Does the Arbitrators’ Failure to Disclose Conflicts of Interest Fatally Lead to Annulment of the Award? The Approach of the European State Courts

2014 Does The Arbitrators’ Failure To Disclose Conflicts Of Interest Fatally 121 Lead To Annulment Of The Award? The Approach Of The European State Courts DOES THE ARBITRATORS’ FAILURE TO DISCLOSE CONFLICTS OF INTEREST FATALLY LEAD TO ANNULMENT OF THE AWARD? THE APPROACH OF THE EUROPEAN STATE COURTS. Antonio Crivellaro1 I. Independence and Impartiality .................................................................121 II. How the European Courts Address Arbitrator’s Independence ...............122 A. Arbitrator Acting as Party’s Attorney in Other Cases .......................122 B. Arbitrator’s Interest in the Subject Matter of the Dispute .................122 C. Business, Professional or Personal Relationships of the Arbitrator 123 D Relationships Between the Law Firm of the Arbitrator and a Party or its Counsel.......................................................................................127 E. Multiple Appointments by the Same Party or Same Law Firm ........131 III. How the European Courts Address Arbitrator’s Impartiality .................133 A. Arbitrator Who Acts or Has Acted as Arbitrator or Counsel in Other Similar Cases ..................................................................................133 B. Writings and Public Statments ..........................................................135 IV. Belated Challenges .................................................................................136 V. An Overview of the Case Law .................................................................137 VI. Disclosing or Not Disclosing? ...............................................................138 VII. Conflict Checks Within Large Law Firms Should be Improved...........139 VIII. Annulment of the Award Should be an Extreme Remedy ...................139 I. Independence and Impartiality The distinction between independence and impartiality adopted by European domestic courts is the same distinction that is universally accepted, whereby: (i) independence is an objective “state of profession”, so that where the arbitrator’s remuneration is originated, directly or through his law firm, by professional services performed for one of the parties (or its affiliates) appearing in the arbitration, his financial relationship with the party is established and he ceases to be Former Professor of International Trade Law. Head of Arbitration Practice in Bonelli Erede Pappalardo (Italy). Member of the Council of the ICC Institute of World Business Law. 1 122 THE ARBITRATION BRIEF Volume 4 independent; and (ii) impartiality is a subjective “state of mind”, implying absence of bias or predisposition towards the outcome of the case, caused by the arbitrator’s publications, or public statements, or positions manifested as arbitrator or counsel in previous cases, that might be seen as impairing his impartial judgment on the merits. These two essential prerequisites are accepted without reservation amongst arbitration practitioners, but are not easy to implement with the necessary rigor. The case law analysis that follows confirms the difficulties met by national courts in achieving consisting results. II. How the European Courts Address Arbitrator’s Independence A. Arbitrator Acting as Party’s Attorney in Other Cases France: Concurrently with the arbitral proceedings, the sole arbitrator was advising and acting as technical expert for one of the parties in an unrelated judicial matter. He failed to disclose this relationship although he was still being paid by that party for his services. Not surprisingly, he was disqualified by court order.2 The outcome of the case was quite obvious and similar flagrant situations are indeed rare. Sweden: The Svea Court of Appeal was requested to set aside an award on the ground that an arbitrator had not disclosed that he had acted as counsel for an affiliate company of the respondent in insolvency proceedings. Surprisingly, the court determined that the facts did not constitute a ground for disqualification. The request was dismissed and validity of the award confirmed.3 What makes the decision astonishing is the lack of disclosure of a circumstance that should have been disclosed. The reticence of the arbitrator should have alerted the court on his ability to act independently. B. Arbitrator’s Interest in the Subject Matter of the Dispute United Kingdom: The Commercial and Appeal Courts were requested to remove the Chairman of an ICC Tribunal and put aside some partial awards that the tribunal had rendered. The application was based on the Chairman’s failure to disclose that he was a non-executive Société des Équipements Industriels Stolz SA v. Ets. Letierce et autre, Tribunal de Grande Instance[TGI][ordinary court of original jurisdiction] Paris, January 15, 1988,, Revue de l’Arbitrage, 1988, 316 available at KluwerArbitration.com. 3 Rapla invest AB in liquidation v. TNK Trade Limited (Cyprus), Stockholm Int. Arb., Svea Court of Appeal, 2006-12-07 p.132 T 5044-04 (Swed.). 2 2014 Does The Arbitrators’ Failure To Disclose Conflicts Of Interest Fatally 123 Lead To Annulment Of The Award? The Approach Of The European State Courts director of a third party having an interest in the outcome of the arbitration. The third party was an important competitor of the claimant and the unsuccessful bidder for the same contract (awarded to the claimant) from which the dispute had arisen. Both the Commercial and Appeal Court dismissed the application. According to the Commercial Court, the possible benefit that the rival company might receive from the outcome of the arbitration was “entirely intangible” and “too indirect”. In addition, the Chairman had no pecuniary interest in the parties or in the third competitor. The role he was covering in the competitor’s organization (non-executive director, with no managerial power) was not a “vital”, but a minimal and incidental part of his professional life. The Court of Appeal confirmed these findings and underlined the “excellent reputation of the chairman as lawyer and arbitrator”, considering this circumstance sufficient to remove any suspicion that he might be interested in the outcome of the case for favoring the rival company. The rigorous way he had conducted the proceedings were a proof thereof.4 The reasoning was likely sound in the circumstances of the specific case, where no proof of bias had been established. However, the chairman’s failure to disclose his relationship with the rival company remains inexplicable. The Court of Appeal did indeed admit that non-disclosure was unfortunate and that the claimant might have preferred a different Chairman had it been made aware of the connection. What probably influenced the court is its conviction that the non-disclosure was “not intentional” and that, the proceedings being at a too advanced stage, a replacement of the Chairman would have been seriously detrimental. C. Business, Professional or Personal Relationships of the Arbitrator Fran (...truncated)