Saad Buzwair Automotive v. Audi Volkswagen Middle East

An arbitral award rendered by a three-arbitrator tribunal was set aside because of a reasonable doubt as to the impartiality of one arbitrator, arising from that arbitrator's firm having acted for an affiliate of a party during the arbitration. This was not disclosed. The arbitrator had a continuing duty to disclose, which was breached here. 

It did not matter that the doubt existed only with respect to one of the party-appointed arbitrators. The Court stated:

"it is irrelevant that the award was made unanimously and that the impartiality of the other arbitrators is not in dispute, since each member of the arbitral tribunal is equally likely to influence the other arbitrators through their questions during the hearing and their arguments during the deliberations".

Original decision: Cour d'appel de Paris 

This decision was upheld by the French Court of Cassation with succint reasons in a decision dated 3 October 2019: Cour de cassation

27 March 2018
Paris Court of Appeal
RG no. 16/09386

Division 1 – Chamber 1

FRENCH REPUBLIC
IN THE NAME OF THE FRENCH PEOPLE
 

PARIS COURT OF APPEAL
 

Division 1 – Chamber 1
 

JUDGMENT DATED 27 MARCH 2018
 

(6 pages)
 

Court file registration number: 16/09386
 

Decision submitted to the Court: Award rendered on 16 March 2016 by an arbitral tribunal composed of Mr [P] [U] and Mr [M] [M], as co-arbitrators, and Mr [I] [G], as president,
 

APPLICANT:
 

SAAD BUZWAIR AUTOMOTIVE CO
 

acting through its legal representatives
 

[Address 1]
 

[Municipality 1] (QATAR)
 

represented by Mr Michel GUIZARD of SELARL GUIZARD ET ASSOCIES, as lawyer for procedural purposes (“avocat postulant”), admitted to the PARIS bar, box: L0020
 

and assisted by Mr Bertrand DERAINS, lawyer admitted to the PARIS bar, box: P387
 

RESPONDENT:
 

AUDI VOLKSWAGEN MIDDLE EAST FZE LLC
 

acting through its legal representatives
 

[Address 2]
 

[Address 2]
 

[Address 2])
 

represented by Mr Matthieu BOCCON GIBOD of SELARL LEXAVOUE PARIS-VERSAILLES, as lawyer for procedural purposes (“avocat postulant”) admitted to the PARIS bar, box: C2477
 

and assisted by Mr Elie KLEIMAN, lawyer admitted to the PARIS bar, box: J007
 

COMPOSITION OF THE COURT:
 

The case was heard on 20 February 2018, in a hearing open to the public, before a Court composed of:
 

Ms Dominique GUIHAL, Presiding Judge
 

Ms Dominique SALVARY, Judge
 

Mr Jean LECAROZ, Judge
 

who have held deliberations regarding it, and a report was presented at the hearing in accordance with Article 785 of the Civil Procedure Code.
 

Clerk during the hearing: Ms Mélanie PATE
 

JUDGMENT:
 

- ISSUED FOLLOWING A PROCESS IN WHICH BOTH SIDES WERE HEARD
 

– made available at the Court registry, with prior notice to the parties in accordance with the terms of the second paragraph of Article 450 of the French Civil Procedure Code.
 

- signed by Ms Dominique GUIHAL, Presiding Judge and by Ms Mélanie PATE, Clerk, who was present when the judgment was delivered.

Summary of the dispute

On 1 July 2007, Saad Buzwair Automotive Co (SBA), a company incorporated under the laws of Qatar, entered into an agreement with Audi Volkswagen Middle East Fze (AVME), a company incorporated under the laws of the United Arab Emirates, for SBA to distribute Audi vehicles and spare parts in Qatar, as well as to provide after-sales services for these products. An identical agreement was concluded on the same day for Volkswagen vehicles.
 

On 14 March 2011, AVME made it known that it did not intend to renew these two agreements.
 

On 8 February 2013, SBA brought an arbitration pursuant to the arbitration clauses, which provided for arbitration in [Location 2] administered by the International Chamber of Commerce, and for German law to apply to the substance of the dispute.
 

In an award rendered on 16 March 2016, the arbitral tribunal composed of Mr [P] [U] and Mr [M] [M], as co-arbitrators, and Mr [I] [G], as president, found that AVME had the right not to renew the agreements, dismissed SBA's claims and ordered SBA to bear the costs of the arbitration, as well as AVME's costs and fees in their entirety.
 

On 20 April 2016, SBA brought an application to set aside the award.

Grounds

In submissions served on 22 January 2018, it asked the Court to set aside the award on the ground that the arbitral tribunal was improperly constituted and to order AVME to pay it EUR 150,000 pursuant to Article 700 of the Civil Procedure Code.
 

In submissions served on 15 January 2018, AVME requested that the Court dismiss the set-aside application and order SBA to pay it EUR 250,000 pursuant to Article 700 of the Civil Procedure Code.

Reasons

As to the sole ground for set-aside based on the arbitral tribunal being improperly constituted (Article 1520(2) of the Civil Procedure Code):
 

The Applicant submits that Mr [U] failed to disclose the ties existing between the law firm of which he is a partner and entities of the Volkswagen and Porsche groups and that those circumstances were such as to create in its mind a reasonable doubt as to that arbitrator's independence and impartiality.
 

Whereas: 

Pursuant to Article 1456(2) of the Civil Procedure Code, which applies in international matters in accordance with Article 1506 of the Code: “Before accepting a mandate, an arbitrator shall disclose any circumstance that may affect his or her independence or impartiality. He or she also shall disclose promptly any such circumstance that may arise after accepting the mandate”;
 

On the one hand, according to Article 1466 of the Civil Procedure Code, applicable to international arbitration pursuant to Article 1506(3) of the same Code: “A party which, knowingly and without a legitimate reason, fails to object to an irregularity before the arbitral tribunal in a timely manner shall be deemed to have waived its right to avail itself of such irregularity”; such a presumption may be invoked against a party that failed to exercise its right to challenge the arbitrator within the timeframe and following the procedures set out in the arbitration rules that the parties agreed to be bound by;
 

And, on the other hand, the arbitrator's disclosure obligation must be assessed in light of the whether the circumstance at issue is public knowledge, its relationship to the dispute and its impact on the arbitrator's judgment;
 

It is true that public and very easily accessible information, which the parties could not have failed to access before the arbitration began, make a conflict of interests public knowledge, but it would not be reasonable to expect the parties to conduct a systematic search of sources likely to mention the arbitrator's name and the names of persons associated with the arbitrator, or to continue such searches after the arbitration has begun;
 

In this case, after filing its request for arbitration on 8 February 2013, SBA appointed Mr [U] as arbitrator; in accordance with Article 11 of the Arbitration Rules, the Secretariat of the ICC International Court of Arbitration sent Mr [U] a case information sheet listing the names of the parties to the arbitration and all the affected by the dispute, including the Volkswagen group; on 12 March 2013 Mr [U] replied that he accepted the arbitration, stating: “To the best of my knowledge, and having made due enquiry, there are no facts or circumstances, past or present, that I should disclose because they might be of such a nature as to call into question my independence in the eyes of any of the parties and no circumstances that could give rise to reasonable doubts as to my impartiality”;
 

The award was rendered on 16 March 2016, by a unanimous arbitral tribunal composed of Mr [P] [U] and Mr [M] [M], as co-arbitrators, and Mr [I] [G], as president;
 

SBA submits that, after the award was rendered, it discovered in the JUVE directory of German lawyers, 2010/2011 edition, that Mr [U]'s law firm, [Address 3] (H&M), had represented a consortium of three banks, including Volkswagen Bank, a Volkswagen Group entity, in competition litigation against Sparkasse Ingolstadt; When SBA asked Mr [U] about this, he acknowledged in a letter dated 23 May 2016 that H&M had acted for Volkswagen Bank until a June 2010 judgment of the Munich Court of Appeal, but that the rest of the proceeding before the Federal Supreme Court had been handled by the equivalent of a French avocat aux Conseils (a lawyer with rights of audience before the Supreme Court); he added that he was not aware that this file existed, that he was not personally involved in it, that if he had been aware of it, he would of course have disclosed it, and that H&M had “not otherwise acted for or advised any company or entity of the Volkswagen Group, including the Porsche Group, from 2011 to the present”;
 

SBA states that the same professional directory, 2015/2016 edition, stated that the firm's arbitration and mediation department was representing Porsche, a Volkswagen Group entity, in an ongoing dispute [Address 3];
 

AVME claims that this reference is inaccurate and that it is probably the result of the publisher's failure to update the directory; it filed the 2016/2017 edition, which no longer mentions any such collaboration, as well as a statement by Mr [Y] [C], General Counsel of Porsche's Distribution Law Department, dated 5 January 2017, indicating that I have not engaged H&M at any time since I joined Porsche AG's legal department on 1 October 2008 and I am not aware of any substantial engagement given to H&M by any of my colleagues in the legal department since 1 October 2008, other than (...) a one-off banking law engagement relating to sales financing by authorised Porsche centres. Mr [U] was not involved in these advisory services, which were provided from June to November 2010 and for which EUR 7,520.80 was billed";
 

But first, besides the fact that Mr [C] is not neutral as regards one party, it appears that he works in the distribution law department and does not purport to have conducted exhaustive searches of the matters that Porsche may have engaged H&M for by other legal departments, instead, he simply states that he is “not aware of any substantial engagements” given by his colleagues, which really means nothing;
 

Second, the removal of the reference to Porsche from the 2016/2017 edition of the JUVE directory has nothing to do with an error from the previous edition, and the explanation AVME puts forward that this reference is due to the publisher's failure to update the directory is contradicted by the fact that the Porsche name does not appear in the 2013/2014 edition;
 

Lastly, SBA filed the template of the form JUVE's editorial team sent to law firms to compile its directory; One of the sections covers the ‘top 5 most important matter from a legal perspective or for the firm's development’ and includes four lines to provide the client's name and the particulars of the matter;
 

AVME did not file the copy of the form it sent to JUVE for the 2015/2016 edition, which is the only document that could show that the reference to Porsche was a publisher error;
 

Further, contrary to AVME's submission, this publication is an important marketing tool that would not be left to chance, because business law firms use it to highlight the most impressive cases they have handled and the most sought-after clients who have engaged them;
 

AVME has therefore failed to show that the inclusion of Porsche among its clients for 2014 and/or 2015 was an error;
 

Although the existence of an agreement concluded in 2010 by H&M on behalf of Volkswagen Bank must be regarded as public knowledge because it was published in a professional directory known to all German business law firms before the arbitration began, AVME had no obligation to continue searches after the arbitration had begun, and the arbitrator had a duty to inform the parties of any circumstances likely to affect his independence or impartiality that arose after he had accepted the appointment;
 

It has been established that in 2014 and/or 2015, Porsche, a Volkswagen Group entity, was a client of H&M for an engagement that was sufficiently noteworthy that the firm used it in its marketing materials and included it in its “top 5” most noteworthy matters;
 

This engagement, which took place during the course of the arbitration, and which was of unquestionable importance to Mr [U]'s firm, was a circumstance such as to give rise to a reasonable doubt as to the arbitrator's independence and impartiality, and, furthermore, it is clear from Mr [C]'s statement referred to above that Porsche had engaged H&M in 2010 for a matter that was admittedly of minor importance, but which the arbitrator did not disclose and the firm did not make public;
 

Moreover, it is irrelevant that the award was made unanimously and that the impartiality of the other arbitrators is not in dispute, since each member of the arbitral tribunal is equally likely to influence the other arbitrators through their questions during the hearing and their arguments during the deliberations;
 

It follows from the above that the award must be set aside;
 

As to Article 700 of the Civil Procedure Code:
 

AVME, which is the unsuccessful party, is not entitled to the benefit of Article 700 of the Civil Procedure Code, and is therefore ordered to pay EUR 100,000 to SBA;
 

Operative provision

FOR THESE REASONS, THE COURT:
 

Sets aside the award rendered in [Municipality 2] as between the parties on 16 March 2016.
 

Orders Audi Volkswagen Middle East Fze to pay the costs, which may be collected in accordance with Article 699 of the Civil Procedure Code, and to pay Saad Buzwair Automotive Co. EUR 100,000 pursuant to Article 700 of the Civil Procedure Code.
 

THE CLERK, THE PRESIDING JUDGE