The impossible relationship between arbitration and the insolvent party?
The ICC Arbitration Rules provide that each party should contribute in equal shares to the advance on costs of the arbitration. However when a party has submitted counterclaims and refuses to comply with such payment, the other party may request the Court to set separate advances on costs. If the defaulting party still does not comply with the advance on costs within a time-limit set by the Secretariat, the rules provide that its counterclaims may be considered withdrawn. However, such withdrawal does not prevent the defaulting party from reintroducing the same claims at a later date in another proceeding.
The Paris Court of Appeal was recently confronted with the issue of the validity of an arbitral award rendered in a case where a company which was being liquidated could not pay the advance on cost and accordingly had its counterclaims withdrawn from the proceedings. On November 17, 2011, the Paris Court judged that, despite the conformity of the withdrawal decision taken by International court of Arbitration with its Rules, the defaulting party had been deprived of its counterclaim in practice. Indeed, the possibility of reintroducing the claim was only theoretical while the liquidation process were ongoing and the withdrawal in practice amounted to a denial of justice and resulted into breaching the equality between the parties. As a consequence, the award was considered in breach of the adversarial principle and international public policy and was annulled on the grounds of former articles 1502 (4) and (5) and 1504 of the French Code of Civil procedure.
If this decision may be considered fair to the insolvent party acting in good faith, it questions essential principles of arbitration as a system of private justice. Moreover, as the strict application of the ICC Arbitration Rules is hereby criticized by the Paris Court of Appeals, this decision creates additional doubts as to the scope of the duties belonging to the arbitral tribunal for the award to comply with the requirements of due process.ASA Bulletin