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10 novembre 2016

Administrative Courts and International Arbitration

The Council of State specifies the features of its review of an international arbitration award.

The essence

- In 2001, Gaz de France, a public agency at the time, entered into a contract with a grouping of companies with a view to building a liquefied natural gas (LNG) terminal on the Fos Cavaou peninsula. Gaz de France handed over this contract to one of its subsidiaries that is now called Fosmax LNG. By an amendment of 2011, the Fosmax company and the grouping of companies decided that any dispute relating to the contract would be settled by arbitration and not by a State court.

- The Council of State rules that its review exercised on an international arbitration award is limited and only focuses on a few elements.

- In particular, the Council of State only checks that the award is not contrary to a mandatory rule of French public law.

- In this case, the mistake of the referees, who settled the dispute by applying private law rules, whereas the contract was an administrative contract subject to public law rules, does not lead to the annulment of the entire award.

- The award is only quashed on a specific point : the violation of a mandatory public law rule according to which a public works developer may carry out itself the works where its contracting partner violates its obligations, at the latter’s expense.

Facts and procedure

In 2001, Gaz de France, a public agency at the time, entered into a contract with a grouping of companies with a view to building a liquefied natural gas (LNG) terminal on the Fos Cavaou peninsula. Gaz de France handed over this contract to one of its subsidiaries that is now called Fosmax LNG. By an amendment of 2011, the Fosmax company and the grouping of companies decided that any dispute relating to the contract would be settled by arbitration and not by a State court.

The completion of the LNG terminal work resulted in a dispute among parties which was decided in accordance to an arbitration procedure. The arbitration tribunal handed out an award on February 13th 2015 ordering the STS grouping to pay the amount of 68 805 345 euros to the Fosmax LNG company whereas this company was ordered to pay the amount of 128 162 021 euros to the grouping.

The Fosmax company requested the Council of State to quash the arbitration award.

The Council of State had first to decide whether this dispute fell within the jurisdiction of administrative courts, and thus the Council of State, or civil courts : it brought the matter to the Tribunal des conflits, in charge with determining which courts – i.e. civil courts or administrative courts - should have jurisdiction. On April 11th 2016, the Tribunal des conflits ruled that the application for annulment of the arbitration award had to be heard by administrative courts.

The review of international arbitration awards by the Council of State

Arbitration is a procedure whereby contracting parties decide that their dispute shall be settled by referees that they designate themselves, pursuant to a procedure that they determined themselves and that was not fixed by a State court. There are two types of arbitration : domestic arbitration and international arbitration, the latter being applied where the interest of international trade are affected, which was the case here since one of the companies of the grouping was Italian. The arbitration award is a true justice ruling which binds the contracting parties. However, the award can be appealed before State courts even though the control is limited.

In principle, French public persons cannot resort to arbitration even when statutory law allows it. Pursuant to the ruling of the Tribunal des Conflits, the control of an international arbitration award falls within the jurisdiction of ordinary courts, unless it involves the control of its compliance with the mandatory rules of French public law relating to public real estate or public procurement.

For the first time, the Council of State had to determine the scope of its control on an international arbitration award. By its decision, the Council of State confirms that its review over such an award is limited and only focuses on a the following elements :

- the possibility to bring the dispute before an arbitration tribunal ;

- some elements relating to the correctness of the procedure, namely the compliance of the tribunal with its jurisdiction and mission, the correct composition of the tribunal, the compliance with the principles of independence and impartiality of judges, due process of law and the obligation to mention explicitly  the reasons of the award ;

- concerning the review over the manner the referees settled the dispute, the Council of State does not rule on the case a second time, as a court of appeal would ; it only ensures that the award is not contrary to a mandatory rule of French public law, namely that the contract was not at the outset affected by a defect of consent or any other major defect or was not contrary to a rule to which public persons cannot derogate. These rules are notably the prohibition of donations, the prohibition of the alienation of public real estate, the prohibition to waive certain prerogatives as public authorities or mandatory rules of European Union law.

The decision of the Council of State in this case

Applying these rules in this case, the Council of State ruled that the arbitration award had been handed out in accordance with the procedure.

Concerning the settlement of the dispute, the applicants claimed, in particular, that the referees had made a mistake on the applicable law. The referees had indeed considered that the contract in dispute was a private law contract. The Tribunal des Conflits, when it decided to assign the dispute to administrative courts, had contrariwise ruled that this contract, signed at the outset by the Gaz-de-France public agency, remained an administrative contract subject to public law rules applicable to such contracts. However, having regard to the limited control of the administrative judge on arbitration awards, the Council of State rules that this mistake on the applicable law does not lead to the automatic annulment of the award : an annulment only incurs when the mistake led the referee to violate or ignore a mandatory rule of French public law. It turned out here not to be the case, taking into account the consequences drawn from this legal characterisation for the compensation claimed by the grouping of companies for the over-costs, resulting from the behaviour of the Fosmax LNG company during the progress of work on the site.

On the other hand, the Council of State rules that the award violates a mandatory rule of French public law on one point : considering that it had to enforce a private law contract, the arbitration tribunal had ruled that the Fosmax company could not decide to carry out itself the work or entrust it to a third party, at the contracting party’s expense, on the grounds that the contractor did not fulfil the obligations resulting from the contract. Yet a public work contract always entails such a capacity ; this is a mandatory rule that is applicable even when no provision is made in the contract. On this point, the Council of State quashes the award which, confining itself to the statement that the contract imposed the prior termination of the contract before the Fosmax company could decide to carry out itself the work or entrust it to a third party, had rejected the Fosmax LNG company claims regarding the order of the grouping to pay the full costs of the works that the company had entrusted to third parties at the grouping’s expense.

The annulment does not lead the Council of State to settle on its own what remains from the dispute. Parties have to bring the dispute, on this point, if they wish to do so, before an arbitration tribunal. They would be able to bring the dispute on this point before an administrative court only if they both wish to do so, and hence amended their arbitration agreement.

> french press release and decision