The decision has fostered greater vigilance regarding the independence of arbitrators, particularly in situations involving indirect conflicts of interest.
As part of privatisations in Brazil that began in the 1990s, a consortium made up of a group of companies called Opportunity and Telecom Italia filed bids for a major fixed-line telephony contract.
Shortly after the consortium won the contract in 1998, relations between its members deteriorated, leading to various disputes. To settle their differences, the parties signed a settlement agreement in 2005, under which Telecom Italia agreed to pay USD 65 million to Opportunity.
In 2012, clearly dissatisfied , Opportunity initiated ICC arbitration proceedings against Telecom Italia, seeking the settlement’s cancellation. In a 1 September 2016 award, the Arbitral Tribunal dismissed Opportunity's claims.
On 5 December 2016, Opportunity filed an application before the Paris Court of Appeal to set aside the award.
A year later, it also initiated revision proceedings under Article 1502 of the French civil procedure code, alleging procedural fraud by Telecom Italia.
As part of the revision proceedings, Opportunity uncovered indirect business ties between the Chair of the Arbitral Tribunal and Telecom Italia. Specifically, the Chair was revealed to be a partner at Gide Loyrette Nouel, a leading French law firm, which included partners who, beginning in 2013, had represented Vivendi, Telecom Italia’s reference shareholder since 2015.
Given these business ties and the de facto control Vivendi exercised over Telecom Italia, the ICC accepted the challenge to the Chair of the tribunal, despite the fact this individual never personally worked on cases for the Vivendi group.
Opportunity subsequently raised these facts in the set aside proceedings before the Paris Court of Appeal, which was asked to examine the conflict of interest affecting the independence of the Chair of the Tribunal.
Despite the indirect nature of the conflict of interest, the Paris Court of Appeal ruled that these business links represented an objective situation of a conflict of interest that was likely to give rise to reasonable doubt in the minds of the parties as to the arbitrator's independence.
Relationship between Vivendi and Telecom Italia
The Court observed that:
- Vivendi became Telecom Italia's reference shareholder in June 2015, initially holding 14.9% of the shares, then gradually increasing its stake until it reached 24.9% in March 2016;
- Vivendi has publicly stated in a press release its intention to make a "long-term" commitment to Telecom Italia;
- In December 2015, Vivendi appointed four members to Telecom Italia's board of directors, and its chairman of the management board was appointed vice-chairman of the company in April 2016. Although Vivendi did not control Telecom Italia in a legal sense under Italian law, its influence was, in the court's view, significant, particularly during the period of the arbitration.
According to the court, this involvement proved that Vivendi had a clear interest in the outcome of the arbitration with considerable financial stakes for Telecom Italia given that the claims amounted to several billion dollars.
Relationship between the Chair of the Arbitral Tribunal’s law firm and Vivendi
The Court found that Gide provided recurring legal services to Vivendi and its subsidiaries both before and during the arbitration. Although Telecom Italia pointed out that the fees Vivendi paid to Gide were a modest EUR 16,473 in 2017, representing only 0.0092% of the firm's turnover (this level of fees seems low when compared to the services that Gide is said to have provided to the Vivendi group), the Court dismissed the argument on the basis that the business relationship between Gide and Vivendi was stable and long-lasting.
In this respect, the Paris Court of Appeal also noted that during the challenge proceedings, Gide expressly stated its preference for maintaining its collaboration with Vivendi over its involvement in the arbitration process. According to the Court, this statement was a clear illustration of the strategic importance of Vivendi for the firm, demonstrating the close ties between them.
In conclusion, the Court held that, even if the personal integrity of the Chair of the Arbitral Tribunal had not been called into question, the existence of indirect business links between a third party with an interest in the arbitration (Vivendi) and the Chair's firm was sufficient to create a situation of an objective conflict of interest. In other words, the business ties gave rise to reasonable doubt in the minds of the parties as to the arbitrator's independence. On these grounds, the Court set aside the arbitration award of 1 September 2016.
Increased vigilance by arbitrators with this decision
Because decisions to set aside arbitration awards on the basis of arbitrator independence are relatively rare, each constitutes an important source of law in this area. The decision of the Paris Court of Appeal should interest practitioners in that it adopts a broad and objective conception of the conflicts of interest to which arbitrators may be exposed.
Arbitrators, who are also partners in major business law firms, must be aware that their awards may be set aside because of conflicts of interest that are not only indirect, but doubly indirect. In other words, an award may be set aside on this basis despite the interposition of another lawyer (a partner) and another group company (a holding company) between the party and the arbitrator.
Given most large law firms have a vast portfolio of clients, arbitrators will face practical difficulties in gaining full knowledge of the clients of their partners and also of entities over which those clients exercise influence (de jure or de facto). The number of entities making up a group, as well as the complexity of its organisation, will be factors in the vulnerability of the awards rendered.
Therefore, major law firms must implement reliable internal conflict-check procedures. Extra vigilance is required to identify, before an arbitrator is appointed, any relationships likely to raise a reasonable doubt as to the arbitator’s independence. In the absence of such measures, law firms risk the setting aside of awards and also damaging their reputation.
The corollary of the risks faced by arbitrators lies in the opportunities for setting aside awards open to the parties.
Parties seeking to overturn an award could rely on relationships, however minimal and indirect, between the firm of one of the arbitrators and one of the parties to challenge the arbitrator's independence on objective grounds. In certain cases, it will be in the parties' interest to entrust a business intelligence firm with the task of identifying business connections that may have been unintentionally concealed due to their remote nature.
Another procedural stage is underway
In conclusion, in addition to the set aside proceedings initiated against the first ICC award, Opportunity also filed set aside proceedings against the revised award (rendered on 24 August 2020), relying primarily on the set aside of the initial award.
In a second decision of 2 May 2024, the Paris Court of Appeal reopened debate on this matter but has not yet issued a ruling. Under French law, when a revised award is subject to set aside proceedings, case-law holds that grievances targeting the initial award alone cannot justify setting aside of the revised award. It will therefore be interesting to review the arguments raised by Opportunity in this second set aside proceeding to determine whether the claims concerning the independence of the Chair of the Tribunal that issued the first award were presented in another form or with additional developments.
