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French Supreme Court quashes decision that declined extension of arbitration clause to a non-signatory
Practical Law UK Legal Update 1-523-8261 (Approx. 3 pages)
French Supreme Court quashes decision that declined extension of arbitration clause to a non-signatory
by Brendan Green, Herbert Smith Freehills LLP
| Published on 31 Jan 2013 • France |
The French Supreme Court (Cour de Cassation) has quashed a decision of the Grenoble Court of Appeal involving the extension of an arbitration clause to a non-signatory to an underlying contract.
The dispute centred on a contract for the distribution of orthopaedic products. The contract was signed by a French company (Amplitude) and a Greek company (Oebe TH Thoutou and Co, referred to as "Mediforce Hellas"). However, distribution was chiefly carried out by a second Greek company (IakovoglouPromodos and Co, referred to as "Orthopaedic Hellas"). When a dispute arose over Amplitude's termination of the contract, both Mediforce Hellas and Orthopaedic Hellas commenced arbitral proceedings, relying on the contract's arbitration clause.
The arbitrator found that he had jurisdiction over the claims of both Mediforce Hellas and Orthopaedic Hellas. However, the Grenoble Court of Appeal held that the arbitrator had exceeded his jurisdiction, and therefore the court set aside the award. It held that the mere fact that Othopaedic Hellas had performed deliveries under the contract was not sufficient to extend the scope of the arbitration clause to include its claims.
Both of the "Hellas" companies appealed the decision to the French Supreme Court. In their submissions, they described Mediforce Hellas and Othopaedic Hellas as sister companies and noted that the two were established by the same individuals and carried on the same commercial activity. They also argued that, given the proximity of the two companies, the fact that Orthopaedic Hellas performed the central obligations under the contract was sufficient to infer that the parties were aware of the contract's terms, including the arbitration clause. Therefore, the clause should be extended to cover Orthopaedic Hellas' claims.
The Supreme Court embraced this line of reasoning and held that the arbitration clause could be extended to cover Orthopaedic Hellas' claims. In its reasons, it held that, in the circumstances of this case, the Court of Appeal had erred in finding that the arbitration clause did not extend to the company that had executed the central obligations of the contract.
The Supreme Court's reasoning is consistent with the broad interpretation accorded to arbitration clauses by French courts. In particular, it serves as an example of the willingness of French courts to extend the application of an arbitration clause to a non-signatory in certain circumstances. In the present case, those circumstances included the proximity of the non-signatory to one of the parties to the contract (the fact that they were sister companies established by the same individuals and exercising the same commercial activity), as well as its performance of the signatory party's "essential" obligations under the contract.