An interesting decision issued in February 2017 by the Paris
Court of Appeal (Cour d'Appel) may have an important
impact on arbitral practice. The Court endorsed an ICC arbitral
award based, in part, on the 'adverse inferences' principle
under the IBA Rules on the Taking of Evidence in International
Arbitration.
Adverse inferences is a form of legal reasoning where one
party's unjustified silence or failure to produce the requested
evidence is interpreted to the advantage of the other party. It is
more established in common law jurisdictions than in civil
law.
There are two main advantages of adverse inferences. First, it
compels each party to comply with a request to produce documents.
Second, it enables a party to assert a positive case if crucial
evidence is withheld by the other side. Otherwise, in the absence
of documents provided by that party or short of an adverse
inference, the claimant would lose.
Article 9(5) of the IBA Rules reads as follows: "[i]f a Party
fails without satisfactory explanation to produce any Document
requested in a Request to Produce [...] or fails to produce any
Document ordered to be produced by the Arbitral Tribunal, the
Arbitral Tribunal may infer that such document would be adverse to
the interests of that Party".
The fact that this principle, as well as the extensive use of
document production pertain more to the common law, makes the
decision of the Court – usually an adamant guardian of the
civil law jurisdiction against common law and other international
novelties – all the more interesting.
Facts of the case:
In the arbitration between a group of Spanish shareholders
of Grupo Guascor and two companies of Dresser-Rand Group over a
share purchase agreement, the majority of the tribunal decided
partially in favour of the shareholders. The arbitrators relied,
among other things, on the defendant's failure to produce the
requested material. However, the tribunal itself did not order
Dresser to produce these documents or to explain their lack. Most
importantly, the court based its reasoning largely on the evidence
actually presented by the parties.
Dresser contested the ICC award before the Paris Court of Appeal,
claiming that the tribunal could not rely on the IBA Rules and had
treated Dresser unfairly by not having requested explanations for
the non-production of the exhibits.
The Court found that the IBA Rules, explicitly mentioned in the
Procedural Order, were clearly applicable to the case. It also
highlighted that the adverse inference drawn by the tribunal had a
merely supplementary character to the decision, which was otherwise
based mainly on the evidence provided.
Conclusion:
Although the Paris Court of Appeal is widely known to be
'arbitration-friendly', its welcoming approach to as
inherently common law concept as adverse inferences, is an
important sign of judicial deference to applying alien legal ideas
in civil law arbitral tribunals, provided the parties agree to
it.
The crucial thing is that the tribunal, when drawing adverse
inferences, is under no obligation to ask the parties to explain
the non-production of the requested documents. It also applies in
cases where the documents were requested by the parties themselves.
If the applicable rules allow, the arbitrators may draw adverse
inferences without prior notice and judicial control of the
arbitral process will not prevent that.
Yet, there remains the question of whether judicial deference would
have been the same if adverse inferences were a much more important
(or even the only) ground for an award. Nevertheless, following
this decision arbitrators may feel more at liberty to use adverse
inferences without warning the parties. At the same time, the
parties themselves should to take a close look at the arbitration
rules on document production before relying on them.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.