REFORM OF THE ARBITRATION CLAUSE UNDER FRENCH LAW

On Friday, 18 November 2016, the French President enacted Law n° 2016-1547 of 18 November 2016 on modernization of 21st century justice, known as J21.

Among the different innovations, we would mainly draw attention, regarding Arbitration law, to the revision of Article 2061 of the Civil Code.

As a reminder, the current Article 2061 states “Subject to the specific legislative provisions, the arbitration clause is valid in contracts concluded for a professional activity”.

The new version of the text now states:

The arbitration clause must have been accepted by the party to whom one is opposed, unless this party has assumed the rights and obligations of the party who initially accepted it. When one of the parties did not contract as part of its professional activity, said party is not bound by the clause.

The contribution is significant.

On the one hand, the clause no longer needs to have been inserted in a contract “concluded for a professional activity” to be valid. It becomes possible to stipulate an arbitration clause outside of any professional activity. In other words, the arbitration clause can now be stipulated in a contract concluded between two individuals. One can also conceive the arbitration clause being inserted into co-ownership regulations (which is already the case in Alsace-Lorraine), rental expenses, an internet sale between two individuals, an indivision agreement or real estate company bylaws.

The legislator of 2016 preferred the sanction of non-invocability over that of invalidity. If one of the parties does not act in the course of his or her professional activity, the clause remains valid but is not binding upon this party. In other words, the party deemed weak could, in the presence of an arbitration clause, appear before either the courts or the arbitrator. On this point, the solution seems to conform to the judicial decisions on arbitration clauses stipulated in employment or consumer contracts, in domestic arbitration.

On the other hand, the new Article 2061 enacts the arbitral case law regarding the extension of the arbitration clause. If the contractual nature of arbitration is reaffirmed (“The arbitration clause must have been accepted by the party to whom one is opposed”), the principle is immediately paired with an exception: “unless this party succeeded to the rights and obligations of the party who had initially accepted it”. The rule affirmed by the new Article 2061, most probably confined to domestic arbitration (decisions rendered for international arbitration differ by a clearer affirmation of the principle of effectiveness of the arbitration clause), allows to bring into the arbitration the party holding its rights from the signatory of the arbitration clause. Such is the case in particular for chains of contracts transferring ownership: the sub-purchaser will be bound by the arbitration clause agreed between the seller and the initial purchaser (for an illustration: Civ. 1st, 27 March 2007, n° 04-20.842, Bull. civ. I, n° 129).

In summary, the new Article 2061 of the Civil Code clarifies and modernizes the rules governing the arbitration clause for domestic arbitration, regarding both its validity and its invocability.

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