Paris, 1st Division, 1st Chamber, 14 October 2014, No. 13/13459
On 14 October 2014, the Court of Appeal in Paris overturned an order for enforcement of an arbitral award in Barbados because there had been an irregularity in the composition of the arbitral tribunal. The Court of Appeal held that, in the mind of the Appellant, the arbitrator’s incomplete declaration of independence was likely to give rise to reasonable doubt as to the arbitrator’s independence and impartiality. The losing party was ordered to pay € 200,000 under Article 700 of the Civil Procedure Code.
In this case, a French and a US company formed joint-venture company, GCF, which was incorporated in France. The purpose of GCF was to build and operate a network of submarine telecommunication cables in the Caribbean. In 2008, GCF initiated negotiations for the sale of the entire share capital of GCF to companies based in Barbados.
GCF signed a memorandum of agreement to sell its shares. The intended purchasers of those shares then obtained an arbitral award to enforce performance of the transfer agreement in Barbados on 27 March 2011. The arbitrator ruled that the parties had entered into a “binding agreement” and that GCF had breached that agreement.
The award was sealed for enforcement by the delegate of the President of the Tribunal de Grande Instance in Paris on 20 June 2013.
GCF then appealed against the enforcement order to the Court of Appeal in Paris, among others, on the basis of Article 1520-2 of the Code of Civil Procedure. GCF pleaded irregularity in the composition of the arbitral tribunal because the arbitrator failed to disclose the connection between the law firm in which he was a partner and two parties involved in the arbitration.
The intended purchaser argued that the relationship between the arbitrator’s law firm and the parties involved in the arbitration was historic and did not relate to current business matters. In the alternative, the intended purchaser argued that this relationship was disclosed by the arbitrator and, in any event, the fact of that relationship “was common knowledge, as it had been published on the firm’s website.”
In this case, it is rumored that the arbitrator himself has attracted some criminal liability, although no charges appear to have been brought.
The Court of Appeal, which dealt only with the civil aspect of the case, ruled in favour of GCF, holding that the arbitrator’s declaration of independence was incomplete and that this cast reasonable doubt as to his independence and impartiality.
In summary, the Court of Appeal held that:
- Three partners from the law firm with which the arbitrator was partner advised the parent company of one of the parties to the arbitration in the period since 2005, including while the arbitral proceedings were ongoing.
- Even though the work carried out by the partners was unrelated to the dispute and that fees for that work were modest, “the importance of the work itself, the number of lawyers who carried out the work, and the way that the firm advertised this work, all show the importance the firm attached to this work “.
- Finally, the Court of Appeal noted that the relationship between the arbitrator and one of the parties to the arbitration was made public in December 2010, after the arbitration proceedings had concluded. The fact of the relationship was not known at the time the tribunal was constituted and therefore, the arbitrator should have disclosed it.
The Court of Appeal’s judgment is based on its broad interpretation of the duty of disclosure which “must be assessed in terms of awareness of the situation in question and its reasonably foreseeable impact on the judgment of the arbitrator” (CA Paris, 28 November 2002, Voith Turbo GmbH und Co AG c / Société Nationale des Chemins de Fer Tunisians (SNCFT) Arbitration Review 2003, p. 445, footnote C. Belloc).
The Court of Appeal went on to clarify the arbitrator’s duty of disclosure:
- First, the Court of Appeal noted that the fact that the arbitrator’s name was proposed by the party who argued that there had been an irregularity of the composition of the tribunal “did not negate the arbitrator’s obligation to disclose information “.
- Further, the Court of Appeal focused on defining what constituted knowledge of a conflict of interest, stating that such knowledge was characterized by ” information which is in the public domain and widely accessible” .
- Finally, the Court of Appeal explicitly stated that it was not incumbent upon the parties to conduct a thorough search to reveal any potential conflicts of interest. The Court held that the parties “cannot reasonably be required to engage in a systematic examination of all sources that mention the arbitrator’s name and his associates, or that parties can be expected to pursue such research after the arbitration proceedings have started“. Therefore, even an awareness of a relationship between the arbitrator and a party to the arbitration was not likely to release the arbitrator from his disclosure obligations.
The Court of Appeal not only refused enforcement of the award based on incomplete disclosure by the arbitrator, but the court also ordered the losing party to pay costs in the sum of € 200,000 pursuant to Article 700 of the Civil Procedure Code.
This case exemplifies the Court of Appeal’s approach to upholding the high standard of independence and impartiality of arbitrators.
The arbitration team at ALTANA thanks DANTE laboratory at the University of Versailles-Saint-Quentin for informing it of this important ruling.
The full judgment is available here.