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Arbitrators in France: a quasi-immunity from liability?

In France, the standard for proving the civil liability of arbitrators has been a controversial issue because of the divergent interpretations adopted by the appellate courts. The French Supreme Court however recently laid this controversy to rest in confirming the high threshold that must be met, i.e. “a personal breach equivalent to wilful misrepresentation or constitutive of fraud, gross negligence, or a denial of justice“. (Civ.1, 15 January 2014).

This case concerned a dispute arising out of a share transfer agreement. In its award of 23 June 2000, the Arbitral Tribunal ordered the seller to reimburse the buyers for the amounts received in exchange for the shares. In 2004, the seller applied to the same Arbitral Tribunal to have the arbitration reopened due to newly discovered facts in connection with the value of the shares. The Tribunal declared the seller’s claim admissible and issued a new award, this time against the buyers, inter alia condemning the buyers to compensate the seller for wilful misrepresentation of the value of the shares. This award was subsequently annulled by the Paris Appeal Court for violation of the principle of res judicata.

In this context, the buyers started proceedings against the three arbitrators, claiming, inter alia, that they had violated res judicata and had carried out arbitration proceedings in excess of their powers. The arbitrators made a counter-claim against the buyers on the ground that the buyers’ accusations and use of defamatory language such as “pseudo-arbitral tribunal” had a negative impact on their reputations as arbitrators.

On 1 March 2011, the Paris Court of Appeal dismissed the buyers’ claim against the three arbitrators. The buyers appealed this decision and, on 15 January 2014, the French Supreme Court confirmed the Court of Appeal’s decision holding that the arbitrators had legally justified their decision to reopen the case, and, although the award was eventually annulled for violation of res judicata, the buyers had failed to demonstrate that the arbitrators were liable for “a personal breach equivalent to wilful misrepresentation or constitutive of fraud, gross negligence, or a denial of justice“. The arbitrators’ counter-claims were dismissed for lack of evidence of reputational damage.

Prior to this decision, there had been some uncertainty as to whether arbitrators should be held liable under the common law standard of Article 1147 of the French Civil Code for contractual liability, i.e., proof of a breach of contract, damage and causal link between the breach and the damage, or the higher standard introduced in the Bompard case¹ requiring a personal breach that would be incompatible with the judicial functions of an arbitrator.

The recent decision of the French Supreme Court confirms the standard set in the Bompard case.  In doing so, the French Supreme Court has given arbitrators more security since a mere legal error cannot give rise to the civil liability of an arbitrator. Furthermore, faced with the duality of the arbitrator’s function as both judicial and contractual in nature, the French Supreme Court appears to have given precedence to the judicial function.

¹ Bompard v. Consorts C. et al. (Court of Appeal of Paris, 22 May 1991)