Challenge of an Arbitrator: Why You Cannot Wait to Act

Imagine: you are the owner of a commercial premises in Rixheim, and a dispute arises between you and your tenant. To avoid the courts, you opt for arbitration, a private procedure supposed to be faster. The arbitrator is appointed by mutual agreement. But in the course of proceedings, you discover that he was the lawyer for your opponent's group ten years ago. Too late to challenge him? That is exactly what the Court of Cassation ruled in 1999.

How many times have I heard: “But I did not know that was a ground for challenge!” The law is nevertheless clear: the arbitrator's duty of independence is fundamental, but it does not dispense the parties from being vigilant from the outset. This decision is a warning to any litigant tempted by arbitration.

What exactly does the judgment of 25 March 1999 say? That an arbitrator can only be challenged on a ground of challenge that would have been revealed or arisen since his appointment. In other words: if you were aware of the ground before, you must act within days of the appointment, not months later during an appeal to set aside. A trap into which too many parties still fall.

The facts: a story that happens every day

We are in the 1990s. The company SIAB, specialised in industry, transfers shares of a SCI (real estate company) to another company. The deal provides for a warranty of liabilities: if hidden debts appear, the seller must indemnify the buyer. But quickly, a disagreement arises over the application of this warranty. The parties, weary of the courts, decide to resort to arbitration.

An arbitrator is appointed. He is a renowned lawyer who, a few years earlier, advised the group to which the opposing party belongs. The claimant, SIAB, knows this perfectly well from the start. Yet it says nothing. The arbitration proceeds, an award (arbitral decision) is rendered, ordering SIAB to pay. It is only then that SIAB invokes the link between the arbitrator and its adversary to seek annulment of the award before the Court of Appeal.

The Court of Appeal dismisses the claim, and the Court of Cassation confirms. Why? Because the ground was known before the arbitrator's appointment. SIAB should have sought the challenge (procedure to remove an arbitrator) within the month following the appointment, not waited until it lost. A negligence that costs dearly. This case, which could have taken place in Guebwiller or elsewhere, illustrates a human flaw: one overlooks a potential conflict of interest, then regrets it.

The reasoning of the court — dissected

The High Court relies on Article 1452 of the New Code of Civil Procedure (now Article 1456 of the same code). This text imposes on the arbitrator a duty to disclose any element that may affect his independence or impartiality. But this duty is not absolute: it is assessed "in particular in light of the notoriety of the criticised situation." In other words, if the link is public or known to the parties, the arbitrator does not have to disclose it in detail.

In this case, the fact that the arbitrator had been the adviser of the opposing group was notorious. The court notes that "well before the introduction of the arbitration proceedings, the claimant knew" this information. Therefore, it is up to the party to act quickly. The action to set aside (procedure to annul the award) cannot be used to remedy a failure to exercise the right to challenge in due time.

This is not a surprise for specialists: the case law has been constant since a 1996 judgment. But it was confirmed and clarified here. The judges dismissed SIAB's argument that the arbitrator should have spontaneously withdrawn. No, the Court replies: the party's prior knowledge makes it responsible for its silence. A lesson in legal pragmatism.

What this changes for you — concretely

For landlord owners, this decision is a reminder: if you opt for arbitration in a tenancy dispute (e.g., rent arrears in Guebwiller), check the arbitrator immediately. A mere business link with your tenant can be a ground for challenge. But if you know it and do not act, you lose any right to contest later.

Let us take a concrete example: you own a building in Mulhouse, annual rent €60,000. A dispute over service charges arises with the tenant. You go to arbitration; the arbitrator is a former lawyer of the tenant's group. You know it, but you think it is not serious. The award orders you to repay €20,000. You want to challenge it for bias. Too late. You will have lost your arbitration costs (often €5,000 to €10,000) and must pay the award.

For buyers of property, be careful: if your preliminary contract provides for arbitration to settle a disagreement over the warranty for hidden defects, examine the arbitrator's past. A conflict of interest not raised in time deprives you of any recourse.

For co-owners, imagine arbitration between the managing agent and a co-owner. If the arbitrator is a friend of the managing agent, and you know it, speak up immediately. Otherwise, the arbitral award will be binding on all.

Four tips to avoid this type of dispute

• Before signing the arbitration agreement (arbitration clause), insist that the potential arbitrator be named and his curriculum vitae provided. Check his links with the other party. If any doubt remains, request a written declaration of independence.
• Upon the arbitrator's appointment, conduct a quick search on his name: publications, past cases, corporate offices. A simple Google search may reveal a conflict of interest. If you discover a ground, challenge within 15 days of the appointment.
• Do not rely on the arbitrator's duty of disclosure. Case law shows that judges consider certain situations "notorious." You cannot rely on the arbitrator to reveal everything. Be proactive.
• In case of doubt, consult a lawyer specialised in arbitration. One hour of advice (about €200) can save you from losing an arbitration worth tens of thousands of euros. In Rixheim as in Paris, the law is the same: vigilance is the mother of safety.

Further reading: related case law and developments

Before 1999, the Court of Cassation had already laid down the principle in a judgment of 4 June 1996 (No. 94-14.443): the right to challenge must be exercised as soon as the ground is known. The 1999 judgment merely confirms and clarifies that the notoriety of the situation is a criterion for assessing the arbitrator's duty of disclosure.

Since then, case law has evolved towards greater rigour: in a judgment of 13 December 2005, the Court held that the arbitrator must spontaneously disclose any link, even old, but that the party who knows it and says nothing is time-barred. The trend is therefore towards a balance: the arbitrator must speak, but the party must act quickly.

For the future, with the internationalisation of arbitration, the criteria for conflict of interest are multiplying (notably the "IBA Guidelines"). But the principle remains: do not delay. French courts are inflexible on the timeframe.

Checklist before acting

FAQ:

1. Can I challenge an arbitrator after the proceedings have started? Yes, if the ground for challenge arose or was revealed after his appointment. Otherwise, no.
2. What should I do if I learn of a conflict of interest during the arbitration? Immediately apply to the competent court (the Court of Appeal of the seat of arbitration). You have a one-month period from the disclosure.
3. What is the cost of a challenge application? Lawyers' fees (€1,500 to €3,000) and procedural costs (a few hundred euros). Cheaper than waiting for annulment.
4. Must the arbitrator disclose everything? Yes, but only what is not notorious. If the link is public (e.g., former partner), he may assume you already know it.
5. What happens if I do not challenge in time? You definitively lose the right to contest the award on that ground. You will be bound by the arbitral decision.

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →