen to settle the issue of applicable law themselves. At the same time, they generally say nothing specific about the law applicable to the arbitration clause. Why is that? Precisely, I believe, because they naturally assume that the choice of law clause they have inserted in the contract will also apply to the arbitration agreement. It is regrettable that the Law Commission’s proposal does not draw the consequences from this, all the more so as the application of two different laws – one to the matrix contract and the other to the arbitration clause – is not without practical disadvantages: it is likely to result in undesirable complexity, if not inconsistencies. This objection is not new and concerns about such a split in the applicable law were raised during the consultation process (see the second consultation paper, paras 2.66 and 2.67).
The second point of convergence between the Law Commission’s proposal and French law pertains to the case (which, in practice, is likely to be by far the most common) where the parties are deemed not to have expressly chosen the law applicable to the arbitration agreement. If the seat of the arbitration is in England, the English court will do what the French court would do in its place: it will apply its own law. In fact, this appears to be one of the main reasons why the Law Commission found it adequate to rule out the possibility of an implied choice: combined with the default rule in favour of the law of the seat, that solution is likely to ensure the applicability of English law in the contemplated situation and, correlatively, to protect the arbitration clause against the effects of a foreign law which might be less supportive of arbitration (see the Final report, paras 12-18, 12-72 and 12-73). Such a pro-arbitration attitude is also at the root of the French method of substantive rules and, arguably, the reluctance of French courts to acknowledge the existence of a choice of law clause which might submit the arbitration agreement to a foreign law.
This being said, French law goes much further in its policy of favouring the validity of arbitration agreements: its substantive rules method applies independently of any conflict of laws rule, so that the benefit of the pro-arbitration rules of French law is not restricted to arbitrations seated in France. The resonance of this approach is all the greater in the light of another aspect of French law: as shown by the decisions rendered in the well-known Hilmarton (Civ. 1st, 23 March 1994, No. 92-15.137) and Putrabali (Civ. 1st, 29 June 2007, No. 05-18.053) cases, the annulment of the award in the country of the seat does not constitute a ground for non-recognition in France. Thus, if the court of the seat of the arbitration, applying its own law, considered that the arbitral tribunal lacked jurisdiction, this will not prevent the French courts from granting exequatur to the award. The Law Commission’s proposal, as it provides for the application of the law of the seat even when it is located abroad, is a reminder that profoundly different conceptions of international arbitration prevail on either side of the Channel.