What's New in European Arbitration?

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Recent Decisions by National Courts

France. The Cour de Cassation, France's Supreme Court, recently confirmed and refined the scope of the Kompetenz-Kompetenz of arbitrators in France Although the ruling was given in the context of a domestic dispute, it applies equally to international disputes. (Prodim v. X., No. G 07-13.927 Dec. 12, 2007.)

The case arose from a claim brought in a commercial court by the liquidator of a franchisee, seeing to annul or rescind the franchise agreement. The franchisor relied on the arbitration clause in the franchise agreement to challenge the court's jurisdiction and requested that the dispute be referred to arbitration. He based his objection on Article 1458 of the French Code of Civil Procedure (CCP), which requires a court to decline jurisdiction if the dispute has not yet been submitted to arbitration, except when the arbitration agreement is manifestly null or-as this exception has been interpreted previously by the Supreme Court-"manifestly inapplicable."

The commercial court refused to decline jurisdiction in favor of arbitration after finding that the dispute turned on the validity of the franchise agreement while the arbitration clause applied only to disputes relating to the interpretation and performance of the contract, not its validity. The Court of Appeal upheld that decision.

The Supreme Court quashed the appeals court decision, ruling that there was no finding that the arbitration clause was either manifestly void or manifestly inapplicable. The Supreme Court also found that the mere finding by the commercial court that the arbitration clause was limited to disputes concerning the interpretation and performance of the franchise agreement was insufficient to set aside the rule that the arbitrator is the first judge of his jurisdiction, as provided for in Article 1458.

The decision gives no direction to help arbitrators decide on the applicability of the arbitration clause. Instead, the ruling focuses mainly on the courts' obligation to decline jurisdiction (rather than on the exception to that obligation (which is already minimal, as it applies only if the arbitral tribunal is not yet constituted).

This ruling reinforces the effectiveness of arbitration agreements under French law. Under the interpretation given by the Supreme Court, as soon as there is a chance that the arbitration clause is applicable, courts should defer to arbitrators. In addition, the arbitration clause gives arbitrators not only a monopoly to rule on the dispute, but also an almost absolute monopoly to rule on their jurisdiction.

England. The English Technology and Construction Court of the English High Court of England and Wales (EWHC) recently ruled that specifying English law as the law governing an arbitration agreement can make England the legal seat of an arbitration even where the parties agreed that the seat would be in a different jurisdiction. (Braes of Doune Wind Farm (Scotland) Ltd. v. Alfred McAlpine Business Services Ltd. [2008] EWHC 426 (TCC)).

Braes of Doune Wind Farm and McAlpine Business Services entered into a contract for the construction of wind turbine generators near Stirling in Scotland. Their arbitration agreement stated that "the agreement is subject to English Law and the seat of the arbitration shall be Glasgow, Scotland." A dispute arose over the enforceability of a liquidated damages provision in the event of project delays. The parties submitted this dispute to arbitration in Scotland. The arbitrator issued an award in favor of McAlpine.

Braes of Doune applied to the EWHC under § 69 of the Arbitration Act 1996 for leave to appeal the award, relying on the fact that the contract stated that the arbitration agreement is subject to English law. It argued that the designation of English procedural law put the seat of arbitration in England.

McAlpine responded by seeking a declaration from the English court that the lex arbitri was Scottish law, not English law, as the arbitration was sited in Scotland. …