Arbitration clause

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An arbitration clause is a contractual clause anticipating disputes that may arise during a contract execution and aiming to favour the recourse to an Alternative Dispute Resolution through the intervention of a third party. The arbitration clause enables to consider a friendly settlement before any further judicial proceeding or as a protective measure.

[edit] Contexts

  • In public international law, the arbitration clause is a clause of a treaty that foresees the recourse to arbitral or judicial settlement for disputes concerning the interpretation or application of the treaty.
  • During civil proceedings, an arbitration clause is a clause inserted within a contract, usually commercial, in which the parties commit themselves to resort to arbitration or a mediation process in case of disputes that may arise between them.
  • In labour law, the arbitration clause, to be valid, can not derogate the public order character of the recourse to labour relations boards. The clause can be written and must be executed by the parties before any further legal proceedings. This clause can therefore foresee the recourse to an arbitrator, mediator or conciliator.

[edit] Legality

In France, the official texts about arbitration clause, including mediation clause, specify that conventions which have been legally issued are equivalent to law for those who have made them. They can be revoked only by the mutual consent of the parties or for cases allowed by law. These clauses must be executed sincerely. (See section 1134 of the French Civil Code).

[edit] Debate

In 2006, arbitration clause was not widespread. The professionals of arbitration and mediation encourage companies to include such clauses within their contract. Mediators of the CPMN in France propose that this clause could be inserted in all contracts, even in funeral contracts in order to anticipate conflicts between heirs, marriage contracts...

In France, jurisprudence has extended the validity of such a clause by the possibility to transfer an arbitration clause within a heterogeneous chain of contracts (March 27, 2007). This case deserves to be more deeply observed.

A company 'A' has created and sold to a company 'B', under a contract that included an arbitration clause, an electronic component designed to be inserted in telephonic equipments produced by a company 'X', therefore directly interested by the production of the company 'A'. A chain of sub-purchasers between 'B' and 'X' started up. A dispute has arisen.

The arbitration clause, from the original contract between 'A' and 'B', has been applied to these sub-purchasers, as well as to the company 'X'. They have objected this decision, justifying themselves of their "reasonable" ignorance of this clause.

Their appeal has been rejected by the High Court which has pronounced that the successive contracts of sale of these components could be analyzed as "a chain of contracts, therefore the arbitration clause is transferred [...] without incidence of the homogeneous or heterogeneous nature of this chain."

This case deserves some more comments: the transfer of this clause possesses an automatic aspect because it can be considered as an accessory to the right of action (right to resort to judicial proceedings), while itself is an accessory of the substantive law (i.e. guarantees recourse against hidden defects).

This very coherent reasoning follows the constant jurisprudence of the French Highest Court of Appeals for the primacy of international arbitration. It may, of course, be transposed to other products than electronic components...

We may also wonder about the transposition of this reasoning on domestic arbitration. Everything lets think that the French Highest Court of Cassation would seize the first opportunity that would be offered to enable such a transposition. From that moment, the development of internal arbitration should be significant!

Today in France, arbitration is still restricted. Such decisions of this sort are likely to let the French companies understand that they can be compelled to arbitration while they could ignore it (and do not want it). The reasoning adopted by the Court clearly supports the development of arbitration clauses in domestic law. In this area, French companies are for example behind some of their Anglo-Saxon competitors.

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