The Appeals Court of the State of Sao Paulo revoked the arbitration award due to a violation of the arbitration disclosure obligations.

The Appeals Court of the State of Sao Paulo revoked the arbitration award due to a violation of the arbitration disclosure obligations.

On 11 August 2020, the Appeals Court of the State of Sao Paulo, Brazil, revoked the arbitration award at the request of the claimant, an insurance company. This was due to the fact that the chairman of the ​​arbitration panel did not disclose the fact that he had been appointed by another party in other arbitration proceedings, which in accordance with Article 14 of the Brazilian Arbitration Act, the arbitrator has the duty to disclose the facts that may raise doubts about autonomy and neutrality.

The Case of Fazon

The arbitral proceedings began in March 2015 and the arbitration tribunal made its ruling on February 7, 2018. During the proceedings, the respondent had appointed an arbitrator to chair the Fazon case, as well as, appointed the same arbitrator in another arbitration proceeding in connection with a similar contract involving another insurance company. However, the arbitrator provided the disclosure after the arbitration award has been made.

The acceptance of the arbitrator appointment took place on 18 August 2016. The arbitrator notified the parties through the Judicial Procedure Order No. 33, dated March 5, 2018, or more than 18 months after the appointment.

Reason for the decision

According to the Brazilian Arbitration Act, the person who will be able to perform arbitration functions can only be appointed after the relevant parties have given their trust. Arbitrators have a duty to disclose any facts that could raise reasonable doubts or skepticism about their autonomy and impartiality.

From these provisions, the court stressed that the disclosure of any incident in connection with an arbitrator has a strong influence on the trust in the appointment of an arbitrator, and is one of the parties’ deciding factor as to whether appoint the arbitrator or not. In addition, the court also emphasized that if there were any relevant incident even after the appointment of the arbitrator, the arbitrator is required to disclose such facts to the relevant parties as soon as possible. The court’s opinion on this matter is quite clear, and for this reason, any personal or detailed information about the competence and expertise that may raise doubt about the fairness and impartiality of an arbitrator, must be notified to the concerned parties immediately

Interestingly, later the court compared a judge’s impartiality with that of an arbitrator, by emphasizing that judges are subject to restrictions, i.e. their duties are set in the constitution and by law, especially with regards to acting as an advisor. On the contrary, though arbitrators are not bound by these laws, they are required to perform their duties of disclosure in a transparent manner and must include all the relevant facts. These must be disclosed not only prior to being appointed, but also after an appointment has been made as soon as new facts arise even during the execution of the process.

The court determined that in the case where the presiding arbitrator violated this disclosure obligation, i.e. not providing the necessary notification to the relevant parties regarding the appointment as a joint arbitrator in other relevant arbitration proceedings as soon as possible. The arbitral award in this case was therefore revoked by the court.

The verdict in this case not only sets a high standard for arbitration autonomy and neutrality, but also underscores the relevance of the essential functions of the arbitrator’s disclosure. In addition, in April 2017, the court applied this standard to refuse to enforce an arbitration award made in the United States (in the case of Abengoa), which was the result of a non-disclosure of information related to the arbitration law firm.

From Brazil to the United Kingdom

Not long ago, the Supreme Court of the United Kingdom gave its ruling in the Halliburton vs. Chubb case, in relation to the duty of the arbitrator to disclose information relating to the appointment of an arbitrator. The court maintains that the arbitrator has a legal duty to disclose circumstances that would or might cast doubt on the impartiality and biasness of the arbitrator. Which in this case includes the appointment of a common arbitrator in multiple cases. Given the cases of both Fazon and Haliburton vs. Chubb cases, it is evident that both Brazil and the UK are concerned about disclosure of facts which can lead to serious suspicion of the arbitrator’s impartiality and biasness. Obviously, these cases will be the norm for future arbitration disclosures.

Source:

• https://globalarbitrationnews.com/sao-paulo-state-court-of-appeals-annulled-award-due-to-violation-of-arbitrators-duty-of-disclosure/
• https://www.mayerbrown.com/-/media/files/perspectives-events/publications/2021/01/global-international-arbitration-update_january-2021.pdf

[1] Article 13, Law 9.307 of 1996: Any capable person who has the confidence of the parties can be an arbitrator.

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