French Cour de cassation: Arbitrators’ duty to disclose / parties’ duty to investigate

On 16 December 2015, the French Supreme Court (“Cour de cassation”) confirmed that an arbitrator had breached his duty of disclosure by not revealing an operation that was manifestly of importance to his law firm. This firm had been advising Leucadia corporation (“Leucadia”), the parent company of Caribbean Fiber Holding (“CFH”), which was co-defendant with Auto Guadeloupe Investissements (“AGI”) in an arbitration against Columbus Acquisitions Inc. and Columbus Holdings France SAS (two subsidiaries of Columbus International Inc. – (« Columbus »)), in relation to the performance of a memorandum of understanding.

The French Supreme Court has considered that the parties did not have to investigate on the arbitrator’s independence once arbitration proceedings have commenced, “considering the guarantees given by [the arbitrator] in his declaration”, wherein he had stated:

I understand that at present there are no matters in respect of which my firm is currently providing advice to Leucadia National Corporation.”

Thus, while reaffirming the scope of the arbitrators’ duty of disclosure before and during arbitral proceedings, the French Supreme Court has also specified the scope of the Parties’ investigations when circumstances, which were not public before the commencement arbitration, give rise to a justifiable doubt as to the independence and impartiality of arbitrators during the arbitration.

As previously reported, on 14 October 2014, the Paris Court of Appeal ruled that the sole arbitrator was not independent in the eyes of one of the parties (AGI) since three partners of his law firm had in fact been advising the parent company of the opposing party, Leucadia, for several years and still during the arbitration. The Court of appeal opined that “the magnitude of the operation itself, the number of lawyers involved, and the publicity that the law firm intended to give to its contribution showed how important the matter was for the firm”. Yet, the relationship between the arbitrator’s law firm and the parent company of one of the parties to the arbitration was only made public in December 2010, i.e., after the arbitrator had closed the proceedings.

The Court of Appeal decided that the sole arbitrator should have revealed such facts, which were not publicly known at the time of his appointment.

Columbus, claimant in the arbitration, referred the Court of Appeal’s decision to the Cour de cassation. Its claims were based on Articles 1456 and 1520-2 of the French Code of civil procedure as follows:

Firstly, the Court of Appeal failed to explain how the arbitrator’s independence could have been affected since:

(i)     There was no direct relationship between the arbitrator and the parties but solely between his law firm and a company that belongs to the same group of companies as one of the parties to the arbitration;

(ii)   AGI already knew that Leucadia was one of the arbitrator’s firm’s clients when it was revealed that three partners of the firm were again providing advice with respect to a operation that had no link with the dispute whatsoever;

(iii) Absent any economic stake, (i) the “communication stake” of the operation was not related to the dispute, (ii) the relationship between the arbitrator’s firm and Leucadia were known and accepted by the parties and (iii) the three lawyers involved in the operation and the arbitrator were not working for the same office;

Secondly, the arbitrator had satisfied his duty of disclosure, known as a “best-efforts obligation” (obligation de moyens), by giving the parties the possibility to challenge his appointment, since:

  • He had spontaneously revealed that one of his firm’s offices had advised Leucadia, thus fulfilling his obligation of “transparency”;
  • In spite of his research, he did not know that the parent company of one parties to the arbitration was still represented by three lawyers of one of his firm’s office; his “judgment” could thus not be affected by a fact he was unaware of.

In its decision dated 16 December 2015, the Cour de cassation has:

  • Reminded and confirmed the decision of the Court of Appeal according to which the arbitrator had not fulfilled his duty of disclosure by not revealing the existence of a conflict of interest, all the more because “such fact was not publicly know for AGI before the commencement of the arbitration” and since it was “a deal manifestly important for the law firm, in light of the large advertisement it entailed”;
  • Provided a clarification as to the scope of the parties’ duty to carry out investigations. In fact, the parties may be deemed to have waived their right to challenge an arbitrator depending on the scope of such investigations:
    • Before arbitral proceedings have commenced, the Court of Appeal had previously ruled that the parties had to carry out small investigations since some circumstances do not give rise per se to justifiable doubts as to the independence and impartiality of arbitrators, noticeably when such circumstances are publicly known (Paris Court of Appeal, 1 April 2014, n°12/15479);
    • Nevertheless, a few months after that decision, the Cour de cassation has freed the parties from any obligation to investigate even in presence of facts easily available from the beginning of the arbitration since the declaration that the arbitrator had provided did not call into question his sincerity: “the arbitrator’s declaration of independence had been intentionally shortened, was reductive and no specific circumstance could have justified to call into question, in the parties’ eyes, the sincerity of the declaration when nothing, in light of the circumstances he had revealed, forced them to carry out special investigations.” (Cour de cassation, 18 December 2014, 14-11085).

In the present case, the Cour de cassation confirmed its decision of 18 December 2014 by stating that the parties did not have any duty to investigate during arbitral proceedings: it found that it was not expected of AGI to investigate on the independence and impartiality of the arbitrator considering “the guarantees given by [the arbitrator] in his declaration”. The Cour de cassation concluded that “the duty to carry out investigations as to the independence and impartiality of M. X…did not rest on [AGI]”.

Therefore, either before or during arbitral proceedings, whether the circumstances are publicly known or not, the parties do not have to question arbitrators’ declarations, and even less to investigate on these declarations.

The decision of the Cour de cassation is available here.

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