19 January 2010
On February 12, 2009, the Paris Court of Appeals rendered an important decision concerning the requirements of independence and impartiality of arbitrators in an arbitration seated in France. The court emphasized the arbitrators’ duty to disclose any fact or circumstance that may affect their independence and impartiality continued throughout the arbitration proceedings.
The case stemmed out of a request for the annulment of a partial International Chamber of Commerce (ICC) arbitral award brought by the Greek company J&P AVAX SA (AVAX) against the Italian company SOCIETE TECNIMONT SPA. (TECNIMONT).
TECNIMONT had concluded a subcontracting agreement with AVAX for the construction of a propylene factory located in Greece. A dispute arose between the parties and TECNIMONT instituted ICC arbitral proceedings in Paris pursuant to an arbitral clause in the subcontract agreement. Each party nominated an arbitrator and the chairman of the Arbitral Tribunal was nominated by the party-appointed arbitrators. The secretary-general of the ICC confirmed the nomination of these arbitrators.
A partial award was subsequently rendered by the Arbitral Tribunal on December 10, 2007.
AVAX brought annulment proceedings in France against this partial award claiming breach of Article 1502 2° of the French Code of Civil Procedure, which provides that annulment of an arbitral award may be requested if the arbitral tribunal had been improperly composed. In particular, AVAX asserted that the chairman of the Arbitral Tribunal, a well-known arbitrator from a large international law firm, failed to fulfill his obligation to reveal circumstances that could affect his independence due to the nature of the links existing between his law firm and TECNIMONT.
AVAX indicated that in his declaration of independence of October 30, 2002, the chairman of the Arbitral Tribunal was required to reveal any associations existing between his law firm and TECNIMONT, including TECNIMONT’s parent company and subsidiaries. AVAX argued that the chairman had failed to disclose that his law firm advised TECNIMONT’s parent company, EDISON, throughout 2002 and kept it as a client until 2005. Thus, when the arbitrator was appointed chairman of the Arbitral Tribunal, TECNIMONT’s parent company was still a client of his law firm.
Moreover, the Paris office of the chairman’s law firm, where he practiced, had represented SOFREGAZ, a 100 percent subsidiary of TECNIMONT, since February 2004 in a dispute before French courts and had advised SOFREGAZ on a tax matter. Finally, from July 2005 to April 2007, the chairman’s law firm advised TECNIMONT, as well as a consortium composed of SOFREGAZ and TECNIMONT, on a project in China, and also advised EDF, another French company, which became the parent company of TECNIMONT, in May 2005.
AVAX argued that the chairman had failed to comply with his duty of independence because of these numerous associations over the course of the arbitration between his law firm and TECNIMONT, TECNIMONT’s parent companies, and TECNIMONT’s wholly owned subsidiary.
In rebuttal, TECNIMONT argued that annulment proceedings were not admissible by the court because a request for the dismissal of the chairman filed with the ICC on September 14, 2007, had been declared barred. TECNIMONT also argued that the annulment proceedings must be rejected because the chairman did not fail to fulfill his disclosure obligations and had fulfilled his obligation of independence.
The Court’s Reasoning and Decision
The Paris Court of Appeals noted that an arbitrator must reveal to the parties all circumstances that could affect his judgment and could instill a reasonable doubt in a party’s mind as to the arbitrator’s impartiality and independence. The court also noted that the chairman’s declaration of independence merely disclosed that during the previous year, certain offices of his law firm had assisted the parent company of TECNIMONT with respect to a closed matter and that he had never worked himself for this client.
The court took into account the fact that AVAX had questioned the chairman’s links to TECNIMONT, and that it had requested additional information from him in the course of the proceedings. On the basis of the answers he provided, AVAX challenged his appointment, a challenge that was subsequently rejected by the ICC. AVAX nevertheless reserved its rights and wrote multiple letters requesting — and obtaining — additional information from the chairman. This information shed further light on the relationship between the chairman’s law firm and TECNIMONT.
Given that AVAX did not waive its right to challenge the independence of the chairman on the basis of these new facts, which were unknown before the rendering of the first partial award, the request for annulment of the partial arbitral award was found to be admissible by the Court of Appeals.
The Court of Appeals noted that the chairman’s disclosure concerning his law firm’s links to TECNIMONT was not exhaustive, as the firm did not stop working with EDISON until 2005. It also noted the firm’s work for the consortium SOFREGAZ TECNIMONT in China during three months in 2005, the representation of SOFREGAZ in on-going judicial proceedings and the tax advice in 2004.
As stated by the Paris Court of Appeals:
Considering that the bond of confidence between an arbitrator and the parties must continually be preserved, the parties must be informed throughout the duration of the arbitration of relations that might in their eyes influence the judgment of the arbitrator and which is of a nature that could affect his independence, that TECNIMONT could have known the affairs in which it, one of its subsidiaries, and its parent company had hired [the Chairman’s law firm] and cannot excuse itself because of the global size of [the Chairman’s law firm], with 2200 lawyers, and observing that [it] has a department in charge of conflict checks and that the information furnished by [the chairman] to the parties involved in the arbitration were communicated to him by his law firm;” (emphasis added)
On this basis, the Court of Appeals found that the links with TECNIMONT created a conflict of interest between the chairman of the Arbitral Tribunal and one of the parties to the arbitration. In summary, the Court of Appeals ruled that due to the lack of independence of the chairman of the Arbitral Tribunal, the Arbitral Tribunal had been improperly composed, leading to the court’s annulment of the partial arbitral award of December 10, 2007.
The Paris Court of Appeals’ decision demonstrates the importance of continuous and strict conflicts checks by arbitrators throughout the arbitration proceedings. Arbitrators involved in arbitration proceedings with a seat in France must ensure that their independence and impartiality is preserved in the eyes of the parties not only at the inception of the arbitration but until the final award is rendered, by updating, whenever necessary, the disclosure they initially made.
The strict approach of the Paris Court of Appeals requires arbitrators to make sure that conflict of interest databases are regularly updated and consulted. Undoubtedly, this adds to the arbitrators’ responsibilities and may be challenging to enforce, especially when arbitrators are part of an international law firm. However, far from making arbitration more complex, this important decision has the very positive effect of ensuring that arbitrators sitting in international arbitration tribunals in France are, and also remain, truly independent and impartial throughout the proceedings.