Arbitration is a form of alternative dispute resolution mechanism in which disputes are settled outside of the judiciary courts. However, a dispute can only be resolved through arbitration if (i) the parties have inserted an arbitration clause in the relevant agreement, or (ii) if the parties sign an agreement, in which they agree that the ongoing dispute will be settled through arbitration. The arbitration clause recommended by the Luxembourg arbitration center from the Luxembourg chamber of commerce is the following :
“all disputes arising out of or in connection with the present contract shall be finally settled under the Rules of arbitration of the Arbitration Center of the Luxembourg Chamber of commerce by one or more arbitrators appointed in accordance with said rules”.
It is worth noting that arbitration has a number of benefits in comparison to traditional litigation proceedings with the judiciary courts. For instance, arbitration is a confidential proceeding and it therefore guarantees the non-disclosure of the dispute to the public. In addition, unlike common legal proceedings, arbitrators have to render their decision within a specific time period (generally within a maximum period of 6 months). There is also the risk of having multiplicity in traditional litigation proceedings involving disputes with an international dimension and in which parties from various jurisdictions are involved. However, arbitration is a single and unique proceeding applicable to all parties to the dispute.
Luxembourg’s alternative dispute resolution mechanisms are set out in the New Code of Civil Procedure (“NCPC”) and more particularly, in articles 1224 to 1251 of the NCPC. Whilst Luxembourg arbitration law has already been amended in the past (in particular in 1939 and 1981) it has never been significantly modernised despite the fact that arbitration is widely used Luxembourg.
The purpose of the bill of law n°7671 (the “Bill of Law”), which has been initiated on 15 September 2020 and which is now being reviewed and debated by the Luxembourg legislator, is to re-define the structure and the legal basis of arbitration in Luxembourg. The Luxembourg legislator had the following three major pillars in mind when drafting the Bill of Law:
- avoiding interpretation issues which may arise when a set of new rules is being established, by drawing on inspiration from existing arbitration rules (namely French law and rules established by the United Nations Commission on International Trade Law);
- the creation of a framework which eases the access to arbitration and also adding a series of restrictions to exclude certain disputes, which should not fall under the arbitration regime, for example labour law disputes; and
- the removal of the distinction between national and international arbitration (as is the case under French law), particularly due to the fact that arbitration is primarily used in Luxembourg for international disputes, therefore having a separate and specific set of rules for national arbitration is unnecessary.
In addition to modernising provisions relating to, inter alia, (i) the arbitration agreement entered into between the parties and (ii) the execution of the decision rendered by the arbitrators, the Bill of Law also creates a special procedure in which a Luxembourg state judge is involved (the so-called “juge d’appui”). The judge d’appui will, inter alia, have to analyse the validity and the full enforceability of the arbitration agreement entered into between the parties before that the arbitration court is being established. Moreover, he may also participate in the establishment of the arbitration court and the nomination of the arbitrators. The purpose of this special procedure is to avoid that a party to the dispute obstructs the establishment of the arbitration court or the arbitration procedure in general.
The Bill of Law has been welcomed by the Luxembourg chamber of commerce and, in addition to the new arbitration rules which are being used by the Luxembourg arbitration center since 1 January 2020, it highlights the fact that Luxembourg is willing to become one of the major arbitration centers in Europe.