French administrative contracts; Award; Setting aside; Annulment

It is rare, if not unheard of, for three of France’s highest courts to each rule on the same legal issue three times in the space of seven years. This is a sign of the sensitivity of the matter at issue, which was whether France’s civil courts or its administrative courts have jurisdiction to review international arbitral awards rendered in disputes related to French international administrative contracts. These nine rulings by the Cour de cassation, the Conseil d’État and the Tribunal des conflits have created a situation that is in urgent need of reassessment.

Jurisdiction of French administrative courts

Seven years ago, the Tribunal des conflits (Conflicts Tribunal), which decides on the allocation of jurisdiction between administrative courts, on the one hand, and civil and commercial courts, on the other, established a new principle for jurisdiction over proceedings to set aside international arbitral awards rendered in France in disputes relating to French international administrative contracts. Its ruling (17 May 2010, INSERM) laid down a principle and an exception. The principle was that French civil courts have jurisdiction to rule on the recognition, enforcement and setting aside of international arbitral awards, regardless of whether the underlying contract is governed by public or private law. However, this principle was rendered largely moot by a very broad exception giving jurisdiction to French administrative courts when the setting-aside proceeding pertains to public law contracts concluded by French public entities concerning occupation of public property or procurement relations, as administrative courts have to check that the arbitral tribunal has not violated any mandatory rules of administrative law. On 11 April 2016, the Tribunal des conflits rendered a decision confirming and broadening its 2010 ruling, but the exact grounds on which an arbitral award could be annulled or its enforcement rejected by French administrative courts remained unclear.

Practical, though incomplete, guidance on this matter has more recently been issued by the Conseil d’État (Council of State), ruling en banc in the Fosmax case (9 November 2016). And even more recently, the Tribunal des conflits again widened its 2010 decision by giving administrative courts jurisdiction to control foreign international awards relating to French international administrative contracts (24 April 2017, Ryanair).

Narrow scope of the administrative courts’ jurisdiction

First, let us clarify the scope of those decisions. The public law regime applies only to international arbitral awards rendered in disputes involving administrative law contracts concluded by French public law entities. It does not apply to international arbitral awards rendered in cases between foreign public entities and private companies. In France, those awards unquestionably fall within the jurisdiction of the French civil courts, which are known to apply liberal solutions in such cases. Nor does the new public law regime apply to awards in disputes not involving a French administrative contract. In other words, it applies only to arbitrations arising out of an international administrative contract involving a French public law entity. In the rare event that the administrative contract is assigned to a private company, it will still be characterized as a public law contract. This is precisely what happened in the Fosmax case, and it explains why the parties in the annulment proceedings before the French administrative courts were both private companies. It is however an exception to the general rule that foreign and international arbitral awards rendered between two private law companies fall within the jurisdiction of the French civil courts, whose liberal approach to the review of arbitral awards remains unaffected.

The Fosmax case

What makes the Fosmax ruling noteworthy and why has it been criticized? In 2001, Gaz de France, a public law entity at the time, entered into a contract with a group of companies relating to the construction of a liquefied natural gas terminal in France. Gaz de France transferred the contract to its subsidiary (Fosmax). In 2011, the contract was amended to include an arbitration clause. At the time, the contracting parties included an Italian company, which gave the agreement an international character. A dispute arose and was referred to arbitration. The arbitral tribunal awarded Fosmax a little less than 70 million euros while also ordering Fosmax to pay a little less than 130 million euros. Fosmax initiated set-aside proceedings before the Conseil d’État. The jurisdiction of the Conseil d’État was confirmed by the Tribunal des conflits, whereupon, for the first time, the Conseil d’État laid down the main features of its review of international awards rendered in France when ruling in annulment proceedings. In an obiter, it extended its remarks to the recognition and enforcement of foreign arbitral awards, too. However, the question remained as to whether foreign awards fell within the jurisdiction of the administrative courts, as the Cour de cassation (Court of Cassation) had decided in 2015 that the civil and commercial courts had exclusive jurisdiction over the recognition and enforcement of such awards, including those related to international administrative contracts (Cass. Civ. 1re, 8 July 2015, Ryanair). This position has since been reversed by the Tribunal des conflits in a ruling on 24 April 2017, in which it held that jurisdiction lies with the administrative courts regardless of whether the arbitration was seated in France or abroad. The nature and extent of the review as set forth by the Conseil d’État thus applies to all international arbitral awards related to French public law contracts and public procurement contracts that are subject to mandatory public law rules. It may be noted that only the Conseil d’État has jurisdiction over annulment proceedings against awards rendered in France on public law matters, whereas the ordinary administrative courts (tribunaux administratifs) have jurisdiction over the recognition and enforcement of those arbitral awards.

Main features of the Conseil d’État’s review

Most of the grounds on which the Conseil d’État may set aside or refuse to recognise or enforce international arbitral awards related to French administrative contracts are directly inspired by the provisions of the French Code of Civil Procedure and need no detailed explanation, namely: the tribunal wrongly declined or upheld jurisdiction; was not properly constituted; ruled in disregard of the mandate conferred upon it; or due process was violated. The Conseil d’État added that the award had to state the reasons upon which it was based.

Two other grounds, however, reveal a yawning gap between the stringent stance taken by the Conseil d’État and the liberal approach promoted for the last fifty years by the Cour de cassation.

Arbitrability ratione personae

Since 1966, the Cour de cassation has taken a liberal approach to arbitrability ratione personae, refusing to take into account prohibitions upon recourse to arbitration invoked by public entities and laid down in its domestic law. In Galakis, for example, it ruled that this prohibition (which is now in Article 2060 of the French Civil Code) was not applicable in international arbitration. The Conseil d’État never accepted this reading of French law in relation to public law contracts involving French public law entities. Since 2010 it has often been submitted that the opinion of the Tribunal des conflits in the INSERM case should be read as both putting an end to such a restrictive position and extending the Galakis rule of complete arbitrability ratione personae to French public law entities. This analysis of the INSERM opinion was barely tenable, however, since that was not the question put to the Tribunal des conflits, which in any case is not competent to decide on substantive issues. Thus, unsurprisingly, in Fosmax the Conseil d’État strongly reasserted the rule that French law prohibits French public law entities from resorting to arbitration, be it domestic or international, except where a statute or an international treaty provides otherwise. In Fosmax, no such prohibition applied: the arbitration clause had been inserted in the agreement after the contract had been transferred to a private company, so was concluded only between private companies and inserted in a public law contract.

Thus, the Cour de cassation will continue to apply the Galakis rule to arbitration agreements involving foreign public entities and, probably, to contracts concluded by French public law entities in the field of private law, while—unless an exception is laid down (in a statute or in an international agreement; see M.-E. Ancel, P. Deumier, M. Laazouzi, Droit des contrats internationaux (Paris: Dalloz, 2016) at 697–703)—the Conseil d’État will strike down arbitration agreements and related arbitral awards related to public law contracts that fall within its jurisdiction. This ruling puts French administrative courts at odds with modern legislation on the subject. Is it not time to move on from the prohibition enshrined in the French Civil Code and its strict application by the Conseil d’État? However, extending international arbitration more broadly to French administrative contracts might not necessarily be the right choice, given another aspect of the review conducted by the Conseil d’État, discussed below.

Compliance with mandatory rules of French public law

The Conseil d’État exercises strict control over the application of mandatory rules of French administrative law or European public policy. In doing so, it is not meant to be taking a second look at the arbitral tribunal’s reasoning. In Fosmax, the fact that the arbitral tribunal had wrongly characterised the agreement as being governed by private law is not in itself a reason to set aside the award. Nonetheless, this is difficult to square with the Conseil d’État’s assertion that an award rendered in France will be set aside if mandatory rules of public law have been breached. The Fosmax arbitral tribunal denied the claimant the right to carry out the work itself at the other party’s expense without first terminating the contract, notwithstanding the fact that the other party had breached its contractual obligations. The Conseil d’État took a different position, putting forward a mandatory rule applicable to public work contracts. This led it to partially annul the award. On grounds of public policy (ordre public), it thus reassessed the solution reached by the arbitral tribunal, which is contrary to the line taken by the French civil courts, and could be contrary to the New York Convention, too, if applicable. As the same rules are to be followed by administrative courts when reviewing both foreign and international awards rendered in France, the Conseil d’État’s approach should be redesigned to cover recognition and enforcement of awards and their compliance with French (international) public policy.

The Conseil d’État also addressed the consequences of the annulment of an award. When such annulment is due to a violation of the prohibition to resort to arbitration, the Conseil d’État has the power to refer the case to a lower court or to decide the matter itself. This is further evidence of the very narrow scope of this regime, since the jurisdiction of the administrative courts is limited to public law contracts involving at least one French public entity.

Where the annulment is unrelated to a lack of arbitral jurisdiction, as was the case in Fosmax, the parties can either resort to another arbitral tribunal or agree to have the dispute decided by the Conseil d’État. The Fosmax ruling even contemplates that the parties could agree on the second option in advance. However, it is rather odd to think that parties might, at one and the same time, agree to refer disputes to arbitration and to initiate a new lawsuit before the supreme French administrative court in the event of the (partial) annulment of an award. Yet, this is exactly what they are encouraged to do by the Conseil d’État.

The intricacies of the Fosmax and Ryanair cases are difficult to summarise, explain and evaluate in a few words (see M. Laazouzi, S. Lemaire, "Arrêts Fosmax : un guide incomplet du contrôle des sentences rendues en France par les juridictions administratives", Cahiers de l’arbitrage/Paris Journal of International Arbitration (2017) 977). It is time for French lawmakers to restore some coherence, clarity and practicality in the use of international arbitration to resolve disputes arising from public law contracts concluded by French public law entities.