Litigation Speed Read: Luxembourg Arbitration Reform

GENERAL GUIDING PRINCIPLES:

On 25th April 2023, a law came into force that reforms the Luxembourg New Civil Procedure Code in relation to arbitration (the “Law”). The Law aims to modernize and enhance the internal Luxembourg arbitration legal framework with a view to making Luxembourg a more attractive jurisdiction for international arbitration and relieving the pressure on the local Luxembourg courts.

The law mainly adapts the UNCITRAL model law and latest developments in French and Belgian law. Consistent with the UNCITRAL approach, the law reflects the understanding that parties to an arbitration agreement have made a conscious decision in favor of the finality and expediency of the arbitral process. Consequently, annulment of an arbitral award in the Luxembourg Court of Appeal is now restricted to procedural irregularities, violation of the right of defense and the public order.

The salient points of the Law are the following:

Jurisdiction. The arbitral tribunal has the power to determine questions of jurisdiction including but not limited to the existence and validity of the arbitration agreement. Where a matter is subject to an arbitration agreement, the Luxembourg courts may only accept jurisdiction where the arbitration agreement is null and void because the subject matter is not arbitrable or for any other reason the arbitration agreement is manifestly null and void.
Arbitration Agreements. Liberal interpretation of arbitration agreements with no need for a separate arbitration agreement; an arbitration clause would suffice; the parties to the arbitration agreement are very much free to regulate the place of the arbitration seat, number of arbitrators and arbitration procedures.
With the objective of bringing efficiency to the legal process, and in the absence of contractual terms, the Law set a maximum time limit of six months to complete the arbitration proceedings although, it should be noted that, an extension to that period is possible in certain instances. In addition, the default number of the arbitral tribunal is three arbitrators.
Powers and procedures of the arbitral tribunal. Other than attachment orders (“saisie-arrêt) that may only be granted by the Luxembourg courts, the arbitral tribunal can grant interim and provisional measures.
Supporting judge. The Law creates a new dedicated role for a supporting judge (“juge d’appui”), who can resolve procedural difficulties in arbitration subject to the jurisdiction of the Luxembourg court. It should be noted that the judge’s jurisdiction is limited to cases where: “(i) where the seat of arbitration is Luxembourg, (ii) cases where the parties have submitted their arbitration to Luxembourg procedural, (iii) the parties have expressly given jurisdiction to the Luxembourg courts to hear disputes relating to the arbitration proceedings, or (iv) where there is a significant link between the dispute and the Grand Duchy of Luxembourg.”
Annulment and request for setting aside of an arbitral award. In the interest of creating efficiency in the judicial proceedings, set-aside proceedings are only possible in the Luxembourg Court of Appeal and limited to the following grounds: (i) wrongful determination by the tribunal of itself as having or not having jurisdiction, (ii) improper constitution of the tribunal, (iii) failure by the tribunal to comply with its assigned task, (iv) award contrary to public order (v) unreasoned award (can be waived by the parties), or (vi) violation of defence rights.
Request for revisions and withdrawals of awards. A request for reexamination of the arbitral award can be made to the arbitral tribunal in cases of: (i) fraud, (ii) withholding of crucial evidence, (iii) awards obtained based on false documentation, or (iv) awards based on testimonies which were adjudicated as false.
It should be noted that any subsequent revision application needs to be litigated by the arbitral tribunal, and where the tribunal cannot be reconvened, brought before the Luxembourg Court of Appeal.
It is also worth noting that a request for annulment and an appeal decision upholding enforcement does not have suspensive effect. However, the Court of Appeal, ruling as in summary proceedings, may stop or adjust the enforcement of the award if such enforcement is likely to seriously prejudice the rights of one of the parties.
Foreign arbitral awards. Foreign awards may not be set-aside in Luxembourg but at their seat of arbitration. Such awards are enforceable in Luxembourg subject to the so-called “exequatur” procedure and may only be challenged based on limited grounds.

Our take and practical considerations:

Considering the prominence of the Luxembourg financial market and the extensive use of Luxembourg vehicles, the Law provides an enhanced framework and certainty for international transactions. Whereas, in the past, parties have tended to have agree on Luxembourg to govern the substantial contractual obligation but chose a legal seat of arbitration outside Luxembourg, there is now scope to reconsider this approach and choose Luxembourg as well for the seat of arbitration. In addition, the established Luxembourg practice of enforcing agreements in accordance with their terms as well as the possibility to conduct the arbitration proceedings in English, makes the seat of the arbitration in Luxembourg an ever more coherent choice.
We advise parties choosing arbitration to draft clear and detailed arbitration clauses and to avoid use of implied terms in order to avoid creating grounds to contest the meaning of the clause causing delays and uncertainty in the arbitration process.
Finally, in the parliamentary preparatory work, the Luxembourg Chamber of Commerce (2021) went one step further in proposing the introduction of a state court adjudicating in English, stating that this will give the impetus for Luxembourg to become a prominent place for arbitration. This, in our view, will catapult Luxembourg law to be a force to be reckoned with in the financial and legal market.

Our experience:
RJ Gaito is celebrating 12 years in business; our firm has acted for and against major corporations, entrepreneurs, as well as private clients in the various jurisdictional levels of the Luxembourg courts system commencing in the lower courts up to the Luxembourg Supreme Court (“la cour de cassation”), including current proceedings now pending with ICSID.

Our firm has obtained freezing orders over various asset classes, acted in emergency proceedings, and enforced foreign judgments in Luxembourg. We assisted equity investors, debtors and creditors in complex distressed debt matters and, over the years, we were successful in multi-million Euro/United States Dollar recoveries for creditors and equity investors.