In a judgment issued on 3 October 2019, the Cour de cassation (French Supreme Court) upheld a Court of Appeal decision setting aside an award as a result of an arbitrator’s non-disclosure. The judgment is a helpful illustration of the scope of arbitrators’ obligations in respect of disclosure once a tribunal has been constituted – and a warning to arbitrators of the need to be proactive.
The French Code of Civil Procedure
Under article 1456 of the French Code of Civil Procedure (CPC):
“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”.
The limited grounds on which an international award may be set aside are set out exhaustively in article 1520 of the CPC. One of those grounds is that the arbitral tribunal was not properly constituted (art. 1520 2°).
The arbitral award and its annulment by the Paris Court of Appeal
In February 2013, Saad Buzwair Automotive Co (SBA) commenced an ICC arbitration against Audi Volkswagen Middle East Fze (AVME). SBA nominated “Q” as its appointee to the arbitral tribunal. The arbitration was seated in Paris.
The tribunal issued an award in March 2016 (Award), rejecting SBA’s claims. SBA subsequently learned that Q’s firm had advised members of the Volkswagen group, including Porsche, on various occasions, both before and during the arbitration. As a result, SBA successfully sought the annulment of the Award.
AVME appealed against the Paris Court of Appeal decision annulling the Award. The Cour de cassation (French Supreme Court) rejected the appeal and upheld the annulment.
The Cour de cassation decision
The Cour de cassation ultimately considered the substance of four of the grounds on which AVME had appealed.
First, that an arbitrator is not required to disclose to the parties facts which are widely-known or easily accessible (faits notoires ou aisément accessibles). The JUVE handbook is known to every commercial law firm in Germany, and the Court of Appeal had recognised that information published in the 2010/2011 edition should be regarded as widely-known (as was the case regarding the representation of Volkswagen Bank by Q’s firm). The 2015/2016 edition, which was published prior to issue of the Award, revealed that the arbitration and litigation department in Q’s firm was representing Porsche in ongoing litigation, and the Court of Appeal should have found that this information was also widely-known, with the result that Q was not required to disclose it. The Court’s failure to do so, AVME argued, breached articles 1456 para. 2, 1506 et 1520 2° of the CPC.
Second, that, in any event, an award may only be set aside for non-disclosure if the non-disclosed circumstances are such as to give rise to reasonable doubts in the minds of the parties as to the independence and impartiality of the arbitrator concerned. The Court of Appeal had found that Q’s firm had considered Porsche to be a significant client, mentioning it in its marketing and including it in its five most noteworthy matters. For the Court, this was sufficient to create a reasonable doubt in respect of Q’s independence and impartiality, and the Court had also noted that in 2010 Porsche had instructed the firm in a relatively minor matter which Q had not disclosed and the firm had not publicised.
AVME criticised the Court’s failure to verify, as it had been invited to do, whether such circumstances did in fact create reasonable doubts as to Q’s independence and impartiality, given that SBA had not raised any concerns (or sought recusal) when Q had disclosed in October 2013 that another company in the Volkswagen group had appointed him as arbitrator in a separate arbitration. As a result, it argued, the Court had failed to comply with article 1520 2° of the CPC.
Third, that the Court of Appeal had failed to consider whether the non-disclosed information was such as to give rise to reasonable doubts as to an arbitrator’s independence and impartiality in the minds of the parties. The Court had found that representing Porsche was of “indisputable” importance to Q’s firm and noteworthy enough to have been included in its top 5 matters. But these findings were not sufficient to explain why these circumstances had given rise to reasonable doubts in the mind of SBA. In this respect too, therefore, the Court had failed to comply with article 1520 2° of the CPC.
Fourth, that the Court of Appeal had referred to a minor instruction of Q’s firm by Porsche in 2010, which had not been disclosed by Q or publicised by the firm, without explaining why this was such as to give rise to reasonable doubts as to the independence and impartiality of Q in the mind of SBA. This too, AVME argued, did not comply with article 1520 2° of the CPC.
The Cour de cassation rejected the appeal. The Court of Appeal had been correct to find that the instruction of Q’s firm by Volkswagen Bank in 2010 should be regarded as well-known, given that it had been published prior to the arbitration in a handbook familiar to all German law firms. However, “AVME” was not required to continue its research after the arbitration had commenced. The onus is on the arbitrator to inform the parties of any circumstance which may affect their independence or impartiality which arises after they have accepted their appointment.
In this instance, the Court of Appeal had found that the instruction from Porsche during the course of the arbitration was sufficiently important to Q’s firm for it to have been included in its “top 5” matters in 2014 and 2015. This was within the Court’s discretion (pouvoir souverain d’appréciation) and it was not obliged to engage in additional research that was unnecessary in light of these findings. Accordingly, the Court of Appeal’s conclusion that there was a reasonable doubt as to the independence and impartiality of Q was well-founded and the annulment of the Award was upheld.
The Cour de cassation‘s decision does not break new ground (see, for example, the previous post here). It is, however, another reminder of the importance of ensuring that arbitrators (and parties) properly identify any potential conflicts as soon as they arise. And it is also an illustration of the principle that, while the parties are expected to conduct independent research beforehand, the individual arbitrator is responsible for disclosing to the parties any circumstances which might affect their independence and impartiality that arise after their appointment.