Paris Arbitration Week 2021: London or Paris – Where does your award stand the best chances of surviving annulment proceedings?

By Signature Litigation
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Signature Litigation

During the Paris Arbitration Week, Signature Litigation’s cross-channel arbitration practice shared practical insights on setting aside proceedings in the UK and France.

Partners Ioannis Alexopoulos and Flore Poloni, along with Counsels Neil Newing, Bernhard Maier and Senior Associate Ryan Cable, hosted a conversation on the smooth and successful unfolding of such proceedings. They shared thoughts on how case law has developed over the years and what this means for the future of London and Paris as arbitration seats.

The full session can be watched below, and key excerpts are also enclosed below.


Statistics and chances of success of an application for annulment before the French and English Courts

Ryan Cable (RC): We hear a lot in the press about successful challenges and it may create the perception that they are quite regular and quite successful. But it doesn’t appear to be the case.

In France, are there any statistics published by the court which outline the chance of success?

Flore Poloni (FP): There are no statistics published by the French courts, so we have had to count them.

The process may seem lengthy but actually there are not that many annulment requests, and even fewer annulment requests that actually succeed.

To give you an overview, up until August 2021, only five awards have been annulled in international arbitration. One award in domestic arbitration has been annulled and one foreign award has been denied enforcement.

Two were annulled because the arbitral tribunal lacked jurisdiction (ICCP-CA, 30 March 2021, No. 19/04161, Oschadbank and ICCP-CA, 23 February 2021, No. 18/03068, LERCO).

In a case, the French Court was even more favourable to arbitration [than the arbitral tribunal itself] because the arbitral tribunal had decided that the arbitration agreement was slightly more restrictive than it actually was. The other one involved an investment award that has already been extensively discussed during the Paris Arbitration Week, so I won’t go into the detail of it.

There was also one award annulled on grounds that the tribunal had been irregularly constituted and that was due to incompatibility of treaty provisions, so that was very specific (ICCP-CA, 23 March 2021, No. 18/95756, DS Construction).

Then you have one award that was annulled because the arbitral tribunal had failed to comply with its mission (ICCP-CA, 13 April 2021, No. 18/27764, Brezillon). That’s a classic one; it’s very unfortunate but we have it every year, an arbitrator does not remember to request an extension for the delay of the arbitration to the parties or the institution and the delay is expired. It could absolutely be prevented.

Then you have one award that was annulled on the grounds of breach of due process (Paris Court of Appeals, 19 January 2021, No. 18/04465, Hop !). That was because an expert report was filed and was not discussed. The arbitral tribunal grounded part of its decision on this report.

Finally, and we will talk a lot more about it because I think it is one of the most interesting novelties in French law on the annulment of awards, one award was found contrary to international public policy, and was annulled in a case where there was written evidence of corruption performed by a civil servant in the context of awarding a contract (ICCP-CA, 25 May 2021, No. 18/18708, Webcor ITP Ltd v. Gabon). So, a very dire set of circumstances.

I hope this gives you a sense of how this works in France and I hope this shows you how most requests for annulment are denied. Overall, over the past five years – and these are house statistics which may vary slightly – 77% of applications for annulment have failed.

RC: Five successful annulments of international arbitration awards in nine months this year, that’s not many successful ones. In particular, when you factor in the number of cases being filed every year in the ICC and LCIA, you would expect that several hundreds of awards are being handed out each year, so that’s a pretty slim chance.

It sounds like a chance of successfully challenging an award in France is pretty similar to the low chance of success you see in the courts in England, would you agree with that?

Neil Newing (NN): Yes, I would agree with that, and we do have some more statistics in this sense from the Commercial Court Users Group. The Commercial Court is the court that hears all arbitration applications including any set-aside or challenge applications, and the User Group looks at arbitration award challenges on an annual basis. The latest statistics show that it is difficult to successfully challenge an award.

So, not so many applications are being made because the chances of success are so low. For example, with regard to Section 68 challenges (serious irregularity grounds), in the court year 2018-2019 there were only 26 applications in total and only one of those was successful. I’ll come on to discuss this one shortly because it’s an interesting case on the idiosyncrasies of English cross-examination procedure, but the trend in recent years has been a decrease in the number of applications and the court has said that it hopes it reflects – the point that the court makes repeatedly in its judgments – that the hurdle for Section 68 applications is very high.

Under Section 69 you see a similar outcome. As I mentioned earlier, Section 69 has a two-stage process. First, obtain permission to appeal and then the appeal itself. That really cuts down the number of cases that get to court, let alone then go on and succeed. On average, only around 30% of the applications that are made actually get permission to go forward; and then, only 5% of those succeed.

So, it really is a small number of cases. Again, the statistics are showing a significant drop in the number of these applications, bearing in mind what I said earlier: that Section 69 is often contracted out of, so there are already less of those opportunities available.

Jurisdiction challenges under Section 67 are a bit more difficult to report on because the statistics don’t show the number of successful applications, only the number of applications. I think that’s because of the nature of Section 67 being a full re-hearing, it’s treated in a slightly different way by the User Group as it’s not really a challenge about the arbitration, but it is kind of a case in itself. Even so, the number of applications being made are still quite low. So, in the past year, there were only 19 applications made and the year before that just 20.

Length of proceedings

FP: These proceedings usually take between 12 and 18 months. And then, of course, you can always have, what we call in French proceedings, ‘incidents’ where there are additional complications. You now also have procedural calendars which are strictly observed by the courts because the judges are very wary of showing statistics favouring a speedy process.

RC: Neil, is that probably about the same time frame for England?

NN: Yes, that’s right. In fact, in some simpler cases, if you have a relatively simple challenge that would involve no more than a one-day hearing, particularly in a Section 68 or 69 challenge, that could be as quick as six to nine months. But I think a more substantial challenge would probably be in the 12 to 18 month category, on average. But as always there is the possibility of some cases going on longer.

Arbitrators’ disclosure duties in light of the Halliburton case (2020, UKSC 48) case and the French approach

NN: The dispute arose from the Deepwater Horizon oil spill in the Gulf of Mexico in 2010 and Halliburton was one of BP’s service providers. In that oil spill, thousands of claims were brought against BP and entities like Halliburton.

Halliburton tried to claim some of the damages agreed between the parties from its insurer, Chubb. Chubb refused so Halliburton commenced arbitration proceedings. During the course of those arbitration proceedings, it was discovered that the Chairman of that arbitration, who had been Chubb’s first choice candidate, had, without Halliburton’s knowledge, accepted two subsequent appointments in arbitrations on the same subject matter, one of which also involved Chubb.

So, Halliburton applied to the English court to remove the Chair for a lack of impartiality. This wasn’t a challenge to the award situation, it was a removal of the arbitrator, but the issue of arbitrator impartiality is one which would fall under Section 68, so it’s relevant to that context.

Halliburton was unsuccessful, both in the Commercial Court and in the Court of Appeal, so it appealed to the Supreme Court. In November 2020, the Supreme Court unanimously dismissed the appeal.

The Supreme Court made a distinction in its judgment between two issues. Firstly, and this is one of the most useful parts of the judgment, as it provides some much-needed clarity in this area of law, it held that there is a legal duty of disclosure under English law and that this forms part of the arbitrators’ statutory obligations of fairness and impartiality. A failure to make a disclosure is therefore a breach of English law.

The court also held that this legal duty of disclosure did not, however, override the duty of privacy and confidentiality which also exists in English law for arbitration proceedings.

Therefore, if information is confidential to the parties in one arbitration and needs to be disclosed to the parties in another arbitration in order to comply with the duty of disclosure, that disclosure can only take place if the arbitrator gets consent. So, without that consent, the arbitrator would have to decline to act in the second appointment because it would not have been able to make the disclosure first.

That was a key part of the judgement in terms of clarifying that duty of disclosure under English Law. I know this has existed in other laws and it was strange that it didn’t exist in English law. Now it’s very clear.

What the court then went on to do was to distinguish that duty of disclosure with the question of whether or not there was an appearance of bias. The court clarified the test. What you have to do is consider whether, at the time of the hearing, a fair minded and informed observer would conclude circumstances that gave rise to justifiable doubts about the arbitrator’s impartiality existed.

The other interesting point here is that distinction in the timing, because when you are looking at the duty of disclosure, you look at the time when the disclosure should have been made. But when you are looking at the question of appearance of bias, you are looking at the time when the hearing takes place. Applying that reasoning, the Supreme Court found that the arbitrator was indeed under a legal duty to disclose his subsequent appointments. He did breach that legal duty by not disclosing it, but at the time of the hearing, the laws surrounding that were still unclear – that’s now been clarified – and he had provided reasons as to why he had not given that disclosure. It was therefore not possible to infer any ill-will. So, there was no objective bias.

The result of that decision is that there can be no excuse for an arbitrator sitting in England for failing to disclose matters which might reasonably give rise to justifiable doubts as to their impartiality. But even a failure to do so will still not necessarily mean that there is an appearance of bias which would justify their removal.

FP: The Halliburton decision could not have taken place in France because here, we are fortunate to have a code that has been modified recently and clearly sets out the disclosure duties. The difficulty we have is therefore not the existence of this disclosure duty, but rather its scope. That is what we are discussing under French law and there has been a recent case (not as recent as the cases I cited earlier), from 2020 where there was an issue with the ‘notoriety’ of the situation criticised (ICCP-CA, 25 February 2020, Dommo, Nos. RG 19/07575 and 19/15816 to 19/15819).

There is a duty on the part of the parties to be curious and for them to check whether any form of arbitrator bias could exist, and therefore to conduct their own research.

The question is now ‘How far should you go in your research?’, and what is interesting is that the Court said that it should not be construed as a duty of investigation but nevertheless – and I do find that contradictory, but this was probably targeted at the specific counsel they were using – information published in the Global Arbitration Review, is considered ‘notorious’. So, if something is published in GAR which could potentially reveal arbitrator bias, then it is our obligation as lawyers to know this and potentially raise it.

Another development in this realm is that we had a case in February where, for the first time, the Court referred to the IBA rules on conflicts of interest to analyse the situation. They used them more as a flag of potential information to disclose or potential arbitrator bias, but said that whatever the IBA rules said, the arbitrators still had to analyse the situation according to French law standards (ICCP-CA, 23 February 2021, No. RG 18/03068, LERCO).

The English High Court setting aside an arbitral award on the basis that the tribunal had reached a finding of fact on a core issue that had not properly been put to a witness in cross-examination (P v D case, [2019] EWHC 1277)

NN: This is a case known as P v D (as a lot of our arbitration related proceedings are confidential) from 2019. This case has implications for not only the parties but for advocates and arbitrators as to how cross-examinations are conducted in arbitrations seated in England and Wales. In that case, P had alleged that at a meeting between its principal and D’s principal, D had agreed a payment date of a loan. D denied that such an agreement had been made. P’s principal was cross-examined during the arbitration but was not asked any questions about that meeting.

In fact, the chairman of the tribunal had pointed out to the advocate, but still no questions were asked. When it came to the award, however, the tribunal decided that no agreement had been reached and disbelieved the evidence of P’s principal.

P challenged this under Section 68 on the basis that the tribunal had breached its duty on basing its decision on an issue which had not been put to the witness during cross-examination and therefore he had not had the opportunity of responding to it.

This is known in English procedure as the rule in Browne v Dunn where, if it is to be alleged that a witness’ evidence should be disbelieved on a particular point, then the witness must be given the opportunity to respond to this issue. In the absence of doing so, it is not in fact open to the judge or the tribunal to disbelieve that evidence.

So here, the witness had not been given the opportunity to respond to the issue about the meeting because questions had not been put to it. So, in the absence of that, the tribunal should not have disbelieved that evidence – but it did.

The court agreed with P and found that the tribunal did breach its duty, effectively by deciding the case on a point which had not been properly argued before it by disbelieving the evidence which had not been put to it.

Now, this is not surprising to English practitioners who are familiar with this rule, but what is quite surprising is that this judgment effectively imposes English standards and rules of cross-examination on all arbitrations seated in English and Wales – even where the advocates and possibly even the arbitrators may not be English qualified and may be entirely unfamiliar with such rules. That’s quite a surprising result, in my view.

The French and English approaches to claims of corruption in light of recent case law

FP: A recent French case involved bribery through the gift of a honeymoon package  uncovered after the arbitral proceedings (ICCP-CA, 25 May 2021, n°18/18708, Webcor ITP Ltd v. Gabon). Neil, if you discover written evidence that the main contract being enforced through arbitral proceedings (maybe due to lack of payment) was obtained through bribery and you receive written evidence of such bribery, will the English courts deny enforcement of such award?

NN: I think it would depend on the written evidence in that scenario. If it is something that has already been covered in arbitration proceedings, even if it was clear evidence and the tribunal found no corruption, then the courts have been very clear that they are not going to reopen that, if the tribunal has already looked at the evidence. […]

If you are in a scenario where there is something really exceptional, so very clear concrete evidence that this definitely was a bribe and corruption, and the contract was only obtained in that way that is maybe something that the court would then consider – obviously whether they would find it or not is a different question. I think it would be in the nature of that concrete evidence.

Certainly, it would not be a ‘red flag’ type evidence; I think that wouldn’t be sufficient for the court. I think the other thing to bear in mind is that there could be a potential difference, whether it was an annulment challenge under Section 68 or an enforcement, because Section 68 is very clear that it is about the process; whereas the language of enforcement is slightly different because it is where the enforcement of an award would be contrary to public policy.

FP: Thanks for raising those because after some of the cases that were rendered in France, I have had calls from colleagues who told me that if case law keeps moving in that direction, then no-one will choose Paris as seat. But to me it is also an important concern that we are globally fighting against corruption, and I think that most countries are doing it.

NN: I think that’s exactly right. The courts would not uphold a contract to actually bribe.

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