Luxembourg’s new arbitration law will increase flexibility

Luxembourg’s arbitration law

Despite a few occasional reforms, such as the Grand-Ducal regulation of 1981, Luxembourg’s arbitration law has grown outdated in recent years and no longer meets the expectations of the business world. A major reform to the legislation, Law of 19 April 2023 (link in French) which amends the new Code of Civil Procedure and comes into force today, modernises the arbitration process to boost its flexibility, speed and confidentiality while providing appropriate guarantees.

The reform comes as part of the Luxembourg government’s 2018-2023 legislative program, designed to strengthen dispute resolution procedure, particularly in international matters. The change forms part of a wider global movement in which many countries are modernising their arbitration law. The reform will also help to relieve national courts of the burden of certain specific disputes.

Reforms to Luxembourg’s arbitration law

The reform creates the new position of ‘supporting judge’ (“Juge d’appui”) whose main mission is to resolve deadlock situations and difficulties in the course of the arbitral proceedings. It guarantees the equality of the parties and respect for the principle of contradiction, respect for the adversarial principle and equality of arms, respect for Article 6 of the European Convention on Human Rights (ECHR). It also reinforces the confidentiality of the arbitration procedure, despite the Australian Supreme Court’s landmark 1995 judgment which rejected the principle.

According to the new law each party may, unless otherwise agreed, amend or supplement its claims during the arbitral proceedings. The arbitral tribunal can also impose a penalty on its decisions, including interim measures of protection and measures of inquiry. Although the deliberations of the arbitral tribunal will remain secret, the parties may, by a provision in the arbitration agreement or in the arbitration rules, authorise each of the arbitrators to append to the arbitral award a separate or dissenting opinion.

The reform means that arbitral awards must be accepted as correct as soon as they are made. Interpretation of the award and correction of material errors or omissions may be made incidentally by the state courts before which the award is invoked, since awards are judicial decisions in the same way as judgments of state courts.

If the award or agreement is not written in one of the administrative and judicial languages of French, German or Luxembourgish, the court may request a translation into one of these languages. In this case, the request for a translation is only a possibility for the court and not an obligation. This mechanism is applicable both to awards made in the Grand Duchy of Luxembourg and to awards made abroad.

An arbitral award given in the Grand Duchy of Luxembourg can be subject to third party proceedings. The possibility of third party intervention in ongoing arbitration proceedings is always subject to the agreement of the parties to the proceedings.

Luxembourg’s standing as an international dispute resolution centre

The reform is based on three main principles:

• To build on French law and the UNCITRAL Model Law on International Commercial Arbitration to collect the most appropriate rules in each text;
• To create a liberal regime to facilitate recourse to arbitration, while excluding certain types of disputes for the sake of protection;
• To reject the distinction between domestic and international arbitration, even though it exists in French law.

However, the international arbitration regime under French law has predominantly served as the reference model.

Luxembourg enjoys certain advantages which should naturally contribute to the development of arbitration in the jurisdiction. Multiculturalism and multilingualism increase the ability of local players to understand the content of cases with international ramifications from a sociological point of view. This is complemented by the work of Luxembourg lawyers, who are used to confronting foreign laws and adopting a comparative method in the application of the law.

The geographical situation, political continuity and stability of the normative environment may also influence the choice of the parties in favour of Luxembourg as the place of their arbitration. The regime is imbued with more flexibility but still offers reinforced legal security given the role of the supporting judge, who, unless otherwise stated, will be the President of the District Court of Luxembourg.

In the presence of a significant link – such as the place of performance of the disputed contract or domicile of the defendant – between the dispute and the Grand Duchy of Luxembourg, the Luxembourg judge will have jurisdiction as a result of their position. The supporting judge, on the basis of a subsidiary jurisdiction, will always have jurisdiction if one of the parties is exposed to a risk of denial of justice.

An essential aspect of the reform and of the choice for investors to resort or to plan to resort to arbitration, the duration of the arbitral tribunal's mission is of minimum six months, in the absence of a special agreement between the parties. A duration of six months would be impossible for a national court, especially for high-stakes cases and taking into account the remedies.

The types of disputes heard in Luxembourg

According to the text, only ‘available’ rights – those that a person can waive – fall within the scope of arbitration: everyone can compromise on rights that they have at their disposal freely. Unavailable rights are excluded from the scope of the reform, in particular those relating to the status and capacity of persons, the representation of incapable persons, the causes of these same incapable persons and those of absent or presumed absent persons. The examples given in the reform are not exhaustive.

With regard to the rights available, all contractual and non-contractual matters fall within the scope of this reform, with the exception of business-to-consumer disputes, disputes between employers and employees, and residential lease disputes.

The arbitral tribunal applies the rules of public policy. The opening of collective proceedings does not prevent the application of an arbitration agreement for a dispute determined before or after the opening of the proceedings. Disputes arising from the collective proceedings cannot be subject to arbitration. There are no formal requirements for the arbitration agreement, and no requirement of writing, which greatly increases the flexibility of Luxembourg’s arbitration system. This is without prejudice to the usefulness of writing to prove the existence of the arbitration agreement and, where appropriate, evidentiary rules requiring writing. It can be concluded in the form of arbitration clause or compromise.

It is possible to resort to arbitration at any time, even in the course of proceedings already underway before a state court. Where it appears that an arbitral tribunal cannot grant the relief sought, the existence of an arbitration agreement does not prevent a party from applying to a state court for a measure of inquiry or an interim or protective measure. Such an application does not imply a waiver of the arbitration agreement. The state court may take interim measures of protection when the arbitral tribunal has not yet been constituted or, when constituted, it cannot order the measures requested by a party.

Co-written by Matthieu Werthenschlag of Pinsent Masons.