Archive for category: Domestic legislation

The post below was written by Matthias Lehmann, who is Chair for Private Law, International Private Law and Comparative Law at the University of Vienna and an editor of the EAPIL blog. It is the fifth 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, Sylvain Bollée and Giuditta Cordero-Moss. 

Readers are encouraged to participate in the discussion by commenting on the posts. 

Legislative proposals from the British islands to correct the intricacies of the common law always fill the continental lawyer with joy. Yet interestingly, most of the questions that the Law Commission’s proposal to reform English arbitration law addresses are not dealt with explicitly by legislation but rather by court judgments on the continent. This is at least true for the two legal systems that I will survey in this post, German and Austrian law. Moreover, the case law of these two countries diverges in some very important respects from the Law Commission’s proposal.

The Law Governing the Arbitration Agreement

Respect for Party Autonomy

I start with the law governing the arbitration agreement. German and Austrian courts unanimously rule that the law governing the arbitration agreement can be chosen by the parties (see e.g. German Federal Court, 12 May 2011, IX ZR 133/10; Austrian Supreme Court, 23 June 2015, 18 OCg 1/15v). For this, they rely on the conflicts rule contained in Article V(1)(a) New York Convention for the Recognition and Enforcement of Foreign Arbitral Awards (NYC), which they extend per analogiam to the situation before an arbitration award has been rendered. This position is buttressed by Article 6(2) European Convention on International Commercial Arbitration of 1961, which explicitly allows to choose the law applicable to the arbitration agreement.

Choice for Main Contract = Choice for Arbitration Clause?

More difficult is whether a choice in the main contract can be extended to the arbitration agreement, as the UK Supreme Court held, but the Law Commission denies. This issue is moot in German and Austrian literature. The whole debate is impregnated by an unhealthy dose of dogmatism. It basically revolves around the separability of the arbitration agreement from the main contract and its ‘true nature’ – whether it is procedural or substantive.

The Austrian Supreme Court has left this question open (decision of 23 June 2015, 18 OCg 1/15v). The German Supreme Court, however, has cut the Gordian knot and explicitly ruled that a choice in the main contract is to be presumed to also cover the arbitration clause contained therein – at least absent any indications to the contrary (see German Federal Court, 12 May 2011, IX ZR 133/10, discussed here). You can call this an ‘implied choice’, although this expression was not used by the German court; it would probably be more correct to speak of a ‘presumed choice’.

The Impact of the CISG

A notable particularity in comparison to English law is caused by the fact that both Germany and Austria are signatories of the Convention for the International Sale of Goods (CISG). Although this Convention is geared towards sales contracts, the German Federal Court has held that its provisions concerning the formation of the contract (Articles 14–24 CISG) also apply when determining the validity of an arbitration clause contained in the sales contract (German Federal Court, id.). As a result, the question whether standard terms and conditions of one party which contain such a clause have become part of the contract will be governed by the CISG if the contract falls within its scope. Even where the parties have explicitly excluded the CISG, it may be relevant when courts determine whether German law provides a more favourable rule in the sense of Article VII NYC (German Federal Court, id.). To understand this viewpoint, it is necessary to realise that in the eyes of German (and Austrian) courts, the CISG is part of their domestic law, merely providing a special regime for international sales contracts.

The Impact of the Arbitral Seat

In case no law has been chosen – neither for the arbitration agreement nor for the main contract – German and Austrian courts refer to the law of the place of the seat of arbitration to determine the validity of an arbitration agreement (see German Federal Court, id., para 52; Austrian Supreme Court 18 OCg 1/15v). For this, they rely again on Article V(1)(a) NYC per analogiam; with Article 6(2) European Convention on International Commercial Arbitration of 1961 being even more to the point. In this respect, both legal systems converge with the suggestions of the Law Commission.

The Fall-Back Rule

A difficult question is which law governs the arbitration agreement when the applicable law has not been chosen and the seat of the arbitration is yet to be determined. There is no case law in Austria or Germany on this issue yet.

Two solutions are discussed in literature. The first is to always apply the law of the forum of the state court that is facing the task to assess the validity of the arbitration clause, for instance when it is invoked as an exception to its jurisdiction. Yet, this lex forism has the evident downside of favouring diverging results and inviting forum shopping.

Therefore, the second solution is preferrable, which is to apply the law of the state with the closest connection to the arbitration agreement. This connection must be determined on the basis of all circumstances. Most authors understand this to be the law of the state that governs the merits of the case.

From an Austrian and German perspective, there is light and shadow in the Law Commission’s Proposals. The suggestion to lay down in statutory law the parties’ freedom to choose the law governing the arbitration agreement will be met with cheers. Equally, the role of the seat of the arbitral tribunal as a connecting factor in the absence of a choice is down the alley of German and Austrian law. In contrast, the decoupling of the law governing the main contract and that governing the arbitration agreement will raise some eyebrows, at least in Germany.

Verification of the Validity of the Arbitration Agreement by the Courts

But it is the exclusion of the review of the validity of the arbitration agreement by state courts that will be most frowned upon from Schleswig to the Danube. The Law Commission wants to exclude a de novo hearing when this issue has already been discussed and decided before by the arbitral tribunal (see the post by Ugljesa Grusic). The justification for this are efficiency and fairness.

Although German and Austrian courts are no less committed to these values, their position is entirely different. According to them, a party must always have the possibility to invoke a lack of consent to arbitration before a state court, regardless of whether this question was already debated before the arbitral tribunal or not. The famous concept of Kompetenz-Kompetenz developed by the German Federal Court does not imply otherwise. As the German Federal Court has said quite clearly:

“According to the mandatory provision of section 1041 (1) no. 1 ZPO [German Code of Civil Procedure before the reform of 1998, concerning the annulment of arbitral awards], the ordinary court has to examine the validity of the arbitration agreement without being bound by the decision of the arbitral tribunal. Since the arbitral tribunal, according to § 1025(1) ZPO [German Code of Civil Procedure before the reform of 1998, concerning the validity and effects of the arbitral agreement], obtains its jurisdiction solely through the arbitration agreement, it cannot itself make a binding decision on its legal existence. The so-called competence-competence, i.e. the power to make a binding decision on its jurisdiction for the state courts (or other authorities), is therefore not available to it.” (decision of 5 May 1977, III ZR 177/74)

This position, which is shared by Austrian courts (OGH, decision of 19 December 2018, 3 Ob 153/18y), is not merely the product of a particular legal thinking or culture. Instead, it seems to be required by the European Convention of Human Rights (ECHR). To bind a party to a decision of an arbitral tribunal to which it has not agreed would violate the right to a fair trial enshrined in Article 6 ECHR. In no case can efficiency prevail over this fundamental right. If the UK legislator retained the proposal by the Law Commission in this regard, it would create a permanent abyss between English law and that of other European states. This would certainly give rise to heated discussions and a possible recycling of the title of an old article: “What Sort of Kompetenz-Kompetenz has Crossed the Channel?”

— Many thanks to Paul Eichmüller for his assistance in researching the Austrian decisions.

The post below was written by George A Bermann, who is Walter Gellhorn Professor of Law and Jean Monnet Professor of European Union Law at Columbia Law School. It is the third 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, Sylvain Bollée, Matthias Lehmann and Giuditta Cordero-Moss.

Readers are encouraged to participate in the discussion by commenting on the posts. 

The relationship between the law (if any) chosen in the arbitration clause and the law of the seat is unsettled in the US.

It was taken up in the Restatement of the US Law of International Commercial and Investor-State Arbitration. The gist of the Restatement is that, while the law of the seat governs the conduct of the arbitration, it does not govern the interpretation of the arbitration agreement. Interpretation of the arbitration agreement should of course be governed by the law, if any, chosen in the arbitration clause itself. (I note that the court in Enka v. Chubb cited the Restatement in support.)

There was debate over whether, in the absence of a choice of applicable law in the arbitration clause, the arbitration agreement should be governed by the law, if any, chosen in the main contract. The view that ultimately prevailed is that more respect on matters of choice of law should be given to any expression of preference as to choice of law in the contract (even if not in the arbitration clause) over the law of the seat. That was a choice of seat, not a choice of law (other than the law of arbitration of the seat).

Unfortunately, the Restatement drew no distinction between issues of the interpretation and the validity of the arbitration agreement. More on that below.

The Restatement did not go much further, but the thinking behind it can be amplified and extrapolated. I attempt to do so below. I hasten to add that what follows happens also to be what I think the law should be.

It is this framework that I would use in assessing the differences between US law and the law advanced by the Law Commission.

As a general matter, I believe that Report in some cases fails to make an important distinction and in other cases, acknowledges the distinction, but makes the wrong choice.

I set out below what I consider to be these important distinctions:

1. Distinction between the purposes underlying a choice of law in the arbitration clause (absent which in the law of the main contract) and the purposes underlying a choice of law function of the arbitration law of the seat

When parties choose a seat, they are choosing a seat, full stop. We should not suppose they are choosing an applicable law of any kind other than the arbitration law of the seat (lex arbitri).

By contrast, when parties indicate an applicable law in their arbitration agreement they are making a choice of applicable law. But, absent an indication of an applicable law in the arbitration clause, where else did the parties express a choice of law preference? They expressed it in the choice of law clause in the main contract. There too they are making a choice of applicable law, and their choice of an applicable law should be respected.

2. Distinction between the law of the arbitration agreement and the law of the main contract

This result should be unaffected by the principle of separability. The principle of separability exists for one reason: to ensure that the demise of the main contract (as invalid) does not entail the demise of its arbitration clause. That is why we have the separability principle. It should not be extended to functions (such as choice of law) for which it was not intended.

3. Distinction between “arbitration law of the seat” and “law of the seat”

It is vital to distinguish between the arbitration law of a jurisdiction (lex arbitri) and the whole body of law at the seat, and we too often fail to do so by referring sloppily to “the law of the seat”. An arbitration statute should make clear what it is talking about when it refers to “the law of the seat.”

When the parties chose a seat they certainly chose the lex arbitri of the seat. But, notwithstanding, it seems to be assumed that when the law of the seat is referred to, it includes at least some parts of the law of the seat outside the lex arbitri. For example, if the formation or validity of an arbitration agreement is called into question, the law of the seat may include the law of contract of the seat. If contract law at the seat treats coerced contracts as invalid, then that would apply to a claim that the arbitration agreement was coerced.

4. Distinction between the issues of interpretation and issues of validity

As I mentioned, the Restatement fails to distinguish between issues of interpretation and validity, but it should have.

The law chosen in an arbitration agreement most fundamentally determines the interpretation of that agreement (such as its scope). There is absolutely no reason why the law of the seat should have anything to say about the meaning and scope of the arbitration agreement. If there is no choice of law in the arbitration agreement, then interpretation of the arbitration agreement should be governed by the law chosen in the main contract (on the reasoning set out above).

The question of the validity of the arbitration agreement is slightly more subtle.

Suppose the arbitration agreement is invalid under the law, if any, designated in the arbitration agreement, failing which the law governing the main contract, then it is invalid. It should not matter that it happens to be valid under the law of the seat.

On the other hand, conversely, if the arbitration agreement is invalid under the law of the seat, it is invalid, even if it would be valid under the law, if any, designated in the arbitration agreement, failing which the law governing the main contract. Why? Because the seat has a legitimate interest in the validity of the arbitration agreement giving rise to an arbitration on its territory.

More generally, one should not assume that if the law of the arbitration agreement is not the law of the seat, the seat’s policies risk being impaired. But that is not the case. Under no circumstance can the law of the arbitration agreement or the law of the main contract override the mandatory norms of the arbitration law of the seat (or the public policy of the seat).

The approach set out here is of course contrary to the so-called “validation principle,” and deliberately so. The impetus is a belief that the law chosen by the parties (even that in the main contract) deserves a measure of respect, as does the law of the seat. More delineation should be given to the matter than is generally given. I believe it is sometimes assumed that, unless you give as much weight as you possibly can to the law of the seat, you are not pro-arbitration, which is not the case.

5. Distinction between the mandatory and default law provisions of the lex arbitri

Focusing now on the lex arbitri, it contains both mandatory and default rules. Its mandatory law provisions (and principles of public policy at the seat more generally) must be respected. But its default rules can be contracted around by the parties.

How can parties contract around the arbitration law at the seat? Obviously parties can contract around default rules of the seat by a term of their arbitration agreement. But they should also be allowed to contract around the default rules of the seat via the law designated in the arbitration clause.

Whether they can contract around the default rules of the seat via the law governing the main contract will be more controversial, but, for the reasons set out above, they should be able to do so.

Thoughts on Specific Provisions of the Report and Recommendation

1. 12.17: I do not share the view that subjecting an arbitration agreement to the law of the main contract is a threat to the UK as a seat. It is no more a threat than application of a law chosen in the arbitration clause itself; yet the Report allows the latter to apply in lieu of the law of the seat (sec. 12.17).
2. 12.18, 12:47: The Report treats a choice of law clause in the main contract as only an “implied” choice of law for the arbitration agreement. Driving a wedge between the law designated in the arbitration agreement and the law designated in the main contract is an unwarranted extrapolation of the separability principle.
3. 12.19: I see nothing wrong with the law designated in either the arbitration clause or the main contract with displacing the non-mandatory law of the seat.
4. 12.22: the rule in Enka v. Chubb is not “too complex and unpredictable”.
5. 12.25: as may be expected, I, like those commenters referred to here, do not believe the placement of the choice of law clause in a contract should be determinative.
6. 12.35: This is just another assertion of separability where it doesn’t belong.
7. 12.40: This view is correct. When parties choose a seat, they do not think they are choosing anything more than the seat. Maybe they should be bound by the lex arbitri, but why by the law of the seat writ large?
8. 12.53: What is said here makes no sense. To have the law chosen in the main contract govern the arbitration agreement in no way compromises the parties’ decision to arbitrate. The parties will still arbitrate, won’t they?  The arbitration clause is 100% intact. What the Report is in effect doing is to convert the notion of “the decision to arbitrate” into the notion of “the decision to arbitrate under the law of the seat.” In other words, the remark already assumes what the Report wants to establish, namely necessarily subject the arbitration agreement to the law of the seat.  Moreover, if giving effect to a choice of law (other than the law of the seat) in the arbitration clause itself – which the Report clearly allows – does not undermine the decision to arbitrate, then giving effect instead to the applicable law clause in the main contract doesn’t undermine that decision either. Here, the Report is “question-begging.”
9. 12.66: I do not understand the Report’s aversion to using the law designated in the main contract in the rare situation that no seat was yet chosen.
10. 12.73: Here and elsewhere it is said that we can’t allow a choice of law in the main contract to override the parties’ intent to arbitrate. But it doesn’t override. We can easily give effect to the parties’ intent to arbitrate without subjecting the arbitration agreement in all respects to the law of the seat.

The post below was written by Alex Mills, who is Professor of Public and Private International Law at University College London. It is the first 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 Manuel Penades, George Bermann, Sylvain Bollée, Matthias Lehmann and Giuditta Cordero-Moss.

Readers are encouraged to participate in the discussion by commenting on the posts. 

The Law Commission of England and Wales has produced a deeply thoughtful and well-researched Report, which proposes a number of very welcome reforms to the Arbitration Act 1996. Regretfully, however, I have significant reservations about the proposal which is the subject of this Symposium – the adoption of a new choice of law rule for arbitration agreements. This proposal is based on the Second Consultation Paper produced by the Law Commission in March 2023, and this comment draws on my Submission which responded to that Consultation Paper.

The rules for identifying the law applicable to an arbitration agreement have long been the subject of debate. The issue was prominently addressed by the UK Supreme Court in Enka v Chubb [2020] UKSC 38, which acknowledged (at [3]) that it had “long divided courts and commentators, both in this country and internationally”. The decision in Enka v Chubb has, however, strikingly failed to end the division among commentators. I understand why the Law Commission considered it desirable to address this question, because of the importance of the issue and the policy considerations it presents, and because it has been suggested that there is a lack of clarity in the Supreme Court’s judgment in Enka v Chubb. This issue is complex and reasonable arguments can certainly be made on both sides, as indeed acknowledged in the impressive Report and Second Consultation Paper. I am, however, not convinced of the proposal set out in the Report, which is that “the Arbitration Act 1996 be amended to provide that the arbitration agreement is governed by the law of the seat, unless the parties expressly agree otherwise” [Report, 12.77]. In this post I set out what I understand to be the relevant principles, and explain how these broadly support the rule adopted by the Supreme Court in Enka v Chubb, which has also been followed in other common law jurisdictions (such as Singapore and Hong Kong).

A first and well-known key principle is that the law governing the arbitration agreement need not be the same as that governing the remainder of the contract, sometimes referred to as the ‘matrix contract’. This is because of the principle of separability, which allows for a distinct analysis of the arbitration clause’s applicable law.

A second key principle is party autonomy, which is the starting point for analysis of any contractual choice of law issue, and particularly important in arbitration because of its contractual foundations. An agreement as to the law which governs a contract or a clause of a contract must generally be given effect, absent considerations of public policy. Traditionally, a choice of law may be express or implied – if the latter, the search is for factors which demonstrate a real (but undocumented) choice, not a choice which is imputed to the parties as one which they ought to have made.

In the absence of a real choice, it is necessary to consider not the intentions of the parties but the objective factors linking the contract to a particular system of law. Arbitration clauses remain subject to the common law choice of law rule, under which the objective test is sometimes described as a search for the system of law with ‘the closest and most real connection’ to the contract or contractual clause. An arbitration clause will generally be most closely connected to the place where it is to be performed, which is the seat of the arbitration (see further Enka v Chubb, at [120] et seq).

In the law of arbitration, another principle is that of efficiency, but this principle is secondary to that of party autonomy. While the fact that efficiency is generally a goal for parties and for arbitration can assist in interpreting arbitration clauses (see eg Fiona Trust v Privalov [2007] UKHL 40), parties may choose to have their agreements resolved according to inefficient arbitral procedures should they so wish. The law should not interfere with their choices merely because they are thought unwise or undesirable.

Choice of Law Rule in Enka v Chubb

On the basis of these clear principles, the law applicable to an arbitration agreement should be governed by the following rule, comprised of three parts in hierarchical order. This is, in essence although not form, the rule set out by the Supreme Court in Enka v Chubb.

Subject to considerations of public policy, an arbitration agreement is governed by:

(i)         The law expressly chosen to govern it;

(ii)        The law implicitly chosen to govern it;

(iii)       The law with which it has its closest and most real connection, which will ordinarily be the law of the seat of the arbitration.

This rule is simple in appearance, although its application may be complex in particular circumstances, as explained further below. The analysis below does not consider the application of public policy, but it remains an important limitation.

Choice of Law Rule in the Report

The Report proposes to amend the Arbitration Act 1996, to insert the following choice of law rule:

(1) The law applicable to an arbitration agreement is—

(a) the law that the parties expressly agree applies to the arbitration agreement, or

(b) where no such agreement is made, the law of the seat of the arbitration in question.

(2) For the purposes of subsection (1), agreement between the parties that a particular law applies to an agreement of which the arbitration agreement forms a part does not, of itself, constitute express agreement that that law also applies to the arbitration agreement.

This rule differs from the previous rule in three respects. First, for an express choice to be made, it is necessary that the parties expressly agree that it applies to the arbitration agreement. Second, there is no possibility for an implied choice. Third, in default of a choice, the law of the seat is automatically applied, rather than being the ordinary outcome of the rule.

Analysis

Under existing law a choice of law for an arbitration agreement may arise in one of three ways.

First, the contract may contain a specific express choice of law agreement for the arbitration clause. In this case, the application of this law to the arbitration clause is self-evidently based on the principles of party autonomy and separability, and is not controversial. This position is maintained in the Law Commission’s proposal.

Second, there may be an implied choice of law for the arbitration agreement. This could arise, for example, where the parties have indicated an understanding that certain statutory provisions which are specific to a governing law will apply to the validity of the arbitration agreement. In this case, the application of the chosen law to the arbitration agreement once again follows straightforwardly as a matter of party autonomy and the principle of separability. One important question in this context is whether a choice of arbitral seat should give rise to an implied choice of law for the arbitration clause. This would certainly be a factor indicating a possible choice of the law of the seat, but it is not generally considered to be a decisive one on its own, as the inquiry is concerned with identifying a real choice made (but not documented) by the parties, and must be attentive to the terms of the contract and other relevant circumstances. This rule would thus in many cases lead to the same outcome as the proposed rule 1(b) in the Report, but would do so not because of a fixed rule of law but because of an implied agreement of the parties. This possibility is rejected in the Law Commission’s proposal.

Third, the matrix contract may contain an express or implied choice of law which should, unless the contrary is agreed, be interpreted to extend to the arbitration clause. This is understood to follow from party autonomy, in combination with the common sense presumption that if parties have made a choice of law for their entire contract, and have not specified a different applicable law for any particular clause of the contract, their choice extends to all of the terms of their contract – including any arbitration agreement (see eg Enka v Chubb, at [43]). This presumption is, however, rebuttable, if there are indications that the parties would not have wanted their choice to cover the arbitration agreement. It is important, however, to understand that this question is about the correct interpretation of the scope of a choice which has been made by the parties. (Here I depart slightly from the reasoning in Enka v Chubb, as I take the view that an express choice of law in the matrix contract which also applies to the arbitration clause is an express, not implied, choice of law for the arbitration clause – see also Report, at [12.34] et seq.) The issue is whether there is evidence which might rebut the common sense presumption. The rule proposed in the Report abolishes the presumption and indeed the possibility of a choice of law in the matrix contract extending to the arbitration agreement, unless it does so specifically and expressly.

There are two main justifications offered for the changes in the Report. The first is that they align with the principle of separability (Report, [12.72]). The analysis of the law applicable to the arbitration agreement is treated as an issue which is entirely unrelated to the contract of which it forms part. It is submitted, however, that this takes separability too far (see eg Enka v Chubb, at [41] and [232] et seq). Separability as a principle rightly ensures that the validity of an arbitration clause is analysed separately from the matrix contract, so that challenges to the validity of the matrix contract do not necessarily undermine the validity of the arbitration clause. This does not, however, require that the arbitration clause be treated as an entirely free-floating agreement, ignoring the context in which it was formed. Indeed, if a choice of law clause in the matrix contract is (as proposed in the Report) deemed to be irrelevant to the arbitration clause, this raises the question whether other clauses in the matrix contract are similarly irrelevant. What if the matrix contract contains an ‘entire agreement’ clause, or a ‘no oral modification’ clause? Are they also irrelevant to the arbitration clause? If not, why is the choice of law singled out, particularly as it may also have interpretive effect?

The second is that the rule proposed in the Report would be more desirable for various policy reasons. The rule would, for example, undoubtedly be clearer and easier to apply than the current position (Report, [12.74]). Applying the rule would also strongly favour the selection of English law to determine the validity of an arbitration agreement with the seat of arbitration in England, which the Report considers to be desirable on various grounds, such as the alignment of the law governing the arbitration agreement and the law governing the arbitration process, and the favourable approach of English law toward arbitration agreements (see Report, [12.16] et seq). It is submitted, however, that these justifications are also not persuasive, as they elevate efficiency and other similar policy considerations above party autonomy. In the absence of an express choice of law specific to the arbitration clause, the fixed rule in the Report in favour of the law of the seat no longer requires but rather excludes an inquiry into what the parties have actually agreed. Contrary to the analysis in the Report (eg, at [12.53], [12.73]), this is a significant constraint on party autonomy. Where parties have chosen a seat for their arbitration, but have (expressly or impliedly) chosen a different governing law for their arbitration clause, the fact that they have thereby chosen different laws for the law governing the arbitration process and the law governing the arbitration agreement may be considered undesirable, and it may be inefficient, but it is submitted that this is not a sufficient reason for the law to disrespect their choice, which is the very foundation of arbitration. The proposed rule also has the undesirable effect that the arbitration agreement and the matrix contract are more likely to be governed by different laws, which raises difficult questions concerning their consistent interpretation and validity (see, eg, Enka v Chubb, at [53] and [235] et seq). There is also a concern that arbitrators will be faced with a difficult choice between applying a law chosen by the parties (for example, through a matrix choice of law agreement, or through an implied choice), which they may consider themselves to be required to do as a matter of their contractual mandate, and applying the law that will be applied by the English courts if their award is challenged.

The Law Commission’s Report is overall an excellent example of law reform, offering carefully crafted and well-reasoned proposals for improvement. On this issue, it makes its case well, and there would undoubtedly be some benefits to the reforms which it proposes. Ultimately, however, I am not persuaded that they are consistent with the core principles that should be guiding the law. A simple and clear rule is often desirable, but in this case it is my view that the complexities of the existing rule simply reflect the complexities of arbitration, which cannot and should not be legislated away.

This post, written by Pascal de Vareilles Sommières, who is a Professor at the University of Paris 1 Panthéon-Sorbonne, is the seventh in a series concerning the proposed codification of French Private International Law. Previous posts relating to the French Draft Code addressed the issues of renvoi, foreign law, the recognition of marriages, companies and parentage. A German perspective on the draft was also offered here.

Article 15 is the first provision in the title II of the French Project of Code of Private International Law (the Code project), on “Jurisdiction of courts”. It reads as follows:

Unless provided otherwise in this code, jurisdiction of French courts results from the rules on venue in domestic procedural law, which are extended to international matter – subject to their adjustment as it may be required for that matter –, especially the rule on venue based on the domicile or on the habitual residence of the defendant.

Overview of Article 15

Under Article 15, legal bases for jurisdiction of French courts over cross-border disputes are basically to be found in the French rules on venue (place of the lawsuit) as they apply in domestic proceedings, except if a specific rule on jurisdiction has been codified and applies to the case. A striking feature of this rule is that it does not address the jurisdictional issue by itself, but by reference to other rules that were made for domestic litigation. It has been coined as a default rule – or a “principle” in the words of the Report to the Minister of Justice on the project of Code of Private International Law (the Report), recalling (p. 15) that it comes from a former ruling by the Cour de cassation (see the Report, p. 15 at footnote 5, referring to Cass. Civ. 19 October 1959 Pelassa, and Cass. Civ. 30 October 1962 Scheffel). As a default rule, the rule applies in any particular case with the proviso that the case is not covered by a specific rule on jurisdiction within the Code project. As such, it has the importance of a general principle: exceptions may exist, but they keep the status of exceptions, inspired by data specific to the category for which they are provided, and applying only to cases falling in that category.

One particular jurisdiction basis for French courts that draws on this rule is where the domicile or the habitual residence of the defendant is in France: Article 15 expressly mentions the extension of the corresponding venue rule (French Code of civil procedure, Article 42) to disputes arising in an international setting. Such a jurisdiction rule (well known in Latin: Actor sequitur forum rei), is classical in comparative private international law and consequently gained its status as a principle in EU jurisdiction rules in civil and commercial matters (Article 4 of the Brussels I bis Regulation). Needless to say, Actor sequitur… is not the only rule on venue in the French Code of civil procedure, and, under Article 15 of the Code project, others shall extend to international litigation before French courts – at least, each time they are not ruled out by a specific provision on jurisdiction that the Code project enacts.

In some cases, the Code project sets up straightforward specific rules on jurisdiction for international litigation before French courts, as in the field of personal status, where Article 34 provides for jurisdiction of French courts if the domicile or habitual residence of the person whose status is at stake is located in France at the time when the dispute is introduced before the court.

Rules on jurisdiction in the field of contractual and non-contractual obligations (Articles 88 and 91) are good examples of less straightforward jurisdiction rules laid down by the Code project. On the one hand, they draw on rules of venue applying to domestic litigation (French Code of civil procedure, Article 46) and, to that extent, they belong to these venue rules adjusted to international litigation mentioned by Article 15 (see the Report, p. 16). On the other hand, they appear within the Code project as specific legal rules (Article 88 §2; Article 91 §2), proper to international disputes. Under these provisions, in contractual matters, legal bases for jurisdiction of French courts are the place of delivery of the goods and the place of provision of the service; in extra-contractual matters, legal bases for jurisdiction of French courts are the place of the harmful event and the place where the damage is suffered. Of course, in both fields, French rules on jurisdiction apply subject to international convention or EU law (Article 88 §1; Article 91 §1); and we all know that EU law in civil and commercial matters does not rule out the rules on jurisdiction of Member State courts, if the defendant is domiciled in a country which is not a EU Member State (Article 6 of the Brussels I bis Regulation).

General Assessment of Article 15

Is the rule laid down by the Code project in Article 15 a satisfactory one? We must confess our frowning on reading it. The reason is that, in our opinion, the reference to rules on venue in domestic disputes, as default rules on jurisdiction issues in international litigation, made by Article 15 of the Code project, falls beside the point.

The mere fact for the Report to emphasize that the general rule provided by Article 15 belongs to those provisions, in the Code project, intending to consolidate advances previously gained (“acquis”), or to maintain traditional solutions in spite of scholarly criticism (p. 15), remains unsatisfactory to us.

A first reason for scepticism is that the extension of domestic rules on venue to international litigation, when it comes to determining legal bases of jurisdiction of a country’s courts, is enshrined in the Code project, even though this extension principle is said to fall under criticism of commentators: one expects a response to that criticism by the drafters of the Code project prior to have it set aside. A second reason is that it is awkward for the Code project drafters to set up, as a default rule or principle on jurisdiction of courts in international disputes, a mere reference to rules on venue  made for domestic disputes, especially when it is simultaneously admitted that “no one today denies the specificity” of the nature of international jurisdiction of a country’s courts and of the rules laid down to fix it, compared to domestic venue (see the Report, p. 15).

Everyone interested in EU law on jurisdiction in civil and commercial matters knows the huge amount of dissatisfaction left in practice by criteria like the place of performance of obligation, the place of delivery of goods, and the place of provision of service, as grounds for jurisdiction in the field of contracts. The same dissatisfaction stems from criteria like the place of the harmful event and the place of damages, used for the same purpose in the field of torts. Having them endorsed by French rules on international litigation just because they are used as venue grounds in domestic proceedings is at least questionable, as is questionable the assertion by the Report that “the extension principle [of domestic venue provisions] has the advantage that it provides for a connecting factor easy to implement each time one cannot find in the Code project a specific rule for the relevant matter” (p. 15). The sentence would be more correct saying “easy to find” rather than “easy to implement”. But the mere fact, for a criterium used by a provision addressing a given issue, to be easy to find does not make this criterium reasonable and reliable when drafting another provision on a different issue.

So, if the point is to avail of default rules proper to answer the question whether or not a particular case falls within the jurisdiction of French courts (so that they may handle the jurisdiction issue even though there is no jurisdiction rule specific to the matter to which that case belongs), it is suggested here that a good approach would have been to listen to scholarly criticism and to assess counterproposals. Unfortunately, space lacks – due to the format of this blog – to develop here on this issue. This quick overview will only express our disappointment that the only other idea mentioned in the Report (and actually used in the Code project), for assertion of jurisdiction by French court where no ground specific to the matter can be found, is about resorting to the “natural judge theory” (doctrine du juge naturel) and consequently sticking to the French citizenship as a default basis for jurisdiction of French courts (see Code project, art. 17, and the Report, p. 16 to 18).

A Few Suggestions

Beside the well-known usual criticism under which citizenship/nationality of one of the litigants falls as a ground of jurisdiction in civil and commercial matters, another remark finds its way here: why did the Report and the Code project give short shrift to other possible solutions?

Extension of Brussels I reg. recast (2012) rules on jurisdiction, especially where the defendant is not domiciled in a EU Member State, could have been explored: there are pros and cons.

How about the forum legis jurisdiction? Comparative private international law shows a tendency for this ground of jurisdiction, formerly unfashionable, to come back to the forefront. EU jurisdiction law shows that providing for jurisdiction of the courts of a given country over a case, where the law of that country is applicable to that case, may well prove satisfactory (Articles 5 to 7 of Regulation No 650/2012 in matters of succession). An article recently published depicted quite clearly the influence, before common law courts, of the idea that, for a court, applicability of the law in force in its forum is a relevant basis for the jurisdiction of that court (R. Garnett, “Determining the Appropriate Forum by the Applicable Law”, [ICLQ vol 71, July 2022 pp 589–626]). Even in France, voices make the case for a better relation between forum and jus in private international law (see, among others, S. Corneloup, « Les liens entre forum et ius : réflexions sur quelques tendances en droit international privé contemporain », in Mélanges B. Ancel, LGDJ/IPROLEX, 2018, p. 461-475). This tendency probably finds its rationale in this idea that where a country claims applicability of its law through its choice-of-law rule, the best way to increase efficiency of this claim is to support it by an additional claim, made by that country through its choice-of-court rules, that its courts have jurisdiction. This jurisdiction should certainly not be exclusive of jurisdiction of the courts of any other country (at least in principle), but making it available to the parties is good for them, in terms of predictability, and good for the country whose law claims to be applicable, in terms of authoritativeness of its law.

Whether this point is decisive is open to debate, but one may expect from a lawmaker that it addresses such an issue when codifying its private international law.

This post, written by Estelle Gallant, who is a Professor at the University of Toulouse Capitole, is the sixth in a series of posts concerning the proposed codification of French Private International Law. It is split into two parts: part one appears below, whereas part two will be published tomorrow. Previous posts relating to the French Draft Code addressed the issues of renvoi, foreign law, the recognition of marriages and companies. A German perspective on the draft was also offered here.

The French draft code of private international law devotes an entire sub-section to parentage, comprising five subdivisions (labelled ‘paragraphes’ in French). They distinguish various aspects of international parentage, which is certainly a good initiative: biological parentage, medically assisted parentage with a third-party donor, surrogate motherhood carried out abroad, the effects of parentage and adoption are thus covered by Articles 59 to 70 of the draft code.

Currently, the French Civil Code contains fragmented provisions on biological filiation (Articles 311-14 to 311-17), on the one hand, and adoption, on the other (Articles 370-3 to 370-5). Case law has supplemented these provisions.

The draft Code devotes a first subdivision to biological parentage, containing three articles articulated around a general rule (Article 59 of the draft Code) and two special rules (Articles 60 and 61 of the draft Code). These three provisions are presented by the drafters (see page 35 of the report on the draft code) as a recast of the existing system (see above, Articles 311-14 to 311-17 Civil Code). Indeed, analysis shows that the draft takes up the existing legal structure and system. Only the general rule is really recast, the two special rules being merely reworded and clarified at the margin.

This commentary will briefly present the general rule on biological parentage pursuant to Article 59 of the draft code; the special rules laid down in Articles 60 and 61 will be analysed in a later post. Within the general rule, the replacement of the national law of the mother by the national law of the child is the most positive contribution of the draft (see infra).

By stating that “unless the present Code provides otherwise, the establishment and contesting of parentage” are governed by the national law of the child, the rule in Article 59 is presented as a general  principle. It means that the rule applies in the absence of a special rule.

Scope of Article 59

Article 59(1) of the draft Code refers to “the establishment and contesting of parentage”, whereas the provision currently in force refers to “parentage”. The clarification is useful in that it improves the readability of the provisions.

The text contains an unprecedented clarification as regards the inclusion in the scope of the article of the settlement of conflicts of parentage (Article 59(2)). The solution is marked by a certain logic and has to be combined with the special rule in Article 60. This latter provision is specifically concerned with voluntary acknowledgements of children (ie declaration by a person that he is the parent (typically father) of the child) and will be analysed in a later post.

New Connecting Factor

The current Article 311-14 of the Civil Code, by designating the national law of the mother on the day of the child’s birth to govern his or her filiation, is now the subject of unanimous criticism, in particular for its unequal and unspecific nature. The draft thus seeks to respond to the criticism by designating the child’s national law, a proposal that had been made by scholars as early as 1972. That said, the solution will remain relatively isolated, since in comparative private international law it is the connection to the child’s habitual residence that is generally retained.

Like the current text, the draft provides a solution to the change of nationality (conflit mobile) by fixing the connection to the child’s nationality on the day of birth. The solution is to be approved.

Public Policy Clause

One of the strongest criticisms levelled at the connection to the mother’s nationality was that it had the defect of preventing the establishment of the paternal parentage when the mother was of a personal status prohibiting the establishment of paternal parentage out of marriage, even in the presence of a French defendant or a French child or a child residing in France. Although the public policy exception may have been used by case law to cancel this result, its systematic use in such cases is only recent (Civ. 1ère, 26 October 2011, no. 09-71.369 ; Civ. 1ère,  27 September 2017, no. 16-19.654 ; Civ. 1ère, 16 December 2020, no. 19-20.948).

It may be noted that the draft Code provides for precisely this hypothesis in Article 59(3):

If, by reason of discrimination related to the circumstances of his or her birth, the [applicable] law denies the child the right to establish his or her filiation, French law shall apply, provided that the French courts have jurisdiction under the present Code.

The rule can be analysed as a special public policy clause allowing French law to be substituted for the prohibitive foreign law, if the French courts are seised. The link required between the situation and the territory of the forum for the exception to be triggered is fulfilled if French courts have jurisdiction under French rules of international jurisdiction. Pursuant to Article 34 of the draft Code, the courts with jurisdiction in matters of filiation are those of the place of domicile or habitual residence of the child.

The alignment between the criterion of jurisdiction and the criterion of triggering public policy is interesting and will make it possible, more than in the past, to cover all situations that are likely to trigger the public policy exception, i.e in case of strong proximity to France (e.g. French child or child residing in France, but also, above all, French defendant or defendant residing in France).

This post was contributed by Thomas Mastrullo, who is an Associate Professor of Commercial Law at the University  of Luxembourg. It is the fifth in a series of posts on the French draft code of private international law of March 2022 (the previous posts in the series gave a German perspective and discussed the issues of renvoi, foreign law and the recognition of marriages celebrated abroad). 

Background

Title II of Book II of the French Draft Code of Private International Law is devoted to legal persons.

This Title II is divided into two chapters which deal with two major questions of international company law: the first chapter pertains to the recognition of companies (Art. 85), while the second chapter concerns the conflict-of-law rule in corporate matters, through the determination (Art. 86) and the scope (Art. 87) of lex societatis.

By the rules it proposes, the French Draft PIL Code undoubtedly promotes the modernization of French international company law.

Recognition of Companies (Article 85)

Article 85 of the French Draft PIL Code lays down the principle of recognition in France of the legal personality of companies formed in accordance with the law of a foreign State.

The proposed article 85 reads :

L’existence et les effets de la personnalité morale ou de la capacité juridique des sociétés dont le siège statutaire est situé hors du territoire français et qui ont été régulièrement immatriculées sur un registre public d’un État étranger sont reconnus de plein droit sous réserve de la fraude aux droits des tiers.

The Draft PIL Code thus adopts the liberal theory of incorporation with regard to the recognition of foreign companies: as soon as a company is validly incorporated in a foreign State, where by hypothesis it has fixed its statutory seat or registered office, it must be recognised in French territory.

Such a rule “codifies” the traditional position of French law on this subject. Indeed, since the 19th century, it has been accepted in French law that “la régularité de la constitution selon la loi de l’État d’immatriculation est suffisante pour que la société soit reconnue en France” (M. Menjucq, Droit international et européen des sociétés, LGDJ, “Précis Domat”, 6th ed., no. 58), as long as it is established that the company enjoys legal personality in its State of incorporation (See CA Paris, 30 Apr. 1997, BJS 1997, p. 778, note M. Menjucq). Moreover, the solution adopted by the Draft is in line with the jurisprudence of the CJEU, and in particular with Überseering judgment (see here) according to which:

the refusal by a host Member State to recognize the legal capacity of a company formed in accordance with the law of another Member State in which it has its registered office (…) constitutes a restriction on freedom of establishment” and, even worst, an “outright negation of the freedom of establishment.

Beyond these general remarks, three points on the text may be underlined.

Firstly, recognition relates to the “existence and effects” of legal personality. This expression refers to the French doctrinal position which defines recognition as “l’admission sur le territoire nationale de l’existence et des effets d’une personne juridique (physique ou morale) étrangère” (L. Lévy, La nationalité des sociétés, LGDJ, 1984, p. 51). This definition gives precedence to the fiction theory of legal personality, considering that, whatever personality a company enjoys abroad, it is not imposed on the State of recognition, which remains free to decide on its existence. We know that other authors, inspired by the reality theory, define recognition more strictly as “l’autorisation accordée par l’État à la société d’exercer une activité sur son sol” (P. Mayer et V. Heuzé, Droit international privé, LGDJ, « Précis Domat », 11th ed., no. 1106 et s.). The approach adopted by the Draft has the merit of grasping the whole issue of recognition in corporate matters: the recognition of the existence of a foreign company as a legal person logically implies the recognition of the effects resulting from this personality… And it is difficult to imagine that a foreign company whose existence is recognised in a State could be outright refused authorization to carry on its business there.

Secondly, the Draft PIL Code pertains to the recognition of the companies’ “legal personality” but also of the companies’ “legal capacity”. A simple legal capacity granted in the foreign State of incorporation is therefore sufficient to recognize a company’s legal personality in France. Indeed, the condition that the company must have legal personality in its State of incorporation in order to be recognized in France is interpreted broadly. Even if it does not have legal personality in its State of incorporation, a company which enjoys a capacity equivalent to that conferred on companies which have legal personality in France may be recognized as a legal person on French territory, as was decided in the case of a German Offene Handelsgesellschaft (see CA Versailles, 14 janv. 1999, BJS 1999, § 97, p. 466, note M. Menjucq).

Thirdly, the Draft PIL Code provides that recognition can be rejected in case of fraud against the right of third parties. This could be the hypothesis of a letter-box company without any effective connection to the State in which it has its statutory seat or registered office. This international company law’s classic limitation is to be welcomed, especially as it is compatible with EU law. Indeed, it follows in particular from the Inspire Art (see here) and Polbud (see here) CJEU’s judgements that fraud against the rights of third parties may constitute a limit on the companies’ freedom of establishment, provided that such fraud is assessed on a case-by-case basis and in a punitive manner (see Th. Mastrullo in Traité de droit du commerce international, M. Menjucq et J. Béguin (dir.), LexisNexis, 3rd ed., no 711). Obviously, the characterisation of fraud will always be based on an assessment of the facts of the case.

Determination of the lex societatis (Article 86)

The French Draft Code of Private International Law adopts the theory of incorporation and the criterion of the statutory seat or registered office as a connecting factor for determining the lex societatis.

The proposed Article 86 reads :

Les sociétés immatriculées au registre du commerce et des sociétés au titre de leur siège statutaire sont soumises aux dispositions de la loi française.

Les sociétés dont le siège statutaire est situé hors du territoire français sont soumises aux dispositions du droit des sociétés de l’État dans lequel elles sont immatriculées dans un registre public ou, à défaut d’immatriculation, de l’État où est situé le siège statutaire.

The first paragraph uses the unilateralist method, and states the French law’s will to be applicable to companies whose statutory seat or registered office is in France, while the second paragraph contains a bilateral conflict-of-laws rule according to which, when its statutory seat is not in France, the company is ruled by the law of the State where it is incorporated or has its statutory seat.

As the Legal High Committee for Financial Markets of Paris (“Haut Comité juridique de la Place Financière de Paris” – HCJP) which has published a report on the applicable law to companies  (Rapport sur le rattachement des sociétés – see here) on 31 March 2021, the French Draft PIL Code adopts a liberal approach of companies’ connecting factor.

Several arguments may be advanced in support of this proposition.

Firstly, the connecting factor relying the statutory seat or registered office is simpler and, as a consequence, more favorable to legal certainty. Indeed, on the one hand, it eliminates the touchy question of the place of the real seat and, on the other hand, it guarantees respect for the operators’ choice of the law to rule their company. Thus, this connecting factor might reinforce France’s attractiveness. Secondly, the solution is inspired by the comparative private international law which reveals a strong tendency towards the generalization of the incorporation theory or connecting criterion by the statutory seat or registered office. In Belgium, for instance, the connecting criterion by the real seat, which had prevailed since 1873, has been abandoned by the law of 23 March 2019 in favour of the connecting criterion by the statutory seat, the new Article 110 of the Belgian Code of Private International Law now providing that « La personne morale est régie par le droit de l’État où se situe son siège statutaire ». Thirdly, the solution is more suited to the development of EU law which, through the jurisprudence of the CJEU – and in particular the Centros (see here), Überseering (see here), Inspire Art (see here), and Polbud (see here) judgments – and some regulations – such as European Regulation n° 2157/2001 on SE (see here) or Directive (UE) 2019/2121 amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions (see here), tends to promote the statutory seat or registered office as a connecting factor.

It is regrettable that the proposed Article 86 does not provide for the limit of fraud against the rights of third parties, as it is expressly provided for in relation to recognition. One can think, however, that the limit of fraud could be implemented in order to apply the law of the real seat instead of the law of the statutory seat, either on the basis of Article 85, which rejects the recognition of legal personality’s “effects” in case of fraud against the right of third parties (lex societatis may be considered as one of these “effects”), or on the basis of common private international law, knowing that such a limit is envisaged by European case law (see already above).

Scope of the lex societatis (Article 87)

Article 87 of the French Draft Code of Private International Law is dedicated to the scope of application of the lex societatis. The inspiration of this text can be found in Swiss law. The aim is to increase the readability and, as a result, the attractiveness of French law. A list of elements falling within the scope of lex societatis is drawn, this list being non-exhaustive as suggested by the use of the French adverb “notamment” (which can be translated by “in particular”).The list of elements falling within the scope of the lex societatis is not surprising and, mostly, “codifies” the French doctrinal positions and case law’s solutions.For example, the assertion that the lex societatis determines the acquisition and loss of the status of shareholder takes up the solution of the famous Royal Dutch judgment of 17 October 1972 (see here), in the same way that the Africatours judgment of 1^st July 1997 admitted the application of the lex societatis with regard to the liability of managers towards third parties (see here).

In conclusion, the project seems relevant to meet the challenges created by the development of freedom of establishment in the European Union and to strengthen the competitiveness of French company law.

The author of this post is Christelle Chalas, who is an Associate Professor at the University of Lille. 

Background

The French law on the compliance with the Republican Principles (projet de loi confortant le respect des principes de la République) introduces a new paragraph in Article 913 of the French Civil Code aiming at re-establishing a right of ‘compensatory levy’ (droit de prélèvement compensatoire) on property situated in France for the benefit of children who would not benefit from a reserved share of inheritance.

Its scope is limited to cases where either the deceased or one of his or her children is a national of a Member State of the European Union or a person whose habitual residence is in such a State.

The new text reads:

Lorsque le défunt ou au moins l’un de ses enfants est, au moment du décès, ressortissant d’un État membre de l’Union européenne ou y réside habituellement et lorsque la loi étrangère applicable à la succession ne permet aucun mécanisme réservataire protecteur des enfants, chaque enfant ou ses héritiers ou ses ayants cause peuvent effectuer un prélèvement compensatoire sur les biens existants situés en France au jour du décès, de façon à être rétablis dans les droits réservataires que leur octroie la loi française, dans la limite de ceux-ci.

The law was eventually adopted by the National Assembly on 23 July 2021. The bill had been rejected twice by the Senate in April 2021 (see here) and then on 20 July 2021, but the National Assembly had voted twice in favour of its adoption (in February and July 2021, see here). Under the French legislative system, the Assembly’s deliberations ultimately prevail. The constitutionality of the bill was immediately challenged before the Constitutional Council (Conseil constitutionnel) (see below).

A compensatory levy was instituted in French inheritance law by the law of the 14 July 1819 but it was found to be unconstitutional by the Constitutional Council in 2011 (see here) on the ground that it disregarded the principle of equality by establishing an inequal treatment based on nationality between the heirs designated by the foreign inheritance law.

Although the new text avoids this obvious violation of the principle of equality by granting this right to all heirs whatever their nationality or residence, it raises several problems that threaten its validity.

These problems are interesting because they illustrate the small margin of freedom that national legislators still enjoy in particular with regard to European law. From a domestic perspective, issues of constitutionality also arose.

Is the New Provision Unconstitutional?

Regarding the conformity of Article 913 with the French Constitution, it is submitted that the main concern is the appropriateness of the “droit de prélèvement” with regard to the purpose of the law. It was said during the discussion in the Senate, and shown in French doctrine (Revue critique de DIP 2021, issue 2, announced here) that there is a high risk that the provision misses its target.

The purpose of Article 913 is to steer against the effects of an applicable foreign inheritance law that would discriminate between heirs according to their sex or religion. More specifically, the government did not hide that the provision aims at protecting female heirs from the inheritance laws of Muslim countries. But, since Article 913 does not limit its application to discriminatory foreign laws, but is concerned with foreign laws which “do not permit any reserved share mechanism”, the provision could reach situations that in no way threaten “Republican Principles” (here, equality) and, conversely, Article 913 could miss situations that do threaten these principles. Indeed, the laws of common law countries could be concerned as they do not provide for reserved shares, while, on the contrary, Article 913 could possibly not apply to Muslim laws since they might provide for a reserved share.

One can also be very critical about the weakness of the required connection with France: by rendering the mechanism available to all children heirs as long as only one of them, or the deceased, is a national of a Member State of the EU or is resident in one of theses states, it is very easy to imagine situations in which the protection of the French law will appear inappropriate, if not illegitimate. The real object of the law remains unclear and this raises concerns about the adequacy of the compensatory system set in place. This could be a reason for unconstitutionality.

Furthermore, if the only purpose of Article 913 is to fight against discriminatory foreign laws, the public policy exception should be efficient enough. The French Supreme Court for civil and criminal matters (Cour de cassation) could transpose its own jurisprudence on repudiation to the context of reserved share in inheritance law.

The other advantage of the public policy exception is that it allows a concrete and factual assessment of the result produced by the application of the foreign law.  For example, the family provisions of English law would be spared by the public policy exception while it is not sure that the new text would not receive application in this case.

Unfortunately, it does not seem that any of the parties who participated in the challenge of the constitutionality of the law raised any argument with respect to the new provision. On August, 13th, 2021, the Constitutional Council delivered its decision without addressing the issue.

A Risk of Euro-Incompatibility?

The conformity of Article 913 with the European Succession Regulation could also be questioned on several grounds.

Article 23 of the Regulation provides that “the law determined pursuant to Article 21 and Article 22 shall govern the succession as a whole. That law shall govern in particular, … the disposable part of the estate, the reserved shares and other restrictions on the disposal of property upon death as well as claims which persons close to the deceased may have against the estate or the heirs”. By putting in place a right of compensatory levy on property situated in France, Article 13 sets a new exemption on the applicable law designated by the Regulation.

The European Court of justice might not accept this type of circumvention of the applicable law, in particular when the deceased person has chosen its national law in accordance with Article 22. Recital 38 of the Preamble to the Regulation specifies that the choice of law is limited to the national law of the deceased precisely with the objective “to avoid a law being chosen with the intention of frustrating the legitimate expectations of persons entitled to a reserved share”. A limited and voluntary infringement to the reserved share is thus admitted by the Succession Regulation.

Article 913 would also possibly run against Recital 37 that states that the succession should be govern by a predictable law with which it is closely connected. Predictability and necessity of a close connection between the applicable law and the succession are clearly challenged by the French draft provision. Recital 37 also recommends that “for reasons of legal certainty and in order to avoid the frag­mentation of the succession, that law should govern the succession as a whole”. On the contrary, the compensatory levy instituted by French law results in the application of several inheritance laws.

The only solution would be to consider that the French compensatory levy right falls under the public policy exception set out in Article 35 of the Regulation. But neither here can there be certainty. As is well known, the Court of Justice supports a very restrictive application of the public policy exception, which is reinforced by the requirement in Article 35 that the application of a provision of the law specified by the Regulation should be “manifestly incompatible” with the public policy of the relevant State. Through its control, The European Court of Justice limits any misuse of the concept of public policy that would have the effect of impeding the effectiveness of European regulations.

In this respect, it seems that the nuanced jurisprudence of the French Supreme Court, which limits the exclusion of foreign law to cases where a child heir is in a situation of economic insecurity or need, is more in line with the requirement of Article 35.

The author of this post is Michiel Poesen, PhD candidate at KU Leuven.

This post tells a short story about the fate of European private international law’s neutrality paradigm… Our story starts where you probably would not expect it: the 2019 Belgian company law reform.

In 2019, the Belgian legislature reformed the Company Law Code in a bid to attract more investors to Belgium. (For the record, the previous government also launched the idea of offering businesses an interesting venue for transnational litigation–the Brussels International Business Court or BIBC, which did not make it through).

One of the reform’s key elements was to make company law leaner and more flexible. Facilitating this flexibilisation, the legislature also revised the Belgian private international law provisions pertaining to company law. In sympathy with the well-known CJEU case law on the freedom of establishment in the EU, the legislature traded the seat principle for the incorporation principle as the connecting factor for the law applicable to and adjudicatory jurisdiction over companies (Articles 109–110 Code of Private International Law; Article 111 contains a list of legal questions governed by the lex societatis).

Clearly, the incorporation principle gives up on the traditional idea that the connecting factor for companies should be based on a physical element such as the presence of a company’s place of administration (see R Michaels, ‘Globalizing Savigny? The State in Savigny’s Private International Law and the Challenge from Europeanization and Globalization’ in M Stolleis & W Streeck (eds), Aktuelle Fragen zu politischer und rechtlicher Steuerung im Kontext der Globalisierung (Nomos 2007) 142).

Interestingly, the statute provides for one carve-out concerning adjudicatory jurisdiction (I should thank Professor Joeri Vananroye and Professor Stijn De Dier for bringing it to my attention). Claims relating to the personal liability of directors towards third parties can be brought in the Belgian courts if the company has its ‘main establishment’ in Belgium and has a merely formal connection the state where it is incorporated:

… the Belgian courts have jurisdiction over actions concerning the liability of directors of corporations resulting from Article 2:56, §1, of the Corporations and Associations Code towards third parties other than the corporation that arose out of acts committed in the performance of their administrative function, provided that the main establishment of the legal person is in Belgium, while the legal person is incorporated outside if the European Union [or indeed an EFTA state that ratified the Lugano II Convention] and has a merely formal connection to that state [Translation by the author, the authentic text is available in Dutch and French in the Belgian state gazette].

The main establishment ‘is determined by taking into account primarily the place of administration, as well as the centre of its business and activities, and in subsidiary order the statutory seat’ (Article 4, §3 Code of Private International Law, available in English here – although not yet reflecting the 2018 overhaul). This, in fact, is a special tort jurisdiction rule that seeks to shield Belgian residents from companies who operate in Belgium but are incorporated outside of the EU (e.g. for fiscal or organisational purposes).

The Belgian legislature enacted this provision to strike a balance between a company’s freedom to choose the forum pursuant to the incorporation principle and the protection of general interests in Belgium, such as environmental protection or the fight against tax fraud (see here, at 144–145).

Private international lawyers will be interested to know that finding the physical ‘seat’ (Sitz in classical Savignyan terms) of the tortious relationship between a director and a third party, however, was not part of the legislature’s motives. This is quite interesting. For it demonstrates how the legislature sought to balance material interests through the law of conflict of jurisdictions (see Michaels, supra, 140–141).

Hence, the legislature was not enticed by European private international law’s traditional focus on finding the legal relationship’s geographical connection (which one American realist provocatively called ‘transcendental nonsense’ long before the Belgian company law reform; FS Cohen, ‘Transcendental Nonsense and the Functional Approach’ (1935) 35 Columbia Law Review 811).