Reims Court of Appeal annuls ICC Award for failure to disclose conflict of interest during proceedings

On 2 November 2011, the Reims Court of Appeal set aside an ICC partial award, Avax v Tecnimont, due to the failure of the Chair of the tribunal to disclose his law firm's representation of companies affiliated to one of the parties during the arbitration proceedings. This decision is the latest episode in a long-running series: the Paris Court of Appeal first annulled the award based on conflict of interest on 12 February 2009 but its decision was then quashed by the Cour de Cassation (the French Supreme Court) on 4 November 2010.  The case was referred to the Reims Court of Appeal.

The Reims Court of Appeal first found that even though the court challenge was filed outside the 30-day time limit prescribed by the ICC Rules to challenge arbitrators before the ICC Court of Arbitration, Avax did not waive its right to apply to set aside the award (which is a different kind of application). In annulling the award, the Reims Court also found that the arbitrator 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.

Factual Background

The case arose from an application to set aside a partial arbitral award rendered under the auspices of the ICC, initiated by a Greek company J&P Avax against an Italian company, Société Tecnimont. Tecnimont had contracted with Avax for the construction of a propylene factory in Greece. A dispute between the parties arose and Tecnimont started ICC proceedings in Paris.

At the time of his appointment, the tribunal Chair 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 his 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 that the law firm was providing advice to a company that was later acquired by the parent company of Tecnimont. Avax then, in September 2007, unsuccessfully challenged the Chair's appointment before the ICC Court of Arbitration. The ICC dismissed the challenge 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, with further information regarding the links between the law firm and Tecnimont's affiliated companies coming to light thereafter.

Avax successfully applied to the Paris Court of Appeal to set aside the award. The Paris Court 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 that this was a ground for annulment of the award based on the French Code of Civil Procedure (then article 1502 2°).

The Cour de Cassation reversed this decision.  It held that Avax had already made its challenge to the ICC: almost all of the grounds for challenge were included in that application (albeit that that application was made out of time, ie. beyond the ICC’s 30 day time limit) and, as such it was inadmissible. In its view, the Paris Court unlawfully relied on facts that came to light after the award had been made. The Cour de Cassation decision, however, was only of a procedural nature and it remitted the case to the Reims Court of Appeal to decide on the more eagerly anticipated question of the validity of the award.

Issues

The Reims Court considered the following:

• whether the failure to adhere to the ICC’s 30-day time limit to challenge arbitrators should bar a party from setting aside an award on the same grounds; and
   
• the scope of the arbitrator's duty to update and disclose conflicts of interest.

Decision

1. The impact of the ICC time limits for challenging arbitrators

In the view of the Reims Court, the ICC time limit did not prevent Avax from applying for the Award to be set aside. (Under Article 11 of the ICC's 1998 Rules, a challenge must be brought within 30 days from when the party became aware of facts and circumstances giving rise to the challenge.) The judges reasoned that a challenge before the ICC and an application to a judge to set aside the award are separate proceedings, which do not serve the same purpose and are not controlled by the same authority. The ICC decision is of an administrative nature and does not have res judicata effect. Moreover, the judge that deals with the annulment application need not abide by the ICC’s time limit. Furthermore, Avax had reserved its right to challenge the award whenever possible during the arbitration.

2. The broad scope of the arbitrators' disclosure obligations

The appellate judges set aside the award due to the Chair's failure to spontaneously and comprehensively disclose that his law firm had advised Tecnimont and related companies during the time of the proceedings. Based on the file documentation, they found that the relationship between his law firm and one of the parties to the arbitration went beyond the information he disclosed at the outset of the arbitration.

The Reims judges elaborated on the meaning of the duty of disclosure. They found that arbitrators have a continuing obligation to disclose not only personal circumstances that may call their independence into question, but also factual circumstances involving the law firms to which they belong. This obligation is broad enough to cover matters handled by other offices within the firm, as well as those that are unrelated to the subject matter of the arbitration.   Furthermore, the Court maintained that this obligation exists regardless of the amount of fees charged for the matter giving rise to the conflict.  In the Court's view, the failure to reveal these ties created reasonable doubts as to the arbitrator's impartiality and independence.

Comment

This decision raises important questions as to the extent of an arbitrator's duty to investigate potential conflicts.  It demonstrates the current trend in French case law to expand arbitrators' duty of disclosure, for example with respect to the disclosure of repeat appointments by one of the parties or of financial links with any company affiliated to a party.

Although efforts to ensure impartiality and independence have widespread support, this decision has been criticised by a number of commentators for the Court's lack of consideration as to the ICC time limits for challenges of arbitrators: in particular, that the rules of the ICC should not have been so easily bypassed given that they represent the parties contractual obligations, selected in their arbitration agreement. In this way, the decision could be considered a rare example of a French court’s failure to uphold the arbitral process.

A pourvoi (the last recourse available further to the Reims Court of Appeal judgment), limited to legal issues, has been lodged with the Cour de Cassation.

CA Reims, 2 November 2011, n° 10/02888