French Supreme Court reaffirms the importance of arbitrators’ independence and impartiality

On 16 December 2015, the French Court of Cassation, in Sociétés Colombus v Société AGI[1], confirmed the importance of arbitrators’ independence and impartiality by upholding a decision of the Paris Court of Appeal that overruled the exequatur of an award due to the breach by the sole arbitrator of his duty of full disclosure.

Significance

The decision of the French Court of Cassation is a reminder of the extent to which arbitrators have to disclose facts that may raise doubts as to their independence or impartiality in the eyes of the parties.

In addition, it confirms that this duty exists not only at the time of nomination but throughout the arbitration proceedings.

Background

A conflict arose in relation to the sale of Global Caribbean Fiber (“GCF”) by a French company, AGI, and an American company, Caribbean Fiber Holdings (“CFH”), fully owned by Leucadia National Corporation (“Leucadia”), to a Barbadian company, Colombus Acquisitions, and a French company, Columbus Holdings (the “Colombus Companies”).

The parties entered into an agreement regarding the proposed sale of GCF (the “Agreement”), which was governed by Barbadian law and provided for arbitration under the rules of the International Centre for Dispute Resolution (the “ICDR”).

Further to the cancellation of the sale by AGI, the Colombus Companies initiated ICDR arbitration proceedings in July 2009, seeking specific performance of the sale or alternatively USD 990 million in damages. CFH joined the claim and also asked for punitive damages.

On 27 March 2011, the sole arbitrator appointed, Henri Alvarez, issued a partial award stating that AGI breached the Agreement and deferred his decision regarding damages and legal costs. Columbus Companies sought to enforce the award before the Paris Court of First Instance, which issued an order on 20 June 2013 granting the exequatur.

AGI lodged an appeal against the order before the Paris Court of Appeal, claiming that the award should be annulled as the arbitration tribunal was not regularly constituted due to Henry Alvarez’s failure to disclose the extent of the relationship between Fasken Martineau, the law firm in which he is a partner, and Leucadia. On 15 December 2010, Fasken Martineau’s website indicated that Leucadia had been assisted in selling Canadian mining interests (for about USD 575 million) by three lawyers of the law firm.

Articles 1456 and 1506 of the French Code of Civil Procedure provide that an arbitrator must disclose any circumstance that might affect her/his independence or impartiality.

Article 1456 of the French Code of Civil Procedure indeed states that “[b]efore 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 Paris Court of Appeal ruled in favour of AGI’s claim as Henry Alvarez had not disclosed in September 2009 information regarding Fasken Martineau’s work for Leucadia regarding the abovementioned sale of Canadian mining interests, and such information could raise a reasonable doubt regarding the arbitrator’s independence and impartiality in AGI’s mind.[2]

Henry Alvarez had only disclosed that one of his partners in Toronto has represented Leucadia over a number of years, and that it was not the case anymore when he issued his statement of independence.

In addition, in response to an argument raising that the amount of Fasken Martineau’s fees for the transaction was limited, the Paris Court of Appeal stated that the size of the transaction, the number of lawyers involved and the advertising given to the transaction show the importance of the case for Fasken Martineau.

Finally, the Paris Court of Appeal considered that, although the parties are supposed to search for publicly available and easily accessible information regarding potential conflicts of interest, they do not have to investigate thoroughly and exhaustively every potentially relevant source, in particular during the arbitration proceedings.

Decision of the Court of Cassation

The Colombus Companies challenged the Paris Court of Appeal’s decision before the French Court of Cassation.

On 16 December 2015, the latter upheld the Paris Court of Appeal’s decision, and thereby reaffirmed previous French case law on the disclosure obligation of arbitrators regarding their independence and impartiality.

The decision confirms the scope of the duty of disclosure of the arbitrators which have to share any facts that could, in the eyes of the parties, give rise to a reasonable doubt regarding their independence or impartiality.

It also reiterates that the arbitrator's disclosure duty is continuous and therefore applies before and during the proceedings. It is further confirmed that the parties do not have a duty to investigate as the arbitrator gave warranties under its statement of independence.

The Court of Cassation shows again the broad scope of the arbitrator’s disclosure obligation which applies:

• not only to direct links of the arbitrator with one of the parties, but also to links of its colleagues and/or the law firm in which he works with one of the parties;
• not only to the parties themselves but also regarding persons/entities related to the parties; and
• to information that is very easily and publicly available, as in this case the information had been published in 2010 on the law firm’s website and also in the legal press.

The Court of Cassation therefore considered that parties should be aware of any element, which could, even potentially, affect the arbitrator’s independence or impartiality.