OHADA.com brings you up to date with news on States and national and international arbitration / The capacity of States and legal persons under public law to accept arbitration
On 25 December 2014, your website www.ohada.com published a newsletter entitled “Serious dangers of arbitration for the States / www.ohada.com makes its recommendations” published in all official languages of the OHADA states.
Many internet users welcomed this newsletter which, in the light of recent sizeable awards, sought to draw attention to the risks posed to States by arbitration, a private method of resolving disputes. Moreover, in the event of disputes subject to arbitration involving a State, the newsletter emphasized the importance of the choice of the individual arbitrators and recommended, in the case of OHADA arbitration, requesting the appointment of the third arbitrator, the President of the arbitration court, by the OHADA CCJA.
Other internet users, many of whom were members of bar associations, were surprised by a position that they considered too restrictive and as running contrary to the trend favouring arbitration, a philosophy fostered by the OHADA reform which, as recalled in the newsletter, opened up the golden age of arbitration in Africa.
There were also those who wished to see the www.ohada.com website shed light on the matter of “subjective eligibility for arbitration” regarding arbitration proceedings - that is the capacity of states to accept arbitration.
It is in response to this latter wish that your www.ohada.com website now provides the information below on comparative law regarding the capacity of States, and more generally of legal persons under public law, to accept arbitration in the case of France (1) and the USA and England (2).
1. FRANCE
(1a) Domestic arbitration
As was highlighted in the www.ohada.com published a newsletter entitled newsletter of 25 December 2014, there is a principle in French law prohibiting legal persons under public law from accepting arbitration. Article 2060 of the Civil Code provides that:
“Arbitration cannot be accepted (...) for disputes concerning public authorities and public establishments and more generally for any matters of public policy.
However, certain categories of public establishments of an industrial and commercial nature may be authorised by decree to accept arbitration.”
The principle according to which the State cannot accept arbitration within the context of domestic arbitration has been confirmed by case law. In its landmark opinion regarding Eurodisneyland dated 6 March 1986, the Conseil d'Etat (Council of State) thus specified:
“Legal persons under public law cannot evade the rules that determine the jurisdiction of the national courts by leaving an arbitrator to resolve disputes to which they are parties and that arise from relationships covered by domestic law.”
The exceptions to the rule according to which the State cannot accept arbitration are listed in Article L. 311-6 of the Code of Administrative Justice. They arise in the following situations, among others:
- Certain categories of public industrial and commercial establishments (E.P.I.C.) are authorized to accept arbitration by decree (cf. the aforementioned Article 2060 of the Civil Code).
- The State and the local authorities may have recourse to arbitration for disputes arising with regard to public works and supply contracts.
- Public establishments of a scientific and technological nature may have recourse to arbitration in the event of disputes arising from the execution of research contracts entered into with foreign agencies following approval of the board of directors.
- The State is authorised to have recourse to arbitration for implementing the proceedings for the return of a cultural object, subject to the owner, the possessor or the holder granting their consent.
- The SNCF, the French railway network (Réseau Ferré de France) and the postal services are authorised to accept arbitration.
Other exceptions are also provided for under Order No. 2004-559 of 17 June 2004 on public-private partnership contracts.
Article 9 of Law No. 86-972 of 19 August 1986, making miscellaneous provisions concerning local authorities, authorises, by way of derogation from Article 2060 of the Civil Code, the State, local authorities and public establishments to subscribe to arbitration clauses in the contracts they enter into jointly with foreign companies for carrying out operations in the national interest in view of settling, as required, disputes arising from the application and interpretation of said contracts.
(1b) International arbitration
Domestic arbitration restrictions regarding the capacity of both the State and legal persons to accept arbitration are set aside in international arbitration. The landmark decision is that delivered on 2 May 1966 in the Galakis case in which the Court of Cassation ruled that the prohibition on the State accepting arbitration could not apply to “an international contract entered into for the needs of and under conditions compliant with the practices of maritime trade.”
The interpretation has since featured regularly in case law. In international arbitration, it applies to all legal persons under public law, whether French or foreign.
Nevertheless, it must be emphasised that the French public authorities remain very cautious and are on principle reluctant to commit the State to signing arbitration clauses.
For further information regarding French law governing the State's capacity to accept arbitration, see the Mémento Pratique Francis Lefebvre, Droit commercial, numbers 17212, 70760 to 70766 and 71323, by Barthélémy Mercadal.
(2) USA and ENGLAND
Subject to all necessary reservations, it would appear that, in the USA or in England, no rules exist prohibiting a State or legal persons under public law from accepting arbitration.
Neither the “Federal Arbitration Act” nor the “English Arbitration Act” of 1996 contains provisions to this effect (cf. Born, International Commercial Arbitration, Kluwer Law International 2014, p. 964-969).
Moreover, both the USA and England ratified the ICSID Convention of 18 March 1965, clearly showing that both States accept that disputes to which they are party may be subject to arbitration (cf. Fouchard, Gaillard, Goldman, Traité de l'arbitrage commercial international, Litec 1996, para. 548, p. 339).
The question of “objective eligibility for arbitration” nevertheless remains, that is, establishing whether a given dispute or matter may be the subject of an arbitration procedure in the State concerned.
In England, for example, disputes under criminal law, issues related to divorce or regional planning measures are a priori not subject to arbitration (cf. Dahlberg, Welsh, Arbitration Guide, IBA Arbitration Committee, England and Wales, April 2012, p. 5).
In the USA, the American courts tend to consider that all disputes may be arbitrated unless a federal law provides expressly to the contrary (cf. Born, International Commercial Arbitration, Kluwer Law International 2014, p. 964 et seq.).
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Your website www.ohada.com hopes this information will place in context, the recommendations formulated for the States in the newsletter of 25 December 2014. While it is true that there is a growing trend towards resorting to arbitration by legal persons under public law and/or by States in different countries worldwide, African governments must be aware of the risks incurred by their countries when the latter are committed to upholding arbitration clauses. In any event, the utmost vigilance is required when choosing arbitrators who must be prominent personalities who have played an important role in one way or another in the service of the continent.
In practice, when, being fully aware of and after having fully assessed the risks, States decide to submit a dispute to arbitration, it would appear to us that they should systematically favour institutional arbitration under the aegis of the OHADA Joint Court of Justice and Arbitration. This allows them to best preserve their countries' interests with the support of the safeguards put in place by the OHADA legislator.