Flore Poloni and Kimberley Bazelais discuss the Kraydon Ltd v ICC case in LexisNexis

By Flore Poloni & Kimberley Bazelais

Partner Flore Poloni and Associate Kimberley Bazelais explore the duties and liabilities of arbitral tribunals and arbitral institutions in the wake of Kraydon Ltd v ICC.

Flore and Kimberley’s article was published in LexisNexis on 11 April 2023, and can be found here.

What are the practical implications of this case?

Under French international arbitration law, article 1520 of the Code of Civil Procedure limits the grounds to challenge an award to cases of: (1) the arbitral tribunal wrongfully upholding or declining its jurisdiction; (2) the arbitral tribunal being unlawfully constituted; (3) the arbitral tribunal ruling without complying with its mission; (4) violations of the adversarial principle; or (5) recognition or enforcement of the award violating international public policy.

Almost all grounds of annulment relate in some way to the arbitral tribunal’s procedural or substantive actions during the proceedings. However, few parties engage proceedings to hold arbitrators civilly or criminally liable (a completely distinct procedure), and fewer still successfully manage to obtain that such liability actually be held.

Arbitral institutions are not exempt either from criticism in the context of annulment proceedings. Famously, French courts annulled several awards on the basis that arbitral tribunals had not examined a party’s counterclaims, which was the consequence of an ICC rule essentially leading to a party’s claims being withdrawn if said party did not pay its share of the advance on costs and no other party paid such advance in its place.

In the recent Kraydon Ltd v ICC decision, however, annulment proceedings were foregone altogether, as one of the parties to the arbitration sought to hold the arbitration centre liable in a civil lawsuit.

This was a golden opportunity for the Cour de cassation to clearly distinguish the roles of arbitrators and arbitration centres, jurisdictional on one part, and organisational on the other, and as a consequence to differentiate the scope of their liabilities.

Perhaps also on the French court’s mind was the desire to nip in the bud any potential trend to sue arbitral institutions in order to recover indemnities not obtained through arbitral proceedings. In fact, the Paris Court of appeal decision upheld by the Cour de cassation had gone so far as to explicitly deem these proceedings an attempt to circumvent the (rarely successful) annulment proceedings but still collect compensation.

With this decision, any such inclination will not succeed, as French arbitration case law draws a clear line around the role and responsibility of arbitral institutions.

What was the background?

In 2012, Kraydon, a company incorporated in Ireland, filed an ICC arbitration claim against several companies of the Foster Wheeler Group, seeking various indemnities for alleged breaches of a consultancy agreement. The parties having failed to agree on a sole arbitrator, the ICC appointed one. In 2014, the sole arbitrator rendered a final award dismissing the entirety of Kraydon’s claims.

Kraydon, the losing party, did not bring an action to set aside the award but rather brought a civil liability lawsuit against the ICC. It alleged violations of the fundamental procedural principles, consisting inter alia in the arbitral tribunal’s rejection of Kraydon’s request to submit additional briefs, the tribunal’s determination of the claims in one unique phase rather than bifurcated proceedings, and the tribunal’s decision not to hold a hearing.

The Paris Court of First Instance (Judgement of 28 May 2018, No 17/00253), and later the Paris Court of Appeal (Decision of 10 November 2020, No 18/19033) both rejected Kraydon’s claim, ruling that the provisions of the ICC Rules of Arbitration invoked by Kraydon, requiring the arbitral tribunal to conduct the proceedings fairly and impartially, and to ensure that each party has a reasonable opportunity to present its case, were applicable to the arbitral tribunal only, in its jurisdictional role, rather than to the ICC.

Kraydon then appealed before the French Cour de cassation, arguing that, as the parties’ choice of an arbitral institution resulted in the incorporation into the contract of the arbitral institution’s rules, the arbitral institution should be held liable if it failed to enforce its rules.

What did the court decide?

The Cour de cassation confirmed the Court of Appeal’s decision and rejected Kraydon’s appeal. The court recalled, as the Court of Appeal had done in its decision, that it follows from the nature of arbitration that a distinction must be made between the jurisdictional function of the arbitral tribunal and the organisational function of an arbitration centre. By way of consequence, and while the arbitration centre (much the same as an arbitral tribunal) may incur liability in the event that it violates the principle of a fair trial, it is only responsible for breaches it personally committed in organising the proceedings.

Since the ICC Rules of Arbitration make it clear that the International Court of Arbitration does not exercise any jurisdictional power, such power being vested in the arbitral tribunal alone, any grievance grounded in procedural decisions made by the arbitral tribunal are beyond the arbitral institution’s control and cannot trigger its liability, even though it may have appointed the arbitral tribunal.

In a context of increasing scrutiny of the arbitral tribunal’s jurisdictional role (especially as regards procedural rights and international public policy) the French Cour of cassation is therefore not willing to extend such scrutiny to the arbitral institution’s conduct, which is reassuring to even the most ‘hands-on’ of arbitration centres.

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