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Paris Court of Appeal holds partial award unenforceable over sole arbitrator's failure to fully disclose a conflict of interest

Thomas Kendra

Thomas Kendra,

Paris

Catherine Dunmore

10 November 2014
Abstract: In CA, Paris, 14 Octobre 2014, n° 13/13459, the Paris Court of Appeal declined to enforce a partial award where the sole arbitrator, Henri Alvarez, failed to fully disclose a conflict of interest stemming from the work of his law firm. The arbitrator's declaration of independence stated that though his firm had previously represented a parent company of a Claimant it was no longer doing so; however, in reality (and unknown to the arbitrator), the firm was continuing to represent the parent company and did so throughout the period of the arbitration. The Court considered this work as an important engagement for the firm, and therefore found its nondisclosure to be subjectively sufficient to create reasonable doubt over the arbitrator's independence and impartiality.

Relevant facts:

Subsidiaries of the Barbadian telecommunications company Columbus International ("Columbus") and USA registered Caribbean Fiber Holdings ("CFH") brought an arbitration against Auto-Guadeloupe Investissements ("AGI"). The Parties had entered into multiple memoranda of understanding to transfer AGI's interest in Global Caribbean Fiber, a French submarine telephone cable company working in Guadeloupe. On 20 May 2009, AGI cancelled the share transfer, giving the reason of social and political problems in Guadeloupe.

As a result, on 10 July 2009, Columbus sought USD 990 million in compensation and CFH claimed punitive damages in arbitration proceedings seated in Barbados, under Barbadian law and administered by the International Centre for Dispute Resolution. Henri Alvarez, proposed by AGI and accepted as sole arbitrator, rendered a partial award on liability on 27 March 2011 which found that AGI had breached the Parties' agreements but deferred a decision on damages and costs.

A client of the Alvarez's law firm, Fasken Martineau, was CFH's parent company, Leucadia National Corporation ("LNC"). In his declaration of independence in September 2009, Alvarez stated "I understand that at present there are no matters in respect of which my firm is currently providing advice to Leucadia National Corporation". In fact, throughout the arbitration the firm had represented LNC; although, it was uncontested that the arbitrator knew nothing about this representation. In November 2011, AGI challenged the arbitrator's appointment, asserting that the incomplete disclosure showed a lack of independence and impartiality. The challenge was rejected by the ICDR in December 2011, although the arbitrator resigned and was replaced.

Colombus sought to enforce the partial award in the French courts, with the Paris Court of First Instance granting exequatur on 20 June 2013. This decision was then appealed by AGI, which raised the issue of the arbitrator's conflict of interest.

Decision: In its ruling of 14 October 2014, the Paris Court of Appeal found that the declaration of independence assured that the firm was not advising LNC at the time the arbitrator signed the document. The Court then referred to a 2010 entry on the firm's website which stated that since 2005 three partners had represented LNC on the sale of its share in a copper mine for USD 575 million. The Court considered that (i) the deal size, (ii) the number of lawyers, and (iii) the firm's publicity of this work, showed that it was an important engagement. Consequently, under the subjective test in French law, the Court held that the failure to mention this work for LNC created reasonable doubt for AGI as to the arbitrator’s independence and impartiality. Accordingly, the Court found that the tribunal was of irregular composition and that the partial award was unenforceable, ordering Columbus to pay costs and a EUR 200,000 statutory fee.

Comment: The decision tackled the tricky question of the circumstances in which a conflict unknown to an arbitrator can compromise their independence and impartiality. It is interesting to note that whilst the Court accounted for the fact that the firm's fees in acting for LNC were low (which can often indicate that there is no conflict), it placed weight on the publicity value and gains from marketing this instruction. Importantly, the Court also discussed the boundaries on investigating an arbitrator's independence and impartiality, stating that "Parties cannot reasonably be required to complete a systematic examination of all sources that may refer to the arbitrator or the individuals connected to the arbitrator or to continue their research after the arbitration proceedings have begun". Consequently, the burden is placed on arbitrators to ensure that their disclosure of conflicts is thorough and regularly updated.

Case: CA, Paris, 14 Octobre 2014, n° 13/13459.

Thomas Kendra

Thomas Kendra,

Paris

Catherine Dunmore

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