The French Supreme Court’s pragmatic assessment of the arbitrators’ duty of disclosure

Since the Tecnimont saga and the judgment dated 14 October 2014 (commented here and here), the Paris Court of Appeal has confirmed its broad interpretation of the arbitrator’s duty of disclosure.

It seemed important to us to come back on the Paris Court of Appeal’s decision dated 25 June 2014. Indeed, this decision highlights that even if the Paris Court of Appeal and the French Supreme Court (“Cour de cassation”) retain a broad interpretation of the arbitrator’s duty of disclosure, they assess it in a pragmatic way, taking into account the impact of undisclosed facts on the arbitrator’s judgment and the doubts thus created in the eyes of the parties.

Therefore, in its decision dated 25 June 2014, the first civil chamber of the Cour de cassation held that the fact that the president of the arbitral tribunal has had business relationships with a group of companies, one of which was guaranteeing a party to the arbitration did not create a conflict of interest likely to affect its independence and impartiality, because in the case at hand, the outcome of the arbitral proceedings had no impact on the financial position of the guaranteeing company.

In this case, GAT, a Lebanese company in charge with the financing and execution of public works, entered into two contracts for the financing of works with the Republic of Congo. In subsequent agreements, TEP Congo, a subsidiary of the Total group, committed to guarantee the Republic of Congo’s debts towards GAT.

Following difficulties which arose during the performance of the contracts, the Republic of Congo initiated arbitration against GAT under the International Chamber of Commerce’s (“ICC”) rules.

In 2008, GAT challenged the president of the arbitral tribunal for lack of independence and impartiality. Indeed, GAT argued that the president of the arbitral tribunal had failed to disclose that he was a member of the board of a company holding shares in the Total group. According to GAT, this regular and frequent business relationship with the Total group, which guaranteed one of the parties to the arbitration, gave rise to reasonable doubts in the eyes of the parties as to the arbitrator’s impartiality and independence. This request was dismissed by the ICC International Court of Arbitration.

The arbitral tribunal rendered a final award on 26 October 2009 and ordered GAT to pay the amount of approximately USD 32 million to the Republic of Congo under the account balance between the parties resulting from the contracts.

GAT then challenged the award under former Article 1502-2 of the French Code of Civil Procedure, on the grounds of an irregularity in the constitution of the arbitral tribunal due to the lack of independence and impartiality of its president.

On 17 March 2011, the Paris Court of Appeal rejected the application for setting the award aside, holding that “the outcome of the arbitration will not have any impact on the financing situation” of TEP Congo, with which the arbitrator was in a business relationship, and “was not itself a party to the dispute”.

GAT then introduced an appeal before the Cour de cassation, claiming that the arbitrator was bound to disclose his relationship with TEP Congo, which had guaranteed a party to the arbitration, to substantiate its challenge, “such situation being likely to raise doubts on his impartiality and independence”.

After quoting the Paris Court of Appeal, which held that the guarantee was “neutral” for TEP Congo “as this company will pay 70 million US dollars irrespective of whether the Republic of Congo was successful in the proceedings”, the Cour de cassation dismissed the application for setting the award aside  and clarified that the Paris Court of Appeal had “highlighted that the undisclosed facts relating to the business relationship between the arbitrator and the Total group could not, together with the other elements of the arbitration, affect his judgment and provoke reasonable doubt in the mind of the parties as to his independence and impartiality”.

The Cour de cassation has thus concluded that the Paris Court of Appeal had rightly dismissed the application to set aside the award based on the irregularity in the constitution of the arbitral tribunal.

In so doing, the Cour de cassation held, after an objective assessment in concreto of the elements before it, that the only fact that the outcome of the arbitration would have no impact on the finances of TEP Congo with which the arbitrator had a business relationship was sufficient to exclude any conflict of interest and consequently any lack of independence and impartiality.

It should be noted that on the same day, the Cour de cassation rendered a decision in the Tecnimont saga holding that “The party which, knowingly, refrains from exercising, in the time-limit set out in the applicable arbitration rules, its right to challenge an arbitrator on the basis of any circumstance tending to call into question the independence or impartiality of an arbitrator, is deemed to have renounced to rely on it before the judge ruling on the annulment of the award” (25 June 2014, n°11-26.529, commented here). Therefore, the Cour de cassation confirmed its broad interpretation of arbitrators’ duty of disclosure, while making pragmatic assessments and strictly limiting in time applications to set an award aside, which protects the efficiency of the arbitration.

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