In a judgment of 22 June 2021, the Paris Court of Appeal ruled that that liability claims against arbitrators fall within the arbitration exception of the Brussels Ibis Regulation and retained jurisdiction on the basis of French national rules of jurisdiction. It allowed the appeal loged against the judgment of 31 March 2021 which had ruled otherwise and declined jurisdiction.
In this case, a Qatari company had entered into a distributorship agreement with the Emirati subsidiary of the Volkswagen group (VW). The contract provided for ICC arbitration in Paris and the application of German law. After the VW subsidiary terminated the contract, the Qatari company initiated arbitration proceedings before the ICC.
The Qatari company was advised to appoint as an arbitrator a German lawyer from a Stuttgart law firm. The German arbitrator did not disclose that his firm had worked previously for a bank of the VW group. The German arbitator did not disclose either that, after the arbitration started, his firm accepted work from another subsidiary of the VW Group, Porsche.
The parties and the arbitrators agreed that the hearing would be held in Frankfurt. The arbitators met in Germany.
After the Qatari company lost the arbitration on all accounts, including the fees of the arbitrators and of the VW company party to the arbitration, the Qatari company initiated annulment proceedings in Paris courts. It eventually prevailed, when the French supreme court for civil and criminal matters (Cour de cassation) found in a judgment of 3 October 2019 that the German arbitrator had violated his duty of disclosure when he failed to disclose the new work that his firm had accepted from Porsche (the previous work was considered by the court to be notorious in German legal circles).
The Qatari company sued the arbitrator in Paris for reimbursement of the fees of the arbitral tribunal that the plaintiff was ordered to pay by the award (€ 270 000), the fees incurred (by both parties it seems) in the arbitration (€ 2.6 million) and the balance of the fees incurred in the proceedings before French courts to set aside the award (€ 100 000).
Contrary to the first instance court, the Paris Court of Appeal finds that liability claims against arbitrators fall within the arbitration exception of the Brussels I bis Regulation.
The Court explains that a liability claim based on a violation of the disclosure duty of an arbitrator is closely related to the constitution of the arbitral tribunal and to the arbitration, as it aims at assessing whether the arbitrator performed properly his “mission”, in accordance with the obligations resulting from the arbitration contract.
As I had already underlined in my previous post, I was not convinced by the idea that, because of the existence of a contract between the parties and the arbitrators, a liability claim based on this contract is unrelated to the arbitration proceedings. The duty to disclose is provided by the lex arbitri, and the arbitration contract, which will typically be implied, will not define the regime of this duty (in this case, the terms of reference are essentially silent on the duty to disclose).
More importantly, the Paris Court rightly points to Recital 12 of the Brussels I bis Regulation, which states that
This Regulation should not apply to any action or ancillary proceedings relating to, in particular, the establishment of an arbitral tribunal, the powers of arbitrators, the conduct of an arbitration procedure or any other aspects of such a procedure, nor to any action or judgment concerning the annulment, review, appeal, recognition or enforcement of an arbitral award.
It is beyond doubt that an action to dismiss an arbitrator for violating his duty to disclose would fall within the arbitration exception. Why then wouldn’t an action aimed at sanctioning such violation by the award of damages? All actions sanctioning the (improper) “establishment” of an arbitral tribunal should fall within the arbitration exception.
French National Rules of Jurisdiction
After finding that the Brussels I bis Regulation does not apply, the court logically applies its national rules of jurisdiction. It finds that the claim is contractual in nature, which is uncontroversial under French law, as the existence of a contract excludes tort claims (principe de non-cumul).
Remarkably, the French rule is pretty much the same as Article 7(1)(b) of the Brussels Ibis Regulation. Article 46 of the French Code of Civil Procedure provides for the jurisdiction of the courts of the domicile of the defendant or the courts of the place where the services were provided. But the French court had no reason to follow the interpretation of the CJEU in this context, and to rely on a factual assessment of where the services were actually provided.
Instead, the court rules that the service provided by arbitrators is not merely contractual, but is also partly adjudicatory. As a consequence, the court finds that the services were provided at the place of the seat of the arbitration, and that the place where the hearings were held, or the arbitrators might have reflected on the case, is irrelevant.
What’s in a Seat?
Beyond the technicalities and the details of the applicable rules, the outcome of the case is that the propriety of the actions of the German arbitrator will be assessed by a French court, and not by the home court of both the respondent in the arbitration and the arbitrator. This is critical.
The promise of international commercial arbitration is to offer neutrality of adjudication. This is achieved by 1) appointing neutral and independent arbitrators and 2) by choosing a neutral seat for the arbitration. One of the most important consequences of the choice of the seat is to grant jurisdiction to supervise the arbitration proceedings. A neutral seat means, inter alia, neutral courts to decide about the fairness of the arbitration proceedings.
In this case, the German arbitrators, the German lawyers, and the respondent wanted that the arbitration physically take place in Germany. That was fine as long as this choice was only about convenience, and did not have any legal consequence.
The dramatic consequence of the first instance decision was that the choice of the venue triggered legal consequences: it could change the jurisdiction to supervise the arbitration, which the French court was happy to transfer to a German court, i.e. the home court of the arbitrator, of Porsche, of VW.
The bargain of the Qatari party was that it would not litigate against the largest German company before an arbitral tribunal seated in Germany, and even less in a German court.
The case exemplifies why the courts of the seat of the arbitration should retain jurisdiction on the sole ground that they are the courts of the seat of the arbitration.
I discuss other aspects of the case at French court retains jurisdiction over liability claims against arbitrator (Buzwair Automotive v MG) | News | LexisNexis