On 2 April 2019 the Paris Court of Appeal delivered its judgment in Schooner, in which it took a broad approach to waiver in the context of annulment proceedings (for further details please see "Paris Court of Appeal confirms expansive scope of Article 1466 of Code of Civil Procedure").(1) In Schooner, the court defined the scope of Article 1466 of the Code of Civil Procedure (CCP), which limits the bases for a party's annulment application on grounds of waiver.(2) It went on to determine that where a party sought to annul an arbitral award on jurisdictional grounds, Article 1466 of the CCP precluded it from raising arguments that it failed to raise during the course of the arbitration.
Following this reasoning, in Schooner, the Court of Appeal rejected the application to set aside the award on the grounds that the tribunal had wrongly declined its jurisdiction. This rejection was based on the fact that the applicants had raised jurisdictional arguments on annulment that were not part of their jurisdictional objections before the tribunal.
The applicants appealed the decision before the Court of Cassation, arguing that the Court of Appeal violated Articles 1466 and 1520(1) of the CCP(3) by preventing them from raising jurisdictional arguments in annulment proceedings.
On 2 December 2020 the Court of Cassation issued its decision, agreeing with the applicants and quashing the Court of Appeal's decision. The Court of Cassation held that:
Where jurisdiction has been disputed before the arbitral tribunal, parties to set-aside proceedings are not deprived of their right to rely on new pleas and arguments and to submit new evidence before the annulment judge.(4)
The case was remanded to the lower courts, which will now examine the new arguments invoked by the applicants to determine whether the arbitral tribunal properly declined jurisdiction over part of the investors' claims.
Although issued in its typically concise style, a number of conclusions may be drawn from the Court of Cassation's decision.
Implicit endorsement of finding that waiver applies to procedural and non-procedural irregularities
The Court of Appeal's decision in Schooner was noteworthy for its interpretation of the waiver provided by Article 1466 of the CCP (for further details please see "Paris Court of Appeal confirms expansive scope of Article 1466 of Code of Civil Procedure"). It determined that such waiver was not limited to cases where annulment was sought on the basis of procedural irregularities, but also extended to annulment sought on any of the grounds set out in Article 1520 of the CCP (except for public policy grounds). The non-procedural grounds for annulment provided by Article 1520 of the CCP therefore include challenges relating to the observance of due process and to the tribunal's jurisdiction, mandate or constitution.
In essence, the Court of Appeal held that where a party sought annulment on any of these grounds, it had to have first raised the relevant ground and related arguments before the tribunal.(5) In the context of Schooner, this meant that where the applicant had not challenged the arbitral tribunal's jurisdiction during the arbitration, it could not do so at the annulment stage.
On its turn in the Schooner saga, the Court of Cassation did not address this part of the Court of Appeal's ruling and may have implicitly confirmed the underlying approach in this respect.
Express rejection of extension of waiver to arguments not raised during arbitration
Where the Court of Cassation clearly differed from the lower court was in whether the waiver provided by Article 1466 of the CCP was limited to the categories of objection that could have been raised before the tribunal or also extended to the specific objections or arguments themselves.
With its decision to quash the first-instance court's ruling, the Court of Cassation expressly confirmed that the waiver related only to categories and not specific arguments. Accordingly, the Court of Cassation directed itself away from the exceptionally broad approach of waiver under Article 1466 of the CCP that may have followed from the Court of Appeal's decision. In so doing, it offered a party that was unsatisfied with an award a potential second bite at the jurisdictional objection cherry.
That said, the court imposed two seemingly sensible limits on its own reading of Article 1466 of the CCP.
First, the Court of Cassation's decision was rendered under Article 1520(1) of the CCP, which specifically pertains to jurisdictional challenges as a ground for annulment.(6) By specifically referring to this provision, the court seems to have restricted its dictum to the possibility of new jurisdictional arguments being raised before the annulment court.
Second, the decision suggests that a party can rely on new jurisdictional arguments before the annulment court only if it made jurisdictional objections before the arbitral tribunal.(7)
Unprecedented decision grounded in jurisprudence
This appears to be the first time that the Court of Cassation has explicitly held that Article 1466 of the CCP does not prevent parties from raising new jurisdictional arguments at the annulment stage; however, the court's underlying approach is not entirely unprecedented.
The reasoning of the Schooner decision is similar to that of the Court of Cassation in the Antrix decision(8) (for further details please see "Does Article 1466 of the Code of Civil Procedure include 'estoppel'?").
In Antrix, the Court of Cassation permitted a party to make new arguments at the enforcement stage relating to the arbitral tribunal's constitution and jurisdiction. However, unlike in Schooner, these arguments were not completely new as they:
- had been raised before the International Chamber of Commerce court prior to the arbitral tribunal's constitution; and
- were – according to the Court of Cassation – substantively and logically connected with an argument that had been raised before the tribunal itself.(9)
These facts distinguish Antrix from Schooner since, in the latter, the new jurisdiction-related arguments for annulment were completely unconnected with the jurisdictional challenges made during the arbitration itself. Accordingly, the scope for new arguments in annulment proceedings arising from Schooner seems much wider than what the Antrix court allowed in the enforcement context.
The Schooner decision may be more fundamentally rooted in the French courts' established standard of review regarding the jurisdictional findings of an arbitral tribunal.(10)
In this regard, the Court of Cassation previously held that "the annulment judge must assess the tribunal's finding regarding jurisdiction by examining all the factual and legal arguments that can be relevant with respect to the scope of the arbitration agreement",(11) thereby suggesting that when it comes to jurisdiction, the French courts can entertain arguments that were not necessarily discussed during arbitration. This reconciles with the emphasis on jurisdiction that follows from the limits that the Court of Cassation appeared to place on its own decision in Schooner, as highlighted above.
The importance of the French courts' latitude in reviewing decisions on a tribunal's jurisdiction was further confirmed by the recent Vidatel decision rendered by the Paris Court of Appeal.(12) In this January 2021 decision, the court followed the Court of Cassation's recent dictum by allowing a party to rely on new jurisdictional arguments during annulment proceedings.(13) In so doing, the court specifically stated that this approach was justified pursuant to the wide scope of the courts' control over the jurisdictional findings of arbitral tribunals.(14)
Despite following the Schooner dictum, the Court of Appeal was careful to exclude the possibility of it applying to arguments outside the realm of jurisdiction (ie, regarding the constitution of the arbitral tribunal). Thus, there is no clear jurisprudential ground for a party raising new arguments relating to other non-procedural irregularities (eg, the observance of due process or the proper constitution of the arbitral tribunal) for the first time at the set-aside stage.
Affirmation of French courts' role in supervising arbitrations seated in France
Thus far, French scholars have not welcomed the Schooner decision. It has been interpreted as setting a dangerous precedent for using set-aside proceedings as a full-scale appeal during which a party can exceed the scope of its initial dispute and raise arguments that should have first been heard by the arbitral tribunal.(15)
This sentiment was at the core of the first-instance court's decision. The Court of Appeal was driven by the need to prevent parties from tactically withholding arguments in order to raise them for the first time during the set-aside proceedings after obtaining an unfavourable award.(16)
While the effect of the Schooner decision on well-established arbitration principles such as competence-competence and the finality of arbitral awards remains to be seen, it highlights the ongoing tension between such principles and the French courts' role in supervising arbitrations seated in France. This role has been significantly strengthened in light of recent French case law but so far seems limited to arguments relating to jurisdiction and public policy.(17)
The Court of Cassation will likely be called on to decide whether its Schooner dictum should extend to other annulment grounds set out in Article 1520 of the CCP. Until then, the Vidatel decision suggests that the lower courts will be cautious in their approach.
For further information on this topic please contact Vasuda Sinha or Yosr Bouassida at Freshfields Bruckhaus Deringer by telephone (+33 1 44 56 44 56) or email ([email protected] or [email protected]). The Freshfields Bruckhaus Deringer LLP website can be accessed at www.freshfields.com.
(1) Paris Court of Appeal, 2 April 2019, 16/24358, Schooner.
(2) CCP, Article 1466: "[A] party that, knowingly and without a legitimate reason, fails to object to an irregularity before the arbitral tribunal in a timely manner shall be deemed to have waived its right to avail itself of such irregularity" (free translation).
(3) CCP, Article 1520: "[A] party may challenge the arbitral award only if: 1° the arbitral tribunal improperly exercised jurisdiction or refused to exercise jurisdiction" (free translation).
(4) Court of Cassation (1st Civil Chamber), 2 December 2020, 19-15395, para 6 (free translation).
(5) Paris Court of Appeal, 2 April 2019, 16/24358: "[Article 1466 of the CCP] does not only apply to procedural irregularities but also to the grounds to set aside an award, save for public policy grounds based on Article 1520(5) CCP" (free translation). See CCP, Article 1520:
[A] party may challenge the arbitral award only if: 1° the arbitral tribunal improperly exercised jurisdiction or refused to exercise jurisdiction; 2° the arbitral tribunal was improperly constituted; 3° the arbitral tribunal ruled without complying with the mandate conferred upon it; 4° the due process requirement was violated; or 5° recognition or enforcement of the award is contrary to international public policy (free translation).
(6) CCP, Article 1520: "[A] party may challenge the arbitral award only if: 1° the arbitral tribunal improperly exercised jurisdiction or refused to exercise jurisdiction" (free translation).
(7) Court of Cassation, 2 December 2020 (1st Civil Chamber), 19-15395, para 6: "Where jurisdiction has been disputed before the arbitral tribunal, parties to set-aside proceedings are not deprived of their right to rely on new arguments and to submit new evidence before the annulment judge" (free translation).
(8) Court of Cassation (1st Civil Chamber), 4 March 2020, 18-22019.
(9) According to the Court of Cassation, Antrix's pathological clause argument raised before the arbitral tribunal "necessarily implied an objection relating to the improper constitution of the ICC Tribunal", the latter being the new argument raised during the annulment proceedings.
(10) L Weiller, "Cantonnement de la portée de la règle de la renonciation à se prévaloir des irrégularités de la procédure arbitrale en matière de compétence", Procédures, Issue 2, comm 40, February 2021, p 5.
(11) Court of Cassation (1st Civil chamber), 6 October 2010, 08-20563 (free translation).
(12) Paris Court of Appeal, 26 January 2021, 19/10666, Vidatel.
(15) J Jourdan-Marques, "Chronique d'arbitrage: compétence et corruption – le recours en annulation à rude épreuve", Dalloz actualité, 24 December 2020.
(16) Paris Court of Appeal, 2 April 2019, 16/24358:
The rationale of [Article 1466 of the CCP] - which is to prevent a party from reserving arms for itself in the event of an unfavourable award - would not be achieved if, under the guise of a single annulment ground, the applicant were allowed to develop before the court an argument different in law and in fact from the one submitted to the arbitrators (free translation).
(17) As for public policy, see Paris Court of Appeal, 28 May 2019, 16/11182, Alstom, where corruption allegations were raised for the first time during the enforcement/annulment stage (compared with mere compliance concerns raised during the arbitration), hence calling for the French court's thorough assessment of arguments and evidence that were never discussed with the arbitral tribunal. See also Paris Court of Appeal, 17 November 2020, 18/02568, Sorelec, which held that "the [annulment] judge [may] assess the conformity of the arbitral award with public policy even where such issue has not been raised before the arbitrators" (free translation).