Paris Court of Appeal, No. 08/00760

Paris Court of Appeal, First Chamber, 13 November 2008, No. 08/00760

Upheld by: Court of Cassation, First Civil Chamber, 26 January 2011, No. 09-10.198

INSTITUT NATIONAL DE LA SANTE ET DE LARECHERCHE MEDICALE (INSERM) vs. FONDATION LETTEN F. SAUGSTAD

FONDATION LETTEN F. SAUGSTAD, under Norwegian private law, whose activity is the promotion of medical research relating in particular to the brain, concluded a memorandum of understanding with INSERM on 4 August 1998, in which an arbitration clause is inserted, to promote the realisation of a project to build a research centre in neurobiology.

A dispute has arisen between the parties, and INSERM summoned FONDATION LETTEN F. SAUGSTAD to appoint an arbitrator before the President of the Paris Tribunal of Grande Instance, who appointed Mr. Y Z. by order dated 15 May 2006.

Pursuant to an award delivered on 4 May 2007, M. Z, sole arbitrator, dismissed Ms. C D, who is not a party to the proceedings, noted that the memorandum of understanding of 4 August 1998 is equivalent to an agreement in principle between INSERM and the FONDATION LETTEN F. SAUGSTAD, which should have given rise to unsuccessful negotiations and that the failure of these negotiations is the responsibility of INSERM, and ordered INSERM to return the sum of 304,878.03 euros to the FONDATION LETTEN F. SAUGSTAD, paid on 28 April 1999 with interest and compound interest from the issuance of the award, dismissing the parties from their other claims.

According to the order of 16 May 2007, the award was declared enforceable.

INSERM filed an action for annulment of the award. It requested the court to stay the proceedings until the ruling to be handed down by the Conseil d’Etat on 4 September 2007, failing which article 4 of the protocol agreement of 4 August 1998 would be null and void. It also requested the Court to set aside the award and to rule that there was no reason to order INSERM to pay the sum of 304,878.03€.

INSERM claims that the memorandum of understanding is an administrative contract concluded by a legal person governed by public law and has as its object the construction of a building intended for scientific research, which consists of a public service mission, and that the memorandum of understanding contains exorbitant clauses of common law (in French: clauses exorbitantes de droit commun) attributing to it the nature of an administrative contract falling within the administrative jurisdiction.

It argues that the arbitration clause is null and void because of the prohibition imposed on public persons to conclude arbitration agreements, by article 2060 of the Civil Code, that it is a national public establishment of a scientific and technological nature placed under the supervision of the ministers of research and health; that no law or international convention derogates from this principle and authorized INSERM to have access to arbitration, and that article 19 of the law of 15 July 1982 authorizes public administrative research establishments to have recourse to arbitration following a compromise and not an arbitration clause.

Finally, it argues that the arbitrator breached the contractual obligations incumbent on each party by ordering it to return the sums even though it fully performed its obligation as project manager.

FONDATION LETTEN F. SAUGSTAD concludes that the request for a stay of proceedings and the appeal for annulment are rejected and requests that INSERM be ordered to pay the sum of 15,000 euros under article 700 of the Civil Procedure Code.

It states that INSERM referred the matter to the juge d’appui for the constitution of the arbitral tribunal, that it participated in the arbitration proceedings without ever contesting the arbitrator’s jurisdiction, its capacity to enter into arbitration agreements or the arbitrability of the dispute; that accepting the jurisdiction of the arbitral tribunal precludes a subsequent challenge to the validity of the arbitration clause before the French courts under the rule of estoppel.

It points out that Article 2060 of the Civil Code authorises by decree categories of public establishments of an industrial and commercial nature to enter into arbitration agreements. It also specifies that an order of 17 June 2004 authorises the use of arbitration in the case of public-private partnership contracts, and that the law of 15 July 1982 which created the public scientific and technological establishments, including INSERM, authorises the use of arbitration in the case of disputes arising from the performance of research contracts concluded with foreign organisations. It therefore maintains that the arbitration clause is valid and that the INSERM’s board of directors approved it.

It argues that the contract concluded between them is of a private law nature and specifies that in international arbitration the validity of the clause is independent of the administrative or private nature of the contract. Finally, it adds that it challenged before the President of the Paris Tribunal of Grande Instance the capacity to act of INSERM which, instead of referring the matter to its natural judge, the administrative judge, preferred to refer the matter to the judicial judge to constitute the arbitration tribunal and signed an arbitration agreement on 26 June 2006.

UPON WHICH:

Whereas according to article 4 of the Memorandum of Understanding signed between INSERM and the FONDATION LETTEN F. SAUGSTAD “in the event of difficulties in the application of this Memorandum of Understanding, the Parties agree to find an amicable solution. If they fail to do so, the parties will agree to appoint a mediator. If mediation fails, the parties will have resort to arbitration”;

Whereas, according to article 1492 of the Civil Procedure Code, arbitration which involves the international trade interests is international; that the internationality of arbitration is based exclusively on an entirely economic definition according to which it is sufficient that the dispute submitted to the arbitrator relates to a transaction which is not settled economically in a single State, and this regardless of the status or nationality of the parties, the law applicable to the merits or to the arbitration, or the seat of the arbitral tribunal; that the object of the Memorandum of Understanding was, according to its preamble, to pool the efforts of INSERM and FONDATION LETTEN F. SAUGSTAD “to promote the realisation of a project for the construction of a research centre in neurobiology” with the construction of a building “exclusively dedicated to research in neurobiology and to the training of clinicians and researchers in this field” with funding for the most part by the Foundation, which implies the movement of funds from the Norwegian foundation across borders; that, as stated in the order of the President of the Paris Tribunal of Grande Instance of 15 May 2006, “the parties agree to consider this as an international arbitration” and that in the Terms of Reference the parties expressly agreed on the international nature of the arbitration;

Whereas the action for annulment of the arbitral award made in France in matters of international arbitration is, under article 1505 of the Code of Civil Procedure, brought before the Court of Appeal in whose jurisdiction the award was made; that the action against the award made in Paris, in matters of international arbitration, has therefore rightly been brought before the Paris Court of Appeal; that, consequently, the proceedings initiated before the administrative courts and currently pending before the Conseil d’Etat have no impact on the action for annulment of this arbitral award brought before the Paris Court of Appeal; that, consequently, the application for a stay of proceedings is rejected;

Whereas the prohibition for a State to enter into arbitration agreements is limited to contracts of a domestic nature unless otherwise provided by law, but that in view of the principle of validity of the international arbitration clause, this prohibition is not of international public policy; as a result of the arbitration between the INSERM and the FONDATION LETTEN F. SAUGSTAD involving the international trade interests. Thus, the sole ground for the nullity of the arbitration agreement under Article 1502-1 of the Code of Civil Procedure and therefore the action for annulment are rejected; that the INSERM therefore is dismissed of its request to order the FONDATION LETTEN F. SAUGSTADSTADSTADSTAD to pay a sum of money;

Whereas it is appropriate to condemn it to pay to the Foundation C the sum of 15,000 euros based on article 700 of the Civil Procedure Code;

FOR THESE REASONS,

Rejecst the application for a stay of proceedings,

Rejects the action for annulment,

Dismisses INSERM for his other requests,

Orders INSERM to pay to FONDATION LETTEN F. SAUGSTAD the sum of 15,000 euros under article 700 of the Civil Procedure Code,

Orders the INSERM to the costs and admits Counsel Gilbert THEVENIER, avowed, for the benefit of article 699 of the Civil Procedure Code.