Introduction
In its unique judgment of 13 January 2022, the Belgian Court of Cassation ruled on the liability of arbitrators after having reviewed the Brussels Court of Appeals’ judgments of 28 November 2017 and 11 September 2018.
Relevant facts
The arbitration proceedings under review concerned a technical IT dispute that the sole arbitrator was seized to adjudicate. The sole arbitrator appointed an expert not to give advice but to assist him with the understanding of specific technical aspects of the case. The expert prepared reports that were not disclosed to the parties. He did not participate in the hearing but was informed about the statements and pleadings. From what could be gathered from the expert’s timesheets, the expert would have been given a copy of the draft award and would have read it and given his remarks on it to the arbitrator.
Subsequently, the aggrieved party successfully sought annulment of the arbitral award by invoking that its rights of defence were violated and that there was insufficient reasoning of the award. It also launched proceedings alleging arbitrator’s liability by relying on the same grounds as those it had invoked in the award annulment proceedings, on the arbitrator’s illegitimate delegation of decision-making powers to the expert, and on the breach of secrecy of deliberations. The aggrieved party sought to recover the entire arbitration costs including the other party’s legal fees, which it was ordered to pay according to the arbitral award. It also sought to recover the legal fees and expenses it had incurred in connection with the arbitration proceedings and with the award annulment proceedings.
Decision
The Court of Cassation rendered its ruling on very technical points of law.
The Court of Cassation, together with the appellate court, confirmed that arbitrators can be held liable only in exceptional circumstances. The arbitrator’s excessive reliance on an expert, in the case here, to the effect of delegating the arbitral decision-making powers, the arbitrator’s failure to share with the parties the expert’s findings, and the breach of secrecy of the deliberations constitute such exceptional circumstances.
These circumstances amounted to a serious fault (erstige wanprestatie/faute grave) that justifies the repudiation of the contract between the arbitrator and the parties. Such contract, the Court ruled, existed even if it was not concluded in a formal written form.
As a consequence of the repudiation, under the general Belgian law rule, which the Court confirmed, the aggrieved party is entitled to restitution of the fees it had paid to the arbitrator.
The aggrieved party in theory is also entitled to compensation for damage it had suffered, which had arisen from the arbitrator’s fault. However, in the specific circumstances, this right to compensation depends on the proof of the causal link between the damage and the fault. According to the Brussels Court of Appeals, which was confirmed by the Court of Cassation, in order to be allowed to obtain from the arbitrator the reimbursement of the fees and expenses in connection with the arbitration proceedings, the aggrieved party must prove that it would have obtained another, more favourable arbitral award but for the arbitrator’s fault.
As regards the legal fees in connection with the award annulment proceedings, the Court of Cassation found it necessary to consider in concreto whether the costs of the annulment proceedings would have been the same but for the arbitrator’s fault. The Brussels Court of Appeals simply considered that, because the award was annulled on two grounds, whereby only one was considered to constitute the arbitrator’s fault, the aggrieved party did not prove that it would have launched and would have won the annulment proceedings also but for the fault. The Court of Cassation found this consideration insufficient and obliged the appellate court to conduct a more precise analysis of the costs of the annulment proceedings and their link with the arbitrator’s fault.
Commentary
This was the first time that the Court of Cassation had the occasion to rule on arbitrators’ liability. The underlying Brussels Court of Appeals judgments are equally unique because case-law on arbitrators’ liability is rare internationally and almost non-existent in Belgium. The only available case-law regarding arbitrators’ liability rendered by Belgian courts were decennia ago. They primarily concerned the arbitrator’s failure to render the award within the applicable time limit.
The judgments are an important component in Belgian jurisprudence. They confirm the contractual basis of arbitrators’ liability for violations regarding the conduct of arbitral proceedings. Judgments also give clear guidance on general contract liability rules as applied specifically to the liability of arbitrators. Whereas it is clearly possible to obtain reimbursement of the fees paid to the arbitral tribunal, the recovery of legal fees and expenses paid in connection with arbitration proceedings is subject to a stringent proof of causation between the fault and the fees and expenses paid. According to the Court of Cassation judgment, the sums paid in connection with the award annulment proceedings may be recovered fully or partly from the arbitrator if the aggrieved party proves that the costs of the annulment proceedings would have been lower or non-existent but for the arbitrator’s fault. The aggrieved party must therefore prove which part of the legal fees related to the corresponding annulment grounds and thus to the arbitrators’ respective fault. The case was then reassigned to another court of appeals for further consideration, which should implement the Court of Cassation’s ruling.
In light of this decision, liability limitation clauses will likely attract an increased level of attention. These clauses are often included in arbitration rules such as those of CEPANI, but not by default in ad hoc arbitrations.
Joanna Kolber - Partner - joanna.kolber@strelia.com
Cyro Vangoidsenhoven - Associate - cyro.vangoidsenhoven@strelia.com
