Commercial contracts: the arbitration clause, its drafting, its effects

The mere reference in a commercial contract to an arbitration center cannot challenge the purely optional nature of an arbitration clause inserted in the General Conditions.

Cour de cassation, Civil Chamber 1, 12 June 2013, Appeal number 12-22656

Company A replaced turbo generators in a factory. The Company B installed these generators.

Malfunctions occured due to Company B’s intervention. These malfunctions caused damage to A who sued Company B before the Commercial Court of PARIS.

Company B challenged the jurisdiction of the Commercial court by pretending that the contract, in its terms and conditions, had an arbitration clause.

The clause was worded as follow:

« All disputes arising from this contract or in connection therewith , including any question regarding its existence , validity or termination shall be governed by this article, and if possible by negotiation between parties. If a dispute can not be settled through negotiations, either party may, after a notice in writing, refer the dispute to a meeting of representatives of the management of each party to be held within twenty (20) days after the notification. If the dispute is not settled within thirty (30) days after the meeting or such other date as the parties determined, either party may elect to use arbitration or an action in the court of the seat of the buyer. The dispute shall be submitted to and finally solved by the arbitration rules of the London Court of International Arbitration (LCIA), which is incorporated by reference in this Article … « 

Company B considered that the Court should have declined jurisdiction in favour of the arbitration center referred to in this clause.

For Company A, the jurisdiction of the arbitration center was only optional, and so it was possible to undertake litigation before the Commercial Court .

The Commercial Court declared itself incompetent.

The Court of Appeal however retained the jurisdiction of the commercial court. The judges of the Court of Appeal interpreted the arbitration clause as simply offering an option for Parties between an arbitration center and the Commercial Court of Paris.

For the Court of Appeal it is therefore not an arbitration clause within the meaning of Article 1448 of the Code of Civil Procedure because of the existence of a choice of jurisdiction.

The Court of Appeal as summarized by the Supreme Court held that « the disputed clause on dispute resolution stipulated that each party could choose to go to arbitration or an action in the court of the seat of the buyer « and that » two alternative routes were available to the parties and the ability of this choice was open to all of them, references to an arbitration center were not likely to jeopardize the purely optional nature of the arbitration proceeding. « 

The Supreme Court approved the decision of the appeal judges and ruled that the Court of Appeal had validly inferred that this « clause did not require the parties to submit to arbitration in case of dispute, so that the Commercial court had jurisdiction. »

The Supreme Court refused to qualify a clause that offers an option of competence between a Court and an Arbitration center as an arbitration clause.

She therefore refused to accept that a mere reference to an arbitration center necessarily entails the qualification of an arbitration clause. The existence of an option excludes this qualification and the application of Article 1448 of the Civil Code.

By Olivier Vibert , Attorney, Paris


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