On 2 June 2016, the French Arbitration Committee (Comité français de l’arbitrage (CFA)) invited Professor Sylvain Bollée to lead a conference on the imperative of the law chosen by the parties before the international arbitrator: how to choose between the law chosen by the parties and the contractual clauses contrary to the law set by the parties.
Professor Bollée identified two alternatives:
1° Give precedence to the provisions of the chosen law, applying Article 3§1 of the Rome I Regulation which provides that “The contract is governed by the law chosen by the parties […]”.
2° Give precedence to the contractual provisions, particularly when the parties have chosen a law that is not that of a State, like the UNIDROIT principles, for example.
Professor Bollée defended the second alternative during the Symposium, contending that it is possible to grant primacy to the contractual provisions (I) and that this is even preferable in certain cases (II).
- The possibility of giving precedence to contractual stipulations
There is no objection in principle to giving precedence to contractual stipulations over the law applicable to the contract that was set by the parties.
In French law, Article 1511 of the Code of Civil Procedure, according to which “[t]he arbitral tribunal shall decide the dispute in accordance with the rules of law chosen by the parties […]”, allows for giving precedence to contractual stipulations.
In fact, although the parties choose a law applicable to their contract, they would not be forced to provide for the comprehensive application of this law. On the contrary, they would be authorized to choose, within the applicable law, to have certain rules applied and to dismiss others. It is what one calls a “carving up”. The contract’s clauses operate this carving up, either because they expressly provide for dismissing a provision of the applicable law; or because the very content of the clause goes against that which is provided by the applicable law.
Consequently, in order to know the “rules of the law chosen by the parties”, the arbitrator will have to give precedence to the contractual stipulations.
On the other hand, the arbitration rules also allows it. For example, Article 21 of the ICC Rules provides that “1. The parties shall be free to agree upon the rules of law to be applied by the arbitral tribunal to the merits of the dispute” and that “2. The arbitral tribunal shall take account of the provisions of the contract between the parties […]”. These provisions echo the above.
Finally, the terms of reference reproduce the choice of law without bringing any particular restrictions. The claims raised by the parties permit the restitution of the exact scope of what was wanted by the parties. Either this intention consists of the pure and simple application of the chosen law, or the parties wanted a carving up.
- The possibility of privileging contractual stipulations in certain cases
The arbitrator’s first reflex is to analyze the parties’ will. To decide between two expressions of will, the arbitrator seeks to determine if there is a hierarchy. He can give precedence to the provisions of the chosen law in two scenarios: either because it complies with the application of the law chosen by the parties, or because the parties wanted the choice of law to restrict their contractual stipulations.
For example, the clause provides the impossibility for the debtor to obtain a grace period. If the parties had not wanted it, they would not have provided it in their contract.
The parties have a clearer vision of the contractual clauses than of the applicable law. They negotiated, or at least read, the clauses. This is not necessarily the case when it comes to the applicable law. Furthermore, it is this ignorance that gives rise to a conflict between the contractual rules and the provisions of the chosen law.
Inversely, the arbitrator could refuse to analyze the parties’ intent and choose to follow the legislator’s will to render a standard non-derogable. However, it must be kept in mind that the will of the legislator does not have the same influence on the arbitrator as on judges of State Courts. The arbitrator seeks rather the parties’ intent. In this sense, it must be noted that before the choice of law, the parties were not bound by the imperative rule. Thus, the imperative of the chosen law is very relative and should not hinder the arbitrator.
Nonetheless, in the face of the imperative rules of the chosen law; the primacy of the contractual stipulations is only possible if the parties expressly provided to derogate an imperative rule of the chosen law. For the arbitrator, the question is therefore to know if the clause reveals a specific intention of the parties. Thus, in the wording of contracts, the arbitrator must distinguish between the contractual rule and the parties’ intent.
For example, imagine that a party has contracted due to the fraud of a third-party and that the law chosen by the parties penalizes the fraud; in this scenario, the parties could not have wanted to derogate the law penalizing the fraud because the party that was victim discovered the vice after the conclusion of the contract. This analysis can be extended to all defects in contract formation.
On the other hand, the parties knowingly intented to digress from legislative provisions when they provide a liability exemption clause when the choice of law prohibits it.
The parties’ intent is a guide for arbitrators but it is not without limit. The international mandatory standards, those belonging to the international public policy and those constituting mandatory provisions, are cloaked with a degree of importance as they enable arbitrators to restrict the parties’ intent.
Before the closing of the symposium, Professor Bollée turned the time over to the attendees. Among the different responses, Professor Daniel Cohen shared his analysis of the issue. In his view, the choice of law clause and the contractual clauses are all substantive rules. The difference is due to the fact that the choice of law clause is a general rule whereas other clauses are special rules. Consequently, by applying the adage lex specialis derogat legi generali, the contractual stipulations prevail over the legal provisions.
Professor Bollée’s presentation will be published in an upcoming edition of the Revue de l’arbitrage.