Luxembourg: A Hub for Arbitration

Attracting growing interest from both national and international stakeholders, arbitration should not be confused with mediation. Arbitration involves resolving a dispute through the intervention of an impartial arbitrator. This method of dispute resolution is expected to become increasingly popular thanks to a comprehensive reform aimed at modernising arbitration, scheduled for this year.

Arbitration is an alternative dispute resolution mechanism to traditional court proceedings that has developed worldwide, particularly since the 1950s. Adopted in 1958, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards has been widely successful and now has nearly 200 signatories, including Luxembourg, which ratified it in 1983. The Convention establishes a simplified mechanism for the recognition and enforcement of arbitral awards.

“Arbitration can be domestic, meaning between two parties from the same country, or international, for example when the parties are established in different countries or when a contract is performed in a third country. International arbitration, in particular, has experienced significant growth as a result of globalisation, as it meets the expectations of various stakeholders in terms of flexibility, speed and confidentiality,” explains Daniela Antona, Avocat à la Cour and Counsel at Brucher Thieltgen & Partners.

“Parties may include an arbitration clause in a commercial contract from the outset, referring any future disputes to arbitrators. They may also agree to arbitration after a dispute has arisen.”

In principle, anyone may resort to arbitration, provided that the dispute concerns rights over which the parties have freedom of disposal, such as economic rights. Conversely, disputes involving personal status matters, such as family law, or criminal law matters are excluded.

Arbitration is particularly popular in civil and commercial matters in the broadest sense, including construction disputes and shareholder conflicts. Given the costs associated with arbitration proceedings, they are generally initiated by large industrial or financial groups.

Neutral and Independent Arbitrators to Resolve Disputes

Arbitration allows parties to choose their arbitrators, as well as their number, which is generally odd. This provides an additional guarantee of neutrality and impartiality.

But who are these arbitrators?

“They are most often legal professionals, such as lawyers or law professors, but may also be professionals with expertise in the sector concerned.”

Indeed, parties to a dispute may come from different backgrounds and countries. In some cases, they may be concerned that choosing the courts of one party’s jurisdiction could compromise the perceived impartiality of the person deciding their dispute, particularly where that person is a judge from one of the parties’ national courts.

Arbitration therefore offers the possibility of appointing arbitrators who are nationals of third countries.

To prevent abuse or misconduct, arbitration is governed by regulations requiring compliance with safeguards relating to public policy, as well as the rights of the parties and third parties.

The State will only assist in enforcing an arbitral award if it complies with these minimum standards, including the parties’ agreement to arbitration and the right to a fair trial, encompassing the independence and impartiality of the decision-maker and the adversarial principle, which notably guarantees each party the right to be informed and heard.

A Reform to Strengthen Luxembourg’s Attractiveness

“Thanks to its multicultural and multilingual environment, Luxembourg facilitates the handling of cases with international dimensions. Due to the relative scarcity of domestic legal sources, Luxembourg lawyers are also accustomed to adopting a comparative law perspective and frequently dealing with foreign legal systems, which is essential in international arbitration. Furthermore, the increasing workload of the courts is encouraging the development of arbitration as an alternative dispute resolution mechanism.”

Daniela Antona, Counsel

Since its codification during the Napoleonic era, Luxembourg’s arbitration framework has never undergone comprehensive modernisation.

Following the example of its neighbouring countries and other pioneering jurisdictions such as Switzerland and Italy, Luxembourg is currently working on a complete overhaul of its arbitration provisions to attract more cases and meet the expectations of both Luxembourg and international stakeholders.

“One of the innovations introduced by Luxembourg Bill No. 7671, currently under consideration by the Chamber of Deputies, is the creation of the role of the juge d’appui, or supporting judge, whose responsibility is to assist parties in overcoming obstacles arising before the arbitral tribunal has been constituted.

Another advantage of the reform is the possibility of referring matters to the supporting judge even where the parties have no connection with Luxembourg, if they fear a denial of justice before the national courts that would otherwise have jurisdiction. This is known as ‘universal jurisdiction’.”

In this context, Brucher Thieltgen & Partners is well positioned to seize this new opportunity through its dual role as legal counsel and arbitrator.

“We have been active in Luxembourg’s arbitration community for many years and are therefore eagerly awaiting the adoption of Bill No. 7671, as it will further facilitate access to arbitration for our clients,” concludes Daniela Antona.

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