The recent case of Société Saad Buzwair Automotive Co v Société Audi Volkswagen Middle East FZE LLC in the Paris Court of Appeal is a reminder that courts may set aside international arbitration awards on the basis that the arbitral tribunal was not properly constituted.

The legal framework governing whether arbitrators have acted with independence and impartiality is complex as there are no universal rules. The International Bar Association (IBA) Guidelines on Conflicts of Interest in International Arbitration, revised in October 2014, are recognised as a set of principles which promote high standards of independence and impartiality irrespective of legal and cultural backgrounds.

General Standard 1 of the IBA Guidelines states that the arbitrator shall be impartial and independent of parties at the time of appointment and shall remain so until the award has been passed down or the arbitration has finally terminated.

General Standard 2 of the IBA Guideline states that an arbitrator shall decline to accept an appointment or refuse to continue to act where facts or circumstances exist, or have arisen since the appointment that, from a reasonable third person’s point of view the facts or circumstances give rise to justifiable doubts as to the arbitrator’s impartiality or independence.

The IBA Guidelines are not legally binding but continue to be used by parties, arbitrators, arbitral institutions and the courts when considering whether an arbitrator has acted with independence and impartiality. The ICC International Court of Arbitration and the English courts have paid significant attention to the IBA Guidelines which is telling of the importance of them in the international arbitration field. Though there have been concerns expressed that the use of the IBA Guidelines vary, the rules themselves have formed an international starting position against which an arbitrator’s independence can be tested.

Saad Buzwair Automotive Co (SBA) v Société Audi Volkswagen Middle East FZE LLC (AVME)

After the passing down of the award in March 2016, SBA applied for the award to be set aside claiming that the arbitrator appointed by SBA had failed disclose the relationship that existed between his firm and Audi Volkswagen group companies. It was argued that such circumstances gave rise to a reasonable doubt existing as to the arbitrator’s independence and impartiality.

SBA became aware that a German legal directory had mentioned that the arbitrator’s firm had acted for Volkswagen in a competition dispute in 2010/2011. The arbitrator was questioned on this matter and later said that he was not aware of the representation and that his firm acted on the matter until 2010. It later transpired that in the 2015/2016 edition of a German legal directory, the arbitrator’s firm were mentioned to have been acting for Porsche (an Audi Volkswagen subsidiary) on an ongoing matter.

The Paris Court of Appeal held that the circumstances surrounding the arbitrator and his relationship with AVME gave rise to a reasonable doubt as to the independence and impartiality of the arbitrator. The court therefore set aside the award on the basis that the tribunal had not been constituted properly.

Points to note

  1. The above case is a stark reminder that an arbitrator’s duty to disclose any potential conflict of interest will not be taken lightly.
  2. Parties should continue to conduct due diligence as to the independence and impartiality of arbitrators throughout the course of proceedings.
  3. Arbitrators have a duty to investigate potential conflicts of interest which is just as important, if not more, as the conflict checks parties to the arbitration undertake.
  4. Arbitrators must disclose potential conflicts of interest at all stages of the arbitration, or run the risk of seeing their awards undone by the courts.