French Supreme Court examines tribunal’s lack of independence and impartiality in annulment proceedings

In a decision issued on 7 June 2023, the French Supreme Court declined to set aside an arbitral award, and specified the conditions under which, in France, an award may be set aside on grounds of lack of independence or impartiality of the arbitral tribunal.

Background

The dispute at stake, brought before an ICC arbitral tribunal seated in Paris, arose from the alleged non-repayment of a shareholder loan.

Independence and impartiality challenges raised during the arbitral proceedings

During the arbitration, one of the respondents filed, with the ICC International Court of Arbitration (the “ICC Court”) two challenges against the arbitrator appointed by the claimants.

These challenges were based on the fact that the arbitrator (i) lived on the same floor as one of the claimants’ subsidiaries’ headquarters (a fact which he failed to disclose and later denied); and (ii) had already been appointed by the claimants’ counsel in two other cases. The said arbitrator had also provided legal advice to the same counsel – which was contradictory with his statement of acceptance, availability, impartiality and independence.

Both challenges were rejected by the ICC Court and no objection in relation to the arbitrator’s lack of independence and impartiality was raised before the arbitral tribunal.

In an award issued on 16 April 2013, the arbitral tribunal declared that it had jurisdiction and ruled in favour of the claimants. In response, the respondents filed for annulment proceedings against the award.

The annulment proceedings

After the Paris Court of Appeal declined the respondents’ application to set aside the award, the respondents filed an appeal before the French Supreme Court, challenging (i) the Paris Court of Appeal’s interpretation of Article 1466 of the French Code of civil procedure (“CPC”), and (ii) the Court of Appeal’s decision concerning the arbitrator’s lack of independence and impartiality.

The obligation to raise irregularities before the arbitral tribunal

According to Article 1466 of the French Code of civil procedure, “a party who, knowingly and without legitimate reason, refrains from invoking an irregularity before the Arbitral Tribunal in a timely manner shall be deemed to have waived its right to do so”.

In the present case, the Paris Court of Appeal ruled that the applicants could not object to the independence and impartiality of the arbitrator as they had waived their right to invoke this irregularity insofar as they did not raise it before the arbitral tribunal. The applicants argued that they did not waive their right to invoke such irregularity since the two challenges filed with the ICC Court constituted a legitimate reason not to raise the irregularity before the arbitral tribunal.

The Supreme Court dismissed the applicants’ argument and ruled that the fact that a party files a challenge against an arbitrator with the arbitral institution administering the arbitration does not constitute a legitimate reason to exempt the party from raising the irregularity before the arbitral tribunal. The applicants therefore should have raised this challenge before the arbitral tribunal. By failing to do so, they waived their right to invoke this irregularity at the annulment stage.

Lack of independence and impartiality as a breach of international public policy

Before the Supreme Court, the applicants also disputed the Court of Appeal’s decision that there were insufficient grounds to set aside the award due to a breach of international public policy.

In this regard, the Supreme Court first recalled that enforcement of an award in France may be refused if an award, made by an arbitrator who was found to lack independence or impartiality, violates the principle of equality between the parties and due process, and is contrary to international public policy. In addition, the Supreme Court recalled that an arbitrator’s lack of independence and impartiality is assessed on a case-by-case basis.

The Supreme Court finally confirmed the Court of Appeal’s finding that the circumstances described by the applicants were insufficient to create a reasonable doubt regarding the arbitrator’s independence and impartiality.

Practical implications

This decision has an important procedural significance. It highlights the parties’ obligation to raise any irregularity of which they are aware before the arbitral tribunal and, for the first time, decides that, under Article 1466 CPC, filing a challenge with the arbitral institution alone does not remove such an obligation. Consequently, if a party wishes to retain the possibility of invoking an irregularity, such as the lack of independence and impartiality, at the annulment stage it will have to raise such an irregularity with the arbitral tribunal, despite any challenge filed with the institution administrating the arbitration.

Failing to do so, if a party seeks to set aside an award for an arbitrator's lack of independence and impartiality, it will have no other choice than demonstrating that the enforcement of such award would result in a breach of international public policy. As an exceptional ground for setting aside an award, the standard of proof to show a violation of international public policy is very high under French law and is assessed by French courts on a case-by-case basis.