Arbitration in Distribution networks Didier Ferrier Professeur émérite de la Faculté de Droit de Montpellier Didier Ferrier Professeur émérite de la Faculté de Droit de Montpellier 1IDI – Munich June 14, 2013

Arbitration enables the management of risk arising from disputes between a supplier and a distributor in a network  The risk arises from the conflict between the uniformity of the contracts which constitute the network and the diversity of laws and judges in international disputes between supplier and distributors, due to uncertainties in:  The interpretation of the contract by the national courts:  Qualification ;  Link existing between different contracts : original framework contract and application (sales) contract.  The application of mandatory national rules affecting the contractual relationships. 2IDI – Munich June 14, 2013

 Risk management requires the choice of arbitration instead of going to national courts :  Arbitrators are not constrained by national law (unlike national courts) while dealing with international business relationships (larger and more flexible application of law, good predictability of arbitral awards in certains fields);  Arbitrators are more concerned by and more knowledgeable about the legal system in which the award will have to be enforced than are national courts,  Arbitrators are more aware of the acceptance of and the understanding of the award by the parties than are national courts, 3IDI – Munich June 14, 2013

I.The choice of Arbitration II.The rejection of the arbitration I.The choice of Arbitration II.The rejection of the arbitration PLAN 4IDI – Munich June 14, 2013  The supplier is (generally) the drafter of the contract and therefore the one deciding to orient the arbitration clause to his advantage (I), which may expose him to some dispute (II).

 The supplier chooses to provide an arbitration clause containing arbitration conditions to his advantage, especially regarding:  The applicable law,  The arbitral proceedings,  The scope of arbitration,  Arbitration confidentiality, I. The choice of Arbitration 5IDI – Munich June 14, 2013

 Applicable law  The supplier chooses the most favourable law to him and the most suitable law to be applied by the judge if it has to be enforced: the law of the supplier or of the distributor or another law. I. The choice of arbitration 6IDI – Munich June 14, 2013

 Arbitral proceedings  The supplier chooses arbitral proceedings (institutional or ad hoc arbitration) depending on the need to concentrate in one court only, or on the contrary, to split up between arbitral tribunals the resolution of the dispute. I. The choice of arbitration 7IDI – Munich June 14, 2013

 Scope of arbitration  The supplier may choose a narrow arbitration clause in order to limit the intervention of arbitrators or on the contrary a broad one to include third-parties in the arbitral proceedings. I. The choice of arbitration 8IDI – Munich June 14, 2013

 Arbitration confidentiality  The supplier chooses the confidentiality of arbitration to hide i) from other distributors disputes which have already arisen from the same type of complaints or ii) the systematic choice of the same arbitrator for every dispute the supplier may have had. I. The choice of arbitration 9IDI – Munich June 14, 2013

I.The choice of Arbitration II.The rejection of the arbitration I.The choice of Arbitration II.The rejection of the arbitration PLAN 10IDI – Munich June 14, 2013

 The unbalanced relationships may be invoked by distributors to reject the Arbitration with arguments regarding:  the arbitration clause,  the payment of the costs of the arbitration. II. The rejection of the arbitration 11IDI – Munich June 14, 2013

Dispute over the arbitration clause Unequal bargaining powers may imply an unbalanced relationship between a supplier (perceived as the strong party) and a distributor (considered to be the weak party).  The distributor could demand the nullity of the arbitration clause with the argument of significant imbalance or abusive clauses (eg: Bills in the US and in France).  The Distributor may accept the arbitration clause as legal but challenge its implementation as impractical or unfair owing to restrictive conditions such as excessively long hearings, and obviously excessive costs involved... II. The rejection of the arbitration Dispute over the arbitration clause 12IDI – Munich June 14, 2013

Dispute over the payment of the costs  The Distributor may refuse to go to Arbitration because the costs are too high, especially when the possible damages are too low compared to these costs.  If the distributor cannot obtain the payment corresponding to the costs in advance from a financial organisation,  The supplier who wants to go to arbitration decides or sometimes is forced to decide by the arbitral tribunal to pay the costs in advance for the distributor. II. The rejection of arbitration Dispute over the arbitration clause 13IDI – Munich June 14, 2013