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
Cour d’appel and Tribunal judiciaire both concurr in holding that the claim is one for contractual liability because of a breach of the “contrat d’arbitre”. But unlike the TJ the CA extends the arbitration exception of art. 1 (2) d) Brussels Ia-Regulation to this liability suit against another party, the arbitrator. Probably because the CA as annulment court wants to stay in control. But thus a hole in the Brussels Ia-system is created and there would be a contractual liability suit before a Member State court which is not covered by the Brussels Ia-Regulation. The judgment of the Cour d’appel in no way is beyond doubt.
There are many holes in the Brussels Ia system: all the exclusions of the scope of the Regulation in Art. 1.
This is an interesting debate, I would like to add some reflections to it.
1) The Paris CA should have sent a preliminary reference to the CJEU (article 267 TFEU) about the correct interpretation of article 1 (2)(b) of Regulation (EU) 2012/1215.
2) The application of autonomous French law on jurisdiction finally demonstrates that the contractual claim against the arbitrator was only indirectly related to the arbitration proceedings. There is no doubt that there was a duty to disclose the relationship of the law firm with others members of the Volkswagen group and that this obligation applied before or during the constitution of the arbitral tribunal. However, the case before the Paris court was after the arbitration process, it was about contractual liability, the unlawfulness of the arbitrator’s conduct being an incidental question.
3) Transferring this case to German courts as the “home court of the arbitrator, of Porsche (not a party to the arbitration proceedings) of VW” was certainly not highly dramatic. Suing the lawyer at his “home court” for damages would rather increase the damage to his reputation. I would not expect any bias here.
4) As of today, there are not so many holes in the Brussels system as most exceptions of article 1 (2) of the Brussels Regulation refer to other EU instruments. Due to these developments, the “arbitration exception” has become more “exceptional”. – This case should have been sent to the European Court of Justice.
It is certainly an interesting debate, and it would seem logical to refer the case to the CJEU. Let’s see if the case gets to the Cour de cassation.
While the CA did refer to the French provision on jurisdiction in contractual matters, this was only to say that the contract was about adjudicating the dispute, and that it thus was closely connected to the seat of the arbitration. As I explain in the post, the court should have been clearer conceptually, and I hope the Cour de cassation will be. This is a case about the supervisory function of arbitration proceedings, and they should lie with the courts of seat. The existence of a contract is irrelevant. Indeed, the contract is silent on the duty to disclose, which is statutory, and provided by the lex arbitri.
I would not expect bias from German courts either. But if I was the lawyer of a party suing VW, I would not take the gamble.
Finally, I would like to insist again on an important point: should the choice of the venue of the arbitration trigger the jurisdiction of the courts supervising the appropriateness of the conduct of arbitrators? If the answer becomes yes, then parties will refuse to hold hearings in other places than the seat.