Arbitration and the insolvent party, finally back together?
At the end of 2011, the Paris Court of Appeal was confronted with the issue of the validity of an arbitral award rendered in a case where the defendant, a company that was being liquidated, could not pay the advance on cost and accordingly had its counterclaims withdrawn from the proceedings in application of the ICC Arbitration Rules (the "Pirelli" case). The Paris Court of Appeal annulled the award on the basis that, since the possibility of reintroducing the claim was only theoretical due to the liquidation, the withdrawal of the counterclaim amounted to a denial of justice. However, further to the recourse filed by the claimant, the French Supreme Court narrowed the scope of the Paris Court of Appeal's decision. Specifically, the French Supreme Court determined that, when the advance on costs for counterclaims was not paid, the arbitral tribunal was only compelled to examine claims that are "inseparable" from the main claim ("indissociables" in French). If the option chosen by the Supreme Court therefore favors the binding nature of arbitration, it does not yet provide a solution to claimants who are not able to fund arbitration proceedings and only allows insolvent parties to present claims that can be considered as defenses to the main claims.
Before the Supreme Court rendered its decision in the Pirelli case, the Paris Court of Appeal was confronted with a case where a company called Lola Fleurs asked it to decide that an arbitration agreement was inapplicable because of its own inability to pay arbitration costs. Although the Paris Court of Appeal decided to apply the negative effect of the competence-competence principle and comfort the strength of the agreement to arbitrate, it also took this opportunity to affirm that in all cases, the arbitral tribunal is responsible for granting the parties an access to justice.ASA Bulletin