On 2 December 2020, the French Cour de Cassation (Cass Civ. 1, No. 19-15.396) overturned a decision by the Paris Court of Appeal that had dismissed an application to set aside an arbitral award on the basis that the applicant has waived its right to raise, when contesting the arbitral tribunal’s jurisdiction before the French judges, new arguments that were not previously relied on before the arbitrators.
In its decision, the Cour de Cassation held that where the issue relating to a tribunal’s jurisdiction had been raised during the arbitration proceedings, the parties are then entitled, in the context of setting aside proceedings, to raise new arguments and produce additional evidence to discuss the tribunal’s jurisdiction. In doing so, the Cour de Cassation provided helpful guidance on the scope and interpretation of Article 1466 of the French Code of Civil Procedure (“CCP”) pursuant to which parties are deemed to have waived their right to subsequently rely on any irregularities which they knowingly, and without legitimate reason, refrained from raising before the tribunal.
Background and legal proceedings
In 1994, two US companies, Schooner Capital LLC (“Schooner”) and Atlantic Investment Partners LLC, as well as a US citizen (together, “the Investors”) set up a US-incorporated company, White Eagle Industries (“WEI”), in order to invest in three Polish companies.
The Investors then incorporated a Polish company that was set up to receive, on behalf of WEI, the payment of management fees from the three Polish companies. For fiscal years 1994 to 1997, the three Polish companies recorded the payment of these management fees as tax-deductible for tax assessment purposes.
However, in 1997, the Polish tax authorities started investigating the payment of the management fees and the reality of the services being provided by WEI to the Polish companies. As a result of these investigations, the Polish tax authorities ordered one of the Polish companies to repay important sums of money for tax readjustment purposes, leading that company to become insolvent.
The Arbitration Proceedings
On 31 Mars 2011, the Investors initiated arbitration proceedings against Poland under the ICSID Additional Facility Rules on the basis of the 1994 US-Poland bilateral investment treaty (the “BIT”). The Investors alleged, amongst others, that as a result of the tax investigations, Poland had unlawfully expropriated their investment in the now-insolvent Polish company, violated the fair and equitable treatment guarantee contained in the BIT and violated the BIT provisions relating to the free transfers of investments.
In an award issued on 17 November 2015, the tribunal held that the dispute mainly concerned matters of taxation within the meaning of the BIT (as opposed to questions relating to the performance of an investment contract) which, under the BIT, fell outside of its jurisdiction. The tribunal further stated that while the Investors’ expropriation and transfers of investments claims fell within its jurisdiction, they were unsuccessful on the facts of the case (the “Award”).
The Paris Court of Appeal decision
On 2 December 2016, the Investors commenced setting aside proceedings before the Paris Court of Appeal.
The Investors argued, in particular, that the tribunal wrongly denied its jurisdiction with respect to some of the claims raised by the Investors, and in doing so, they raised new arguments that were not previously put forward during the arbitration proceedings.
By a decision dated 2 April 2019, the Paris Court of Appeal refused to set aside the Award. With respect to the issue related to the tribunal’s jurisdiction, the Court of Appeal held that Article 1466 CCP, pursuant to which parties are deemed to have waived their right to subsequently rely on any irregularities which they knowingly refrained from raising before the tribunal in a timely manner, (i) is not limited to procedural irregularities, but also applies with respect to all of the available grounds to set aside an award under article 1520 CCP, to the exception of public policy grounds, and (ii) should be construed as preventing a party from raising, during setting aside proceedings, new arguments that were not previously raised before the arbitrators.
The Court of Appeal therefore rejected the Investors’ claim that the tribunal wrongly declined its jurisdiction on the basis that they relied on new arguments that were not previously raised before the arbitrators.
The Court of Appeal justified its reasoning by a willingness to prevent parties from tactically keeping arguments up their sleeves during the arbitration process, only to then raise them for the first time in the context of setting aside proceedings.
The Cour de Cassation’s decision
The Investors lodged an appeal before the Cour de Cassation seeking to overturn the Paris Court of Appeal’s decision. They alleged that as long as a party discussed the tribunal’s jurisdiction during the arbitration proceedings, the rule contained in Article 1466 CCP did not prevent that party from raising new arguments and providing new evidence with respect to the tribunal’s jurisdiction during the setting aside proceedings.
The Cour de Cassation agreed with the Investors and overturned the Paris Court of Appeal’s decision. The Cour de Cassation clearly held that by previously raising arguments with respect to the issue of the tribunal’s jurisdiction before the arbitrators, the parties were not subsequently deprived of their right to invoke new arguments and produce new evidence in support of the same issue before the annulment judge.
According to the Cour de Cassation, to the extent that the question of a tribunal’s jurisdiction is discussed by the parties before the arbitrators, the parties are then entitled to rely on completely new arguments and produce new evidence before the annulment judge. This decision therefore limits the scope of the waiver rule contained in Article 1466 CCP, giving parties more flexibility in changing their arguments during setting aside proceedings without being bound by previous arguments raised before the arbitrators.
This appears to be the first time that the Cour de Cassation has expressed in such clear terms the scope of the waiver rule contained in Article 1466 CCP in the context of annulment proceedings where the question of a tribunal’s jurisdiction is at stake. This decision also seems to contradict the previous case law of the Paris Court of Appeal which had held, in the context of annulment proceedings, that the judge’s review of an award with respect to a tribunal’s jurisdiction was limited to evidence already produced during the arbitration proceedings.
It remains to be seen whether the Cour de Cassation intends its solution to be restricted to objections as to a tribunal’s jurisdiction pursuant to article 1520 1° CCP, or whether it could be extended to other grounds for setting aside an award under French law.
To a certain extent, the Cour de Cassation’s decision may be seen as a setback to the usual restrictive approach followed by French courts when reviewing awards and, in particular, a tribunal’s ruling on its own jurisdiction, and risks encouraging losing parties to have second bites at the cherry under the guise of setting aside proceedings.
Interestingly, however, this decision brings the French Cour de Cassation’s position one step closer to that of its English counterpart, where challenges to a tribunal’s jurisdiction under section 67 of the Arbitration Act 1996 take the form of a rehearing rather than a review, with a full judicial determination during which parties are entitled to adduce new evidence (Dallah Co v Ministry of Religious Affairs of Pakistan  UKSC 46, at ).This could therefore provide some comfort to the arbitration community that the Cour de Cassation’s decision is not likely to undermine the autonomy of arbitration, since the English model confirms that the courts’ approach to conducting a rehearing is balanced by the very high threshold required for successfully challenging a tribunal’s jurisdiction.
For further information, please contact Laurence Franc-Menget, Partner, Vincent Bouvard, Avocat, Cedric Saliba, Trainee Solicitor, or your usual Herbert Smith Freehills contact.
 Paris Court of Appeal, 26 mars 2009, n° 08/01578, Papillon Group c. République Arabe de Syrie