Paris Court of Appeal upholds validity of arbitration clause referring to arbitration institution that no longer exists

The Paris Court of Appeal has upheld the execution of an arbitral award rendered in Solingen, Germany.  The appellant had argued that the award should not be enforced because the arbitration clause was invalid and it was unable to fully participate in the proceedings as the language of the arbitration was German.

The dispute involved three companies. REO Inductive Components AG (REO) was a German company that produced and distributed electronic components. NV ADB SA (NV ADB) was a Belgian company that concluded a contract for technical cooperation with REO. ADB SAS (ADB), a subsidiary of NV ADB, concluded a contract for the delivery of electronic components with REO.

A dispute between ADB and REO was submitted to arbitration. The tribunal, in an award dated 22 April 2009, ordered ADB to make payments to REO. On 10 September 2010, REO obtained an order for the execution of the award from the Tribunal de Grande Instance of Paris. ADB appealed that decision.

ADB argued that the arbitration clause was void as it referred to an arbitral institution that no longer existed. The clause called for arbitration pursuant to the rules of the German Arbitration Commission (DAS). However, the DAS ceased to exist in 1992. The arbitration was held pursuant to the rules of the German Institute of Arbitration (DIS), which was formed via the merger of the German Arbitration Committee and German Arbitration Institute.

The Court of Appeal found that a tribunal formed pursuant to the DIS Rules could accept jurisdiction pursuant to a clause calling for arbitration pursuant to the DAS Rules, given that the former is the successor of the latter. The validity of the arbitration clause was thus not affected by specific reference to the DAS Rules.

ADB also argued that it was unable to fully participate in the arbitral proceedings because they were held in German, a language that it did not fully understand. The Court of Appeal rejected this argument as well, noting that the tribunal had decided on the language of the proceedings and that ADB had not raised any objections during the arbitral proceedings.

The case highlights the flexible approach taken by French courts in evaluating arbitration clauses, and their reticence to find such clauses invalid. While the reference to a non-existent institution and set of rules could arguably render the clause pathological, the Court of Appeal rejected such a formalistic approach.

The Court of Appeal's reasoning on the objection regarding the language of the proceedings is a reminder to parties of the importance of raising procedural issues before the arbitral tribunal in the first instance, and not adopting a strategy of delaying in the hope of later resisting enforcement on the basis of procedural shortcomings.

SAS ADB c REO Inductive Compononents AG, Cour d'appel de Paris, Chambre Civile, Section 1, no. 10/23578 (20 mars 2012) (www.practicallaw.com/5-519-2614).

Brendan Green (Associate), Herbert Smith LLP

A version of this Herbert Smith briefing has been published by Practical Law Company.