From modernisation to internationalisation of Luxembourg arbitration law

Max Mailliet
Etude Max Mailliet, Luxembourg
max.mailliet@e2m.lu

Anne Sophie Boul
Etude Max Mailliet, Luxembourg
​​​​​​​annesophie.boul@e2m.lu

Claire Riou-Le Jeune
Etude Max Mailliet, Luxembourg
claire.rioulejeune@e2m.lu

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Arbitration is an alternative dispute resolution method which, while growing in importance internationally remains relatively unknown to Luxembourg's economic actors, even though Luxembourg has many advantages to become a recognized place for arbitration (such as its multicultural and multilingual character, including the members of its bar, its financial center and its highly qualified workers).

In addition, arbitration offers many advantages in terms of dispute resolution, particularly in terms of time, since the arbitral tribunal is generally given a strict procedural timetable to render its decision.  Appeal procedures against the decision are also limited, and confidentiality guarantees the business secrecy and the reputation of the parties. Finally, the contractual nature of arbitration gives the parties considerable freedom in the organization of their dispute.

However, for this purpose, it is essential that arbitration be provided with an efficient and modern legislative framework, adapted to the new requirements of international trade, following the example of Paris or London, which are major centers for international arbitration.

At present time, however, the rules applicable in this area are derived from the Napoleonic era and have been modified only slightly. Since, Luxembourg arbitration law, although regularly practiced in Luxembourg, has not been thoroughly modernized, despite the phenomenon of economic globalization, legislative reforms of arbitration in neighboring countries and a general favour, including in Luxembourg, for the development of alternative dispute resolution methods. While this law, regulated in a rather summary way in articles 1224 to 1251 of the New Code of Civil Procedure, is no longer in line with practice, the Government has unequivocally displayed its desire to develop this mode of dispute resolution by tabling the bill n°7671 dated 15 September 2020^[1]:

'This alternative dispute resolution method will be modernised in order to highlight its advantages in terms of flexibility, time and confidentiality, while providing appropriate guarantees, particularly with regard to respect for public order, the rights of the parties to the arbitration and respect for the rights of third parties'.

The draft law in question substantially reforms the entire arbitration regime currently codified in Articles 1224 to 1251 of the New Luxembourg Code of Civil Procedure in order to provide Luxembourg with a body of coherent, modern rules adapted to the needs and practices of modern commercial arbitration.

This in-depth revision is inspired by the UNCITRAL (United Nations Commission on International Trade Law) model law on international commercial arbitration and by the laws of its neighboring countries (France and Belgium), whose recent reforms are similarly inspired by this model law.

The bill is based on three fundamental choices: 

• the 1st choice is that of methodology: the global context in which Luxembourg is evolving led the drafters of the bill to favour a text which is coherent with existing texts. Thus, they were inspired by French law, but also by the suggestions of the United Nations Commission on International Trade Law (UNCITRAL), the latter having been transposed into law in a hundred or so countries including Belgium;
• the 2nd choice is that of fairness: the objective of the reform is to facilitate recourse to arbitration in civil and commercial matters, while excluding certain rights from its field of application, in particular in fields where an imbalance between parties exists. This exception concerns in particular consumer law, labor law and tenancy law;
• the 3rd choice is not to distinguish between domestic and international arbitration: this choice is explained by the fact that no argument could justify a differentiated treatment, since arbitration in Luxembourg is most often international.

Based on these fundamental choices, it is above all the regime of international arbitration under French law that has served as a reference model for the draft law.

However, it should be borne in mind that the enforcement of an arbitral award requires the intervention of the state power in order to be enforceable, insofar as it emanates from private justice. In this respect, it is important to underline that there is a fundamental difference between decisions rendered in Luxembourg and decisions rendered abroad, a difference which is dealt with in a separate chapter.

The proposed new rules are as follows:

For arbitral awards made in Luxembourg:

• ​the exequatur procedure is a simplified proceeding;
• the exequatur cannot be granted if the award is manifestly contrary to public policy;
• the order refusing exequatur may be appealed to the Luxembourg Court of Appeal, it being specified that in the context of these proceedings, the Luxembourg Court of Appeal may be seized by the other party of an action for annulment;
• the exequatur order cannot be appealed independently, but Luxembourg may be subject to an application to the Luxembourg Court of Appeal for annulment on limited grounds listed. This application entails an appeal against the exequatur order if it has been made;
•  Luxembourg decisions cannot be subject to opposition, appeal or cassation before a State court;
• Luxembourg decisions may be subject to an application for judicial review before the arbitration tribunal on the basis of a limited number of grounds;
• Luxembourg decisions may be subject to an opposition by a third-party to the Luxembourg Court of Appeal.

• the exequatur procedure is a simplified proceeding;
• the grounds for refusal are limitation number (reference is made to the grounds for annulment of Luxembourg decision);
• the exequatur order or refusing exequatur may be appealed to the Luxembourg Court of Appeal;
• the exequatur order or refusal of exequatur may be subject to an appeal for review before the Luxembourg Court of Appeal on a limited number of grounds (reference is made to the grounds for review of Luxembourg decisions);
• the foreign decision may be subject to an action for non-enforceability before the Luxembourg Court of Appeal based on the limited grounds listed (reference is made to the grounds for refusal of exequatur and review of Luxembourg decisions);
• the foreign decision may be subject of an opposition by a third party to the Luxembourg Court of Appeal.

This bill, which is in line with a spirit of modernization and internationalization of arbitration, will have the advantage of reinforcing Luxembourg as a competitive arbitration center and will further increase the attractiveness of this alternative dispute resolution method for national economic actors.

However, we will have to wait and see how the proposed reform will fare in the early stages of legislation, even though it is currently being welcomed by stakeholders at the current stage of parliamentary work.