Johan Billiet, Dilyara Nigmatullina

Association for International Arbitration

The last decades have witnessed a tremendous boost of international trade that, in turn, has led to an increase in complex commercial disputes requiring resolution. Due to a number of well-known reasons, arbitration has become the preferred means of the resolution of international commercial disputes. Some statistical data for the past five years evidences that arbitration is on the rise in Belgium as well. Starting from 2006, the number of requests for enforcement and actual enforcements granted, at least in Brussels, has been continuously increasing. In order to preserve the objectivity of the information, the necessity to apply for an enforcement of an award arises only if the losing party fails to voluntarily comply with that award. In Belgium, the award can be enforced if it has been declared enforceable by the president of the Court of First Instance, who is authorised, under the Belgian arbitration legislation, to dismiss the request for enforcement if the award or its enforcement is contrary to public policy, or if the dispute was not arbitrable. None of the requests for enforcement filed with the Brussels Court of First Instance from 2006 to 2010 has been denied so far. In 2006, 117 exequatur were granted; in 2007, the number went up to 131; in 2008, it continued to increase up to 154; in 2009, it constituted 231; and in 2010, it reached the absolute maximum of 265 issued enforcements.

This article addresses the recent tendencies within arbitration in Belgium, starting with an overview of development of the country’s arbitration legislation. Then it turns to examine the concept of Belgian arbitrability, before analysing the application and interpretation of arbitration legislation in a number of recent cases.

Development of arbitration legislation in Belgium

The Belgian arbitration legislation was incorporated into the Belgian Judicial Code (BJC) in 1972. Articles 1676 to 1723 integrated into Belgian law the provisions of a Uniform Law annexed to the European Convention on Arbitration signed in Strasbourg on 20 January 1966. Further to the provisions of the Convention, Belgium has a uniform law governing both domestic and international arbitration.

In 1985, the Belgian arbitration legislation was modified for the first time and included a new provision - article 1717.4 - that provided that no action to set aside an award was available if none of the parties had Belgian nationality or residence in Belgium, or was an entity constituted in Belgium or having a branch office, or any other seat of operation, in Belgium.

The law of 19 May 1998 modified the Belgian legislation on arbitration for the second time and quite extensively. One of the major innovations concerned article 1717.4. The introduction of this provision in 1985 did not have the desired effect and seemed to discourage parties from choosing Belgium as the seat of arbitration. Therefore, starting from 1998, the new wording of article 1717.4 provides for an opt-out system allowing the parties to agree to exclude any application for the setting aside of an award if there is no connection with Belgium other than the location of the seat of arbitration. Several changes of 1998 were derived from the UNCITRAL Model law, for example, the new article 1702 regarding the correction and interpretation of arbitral awards reproduced article 33 of the UNCITRAL Model Law.

In 2009, CEPANI, the well-known Belgian arbitration institute, established a working group to revise the country’s arbitration legislation. The reform is aimed at bringing the Belgian arbitration legislation more in line with the UNCITRAL Model Law and innovative foreign laws, enhancing the accessibility of the Belgian arbitration legislation for foreign users and keeping it modern, flexible and efficient.

The concept of arbitrability in Belgium

Article 1676 of the BJC sets the criterion for arbitrability of disputes, which is the possibility for the parties to settle with respect to the issues referred to arbitration and for that purpose, further to article 2045 of the Belgian Civil Code (BCC), the parties must be able to dispose of their rights. The bulk of non-arbitrable disputes is constituted by those related to a personal status. Specific legislation restricts the arbitrability of disputes in certain areas as well.

Further to article 1678.2 of the BJC, arbitration agreements in respect of the disputes belonging to the jurisdiction of the Labour Courts, save in few instances, shall be automatically null and void if concluded prior to the moment the dispute arises. Within the area of intellectual property, the Patent Act of 28 March 1984 excludes, from arbitration, disputes relating to mandatory licenses. Similarly, within competition law pursuant to article 29 of the Law of 5 August 1991 on the Protection of Economic Competition, exemption decisions are excluded from arbitration and can only be taken by the administrative bodies indicated in the Law.

Starting from 1 September 2010, article 577-4 of the section regarding the mandatory co-ownership of buildings or group of buildings of the BCC contains a new paragraph 4, which prescribes to consider unwritten any clauses in the regulations of the building that empower one or more arbitrators to resolve disputes regarding application of that section.

An arbitrability restriction, which is definitely far from being appreciated by foreign parties, applies to disputes arising from exclusive distributorship agreements. Under article 4 of the Belgian Law of 27 July 1961 on Unilateral Termination of Exclusive Distribution Agreements of Indefinite Duration (Law of 1961), if an exclusive distributor has suffered damage further to the unilateral termination of a distribution agreement effective on all or part of Belgian territory, he may always initiate legal proceedings before the courts of Belgium. In such cases the Belgian courts must apply Belgian law exclusively. Article 6 of the Law of 1961 adds that the provisions of the Law will prevail over any contrary stipulations of the parties, agreed upon prior to contract termination.

In Sebastian International v Common Market Cosmetics, the Court of Appeal of Ghent relied on the above-mentioned articles and, in spite of the fact that a distributorship agreement governed by California law contained an arbitration clause providing for ICC arbitration, assumed jurisdiction over a dispute between an American manufacturer and a Belgian distributor. The American manufacturer appealed at the Supreme Court of Belgium alleging that a court could have disregarded the arbitration agreement only if the matter in dispute was per se not arbitrable under the lex fori (ie, Belgian law) and it was a violation of the New York Convention to apply an internal rule of law of the lex fori. The Supreme Court disagreed and stated that as article 2 of the New York Convention does not specify whether the arbitrability of a dispute should be determined under the law applicable to the contract (lex causae) or under the law of the jurisdiction where a legal action is brought (lex fori), the judge dealing with the issue is allowed to examine the question under his lex fori. On 14 January 2010, the Supreme Court upheld the Court of Appeal of Ghent’s finding that an arbitration clause in a distribution agreement providing for the application of a law other than Belgian was void under the Law of 1961.

Application and interpretation of Belgian legislation on arbitration in recent cases

Degree of court reviews

The SNF v Cytec case arose out of a long-term agreement to supply acrylamide, a chemical component mainly used as water-soluble thickener, by a Dutch company, Cytec, to a French one, SNF. In January 2000, SNF terminated the agreement stating that it was contrary to articles 81 and 82 of the EC Treaty. The contract provided for ICC arbitration in Brussels. In May 2000, Cytec initiated arbitration proceedings that resulted in two awards rendered in 2002 and 2004. In the first award, the arbitrators found the disputed agreement unenforceable as it violated article 81 of the EC Treaty. The tribunal also decided to equally share the liability between the parties as, in its view, both of them bore responsibility for the contract to be void. However, in the second award, the tribunal awarded damages only to Cytec, indicating that SNF had failed to establish its losses.

SNF challenged both awards by filing applications to set them aside in Belgium and refuse their enforcement in France. The court of Paris granted CYTEC the exequatur, which was consequently upheld by the Court of Appeal of Paris in March 2006 and the French Cour de Cassation in June 2008. The French courts noted that the courts’ control in enforcement or annulment proceedings should be limited and not extend to the substance of the arbitral award. The enforcement could be denied only if an award contains a flagrant and effective violation of EU competition law. In the case at hand, SNF intended to reopen a debate on the merits. Consequently, its challenge was rejected.

A radically different result was reached by the Brussels Court of First Instance, which conducted an in-depth review of the merits of the case and annulled, in March 2007, both awards. The court stated that the awards violated the European competition law (ie, public policy) and contained inconsistent reasoning by finding that the contract was void on the one hand and awarding damages to Cytec on the other hand.

Cytec appealed and on 22 June 2009, the Court of Appeal of Brussels overruled the decision of the Brussels Court of First Instance. However, reversing the judgment of the lower instance, the Court of Appeal undertook the same review of the merits of the case but came to a different conclusion. In the Court of Appeal’s view, by annulling the contract, the arbitral tribunal had correctly applied the European competition law and the decision of the arbitrators to award damages was not incompatible with the fact of annulment of the contract.

The SNF v Cytec case also evidences that the multiplicity of courts entitled to revise an arbitral award might easily lead to protracted and complex litigation. In order to overcome this drawback, one of the proposed amendments to the Belgian arbitration legislation is to limit the revising authority to one instance.

Challenge of arbitrators

In one recent case, the Court of First Instance of Kortrijk and the Court of Appeal of Ghent had to deal with the challenge of the sole arbitrator. At both instances the parties argued that the arbitrator failed to communicate with them directly, sending all correspondence to an unauthorised attorney instead. Nevertheless, both courts found that the arbitrator had reasons to believe that he could validly communicate with the parties through that attorney and only later did he become aware that the mandate of the attorney had been terminated.

Additionally, on the appeal level, the parties argued that the arbitrator in question had acted as counsel in the proceedings against their accountant and as the dispute dealt with the payments for a transfer of shares, the role of the accountant in the arbitration was quite significant. On 30 April 2009, the Court of Appeal dismissed the challenge stating that never before had the parties raised such an objection in spite of the fact that proceedings against the accountant had been initiated several years ago and the arbitrator had been already appointed 16 months ago. The Court of Appeal ordered the challenging parties to pay damages for dilatory tactics and unjustified claims.

Unfortunately, some current provisions of the BJC regarding the challenge of an arbitrator provide parties with easy tools to protract proceedings. For example, under article 1691.1 of the BJC, the arbitrators shall stay the proceedings once they are notified that the challenge has been filed, which is not in line with the provisions of the UNCITRAL Model Law and many national arbitration statutes authorising continuation of arbitral proceedings despite a pending challenge to an arbitrator. One of the proposed changes to the Belgian legislation on arbitration concerns the procedure of an arbitrator’s challenge.

Preferred situation as to the appointment of the arbitrator

Under article 1678.1 of the BJC, the arbitration clause shall be invalid if it grants a preferred situation to a party with respect to the appointment of the arbitrator(s). Similar provisions can be found in the German, Dutch and Swiss laws, though they provide for different consequences (ie, an alternative method of appointing arbitrators).

On 29 May 2009, the Supreme Court of Belgium upheld the decision of the Court of Appeal of Ghent in BVBA Euromachines v Lag Trailers, that membership of one party in a certain arbitration institute does not lead to the invalidity of an arbitration clause providing for dispute resolution under the auspices of that arbitration institute. However, before deciding on the issue, the Court of Appeal had examined the rules of the arbitration institute in question and verified that they did not contain any provisions related to the appointment of an arbitrator among its own members.

Violation of due process

In Beger v Guillaume, a dispute arose out of a lease agreement which provided for dispute resolution at the Arbitration and Mediation Chamber of Brussels. The lessor initiated arbitral proceedings, which finalised in the award rendered on 4 February 2009 in favour of the lessor.

The lessee applied for setting aside proceedings with the Court of First Instance of Brussels on 27 April 2009. The lessee relied on article 1704.2(g) of the BJC, contending that as he was neither informed of the arbitration proceedings nor, consequently, was he able to participate in them, his right of defence had been violated.

The Court of First Instance of Brussels analysed the facts of the case and issued a decision on 25 September 2009. In deciding, the judge relied on two considerations. The first one being that the issue of notification of submissions and correspondence between parties themselves as well as between parties and arbitrators constitutes part of the question of the violation of the parties’ rights to present their case and arguments. The second one being that whichever form of notification of the first submission in arbitration is chosen (eg, registered letter, writ of bailiff, appearance in person), it must contain an express reference to the relevant arbitration agreement.

Because, in the case at hand, the lessor failed to prove, among other things, that the notification of the initiation of arbitration allegedly sent by a registered letter had been actually delivered to the lessee, the registered letter presented to the arbitrator did not have an express reference to the relevant arbitration agreement and the lessee did not appear at the hearing which took place on 30 January 2009, there had been a violation of due process.

Postponing time limit for rendering an award

In one long-lasting case, the Court of First Instance, Court of Appeal of Brussels and the Supreme Court of Belgium had to revise the arbitral award. Each of the courts evaluated differently the relevant circumstances. The key issue before the courts was whether or not under the specific circumstances of the case postponing the time limit for rendering the award by the sole arbitrator, without the agreement of the parties, resulted in the excess of his jurisdiction.

Further to article 1698.3 of the BJC, the mission of the arbitrators ends if the award is not rendered in a timely manner, unless this time limit is extended by an agreement between the parties. In the case at hand, the arbitrator did not seek an agreement of the parties to extend the time limit, but merely informed the parties that he needed one more month to render an award. None of the parties had reacted until the award was actually rendered on 12 May 2003.

Then the claimant applied for setting aside of the award with the Court of First Instance, which dismissed the application. The claimant appealed, relying on article 1704.2(d) of the BJC whereby the arbitral award may be set aside if the arbitral tribunal has exceeded its jurisdiction or its powers. The Court of Appeal of Brussels again dismissed the challenge stating that, though the parties were aware of the delay in the course of the proceedings, the claimant failed to invoke the issue at that time as required by article 1704.4 of the BJC.

Finally, on 5 March 2009 the Supreme Court of Belgium annulled the decision of the Court of Appeal for the following reason. Article 1704.4 is applicable only if the excess of the arbitrator’s powers occurred in the course of the proceedings. The parties did not agree to postpone rendering the award, therefore the arbitrator had no jurisdiction on the day of the award, 12 May 2003. Consequently, in the case at hand, the ground for setting aside of the award could not have been invoked in the course of the proceedings as it actually did not arise until or after the conclusion of the proceedings. The Supreme Court remanded the case to the Court of Appeal of Mons.

Applicable edition of CEPANI Rules

In CEPANI case No. 22546, the respondent argued that because the contract between the parties had been signed on 6 July 2004, the claimant had mistakenly relied in its request for arbitration upon CEPANI Rules in force from 1 January 2005, and that the 2000 edition of CEPANI Rules was applicable. Article 13 of the contract provided for resolution of any disputes concerning the validity, interpretation and execution of the contract in accordance with CEPANI Rules by several arbitrators appointed in conformity with the Rules.

In deciding on the issue, the arbitrator referred to article 5.1 of CEPANI Rules which states that ‘when the parties agree to resort to CEPANI for arbitration, they thereby submit to the Rules, including the annexes, which are in effect on the date of the commencement of the arbitral proceedings, unless they have agreed to submit to the Rules in effect on the date of their arbitration agreement.’

On 9 July 2010, the arbitrator denied the respondent’s challenge and ordered to apply to the dispute CEPANI Rules of 2005 since the parties had failed to choose another edition of the Rules in their arbitration clause.

Arbitration clause on an invoice

In Kiremko Catering Equipment Belgium NV v Emeldima NV and Belgische Arbitrage Instelling VZW, the Court of Appeal of Ghent upheld on 1 December 2009 the decision of the Court of First Instance of Bruges that the first respondent was not bound by an arbitration clause contained in the invoice sent to him by the claimant.

The courts considered the following facts to reach their conclusion. Immediately after receiving an invoice dated 3 June 2003 from the claimant, the first respondent objected with a registered letter sent on 5 June 2003 to the existence of any contractual relationship between them. Both courts decided that since no agreement was ever entered into by the claimant and the first respondent, the arbitration clause, among other clauses that the invoice contained, became affected by the invalidity as well.

In one earlier CEPANI case, the sole arbitrator had to deal with a similar issue and had to decide on her own jurisdiction upon objection of the respondent. The respondent alleged that no arbitration agreement had been concluded because arbitration was referred to only in the standard terms and conditions of the supplier on the invoice but not in the principal agreement between the parties. On 30 January 2009, the arbitrator found that it had jurisdiction to resolve the dispute because one of the clauses of the principal agreement stated that ‘this agreement, together with the standard terms and conditions as supplied to the company together with this agreement, constitutes the entire agreement of the parties’ and, consequently, the respondent was bound by the arbitration clause incorporated into the standard terms and conditions on the invoice.

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