January 04 2018
Parties' ability to choose their arbitrators remains one of the most frequently mentioned advantages of arbitration over litigation. However, this freedom makes sense only if it preserves the overarching duties of arbitrators and judges alike – that is, the duty to be and remain independent and impartial from the parties.
Independence and impartiality lie at the heart of justice and they are quintessential to arbitration as a private form of justice. Today, the cornerstone of these principles is arbitrators' disclosure obligation, which begins on their nomination and lasts throughout the arbitral proceedings.
As a matter of principle, French law has made disclosure the focal point of challenges of awards in set-aside and enforcement proceedings. This disclosure obligation is broad, as it applies to any circumstances that may be seen to affect the independence or impartiality of an arbitrator.(1) The disclosure obligation also continues to apply until the tribunal is functus officio (ie, discharged from the duties of office).(2) However, an arbitrator's duty to disclose does not extend to 'overt' circumstances (ie, situations that are known or should have been known by the parties). What constitutes overt circumstances and to what extent parties may be deemed to have been aware of them can be difficult to determine and thus can leave the door open to litigation.
French law imposes no general investigation duty on the parties.
In Société Dukan de Nitya(3) the Court of Cassation (the Supreme Court in civil and commercial matters) held that parties have no duty to investigate arbitrators' backgrounds. The court ultimately concluded that a party can question an arbitrator's lack of independence based on publicly available but undisclosed information, even though the challenge came at a late stage of the proceedings.
However, the commented case sheds an interesting light on the debate, as both the Paris Court of Appeal(4) and the Supreme Court(5) decided that when a party is notified of circumstances and fails to object to them in a timely manner, it cannot bring a subsequent challenge based on the same circumstances. This decision was reached despite the challenging party's claim that the challenge was justified by later findings of press reports that were contemporaneous to the original circumstances.
The case involved the previous appointment of the president of the arbitral tribunal as the president of another arbitral tribunal in an unrelated dispute that involved one of the parties' sole shareholder. Although the arbitrator had failed to disclose that information, the party whose shareholder had been a party to the previous arbitration had done so. Further, the other party had not objected and had even unreservedly signed the terms of reference. The challenge was brought later, only after that other party had become discontent with the way that the arbitration was going. Both the Paris Court of Appeal and the Supreme Court concurred that, while the circumstances were not initially overt, after they had been disclosed, the relevant information was easily accessible to the parties. The parties' knowledge of the circumstances was therefore presumed, with the ensuing result that the parties could have immediately raised any potential challenge based on such circumstances. Thus, the later annulment application based on these facts was denied on the French equivalent of the doctrine of waiver.
Equatorial Guinea and a French company (FrenchCo) had set up a joint venture in 1994 that intervened on the Equatorial Guinean telecoms market. Following a dispute, the details of which are unknown, Equatorial Guinea and FrenchCo signed a settlement agreement in 2011, under the terms of which, among other things, FrenchCo agreed to exit the joint venture through the sale of its shares to Equatorial Guinea. When Equatorial Guinea failed to buy FrenchCo's shares in the joint venture, FrenchCo initiated International Chamber of Commerce (ICC) arbitration against Equatorial Guinea in Paris.
The president of the tribunal, who was appointed by the ICC, submitted a statement of acceptance, availability and independence indicating that he had nothing to disclose. However, shortly after his appointment, counsel for FrenchCo wrote to the arbitral tribunal and the counsel for Equatorial Guinea to stress that the president had been appointed by the ICC in the past to act as president in a dispute involving FrenchCo's parent company – and sole shareholder. In the same letter, FrenchCo indicated that Equatorial Guinea had 30 days from receipt of the letter to express any reservations against or bring any challenge to the president's appointment.
Equatorial Guinea did not challenge the appointment at that time. The parties later signed the terms of reference, which contained a provision explicitly stating that the parties had acknowledged the regularity of the tribunal's constitution and that they had, at the date of execution of the terms of reference, no objections to the arbitrators.
However, Equatorial Guinea soon became unhappy with the way that the arbitration was going. After the arbitral tribunal issued a procedural order that Equatorial Guinea had argued was allegedly biased, it filed a formal challenge before the ICC against the president's appointment. Equatorial Guinea's challenge motion was based on press reports contemporaneous to the arbitration involving FrenchCo's sole shareholder, supposedly reporting that the decision in this previous arbitration was biased toward FrenchCo's sole shareholder. Equatorial Guinea argued that it had discovered the reports only recently, after further research. The challenge was denied by the ICC Court.
The arbitration proceeded and the arbitral tribunal ultimately found in favour of FrenchCo in 2014. Equatorial Guinea initiated annulment proceedings on three grounds:
The Paris Court of Appeal rejected Equatorial Guinea's claim that the arbitral tribunal had not been regularly constituted on the basis of Article 1466 of the Civil Procedure Code, finding that Equatorial Guinea had waived its right to avail itself of this irregularity, as it had not objected to it in a timely manner during the arbitration. The court of appeal rejected Equatorial Guinea's contention that its challenge was not based on the information disclosed by FrenchCo (which contained nothing suspicious), but rather the press reports that it had discovered only on subsequent enquiries. The court held that these contents, if not overt at the time of the original disclosure, were nonetheless easily accessible once Equatorial Guinea was made aware of the president's participation in an earlier arbitration involving FrenchCo's sole shareholder. Equatorial Guinea could easily have discovered more details and was therefore in a position to initiate a challenge to the president's appointment in a timely manner, which it did not.(6)
In its application to the Supreme Court, Equatorial Guinea argued that parties need not inquire about an arbitrator when the information that was given to them by the arbitrator or other parties to the arbitration does not cast doubt on the arbitrator's independence and impartiality.
On June 15 2017 the Supreme Court rejected Equatorial Guinea's motion. The court held that the court of appeal had rightly decided that the challenge to the tribunal's award was inadmissible. In doing so, the Supreme Court seems to have confirmed its recently developed position, according to which a party cannot challenge an award by relying belatedly on easily accessible information to allege a failure in an arbitrator's disclosure duty. Essentially, if a party fails to act in a timely manner, it will be considered to have waived its right to avail itself of this irregularity.
The Supreme Court endorsed the Paris Court of Appeal's two-fold reasoning: having established that Equatorial Guinea should have been aware of the information it relied on to initiate the annulment proceedings, it follows that Equatorial Guinea was precluded from bringing such a claim on the basis that it had waived its right to rely on that information by not bringing it up in a timely manner.
Disclosure of overt circumstances
Under French law, the requirement that an arbitrator be independent and impartial is of paramount importance and considered by the courts to be part of the "essence of the arbitral function itself".(7)
This requirement is found in Article 1456(2) of the Code of Civil Procedure, which applies to international arbitration and states that:
"before accepting a mandate, an arbitrator shall disclose any circumstance that may affect his or her independence or impartiality. He or she also shall disclose promptly any such circumstance that may arise after accepting the mandate."
Hence, disclosure constitutes the cornerstone of an arbitrator's duty to remain independent and impartial. The purpose of disclosure is to empower the parties to challenge the appointment of an arbitrator in light of all relevant circumstances at the outset of the arbitration proceedings.
However, the arbitrator's duty to disclose is not limitless and does not extend to overt circumstances (ie, circumstances that are known or should be known by the parties).(8)
In recent years, the Supreme Court's stringent approach to the question of what constitutes overt circumstances has evolved through a series of decisions that now appear to be confirmed by the case at hand.
The Supreme Court adopted a stern position in its 2014 decision in Société Dukan de Nitya, whereby it discharged the parties from any obligation to investigate an arbitrator's independence, even though the information that called the arbitrator's independence and impartiality into question was freely and publicly available at the time of the arbitral tribunal's constitution. It further held that as long as the declaration of independence made by an arbitrator brings no potentially litigious circumstances to their attention, the parties should not be expected to doubt its sincerity.(9) Consequently, annulment proceedings based on such information could validly be brought.
However, in 2015, in a case where the arbitrator's resumé was incomplete and did not indicate all of the arbitrator's professional background, the Supreme Court approved the Paris Court of Appeal's decision to deny the challenge because the missing information could have been found on "freely accessible internet websites".(10) This approach was confirmed in 2016, when the Supreme Court upheld a decision from the Paris Court of Appeal that had held that information that could have been accessed by "simply consulting freely accessible internet websites" should be deemed overt.(11) However, the Supreme Court did not publish these 2015 and 2016 decisions, showing that they were not intended to have particular precedent value. In contrast, the Supreme Court elected to publish the commented decision.
In its challenge against the Paris Court of Appeal decision, Equatorial Guinea appeared to rely on the Société Dukan de Nitya standard, stating that parties have no obligation to inquire about the arbitrators, as long as the information that is disclosed does not cast doubt on the arbitrators' independence and impartiality. Yet, the Supreme Court rejected the challenge, and following its position in the 2015 and 2016 decisions, upheld the Paris Court of Appeal's decision that the information was easily accessible and therefore should have been known by Equatorial Guinea.
Although the Court of Appeal's 2016 decision – which was upheld by the Supreme Court – equated the free accessibility of information on the Internet with overt character, the same equation was not made in the case at hand. Indeed, the courts here did not say that because the information was easily accessible it was overt, but instead applied the same consequences to the fact that they were easily accessible.
More precisely, is seems that the position taken in these decisions is that information that might not otherwise be deemed overt may become so when it is easily accessible and the potentially litigious circumstance to which this information relates has been brought to the challenging party's attention.
It thus appears now that the proactive behaviour of a party that discloses information on an arbitrator can increase the standard of diligence to which its counterparty should be held when inquiring about potential grounds for challenge.
Role of procedural loyalty
Recognising that the information that Equatorial Guinea had relied on was publicly available is only the first step in the reasoning. It is the necessary pre-requisite to the application of Article 1466 of the Civil Procedure Code (which embodies a rule inspired from the common law principle of estoppel) that if Equatorial Guinea could not ignore the information and did not act on it in a timely manner, then it should not be allowed to resurrect this objection at a much later stage.
Under Article 1466 of the Civil Procedure Code, a party that knowingly or for no legitimate reason fails to object to an alleged irregularity before an arbitral tribunal in a timely manner will be deemed to have waived its right to rely on that alleged irregularity before the courts. Moreover, under Article 1464(3) of the Civil Procedure Code, parties must act diligently and in good faith during arbitral proceedings. As the Supreme Court has upheld, these principles require that parties immediately notify the arbitral tribunal of all alleged irregularities of which they become aware, failing which they will be precluded from relying on such arguments in any challenge to the resulting arbitral award before the courts.(12) Articles 1466 and 1464(3) of the Civil Procedure Code apply to international arbitration by virtue of Article 1506 of the code.
In the instant case, the Supreme Court underlined that once FrenchCo's counsel alerted Equatorial Guinea to the litigious circumstances, not only did Equatorial Guinea not react in time, it also acknowledged in the terms of reference that it had no objection against the arbitrators. Since it was established that Equatorial Guinea should have already been aware of the information concerning the president (which was easily accessible), the court found that it had waived its right to rely on such information to bring annulment proceedings.
French arbitration law has always been innovative, and is constantly evolving to increase the efficiency of the arbitral process. French courts are committed to fostering the legitimacy of international arbitration as the preferred method for the resolution of international disputes, which includes making few concessions when it comes to the standards of independence and impartiality that arbitrators should uphold.
However, a legitimate dispute resolution mechanism that is inefficient is of little use, and French arbitration law favours an approach that is based on the loyalty of the parties' conduct in the interests of a fair and expedient dispatch of justice. As shown by the commented decision, this loyalty has both positive and negative aspects.
As for the positive aspects, the loyalty of a party that unilaterally decides to point to a potentially litigious circumstance that had not been brought up by an arbitrator should be rewarded, in the sense that the other party is held to a corresponding duty of diligence in relation to the facts so disclosed.
As for the negative aspects, French law does not encourage a party that knows or objectively should have known of potential causes of procedural complaints to make the tactical choice to remain silent and wait to use the information should the case turn sour. This has been confirmed by the aforementioned case.
Without denying the importance of the fundamental requirements of independence and impartiality, they should not be applied in clinical isolation from other essential principles, such as procedural loyalty. When taken into account, the latter principle can appear as an effective and suitable check and balance against the adverse effects of a belated invocation of an arbitrator's duty to disclose.
For further information on this topic please contact Elie Kleiman or Martin Brasart at Freshfields Bruckhaus Deringer by telephone (+33 1 44 56 44 56) or email (firstname.lastname@example.org or email@example.com). The Freshfields Bruckhaus Deringer LLP website can be accessed at www.freshfields.com.
(1) See, for instance, Cass civ 1, March 16 1999, Etat du Qatar v Société Creighton, 96-12.748, Rev Arb 1999, 308; CA Paris, September 9 2010, Consorts Allaire v SGS Holding France, Rev Arb 2011, 686; and CA Paris, March 10 2011, Société Nykcool AB v Société Dole France, Rev Arb 2011, 732.
(2) See CA Paris, February 17 2005, Société Mytilineos Holdings v The Authority for Privatization and State Equity Administration, Rev Arb 2005, 716; CA Paris, February 12 2009, SA J&P Avax SA v société Tecnimont SPA, Rev Arb 2009, 186.
(3) Cass civ 1, December 18 2014, Société Dukan de Nitya v Société VR Services, 14-11.085; L Weiller, "L'obligation de rélévation à l'épreuve de la notorité du conflit d'intérêts", Procédures, Issue 3, 2015, comm 84.
(7) See, for instance, CA Paris, November 28 2002, Voith Turbo GmbH AG v Société Nationale des Chemins de Fer Tunisiens, Rev Arb 2003, 445; CA Paris, April 2 2003, Société Fremarc v ITM Entreprises, Rev Arb 2003, 1231; CA Paris, February 12 2009, SA J&P Avax v Société Tecnimont SpA, Rev Arb 2009, 186 and CA Paris, March 10 2011, Société Nykcool AB v Société Dole France, 09/21413, Rev Arb 2011, 732.
(8) In this respect, the French courts consistently hold that an arbitrator's duty to disclose must be considered in light of both the overt character of the litigious circumstances and their influence on the arbitrator's judgment. See, for example, CA Paris, January 12 1995, Ardi v Scapnor, Rev Arb 1996, 72 ; CA Paris, November 28 2002, Voith Turbo GmbH AG v Société Nationale des Chemins de Fer Tunisiens, Rev Arb 2003, 445; and CA Paris, October 14 2014, SA Auto Guadeloupe Investissements v Columbus Acquisitions Inc, 13/13459.
(11) Cass civ 1, May 25 2016, Novolipetski Mettalurguicheski Kombinat v M Maximov, 14-20.532. On this decision, see E Loquin, "La notoriété du fait non révélé par l'arbitre", RTD Com 2016, 699, who talks about a "curiosity duty" imposed by French case law on the parties.
(12) Cass civ 1, January 31 2006, Intercafco v Dafci, No 03-19.054; Cass civ 1, May 6 2009, No 08-10.281; see also Ch Seraglini and J Ortscheidt, Droit de l'arbitrage interne et international, Montchrestien, 2013, p 734, para 806.
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