Gabriel Garcia Suarez*
The distinction between internal and international arbitration is a familiar concept to most legal systems. It is logical for states to establish an international arbitration system that is more flexible and welcoming towards foreigners rather than submitting parties seeking private justice to unfamiliar and often more restrictive laws applicable to local arbitration. The access to international arbitration is, however, contingent upon the fulfilment of certain conditions which are in turn defined freely by each state. In the majority of countries these conditions assume the form of legal criteria such as residence, nationality, company registry, etc. which determine if the concerned parties fall upon the international regime. Although the merits of this effective and systematic approach to the classification of cases are clearly established, the benefits of the alternative, namely the economic criteria, are often explored under the lens of criticism. Nevertheless, its use under the French international arbitration system has contributed in part to the country’s global success as a seat of arbitration.
A core principle in French arbitration is the choice of an economic criterion as a means to determine the international nature of arbitration. This principle finds its origins in the early XXth century (du Besset v. The Algiers Land and Warehouse Company Ltd.)[1]. In accordance to article 1504 of the French civil code, international arbitration is defined as being directly concerned by international commerce, or simply put a transboundary economic flux between parties. In other words, the nature of the arbitration is not necessarily dependent on the intrinsic qualities of the parties but rather on the scope of their interaction.
Although the principle itself would not be integrated into positive law until the 2011 reform on arbitration, its pertinence has never been the object of serious contestation. Despite being subject to criticism in several legal systems because of its broadness and lack of specificity, the merits of the economic criterion are perhaps best highlighted by the French legal system. In fact, its long-lived prevalence is indicative of the particularly liberal vision upon which French international arbitration was founded. A closer examination of the French system not only illustrates the logic within this choice, but it is also revealing of a competitive, universally accessible system of arbitration.
One of the advantages that the economic criterion presents is a broader, more global appreciation of business operations in the context of arbitration. For instance, when confronted by a chain of contracts, French arbitration law appreciates the ensemble of operations in order to evaluate if a cross-border economic exchange effectively takes place. While the legal criterion might exclude internationality if both parties find themselves residing in the same location or on the basis of a subsidiary company being registered in the same country, the economic criterion benefits of a larger scope that disregards factors such as residence or nationality in favour of a simple international economic exchange. In this sense the economic criterion, at least as applied in the French system, seems to favour the access to arbitration whilst limiting the possibility for parties to build an argument based on misclassification. This pragmatic approach places a particular significance on the will of parties in the sense that once having agreed to submit a case to arbitration, they are tightly bound to this agreement. As confirmed by French case law, the classification of a conflict is not bound by the nomenclature used by the parties, in fact the Cour d’Appel or Court of Appeal must always reevaluate the classification of a case when presented with a demand[2].
The French international arbitration system holds an important relationship with the lex mercatoria. The former is seen by national doctrine as the natural form of dispute resolution to conflicts in international commerce. Furthermore, it consecrates a series of notoriously liberal rules such as the validity of non-written arbitration clauses and even the assignation of the lex mercatoria itself as the governing law for a given dispute.French case law has even gone so far as to designate any arbitral award as independent from national jurisdictions and autonomous in their existence as stated in the famous case Putrabali v. Rena Holdings[3]. It is under this logic that the choice of an economic criterion becomes not only logical but essential to the function of international arbitration. It extends the possibility to escape the restrictions normally set forward by state jurisdictions to any merchant under the sole condition of pertinence in relation to international commerce.
While the legal criterion might be intentionally altered or modified by legal actions in order to avoid international arbitration, the economic criterion, due to its broadness of scope, often renders such acts irrelevant for even if one of the parties were to undergo a mutation in its nationality, headquarters or registry, the interaction itself cannot. However, even if the economic criterion isn’t affected by the intrinsic qualities of the parties, it is susceptible to its own problems. On the famous the famous case Tapie v. Société de Banque Occidentale[4], French jurisdictions excluded the internationality of the case arguing that even though the facts indicated an international economic flux, a document in which one of the parties agreed to limit the affair to its internal elements was signed. Because the remaining point of conflict was purely internal, the international qualification was therefore excluded. Judges of the Cour de Cassation argued that the internationality should be appreciated at the moment of arbitration which entails the possibility for the case to evolve or change therefore affecting the ultimate qualification regardless of its initial state. Although this case has to be appreciated under a very particular political and financial context, it indicates the need for celerity in order to avoid or effectively undertake the legal maneuvering necessary to use internationality or lack thereof as a valid argument.
Ultimately, parties seeking to escape the restrictions set forward by state jurisdictions will find French international arbitration to be on the liberal far-end of the spectrum. To this end, the determination of internationality by way of an economic criterion plays a vital role both in practical considerations as its large scope extends its access in a liberal manner as well as in theoretical matters for it represents a key piece in the understanding of a very unusual yet highly sought system of arbitration.
[1] Cour de Cassation, Chambre civile, du 17 mai 1927 – This landmark case opposed an English landlord who rented a building situated in Algiers to a Frenchman. The owner had offered the possibility to pay the rent either in London or Algiers, When conflict arose regarding the nature of the arbitration, the Advocate-General P. Matter advised that given the choice to pay in Algiers, the contract should be considered internal and not international. The newly founded Matter doctrine would state that in order for a contract to affect international commerce two elements were needed: the introduction of value or merchandise to a country and a subsequent emission of monetary value meant to pay the debt.
[2] Cour d\’appel de Paris, 1re chambre C, 14 juin 2001, 99-23.515. In this case the Court of Appeal reminded the parties that the classification of arbitration is solely dependent on the economic nature of the operation in question. The terms employed by the parties, regardless of an existing mutual agreement, do not bind state jurisdictions who must qualify the nature of the arbitration in accordance to the economic criterion,
[3] Cour de cassation, civile, Chambre civile 1, 29 juin 2007, 05-18.053.
[4] Cour de cassation, civile, Chambre civile 1, 30 juin 2016, 15-14.145