Article 1520(2) of the French Code of Civil Procedure allows for an award to be set aside where the arbitral tribunal was not properly constituted.

The decision arises out of an International Chamber of Commerce (ICC) arbitration between the Greek company, SA J&P Avax (Avax) and the Italian company, Tecnimont SPA (Tecnimont). On 12 November 2002, the two party-appointed arbitrators confirmed the chairman of the tribunal.

In July 2007, Avax requested information from the chairman relating to his firm's dealings with Tecnimont. In September 2007, Avax brought an application to the ICC, requesting that the chairman be replaced. The request was rejected by the ICC a month later. Avax agreed to continue with the arbitration, but reserved its rights in doing so.

In a series of letters exchanged between Avax and the chairman from November 2007 through March 2008, further dealings between the chairman's firm and the Tecnimont consortium were revealed. In the meantime, in December 2007, the tribunal issued a partial award on the issue of liability.

In February 2009, Avax applied successfully to have the award set aside before the Paris Court of Appeal. The court found that the ICC's decision was irrelevant as the facts relied upon by Avax arose after it was issued. Tecnimont was then successful in its application to have that decision quashed.

The French Supreme Court found that the Paris Court of Appeal had mischaracterised Avax's submissions by finding that Avax only became aware of the facts underlying its setting aside application after the tribunal issued its award on 10 December 2007. Rather, the Supreme Court found that nearly all of the facts relied on had been uncovered by that date (see Legal update, French Supreme Court reverses Court of Appeal decision to annul ICC award).

The decision of the Paris Court of Appeal was quashed, and the application to set aside the arbitral award was referred to the Reims Court of Appeal.

The Reims Court of Appeal set aside the award. In doing so, it took a firm position on two issues:

With respect to the first issue, the court stated that the ICC's decision on Avax's application was "administrative" in nature. It insisted that a court faced with an application to set aside an award is in a distinct position from that of an institution evaluating a challenge to the appointment of an arbitrator. The court would, therefore, not be bound by the ICC's decision or the 30-day time limit for challenging the appointment of an arbitrator under the ICC Rules. Therefore, Avax was not barred from raising issues that came to its attention after the ICC's decision on its challenge of the chairman's appointment.

Secondly, in evaluating the chairman's independence, the court set a high standard, finding that his failure to disclose facts related to dealings between various offices within his firm and various companies within the Tecnimont group, raised a reasonable doubt as to his independence. The court noted that the chairman's firm had advised Tecnimont, its parent and subsidiary companies on at least six matters during the course of the arbitration. Among these, the firm had advised Tecnimont and its subsidiary, Sofregaz, with respect to an investment project in Fujian, China. In addition, the firm's Paris office had advised Tecnimont's parent company on arbitration and litigation files in France. The court also noted that a subsidiary of Tecnimont had named another lawyer from the chairman's firm as the sole arbitrator in a different arbitral proceeding (in agreement with the opposing party).

The Court of Appeal also rejected two arguments raised in defence of the non-disclosure. The court found that the fact that the fees billed on the above matters were relatively modest, and that the chairman may not have had any knowledge of some of the conflicts, was not sufficient to excuse non-disclosure. Rather, the court stressed that the arbitrator's obligation to make such disclosures is a broad one and continues throughout the arbitral proceeding until his functions are discharged.

The independence and impartiality of arbitrators has become the subject of increasing attention of late. In particular, the LCIA's publication of abstracts of its challenge decisions promises to bring a new level of clarity and transparency to challenge decisions by arbitral institutions, a process that has often been criticised as frustratingly opaque.

The Tecnimont decision is a useful reminder that the issues of independence and impartiality can be raised outside the context of challenges before arbitral institutions. In particular, the Reims Court of Appeal has staked out a clear position on the relationship between institutional decisions and setting aside proceedings before national courts; the two are procedurally and substantively distinct and the former is in no way binding on the latter.

Tecnimont has already taken steps to appeal the Reims Court of Appeal decision. Therefore, it is likely to continue to be a subject of discussion among parties, arbitrators and arbitral institutions.