In Avax v Tecnimont (Civ. 1ère, 25 June 2014, pourvoi n° 11-26.529) the French Supreme Court reviewed the Paris Court of Appeal’s decision regarding the effect of the time limits in institutional rules on the judge reviewing the award.
On 25 June 2014, the French Supreme Court (the Cour de cassation) held that a party that had failed to exercise its right to challenge an arbitrator within the time limit specified by the applicable arbitration rules is deemed to have waived its right to have the award set aside on that ground. In other words, the French Supreme Court held that the arbitration rules that have been chosen by the parties to govern the arbitration have a legal effect on the judge reviewing the award and cannot be disregarded once the arbitral award has been rendered. The decision reversed a controversial decision rendered by the Reims Court of Appeal in 2011.
This is the latest decision in the now long-running judicial saga of the 2007 ICC award in Avax v Tecnimont. The Paris Court of Appeal initially annulled the award in 2009, on the ground that the chairman of the tribunal had failed to disclose his law firm’s representation of companies affiliated to one of the parties during the arbitration proceedings. That decision was then reversed on a procedural ground by the French Supreme Court in November 2010. The case was then referred to the Reims Court of Appeal, which set aside the award again, this time for a failure to disclose conflicts of interests and to take into account the impact of the ICC rules on challenging arbitrators.
In the latest decision, the French Supreme Court ruled on the same case for the second time, but on a different legal issue, reversing the Reims Court of Appeal decision only on the question of the legal authority of the ICC Rules. It did not rule on the second question addressed to it, which concerned the scope of the arbitrator’s duty of disclosure. The French Supreme Court has sent the case back to the Paris Court of Appeal, which will issue another decision on the case (although it will be dealt with by a different chamber of the Paris Court of Appeal).
The decision is a reminder to parties to consider promptly their rights under any agreed institutional arbitration rules and, more importantly, to heed the time limits imposed by those rules.
Article 11 of the 1998 ICC Rules (now Article 14 of the 2012 ICC Rules) provides that parties can mount a challenge “for an alleged lack of independence or otherwise“. However, there are strict time limits for making a challenge; Article 11(2) provides that for the challenge to be admissible it must be sent within 30 days from receipt by that party of notification of the appointment or confirmation of the arbitrator, or within 30 days of the challenging party being informed of the facts and circumstances on which the challenge is based.
Article 1502 2 of the French Code of Civil Procedure (now replaced by Article 1520 2°) provides:
“An appeal against the decision, which grants recognition or enforcement, will be available only in the following cases: […]
2° if the arbitration tribunal has been unlawfully constituted or the sole arbitrator has been unlawfully designated“.
This case arose from an application by a Greek company, J&P Avax (Avax), to set aside a partial arbitral award rendered by an ICC tribunal. Avax had contracted with an Italian company, Société Tecnimont (Tecnimont), in respect of the construction of a propylene factory in Greece. A dispute arose between the parties and Tecnimont started ICC proceedings in Paris.
At the time of his appointment, the tribunal chairman was “of counsel” at a global law firm with a branch office in Paris. In his declaration of independence, he disclosed that the Washington DC and Milan offices of the firm had previously worked with Tecnimont’s parent company in a concluded matter, in which he had never been involved.
During the proceedings, Avax’s counsel became aware, apparently between 16 and 26 July 2007, that the chairman’s law firm was providing advice to a company that was later acquired by the parent company of Tecnimont. In September 2007 – that is, after expiry of the 30-day time limit in Article 11 of the 1998 ICC Rules to challenge an arbitrator – Avax unsuccessfully challenged the chairman’s appointment before the ICC Court of Arbitration. The ICC dismissed the challenge (without disclosing its reasons) and Avax continued to participate in the arbitration while reserving its rights. A partial award on liability was rendered in Tecnimont’s favour in December 2007. Further information regarding the links between the law firm and Tecnimont’s affiliated companies came to light thereafter.
Avax successfully applied to the Paris Court of Appeal to set aside the award. The Paris Court of Appeal found that Avax had only been notified of relevant facts and circumstances after it had challenged the arbitrator before the ICC and after the award had been delivered. Further, the arbitrator was under a continuing obligation to inform the parties of any matter that could cast reasonable doubts on his impartiality and independence and this was a ground for annulment of the award under Article 1502 2° of the French Code of Civil Procedure (now Article 1520 2° although the wording has been slightly modified: “An award may only be set aside where: […] (2) the arbitral tribunal was not properly constituted“).
The French Supreme Court reversed this decision in a first cassation judgment issued on 4 November 2010. It held that, since almost all of the facts complained of in Avax’s application to annul the award in fact appeared in its challenge of the chairman before the ICC, the Paris Court of Appeal’s supposed reliance on facts that had come to light after the issue of the award changed the scope of the dispute, thereby violating Article 4 of the French Code of Civil Procedure (which provides: “The subject-matter of the dispute is determined by the respective claims of the parties. The originating process and the defence submissions define such claims. However, the subject-matter of the dispute may be modified by the interlocutory claims where they relate to the initial claims by a sufficient link“). The Supreme Court decision, however, was only of a procedural nature and it remitted the case to the Reims Court of Appeal to decide on the substantive question of the validity of the award.
The Reims Court of Appeal set aside the award again, on the grounds that:
- The arbitrator had failed to comply with his continuing obligation to disclose links between his law firm and one of the parties, even where these did not involve him personally.
- Even though the ICC challenge was filed outside the 30-day time limit prescribed by the ICC Rules, Avax had not waived its right to apply to set aside the award because a challenge before the ICC and an application to a judge to set aside the award are separate proceedings of a different nature. They do not serve the same purpose and are not supervised by the same authority. An ICC decision is of an administrative nature and does not have res judicata effect; in addition, the judge that deals with the annulment application need not abide by the ICC’s time limit.
Seised both of the question of the legal effect of the institutional rules applicable to the case and of the extent of the arbitrator’s duty of disclosure, the French Supreme Court reversed the Reims Court of Appeal’s decision on the first issue and held that Avax had waived its right to apply to set the award aside on this ground.
“[a] party that, knowingly, refrains from exercising, within the timeframe provided under the applicable arbitration rules, his/her right of challenge on the basis of a circumstance that could potentially call into question an arbitrator’s independence or impartiality, is deemed to have waived the right to rely on such circumstance before the annulment judge. The court of appeal therefore should have examined whether the thirty-day time limit required under the arbitration rules for exercising the right of challenge was, or was not, observed in respect of each of the facts and circumstances the court held to constitute a breach of the arbitrator’s obligation of independence and impartiality“.
As the Court of Appeal judgment was reversed on the first ground, the French Supreme Court held that, consequently, it did not have to deal with the issue of the scope of an arbitrator’s duty of disclosure and sent the case back to the Paris Court of Appeal.
The case calls for comment on the following conclusions:
- The failure to adhere to the ICC’s 30-day time limit to challenge arbitrators bars a party from having an award set aside on the same grounds.
- The Court of Appeal should have determined whether, in view of the circumstances, the 30 day time-limit imposed by the ICC Rules to challenge the arbitrator had or had not been complied with by the applicant.
The first finding was expected by several commentators, in view of the Reims Court of Appeal’s reasoning, which has been criticised by a number of commentators due to its failure to give consideration to the ICC time limits for challenging arbitrators. In particular, many commentators have argued that the ICC Rules should not have been so easily disregarded, given that they represent contractual obligations which the parties have incorporated in their arbitration agreement.
The Cour de cassation judgment answers the concerns of commentators. It is now clear that a judgment reviewing an award which fails to take into account the time limits set forth in the ICC Rules (or any other institutional rules for that matter), which are binding on the parties, will be overturned. This does not mean, however, that the judge, when reviewing the award, is bound by the substantive decision of the ICC Court under the ICC Rules (that is, a decision whether or not to uphold the challenge to an arbitrator). Rather, it is only the failure to comply with the ICC Rules themselves, which amounts to a breach of the contract between the parties, which a French judge is not entitled to rectify.
By selecting ICC arbitration, the parties undertake to challenge arbitrators within a 30-day time limit which begins on the date when the party making the challenge is informed of the facts and circumstances on which the challenge is based. Failure to do so renders any challenge inadmissible. The rule and its sanction are clear-cut.
This holding is also consistent with French arbitration law in this respect. First, under Article 1456 paragraph 3 of the French Code of Civil Procedure, there is a 30-day time limit to challenge an arbitrator before the French “juge d’appui“. Second, Article 1466 has codified the rule that: “A party which knowingly and without a legitimate reason, fails to object to an irregularity before the arbitral tribunal in a timely manner shall be deemed to have waived its right to avail itself of such irregularity“.
The Cour de cassation decision is, therefore, not a surprise in the light of French arbitration law.
This judgment also attracted attention for its potential response to the Reims Court of Appeal’s view about the extent of the arbitrator’s duty of disclosure under French law, which relates more generally to the question of the arbitrator’s independence.
As the Court of Appeal judgment was reversed on the first ground, the French Supreme Court did not deal with the issue of the arbitrator’s duty of disclosure. This is therefore the second time that the Supreme Court has dealt with this case without taking a position on that specific issue.
Nevertheless, one observation can still be made, since the French Supreme Court explained that the Court of Appeal should have checked whether, in respect of each fact or circumstance alleged to constitute a breach of the arbitrator’s obligation of independence and impartiality, the 30-day time limit for bringing a challenge had been complied with. Therefore, if the reviewing court concludes that facts or circumstances which emerged after the award had been rendered differ from those relied on in the challenge before the ICC, and that these new facts or circumstances fall within the arbitrator’s duty to disclose, then the award may be set aside.
The Supreme Court’s remarks were addressed to the Paris Court of Appeal, which will, for the second time, but with different members, consider the setting-aside application on the basis of such guidance. The Tecnimont saga still has a long way to run.