The right of access to justice guaranteed by article 6 of the European Convention of Human Rights (ECHR) and arbitration are predetermined to have a difficult relationship. The ECHR secures everyone the right to have their civil claims brought before a court or a tribunal[i] and financial obstacles should not impact this right.[ii] On the contrary, arbitration is a form of private justice paid by the parties.[iii] Therefore, a lack of financial resources is likely to close access to the arbitrator. Nevertheless, their “marriage” was recently celebrated when, on 17 November 2011, the Paris Court of Appeal (Court) decided that “arbitral tribunals are not exempt from applying [the right of access to justice]”.[iv]
The Court was invited by a party to uphold, based on article 6 of the ECHR, the right of access to justice. The Court was faced with the following issue: shall an arbitral award, in which arbitrators followed the ICC court’s decision to withdraw counterclaims of an impecunious defendant because of the non-payment of the advance on costs, be annulled for violation of right of access to justice?
The facts of the case arose in 2001, when the Italian company Pirelli and Spanish company Licensing Project (LP) entered into a license agreement allowing LP to produce and sell shoes under several Pirelli’s brands. Later in 2007, a dispute arose in relation to the use of one of the brands. LP suspended payments of royalties, and Pirelli subsequently terminated the agreement. In 2007, a Barcelona court declared LP insolvent and in 2009, opened liquidation proceedings against it.
In 2007, Pirelli started arbitration under the International Chamber of Commerce Arbitration Rules (ICC Rules) in Paris in accordance with the arbitration clause in the agreement. Pirelli notably requested the acknowledgment of the regular termination of the agreement and the payment of outstanding royalties by LP. LP formed several counterclaims stating particularly that Pirelli should compensate it because Pirelli granted LP a license for a brand not in its possession and terminated the agreement unlawfully.
In 2009, Pirelli requested the ICC Court to fix separate advance on costs according to article 30.2 of the 1998 ICC Rules (article 36.3 of the 2012 ICC Rules). The ICC Court granted Pirelli’s request despite LP’s objection of lacking financial means. LP could not pay the advance on costs and as a result, the ICC court decided that the counterclaims were deemed to have been withdrawn pursuant to article 30.4 of the 1998 ICC Rules (article 36.6 of the 2012 ICC Rules). The ICC Court noted that in accordance with the ICC Rules, LP is not precluded to present its claims in future proceedings. In the final award rendered in Paris in October 2009, the arbitral tribunal admitted all of Pirelli’s claims and did not consider LP’s counterclaims.
LP initiated the proceedings to set aside the award. It argued that the arbitral proceeding, in which the arbitral tribunal did not hear its counterclaim because of its failure to pay the advance of costs even if LP was materially unable to make such a payment, violated its right of access to justice and principle of equal treatment both guaranteed by article 6 of the ECHR. The Paris Court of Appeal annulled the award on these two grounds.
The “marriage” between right of access to justice and arbitration is to some extent forced because the right of access to justice triumphs over party autonomy to submit dispute to arbitration governed by procedure agreed by the parties (I). Nevertheless, the Court’s decision in this author’s view does not provide an appropriate solution for cases when a party to arbitration is impecunious. Therefore, the tips for a “successful marriage” between right of access to justice and arbitration are needed and some alternative solutions will be explored (II).
I. Forced Marriage: Right of Access to Justice Triumphs over Party Autonomy
The relationship between right of access to justice and arbitration is not one of equals. The “marriage” is forced because right of access to justice can in certain circumstances, such as a presence of an impecunious party, override the parties’ choice of arbitration as a forum and of the ICC Rules as a procedure. In this case, the Court decides to give effect to right of access to justice and principle of equal treatment of parties and annuls the award.[v]
The Court reaffirmed right of access to justice. Nobody shall be deprived of the ability to have its claims decided by a judge. Any restrictions to this right must be proportionate to requirements of sound administration of justice.[vi] When applying the rule to this case, the Court found that the decision to hold LP’s counterclaims as withdrawn constituted an excessive measure in circumstances of this case. LP was in liquidation and was unable to pay the advance on costs, which deprived LP of the possibility of having its claims decided by a judge. The Court highlighted that for a company in liquidation proceedings the ability allowed to it by the ICC Rules to introduce its counterclaims in another arbitral proceeding was purely theoretical.[vii]
By this decision, the Court emphasized the jurisdictional nature of the arbitration[viii] by stating that arbitral tribunals are not exempt from applying the right of access to justice. The jurisdictional nature is reinforced to the detriment of its contractual nature in order to protect fundamental rights of a party faced with a lack of financial resources.[ix]
The regress of the contractual nature of arbitration is characterized in this case by a non-application of one of the provisions of the ICC Rules by the Court. And yet, a party autonomy is recognized to play a large role in choice of procedural rules in international arbitration.[x] When parties agreed on particular rules to govern the arbitration, this choice has a contractual nature and obliges parties as well as arbitrations.[xi] Therefore, the Court’s decision was received with criticism.[xii] According to one author, the judge cannot pick in the contract only the provisions, which he approves, as he does here in the ICC Rules transformed in consequence into a sieve.[xiii]
To avoid any confusion, the Court did not declare void the ICC Rules’ provision on advance on costs; it only refused to apply it after finding in concreto that its application leads to a disproportionate restriction of the right of access to justice.[xiv] To avoid the annulment, the arbitral tribunal should have disregarded the parties’ contractual choice of the ICC Rules in respect to the provision on advance on costs and assured the respect of the fundamental principles such as access to justice and principle of equal treatment of parties.[xv]
Even if in this case, the relationship between the right of access to justice and arbitration seems to be a “forced marriage,” it is important to note that in other circumstances it can well be seen as a “marriage of convenience.” The right of access to justice helped the constitution of arbitral tribunals[xvi] as well as the enforcement of an arbitral award.[xvii]
II. Tips for a Successful Marriage: How to Articulate Right of Access to Justice and Arbitration in Presence of an Impecunious Party?
The solution of the Court could be perceived as a balanced and optimal solution between two other alternatives: either give full effect to the parties’ autonomy by applying all the provisions of the ICC Rules, which would lead to the denial of justice for LP, or refuse completely to give effect to party’s autonomy, declare the arbitration agreement inapplicable, and allow LP accessing to state courts.[xviii]
In this author’s view, the Court’s solution is not satisfactory, first, given the nature of the arbitration as a private justice paid by the parties. The result of the Court’s decision would turn arbitration centers “into philanthropic institutions and arbitrators into workers animated by the ideal of gratuity.”[xix]
Secondly, leaving the control until the annulment stage is also not satisfactory because the annulment of the award – as in this case – results in two years of arbitral proceedings for nothing, another two years of state proceedings for annulment and resources wasted.[xx] In addition, Pirelli did not receive justice as well as LP, which was not able to present its counterclaims. These considerations invite a search for more satisfactory solutions in situations when a party to arbitration is impecunious in a business-to-business context.
It has been suggested that arbitration centers could create funds providing aid to impecunious parties to arbitration. [xxi] This proposal would avoid recourse to state courts and at the same time guarantee right of access to justice.[xxii] However, it would necessarily lead to an increase of arbitration costs. Institutional costs would encompass a premium financing this mutual fund. Solidarity hardly goes together with the nature of arbitration as a private justice paid by the parties. It also conflicts with a current pressure to reduce costs of arbitration. Furthermore, this solution does not provide any help in cases of ad hoc arbitrations.
In this author’s view, a feasible solution, which would guarantee right of access to justice in presence of impecunious to respondents as well as claimants, would consist in allowing parties to turn to competent state courts.
In the presence of an impecunious respondent, a claimant could have an option[xxiii] to start the litigation directly in a state court.[xxiv] A claimant would be sure to receive a judgment, and right of access to justice of an impecunious respondent would be protected.[xxv] It would avoid starting arbitral proceedings, which would lead to a deadlock when an impecunious party would assert counterclaims. In that situation an arbitral tribunal would, either need to hear them for free,[xxvi] or risk the annulment of the award because the right of access to justice was violated.
What would happen if a respondent would assert arbitral jurisdiction?[xxvii] The respondent would have the burden of proof to demonstrate that it has sufficient means to carry on the arbitration. In appropriate circumstances, a judge could ask for a security for costs, which would be, if necessary, used to pay the subsequent arbitral proceedings.
If a claimant is impecunious, he should bear a heavy burden of proof to convince a state court that his financial conditions do not allow him to start arbitration.[xxviii] The threshold for not giving effect to the arbitral agreement should remain high.[xxix]
The solution consisting in letting an impecunious claimant to start litigation directly in a state court notwithstanding an arbitral agreement was approved in 2000 by a German Federal Court of Justice[xxx] and disapproved in 1980 by the Court of Appeal of England and Wales.[xxxi]
In consequence of the present decision, the ICC could amend its rules as it did after Dutco case.[xxxii] But the ICC will surely wait until the final decision of the French Supreme Court on the matter.[xxxiii]
The French Supreme Court could vacate the present decision and give full effect to parties’ autonomy. However, considering that the ECHR is directly applicable to French courts, a court refusing to give effect to rights guaranteed by the ECHR would engage the state responsibility before the European Court of Human Rights.[xxxiv]
The French Supreme Court could also confirm the Court’s decision, which could eventually bring changes to the ICC Rules and practice as well as a possible future evolution towards a greater intervention of a French judge in cases involving an impecunious party to arbitration.
There exist worries that if the Court’s decision was confirmed, it could negatively impact the choice of Paris as an arbitral seat in international arbitrations.[xxxv] In this author’s view, such worries are overstated, notably because the cases involving an impecunious party to arbitration in business-to-business relations, such the present case, are rare.[xxxvi]
This author fully supports a strong pro-arbitration policy in a great majority of the cases. However, in a case such as the present one, arbitration as well as state courts from the member states to the ECHR cannot disregard the fundamental rights such as the right of access to justice enshrined in the ECHR. The Court’s decision confirmed this view. Nevertheless, the appeal to the French Supreme Court is to be highly followed.
This blog is a shorter version of a blog posted at NYU’s JILP online forum that can be found here: http://nyujilp.org/arbitration-and-right-of-access-to-justice-tips-for-a-successful-marriage/
Jaroslav Kudrna
The author is an LL.M. student in the International Business Regulation, Litigation and Arbitration program at New York University School of Law, Class of 2013. He is a Graduate Editor at the NYU Journal of International Law and Politics. Kudrna obtained his first degree in law in France at Sciences Po Paris. He completed cum laude a Master of European Economic Law at the University of Strasbourg and summa cum laude a Diploma of International Business Dispute Settlement at the University Paris XII.
[i] Golder v. United Kingdom, Eur. Ct. H.R. (ser. A) at §36 (1975). The right of access to justice is not absolute, id. §38. However, restrictions must not be excessive. See Aerts v. Belgium, 1998-V Eur. Ct. H.R., in Jean-François Renucci, Introduction to the European Convention on Human Rights: The rights guaranteed and the protection mechanism 69 (Council of Europe Publishing, 2005).
[ii] Airey v. Ireland, Eur. Ct. H.R. (ser. A) (1979) [obligation for states to establish legal aid systems]; Kreuz v. Poland, 2001-VI Eur. Ct. H.R. [violation of right of access to justice by excessive procedure costs]; Aït-Mouhoub v. France, 1998-VIII Eur. Ct. H.R. [violation of right of access to justice by excessive amount of security for costs], in Renucci, supra note 1.
[iii] Daniel Cohen, Non-paiement de la provision d’arbitrage, droit d’accès à la justice et égalité des parties : avancée ou menace pour l’arbitrage ?, 1 Paris J. of Int’l Arb. 159, II.A (2012).
[iv] Cour d’appel [CA] [regional court of appeal] Paris, 1e ch., Nov. 17, 2011, n° 09/24158.
[v] The grounds for annulment were article 1520 4° (violation of due process) et 5° (violation of international public policy) of the French Code of civil procedure.
[vi] The substance and limit of right of access to justice formulated by the Court echoed ECtHR’s case law.
[vii] The Court also reaffirmed the principle of equal treatment of parties. It would be violated when a defendant could only answer to the claims of an adverse party and would not be able to submit to the arbitral tribunal its counterclaims, sufficiently connected to principal claims, which could eventually result in defendant‘s release by offsetting mutual debts.
[viii] Cohen, supra note 3.
[ix] Maximin de Fontmichel, La force obligatoire du règlement d’arbitrage à l’épreuve des principes fondamentaux du procès, 142 Petites affiches 3, I. (2012).
[x] See for example article 1509 of French Code of Civil Procedure; Cohen, supra note 3.
[xi] Tribunal de grande instance [TGI] [ordinary court of original jurisdiction] Paris, ord. réf. [preliminary order], June 23, 1988, République de Guinée (3e esp.), note Philippe Fouchard (Fr.), Rev. arb. 657 (1988); Cour d’appel [CA] Paris, Sept. 15, 1998, Sté Cubic, note Pierre Lalive (Fr.), Rev. arb. 103 (1999) in Cohen, supra note 3.
[xii] Thomas Clay, Recueil Dalloz 3023, E.2 (2011); Cohen, supra note 3.
[xiii] Clay, supra note 12. For another recent case where the French court decides not to apply a specific provision of the ICC Rules see Cour d’appel [CA] [regional court of appeal] Reims, Nov. 2, 2011, Sté Tecnimont.
[xiv] It is worth noting that the Court’s methodology of analyzing the breach of right of access to justice seems identical to one followed by the ECtHR. Xavier Boucobza & Yves-Marie Serinet, Les principes du procès équitable dans l’arbitrage international, 1JDI 41, §20 (2012).
[xv] Boucobza & Serinet, supra note 14, at §27; Fontmichel, supra note 9.
[xvi] Cour de cassation [Cass.] [supreme court for judicial matters] civ. 1e ch., Feb. 1, 2005, Bull. civ. 2005, I, n° 53. The right of access to justice prevented the denial of justice and gave efficiency to the parties’ intent to submit their dispute to arbitration. Boucobza & Serinet, supra note 14, at §31. For another example see Cour d’appel [CA] [regional court of appeal] Paris, June 19, 1998, UNESCO v. Boulois, Rev. arb. 343 (1999).
[xvii] Regent compagny c/ Ukraine, Eur. Ct. H.R., April 3, 2008, n° 773/03 [Ukraine violated article 6 of the ECHR and engaged its responsibility by refusing to enforce an arbitral award]. The right of access to justice guaranteed in this case an effective enforcement of arbitral award. Jean-Baptiste Racine, Note – April 3, 2008, Eur. Ct. H.R. (5th Section), Rev.d’Arb. 802, 807 (2009).
[xviii] Fontmichel, supra note 9; Boucobza &,Serinet, supra note 14.
[xix] Cohen, supra note 3 [translation from French by the author].
[xx] The award condemned LP to pay 288.750$ for arbitration fees and 100.835€ for Pirelli’s legal costs.
[xxi] Fontmichel, supra note 9.
[xxii] Id.
[xxiii] A claimant would still keep his right to start arbitration but in that case he should bear the risk in accordance with the Court’s holding. If he does not pay the advance on costs also for the impecunious defendant’s counterclaims, there will be a risk that the award could be annulled.
[xxiv] Carine Dupeyron & Flore Poloni, Procédure de liquidation d’une partie, arbitrage et droit d’accès à la justice : l’impossible équation?, 30 ASA Bulletin 467, 477 (2012).
[xxv] Dupeyron & Poloni, supra note 24, at 477.
[xxvi] The situation would be different if claimant would decide to pay advance on costs on behalf of respondent. But the most of the time the claimant has no interest to do so, because the recovery of its own claim against an impecunious party is already uncertain. Dupeyron & Poloni, supra note 24, at 476.
[xxvii] Dupeyron & Poloni, supra note 24, at 477. A bad faith respondent could try to make a claimant bear either the costs of arbitral proceedings, or the risk of annulment of the award. Id.
[xxviii] A French trial judge has recently decided to disregard an arbitral agreement because of the violation of the right of access to justice in a case where he concluded that commencing the arbitration was materially impossible for a French company. Tribunal de commerce [TC] [trial court for commercial matters] Paris, May 17, 2011, R.G. 2011003447, unreported.
[xxix] “If the claimant’s evidence as to his lack of means is inadequate, then no doubt the court will be quick to draw the inference that he is simply trying to avoid the arbitral process.” Imran Benson, In search of justice, 162 N.L.J. (7519) 839 (2012). “The courts are well able to determine the financial means of a person, it is the sort of decision which judges reach every day in security for costs applications”. Id.
[xxx] The Federal Court of Justice declared an arbitration agreement incapable of being performed because the claimant was not able to afford the arbitration costs. The claimant had the only chance to introduce his claim before a state court, thanks to the legal aid for which he had qualified. Bundesgerichtshof [BGH] Sept. 14, 2000 (CLOUT case 404) in Albert Jan van den Berg, XXVII Y.B. Comm’l Arb. 265 (2002).
[xxxi] Haendler & Natermann GmbH v. Mr. Janos Paczy, Court of Appeal, Dec. 3, 1980, in Pieter Sanders, IX Y.B. Comm’l Arb. 447 (1984). This decision could, however, come differently today notably because of the promulgation of the Human Rights Act in 1998. Benson, supra note 29, at 839.
[xxxii] Cour de cassation [Cass.] [supreme court for judicial matters] civ. 1e ch., Jan. 7, 1992, n°89-18708. The ICC could for example let arbitral tribunals to hear counterclaims of an impecunious party and leave the arbitration costs to be decided in the award and possibly recovered at the enforcement stage. Boucobza &,Serinet, supra note 14, at §40.
[xxxiii] The appeal (pourvoi en cassation) against the commented decision was introduced on 8 December 2011. Dupeyron & Poloni, supra note 24, at note 27.
[xxxiv] R c/ Suisse, App. No. 10881/84, 51 Eur. Comm’n H.R. at 83 (1987); Christophe Seraglini, Cass., 1e ch. civ., Feb. 20, 2001, REV. CRIT. DIP 124, §9 (2002); Alexis Mourre, Le droit français de l’arbitrage international face à la Convention européenne des droits de l’homme, 337 GAZ. PAL. 16, §5 (2000).
[xxxv] Cohen, supra note 3, at II.B.
[xxxvi] Other main arbitral seats in Europe such as London, Geneva or Stockholm are all situated also in states parties to the ECHR. Therefore, if a case similar to the present one occurs in these countries, the solution in the light of the requirements of article 6 of the ECHR should be similar.