THE FINAL DECISION IN THE VIDATEL CASE: THE APPLICATION OF THE PRINCIPLE OF EQUALITY IN THE CONSTITUTION OF THE ARBITRAL TRIBUNAL

In Vidatel v. PT Ventures, Mercury and Geni case (Cass. Civ. 1ère, 9 November 2022, No 21-17203), the French Supreme Court upheld the 2021 decision of the Paris Court of Appeal (26 January 2021, n°19/10666), rejecting Vidatel Ltd's (Vidatel) request to set aside the 2019 ICC award rendered in favour of PT Ventures SGPS (PTV).  This case provides interesting further guidance on how the French courts may approach the principle of equality and how it can interact with the parties' arbitration agreement.

Background and legal proceedings

In December 2000, Vidatel, PTV, Mercury and Geni signed a shareholders' agreement governing their relationship with respect to their shares in Unitel, Angola's largest mobile operator.

In October 2015, PTV began an ICC arbitration against the other three shareholders pursuant to the arbitration agreement contained in the shareholders' agreement, arguing that over the years, Vidatel, Mercury and Geni had conspired to side-line it from the management of Unitel. The arbitration agreement provided for a five-member arbitral tribunal, each nominated by each party and the chairman appointed by the other arbitrators.

In its request for arbitration, PTV appointed an arbitrator subject to the acceptance by the other parties of a three-member arbitral tribunal. It proposed that the second arbitrator be jointly appointed by the other three defendants and the chairman nominated in accordance with articles 12 and 13 of the ICC Rules.

In November and December 2015, Vidatel, Mercury and Geni rejected PTV's proposal for a three-member arbitral tribunal and, in accordance with the terms of the arbitration agreement, they each appointed an arbitrator, on the basis that there would be five arbitrators.

The Secretary General of the ICC wrote to the parties referring to the arbitration agreement which envisaged a five-member tribunal and invited the parties to comment on the possible application of article 12(8) of the ICC Rules. Article 12 (8) of the 2012 ICC Rules provides that "[i]n the absence of a joint nomination pursuant to Articles 12(6) or 12(7) and where all parties are unable to agree to a method for the constitution of the arbitral tribunal, the Court may appoint each member of the arbitral tribunal and shall designate one of them to act as president. (…)".

The parties submitted their comments in December 2015:

• PTV argued that the application of the arbitration agreement would breach the principle of equality between the parties and maintained its request to constitute a three-member tribunal, alternatively PTV would accept the application of article 12(8). PTV's appointment of the arbitrator was subject to the acceptance of a three-member tribunal only.
• Vidatel argued that article 12(8) was not applicable as it only applies to three-member tribunals and not to five-member tribunals. It also argued that the ICC could not disregard the arbitration agreement, which was consistent with the principle of equality.

In January 2016, the four arbitrators appointed by the parties accepted their appointment (the "Parties' Appointments"). For the sake of clarity, these four arbitrators are not those who were selected later by the ICC to constitute the arbitral tribunal.

The sequence of events was as follows:

• In February 2016, the ICC Court requested the parties to reach an agreement on a different method for the constitution of the arbitral tribunal. Failing an agreement within 15 days, the ICC Court would appoint all five members of the tribunal pursuant to article 12 (8) of the ICC Rules.
• In April 2016, the ICC Court appointed all five members of the arbitral tribunal (the "ICC Appointment").
• In February 2019, the arbitral tribunal issued an award holding the respondents jointly and severally liable for breach of the shareholders' agreement.
• In June 2019, Vidatel filed its request to set aside the award with the Paris Court of Appeal which, in January 2021, upheld the award and rejected all Vidatel's arguments.
• Vidatel appealed to the French Supreme Court. Vidatel based its appeal on two grounds:

1. Ground 1:

Vidatel argued that the arbitral tribunal had been wrongfully constituted in violation of articles 1453 of the CPC, 12(8) of the ICC Rules and the principle of equality. Article 1453 of the CPC provides:"[i]f there are more than two parties to the dispute and they fail to agree on the procedure for constituting the arbitral tribunal, the person responsible for administering the arbitration or, where there is no such person, the judge acting in support of the arbitration, shall appoint the arbitrator(s)".

Vidatel argued that articles 1453 of the CPC and 12(8) of the ICC Rules apply when the parties do not agree on the way the tribunal should be appointed. Yet in the present case, the arbitration clause in the shareholders agreement provided for a mechanism for the constitution of the tribunal (an arbitral tribunal constituted by a panel of five arbitrators). Thus, given the absence of disagreement, Vidatel argued that the ICC's decision to disregard both the arbitration clause and the Parties' Appointments made in January 2016, and to proceed with the ICC Appointment of all the five arbitrators in April 2016, breached both the CPC and ICC Rules.

Vidatel also argued that the Paris Court of Appeal had misinterpreted and misapplied the principle of equality. According to Vidatel, this principle only ensures that the parties enjoy the same rights in the process of the appointment. This principle should not be confused with the duty of independence and impartiality of the arbitrators. However, the Paris Court of Appeal had based its decision on the fact that Vidatel, Mercury and Geni had aligned interests which were contrary to PTV's interests: if at the time of the conclusion of the arbitration agreement it was appropriate to provide that each of the parties could appoint an arbitrator, at the time the dispute arose several parties were likely to have common and shared interests against one other party. In the absence of a better agreement between the parties, the principle of equality justified, according to the Paris Court of Appeal, the search for a method of appointment notwithstanding the terms of the arbitration agreement.

2. Ground 2:

Vidatel contended that one arbitrator lacked independence and impartiality, as he had failed to disclose potential conflicts of interest breaching articles 1456, al. 2, 1464 al. 3, 1506, 2° and 3°, and 1520, 2° of the CPC. According to Vidatel, the arbitrator concerned should have disclosed that he and his law firm had relationships with a minority shareholder of Oi, PTV's previous parent company, even if such relationship was of public knowledge.

Decision of the French Supreme Court

The French Supreme Court rejected all of Vidatel's arguments and confirmed the Paris Court of Appeal's decision.

On the first ground, the Supreme Court agreed with the Court of Appeal that articles 1453 of the CPC and 12(8) of the ICC Rules apply when the parties cannot agree on the way the arbitral tribunal is constituted. Regarding PTV's own appointee as part of the Parties' Appointments, the French Supreme Court pointed out that this was subject to the condition that the arbitral tribunal would be constituted by three arbitrators. Vidatel, Mercury and Geni refused PTV's request for a three-member tribunal and wanted to stick with the method provided with in the arbitration clause. Hence, the Court concluded that there was a disagreement between the parties on the method of the appointment. Such disagreement entitled the ICC to appoint all five members of the arbitral tribunal. The Court held that in this way, all the parties were equally deprived of their right to appoint an arbitrator in accordance with the principle of equality.

On the second ground, the French Supreme Court reminded that the duty of disclosure, under article 1456 al. 2 of the CPC, requires the arbitrator to disclose any circumstances impacting its independence and impartiality before and after its appointment as arbitrator and confirmed the Court of Appeal's decision, based on the facts that, amongst others: (i) the circumstances that the arbitrator should have disclosed did not concern any party to the arbitration or any parties' parent companies; (ii) such circumstances were related to one shareholder, holding minority shares in some companies represented in PTV's old parent company share capital (Oi); (iii) the same shareholder held shares in BNY Mellon company, provider of financial services for Oi, but such activity did not create converging or related interests in the outcome of the arbitration. These connections were too remote.

Comment

This case provides interesting guidance on the French principle of equality and how it may interact with the parties' arbitration agreement. It is also illustrative of how the French courts interpret the meaning of the word "disagreement" for the purposes of Article 12(8) of the ICC rules.

The Court of Appeal found the "disagreement" in the inequality coming from divergent interests in the merits of the case. In other words, the fact that here three parties had convergent interests against a fourth party (according to PTV, the three shareholders, Vidatel, Mercury and Geni, had conspired to side-line it from the management of the company), meant that a disagreement existed at the time of the dispute justifying the application of Articles 1453 of the CPC and 12 (8) of the 2012 ICC Rules. Essentially, the Court of Appeal stated that it would be unfair for three arbitrators to be appointed by the parties who had convergent interests. It is arguable that this reasoning mistakenly implied that arbitrators are parties' representatives.

The French Supreme Court took a different approach, concluding that "disagreement" on the constitution of the arbitral tribunal for the purposes of Article 12(8) arose at the time when PTV appointed its arbitrator, because it wanted a three-member tribunal and the other parties wanted a five-member tribunal. As pointed out by the French Supreme Court, the advantage of the ICC's decision to appoint all five members of the tribunal was that all parties were equally deprived of their rights to appoint their arbitrators.

Arguably, the introduction of Article 12(9) in the ICC Rules 2021 is intended to avoid this type of litigation in future. It states:  

"Notwithstanding any agreement by the parties on the method of constitution of the arbitral tribunal, in exceptional circumstances the Court may appoint each member of the arbitral tribunal to avoid a significant risk of unequal treatment and unfairness that may affect the validity of the award."

Pursuant to this article, the ICC is empowered by the rules (and therefore the parties' arbitration agreement) to depart from the arbitration agreement and appoint all the arbitrators in this type of scenario. It remains to be seen how this article will be applied in practice.

For more information, please contact Laurence Franc-Menget, Partner, Lisa Stefani, Avocat, or your usual Herbert Smith Freehills contact.