Paris Court of Appeal, No. 9999

Paris Court of Appeal, 19 December 1986, No. 9999

OIETAI vs. SOFIDIF AEOI SERU X CEA

The Iranian company Organisation for Investment, Economic and Technical Assistance of Iran (OIETAI) has brought an action before the Court for the annulment of an arbitral award made on 25 April 1985 under the supervision of the International Chamber of Commerce (ICC). The dispute was between OIETAI, the Iranian compagny AEOI. (Atomic Energy Organisation of Iran), and the French compagnies X, Sofidif (in French Société franco–iranienne pour l’enrichissement de l’uranium par diffusion gazeuse), CEA (French Alternative Energies and Atomic Energy Commission), Seru Nuclear Ltd (in French Société d’études et de recherches de l’uranium), Cogema (in French Compagnie générale des matières nucléaires).

The challenged award, rendered by Mr. Y, Mr. V and Mr. Z, rejected the objection that the Arbitral Tribunal lacked jurisdiction, declared inadmissible the claims made by CEA, Seru Nuclear Ltd and French companies X, in so far as they were directed against AEOI. The award also received but rejected Cogema’s application for the absence of standing to act. By ruling on the merits, the arbitral tribunal recognised Sofidif’s claim for compensation for its damages coming from of the Iranian companies' failure to perform their contractual obligations and required an expertise to investigate and quantify the damage actually suffered by Sofidif, but did not appoint an expert.

The action is based on the provisions of articles 1502 and 1504 of the Code of French Civil Procedure. OIETAI complains that the arbitral tribunal asserted it had jurisdiction without describing the extent of that jurisdiction.

OIETAI requests the Court of Appeal to find that none of the arbitration clauses in the agreements of 23 February 1975 and 13 November 1975 bind it to Sofidif in the absence of their common consent to submit any disputes arising from to a single arbitration. OIAETI also requests the court to find that not all the matters in the dispute arise from agreements which are binding for every party. Moreover, OIAETI requests the French judge to state that the arbitral tribunal ruled concerning of the OIETAI and Sofidif without an arbitration agreement in respect of the disputes brought before it, to find furthermore that, although the tribunal was instructed to rule by a prior award on its jurisdiction and the scope thereof, the Tribunal ruled on these matters and on the merits by a single award without having the power to do so. OIAETI also requests the Court to find that, in doing so, the Tribunal also failed to respect the rights of defence of the OIETAI and thus breached a rule of public policy.

Sofidif, by summons to intervene and joint declaration of judgment brought the companies Cogema, Seru, X, AEOI, OIETAI and CEA before the Court, through a declaration of joinder (in French Assignations en intervention et déclaration d’arrêt commun). AEOI stated that it would submit itself to the court’s decision on the merits of the appeal.

The Sofidif company considers that the appeal should be dismissed and requests the Court to enforce the award (in French: Conférer l’exequatur) and to grant it a sum of 500.000 F under article 700 of the Code of French Civil Procedure.

The two companies Seru, X, Cogema and CEA were joined but did not plead.

The Public Prosecutor’s Office dismissed the appeal.

The dispute relates to a series of agreements, the economy of which it is important to recall.

On 27 June 1974, a cooperation agreement was concluded between the Imperial State of Iran, the Government of the Republic of Korea and the French Republic, for the peaceful use of nuclear energy. The implementation of this agreement was the subject of a memorandum of understanding of 23 December 1974. Within this framework, Iranian and French companies, some of which were created for the needs of the cause, signed several agreements with each other:

A) Agreement of 23 February 1975 between CEA and AEOI, by which these two companies decided to create the company called Sofidif, a limited company under French law, whose equity must be subscribed for 60% by CEA and 40% by AEOI and whose main purpose is the construction and operation of uranium enrichment plants based on the French gaseous diffusion technique. For its participation in Sofidif, CEA replaced Seru, its wholly owned subsidiary, which, together with AEOI, will finance the shareholder loans called by X, another French company with European participation, within Sofidif.

The essential economic interest of the agreement lies in the elaboration of the rights of Sofidif’s shareholders over the production of X, with Article 7 providing that the rights of removal available to AEOI and Seru will be proportional to their respective shares in Sofidif.

This agreement includes an arbitration clause in accordance with the ICC Rules.

B) Contract of 13 November 1975 between X and Sofidif

This contract is concluded due to Sofidif’s status as a 25% shareholder of X. As a consequence of the previous agreement, X (supplier) reserves 25% of its factory production for its shareholder Sofidif (customer).

The arbitration clause in this contract refers to the ICC Rules, it being specified that the arbitration will take place in Geneva under French law.

C) Protocol of 13 November 1975 between Sofidif, AEOI and Seru, the latter being in the Protocol both in its name and in the name of CEA. By the performance of the contract with the same date (see B), this protocol ensures the distribution of the rights of removal and the corresponding nominal quantities by Sofidif between its shareholders AEOI and Seru.

The arbitration clause contained therein refers to the Rules of the ICC with the clarification that the arbitration, subject to French law, will be conducted in Paris.

D) Amendment of 26 April 1978 to the agreement of 23 February 1975 between CEA and AEOI by which Seru transfers its rights to Cogema and AEOI transfers its rights to OIETAI. This amendment, signed by all the companies mentioned, does not include an arbitration clause.

Two other contracts should be mentioned for the record:

E) Iranian government loan contract to CEA of 23 February 1975 for one billion dollars US with an arbitration clause referring to the Rules of the ICC, it being specified that the arbitration will take place in Geneva by arbitrators of different nationalities from those of the contracting parties.

F) Supplementary loan contract of the 7 July 1977 from the Iranian government to company X for 943 million francs, with an identical arbitration clause at precedent, these two loans are part of Iran’s financial participation in the nuclear cooperation agreements.

These agreements started to be implemented, but after the political and economic upheavals in Iran in 1978, the Iranian authorities confirmed the abrogation of the cooperation contract by a final telex of 23 July 1979.

The French companies then referred the matter to the Court of Arbitration of the ICC to request compensation from the Iranian companies for the damages suffered as a result of the unilateral breach of the agreements.

The Court of Arbitration composed the Arbitral Tribunal with Mr. Y as chairman, residing in Lausanne, appointed by the Swiss National Committee of the ICC.

The arbitration proceedings

The terms of reference were signed in Lausanne on 29 January 1981 by Sofidif. The claimants are Seru, X and Cogema both in its own name and on behalf of CEA. On the other hand, OIETAI and AEOI are the defendants.

This document reveals that the claimants mentioned all of their formal and substantive pleas, but that the Iranian defendant companies did not proceed on the merits and, at the outset of the proceedings, raised their plea of lack of jurisdiction, invoking on the one hand the absence of an arbitration agreement applicable to all of the claims in dispute and, on the other hand, the immunity from jurisdiction mentioned by the company OIETAI which is a department of a ministry of the Iranian government.

The mission of the arbitrators being recalled; the composition of the tribunal was set out in these terms:

The contentious issues to be resolved are the following:

“I) To rule on the jurisdiction of the arbitral tribunal, possibly on the extent of such jurisdiction.

II) If the arbitral tribunal considers it has the jurisdiction, to decide whether the claim is admissible, either in its entirety or in part. If so, to determine, in either case, whether the claim is admissible with the respect of all or some of the claimants or defendants, both in the light of the pleas in law based on the absence of an arbitration agreement and in the light of the pleas in law based on the immunity from jurisdiction invoked by OIETAI as AEOI.

III) In case of an affirmative decision and after hearing the parties in the presentation of their arguments, to rule on the merits of the statements set out in the request for arbitration as reproduced under Ch. I litt. an above, after having ruled on of the disputes arbitration.

IV) Payment of costs…”

It should first be pointed out that the award of 25 April 1985, which is the subject of the action for annulment, was preceded by two orders signed by the chairman of the Tribunal “in the name of the arbitral tribunal”.

Order No. 1 dated 2 February 1981, taking up the objections of jurisdiction and admissibility raised by the defendants, orders that these points shall be ruled on separately and prior any questions on the merits.

Order No. 2 dated 25 February 1982 considering that, in the interest of the investigation of the case, it appears expedient not to rule by a prior decision on the means of jurisdiction and that the decision on these means will be attached to the final decision after investigation on the merits “All the rights and means of the parties as regards the competence of the arbitrators being reserved”, revoked Order n° 1.

The award

To reject the ground of lack of jurisdiction raised by the Iranian parties, the arbitrators essentially considered that the agreement of 23 February 1975 and the protocol of 13 November 1975 were “the fundamental obligations of the contracting parties” and that the arbitration clauses included in these two agreements were complementary. They observe that both are governed by the ICC Rules and that the place of arbitration, agreed as Paris in the Protocol, was legitimately extended to the clause in the first agreement because of the complementary nature of the two contracts: according to them “the agreement and the protocol forming a whole, the parties showed in the protocol their clear preference for the application of French law and the location of the arbitration in Paris”.

The Arbitral Tribunal did not otherwise give reasons for its decision on jurisdiction, in particular with respect to the other claimants. Moreover, it dealt with the merits of the case after rejected at its sole discretion two grounds, one based on the impact of an Iranian domestic law and the other on the immunity from jurisdiction raised by OIETAI.

It was then, in this study on the merits, that the arbitral tribunal analysed, from the point of view of admissibility, the contractual relationships binding the parties in question. The appellants claimed that it did not fully settle the dispute, even though its mission consisted in first and separately settling the issues relating to its jurisdiction.

The Court

It should be noted that the Terms of Reference, which are photocopied in the files of both parties, are not signed by arbitrators. Also, the parties, in their award copied the typed terms of the Terms of Reference but omitted to mention the handwritten references duly approved by the parties and which are nevertheless not negligible, in particular the one which completes the last paragraph of Title III “After having ruled on the arbitration disputes”. Finally, in the award there is no mention of “the order n°1” dated 2 February 1981.

These shortcomings undoubtedly explain why the arbitral tribunal misunderstood its mission: yet, this mission is very clear and reveals the overriding concern of the parties concerned and their uncertainty as to the jurisdiction competent to resolve their disputes due to the diversity of the arbitration clauses.

The Court finds, in the same terms and in the spirit of the Terms of Reference, the path to be followed by the arbitrators who are requested to determine the scope of their jurisdiction. The answer to this issue is necessarily preliminary since it determines the selection of the disputes that may be dealt with.

The overall claim lacks a framework contract or multi-party agreement. The arbitral tribunal had to judge its contractual jurisdiction by contract, taking into account the contractual elements submitted.

The rules of arbitration law, based on the consensual nature of the arbitration clause, do not allow the effects of the disputed agreement to be extended to third parties to the contract, and prevent any forced joinder of third parties or guarantees (in French Appels en garanties). The solution to the difficulties arising from connection or indivisibility can only be found in contract.

The arbitral tribunal dealt with a set of contracts for the realisation of the same project. It therefore had to define the areas in which its jurisdiction applied and had to build a sufficiently harmonious whole to avoid a fragmentation of litigation and a tangle of procedures.

It is then necessary to review the analysis of each of the contract;

1. Agreement of 23 February 1975 between AEOI and CEA, now OIETAI and Cogema:

These two contracting parties did not specify the place of arbitration, the Court of Arbitration of the ICC fixed this seat in Paris according to article 12 of its Rules. However, the arbitrators, who seem to declare they have jurisdiction to settle the dispute arising from this contract, thought it necessary to establish a link of “complementarity” between this agreement and the protocol of 13 November 1975, the arbitration clause which established Paris as the seat of arbitration.

In ruling so, the arbitrators do not state whether they establish their jurisdiction from the arbitration clause written in the agreement of the 23 February 1975 followed by the decision of the Court of Arbitration in charge of organising the arbitration. This leads OIETAI to claim that they did not rule in accordance with an arbitration agreement; it seems that they ruled by associating two contracts entered into by the different parties.

2. Protocol of 13 November 1975 between Sofidif Cogema and OIETAI:

The arbitral tribunal declared that it had jurisdiction to settle this dispute.

3. Contract of 13 November 1975 between X and Sofidif:

It seems that this contract was not reviewed by the arbitrators who, in any case, did not rule on this regard. However, although the parties to the arbitration clause intended to establish the place of arbitration in Geneva, it was necessary to decide on the importance to be given to this clause when the Court of Arbitration, seized of the entire claim, established the seat of the arbitration in Paris. It was also necessary to decide whether or not X and Sofidif, the sole signatories of the contract, by filing a joint request for arbitration and jointly signing the Terms of Reference given to an arbitral tribunal sitting in Paris, intended to conclude a new arbitration agreement. They should then also decide on the value and consequences of this new agreement (in French: novation).

4°) Financial loan contracts:

These contracts are referred to in the global claim, that the claimants claimed the damage resulting from their non-performance of these contracts. The arbitral tribunal had to investigate whether another judicial authority was seized of the disputes arising from these two contracts because of the particular stipulations of their arbitration clauses (seat in Geneva - nationality of the arbitrators). If not, and for the same reasons as those referred to in “3°)” above, the claimants considered that the arbitral tribunal had to decide whether or not the parties were willing to conclude a new arbitration agreement by accepting that the arbitration would take place in Paris under French law and that the arbitrators would, at least in the majority, be of French nationality. Finally, it had to rule on the admissibility of the dispute and the standing to act, in the presence of a government, a lender and a defendant (OIETAI) presented as a legal person of public law.

Furthermore, by attaching the plea of lack of jurisdiction to the merits of the case, the arbitrators exceeded their mission. In fact, they are strictly bound by the provisions of the Terms of Reference and cannot, ex officio, add to them. While it is true that, like any court, the arbitral tribunal, seized solely to decide on a matter of jurisdiction, may request the parties to provide it with factual information which may affect the merits of the case, it may attach value to such information only in so far as it is useful for the determination of jurisdiction, and is not entitled to use it to justify a decision on the merits; Order No. 2 and the final award thus disregarded these principles.

Sofidif cannot reasonably maintain, as it does, that this way of proceeding did not harm the interests of OIETAI. As it has just been said, the defendants in the arbitration proceedings were justified in seeking to know, prior to any defence on the merits, on which disputes the debates and possibly an expert’s report should relate. Moreover, in a letter of 26 July 1982 to the President of the Court of Arbitration, AEOI stated strong objections to this way of proceeding, and that it was in the interests of the company to be represented by Sofidif.

Consequently, that the award referred should be set aside for violation of the provisions of Articles 1462 and 1502-3 of the Code of French Civil Procedure.

It has not been established that the Arbitral Tribunal violated due process (in French: principe de contradiction). It follows from the wording of the award that the parties were invited to debate on the merits and that after the filing of the writings an oral debate was opened on 7 and 8 February 1984. The ground presented on the basis of Article 1502-4 of the Code of French Civil Procedure. will therefore be rejected. Code of French Civil Procedure. Consequently, the ground based on Article 1502-5 of the Code of French Civil Procedure. for breach of a rule of international public policy based on the absence of adversarial debate will also be rejected.

Considering that, of the summonses to intervene and the declaration of a joint judgment delivered to C.E.A., Seru, Cogema, X, AEOI., the present judgment will be declared common to them;

FOR THESE REASONS

Sets aside the arbitration award

Declares the present judgment common to the companies C.E.A., Seru, Cogema, X, O.E.A.I. ;

Dismisses Sofidif’s claim based on Article 700 of the new Code of Civil Procedure,

Orders Sofidif to pay the costs.