ALM Properties, Inc.
Page printed from: International News
Select 'Print' in your browser menu to print this document.
France on Arbitration Spree
2011 has been another busy year for arbitration in France. A new decree has been adopted to modernize French arbitration law and adapt it to its users latest needs. At the same time, French courts have placed a great importance on the requirement for transparency in international arbitration and, in particular, on the arbitrators duty of disclosure.
THE NEW FRENCH ARBITRATION LAW PROMOTES EFFICIENT AND EXPEDIENT RESOLUTION OF DISPUTES
Four things to know about new French arbitration law:
1/ The law sets up a specific jurisdiction to hear disputes relating to the constitution of arbitral tribunals. Pursuant to Article 1454 of the French Code of Civil Procedure (FCCP), as amended, all disputes relating to the constitution of the arbitral tribunal (such as replacement of arbitrators or their resignation) must be submitted to the juge dappui, specialized judge vested with the power to resolve such disputes. The juge dappui will, for instance, appoint arbitrators in multiparty disputes where the parties are unable to agree on the appointment. In order to ensure the swift handling of these disputes, applications to the judge acting in support of the arbitration will be made, heard and decided as for expedited proceedings (référé).
2/ Parties to arbitration in France will be able to make applications to the court, with leave of the arbitral tribunal, to obtain an order enjoining third parties to submit proof in support of the ongoing arbitration. This provision circumvents the absence of authority of arbitrators over third parties and allows litigants to have a specific forum to secure evidence needed in arbitration proceedings.
3/ FCCP Article 1464, as amended, commands the expedient disposition of disputes. It provides: Both parties and arbitrators shall act diligently and in good faith in the conduct of the proceedings. This new provision has a strong semantic significance: celerity is expressly cited as one feature of arbitration. This article places on the arbitrators and on the parties a duty to collaborate to avoid unnecessary delays in the arbitration procedure. It provides a legal ground for claims based on dilatory tactics or negligent handling of the arbitration process. The obligation to act in good faith is further imposed by the introduction of a rule of estoppel into French law. FCCP Article 1466 now provides: A party which, knowingly and without a legitimate reason, fails to object to an irregularity before the arbitral tribunal in a timely manner shall be deemed to have waived its right to avail itself of such irregularity. In a report to the Prime Minister, the Ministry of Justice explained: the concept [of estoppel], borrowed from Anglo-Saxon Law, establishes a procedural objection, which sanctions, in the name of good faith, contradictions in the conduct of a party.
4/ Parties can waive the right to file annulment recourses against international arbitral awards rendered in France. The aim is to limit recourses against arbitral awards and to ensure their prompt enforcement. Foreign parties can, therefore, fix the seat of the arbitration in France to benefit from the favorable French arbitration law, and decide to waive the right to seek annulment of the award in Paris. Litigation over the award would, in that case, only take place in the country where the parties intend to obtain the enforcement of the award.
FRENCH COURTS UNDERLINE THE NEED FOR TRANSPARENCY IN THE ARBITRATORS APPOINTMENT
French courts have been careful in ensuring that parties are properly informed of the arbitrators relationship with the parties and their counsel. The aim has been to ensure greater transparency in the arbitrators appointment and to make sure the issue was dealt with as early as possible in the arbitration proceeding, to avoid belated challenges to the arbitrators appointment.
French courts have heard a dozen of cases in relation to this issue over the last year and have applied a stringent standard pursuant to which arbitrators must reveal all circumstances that are of such nature as to affect his or her judgment and to cause a reasonable doubt in the minds of the parties as to his or her impartiality and independence.
THE ARBITRATOR MUST DISCLOSE HIS OR HER RELATIONSHIP WITH THE PARTIES COUNSEL
In Tesco (10 March 2011, No 09/28537), the Paris Court of Appeal held that the arbitrators obligation of disclosure was not limited to his relationship with the parties: arbitrators must also make known their relationship with counsel of the parties. The court ruled that independence and impartiality of the arbitrator are of the essence of arbitration. It, therefore, annulled an arbitral award because one of the arbitrators (an academic) had not disclosed his relationship with one of the law firms involved as counsel in the arbitration in sufficient details.
ARBITRATORS, WATCH FOR FACEBOOK FRIENDS
In that same case, one of the parties contended that it had doubts as to one of the arbitrators independence since he was a friend on Facebook with one of the parties counsel. The court considered the matter in details. It underlined that the arbitrator and the counsel only became friends on Facebook after the award had been rendered. It also noted that the arbitrators Facebook profile had been created as part of the arbitrators campaign for professional elections. As a consequence, the court concluded that the relationship was too remote to justify reasonable doubts as to the arbitrators independence and impartiality.
THE TECNIMONT SAGA
The case law on independence and impartiality culminated with a recent ruling in the Tecnimont case (Reims Ct App., 2 November 2011, No 10/02888). The dispute arose out of an arbitration under the rules of the ICC. The chair of the arbitral tribunal was of counsel in a large international law firm. The arbitrator submitted a declaration of independence, pointing out to remote and isolated relationships between his firm and a subsidiary of one of the parties. It later turned out that the relationships were of a more significant magnitude.
After a first decision of annulment was quashed by the French Supreme Court on procedural grounds, the case was sent back to a division of the Court of Appeal in Reims chaired by Mr Hascher, who is a former Secretary General of the International Court of Arbitration of the ICC.
The court annulled the award. It held that the arbitrator had not properly disclosed relationships between his firm and subsidiaries of one of the parties to the arbitration.
The case is of particular importance because the relationships between the arbitrator himself and the parties were remote, the former never having provided legal services of any kind to the subsidiaries in question, which had, unbeknown to the arbitrator, merely instructed one of his firm's foreign office. The arbitrator did not know personally the existence of these links. There were, therefore, doubts as to whether these relationships, which were unknown to the arbitrator, could affect his judgment in the arbitration.
The court nevertheless adopted a rigorous position in relation to disclosure: arbitrators must make sure to reveal all business relationships that their firm has had with the parties or companies related to them. This disclosure obligation is not limited to the date of appointment but runs as long as the arbitration is ongoing. The disclosure should be detailed and arbitrators have to make sure thoughtful inquiries are regularly performed in this regard. According to the court, this was a matter of confidence of the parties in the arbitration process.
Parties to arbitration procedures must, therefore, require a comprehensive declaration of independence from the arbitrators. Declarations of independence should be the widest possible, and include the relationship of the arbitrators with parties counsel and their law firms. This will probably contribute positively to bringing arbitrators to a strict compliance with their reporting obligations. Law firms should also have strict ethical obligations to follow when partners are appointed as arbitrators if they do not want to see their responsibility and their lawyers involved in similar cases.