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( Source of the document: ICC Digital Library )
Claire Pauly, Senior Associate at Freshfields Bruckhaus Deringer LLP in Paris, and Margaux Barhoum, Trainee, report on the debate hosted by Freshfields Bruckhaus Deringer on 26 April 2017 on the respective pros and cons of London and Paris as arbitration seats and how both cities’ standing might be affected by Brexit.
During this event, Elie Kleiman (Partner, Freshfields Bruckhaus Deringer LLP, Paris) and George Spalton (Barrister, 4 New Square, London) respectively advocated for Paris or for London as seats of arbitration. Elie Kleiman presented three aspects in favor of Paris.
First, he noted that French pro-arbitration culture and strong academic tradition was reflected in its favourable legal environment and case law. He also stressed that, in France, there is no review of the merits by the courts, hardly any stay of enforcement pending annulment proceedings or actions to dismiss enforcement of awards and French courts generally seek to promote arbitration, rather than to interfere with the process. France also boasts a clear set of procedural rules governing arbitration that provide for foreseeable solutions and French courts will always apply substantive rules derived from French international arbitration law (‘règles matérielles’) without having recourse to conflict of laws rules, regardless of the law applicable to the arbitration agreement, the contract or the procedure. By contrast, English courts generally infer the law applicable to issues of international arbitration from conflict of laws rules, as illustrated by the Dallah Supreme Court case of 3 November 2010. Elie Kleiman also observed that English courts have a more invasive approach when reviewing arbitral awards, for instance when reviewing the arbitral tribunal’s jurisdiction under section 67 of the English Arbitration Act, and that the concept of public policy is much broader in the UK than it is in France.
Second, the presence of a true international community of lawyers and of the ICC International Court of Arbitration in Paris has led law firms to make Paris one of the most international cities in the field of arbitration. Whenever a client or a lawyer is faced with a problem of English or New York law, for instance, they will easily find a qualified lawyer in Paris to handle it. In comparison, London is a city dominated by English lawyers where arbitrations are generally governed by English law.
Third, Paris has excellent arbitration facilities (i.e. ICC and ICSID hearing centres) that are relatively cheap compared to London.
George Spalton then raised the advantages of London over Paris as an arbitration seat.
First, English substantive law is a major advantage as it provides legal certainty through clear case law, particularly in the commercial sphere. English law will, in his view, become even more foreseeable post-Brexit since the English judiciary will no longer have to take EU law or the European Court of Justice’s case law into account.
Second, English legislative framework is a major advantage for London, for example Article 69 of the 1996 Arbitration Act provides for an opportunity to appeal the award, which can be an advantage compared to French law. He also noted that English courts may have the ability to issue anti-suit injunctions against legal proceedings launched in breach of an arbitration clause in the courts of EU Member States, in the event that the UK does not sign up to ‘Brussels I Recast’ after Brexit.
Third, London is a pro-business environment, a world-class trading and commercial hub and intends to remain so by embracing and maintaining good relationships with Europe and the EU. George Spalton also explained that trade deals without any involvement from the EU could constitute a real opportunity for London towards becoming an investment treaty hub.
French substantive law, however, raises issues of uncertainty, especially as it is ‘shackled’ to EU law (as for the duty of good faith in contractual relations for instance), and, with respect to international arbitration, French courts adopt a very liberal approach which is completely disconnected from any domestic forum (i.e. the Putrabali case, in which French courts enforced an award that had been annulled at the seat of arbitration). The English approach is different: it is grounded in local law, and English courts do not enforce awards that have been annulled at the seat).
Claire Pauly (Senior Associate, Freshfields Bruckhaus Deringer LLP, Paris) moderated the debates and invited Iain McKenny to provide his perspective as a representative of a third-party funder and former practitioner who has worked in both cities.
Iain McKenny (General Counsel of Disputes, Vannin Capital, London) first noted that, as regards lawyers, comparing Paris to London amounts to comparing a legal profession in the traditional sense to a service provider. Commercial lawyers in London have an obligation to advise their clients on adverse costs, while French lawyers may not be under any such obligation. London has always been a commercial hub, and as a consequence, judges there are more aware of commercial reality, of the risks, than their counterparts in Paris. Since the recent English court decision in Essar v. Norscot, third-party funders can recover their costs in the UK, while such a possibility is not contemplated in France. Iain McKenny also contended that some financial arrangements could not be made in Paris such as the conditional fee arrangement.
Elie Kleiman challenged some of Iain McKenny’s observations. He disputed the notion that French lawyers were not ‘service providers’, noting that they have caught up in the past 20 years and have clear ethical and contractual obligations to inform their clients on risk in general and adverse costs.
A discussion followed between the members of the panel and the audience. The debate mainly revolved around four topics, namely enforcement, recovery of costs, conditional fee arrangements, and review of the merits by local courts.
As regards the issue of enforcement, it was observed that foreign enforcement of awards issued in the UK post-Brexit would appear to be quite safe as the UK is a signatory to the New York Convention, and that foreign awards would remain as enforceable in London as anywhere else. George Spalton agreed but noted that, in the short term, Brexit did import uncertainty. There was thus a ‘soft concern’ about arbitrating in London, and lawyers would not be doing their job if they did not warn their clients. Elie Kleiman contrasted enforcement in the UK with enforcement in France, emphasising the fact that in France, an award can be enforced even when it has been ‘attacked’ elsewhere, which is one of the major advantages of Paris. Iain McKenny added that the wide varieties of tools which are available in France for enforcing awards are another benefit of Paris.
On the topic of recovery of costs, one of the conference participants stated that with respect to Paris, there was a lack of cost-shifting. Allegedly, in France, a winning party has a 50 percent chance of being awarded costs, against 90 percent in London. However, Elie Kleiman underlined that even though French courts tended not to be very generous in that respect, they had been increasingly awarding costs in the context of post-arbitral award legal review. He added that full cost recovery was possible, including for third-party funding costs. In his opinion, awarding such costs would not be contrary to French public policy, but the issue has yet to be tested.
Regarding conditional fee agreements, Elie Kleiman clarified that, while it is true that French lawyers cannot, as a matter of ethics, agree to a ‘no win, no fee’ arrangement in Paris, a significant proportion of their fees can be contingent upon success. Iain McKenny enquired about the possibility for French lawyers to ‘level the playing field’ by way of a three-legged agreement, a compensation-based agreement allowing a third-party funder to share a success fee with a lawyer instead of the lawyer receiving it directly from a client. Elie Kleiman answered that, in his opinion, it was possible, subject to transparency, for a French lawyer to obtain success fees through third-party funders.
A participant from the audience expressed the view that the English courts have no deference to arbitral awards on jurisdiction, referring to the Ruby Roz v. Kazakhstan case. In this case, the English court undertook a full scale review of jurisdiction issue, making no reference at all to what had been decided by the Arbitral Tribunal. There is an assumption in the UK that judges know better than arbitrators. As a result, from this perspective, Paris should be considered as the best option for Claimants.
George Spalton concluded that the hope and expectation in London is that the arbitration community is sufficiently well established for business not to move from London to Europe and for London as an arbitration seat not to be affected by Brexit. However, it was clear from the discussions that the uncertainty created by Brexit should be taken into account by arbitration practitioners and users when choosing between Paris and London as arbitration seats.