In a judgment of 26 January 2021, the Paris Court of Appeal confirmed its longstanding pro-arbitration stance by upholding a $646 million award against a company owned by Angolan billionaire Isabel dos Santos. In dismissing the application to set aside the award, the court accepted the legitimacy of a five-member tribunal appointed by the International Chamber of Commerce (ICC) Court and dismissed allegations of bias against two arbitrators.(1)
The underlying ICC arbitration was commenced in 2015 by PT Ventures (PTV), a Portuguese subsidiary of Angola's national oil and gas company Sonagol,(2) against its three partners in Unitel SA, Angola's largest telecoms company, following a dispute concerning alleged breaches of a shareholders' agreement.(3)
In its 2019 award, the Paris-seated arbitral tribunal composed of five arbitrators rendered an award in which it held that the three respondents (ie, Vidatel Ltd, a British Virgin Islands company owned by Isabel dos Santos, Geni SA, which was majority owned by Angolan general and businessman Leopoldino do Nascimento and Mercury Serviços de Telecomunicações SA, a subsidiary of Sonangol)(4) were liable for breaching their obligations towards PTV under the shareholders' agreement. The tribunal ordered the respondents to pay more than $646 million in damages, as well as arbitration fees and costs of almost $15 million.(5)
Vidatel subsequently commenced set-aside proceedings before the Paris Court of Appeal on the grounds that:
- the ICC Court had violated the rules for constituting the arbitral tribunal by itself appointing five arbitrators;(6) and
- two members of the tribunal had lacked independence.(7)
In its January 2021 judgment, the court dismissed Vidatel's claims and confirmed the award.(8)
Five-member tribunal appointment process
This is understood to be the first time in the ICC's history that a tribunal was composed of five arbitrators: Professor Klaus Sachs (the chair), Professor Bernard Hanotiau, Mr David Arias, Professor Luca Radicati di Brozolo and Mr Marcelo Roberto Ferro.(9) While the ICC Arbitration Rules set out the tribunal appointment process in case of a party's failure to appoint the tribunal, the application of the ICC Arbitration Rules to the appointment of a five-member tribunal (as opposed to a three-member tribunal or a sole arbitrator) was novel in this case.
Appointment of tribunal by ICC Court
The arbitration clause contained in Article 16(1) of the shareholders' agreement provided for the arbitral tribunal to be composed of five members, one designated by each party.(10) As such:
- one would be designated by PTV;
- one by each of the three respondents; and
- the fifth member by the other four arbitrators.(11)
When filing its ICC claim, PTV requested that the tribunal be composed of three members instead of five:
- one co-arbitrator to be appointed by PTV;
- one to be appointed jointly by the three respondents; and
- one (the chair) to be appointed in accordance with the ICC Arbitration Rules.(12)
Considering the converging interests of the three respondents, the claimant argued that doing otherwise (ie, applying the arbitration clause literally) would violate the principle of equality of the parties in the constitution of the arbitral tribunal.(13)
In response, Vidatel, one of the three respondents, objected to departing from the contractually agreed procedure, arguing that the ICC Court lacked the power to disregard the arbitration clause contained in the shareholders' agreement and instead appoint arbitrators on the basis of Article 12(8) of the ICC Arbitration Rules (which applied only to situations where a tribunal was composed of three arbitrators).(14) Vidatel noted that the arbitration clause respected the parties' equality by giving each of them the opportunity to appoint an arbitrator.(15)
Subsequently, each party nominated one arbitrator (four in total) and the arbitrators accepted their nomination.(16) The chair was never chosen.(17)
The ICC invited the parties to agree a different method for the tribunal's constitution.(18) Given the parties' inability to reach an agreement in this regard, the ICC Court proceeded to appoint an entirely new tribunal pursuant to Article 12(8) of the ICC Arbitration Rules, composed of five members.(19) The ICC Court dismissed Vidatel's subsequent request to disqualify the five arbitrators appointed by the ICC Court.(20)
Setting-aside proceedings before Paris Court of Appeal
Vidatel presented numerous arguments during the set-aside proceedings regarding the ICC's appointment of the tribunal. It argued that by appointing the five members of the tribunal, the ICC Court had violated the parties' arbitration agreement and therefore departed from the ICC Arbitration Rules.(21) Vidatel further contended that the ICC Court had usurped the arbitral tribunal's power to interpret the arbitration clause, violating the competence-competence principle.(22) It argued that the ICC Court had wrongly refused to confirm the four arbitrators appointed by the parties, all of whom had accepted appointment.(23) Further, Vidatel insisted that by appointing the chair of the tribunal, the ICC Court had violated the agreement that the ICC president would appoint the chair, rather than the ICC Court.(24)
The court dismissed Vidatel's claims, either on the grounds of inadmissibility or because the claims were unfounded.
The court clarified that a party can raise jurisdictional arguments that were not raised in arbitration in set-aside proceedings.(25) However, Vidatel's claim that the ICC had violated the competence-competence principle by appointing the tribunal related to the tribunal's constitution and not its jurisdiction. Therefore, since the respondents had failed to raise the argument during the arbitration, the challenge was inadmissible.(26)
The court further held that Vidatel's claims were unfounded for the following reasons:
- The ICC Court has broad discretionary powers pursuant to Article 13 of the ICC Arbitration Rules to confirm or reject arbitrators nominated by the parties.(27) The ICC Court was therefore under no obligation to confirm the arbitrators appointed by the parties according to the disputed terms of the arbitration clause, which would likely have called into question the public policy principle of party equality in the constitution of the tribunal.(28)
- The ICC Court was also entitled to appoint the chair of the tribunal. The appointment of the chair by the ICC president, as envisaged in the arbitration clause,(29) would apply only if the co-arbitrators nominated by the parties had been unable to agree on the chair's appointment. Here, the clause did not apply because the ICC Court had appointed all members of the tribunal.(30)
In its analysis, the court stressed the importance of respecting the public policy principle of equality of the parties in the constitution of the tribunal. It held that the ICC – the institution in charge of organising the arbitration – had been entitled to appoint all five members of the tribunal itself, since allowing each party to appoint its own arbitrator as envisaged by the arbitration clause would have provided the three respondents with an unfair advantage, violating the public policy imperative of equality.(31) The court reached this conclusion on the basis of Article 1453 of the Code of Civil Procedure, which entitles arbitration institutions to appoint arbitrators should the parties disagree on the procedure for tribunal constitution.(32) In this regard, the court observed that a disagreement had existed between the parties regarding the implementation of the arbitration clause,(33) and on two occasions the ICC Secretariat had invited the parties to agree a new procedure for appointing the tribunal. The ICC had warned that if they were unable to do so, the ICC Court would designate the arbitrators.(34)
Therefore, it was the ICC's responsibility to determine the procedure for appointing the members of the tribunal in accordance with its rules(35) and to safeguard equality in the appointment process.(36)
Allegations of bias against two arbitrators
Vidatel further claimed that Ferro and Sachs (the chair) had lacked independence because they had failed to disclose ties with PTV, its majority shareholder (Oi) and Mr Nelson Tanure.(37)
Vidatel argued that Ferro had failed to disclose his connection with Oi and Tanure, a Brazilian businessman whom Vidatel described as Oi's "most influential" shareholder.(38) As for Sachs (a partner at CMS in Munich), he had allegedly failed to disclose that his partner at CMS in Amsterdam had been appointed during the arbitration as bankruptcy trustee of PTIF – Oi's most important subsidiary.(39)
The court dismissed the claim that these circumstances had tainted the arbitrators and the tribunal's award and instead held that the ties that Vidatel had raised did not require disclosure.(40) Neither Ferro, Sachs nor their respective law firms had been linked directly to one of the parties or their subsidiaries, nor were the relationships in question such as to create a reasonable doubt in the minds of the parties as to the arbitrators' independence.(41) In reaching this finding, the court was guided by the 2016 ICC Note on Conflict Disclosures by Arbitrators.(42)
Ferro
The court clarified that Vidatel's claim regarding Ferro's lack of independence did not pertain to his failure to disclose his ties with Oi, PTV's shareholder. Rather, it concerned ties with a minority shareholder of Oi (ie, Tanure), several companies that Tanure owned and a company that performed financial services for Oi.
The court found that the fact that Tanure had become Oi's shareholder during the arbitration did not create sufficiently close ties between PTV and Ferro or his firm to raise reasonable doubts regarding his independence.(43) The court observed that Tanure's participation in Oi's capital was indirect and minor;(44) he held shares in various companies which themselves had been minority shareholders of Oi.(45) Further, Oi's shareholding in PTV was itself indirect, with four layers of corporate structure separating the two companies.(46) In light of these circumstances, disclosure would therefore not have been recommended by the ICC.(47)
On the other hand, the court recognised that Ferro's law firm acted on behalf of several companies owned by Tanure.(48) However, these companies were not parties to the arbitration nor linked to the parties, directly or indirectly.(49) Ferro was thus under no obligation to disclose those ties.(50)
As to Ferro's and/or his law firm's connection with BNY Mellon (the company performing financial services on Oi's behalf), the court held that these circumstances concerned ties between Ferro's firm and a third-party investment company which had no connection with the arbitration nor any interest therein.(51) The court concluded that those circumstances did not create a sufficient link between Ferro or his firm and PTV that would raise a reasonable doubt in the minds of the parties regarding Ferro's independence.(52)
Sachs
The court dismissed Vidatel's complaint that Sachs had failed to disclose that one of his partners at CMS, Mr Groenewegen, had been appointed as PTIF's bankruptcy trustee.(53)
The court emphasised that PTIF was one of 40 subsidiaries comprising Oi (including PTV).(54) The court also clarified that Sachs was not a direct partner of Groenewegen.(55) While Sachs was a partner in CMS Hasche Sigle in Munich, Groenewegen worked in the Dutch office of the CMS network, and the two entities were legally and financially separate.(56) The fact that a firm in the same network as that of Sachs had a business relationship with a company belonging to the same group as one of the parties did not rise to the level of disclosure.(57)
Conclusion
Interestingly, the court emphasised that while arbitrators have a duty to disclose facts that may raise doubts as to their independence even if they are public knowledge, Vidatel had to act diligently and in good faith(58) in the arbitration under French law.(59) According to the court, it was impossible that Vidatel had been unaware of these facts during the arbitration(60) and it should therefore have raised them at the time, rather than awaiting the outcome of the arbitration.(61) Because Vidatel remained silent – although the ICC Arbitration Rules require that such a challenge be timely(62) – the court concluded that it had not considered these facts sufficient to raise doubts as to Ferro's or Sachs's independence.(63)
Endnotes
(1) Paris Court of Appeal, 26 January 2021, 19/10666, Vidatel Ltd v PT Ventures SGPS SA (judgment). The decision is available here (in French).
(2) PTV was indirectly owned by Brazilian telecoms company Oi when it brought the 2015 ICC claim against its fellow Unitel shareholders. See judgment, para 2. See also "Dos Santos telecoms award upheld in Paris", Global Arbitration Review, 27 January 2021 (available here).
(4) Ibid, paras 1 and 3-5. See also "Dos Santos telecoms award upheld in Paris", Global Arbitration Review, 27 January 2021 (available here).
(8) At the time of writing, the Paris Court of Appeal decision had not been appealed before the Court of Cassation.
(9) Judgment, paras 17 and 22.
(10) Details about the arbitral proceedings can be gleaned only from the judgment as the award is not publicly available.
(11) Judgment, paras 6 and 47 (quoting the arbitration clause contained in Clause 16.1 of the shareholders' agreement:
[a]ny claim, dispute or other matter in question between the Parties with respect to or arising under this Agreement or the breach thereof, shall be decided by arbitration, by a panel of five [5] arbitrators, one to be designated by each Party, and the fifth one to be designated by the other four arbitrators, provided, however, that if no agreement between the arbitrators designated by the Parties is reached, the independent arbitrator shall be designated by the President for the time being of the International Chamber of Commerce. Such arbitration shall be in accordance with [the] Rules of the International Chamber of Commerce. Any such arbitration shall be conducted in English in Paris.
(12) Ibid, para 7. The arbitration was conducted under the ICC Arbitration Rules 2012.
(14) Ibid, paras 9 and 13. Article 12(8) of the ICC Arbitration Rules 2012 provides that:
[i]n the absence of a joint nomination pursuant to Articles 12(6) or 12(7) and where all parties are unable to agree to a method for the constitution of the arbitral tribunal, the Court may appoint each member of the arbitral tribunal and shall designate one of them to act as president. In such case, the Court shall be at liberty to choose any person it regards as suitable to act as arbitrator, applying Article 13 when it considers this appropriate.
(16) Ibid, paras 7, 10 and 14.
(17) See also "Dos Santos telecoms award upheld in Paris", Global Arbitration Review, 27 January 2021 (available here).
(21) Ibid, paras 34 and 37 (noting that by appointing the five members of the tribunal, the ICC violated Articles 11(6) and 12(8) of the ICC Arbitration Rules 2012).
(24) Ibid, para 39. Vidatel also alleged that PTV's attempt to force the three respondents to appoint a single arbitrator was contrary to public policy (see para 35). However, the court did not address this claim as one of the grounds of Vidatel's application to annul the award.
(25) Ibid, para 73. This position was confirmed by the Court of Cassation in a recent decision in which it held that "where jurisdiction has been disputed before the arbitral tribunal, parties to the set-aside proceedings are not deprived of their right to rely on new pleas and arguments and to submit new evidence before the annulment judge". See the Court of Cassation (1st Civil Chamber), 2 December 2020, 19-15.395, para 6 (unofficial translation).
(26) Judgment, paras 74-75 (see also para 36 for Vidatel's allegations).
(27) Ibid, para 82. Article 13(1) of the ICC Arbitration Rules 2012 provides that:
[i]n confirming or appointing arbitrators, the Court shall consider the prospective arbitrator's nationality, residence and other relationships with the countries of which the parties or the other arbitrators are nationals and the prospective arbitrator's availability and ability to conduct the arbitration in accordance with the Rules.
(29) Ibid, para 86 (citing the relevant part of the arbitration clause).
(32) Ibid, para 54. See also, Code of Civil Procedure, Article 1453 ("where the dispute is between more than two parties and they do not agree on the constitution of the arbitral tribunal, the person responsible for organizing the arbitration or, failing that, the assisting judge, shall appoint the arbitrator or arbitrators"). Article 1453 of the Code of Civil Procedure applies to international arbitration by virtue of Article 1506.
(33) Judgment, paras 49-51 and 53.
(35) While the ICC Arbitration Rules 2012 already provided for the possibility of the ICC Court appointing the arbitral tribunal in case of the parties' failure to agree a method for its constitution (Article 12(8)), the new 2021 rules further strengthen the ICC Court's discretion to appoint all members of the tribunal. The new rules provide that in exceptional circumstances and notwithstanding any agreement by the parties on the method of constitution of the arbitral tribunal, the ICC Court "may appoint each member of the arbitral tribunal to avoid a significant risk of unequal treatment and unfairness that may affect the validity of the award" (ICC Arbitration Rules 2021, effective from 1 January 2021, Article 12(9)).
(36) Judgment, para 63. In France, the principle of party equality is a fundamental principle of law, codified in legislation on international arbitration (see Code of Civil Procedure, Article 1510: "Regardless of the procedure chosen, the arbitral tribunal guarantees the equality of the parties and respects the principle of contradiction"). The application of this principle to the arbitrator appointment process is a matter of public policy, as recognised by the Court of Cassation in its famous Dutco judgment of 1992. See the Court of Cassation (1st Civil Chamber), 7 January 1992, 89-18.708, 89-18.726 (which provides that the equality of the parties in the appointment of arbitrators is a matter of public policy which can be waived only after the dispute has arisen).
(42) Ibid, para 116 (setting out the relevant passages from the ICC note); see also paras 114-120, 125, 141, 145 and 152.
(45) Ibid, para 138. As mentioned above, Vidatel alleged the contrary that Tanure was the "most influential" shareholder of Oi (para 93).
(51) Ibid, para 151. The court distinguished those circumstances from what had previously led Ferro's firm to decline to advise the bankruptcy trustee in the restructuring of Oi, following Vidatel's opposition (see paras 146-149).
(58) In French, the "principe de célérité et de loyauté procédurale".
(59) Judgment, para 128. See also, Code of Civil Procedure, Article 1464(3), which provides that "both parties and arbitrators shall act diligently and in good faith in the conduct of the proceedings".
(60) For example, the ties between Farro and certain companies in which Tanure held shares were mentioned in the Global Arbitration Review (see judgment, paras 126-127). Similarly, Vidatel produced two exhibits during the arbitration which expressly mentioned Groenewegen's appointment as PTIF's bankruptcy trustee (paras 162-163).
(62) Article 14(2) of the ICC Arbitration Rules 2012 provides that the challenge be made:
within 30 days from receipt by that party of the notification of the appointment or confirmation of the arbitrator, or within 30 days from the date when the party making the challenge was informed of the facts and circumstances on which the challenge is based if such date is subsequent to the receipt of such notification.
