The Paris Court of Appeal has overturned a judgment granting exequatur (order for enforcement) of an arbitral award as a result of the sole arbitrator’s failure to disclose a potential conflict of interest. At the time of his appointment in September 2009, the arbitrator had disclosed that “a partner in my firm’s Toronto office has represented” the sole shareholder of one of the parties to the arbitration “over a number of years“. However, in December 2010, the firm published a report that it had advised that same shareholder on a recently concluded transaction.
The case is a reminder of the burden on arbitrators to provide a full disclosure of any potential conflicts, and to update such disclosure should new conflicts arise during the course of an arbitration. (S.A. Auto Guadeloupe Investissements (AGI) c/ Columbus Acquisitions Inc, Cour d’appel de Paris, Pôle 1 – Chambre 1, n° 13/13459 (14 October 2014).)
Articles 1456 and 1506 of the French Code of Civil Procedure (CPC) provide that an arbitrator is obliged to disclose any circumstance that might affect his independence or impartiality.
Article 1456 of the CPC (applicable pursuant to Article 1506(2)) provides that:
“Before accepting a mandate, an arbitrator shall disclose any circumstance that may affect his or her independence or impartiality. He or she shall also disclose promptly any such circumstance that may arise after accepting the mandate”.
Auto-Guadeloupe Investissements (AGI) and Caribbean Fiber Holdings SA (CFH) were the owners of Global Caribbean Fiber SA (GCF), a French company established for the construction and operation of an undersea cable network in the Caribbean. CFH was a wholly-owned subsidiary of Leucadia National Corp (Leucadia).
In 2008, AGI and CFH began negotiations with Columbus Acquisitions Inc and Columbus Holdings (together “Columbus”) regarding the sale of GCF. Having agreed an initial memorandum of terms fixing a deadline of 31 December 2009 for conclusion of a definitive agreement, the parties later agreed a further memorandum of terms fixing a new deadline of 31 March 2009. The later memorandum of terms provided for arbitration under the rules of the International Centre for Dispute Resolution (ICDR) before a sole arbitrator.
AGI did not consider the memorandum of terms to be binding and subsequently announced that it no longer wished to pursue the sale. On 10 July 2009, Columbus initiated arbitration proceedings, seeking specific performance and an indemnity of US$990 million. CFH joined itself to these claims and also sought punitive damages.
A sole arbitrator was appointed in September 2009. At that time, the arbitrator made the following disclosure:
“I wish to disclose that a partner in my firm’s Toronto office has represented Leucadia National Corporation in Canada in respect of Canadian based matters over a number of years. I understand that at present there are no matters in respect of which my firm is currently providing advice to Leucadia National Corporation.”
On 15 December 2010, the arbitrator’s firm published a report stating that Leucadia had, that day, finalised the sale of mining interests worth US$575,000,000 with the assistance of three partners in the firm’s corporate, securities and tax departments. A similar report appeared in the magazine Lexpert in January 2011.
In an award issued in Bridgetown (Barbados) on 27 March 2011, the sole arbitrator:
- Found that the parties had concluded a binding agreement, which AGI had breached.
- Rejected the claims for specific performance and transfer of the shares.
- Rejected AGI’s counterclaims.
- Deferred to a later award a decision on damages and the costs of the proceedings.
On 3 July 2013, the Paris Tribunal de grand instance issued an order granting exequatur (order for enforcement) of the award.
AGI brought an appeal against the order on three grounds, arguing that:
- The arbitrator’s failure to disclose links between the firm in which he was a partner and two of the parties to the proceedings constituted an irregularity in the constitution of the arbitral tribunal and a breach of international public order.
- The arbitrator had exceeded his jurisdiction, since the scope of the arbitration clause was limited to disputes concerning the negotiations. According to AGI, the clause did not extend to disputes relating to the transfer of the shares, which the parties had agreed were to be settled by a three-member tribunal.
- Enforcement of the award in France would contravene international public policy in respect of insolvency proceedings, and notably the principle that individual claims are suspended on the opening of a safeguard procedure.
Columbus resisted the appeal on the grounds that the relations between the arbitrator’s firm and persons indirectly linked to Columbus were old, and did not represent an ongoing course of business. Further, Columbus argued that the relations between the arbitrator’s firm and Leucadia had been disclosed by the arbitrator and were, in any event, widely-known (notoire), having been published on the firm’s website.
The Paris Court of Appeal allowed the appeal.
Having expressly drawn attention to Articles 1456 and 1506 of the CPC, the Paris Court of Appeal emphasised that:
- The fact that the arbitrator had been nominated by AGI did not remove his obligation of disclosure vis-à-vis AGI.
- In assessing an arbitrator’s obligation of disclosure, the extent to which the relevant circumstances were known, and their impact on the arbitrator’s judgement, had to be taken into account.
The Paris Court of Appeal then went on to draw a distinction between public and very easily accessible information, which the parties should consult prior to the commencement of arbitral proceedings (though they are not expected to trawl exhaustively through every source which might, potentially, be of relevance) and information arising after the initiation of proceedings. With respect to the latter, the court stated that it would be unreasonable to expect the parties to continue their research after proceedings had begun.
In this instance, the facts giving rise to the alleged conflict of interest were not widely-known (notoire) at the time of the tribunal’s constitution. The arbitrator’s declaration of independence given in September 2009 had stated clearly that his firm was not currently advising Leucadia. It was only in December 2010 (while the arbitrator was drafting the award) that the arbitrator’s firm announced that three of its lawyers had assisted Leucadia with the above-mentioned transaction.
The Paris Court of Appeal noted that, irrespective of the fees involved, the firm’s own publicity demonstrated that it regarded the transaction as important. This was sufficient to give rise to reasonable doubts in AGI’s mind as to the arbitrator’s independence and impartiality. Therefore, it was appropriate to set the award aside on the grounds of an irregularity in the constitution of the arbitral tribunal.
This decision follows in the footsteps of the long-running Tecnimont saga as an example of the French courts considering the scope of arbitrators’ duties of disclosure and invites comment for two reasons.
The first reason is the distinction that the decision appears to draw between events pre- and post-commencement of arbitral proceedings. In applying Article 1456, the Paris Court of Appeal found that the parties are expected to consult public and easily accessible sources of information regarding the arbitrator before the commencement of proceedings (without combing through every potentially relevant source). In consequence, the existence of public and easily accessible information may render an arbitrator’s conflict of interests “widely-known” (notoire), with the result that specific disclosure is not necessary. However, the parties cannot reasonably be expected to continue their research after proceedings have begun. At that stage, the arbitrator must declare potential conflicts of interest as they arise, irrespective of whether the information is also publicly available and easily accessible.
The second is that, despite the arbitrator having accepted his appointment on 15 September 2009, the Court of Appeal invoked two provisions of the CPC (Articles 1456 and 1506), which apply only to proceedings in which the arbitral tribunal was constituted after 1 May 2011. In the context of international arbitration, Articles 1456 and 1506 of the CPC codified principles previously established by the French courts. Therefore, this irregularity is unlikely to affect the substance of the decision. However, it will be interesting to see whether an appeal to the French Supreme Court is brought against the judgment on that ground.
Despite this potential irregularity, the decision provides helpful confirmation of the fact that parties to an arbitration are expected to carry out basic research on an arbitrator prior to his or her appointment. However, it offers little guidance as to exactly what information is to be regarded as “public and very easily accessible“. As such, it is to be hoped that the French courts will be given an opportunity to re-examine this issue in the near future.