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Genentech v Hoechst/Sanofi: new insights regarding the control of conformity by French courts of international arbitral awards with “international public policy”

For over ten years, since a 2004 Thales decision of the Paris Court of Appeal,2 followed in 2008 by an SNF decision of the Cour de cassation,3 the French highest court in civil and commercial matters, French courts have taken a restrictive position regarding the extent to which a court can review the conformity of an international arbitral award with "international public policy", itself a notion narrower than domestic public policy. The Cour de cassation has repeatedly held that only a "flagrant, actual and concrete" ("flagrante, effective et concrète") violation of international public policy by an international award can result in annulment or refusal of enforcement of an international award on French territory. Inspired by a traditionally liberal stance of French law towards international arbitration, this line of cases has nevertheless increasingly come under debate in recent years.

The Genentech v Hoechst/Sanofi case provides new insights into the debate. The CJEU rendered a decision on 7 July 2016 in this case,4 following a request for a preliminary ruling from the Paris Court of Appeal. The salient facts and procedural steps are straightforward. Proceedings took place in France between Genentech Inc. ("Genentech"), on the one hand, and Hoechst GmbH ("Hoechst") and Sanofi Aventis GmbH ("Sanofi"), on the other hand, in relation to the annulment of an ICC award. The award dealt with the performance of a 1992 patent licence agreement. The sole arbitrator had found Genentech to be liable for failing to pay royalties under that agreement. Genentech sought the annulment of the award, arguing that it was giving effect to a licence agreement in breach of EU competition law (Article 101 TFEU) and, thus, of international public policy in the French sense. The Paris Court of Appeal considered that it was unclear whether the payment of royalties under the licence agreement contravened Article 101 TFEU to the extent that the patents that were the subject matter of the agreement had been annulled, with retroactive effect. The Court of Appeal decided to refer the issue to the CJEU.

The case is interesting in three respects.

First, it stands as a confirmation that the Paris Court of Appeal – but not the Cour de cassation – appears to have abandoned the requirement that a breach of international public policy be "flagrant" in order to lead to the annulment of the award.5 Had the "flagrancy" requirement been applied, it should logically have prevented the Paris Court of Appeal from requesting the CJEU to issue a preliminary ruling. Under the Thales and SNF line of cases, either the award "flagrantly", actually and concretely breaches Article 101 TFEU and the award must be annulled, or the breach is not flagrant, i.e. apparent from a mere reading of the award,6 and the award is not annulled. The mere fact that the Paris Court of Appeal decided that the question may be referred to the CJEU shows that it considered that a breach other than a flagrant one could potentially lead to annulment.

The second interesting aspect is the approach taken by the CJEU Advocate General in response to the position taken by Hoechst and Sanofi that the Paris Court of Appeal's request for a preliminary ruling was contrary to French law. Hoechst, Sanofi and, interestingly, the French Government strongly objected to the Paris Court of Appeal's request for a preliminary ruling. In particular, they considered that the Paris Court of Appeal did not have the power to refer the matter to the CJEU. Referring to Thales and SNF, they contended that doing so was in breach of French law, under which international arbitral awards cannot be reviewed as to their substance unless there is a flagrant infringement of international public policy. They argued that, in this case, there was no such flagrant breach. Hoechst and Sanofi further argued that, since the issue of whether the licence agreement was compatible with Article 101 TFEU had been discussed between the parties in the arbitration and in the award, reviewing the sole arbitrator's finding would constitute review of the substance of the award, which is impermissible under French law.

Advocate General Wathelet issued his opinion on 17 March 2016. While the Paris Court of Appeal's decision was interesting for what it did not say – no reference to "flagrancy" – the Advocate General's opinion is interesting for what it does say. He took a strong position against French law. He considered in particular that "it makes no difference whether the infringement of the public policy rule was flagrant or not [as] [n]o system can accept infringements of its most fundamental rules making up its public policy, irrespective of whether or not those infringements are flagrant or obvious."7 Breaches of EU competition law are rarely flagrant.

The last aspect worthy of attention is the judgment of the CJEU itself. The pendulum swings again. The Court's decision, seen from an international arbitration perspective, is interesting again for what it does not say. It declined to address the issue, considering that it had "no jurisdiction to rule either on the interpretation of provisions of national law or national regulations or on their conformity with EU law" and "that it is not for the Court to determine whether the decision whereby a matter is brought before it was taken in accordance with the rules of national law governing the organisation of the courts and their procedure."8 The Court decided to focus on the question that was put to it, not the way it was put to it and why. It decided that Article 101 TFEU should be interpreted in a sense consistent with the arbitrator's award in this case.

The next question is whether, and if so when, the Cour de cassation will amend its SNF case law. It is uncertain that it will in the near future. Regardless of the merits of the critics leveled against Thales and SNF, one thing is for certain and, it is hoped, should not influence the position of the Cour de cassation: French law was arbitration-friendly and Paris a frequently sought after place of arbitration well before Thales and SNF. It would remain so well after them.

  1. Partner, Head of International Arbitration, Dentons. The author acknowledges the assistance of Augustin Barrier in the preparation of this article.
  2. Paris Court of Appeal, 18 November 2004, Thales, Rev. arb. 2007, p. 751.
  3. Cass. civ. 1, 4 June 2008, SNF, Bull. civ. I, n° 162, p. 4.
  4. CJEU, 7 July 2016, Genentech Inc. v Hoechst GmbH, formerly Hoechst AG, Sanofi-Aventis Deutschland GmbH, Case C-567/14.
  5. See also Paris Court of Appeal, 4 March 2014, Gulf Leaders, Rev. arb. 2014, p. 955; Paris Court of Appeal, 14 October 2014, Commisimpex, D. 2014, p. 2541; Paris Court of Appeal, 4 November 2014, Man Diesel, Rev. arb. 2015, p. 559. Previous attempts were recorded before 2014; see e.g. Paris Court of Appeal, 17 January 2012, Planor, Rev. arb. 2012, p. 569; Paris Court of Appeal, 26 February 2013, Sprecher, Rev. arb. 2014, p. 82.
  6. The award should be considered "as it stands" (Paris Court of Appeal, 15 February 2007, Heresma, Cah. arb., Gaz. Pal., 22-24 April 2007, p. 45. )
  7. Opinion of Advocate General Wathelet dated 17 March 2016, para. 63.
  8. Judgment of the Court, para. 22.