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French Supreme Court confirms binding nature of time limits applicable to challenges to arbitrators under the arbitration rules chosen by the parties

15 December 2014
Abstract: The French Supreme Court recently rendered a highly anticipated decision in Tecnimont v. Avax, a case which had been the subject of proceedings before French Courts for more than six years. The Supreme Court held that a party who, with knowledge of the relevant facts, refrains in arbitration proceedings from exercising its right to challenge an arbitrator within the time limit set out in the applicable arbitration rules, must be deemed to have waived that right in relation to subsequent proceedings to set aside the award. On this ground, the Supreme Court overturned a Court of Appeal decision which had set aside a partial award on the basis of an arbitrator's lack of independence without determining whether the time limit provided for in the arbitration rules had been respected.

Relevant facts:

An Italian company, Tecnimont, entered into a subcontract with a Greek company called Avax, for the construction of a propylene factory in Thessaloniki. This contract contained an arbitration clause referring to the ICC Rules. A dispute arose before the parties and as a result Tecnimont initiated ICC arbitration proceedings against Avax with Paris as the seat of arbitration.

During these proceedings, Avax questioned the President of the arbitral tribunal concerning his independence and received a reply from the President on 26 July 2007. Not being satisfied with the President's reply, on 14 September 2007, Avax made an application to the ICC Court challenging the President on the basis of a lack of independence owing to his firm's links with the Tecnimont group. The challenge was brought under Article 11.2 of the 1998 ICC Rules which provided that for a challenge to an arbitrator to be admissible, it had to  be sent by a party within 30 days from the date when the party making the challenge had been informed of the facts and circumstances on which the challenge was based. On 26 October 2007, the ICC Court rejected Avax's challenge, which had been brought more than 30 days after the President's reply of 26 July 2007.

Subsequently, Avax seems to have pursued its investigations and continued to question the President as to the links between his firm and the Tecnimont group. However, on 10 December 2007 the arbitral tribunal rendered a partial award on liability against Avax. On 28 December 2007, Avax brought proceedings before the Paris Court of Appeal to have the partial award set aside, claiming that the President had breached his disclosure obligations and duty of independence.

The Paris Court of Appeal set aside the award in February 2009 on the basis of the President's lack of independence. However, on 4 November 2010, the French Supreme Court overturned this decision on the grounds that most of the facts invoked by Avax could have been raised in the challenge application made before the ICC Court. As a result, the Supreme Court referred the matter to the Reims Court of Appeal which nevertheless set aside the award on similar grounds as its Parisian peer, noting in addition that it was not bound by the time limit set out in the arbitration rules. It was this Reims Court of Appeal decision that was recently overturned by the Supreme Court.

Decision:

The Supreme Court held that a party who, with knowledge of the relevant facts, fails to exercise its right to challenge (based on any circumstance which undermines the impartiality or independence of an arbitrator) within the time period set out in the relevant arbitral rules shall be deemed to have waived that right in relation to subsequent proceedings to have the award set aside. Since the Reims Court of Appeal had not determined whether, in relation to each of the facts and circumstances alleged to constitute a breach of the arbitrator's impartiality and independence obligations, the time period of 30 days set out in the arbitral rules had been respected, it had failed to provide a legal basis for its decision. As a result, the Supreme Court overturned the Reims Court of Appeal decision and referred the matter back to the Paris Court of Appeal.

Comment:

In coming to this decision, the Supreme Court confirmed the binding nature of arbitration agreements, which are deemed to incorporate the arbitration rules chosen by the parties. It follows from this decision that if a party becomes aware of facts which might affect an arbitrator's independence or impartiality during the arbitration proceedings, it has to raise such facts within the time limits set out in the arbitration rules and it does not have the option of waiting so as to raise them subsequently in the context of an application to set aside an award.

It is also interesting to note that the Supreme Court only tackled the question regarding the time limits set out in the applicable arbitration rules. Yet, the case also raised the question of the extent of an arbitrator's duty of disclosure. However, after having decided to overturn the Reims Court of Appeal on time limit grounds, it was not necessary for the Supreme Court to proceed to examine whether the President had breached his duty of disclosure. The question of the extent of an arbitrator's duty of disclosure has therefore yet to be grappled with at the highest judicial level in France.

Case: Cass. 1re civ., 25 June 2014, no 11-26529

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