The Cour de cassation’s (the French supreme court) recent ruling could be positive news for litigants lacking the resources to pay the ICC’s advance on costs.
Pirelli (Italy) brought arbitration proceedings against Licensing Projects (Spain) (LP) over a trade mark dispute in 2007. Later that year, a Spanish court placed LP into a formal insolvency process, followed by compulsory liquidation in July 2009.
LP tried to counterclaim but, being in liquidation, was unable to deposit the advance on costs required under Article 30 of the 1998 ICC Rules. The tribunal therefore treated the counterclaims as withdrawn and went on to find in Pirelli’s favour.
In November 2007, the Paris Court of Appeal annulled the award on the ground that treating LP’s counterclaims as withdrawn because of non-payment was a violation of the principles of access to justice and equality of arms.
In its decision of 28 March 2013, the Cour de cassation quashed this ruling and remitted the case to the Versailles Court of Appeal. The Court held that a tribunal’s refusal to hear a counterclaim could indeed be contrary to the principles of access to justice and equality of arms, but only where the counterclaims were “indissociables” (inseparable) from the original claim.
While at first glance this decision appears to take a hard line on arbitration costs, the tenor of the decision is actually the opposite. Despite quashing the Court of Appeal’s decision, France’s highest court has affirmed the principle that an award may be annulled where a counterclaim is refused because the litigant cannot afford it. This reflects previous jurisprudence of the Cour de cassation and the European Court of Human Rights, which have held that impeding access to a judge or arbitrator can, in certain circumstances, contravene the rights enshrined in Article 6 of the ECHR. It also recognises that the binding nature of contractual obligations (here, the agreement to submit to arbitration, together with the rules and sanctions that this entails) is not absolute.
At the same time, the Cour de cassation was clearly conscious of the Pandora’s box left open by the Court of Appeal. In narrowing the lower ruling, the Court recognised the importance of private contractual obligations and imposed the additional requirement of the “inseparability” of counterclaims. The precise meaning of this new test was left open and remains to be interpreted.
While the Cour de cassation has therefore limited the scope of the possible setting aside of an award due to a refusal to deal with a counterclaim for costs reasons, if the Versailles Court of Appeal (and probably the Cour de cassation again at a later stage) affirms the original Court of Appeal decision to overturn the award, the impact on arbitration could be significant. In particular, and despite provisions to the contrary in arbitral rules, tribunals may be reluctant to be strict in imposing sanctions for non-compliance on parties in financial difficulty, fearing that any subsequent award may be set aside by the courts.