In France, a failure to mediate, conciliate or even negotiate prior to initiating claim, can be a source of significant risk to a claimant in arbitration and court proceedings. Such failure can in fact be terminal for the claimant, where its claim is subject to French law. Where circumstances align, the claim will end up as inadmissible without any consideration being given by the Court or arbitrator to the merits. In practice, such circumstances not infrequently can and do need to be addressed.
Introduction Contracts frequently contain ADR provisions, in tune with current ways of thinking, directing the parties to try and resolve disputes prior to instituting arbitral or court proceedings. In complex contracts, dispute resolution provisions may be multi-tiered, perhaps with a requirement that the dispute be escalated internally with a view to negotiations, possibly conducted in several rounds, with mediation as a final fallback before arbitral or court proceedings can be envisaged.
What does a claimant do, faced with such provisions, perhaps in circumstances where an amicable resolution appears unlikely or if, worryingly, the time bar for claims is approaching? These will not be unfamiliar scenarios to clients, their in-house counsel or their advisers. They need to be approached with extreme care, given the serious consequences if the wrong decisions are taken.
One question that is foremost is: faced with such contractual provisions, will a claim founder if the claimant fails to mediate, conciliate or otherwise seek to negotiate a dispute prior to initiating a claim before the courts or in arbitration? The answer to that question will vary depending on the applicable law and jurisdiction, and the relevant ADR provisions. However, under French law, you ignore such provisions at your peril.
A recent decision of the French Supreme Court has underlined the risk for claimants in this area.
Case A Thales subsidiary entered into a contract with Copvial to act as head contractor on a construction project. A clause in the contract provided as follows:
“For all disputes that may arise in the performance of this contract, the parties undertake to obtain an opinion from a jointly nominated arbitrator before recourse to any other court.”
The Thales subsidiary initiated a claim seeking an order to terminate the contract and award damages. Copvial contested the claim on the simple grounds that the claim was inadmissible because the Thales subsidiary had breached its undertaking under the above clause.
For the Court of Appeal, this was a conciliation clause (not an arbitration cause) which the Thales subsidiary was bound to respect before commencing proceedings before the courts.
The Supreme Court upheld the Court of Appeal decision in favour of Copvial, dismissing the claim.
Comment In a series of decisions over the past few years, the French Supreme Court has built a significant legal framework around multi-tiered dispute resolution provisions. The result is that claimants risk severe sanction if they fail to comply with such provisions. Three leading rulings, in particular, stand out:
- 2003: The principal sanction for a failure to comply is a finding of inadmissibility (not a stay of proceedings or other procedural sanction), leading to dismissal of the claim.
- 2005: The failure can be raised as a defence at any time by the defendant. It can even be raised for the first time in appeal proceedings.
- 2014: The failure cannot be ‘cured’ or otherwise resolved prior to judgment being handed down by the claimant complying with the relevant provisions after commencement of the claim (the decision of the Supreme Court effectively overturning prior contrary rulings on this point).
For the purposes of a time bar for claims, the legal consequence of a finding of inadmissibility (fin de non recevoir) is that the claim is deemed not to have been made (non-avenue).
A claimant therefore ignores at its peril the hardened and, as the reported case illustrates, hardening attitude of the French courts in this area. Whether it be an arbitral tribunal or a French court applying French law, the risks are clear: in court proceedings, the claim risks being dismissed purely and simply as inadmissible. In arbitral proceedings, the tribunal may have to rule that it has no jurisdiction.
However, it is not all bad news for claimants. It is still the case that courts will not sanction an obligation to mediate, conciliate or negotiate with a finding of inadmissibility where the wording of the provision in question is not sufficiently precise. It will instead award damages in such cases. However, unless the provisions are clear beyond doubt, it is a brave lawyer who will predict with certainty how a French court or arbitrator will adjudge the matter.
A defendant with little or no substantive merit in its defence has little to lose, and potentially much to gain, in raising an inadmissibility defence. There are reported cases in France where the very same standard form wording has been treated by different courts of appeal as justifying a finding of inadmissibility in one case or mere damages in another. This is not something the Supreme Court can harmonise. But the consequences of the different interpretations of the same wording are serious for the aggrieved party whose claim is dismissed outright, rather than being allowed to continue with its claim.
As a final remark, it should perhaps be noted that there is no uniform approach in this area across other jurisdictions: in some, the law imposes minor or no sanctions on the claimant. In others, the claimant is subject to potentially the severest sanction of having its claim dismissed, as in France.
English law: Under English law, the question is one of enforceability and will generally lead to a stay of proceedings. This effectively allows the claimant to cure the breach, or it may be forced to comply by way of an accompanying injunction. Such an approach will slow down, but not stop the claim, although the risk in arbitration is somewhat higher because the issue may be capable of being couched as a jurisdictional argument.
German law: Under German law, mediation scenarios can become increasingly relevant. Whereas in the past mediation generally was considered as a formality, recent developments indicate that the strict regime applicable to conciliation, which requires that the parties to indeed attempt conciliation prior to filing of a claim, should also apply to mediation. In a recent appeal decision of the Higher Regional Court of Saarbrücken the court stated that an obligation to mediate can be determined in the same manner as an obligation to conciliate in respect of the question of admissibility of a claim.
Dutch law: Rulings suggest that a failure to adhere to a mediation clause does not generally lead to the claim being inadmissible and that the claimant’s right to access a third party to rule on the dispute (i.e., the court) is more important than the defendant’s right to mediation.
In summary, the lenient Dutch approach can be contrasted with the severe French approach, with the English approach ending up somewhere between the two, and the German approach leaning somewhat towards the stricter French regime.
How Reed Smith can help? Reed Smith can review ADR provisions in your standard form contracts to limit risk in this area and consider whether it is advisable for you to include such provisions at all.
If a dispute is pending, do not wait until the time bar is approaching before bringing your usual advisers into the picture, particularly if a short (e.g., one year) time bar applies.
If you are not keen on (immediately) complying with multi-tiered dispute resolution provisions, perhaps because the other side holds out no prospect of resolving the dispute through such steps, consider asking your usual advisers about applying for interim relief. Generally speaking, applying to the courts for interim relief will not breach the obligation to mediate, conciliate or negotiate, and will also stop the clock on the time bar for any claim.
If you have a claim in foreign court proceedings that is subject to French law, check with your usual advisers as to whether the risks outlined in this alert are real or may arise.
Client Alert 2016-241