The challenges of waiving a ground for annulment in French courts

To favour the efficiency of arbitration, under French arbitration law, parties cannot refrain from raising arguments before an arbitral tribunal and reserve them for annulment or enforcement proceedings before domestic courts once the award is issued.

This is designed to avoid parties’ disruptive behaviours either by delaying resolution of the dispute or simply by waiting to see how the arbitrators decide before raising the issue.

This rule is enshrined under article 1466 CPC, which provides that: “A party which 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.”

Article 1466 CPC must be broadly construed as a manifestation of the parties’ duty of procedural loyalty and coherence, which prompts every player of the arbitration process to ensure that arbitration leads to an efficient resolution of the dispute, without ambushes of any kind.

However, the exact scope of the waiver rule contained in article 1466 CCP continues to be tested in French courts. There have been three recent decisions on this point which respectively:

• confirmed the most controversial application of this waiver rule when it comes to claims of impartiality for failure to disclose public circumstances creating potential conflicts of interest;
• confirmed the well-known exception to this waiver rule when it comes to rule of international public order, such as corruption or money laundering; and
• ruled for the first time that a radical shift of position as to the jurisdiction of the tribunal was inadmissible because of article 1466 CPC when it had previously consistently held that a simple denial of the tribunal’s jurisdiction during the arbitration was sufficient to later raise new jurisdictional arguments at the annulment or enforcement stage, despite the strict waiver rule.

Disclosing public interest

The first decision deals with one of the most discussed application of 1466 CPC: when it comes to claims of annulment on the ground that a member of a tribunal was not impartial or independent, a party cannot invoke circumstances that the arbitrator failed to disclose, but that were publicly known and available to it.

This was apparent in a recent case involving an Egyptian steel company which lodged an appeal to the Cour de Cassation against a 2023 Paris Court of Appeal decision that dismissed its application to set aside an arbitral award in a contractual dispute. The company argued that the court had breached articles 1466 and also 1520(2) CPC, by failing to rule that the tribunal had been irregularly constituted because its chair had failed to disclose corruption investigations launched against him in an unrelated arbitral matter.

However, the Court of Appeal declared this inadmissible, finding that the company could not have been unaware of the information concerning the arbitrator prior to the award and the corruption investigation was a matter of public knowledge. It subsequently ruled that the company waived the right to invoke corruption allegations against the tribunal chair at the set-aside stage.

The court’s findings underscore that while the duty to disclose lies with the arbitrator, parties are also obliged to investigate, including finding circumstances that are publicly available, at risk of being deemed to have waived the right to invoke those circumstances as a ground for annulment.

Exceptions

The two other decisions deal with exceptions to this waiver rule under French law.

On the one hand, parties remain at liberty to invoke for the first time at the annulment or enforcement stage breaches of international public order as a ground for annulment. The reason is that the interests protected by these rules are deemed to be that of society as a whole and cannot depend on the behaviour of the parties.

Accordingly, if there is no argument lodged before the tribunal against a breach of international public policy on, for example, corruption or money laundering grounds, it may still be possible to put forward this argument for the first time before domestic courts in the context of annulment and enforcement proceedings.

However, it is important to specify clearly what the breach is and explain how the enforcement is likely to undermine the fight against corruption, money laundering and the financing of terrorism by allowing a party to benefit from the proceeds of activities of that nature. A mere invocation of the rule is not sufficient.

As another recent case in the Court of Appeal exemplified, a mere breach of a regulatory framework not directly related to the enforcement of the award is not sufficient to convince a court that the enforcement of an award hinders the fight against money laundering or terrorist financing.

On the other hand, the waiver rule is less stringent when it comes to arguing that an award should be set aside based on a wrong jurisdictional finding.

Until recently, it was considered to be normally sufficient to raise a claim against the tribunal’s jurisdiction before the tribunal to be able to later raise new jurisdictional arguments at the annulment or enforcement stage.

However, the Court of Appeal recently rejected an application to annul an International Chamber of Commerce (ICC) award in a railway dispute between Italian contractors – including Astaris and WeBuild – and Venezuela.

In this case, often referred to as Astaris, the court found that investors had raised new arguments on jurisdiction before the courts that had not been previously submitted to the arbitrators, marking a radical shift in the argument being presented to the court. It held that the applicants’ change of argument was prohibited under article 1466’s waiver rule and found the argument inadmissible.

As this dispute heads to the Supreme Court, this case stands to be a material test for the limitations of the waiver rule and we await with interest its decision on this issue.