Decisions on the arbitrability of competition law matters and the enforcement of arbitration awards dealing with EC competition law are rare. French case-law on this subject is mostly based on decisions of the Paris Court of Appeal (Cour d’Appel de Paris). Now, for the first time, the case of SNF v. Cytec1, has given the French Supreme Court (Cour de Cassation) a unique opportunity to confirm the strong pro-arbitration policy of the French courts, even when it comes to EC competition law matters.
2. Clarification on enforcement: the SNF v. Cytec case
In this case, a Dutch Chemicals supplier (Cytec) began arbitration against a French company, SNF, which produces polymers for water treatment plants, claiming the breach of a long-term agreement for the supply of the chemical acrylamide. The arbitration was held in Brussels. SNF sought the annulment of the supply agreement on the grounds of an alleged incompatibility with Art. 81 and 82 of the EC Treaty, for abuse of a dominant market position. The arbitral tribunal considered SNF’s submissions on EC Law, but declined to annul the agreement.
Cytec sought to enforce the award in Paris and SNF challenged the enforcement on the grounds that the award was contrary to international public policy due to a breach of EC competition law. The challenge first went to the Paris Court of Appeal, comprising the same three judges as for the Thales v. Euromissile case2. The 2004 Thales case was the first in which the French courts considered a challenge to an international arbitration award on the grounds that a breach of EC competition law rendered it unenforceable on public policy grounds. In that case the Cour d’Appel held that while EC competition law did form part of French international public policy, a violation must be flagrant, effective and concrete in order to justify setting aside an arbitral award. In Thales the court found that there was no such violation.
In the SNF v. Cytec case the Cour d’Appel ruled that on an application to annul an award on public policy grounds, the court’s review “could only be extrinsic since only the recognition or the enforcement [of the award] is examined with respect to compatibility with international public policy”3, thereby confirming the principles set forth in its previous decision. Subsequently, the Cour de Cassation held much more clearly:
“Concerning the violation of international public policy, only the recognition or the enforcement of the arbitral award has to be examined by the judge [hearing the application to set the award aside] with respect to its compatibility with public policy, with control being limited to the flagrant, effective and concrete character of the alleged violation”.
The Cour de Cassation concluded that, having exercised its control “within the limits of its power of control, that is without an examination of the substance of the arbitral award”4, that the recognition and enforcement of the award was appropriate.
Thus, the French Supreme Court confirmed that while the EC competition laws do form part of French international public policy, the review of arbitral awards in annulment or challenge proceedings is strictly limited. In other words, the Court will decline to review the effect of the contract and will only set aside the award if the award contains a flagrant, effective and concrete violation of EC competition law.
This decision is therefore more favourable to enforcement of awards than the Eco Swiss judgment of the European Court of Justice (ECJ)5 in which the ECJ allowed for limited review of awards and found that the domestic court must annul an award which is contrary to EC competition law, where domestic rules require it to grant an annulment on the basis of breach of public policy.
3. What does this mean for your business?
Transactions that are most likely to be affected by EC competition law issues include distribution contracts, franchise agreements, intellectual property and trademark agreements, joint venture agreements, merger agreements, agency agreements and any other agreement between competitors having an impact on European Markets.
The decision of the Cour de Cassation affirms the French courts’ “longstanding policy not to review the merits of an arbitrator’s decision”6, given the position of Paris as one of the major centres of international arbitration.
This “minimalist” approach to the control of arbitral awards concerning public policy matters, as now confirmed by the French Supreme Court, enhances the attractiveness of international arbitration as an effective dispute resolution mechanism for international contracts.