For those who may have missed the previous blog posts,² these proceedings occurred further to an application to set aside a partial arbitral award rendered under the auspices of the International Chamber of Commerce, initiated by a Greek company J&P Avax SA against an Italian company Société Tecnimont SPA. Tecnimont had concluded a subcontract agreement with Avax for the construction of a propylene factory located in Greece. A dispute between the parties arose and Tecnimont instituted ICC proceedings in Paris pursuant to the arbitration clause contained in the subcontract agreement.

At the time of his appointment in 2002, the Chairman was ‘Of counsel’ at a global law firm with an office in Paris. In his declaration of independence, the Chairman disclosed that the Washington DC and Milan offices of his firm had previously worked with the parent company of Tecnimont in a concluded matter in which he had never been involved.

During the proceedings, Avax’s counsel became aware that the Chairman’s law firm was assisting a company that was later acquired by the parent company of Tecnimont. Avax then unsuccessfully challenged the Chairman’s appointment before the ICC Court of Arbitration in September 2007. The ICC dismissed the challenge for undisclosed reasons and Avax continued to participate in the arbitration while reserving its rights. A partial award on liability was rendered in favour of Tecnimont on 10 December 2007, with further information regarding the links between the Chairman’s law firm and Tecnimont’s affiliated companies coming to light thereafter.

Subsequently, Avax filed an application to set aside the award with the Paris Court of Appeal.

On 12 February 2009, the Paris Court of Appeal annulled the award and held that the arbitrator was under a continuing obligation to inform the parties of any matter that could cast reasonable doubts on his/her impartiality and independence. The Paris Court rejected Tecnimont’s argument that Avax’s application to set aside was inadmissible because it had already unsuccessfully challenged the Chairman before the ICC on the same grounds and that such challenge was in any event waived as it was made beyond the time limit of 30 days required by the ICC Rules on challenging arbitrators. The Paris Court of Appeal found that Avax had only been notified of relevant facts and circumstances after it challenged the award and after the partial award was delivered. They left open the questions of whether the ICC Rules bind the court and whether the party had waived its right to challenge the award by failing to adhere to the time limitation imposed by the ICC Rules.

The Cour de cassation³ reversed this decision, holding that almost all of the grounds for challenge were already included in the request for challenge filed with the ICC in September 2007. The Cour de cassation considered that the Paris Court modified the terms of the dispute by relying on facts that came to light after the partial award rather than relying on those submitted by the parties, a breach of Article 4 of the Code of Civil Procedure. Consequently, the Supreme Court remitted the case to the Reims Court of Appeal to decide on the validity of the award.

The Reims Court of Appeal first considered that the setting aside application was admissible because the failure to challenge the Chairman within the ICC time limitation did not prevent Avax from applying for the award to be set aside. The Reims Court of Appeal then annulled the award due to the Chairman’s failure to spontaneously and comprehensively disclose that his law firm had advised Tecnimont and related companies during the time of the proceedings.

This decision confirms: (I) the inapplicability of the ICC Rules at least for challenging arbitrators before French courts once an award is rendered and (II) the French courts’ attitude of broadening the scope of the arbitrator’s duty to update and disclose conflicts of interests.

I. The Inapplicability of the ICC Time Rules for Arbitrator’s Challenge

Article 11 of the ICC (1998) Rules provides that challenge of arbitrators must be brought within 30 days from when the party became aware of facts and circumstances giving rise to the challenge. The reasons for the ICC decisions on arbitrators’ challenges are not provided or published. That rule has not been modified by the recent revision of the ICC Rules, despite discussions on the benefits of publishing decisions concerning challenges of arbitrators.

As the Cour de cassation‘s decision that the Paris Court of Appeal modified the terms of the dispute was of a procedural nature, the Reims Court of Appeal’s view on the admissibility of the application to set aside was much anticipated.

Indeed, some commentators argued that the only motive that could justify the Cour de cassation putting forward this procedural flaw is that its correction would have an impact on the admissibility of Avax’s claim. The Cour de cassation therefore has ruled on a technical issue only to enable a future reversal of the Paris Court of Appeal’s decision. It is probably not by coincidence that the designated court is chaired by Dominique Hascher, former general counsel of the ICC Court of Arbitration and previous judge at the 1st Chamber of the Paris Court of Appeal.

On this occasion, the Reims Court of Appeal was expected to provide some explanations as to the consequences of not filing the application within the time limit set forth in the ICC Rules.

Both the Reims Court of Appeal and the Paris Court of Appeal accepted that some facts were revealed after the ICC decision on Avax’s challenge. Thus, the ratio decidendi of the case stands in its analysis of the consideration given by French courts to the ICC Rules.

The Reims Court of Appeal’s conclusions are straightforward: challenges before the ICC Court and review of an award by a judge are separate proceedings and do not serve the same purpose; the two applications are before different authorities; and the judge that deals with the award is not required to abide by the ICC time limit to challenge arbitrators. The ICC decision is of an administrative nature and does not have res judicata effect. Furthermore, the appellate judges found that the party has not waived its right to challenge the award as the party raised the issue and reserved its rights whenever possible during the arbitration proceeding. This decision means that, once an award is rendered and notwithstanding the ICC’s decision or the failure of the parties to comply with the ICC Rules on challenges during the proceeding, the judge has full liberty to decide whether arbitrators’ independence may be called into doubt provided the party shows that it did question the independence of the arbitrator and therefore did not waive its rights to challenge.

Although many commentators support efforts to ensure impartiality and independence, this case has already been criticised by some commentators for the court’s lack of consideration as to the ICC Rules with respect to time limits for challenges of arbitrators. Some view that ICC Rules should not have been so easily bypassed given that they represent contractual obligations that bind the parties and arbitrators. Another concern is that allowing the challenge to go forward means the party receives an opportunity to re-litigate the same issue before different bodies.

It is true that this case represents a rare disregard of the ICC Rules by the French courts. Nevertheless, it is the first time that the French courts deliberated the parties’ agreement to abide by the ICC Rules with respect to that specific issue. The party could have also challenged the arbitrator by virtue of Article 11 after the new information was disclosed but did not do so. However, the Article 11 time-limit is internal to the ICC procedure for arbitrators’ challenging and cannot be imposed on French courts once the award has been rendered. Moreover the party made clear that it reserved its right to challenge the arbitrator before the court. This does not imply that the Reims Court of Appeal has denied the will of the parties. Rather they deemed that failure to respect the ICC procedural time limit did not prevent recourse before national courts after the award is rendered.

II. The Broad Scope of the Arbitrators’ Disclosure Obligations

The appellate judges concluded that information concerning the links provided by the Chairman had developed throughout the course of the proceedings. The relationship between the Chairman’s law firm and one of parties to the arbitration went beyond the information disclosed in 2002 by the Chairman and was not revealed in due time.

In that respect, the Reims and Paris Courts of Appeal had similar interpretations. However, the Reims judges further elaborated on the meaning of the duty of disclosure. The Court found that arbitrators have a continuous obligation to disclose not only personal circumstances that may call their independence into question, but also factual circumstances involving the law firms to which they belong throughout the proceedings. Notwithstanding the arbitrator’s position in the firm, the obligation to disclose covers other files handled by other branches of the law firm irrespective of the subject matter of the dispute or the amount of fees invoiced for these other files. Thus, a certain degree of objectivity was required from the arbitrator, beyond his/her personal connections. After reviewing each specific link, the Court concluded that the failure to inform the parties of these facts or the incomplete information given to the parties created reasonable doubts as to the independence of the Chairman.

The Reims decision demonstrates the importance of continuous and strict conflicts checks by arbitrators, after their appointment and throughout the proceedings. This ruling is in line with the French case law on the continuation of the duty of disclosure.⁴ Indeed, under the new Article 1456 of the French Code of Civil Procedure, an arbitrator is under the duty to ‘disclose any circumstances that may affect his or her independence or impartiality’ and ‘also shall disclose promptly any such circumstance that may arise after accepting the mandate.’

This decision also confirms a current trend in French case law that broadens arbitrators’ duty of disclosure, e.g. with respect to the number of appointments of an arbitrator by one of the parties as well as to the existence of a business relationship between an arbitrator and a party’s counsel. However, this is the first time an award is annulled on the basis of connections with other offices of the arbitrator’s international law firm, rather than the arbitrator’s personal connections.

Arbitrators involved in proceedings seated in France are under a duty to continuously investigate potential conflicts and ensure that conflicts databases are regularly updated. As companies frequently change ownership and affiliates, clients should also be requested to clarify precisely their corporate structure and line of control and communicate any changes to their lawyers. Some commentators have criticised the lack of cost-efficiency of such refinement of conflict checks and updates system. The Reims Court of Appeal decision adds to the responsibilities of arbitrators but serves to ensure that arbitrators sitting in international arbitration tribunals in France remain independent and impartial throughout the proceedings. This development is crucial to maintain the credibility and quality of international arbitration.

The duty to disclose is also in harmony with the colour coded IBA Guidelines on Conflicts of Interest in International Arbitration, addresses the issue of an arbitrator’s law firm’s involvement with one of the parties. Arbitrators must disclose if their law firms are rendering services to one of the parties or affiliates without creating a significant commercial relationship and without the involvement of the arbitrator. While the rendering of services must be disclosed, it does not per se amount to a conflict of interest under the IBA Guidelines. The individual circumstance would have to be further examined.

The French courts’ approach on this matter does not differ, as the Court of Appeal specified that the facts that the matters dealt with by the law firm were unrelated to the dispute submitted to arbitration and that the amounts billed by the firm with respect to the other files was nominal and did not create an impact. Specifically, the Court stated: ‘Once a client relationship is established, that relationship is not only financial: the independence of an arbitrator is not judged depending on the scale of the fees received by his/her law firm from a party.’

Applying the IBA Guidelines, the arbitrator in the Tecnimont case would have been under the same duty to disclose his law firm’s representations of affiliates of one of the parties. However, the law firm’s representations may or may not lead to an annulment of the award as the facts would still have to be analysed under the IBA Guidelines to determine if they create a justifiable doubt as to the arbitrator’s impartiality and independence. Similarly, the Reims Court of Appeal would not automatically annul the award for failure to disclose all this information but will also analyse each specific link between the law firm and the parties to arrive at its conclusion. As the judges indicated: ‘(…) the review court’s responsibility is to assess the impact of the non-disclosure and to determine whether or not it could have caused a reasonable degree of doubt, in the minds of the parties, as to the alleged lack of impartiality.’

A pourvoi en cassation or recourse has been lodged against the Reims decision with the Cour de cassation and it is uncertain whether the Cour de Cassation will adopt the Reims Court of Appeal’s view of the ICC Rules.

By Laurence Franc-Menget and Vanina Sucharitkul, Herbert Smith LLP

Sweden has a long-standing tradition as a seat for international arbitration and the Swedish legal framework has generally been perceived as arbitration friendly. In 2005 that perception was somewhat damaged when the Svea Court of Appeal, in Case No. RH 2005:1 (The Titan Corporation v. Alcatel CIT SA), held that the arbitral award in question could not be challenged before the Swedish courts. The seat of arbitration was in Sweden and the Swedish Arbitration Act was applicable, but apart from these elements the arbitration had no further connection to Sweden. The Svea Court of Appeal considered the challenge proceedings to lack Swedish judicial interest.

The court’s decision was appealed, but unfortunately, the dispute was settled between the parties before potentially reaching the Supreme Court. Commentators heavily criticized the Svea Court of Appeal’s judgment under both Swedish and international legal doctrine – we have ourselves criticized the Svea Court of Appeal’s judgment in an article in a Swedish law review (Juridisk Tidskrift) – inter alia because the judgment lacks conformity with international arbitration law.

In November 2010 (Case No. NJA 2010 p 508; The Russian Federation v. RosInvestCo UK Ltd) the Supreme Court emphasized – with reference to the internationally recognized arbitration principle of party autonomy – that the parties to an arbitration agreement are free to select the applicable law to be applied in arbitral proceedings. The applicable law is usually derived from the seat of arbitration, which is typically stated in the arbitration agreement. If the parties have agreed that the seat of arbitration is in Sweden, the Swedish Arbitration Act applies. Consequently, the Supreme Court held that when the seat of arbitration is in Sweden and the Swedish Arbitration Act applies, Swedish courts are deemed to have judicial interest in the case and are therefore competent to try a challenge against an arbitral award. Thus the Titan Case no longer represents good law.

The Supreme Court’s judgment was welcomed and well received by the Swedish arbitration community. Several other 2010 Supreme Court judgments further accentuated the international perspective in arbitration cases.

Supreme Court Case No. NJA 2010 p 317 (Korsnäs AB v. AB Fortum Värme) concerned a dispute over the potential disqualification of a party-appointed arbitrator due to the fact that he had been appointed as arbitrator on numerous occasions by the law firm acting as counsel for one of the parties. Both the Svea Court of Appeal and the Supreme Court relied upon (among other sources of law) the IBA Guidelines on Conflicts of Interest in International Arbitration, notwithstanding that these guidelines had not been previously agreed upon by the parties. A similar determination had earlier been made by the Supreme Court in Case No. NJA 2007 p 841.

In Korsnäs, the Supreme Court held that appointment of the same person as arbitrator on numerous occasions by the same law firm can constitute a circumstance that may diminish confidence in the arbitrator’s impartiality. As a result, the arbitrator might be disqualified. However, the court must also consider the extent to which the person has been appointed as arbitrator by other law firms. Pursuant to the legal framework, an arbitrator’s failure to disclose circumstances that might have constituted disqualification is not an independent ground for challenge of an arbitral award; neither the Swedish Arbitration Act nor the IBA Guidelines contain any remedies in respect to an arbitrator’s failure to disclose this fact. Instead, in cases where the impartiality of an arbitrator is particularly difficult to ascertain, the effect ought to be that the arbitrator’s failure to disclose certain circumstances may lead to the disqualification of the arbitrator. This was, however, not the case in Case No. NJA 2010 p 317.

In addition, certain statements made by the Supreme Court in Case No. Ö 2782-10 (Tupperware Nordic A/S v. The Bankruptcy Estate of Facht Distribution AB) must be perceived as arbitration friendly. The case concerned an agreement designating a certain court to settle disputes between the contracting parties. The Supreme Court concluded that the legal principles regarding such agreements are equivalent to the principles applicable to arbitration agreements. An arbitration clause included in a main contract is considered to cover any dispute in relation to the main contract. The scope of the arbitration clause may however be limited by its wording. A standard arbitration clause gives the arbitral tribunal the right to try any invalidity of the main contract as long as the invalidity rests upon a contractual basis.

These 2010 judgments clearly illustrate that the Swedish Supreme Court considers it to be of great importance for the courts to accentuate the existence and applicability of international arbitration law principles. This generous approach towards both national and international arbitrations will further establish Sweden as an attractive forum for international arbitrations.

Anders Reldén, Mattias Nilsson and Linda Kahver

First, the court considered whether the person from whom discovery is sought is a participant in the foreign proceeding. Given that the requests were directed towards certain individuals Caratube alleged were relevant to its dispute with Kazakhstan, but who were not parties to the ICSID arbitration, the court found that this factor weighed in favor of granting the petition.

Second, the court examined the nature of the foreign tribunal, the character of the proceedings, and the receptivity of the tribunal to U.S. judicial assistance. Here, the ICSID Tribunal denied Kazakhstan’s request to order Caratube to cease and desist from the Section 1782 petition, but also stated that it “will have to decide [whether to admit any such discovery] having regard to its obligation to accord procedural fairness to the Parties.” Id. at *2. While the court observed that a tribunal’s willingness to accept Section 1782 evidence weighs in favor of granting such petitions, it found that Caratube in this particular case filed its petition late in the arbitration proceedings, after the Tribunal had ruled on various discovery disputes and less than a month before discovery was to close. Thus, the court held that Caratube improperly sought to undermine the ICSID procedures.

Third, the court assessed whether Caratube’s petition “conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the United States.” Id. at *5. It noted that Caratube proposed, and Kazakhstan and the Tribunal agreed, that the arbitration’s discovery process should be guided by the International Bar Association Rules on the Taking of Evidence in International Commercial Arbitration. In particular, the Rules provided that if a party seeks discovery from a third party, it should ask the Tribunal “to take whatever steps are legally available to obtain the requested documents.” Id. at *6. Thus, the court held that, based on Caratube’s own proposed discovery rules, the Tribunal should itself decide whether to request discovery as permitted by Section 1782. Id.; see also 28 U.S.C. § 1782(a) (‘The order may be made pursuant to a letter rogatory issued, or request made, by a foreign or international tribunal….”). The court reasoned that Caratube unilaterally “side-stepped” procedural guidelines to which it agreed in the arbitration and thus “undermined the Tribunal’s control over the discovery process.” Id. at *6 (emphasis added).

Reflecting principles of international comity, though without using these terms, the court recognized and respected the power of foreign and international tribunals such as ICSID to control their own proceedings. It expressed reluctance to interfere with the Tribunal’s decision-making by granting Caratube’s unilateral petition, which it perceived circumvented the agreed-upon procedural rules in the arbitration. This ruling serves the pro-arbitration policy of the United States by empowering arbitral tribunals and even encouraging them to issue Section 1782 petitions as they deem appropriate. Moreover, it appears to serve the common interests of both petitioners and respondents, who may not want to entirely supplant arbitration discovery rules with costly U.S. discovery, but may want a Tribunal’s discovery rulings to have greater effectiveness with the ultimate threat of contempt sanctions for violating a U.S. discovery order. Indeed, other countries (to the extent they have not) should consider following the U.S. example in providing evidentiary assistance to arbitral tribunals, and such tribunals should consider utilizing it whenever deemed necessary to facilitate effective arbitration. See, e.g., GARY B. BORN, INTERNATIONAL COMMERCIAL ARBITRATION 1922-39 (2009) (discussing the role of national courts in the U.S., Switzerland, Sweden, Belgium, Netherlands, Germany, Japan, and England in obtaining evidence for use in international arbitrations).

GARY B. BORN AND BART M.J. SZEWCZYK

The applicability of 28 U.S.C. § 1782 to international arbitration has generated an interesting debate, especially on this blog (see lastly G. Born’s post, L. Reed’s post, E. Triantafilou’s post, adde, Y. Lahlou, l’applicabilité de l’article 28 USC 1782 à l’arbitrage commercial international, Gaz. Pal., 2009-3). The debate is essentially concerned with the question whether an international arbitral tribunal constitutes a “foreign tribunal” for purposes of § 1782 (see the recent: In re Application of Chevron, 2010 WL 1801526, at *6 (S.D.N.Y. May 6, 2010 and Roger Alford’s blog). Conflicting solutions on this issue have been rendered in the United States (against the application of § 1782 to international arbitration see e.g.: National Broadcasting Co. Inc and NBC Europe v. Bear Steans & Co., Inc et al, 165 F.3d 184 (2d Cir. 1999); El Paso Corp. v. La Comision Ejecutiva Hidroelectrica del Rio Lempa No 08-20771, 2009 US App. Lexis 17596 (5th Cir. Aug. 6 2009); In re Arbitration in London, England, No. 09-C-3092, 2009 US Dist. Lexis 49827. For the application of § 1782 to international arbitration see e.g. In re Oxus Gold plc, MISC 06-82-GEB, 2007 WL 1037387 (D.N.J. April 2,2001), In re Roz Trading Ltd, 469 F. Supp. 2d 1226; In re Hallmark Capital Corp., 534 F Supp. 2d 951 (D. Minn. 2007), Comisión Ejecutiva, Hidroeléctrica del Río Lempa v. Nejapa Power Co., LLC, No. 08-135, 2008 WL 4809035, at *1 (D. Del. Oct. 14 2008).

A related, and somewhat minor question, has however attracted little interest, and that is whether costs incurred by the party to an arbitration procedure in court proceedings based on § 1782 (“the Discovery costs”) may be treated as costs of the arbitration and allocated by the arbitral tribunal. The question will be relevant to the parties since, as it is known, costs are not refunded to the prevailing party in the context of Discovery court proceedings in the United States.

The critical issue is whether the Arbitral Tribunal has jurisdiction to allocate Discovery costs as costs of the arbitration.
The first element of answer may be found in the arbitration agreement.
Proceedings related to a Discovery application in aid of the arbitration may well be considered as a dispute arising out or relating to the underlying contract. Hence, there should not be any difficulty to admit that, in principle, Discovery applications are related to the contract. As a consequence, a broadly formulated arbitration clause (such as a clause worded as follows “all disputes arising out of or in connection with the present contract shall be finally settled through arbitration by one or more arbitrators”) may well be construed as applying to Discovery costs. This is not the end of the story, however.

A first argument against the arbitral tribunal’s jurisdiction to apportion Discovery costs is that applications for Discovery in aid of the arbitration applications usually involve third parties in possession of the evidence sought. Such circumstance, however, should not be relevant as long as the parties in dispute in the arbitration are also parties to the Discovery court proceedings.
Another possible objection relates to the concept of “costs of the arbitration”.

In the context of UNCITRAL or institutional arbitration, it should be seen whether the applicable arbitration rules permit to treat such costs as costs of the arbitration.

It is for example doubtful that, under Article 38 of the 1976 UNCITRAL rules, Discovery costs can be treated as costs of the arbitration. Article 38 provides that “the term ‘costs’ includes only: (a) the fees of the arbitral tribunal to be stated separately as to each arbitrator and to be fixed by the tribunal itself in accordance with article 39; (b) the travel and other expenses incurred by the arbitrators; (c) the costs of expert advice and of other assistance required by the arbitral tribunal; (d) The travail and other expenses of witness to the extent such expenses are approved by the arbitral tribunal; (e) the costs for legal representation and assistance of the successful party if such costs were claimed during the arbitral proceedings, and only to the extent that the arbitral tribunal determines that the amount of such costs is reasonable; (f) Any fees and expenses of the appointing authority as well as the expenses of the Secretary-General of the Permanent Court of Arbitration at the Hague”.

The new 2010 UNCITRAL rules, however, include a new wording of § (e) below. The new Article 40 (e) of the Rules now provides that costs include “the legal and other costs incurred by the parties in relation to the arbitration to the extent that the arbitral tribunal determines that the amount of such costs is reasonable”. Arguably, Discovery costs are costs incurred “in relation to the arbitration”. As a consequence, Discovery costs would be treated as costs of the arbitration.

The ICC rules, with respect to costs, provide in Article 31(3) that “The final Award shall fix the costs of the arbitration and decide which of the parties shall bear them or in what proportion they shall be borne by the parties”. Article 31(1) also provides that the costs of the arbitration include the “reasonable legal and other costs incurred by the parties for the arbitration”. Such a provision does not seem to encompass costs incurred “in relation” to the arbitration. It is generally admitted, however, that arbitrators have wide discretion in apportioning costs. Whether such discretion could be used to allocate Discovery costs remains to be seen.
The LCIA rules confer to an arbitral tribunal the power to “order in its award that all or part of the legal or other costs incurred by a party be paid by another party” (Article 28.3). However, this provision seems to relate to the costs incurred in the arbitration, and would thus not apply to costs incurred in court proceedings. The ICDR rules refer in Article 31 to “the costs of arbitration”. Although the rules also provide for a non-exhaustive list of what “may” be included as such costs, , the concept of costs of arbitration is arguably not equivalent to that of costs incurred “in relation to” the arbitration. The same observation applies with respect to Article 38 of the Swiss Rules.

Another possible ground to recover Discovery costs could be as damages for breach of the arbitration agreement. It is unlikely that the lex arbitri would prevent a party from seeking Discovery in aid of the arbitration, but it may well be that the arbitral tribunal enjoined the party from doing so or from pursuing an application made without the tribunal’s leave.

A U.S. court has, in this respect, decided that § 1782 application suppose the consent of the arbitral tribunal (see In re Bacock Borsig AG, 583 F. Supp. 2d a 233 (D. Mass. 2008)). Such principle is healthy as Discovery applications – as they include leave to depose witnesses and suppose broad discovery – are likely to be inconsistent with the tribunal’s procedural directions. In such a scenario, an application made in disregard of the tribunal’s directions or order would constitute a breach of the arbitration agreement insofar as the arbitration agreement obliges the parties to cooperate in good faith to the proceedings. There should be no valid reason why such a breach could not give rise to damages.

Alexis Mourre/Alexandre Vagenheim

In August 2009 the ICC took a major step towards transparency with respect to arbitrators’ availability and workload. As a result of these measures, the ICC now requires ICC arbitrators to complete an ICC Arbitrator Statement of Acceptance, Availability and Independence listing their “currently pending” cases, and confirming their ability to devote the necessary amount of time to the arbitration and to conduct the process “diligently, efficiently and in accordance with the time limits in the Rules”.
While the ICC’s measures to increase transparency about arbitrator availability are certainly welcomed and commendable, they are only a first step. Aside from ascertaining the number of “currently pending” cases in which an arbitrator candidate is involved, either as tribunal chair, co-arbitrator or counsel, other objective data is relevant and ought to be available. This kind of data includes details about the calendar of an arbitrator candidate, and details about an arbitrator candidate’s record for award drafting in past cases.

Calendar of an Arbitrator Candidate. Arbitral institutions should not be afraid to ask an arbitrator candidate for a calendar of his/her professional responsibilities for the upcoming 12 – 18 months. We obviously do not mean a calendar with case (or personal) details, but rather a calendar showing dates blacked-out for existing commitments: hearings, deadlines for the drafting of awards and time blocked for drafting (particularly if the candidate is acting as tribunal chair), and responsibilities as counsel.

An Arbitrator Candidate’s Record on Awards. As we have said publicly before, why shouldn’t institutions – and parties – ask arbitrator candidates to indicate on their disclosure statements information, from past cases as arbitrator, about the length of time (i) from the final hearing to the close of the proceedings, and (ii) from the close of the proceedings to the issuance of the award. Arbitrators would, of course, be able to explain any particularly long delay, for instance, due to suspension of the proceedings by the parties for settlement purposes or illness of a tribunal member.

Although the number and type of arbitrations an arbitrator candidate has done is perhaps the most important piece of information for appointing parties and institutions, surely it would help those parties and institutions also to have information about the candidate’s availability – real availability – and pattern of award issuance. If the first type of objective date is required on disclosure statements, why not the second?

By Lucy Reed and Noiana Marigo

Russian law stipulates that an arbitrator must disclose any circumstances which may give rise to justifiable doubts as to his impartiality or independence. Based on such disclosure, a party to the arbitration may decide whether to challenge the arbitrator. The arbitrator’s failure to provide such information at the time of his appointment may serve as grounds for appealing an arbitral award in the future.

Departing from the law and the facts of the case, the court set aside the arbitral award. However, the court did not explicitly rule whether the participation in the conferences may per se speak for the partiality of the arbitrators. This led to a vivid discussion regarding whether the arbitrators are biased if they appear at academic events organized and sponsored by the opposite party’s counsel (law firm).

There was no subsequent case law regarding this matter until the Court of Cassation of the Moscow Federal Circuit recently rejected the claim of the partiality of an arbitrator based on a similar set of facts. In Erick van Egeraat Associated Architects B.V. (Netherlands) v Capital Croup LLC (Russia) (Case No. А40-51596/09-68-437), Capital Group LLC alleged that a co-arbitrator once spoke at a conference organized and sponsored by the law firm of the opposite party’s counsel. In addition, Capital Group LLC reported that the counsel representing Erick van Egeraat also spoke at the same conference.

The court rejected Capital Group LLC’s claim and based its ruling on two specific arguments. Firstly, it was established that the law firm acted only as a so-called ‘information sponsor’ (promoting the conference among its clients and partners) and certainly had no influence on either the program of the conference or on the speakers’ list. Secondly, the participation of the co-arbitrator in the conference did not create any dependence or commercial interest with the counsel (law firm). Therefore, the arbitrator fulfilled the impartiality criteria set forth by international laws and the SCC Arbitration Rules.

The decision of the Court of Cassation of the Moscow Federal Circuit is timely and welcomed as it brings some clarity to the issues of arbitrators’ impartiality.

Russian courts adopted the position that an arbitrator’s involvement in academic events must be made known to the other party, otherwise this is a ground for setting aside awards. Yet, the courts did not answer the main question of whether the mere participation in a conference biases an arbitrator.

The recent decision illustrates that the impartiality test is based on establishing whether or not any interaction creates dependence or commercial interest between the counsel (law firm) and the arbitrator. Therefore, it is at the court’s discretion whether or not to define in each individual case whether any form of sponsorship may speak for an arbitrator’s partiality. In this particular case, the court ruled that ‘information sponsorship’ does not create any special relationship between the counsel (law firm) and arbitrator.

Furthermore, the court held that the fact that the arbitrator and counsel spoke at the same conference does not necessarily lead to the partiality of the arbitrator.

The court also underlined another important aspect in that the standards of impartiality should also be found in the applicable arbitration rules. In our opinion, any relevant guidelines by arbitration institutes on the impartiality of arbitrators would be of a significant value in cases concerning setting aside awards or in enforcement procedures in Russia.

In a recent decision, the U.S. District Court for the Northern District of Illinois ruled that a “private” international arbitration tribunal was not entitled to judicial assistance under Section 1782 because it is not a “foreign or international tribunal.” An appeal from that decision is pending before the U.S. Court of Appeals for the 7th Circuit. As Lucy Reed noted in a previous post, U.S. court rulings are inconsistent on the eligibility of international tribunals for discovery assistance under the statute. An affirmation of the District Court’s decision may lend support to the view that only certain tribunals are eligible for such assistance, and affect the choice of forum by parties to international arbitration.

Specifically, in In re Arbitration in London, England between Norfolk Southern Corp. et al. and Ace Bermuda Ltd., (“Norfolk”) one of the parties to an ICC arbitration filed a motion under Section 1782 with the U.S. District Court for the Northern District of Illinois, asking the court to order the deposition of the other party’s former counsel. The court reviewed the motion against the backdrop of the most recent, and leading, U.S. Supreme Court case on Section 1782(a), Intel v. Advanced Micro Devices, 542 U.S. 241 (2004) (“Intel”).

Notably, the Supreme Court in Intel did not address directly the question of whether private arbitral tribunals fall within Section 1782. As the Norfolk court recognized, however, in the wake of Intel, most federal courts in the United States have adopted a liberal interpretation of “foreign or international tribunal,” and have considered private arbitral tribunals as such. Still, the Norfolk court sought to curb the scope of 1782 by reading certain limitations into the statute, and by drawing a distinction between the “foreign tribunal” in Intel (European Commission Directorate General-Competition) and the tribunal in the case before it (International Chamber of Commerce arbitral tribunal).

According to the Norfolk court, Section 1782 covers only “state-sponsored” arbitration. To illustrate the meaning of that term, the court noted that “a reasoned distinction can be made between arbitrations such as those conducted by UNCITRAL … and purely private arbitrations established by private contract.” The distinction, according to the court, is that UNCITRAL is “a body operating under the United Nations and established by its member states.” This is sufficient to render UNCITRAL arbitration “state-sponsored,” and therefore within the purview of the statute. Furthermore, Norfolk found that the Supreme Court in Intel had “emphasized” the availability of judicial review as a factor in determining whether the administrative agency before it was a “foreign or international tribunal.” Since judicial review of private arbitral awards is very limited, the court reasoned that private arbitral tribunals are not contemplated by Section 1782.

Whatever its merits, if upheld, this ruling could affect the choice of forum by arbitration parties planning to obtain evidence or witness testimony from the United States. To ensure the availability of Section 1782 discovery, such parties might seek actively to arbitrate under the auspices of “state-sponsored” organizations— although further clarification likely will be necessary as to the meaning of “state-sponsored” in light of the Norfolk court’s example regarding UNCITRAL. As its mandate suggests, UNCITRAL is a UN administrative body, not a government-founded forum for the resolution of disputes in the mold of, say, ICSID or the Permanent Court of Arbitration. This leaves open to question, among others, whether the court in Norfolk meant that the mere use of arbitral rules established by any state-founded or -affiliated institution, legislative/administrative body, or arbitral forum, extends the “state sponsorship” mantle over the entire arbitration for purposes of Section 1782.

The Norfolk ruling also touches upon a public policy debate regarding the grounds for, and the desirability of, Section 1782 discovery in private international arbitral proceedings. This debate likely will influence the decision of the 7th Circuit, before which the issue is now pending. For its part, the court in Norfolk appears focused on the notion, which finds some support in the origins of Section 1782, that discovery under the statute is meant as a discretionary act of comity by the United States judiciary towards other jurisdictions. Such jurisdictions can be national or supra-national (e.g. European Union, United Nations), but they must be based on the exercise or relegation of sovereign authority. Jurisdiction by purely private fiat (e.g. private contract) is not entitled to the statutory benefits of Section 1782.

In further support of rendering Section 1782 unavailable to parties in private arbitration, other U.S. courts have raised the potentially adverse impact of U.S.-style discovery on the arbitration parties’ choice of procedural rules, including limited discovery. If Section 1782 were to be used indiscriminately in private arbitration, it could serve as an end run around mutually agreed discovery limitations. Moreover, by violating party autonomy, broad discovery under Section 1782 can be disruptive and burdensome, thereby undermining the very assistance it is meant to provide.

Finally, the liberal use of Section 1782 could end up inundating U.S. courts with discovery requests. International arbitration is still expanding at a high rate, with the strong support of several legal systems, including in the United States. A commensurately increasing number of requests for production of evidence under Section 1782 eventually may cause U.S courts to shoulder a significant logistical burden—a result that pro-arbitration policies generally aim to avoid.

The above arguments illustrate one side of the issue—and do not necessarily carry the day. Despite its emphasis on “state-sponsored” proceedings, Norfolk did not elaborate sufficiently on which proceedings may qualify as “state-sponsored” (perhaps deferring to the judgment of the Court of Appeals). Nor did the court address the argument that private international arbitration is also in a sense “state-sponsored” through the numerous national laws that support it, and the enforcement of arbitral awards by national courts.

Moreover, arguments concerning the potential for abuse of Section 1782 seem to underestimate the abilities of U.S. judges, who possess wide latitude to limit requests under the statute; and the astuteness of arbitrators, who can decipher which evidence to admit and/or to consider. As for the criticism that a widely construed Section 1782 would “open the floodgates” of discovery requests, it requires further empirical substantiation, and ignores the fact that U.S. courts receive such requests routinely from parties before them. Increased access to discovery in arbitration might simply encourage parties keen on broad discovery to pursue arbitration and to rely on the courts merely for discovery requests—thereby decreasing, rather than increasing, the courts’ overall costs. At any rate, the debate over logistical costs may be more relevant in the context of future congressional debates on the statute (which Norfolk may instigate), and not of court judgments that must interpret the statute as currently worded.

Finally, perhaps the strongest argument in favor of using Section 1782 in all arbitrations is that it allows parties to avail themselves of the U.S. federal court system—one of the most open and transparent in the world—to gather the best evidence possible for their case. So long as the parties behave responsibly, U.S. courts exercise their discretion prudently, and arbitral tribunals supervise the process, Section 1782 can be a tool for the fair, effective, and swift resolution of arbitral disputes.

In conclusion, five years after the Supreme Court’s decision in Intel, certain important issues remain unsettled with respect to Section 1782. In attempting to resolve one of these issues, the court in Norfolk issued a decision with significant implications for parties to arbitration. Pending the 7th Circuit’s opinion, the question remains: should Section 1782 be available to private international tribunals, and if not, what connection should such tribunals have with “state-sponsored” proceedings to avail themselves of the statute?

The issue of conflict disclosure in international arbitration cannot be addressed from the narrow perspective of a particular national litigation culture. Has the time now come to meet that goal from a truly international perspective? And, if yes, is there on the marketplace a better instrument to achieve that objective than the IBA Guidelines? Institutional decisions on challenges should at the same time be dealt with in such a manner that they be transparent and final, and that parties are not left to re-litigate before courts an issue that they believed was addressed by the institution years before. The harsh consequences of the Paris Court of appeal decision in Tecnimont tells us that the fate of awards having requested years of work and millions of Dollars cannot any longer be left to the hazards of a party becoming aware by chance, in a press release or by attending a conference, of a circumstance that the arbitrator did not disclose when accepting its appointment.

The already much debated Paris Court of appeal judgment in Tecnimont (SA J&P Avax SA v. Société Tecnimont SPA, court of appeal of Paris, 12 February 2009, Rev. Arb. 2009.186, note Clay) has put into light the dangers arising from the lack of uniformity in the field of conflict disclosure. The Paris Court of appeal has quashed a partial award because the chairman of the arbitral tribunal, a well-known international arbitrator who is part of one of the world’s largest law firms, had failed to disclose circumstances that did not exist at the time of his appointment and which he subsequently had not been aware of. No one in the arbitration community can seriously doubt of the total impartiality of that arbitrator. No one, either, can doubt of his good faith and his generally acknowledged high moral standards. Yet, the award has been annulled, with the consequence of throwing in the garbage a carefully drafted 400 pages award, years of efforts and millions of Dollars in legal costs. Such an outcome would seem absurd at first glance to anyone. The reverse situation, however, would have been equally questionable, leading to admit that an arbitrator can at the same time be the judge and a member of a law firm providing legal assistance to one of the parties, its parent company or subsidiaries. At a time when transparency and ethics are – rightly – one of the main concerns of the arbitral community, leaving such situations unsanctioned could have devastating consequences. If the recent financial crisis tells us something, it is that trust is a volatile commodity: it is built in decades of efforts, but it can also vanish overnight.

At the core of the problem is the obligation to disclose. The issue is well known to all arbitrators. Disclosures are needed to enable the parties to exercise their right to challenge. In the absence of a proper level of disclosure, the tribunal’s impartiality and independence would solely rest on the appointee’s discretion, with no possible form of control of circumstances that are and will most of the time remain unknown to the parties. The parties would be left to rely on the arbitrator’s impartiality and independence as an act of faith. But not all parties can be asked to share blind faith in the arbitral community, and more and more users of international arbitration are increasingly vocal to ask for more transparency. On the other side, over-disclosure should be avoided. As Molière showed us, excessive rigor can at times hide a deeply vicious soul. And, leaving aside the ridicule of requesting arbitrators to disclose whether they have twenty years ago shared the same college classroom with a relative of one of the parties, suspicion has never allowed building trust. Quite to the contrary, suspicion feeds suspicion. A balance thus needs to be found.

From this perspective, we submit that the IBA Guidelines were entirely right in their submission, ten years ago, that ‘existing standards lack sufficient clarity and uniformity in their application’ (IBA Guidelines, Introduction). The situation is no different today. And the problems remain unsolved. The active role of global law firms in arbitration is only one of them. The professionalization of many arbitrators, some of whom now practice in arbitration boutiques, is another. The need to protect professional liability and the increasingly adversarial behaviour of many counsels compounds the difficulties.

The facts in Tecnimont are telling. The arbitration was administered by the ICC. At the time of accepting his appointment, the arbitrator disclosed that his firm has represented the parent company of one of the parties in a concluded case in which he had never been involved. During the proceedings, apparently after attending a conference, one of the parties’ counsel became aware that the law firm of the arbitrator was assisting on various projects a company which had since then been acquired by the other party’s mother company. That party made a challenge against the arbitrator, which the ICC rejected for reasons which were not revealed. Meanwhile, the arbitral tribunal had rendered a partial award on the principle of responsibility, which was challenged and annulled pursuant to Article 1502-2 of the French Code of Civil Proceedings on the ground that the arbitrator had failed to comply with his duty of disclosure.

Interestingly, the other party had argued that the challenge had not been made within the 30 days time-limit provided by Article 11 of the ICC Rules of arbitration, and the court of appeal held that this time-limit was only applicable before the institution and not before the court.

The first remark to be made at this juncture is that the distinction between institutional and judicial challenges is highly unsatisfactory. If the parties accepted institutional rules that set time-limits for challenges, why should such time-limits not be enforced by the judge? Let us go one step further: once the institution decides a challenge, why should the parties re-litigate the same issue years later before the judge? Would it not be more appropriate to treat challenge decisions rendered by arbitral institutions as if they were awards?

This would of course suppose that such decisions be rendered by neutral third parties and that each party have a sufficient opportunity to present its case before the institution. It also supposes, in addition to those requirements of due process, that challenge decisions be reasoned and that the reasons be given to the parties. From this perspective, the LCIA made a step in the right direction when it decided to publish sanitised extracts of its challenge decisions. We hope that the publication will soon come out.

The second remark is that, as noted by the IBA ten years ago, there is remarkable uncertainty as to the level of disclosure that is required from arbitrators in each single case. The UNCITRAL Model Law, as most national laws, is mute on this important issue, with the result that each court builds its own requirements on a case-by-case basis, in a manner that necessarily lacks uniformity and fails from providing a satisfactory level of certainty to arbitrators and predictability to parties.

As for the rules of arbitral institutions, they present common features, but diverge on important aspects. It is of course widely accepted that an arbitrator must disclose all circumstance which can affect its appearance of independence and impartiality in the eyes of the parties, and that this duty is a continuous one. Most of the rules, however, adopt a purely subjective requirement, leaving the arbitrator to decide the circumstances to be disclosed, while others, like the ICDR Rules, provide for an objective test, with a list of questions for the arbitrators to answer in its declaration of acceptance. The result is that the same situation may be disclosed under some rules of arbitration but not pursuant others, which is not satisfactory.

From this standpoint, a remarkable exercise of balance and transparency is that undertaken by the IBA in its 1999 Guidelines on Conflict of Interest in International Arbitration. Of course, the Guidelines do not satisfactorily address all issues. Of course, they are imperfect in many respects. But they are unique in that they address at the same time the need for balance in the level of disclosure requirement, the requirement of legal certainty and the legitimate expectation of transparency of the users of international arbitration. The Guidelines also conciliate the subjective test, by requiring arbitrators to disclose “facts or circumstances that may, in the eyes of the parties, give rise to doubts as to the arbitrators’ impartiality or independence”, and the objective test by instating presumptions based on the well-known red, orange and green lists.

The IBA Guidelines are also adapted to the needs of international arbitration. The recent rejection by the American Bar Association Dispute Resolution Section of the widely circulated “Best Practices for Meeting Disclosure Requirements Under the RUAA and Similar Arbitrator Disclosure Standards” shows that the issue of conflict disclosure in international arbitration cannot be addressed from the narrow perspective of a particular national litigation culture. The proposed ABA guidelines were certainly driven by an overly judicial culture, and they have as such – and rightly – been rejected by the arbitral community, starting by the College of Commercial Arbitrators, the Chartered Institute of Arbitrators and other practitioners interested in preserving the United States as an attracting venue for international arbitrations. One leading figure ironically declared that the draft should be stamped BBR ‘Burn Before Reading’. This almost unanimous rejection of the text shows that any attempt to set international standards for conflict disclosure should take into account the transnational culture of international arbitration.

Has the time now come to meet that goal from a truly international perspective? And, if yes, is there on the marketplace a better instrument to achieve that objective than the IBA Guidelines? Why not imagine that the main international arbitral institutions jointly decide to adopt the Guidelines by reference in their rules? And why not imagine that the UNCITRAL Arbitration Rules, which are currently under revision, also include a reference to the Guidelines? Of course, this would not be sufficient to address all issues. As said above, institutional decisions on challenges should also be dealt with in such a manner that they be transparent and final, and that the parties are not left to re-litigate before the court an issue that they believed was addressed by the institution years before.

The mere contention that every arbitration procedure is different and has its specificities should not hide that there is need for transparency, predictability and legal certainty in international arbitration. The harsh consequences of the Paris Court of appeal decision in Tecnimont tells us that the fate of awards having requested years of work and millions of Dollars in costs, and in which the interests involving nine or ten figures claims are disposed of, cannot any longer be left to the hazards of a party becoming aware by chance, in a press release or by attending a conference, of a circumstance that the arbitrator did not disclose when accepting its appointment.

Alexis Mourre/Alexandre Vagenheim