International public policy: can an arbitral award be set aside for infringing economic rules?

You are the owner of a warehouse in Comines, and your tenant, a grain trading company, refuses to pay you the rent by invoking a dispute over monetary compensatory amounts. You wonder: can an arbitrator freely decide on the allocation of these amounts, even if it goes against a ministerial order? The answer is no, as the Cour de cassation ruled in 1988. This decision, though little-known, is crucial for anyone contracting with international arbitration clauses: the rules of economic public policy prevail over contractual freedom and even over the arbitral award.

The facts: a story that happens every day

In Strasbourg, the Société des Grands Moulins imported cereals and benefited, under a ministerial order of 14 June 1982, from monetary compensatory amounts (MCAs) of 90.30 francs per tonne. These MCAs were intended to balance prices between imported and domestic products. By contract, the company had agreed with a business partner to distribute these amounts in a certain way. A dispute arose: the partner considered that the contractual distribution was not respected. The parties referred the matter to an arbitral tribunal. The arbitrators, acting as amiable compositeurs, rendered an award which modified the allocation of MCAs as provided for by the ministerial order. The winning party sought exequatur (authorisation to enforce the award in France) before the Tribunal de grande instance of Paris. But the Public Prosecutor opposed it, invoking a violation of international public policy. The Paris Court of Appeal upheld the Public Prosecutor's objection, and the Société des Grands Moulins appealed to the Cour de cassation.

The reasoning of the court — analysed

The Cour de cassation had to answer a specific question: can an arbitral award that contradicts the mandatory rules of a ministerial order be recognised in France? The judges of the Quai de l'Horloge applied Article 1502, 5° of the new Code of Civil Procedure (now Article 1520, 5° of the Code of Civil Procedure), which allows exequatur to be refused if the recognition or enforcement of the award is contrary to international public policy. What is international public policy? It is a set of fundamental principles that France considers intangible, even in international relations. In this case, the order of 14 June 1982 was not limited to fixing margins: it imperatively governed the allocation of compensatory amounts to maintain an economic balance. By modifying this allocation, the arbitral award violated a rule of economic public policy. The Cour de cassation therefore upheld the Court of Appeal's decision: exequatur was refused. This confirms previous case law: international public policy is not only political or moral, but also economic.

What this means for you — in practical terms

If you are an importer in Croix, and you have signed an arbitration agreement with a foreign supplier and the arbitrator renders an award that goes against a customs regulation or a price order, this decision protects you: you can oppose the enforcement of the award in France. For the landlord in Comines, if your tenant claims sums under an award that violates a mandatory rule (for example, a rent cap), you can invoke international public policy to block enforcement. Example: suppose your tenant owes €10,000 in unpaid rent, but an arbitral award grants him a compensation of €15,000 in respect of MCAs, in violation of the order. Thanks to this decision, you can refuse exequatur of the award, and the tenant cannot seize your bank accounts.

Four tips to avoid this type of dispute

• Check the compliance of your arbitration clauses with mandatory French rules: before signing an international contract, have the arbitration clause reviewed by a lawyer to ensure it does not provide for an application that could violate economic public policy (e.g., price fixing contrary to an order).
• Choose France as the seat of arbitration: if the arbitration takes place in France, the arbitrators are required to respect French international public policy. This gives you additional security.
• Oppose exequatur promptly: if an award is unfavourable to you, you have one month from the notification of the award to lodge an appeal for annulment or opposition to exequatur. Do not delay.
• Document the existence of the mandatory rule: keep a copy of the order, decree or law that the award would violate. This will facilitate the demonstration of the violation of international public policy.

Further reading: related case law and developments

This 1988 decision is part of a protective line of economic public policy. One may cite the Thales decision (Cass. civ. 1ère, 2000) which recalled that the violation of international public policy is assessed at the time of recognition of the award. More recently, the Cour de cassation confirmed this approach in the Société des Ciments decision (2017), annulling an award that violated merger control regulations. The trend is clear: French judges do not tolerate arbitration being used to circumvent mandatory economic rules. In the future, expect this case law to be extended to other areas such as international sanctions (embargoes) or exchange control regulations.

In practice: what to do

FAQ:

1. Can I refuse to enforce a foreign arbitral award that violates a mandatory French law? Yes, by raising the exception of international public policy before the exequatur judge.
2. What are the time limits for action? You have one month after notification of the award to bring an appeal. After this period, the award becomes final.
3. Is a simple regulatory text (order) sufficient to constitute a rule of international public policy? Yes, if it is mandatory and pursues a general economic interest, as the Cour de cassation held in this case.
4. Do I have to prove that the violated rule is a matter of public policy? Yes, you must demonstrate the mandatory and fundamental nature of the rule. A lawyer will help you do this.
5. What if the award has already been enforced? You can apply by summary proceedings for restitution of the sums paid, but it is more difficult to reverse the situation. It is better to act before enforcement.

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