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International Arbitration / Arbitrators' duty to disclose, and duty of independence and impartiality / Paris Court of Appeal's invalidation judgment of 14 October 2014

21 Oct 2014

The ACP LEGAL Association has taken note of the OHADA.com newsletters of 14 October 2014 and 16 October 2014. The Association would now like to draw your attention to the Judgment referred to in the heading, which was rendered by the Paris Court of Appeal on 14 October 2014. The arbitration community has been eagerly awaiting this significant invalidation judgment, rendered by Division 1, Chamber 1 of the Paris Court of Appeal. Fully reasoned, it sets a French precedent in terms of the duty to disclose of arbitrators and of the law firms for which they work.

Summary of the facts of the case in question:

The dispute, which was the subject of an AAA/ICDR international arbitration with a sole arbitrator, related to the initial claims put forward by an extremely wealthy Canadian group and a US Fund listed on the New York Stock Exchange, which amounted to the sum of USD 990 million.

In March 2011, H.A., the sole arbitrator, who is a partner in a large Canadian business law firm, rendered an interim award on liability. He found that the respondent, a Guadeloupian SME, which deployed a fibre optic submarine cable of 3000km connecting 14 islands in the Eastern Caribbean, had acted in good faith but ruled that it had breached an undertaking given by telephone relating to the sale of said submarine cable.

Between April and October 2011, the sole arbitrator, following his interim award, examined the claims for compensation put forward by the Canadian and North American Groups, which amounted to hundreds of millions of Euro.

At the time, legal practitioners involved in the implementation of the OHADAC (Organisation for the Harmonisation of Business Law in the Caribbean) project alerted the respondent, questioning the sole arbitrator's decision to examine this case by himself, and his impartiality and independence vis-à-vis the claimant.

Research was conducted on various websites including Google during the last fortnight of October 2011. Through such research, it was possible to establish the existence of possible business links between the Canadian and US parties and the Canadian law firm in which H.A., the sole arbitrator, is one of the main partners, which had not been disclosed. This was, inter alia, the case in respect of a remarkable transaction for nearly USD 600 million which was handled by the sole arbitrator's law firm and which was completed in December 2010, right in the middle of the arbitration proceedings and three months before the interim award of March 2011 was rendered. This transaction is described on the law firm's website as one of this Canadian law firm's most significant transactions in the year 2010.

The Guadeloupian SME, taking stock of the situation in which it found itself, immediately applied to the AAA/ICDR arbitration Centre and asked it to enforce its rules and revoke the sole arbitrator, given the fact that the AAA/ICDR rules require arbitrators to abide by a duty to act fairly, which is reflected in the arbitrator's absolute duty to disclose, upon appointment and throughout the arbitration proceedings, any facts relating to the arbitrator or the arbitrator's law firm that are in any way capable of raising legitimate doubts as to the arbitrator's independence and impartiality.

On 09 December 2011, in a brief and unreasoned decision, the AAA/ICDR dismissed the request to revoke the sole arbitrator and informed the parties that the latter had decided to resign.

14 October 2014 Judgment of the Paris Court of Appeal:

In its Judgment of 14 October 2014, the Paris Court of Appeal invalidated the order granting exequatur to the interim award issued by the conflicted arbitrator who resigned in December 2011 and declared said award to be null and void in respect of the French legal system.

It therefore clearly reconfirmed the duty to disclose and the duty of independence and impartiality by which arbitrators and arbitrators' law firms are bound.

The much anticipated reasoning set out in this judgment is highly instructive for the arbitration practice and is meticulously worded as follows:

“Whereas, it therefore appears, contrary to what Mr Alvarez implied in his declaration of impartiality and independence, that while the arbitration proceedings were ongoing, three lawyers from the Fasken Martineau law firm were assisting Leucadia with a transaction which the firm regarded as matter for communication; whereas such circumstances, of which AGI was unaware when it nominated Mr Alvarez, were of a nature so as to give rise to reasonable doubt as to the independence and impartiality of the arbitrator in the eyes of AGI; whereas it is, therefore, necessary to annul the award given the irregular constitution of the arbitral tribunal”.

It should also be noted that the Court of Appeal awarded the sum of €200,000 to the claimant pursuant to Article 700 of the French Code of Civil Procedure; this significant sum highlights the importance that the Court gives to this issue.

Read the 14 October 2014 Judgment of the Paris Court of Appeal.

Published on 2014-10-21, 3:54 pm

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