The liability of international arbitrators: when and where to sue?

Arbitrators' liability is a recurring topic in international arbitration. Case law has shown that the setting aside of an arbitral award can be the prelude to arbitrator liability claims. In recent years, however, various arbitration institutions have amended their rules to expand the liability protection of both arbitrators and the arbitration institutions themselves. Provisions on the limitation of arbitrators' liability can be found in most commonly used arbitration rules, for example the ICC Rules (Article 41), the NAI Rules (Article 61), the LCIA Rules (Article 31.1), the SIAC Rules (Article 38) and the HKIAC Rules (Article 46). 

In principle, a higher liability threshold contractually agreed upon between the arbitrator (or the arbitration institution) and the parties takes precedence over regular non-mandatory Dutch liability law. Exoneration clauses used by arbitration institutions often include wording such as "unless and insofar as mandatory Dutch law precludes exoneration" (NAI) or "except to the extent such limitation of liability is prohibited by applicable law" (ICC). If Dutch law is applicable and no higher liability threshold is agreed upon or arranged in applicable arbitration rules, arbitrators can be held personally liable on the basis of a professional error, as will be discussed in more detail below. It follows from established Dutch case law that the standard for arbitrators' liability is intentional or willful reckless conduct, or gross neglect in the proper performance of duty.

At the same time, difficulties may arise in determining the appropriate jurisdiction to initiate a claim for arbitrators' liability. After all, there are many connecting factors that may need to be taken into account. For example, parties and arbitrators frequently reside in different countries, the seat of arbitration is often located in a neutral country, and the hearing may take place in yet another country if the parties and/or the tribunal so desires. In principle, within the European Union,* Regulation (EU) 1215/2012 of the European Parliament and of the Council on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast) ("Brussels I Recast Regulation") determines which courts have jurisdiction in civil and commercial matters in intra-EU situations. The Brussels I Recast Regulation is binding and applies automatically. However, it excludes certain areas of law, including arbitration (the "Arbitration Exception"). It remains a subject of debate whether a claim for arbitrators' liability fits within the scope of the Arbitration Exception and thus is excluded from the application of the Brussels I Recast Regulation. 

This blog will first briefly touch upon this jurisdictional element of arbitrators' liability claims in an international context. To that end, having noted case law of the European Court of Justice ("ECJ"), we will discuss two conflicting French judgments that illustrate different interpretations of the Arbitration Exception. Secondly, we will discuss the standard of arbitrators' liability under Dutch law, as developed by the Dutch Supreme Court over recent years. 

The Brussels I Recast Regulation and the Arbitration Exception

Article 1, Section 2(d) of the Brussels I Recast Regulation simply states that "This Regulation shall not apply to: (…) (d) Arbitration;". Recital 12 of the same regulation aims to further clarify the scope of the Arbitration Exception: 

"This Regulation should not apply to any action or ancillary proceedings relating to, in particular, the establishment of an arbitral tribunal, the powers of arbitrators, the conduct of an arbitration procedure or any other aspects of such a procedure, nor to any action or judgment concerning the annulment, review, appeal, recognition or enforcement of an arbitral award." 

As early as in its Marc Rich ruling on 25 July 1991, the European Court of Justice ("ECJ"), ruled that the Arbitration Exception should be applied broadly (ECJ, 25 July 1991, ECLI:EU:C:1991:319, (Marc Rich) ¶¶ 27-29). However, it has certain limits. In the case Van Uden/Deco-Line of 17 November 1998 the ECJ started from the premise that, if parties have validly submitted a dispute to arbitration, there is no regular court that has jurisdiction to hear the case on the merits on the basis of the Brussels Convention of 27 September 1968 (ECJ, 17 November 1998, ECLI:EU:C:1998:543, (Van Uden / Deco-Line) ¶ 24). At the same time, however, the ECJ highlighted that provisional measures are in principle not "ancillary to arbitration proceedings", and consequently not covered by the Arbitration Exception, even if they are ordered in parallel with arbitral proceedings (ECJ, 17 November 1998, ECLI:EU:C:1998:543, (Van Uden / Deco-Line), ¶ 33).

Whether arbitrators' liability falls under the Arbitration Exception remains subject to debate. Arbitrators' liability claims are not the same as 'arbitration' as excluded in Article 1, Section 2(d) of the Brussels I Recast Regulation, and 'arbitrators' liability' is not explicitly mentioned in Recital 12 of the same regulation. However, since Recital 12 refers to 'the power of arbitrators, the conduct of an arbitration procedure or any other aspects of such a[n arbitration] procedure', one could argue that the Brussels I Recast Regulation intended to exclude any matters relating to arbitration proceedings, including liability claims against arbitrators.

A relevant consideration when assessing whether arbitrators' liability falls within the Arbitration Exception is the legal nature of the relationship between an arbitrator and the parties. Of significance, in particular, is whether the agreement with the arbitrator should be considered a mere contractual agreement (in which the arbitrator agrees to resolve the dispute between parties), or whether the agreement should be regarded as including a judicial element, and thus as having a public interest. The latter would support the view that arbitrators' liability does fall within the Arbitration Exception. However, if one considers the relationship between an arbitrator and parties as primarily contractual, it could be argued that some claims relating to arbitrators' liability do not fall within the Arbitration Exception. After all, the contract-based liability claim would, in that case, not necessarily qualify as an action or an ancillary proceeding relating to arbitration. It would rather qualify as an action for contractual liability of the arbitrator, as a result of the arbitrator's alleged failure to perform his or her contractual obligations under the arbitration agreement.

Conflicting French judgments on the Arbitration Exception

In 2021, a case arose before the Paris court where an arbitrator was sued after the award had been set aside because of a violation of his duty of disclosure (Paris First Instance Court,  31 March. 2021, RG 19/00795, 352J-W-B7d-COXPH). The arbitrator had failed to disclose certain relationships between his law firm and one of the parties. The arbitration was conducted under the ICC Rules and was seated in Paris. At the same time, the tribunal consisted of three German arbitrators while the parties were based in different countries in the Middle East. When claims against the arbitrator were brought, the Paris First Instance Court (the "Court") first had to determine whether the Brussels I Recast Regulation applied to arbitrators' liability claims in order to establish its jurisdiction.

The Court decided that the Arbitration Exception did not apply to the claim for damages against the arbitrator and, therefore, applied the Brussels I Recast Regulation. In doing so, the Court reasoned that the claim against the arbitrator was a contractual claim, based on the arbitration agreement between the arbitrator and the claimant. According to the Court the arbitration agreement thus qualified as a contract to provide services. 

Pursuant to Article 7, Section 1(b) Brussels I Recast Regulation, a person that provides services can be sued in a Member State other than his state of domicile if the place of performance of the obligation is situated in that Member State. The Court decided that the arbitrator had provided its services in Germany, despite the fact that the seat of arbitration was Paris and that the award was therefore deemed to be rendered in Paris (Article 32, Section 3 of the 2021 ICC Rules). The Court reasoned that the seat of arbitration was fictitious and, since the hearing and the deliberation took place in Germany, the arbitrator's services had actually been performed in Germany. Consequently, the Court declined jurisdiction.

This Court's decision was later quashed by the Paris Court of Appeal (the "Court of Appeal") (Paris Court of Appeal, 23 July 2021, RG 21/07623, 35L7-V-B7F-CDQZJ). Contrary to the Court, the Court of Appeal ruled that liability claims against arbitrators fall within the Arbitration Exception, since a liability claim due to an arbitrator's failure to comply with disclosure obligations is "tightly linked to the constitution of the arbitral tribunal and the conduct of the arbitral proceedings". As a result of the inapplicability of the Brussels I Recast Regulation, the Court of Appeal applied French private international law to determine its jurisdiction. 

Similar to Article 7 of the Brussels I Recast Regulation, Article 46 of the French Civil Code of Procedure provides that the place of performance of the service is decisive to determine jurisdiction. Contrary to the first instance court, however, the Court of Appeal ruled that the place of performance of the arbitrator's services is at the seat of arbitration, notwithstanding any factual circumstances indicating other jurisdictions.

In conclusion, the two French judgments show two ways to interpret the Arbitration Exception in the Brussels I Recast Regulation. Following the Court of Appeal judgment, the status quo seems to be that liability claims fall within the scope of the Arbitration Exception, and that courts faced with such claims should apply their local international private law rules to establish jurisdiction to hear the claim. We note that the application of Dutch private international law is more likely to result in broader jurisdiction compared to the application of the Brussels I Recast Regulation.** 

There is no ECJ case law on arbitrators' liability in this context  yet, so there is still room for national courts to make their own assessment as to whether arbitrators' liability falls within the scope of the Arbitration Exception. If an arbitrator is held liable, the question arises as to the standard by which such claims should be judged. The next section will set out the applicable standard under Dutch law.

When to sue: arbitrators' liability standard under Dutch law

The Netherlands is a popular seat of arbitration, known for the pro-arbitration stance of the Dutch judiciary. Under Dutch law, the standard for arbitrators' liability follows from two landmark cases: Greenworld (Dutch Supreme Court 4 December 2009, ECLI:NL:HR:2009:BJ7834, NJ 2011/131) and Qnow (Dutch Supreme Court 30 September 2016, ECLI:NL:HR:2016:2215, NJ 2017/141). These cases set a high bar to establish arbitrators' liability. 

In the Greenworld case, arbitrators faced a liability claim for wrongly accepting jurisdiction. In the setting-aside proceedings following the arbitration, Greenworld successfully argued that no valid arbitration agreement existed, and the award was set aside. Since there was no valid arbitration agreement, Greenworld's liability claim was based on 6:162 Dutch Civil Code (unlawful act). The Dutch Supreme Court rejected Greenworld's claim but provided guidance on the standard for arbitrators' liability. Firstly, the Supreme Court clarified that the fact that an arbitral award is set aside is in itself insufficient for arbitrators' liability. Further, the Supreme Court ruled that arbitrators can only be held personally liable if they acted intentionally or knowingly in a reckless manner or with evident gross neglect in the proper performance of duty (Dutch Supreme Court 4 December 2009, ECLI:NL:HR:2009:BJ7834, NJ 2011/131, ¶ 3.6). In short, this is known as 'gross dereliction of duty'. 

In the Qnow case, the chair of the arbitral tribunal was held liable because the two co-arbitrators failed to sign the arbitral award, as is required by Dutch law according to Article 1057 Section 2 DCCP. The chair should have supervised and ensured the signing of the award by the entire tribunal. The Supreme Court further elaborated on the arbitrators' liability standard and considered gross dereliction of duty to entail a lighter standard of culpability than the 'intentional or deliberate recklessness' standard. Nevertheless, a 'gross dereliction of duty' requires that sufficient personal blame can be attributed to the arbitrator for their acts or omissions. That culpability involves, however, an objective element to some extent. Whether blame can be attributed on this basis depends on the circumstances of the case, such as the severeness of the error (Dutch Supreme Court 30 September 2016, ECLI:NL:HR:2016:2215, NJ 2017/141, ¶ 3.5.2). In this case, the failure to sign the award was considered to be a gross dereliction of duty and the chair of the tribunal was held liable on the basis of unlawful act for the damages resulting from the annulment of the award. It is notable that, in this case, the parties and the arbitrator had not agreed on a higher liability threshold or exonerations.

The 'Greenworld standard' covers liability claims based on both procedural errors and errors in the substantive assessment of a case (Dutch Supreme Court 30 September 2016, ECLI:NL:HR:2016:2215, NJ 2017/141, ¶ 3.4.3). The Supreme Court made an exception for  'operational errors' (bedrijfsfouten), such as the loss of documents. Operational errors cannot lead to the annulment of an award but can result in arbitrators' liability. However, the Supreme Court ruled that operational errors must be assessed according to the regular regime for unlawful acts instead of the strict Greenworld standard (Dutch Supreme Court 30 September 2016, ECLI:NL:HR:2016:2215, NJ 2017/141, ¶ 3.4.4). Contrary to the Paris judgments, which involved contractual claims, the liability claims in both the Greenworld and Qnow cases were filed on the basis of tort. However, the arbitrators' liability standard derived from these judgments is assumed to apply to both contractual and tort claims (Opinion of Advocate General Rank-Berenschot, Dutch Supreme Court 30 September 2016, ECLI:NL:HR:2016:2215, NJ 2017/141, ¶ 2.12). We note, as mentioned earlier, that this 'Greenworld standard' thus applies if no higher liability threshold has been agreed between the arbitrator and the parties or follows from the applicable arbitration rules. Since the Qnow case, no other case law has emerged on the arbitrators' liability standard. Arbitrators' liability cases remain – so far – rare in the Netherlands. 

Conclusion

The French judgments show that different views exist as whether the liability of arbitrators does or does not fall under the scope of the Brussels I Recast Regulation. On the one hand, as the Paris Court held, arbitrators' liability does not directly relate to the arbitration and the dispute between the parties, but to the contractual relationship between the parties and the arbitrator. On the other hand, the Court of Appeal ruled that arbitrators' liability is so 'tightly linked' to arbitration that the Arbitration Exception applies and, therefore, that the Brussels I Recast Regulation does not. As the Court of Appeal held, in practice, the question of whether an arbitrator has made a professional error is likely to coincide with a substantive assessment of the case.

The agreement with the arbitrator is a consequence of the arbitration agreement between the parties, which is excluded from the Brussels I Recast Regulation. The Court of Appeal ruled accordingly. The ECJ, however, has not yet ruled on whether arbitrators' liability is covered by the Brussels I Recast Regulation, so the final answer to this question is still uncertain. We expect the ECJ to rule that the Brussels I Recast Regulation should not determine jurisdiction to hear arbitrators' liability claims. In accordance with the reasoning of the Court of Appeal, the Arbitration Exception applies to such claims because of its close link to the constitution of the tribunal and the conduct of the proceedings. Dutch courts should, in this view, determine jurisdiction by applying Dutch private international law.

If Dutch law is applicable to the liability claim and no higher liability threshold has been agreed between the parties and the arbitrator or is arranged in applicable arbitration rules, the court should assess whether the arbitrator acted intentionally or knowingly in a reckless manner or with evident gross neglect in the proper performance of duty. This applies both if the liability is based on procedural errors and if it is based on errors in the substantive assessment of a case. Only operational errors are excluded from the Greenworld liability standard.

* This blog focusses solely on intra-EU situations.
** For example, see Article 9 Dutch Code of Civil Procedure ("DCCP") (forum necessitatis), which provides that where no other competent court can be found outside the Netherlands to decide the dispute, Dutch courts can accept jurisdiction under certain conditions.