The PWC v. Lefebvre case

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Julia Martins Gomes 

Bachelor of Laws Degree from the University of São Paulo Law School. Master’s Degree in Private Law from Université Paris II Panthéon-Assas.

 

This year, the rentrée has been busy for the French arbitration community. A recent decision of the Cour de cassation is pointed out as one of the most important of recent times in international arbitration involving consumers: the PWC vs Lefebvre case (Cass. 1re civ., 30 September 2020, No 18-19.241).The present commentary aims to report this case by first providing a brief overview of the competence-competence principle and former precedents on the matter, mainly those known as Jaguar and Rado.

In France, the competence-competence principle can be found in article 1448, first paragraph, of the French Code of Civil Procedure, and is applicable to international arbitrations by virtue of article 1506, first paragraph, of the same code. Such provisions establish a rule of priority in favor of arbitrators to rule on their own jurisdiction, but also an exception: in the presence of an arbitration agreement, state courts must always decline jurisdiction, unless the arbitral tribunal has not yet been constituted and if the arbitration clause is manifestly void or manifestly inapplicable.

This exception originated through case law and was later codified by decree No. 2011-48 of 13 January 2011. It is particularly relevant to arbitrations involving consumers. This is because, according to a former version of article 2061 of the French Civil Code, the validity of an arbitration agreement was only recognized if the arbitration clause was concluded in the context of a commercial activity, as provided by the former article 631 of the French Commercial Code. However, this rule was not (and still is not) applicable to international arbitrations, even those involving consumers. It is in this scenario that Jaguar (Cass. 1re civ., 21 May 1997, No 95-11.429 and No 95.11-427) and Rado (Cass. 1re civ., 30 March 2004, No 02-12.259) gain relevance to this analysis.

The first case, Jaguar, refers to the sale of a luxury vehicle by an English company to a French consumer. In the second, Rado, US companies opened a bank account and provided brokering services to a French client. After disputes have arisen in both cases, the French consumers tried to present their cases in state courts, but the courts denied their requests based on the arbitration agreements, invoked by their opposing parties. The main reason why these cases are important is the fact that the courts rejected the argument that the arbitral clauses would be void because they were concluded by consumers. These lower court decisions were sustained by the Cour de cassation, which also confirmed that international trade interests were at stake (a key characteristic of international arbitrations according to French law). Furthermore, the Cour de cassation held that the arbitration clauses were only subject to rules of international public order. Finally, the Cour de cassation stated that the arbitrators should assess their own jurisdiction, especially with regard to the arbitrability of the conflict, subject to later control of state court judges through annulment proceedings.

Thus, consumers were prevented from relying on article 2061 of the French Civil Code with regards to international arbitration cases and thus unable to rely on the exception to competence-competence provided by French law.

In this scenario, the decision in PWC vs Lefebvre brings significant change in favor of consumers. Although they may not benefit from the rule of article 2061 of the French Civil Code, they may rely on the rules derived from European Council directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts (“directive 93/13/EEC”) – especially articles 3, 6, § 1 and 7, § 1, and item 1, ‘q’ of its annex.

The decision stems from a largely disputed sharing out of an estate. A French heiress initiated court proceedings accusing the Spanish company PWC Landwell-PricewaterhouseCoopers Tax & Legal Services (“PWC”) of having failed its mission to defend her interests in her father’s succession in Spain. PWC contested the jurisdiction of the courts by invoking the arbitration clause in the contract signed by the parties. The heiress objected to the application of the clause, arguing that it would be abusive according to article 3 of directive 93/13/EEC.

The lower courts – the juge de la mise en état of the Tribunal de Grande Instance de Pontoise (decision No 14/05624 of 2 May 2017) and the court of appeal of Versailles (decision No 17/03779 of 15 February 2018) – adhered to the heiress’ arguments and discarded the arbitration clause on the following basis: (i) the absence of proof that the clause was subject to individual negotiation; and (ii) the existence of a significant imbalance in the parties’ rights and obligations.

PWC appealed the decision to the Cour de cassation alleging, among other things, that the court of appeal would have violated article 1448 of the Code of Civil Procedure and that it could not have ignored the arbitration clause. According to PWC, the state judge could not examine the applicability of the arbitration clause, according to the competence-competence principle. In addition, the exception to competence-competence did not apply because the analysis of the unfair character of an arbitration agreement on the basis of directive 93/13/EEC would involve verifying the conditions under which the clause would have been negotiated and concluded, which would be incompatible with the finding that the clause is manifestly null or manifestly inapplicable.

However, these arguments did not convince the Cour de cassation. Relying on directive 93/13/EEC, as well as on the case-law of the European Court of Justice, the Cour de cassation put great emphasis on the procedural protection that shields consumers. In this sense, the Cour de cassation considered that “the procedural rule of priority edited by this text [article 1448 of the Code of Civil Procedure] cannot have the effect of making it impossible, or extremely difficult, for consumers to exercise the rights conferred by Community law, which the national courts are obliged to protect” (§13, free translation). The Cour de cassation then concluded that “the court of appeal which, after having examined the applicability of the arbitration agreement by looking at all appropriate factual and legal elements at its disposal, declined to apply the arbitration agreement, performed its obligation as a domestic judge to ensure the full effectiveness of European consumer protection laws without disregard to the provisions of article 1448” (§14, free translation).

With regard to the other issues decided, it is worth noting that the Cour de cassation upheld the lower courts’ decision in all its aspects, confirming the unfair character of the arbitration agreement – which was considered a standardized clause – due to the absence of proof of individual negotiation, as well as to the competence of the French courts under articles 17.1(c) and 18 of Regulation No 1215/2012 of 12 December 2012 (Brussels I bis Regulation).

It is quite clear that this important decision disrupts the traditional solution that derives from the cases Jaguar and Rado. However, scholars are already debating it. In fact, even though the arrêt in discussion is a reasoned decision in accordance with a new technique much more loquacious recently adopted by the Cour de cassation, there are still doubts about the message the court wanted to send through it.  

In doctrine, some authors interpret the decision as providing a new hypothesis of manifest nullity of arbitration agreements (La Semaine Juridique Entreprise et Affaires n° 42, 15 Oct. 2020, act. 697). However, a more aggressive interpretation seems to prevail, according to which the decision would represent a complete abandonment of the competence-competence principle in international arbitrations involving consumers (Jérémy Jourdan-Marques, 6 Nov. 2020 ; Stavroula Koulocheri, Actualités du droit, 7 Oct. 2020 (Lamyline/Wolters Kluwer) ; Armand Terrien, Arbitration of Consumer Disputes in France: Get Thee Behind Me Competence-Competence?, Kluwer Arbitration Blog, 12 Nov. 2020 ; Maximin De Fontmichel, La Semaine Juridique Edition Générale n° 48, 23 Nov. 2020, 1311 ; Daniel Mainguy, AJ contrat 2020 p.485 ; Sylvain Bollée, Gaz. Pal. 24 Nov. 2020, n° 391e5, p. 27 ; Thomas Clay, Recueil Dalloz 2020, p. 2484 ; Sabine Bernheim-Desvaux, Contrats Concurrence Consommation n° 12, Dec. 2020, comm. 178).

As to the majority of scholars, it is worth mentioning the thoughts of Emmanuel Gaillard. For the author, considering this an abandonment of the competence-competence principle in this particular case would be a salutary choice: by not stretching the concept of a manifestly void/inapplicable arbitration agreement, the Cour de cassation would avoid weakening the principle (Journal du droit international (Clunet) n° 4, Oct. 2020, 22).

There are still many questions without an answer about the solution provided by the PWC vs Lefebvre case – especially as to which grounds would justify abandoning the competence-competence principle – (Jérémy Jourdan-Marques, op. cit.). There is also much to be debated on its potential impact beyond consumer relations, as in labor disputes, for example (Armand Terrien, op. cit. ; Maximin De Fontmichel, op. cit.). In light of so many questions, one thing is certain: if part of the scholars’ work is to decipher the decisions of the Cour de cassation, a lot of ink remains to be spilled over this decision.

 

 

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