On June 22, 2021, the Paris Court of Appeal rendered judgment in a case concerning the jurisdiction competent to hear a liability action brought by a party to arbitration proceedings against one of the arbitrators for breach of his arbitration contractual obligations. The court ruled that the competent court is that of the seat and not that of the place where the hearings and deliberations were physically held.
Background to the Case
Saad Buzwair Automotive Co. (SBA), a Qatari company, entered into two car-distribution and after-sale services agreements in 2007 with Audi Volkswagen Middle East Fze (AVME), an Emirati company. In 2011, AVME notified SBA of their intent not to renew these two contracts after June 30, 2012. In 2013, SBA initiated arbitration proceedings under the auspices of the International Chamber of Commerce Court of Arbitration. The arbitration was seated in Paris and the law applicable to the dispute was German law.
On March 16, 2016, the arbitral tribunal rendered an award in favor of AVME. However, this award was set aside by the Paris Court of Appeal in 2018 on the ground that the arbitral tribunal was wrongfully constituted because one of the arbitrators, “Mr. G,” had failed to comply with his duty to disclose circumstances likely to affect his independence and impartiality. In 2019, the First Civil Chamber of the Cour de cassation, France’s highest court for civil matters, rejected the appeal and upheld the annulment.
Meanwhile, SBA also filed a contractual liability claim against Mr. G before the Tribunal judiciaire (trial court) of Paris on October 30, 2018, asking the court to declare him contractually liable and to order him to pay damages.
First Instance Decision
This case was the first one in which a French court considered whether it had jurisdiction to hear claims relating to the liability of arbitrators, and on March 31, 2021, the Tribunal judiciaire of Paris rendered a judgment on its jurisdiction to hear such claims.
The tribunal held that European Union (EU) Regulation No. 1215/2012 of 12 December 2012 (Brussels I bis Regulation) is applicable to claims related to the liability of an arbitrator for nonperformance of his or her obligations under an arbitration agreement. Under article 7.1(b) of this regulation, the court of the place where the defendant concretely performed his services as arbitrator, meaning the place where the hearings and deliberations were physically held, has jurisdiction to hear the case.
The tribunal noted that the place of service rendered by the arbitrator could be different from the seat of the proceedings as designated in the arbitration clause. After analyzing the circumstances under which the arbitration at hand took place, as well as Mr. G’s residence and activity during the arbitration, the tribunal concluded that he had performed his services preponderantly in Germany. The Paris Tribunal judiciaire therefore held that it did not have jurisdiction to hear a liability action against Mr G. and dismissed the action, inviting the parties to file it before the appropriate court.
Determination of Jurisdiction in Arbitration-Related Actions
SBA appealed this judgment, and on June 22, 2021, the Paris Court of Appeal reversed the trial court’s decision.
The court first reexamined the application of the Brussels I bis Regulation, finding that under article 1.2(d) of this regulation, arbitration is excluded from its scope. Furthermore, in accordance with recital 12 of the regulation, the regulation does not apply to any action or ancillary proceedings related to the arbitral tribunal, the powers of arbitrators, or the conduct of an arbitration procedure. Finally, under the case law of the Court of Justice of the European Union, the exclusion of arbitration from the regulation shows an intent to exclude arbitration as a whole, including proceedings brought before the courts of the state.
The court found that actions seeking to establish the liability of arbitrators for breach of their duties, thereby causing the award to be annulled, are linked to the constitution of the arbitral tribunal and to the conduct of the arbitration, since such actions seek to assess whether the arbitrators have carried out their tasks in accordance with their obligations arising specifically from their arbitration contracts. Such actions are thus matters for arbitration. Consequently, the action at issue fell within the scope of the exclusion set out in article 1.2(d) of the regulation.
Thus, because the Brussels I bis Regulation was inapplicable to this action, the court turned to the French Code of Civil Procedure to determine if it had jurisdiction.
In accordance with article 46 of this Code in its international application, a plaintiff may file an action with the court of the defendant’s place of residence and, in contractual matters, the court of the place of performance of the service.
The service of arbitrators consists of the performance of their mission to settle the dispute submitted to them by the parties and includes the rendering of an award at the seat of the arbitration chosen by the parties or in agreement with them. Accordingly, in international arbitration, unless otherwise agreed by the parties, the place of performance of the arbitrator’s service is considered to be that seat, even though the arbitration proceedings and the arbitrators’ deliberations may, by agreement between the parties, have taken place in other places. Therefore, the state courts of the seat have jurisdiction to rule on an action for liability against the arbitrator in the performance of the arbitration contract.
In the present case, it was established that the seat of the disputed arbitration was contractually set in Paris, France. Therefore, the Court of Appeal held that the Paris courts had jurisdiction to rule on the action and referred the case back to the lower courts.
The civil and contractual liability of arbitrators remains a delicate topic in international arbitration. It is generally accepted that an arbitrator has contractual duties, the breach of which may result in liability. Nevertheless, case law from around the globe has also established that arbitrators benefit from a certain immunity in exercising their judicial functions, the level of which may vary from jurisdiction to jurisdiction. Overall, the solution provided here by the Paris Court of Appeal makes it possible to maintain a certain predictability for parties, which has become particularly important given the increase in remote hearings, a practice that was first implemented to reduce the costs of the procedure but gained traction in the last year because of the COVID-19 pandemic.
Prepared by Julie Schwarz, Law Library intern, under the supervision of Nicolas Boring, Foreign Law Specialist