Beyond the ICC Challenge, French Cour de cassation Demands Direct Objection Before an Arbitral Tribunal

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THE AUTHOR:
Adam Malek, Associate at Darci

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On 7 June 2023, in CTI Group v. International Bulk Carrier the French Cour de cassation issued a surprisingly little-reported decision but which is particularly noteworthy and deserves close attention for its practical consequences since it held that “the fact of having unsuccessfully requested, from the arbitration institution, the challenge of an arbitrator due to an alleged lack of independence or impartiality does not constitute a legitimate reason not to raise before the arbitral tribunal the irregularity of its constitution on the same ground.”

Case Overview

In an arbitration proceeding governed by the ICC (International Chamber of Commerce) Arbitration Rules (1998), one of the defendants challenged the independence and impartiality of one of the arbitrators. Specifically, the party argued that (1) the arbitrator appointed by the opposing party resided at the same address and on the same floor as an apartment owned by that party’s executives and rented by its subsidiary, and (2) the arbitrator had close ties with the opposing party’s counsel – both reasons suggesting a legitimate doubt regarding the arbitrator’s independence and impartiality (para 8).

The objections were formalized through two challenge requests addressed to the ICC International Court of Arbitration, both of which were rejected. The parties continued to argue the merits of the case without ever raising the issue of independence and impartiality before the arbitral tribunal. An award was later rendered against the defendants.

The party who had raised the challenges then initiated annulment proceedings against the award before the Paris Court of Appeal. In support of its claim, it raised, inter alia, the argument that the arbitrator lacked independence and impartiality.

The dispute was then brought before the Cour de Cassation which, on the ground of Article 1466 of the French Code of Civil Procedure (“CCP”) (applicable to international arbitration via Article 1506 CCP), stated that: “A party who, knowingly and without legitimate reason, fails to invoke in a timely manner an irregularity before the arbitral tribunal is deemed to have waived its right to rely on it.”(para 6).

According to this provision, the Cour de cassation has traditionally held that in the event of doubt as to the independence and impartiality of an arbitrator, the parties must “raise this situation in support of a possible application for challenging the arbitrator, since the annulment proceedings cannot make up for [their] failure to exercise [their] right in due time” (Cass, 2nd civ., 25 March 1999, No. 94-18.976). It should therefore be understood, as confirmed by the Paris Court of Appeal in 2016 and in 2021, that failure to comply with article 1466 CCP constitutes a bar to a party, at the annulment stage, from raising the arbitrator’s lack of independence and impartiality if it has not previously and validly raised it earlier before the arbitral tribunal.

In this case, because the applicant failed to raise the independence issue before the arbitral tribunal, it was deemed to have waived its right to invoke it before the Paris Court of Appeal at the annulment stage, pursuant to Article 1466 CCP.

One nuance in this case is notable: although the applicant did not challenge the arbitrator before the arbitral tribunal, it did so twice during the proceedings, before the arbitration institution.

Pursuant to the Cour de cassation, this behavior makes no difference, as it takes a strict stance that “[t]he fact of having requested, in vain, from the institution in charge of organizing the arbitration [the challenge of the arbitrator] does not constitute a legitimate ground for not invoking, before the arbitral tribunal, the irregularity of its constitution for the same reason” (para 8).

The solution handed down by the Cour de cassation stands out for both its consistency with established legal principles and the strictness of its approach, given the specific circumstances of the case. At the very least, it provides practical guidance on the conduct parties should adopt.

A Classical Logic: Safeguarding Arbitral Awards and Preventing Abusive Annulment Actions

Article 1466 CCP requires that an irregularity be raised before the arbitral tribunal; otherwise, a party may not rely on it at the stage of annulment proceedings.

According to French case law (see for instance Airbus Defence and Space or DIT v. Port Autonome de Douala) the word “irregularity” should be understood as referring not only to procedural ones but also to any objection that could constitute grounds for annulment (with the exception of claims based on Article 1520, 5° CCP, which are not subject to the time bar of Article 1466).

Therefore, an “irregularity” within the meaning of Article 1466 CCP includes irregularities in the constitution of the arbitral tribunal (Article 1520, 2° CCP), and more specifically, the lack of independence and impartiality of an arbitrator (see Creighton v. The Government of Qatar (II), Cubic Defense Systems v. International Chamber of Commerce or PT Ventures v. Vidatel and others).

At first glance, the decision of the Cour de Cassation thus appears self-evident: the applicant had not raised any objection against the arbitrator before the arbitral tribunal, whereas Article 1466 of the Code of Civil Procedure requires that such an irregularity be raised before the tribunal – failing which, the party is deemed to have waived the right to invoke it before the annulment judge.

This solution also appears to align with the letter of the ICC Rules of Arbitration, which state in Article 33 that: “A party which proceeds with the arbitration without raising its objection to a failure to comply with any provision of the Rules, or of any other rules applicable to the proceedings, any direction given by the arbitral tribunal, or any requirement under the arbitration agreement relating to the constitution of the arbitral tribunal or the conduct of the proceedings, shall be deemed to have waived its right to object”. Except that the ICC Rules of Arbitration do not specify that such objections must be raised before the arbitral tribunal.

Both the French legislator and the main commentators of the ICC Rules of Arbitration recognize that the aforementioned provisions are guided by the same principle and aim to fulfill the same purpose: preventing a party from keeping objections for itself during the arbitration proceedings, so that it can use them at the stage of setting aside the award. (See C. Debourg et E. Teynier, “Exception de notoriété et obligation de curiosité”, Revue de l’Arbitrage, Vol. 2022, Issue 1, pp. 99-140, para 54.)

However, in the case at hand, this strict reading of Article 1466 CCP may be questioned, or at the very least, one can draw lessons from this decision. Indeed, while the impartiality and independence objection was not raised before the tribunal, it had been the subject of two challenge requests before the arbitration institution.

A Strict Solution: Literal Reading of Article 1466 of CCP

Pursuant to Article 11(1) of the ICC Rules of Arbitration “[a] challenge of an arbitrator, whether for an alleged lack of impartiality or independence, or otherwise, shall be made by the submission to the Secretariat of a written statement specifying the facts and circumstances on which the challenge is based”.

Thus, the ICC Rules of Arbitration do not oblige a party to raise such a claim directly before the arbitral tribunal itself. (See E. Schwartz, Y. Derains, Guide to the ICC Rules of Arbitration, 2nd edition, p. 189)

One might worry that such a rule would deprive the other party, or even the arbitral tribunal and the challenged arbitrator, from discussing the issue and thus would cause a breach of the adversarial process. However, the third paragraph of the aforementioned article adds that the Secretariat shall afford “an opportunity for the arbitrator concerned, the other party or parties and any other members of the arbitral tribunal to comment in writing within a suitable period of time”.

Thus, while there was no obligation on the party to raise the alleged lack of independence and impartiality of the arbitrator before the arbitral tribunal, the Cour de cassation, in the judgment under review, gave a strict reading to Article 1466 CCP and decided that the applicant should have “invoked” this element before the arbitral tribunal.

Such rigor can question.

Indeed, in light of the Court of Appeal’s decision, confirmed by the commented decision, the term “invoke” can be broadly understood to include any objection or simple reservation raised before the tribunal.

However, if we are to believe Article 11(3) of the ICC Rules, the arbitral tribunal was necessarily informed of the challenge of the arbitrator. While the issue may not have been raised before the arbitral tribunal, it was at least expressly invoked during the arbitration proceedings before the body designated as competent by the arbitration rules: the arbitration institution itself.

This decision is all the more stringent given that, in practice, the challenge of an arbitrator directly brought before the arbitral tribunal has little to no effect [other than to avoid the application of Article 1466 CCP] since only the ICC Court of Arbitration is competent to rule on the admissibility and merits of a challenge.

Perhaps this ruling reflects a fear on the part of the judges of the Cour de cassation that this argument, at the annulment stage, based on a possible lack of independence and impartiality of the arbitrator, might be abusive, as it had already been raised twice before the ICC Court of Arbitration and rejected just as many times. In this case, the Court of Cassation could be considered to be deferring to the arbitration center’s judgment. In this case, the Cour de cassation appeared to align itself with the ICC Court’s reasoning, concluding that the facts did not raise any legitimate doubts regarding the arbitrator’s independence or impartiality.

Lack of Independence and Impartiality of an Arbitrator: Which Grounds of Article 1520 CCP to Apply?

Another interesting aspect of this decision are the legal grounds, on which the arbitrator’s lack of independence and impartiality was analyzed at the stage of the setting aside of the award.

In this case, the applicant’s objection for lack of independence and impartiality was grounded on Article 1520, 2° CCP (improper constitution of the arbitral tribunal) and 1520, 5° CCP (contrariety of the recognition or enforcement of the award with the international public policy).

As for the improper constitution of the tribunal, the Cour de cassation makes it clear that this argument falls under Article 1466 CCP: it should have been raised before the arbitral tribunal.

The Cour de cassation then analyzes the same facts, but from the perspective of Article 1520, 5° CCP, which is not subject to waiver and therefore does not fall within the scope of Article 1466 CCP.

It thus upholds that “[t]he enforcement of an award in France may be refused where the award, rendered by an arbitrator whose lack of independence or impartiality is established, would undermine the principle of equality between the parties and the rights of the defense, and would be contrary with the international public policy”(para 13) (and then goes on to reject the objection on the grounds that it is unfounded).

Such an approach is not new, and French courts have already been able to rule on the absence of independence and impartiality on the grounds of both improper constitution of the tribunal and contrariety with the international public policy (see for instance ALTEO v. Aluminium Pechiney and RTA)

The Court here does not, however, opt for subtlety, and does not seem to distinguish between public policy of direction and public policy of protection, where the distinction has been made in prior decisions which have concluded that only public policy of direction cannot be subject to the waiver provided for in Article 1466 CCP (see for instance Heliotrop v. Magpower).

In this case, the applicant alleged a violation of international public policy in that the arbitrator’s supposed lack of independence and impartiality “would undermine the principle of equality between the parties and the rights of defense”. This could be analyzed as a breach of the procedural public policy or public policy of protection, which should not, however, prevent the application of article 1466 CCP.

Accordingly, there was no need for the Cour de cassation to analyze in detail the merits of this ground for annulment, and it could have concluded that, once again, the applicant had waived the right to raise this objection at the annulment stage.

The position of the Cour de cassation in this case is nevertheless understandable. Arbitrators’ independence and impartiality are fundamental to their jurisdictional function, crucial for the existence and success of international arbitration, and the French legal system cannot ignore this principle. It is a matter of the credibility of international arbitration.

Practical Consequences

In practice, this decision holds significant importance for arbitration practitioners and their clients in the context of annulment proceedings.

The main point is that, when an arbitrator is challenged for lack of independence and impartiality, the objection must be raised both before the body competent to rule on it and designated by the arbitration rules (the Secretariat in the case of ICC arbitration), but also before the arbitral tribunal during the proceedings and within the time limits set out by the same arbitration rules.

Otherwise, such objection cannot be raised at a later stage, when setting aside the award before the Paris Court of Appeal.

Regarding the formalities of the challenge, it must be presented in the form of a written statement that is sufficiently detailed and reasoned, addressed to the ICC Secretariat (Article 14(1) of the ICC Rules). No indication is given as to the formalism of the challenge before the arbitral tribunal. However, in light of the decision under review, the term “invoke” is to be understood as the fact of a party expressing reservations before the arbitral tribunal.

Finally, since it is settled case law that the word “irregularity”, within the meaning of article 1466 CCP, is to be understood broadly as any procedural irregularity or objection that would give rise to an action for annulment (see Airbus Defence and Space or DIT v. Port Autonome de Douala), the scope of this decision is particularly broad. Therefore, to preserve their clients’ rights, arbitration practitioners must pay close attention to this issue.

This judgement means that the parties (and above all their counsel) will have to be more diligent, as they will have to raise before the arbitral tribunal any arguments in support of an annulment action, as well as any procedural irregularities. While this decision may be welcomed in certain respects, it nevertheless raises questions about the efficiency of arbitration proceedings, given that the parties will potentially be required to raise issues before arbitrators that do not initially fall within their jurisdiction, and they cannot settle.

* The quoted excerpts from French legal texts and case law have been informally translated for ease of understanding. These translations are not official and should not be relied upon for legal interpretation.

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ABOUT THE AUTHOR

Adam Malek is a French-Algerian lawyer admitted to the Paris Bar. He is an Associate with Darci, where he represents clients in arbitration proceedings related to the construction industry. He is also a Lecturer at HEAD – L’école des Hautes Etudes Appliquées du Droit and a member of Young ICCA, Young AfAA and YSIAC.

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*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.