Luxembourg’s new arbitration law aims to enhance arbitration by providing flexibility and speediness
On 23 March 2023, the Luxembourg government approved a new law to modernise arbitration in Luxembourg. The aim is to improve flexibility, speediness and confidentiality, and boost arbitration’s place as an alternative to the national courts. In this post, we look at some of its key features.
The law does not impact international investment arbitration (e.g. ICSID proceedings), which is subject to public international law, except for the rules in relation to the recognition and execution of arbitral awards.
Confirmation of “competence-competence”
The law strengthens the doctrine of “competence-competence”(the arbitral tribunal’s power to decide on its own jurisdiction).
Where a dispute caught by an arbitration agreement is brought before a Luxembourg court, the latter shall declare that it has no jurisdiction unless the arbitration agreement can be avoided on limited grounds (non-arbitrability of the case, or it is manifestly void or non-applicable). The court’s review of the arbitration agreement is therefore limited (although it is not prevented from ruling on jurisdiction after the arbitral tribunal has been seized).
The parties are free to decide whether the arbitral tribunal can grant interim measures. However, as long as the arbitral tribunal has not been constituted or in matters where the state court is solely competent to rule on the requested measure - in particular on a freeze of assets (“saisie-arrêt”) - the Luxembourg court will remain competent to grant such measures itself.
Creation of the Luxembourg supporting judge
The law introduces the new concept of a supporting judge (“juge d’appui”); whose role is to support of an arbitration by resolving procedural difficulties (for example, concerning the constitution of the arbitral tribunal). The supporting judge will not only be competent to act if the seat of arbitration is Luxembourg or if the parties have submitted their arbitration to Luxembourg procedural law, but also in cases where the parties have expressly given jurisdiction to the Luxembourg courts to hear disputes relating to the arbitration proceedings or cases where the dispute is closely linked to Luxembourg (e.g. if the underlying contract has to be executed in Luxembourg or if the defendant has its seat in Luxembourg).
Streamlining the right of appeal
The Court of Appeal will replace the District Court as the appeal court for an award made in Luxembourg, which will avoid the current possibility of having the award appealed twice. The only appeal that will be possible before the Court of Appeal will be an appeal to have the award set aside (“annulation”), on limited, enumerated, grounds (e.g. if the rights of defence are not respected) not involving a review of the merits. Any review seeking re-examination of the substance of an award must be brought before the arbitral tribunal (unless it cannot be reconstituted, in which case the matter can be brought before the Court of Appeal).
No separate appeal against the exequatur of a Luxembourg award will be possible; an appeal to have the award set aside implies an appeal against its execution.
Foreign awards cannot be set aside by the Luxembourg courts (the new law leaves competency over that to the courts of the seat of arbitration).
However, if foreign awards are to be executed in Luxembourg, they may be subject to review, limited to their effects in Luxembourg, by the president of the Luxembourg District Court, which can be appealed before the Court of Appeal.
No suspensive effect
The principle is that both a request to set aside an award and an appeal of a decision upholding enforcement have no suspensive effect, such that an arbitral award is immediately enforceable. As an exception, the law allows the Court of Appeal to stay or adjust the enforcement if such enforcement is “susceptible to severely prejudice the rights of a party”.
Arbitration and insolvency
The law confirms that the opening of an insolvency procedure does not prevent the application of arbitration agreements that were entered into by the insolvent party prior to the insolvency. Equally, arbitration agreements may also be entered into by an insolvent party during the insolvency procedure, with the exception of disputes arising out of the insolvency procedure (which Luxembourg law considers as not arbitrable).
Other key features of the arbitration proceedings
- The law seeks to promote expeditious proceedings – for example, the default duration of the proceeding is six months from the date of the last arbitrator’s acceptance of their appointment.
- If the parties have not agreed on the seat of arbitration, the seat shall be determined by the arbitral tribunal, taking into account the circumstances of the case.
- The arbitral tribunal can hold hearings, take evidence, sign decisions and meet at any place it deems appropriate (unless otherwise agreed). The Luxembourg government has thus factored in the desirability of remote hearings and has decided to endorse this practice (which became commonplace since the pandemic).
- Where the parties fail to determine the number of arbitrators, the default number is three and a applies in the event that the parties reach agreement.
- Where the parties have not determined the procedural rules, the tribunal is not bound by any rules and may regulate the procedure as far as is necessary, either directly or by reference to arbitration rules or rules of procedure.
- The arbitral tribunal is given clearer powers to proceed with/dispose of proceedings if, without a legitimate excuse, a party fails to develop its claim or defence, or does not participate in proceedings
- Unless otherwise agreed, each party may amend or complement its initial request, provided that there is sufficient link with its initial demand. The tribunal may deny the request for amendment for tardiness.
Entry into force
The new law, amending the existing provisions of the New Civil Procedure Code, will enter into force 3 days following its publication. That precise date remains to be confirmed.
The new law will apply to (i) arbitration agreements concluded, (ii) arbitral tribunals constituted, and (iii) arbitral awards rendered, after its entry into force (unless, in the case of (i), the parties have agreed otherwise).