Paris Court of Appeal, No. 89-11715 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, 6 April 1990, No. 89-11715

PHILIP BROTHERS LTD

Vs.

INTERNATIONAL COCOA ORGANISATION

GENERAL COCOA COMPANY HOLLAND BV

Y NV

P BURHAM R LTD

L M & Co.

X & Co.

The English company PHILIPP BROTHERS, having its registered office in London and carrying on its activity in the international cocoa trade, has found itself, under conditions which remain disputed between the parties, unable to honour a number of contracts for the sale of cocoa from Côte d’Ivoire to the following companies:

[…], a company incorporated under English law (10 contracts from 11, 12, 15 - two contracts - 17, 18, 22, 23, 24 and 25 February 1988)
X, a company incorporated under French law (contract of the 15 March 1988)
GENERAL COCOA COMPANY HOLLAND NV…, company under Dutch law (contract of 10 March 1988)
P Q R, company under english law (three contracts of the 23 February, 29 February and 8 March 1988).
Y, a company incorporated under Dutch law (contract of the 10 March 1988)
L M, a French company (two contracts from the 15 March 1988).

These companies have initiated arbitration proceedings against the Philipp BROTHERS Company pursuant to the arbitration clause stipulated in the agreements, appointing the Arbitration Chamber of the French Cocoa Trade Association (A.F.C.C. in French) to organise the arbitration.

Eighteen awards (one for each disputed contract) were issued, pronouncing the termination of the contracts against the Company Philipp BROTHERS, setting the so-called termination rate and ordering the Company Philipp BROTHERS to pay the difference between this rate and the price originally set by contract, as well as damages, according to the following decisions:

towards the ICCO:
7 awards (nos. 3373 to 3379) of 19 July 1989
3 awards (no. 3338 A, B and C) of 2 October 1989
towards X: Award No. 3355 of 2 October 1989
towards GENERAL COCOA CY HOLLAND NV. award no. 3356 of 19 September 1989
towards P Q R: 3 awards (nos. 3357, 3358 and 3366) of 19 September 1989
towards Y: award No. 3349 of 19 September 1989
towards L M: 2 awards (nos. 3360 and 3361) of 19 September 1989

The Company Philipp BROTHERS has brought actions for annulment against each of these awards, based essentially on the lack of independence of some of the arbitrators appointed by the A.F.C.C., so that, are invoked:

the irregular composition of the arbitral tribunals (art. 1502-2º)
violation of the rights of the defense (art. 1502-4º)
the arbitrators' lack of respect of the scope of their mission (art. 1502-3º)
the breach of international public policy (art. 1502-5º)

To these initial submissions - served on the I.C.C.O. on 31st January 1990 and on the other defendants on 29th January 1990 - the Defendant Companies replied by claiming that the appeals should be dismissed, with application of Article 700 of the New Code of Civil Procedure (ICCO and X by submissions of 13th February 1990; GENERAL COCOA HOLLAND, P, Y and L M by submissions of 9th February 1990).

In its “supplementary” submissions served on 16 February 1990, the day of the hearing of the pleadings, the Philipp BROTHERS Company, responding to the submissions of the opposing parties, restated the grounds outlined above by developing more specifically its arguments on the lack of independence of the arbitrators who had ruled - and adding a ground of nullity of the arbitration agreement (Article 1502-1º), on the grounds of lack of consent and nullity of the arbitration rules, two provisions of which are allegedly contrary to public policy.

The defendants to the actions having filed on the same day submissions seeking the dismissal of the supplementary submissions served on the day of the pleadings by the Company Philipp BROTHERS, the Court expressly authorised them to reply to them by ‘post-hearing submissions’ - which were sent to the Court.

UPON WHICH, THE COURT:

On the admissibility of the submissions notified by PHILIP BROTHERS on 16 february 1990:

Whereas in order to avoid the postponement of the pleadings to a later date, when all the cases had been set for pleading at short notice, in view of the circumstances of the case and, for some of the appeals, according to the fixed day summons procedure - the Court invited the defendants to respond to the submissions served by the Company Philipp BROTHERS on the day of the hearing by means of ‘post-hearing submissions’, which were sent after the hearing of the pleadings and which the Court took into account in its deliberations;

Whereas the principle of contradiction has thus been respected - with the constraints required by any case judged at short notice - and the submissions challenged must therefore be declared admissible;

ON THE GROUNDS FOR ANNULMENT:

The arbitrators are accused of having ruled on an arbitration agreement which was null and void because of a lack of consent by the Philipp BROTHERS Company, claiming to be the victim of an error as to the substantial qualities of the body in charge of the arbitration (the arbitration chamber of the A.F.C.C.), for the following reasons:

appointment of arbitrators “unknown” to it, not appearing on the list of arbitrators.
appointment of arbitrators whose links with its potential opponents were unknown to it.

Whereas the parties, by referring to the arbitration rules of the A.F.C.C. to settle possible disputes arising out of their commercial relations, have made it their agreement in all its modalities, including the existence of lists of arbitrators and the rules for the appointment of arbitrators in each arbitral instance;

Whereas this membership to a professional arbitration center implies the willingness of all parties to submit their disputes to the judgment of members of the profession chosen by the arbitration body;

Whereas, therefore, the complaint made by the Philipp BROTHERS company against the system of lists of arbitrators, which are considered too narrow, are unfounded, as this procedure is accepted because of the adherence to the arbitration rules;

Whereas the complaint against the arbitration centre itself - whose substantial qualities are disputed - is also unfounded as it is formulated, since the capacity of the arbitration institution to appoint arbitrators with the qualities indispensable to the exercise of their functions as judge can only be demonstrated or invalidated in practice, and the error concerning the qualities of the arbitration centre can only result from the proof that this institution failed in its mission by appointing arbitrators who lack the required qualities of independence;

Whereas in these circumstances, the ground thus raised is closely linked to the examination of the ground of complaint concerning the lack of independence of the arbitrators, which is the second ground of appeal;

Whereas the grounds alleging the nullity of the arbitration rules are unfounded, both on the disclosure of the file to the appointed arbitrator - this disclosure being understood to mean the production of the file to the adversarial debate - and on the list of arbitrators, a specific modality of arbitration instituted in a professional context and accepted by the parties;

Whereas the first ground of appeal is therefore unfounded in that it refers to the existence of lists of arbitrators and the nullity of the arbitration rules;

SECOND GROUND: Irregular composition of the arbitral tribunal (art. 1502-2)

Whereas the Company Philipp BROTHERS is claiming both the irregularity of the process of appointment of arbitrators and the lack of independence of the appointed arbitrators given their links with the opposing parties;

Whereas the method of appointment of the arbitrators is defined by the rules of the Arbitration Chamber of the A.F.C.C., which has been accepted as a procedural law by the parties who referred to it in the arbitration clause;

Whereas in this respect the Company Philipp BROTHERS claims that all the arbitrators referred to - and whose challenge has been set aside: Ms. Z and A, Mr. B. O, Mr. B, Mr. C, Mr. de D, Mr. E, Mr. GINIEYS and Mr. F - should have been replaced for having sat on 20 April 1989 with Mr. G, arbitrator challenged and replaced by virtue of the order of the President of the Paris Trial Court of 29 June 1989, for having heard at the first degree, a question submitted to the second degree arbitral tribunal;

Whereas, however, the mere fact of having sat with an arbitrator who was subsequently challenged at a hearing is insufficient to give rise to a presumption that the arbitrators in question, sitting as a collegial body of five members, could have been influenced by only one of them – who was moreover dismissed for having already heard a question put to the arbitral tribunal and not for his links with a party - in conditions that could characterise a risk of prejudice against the Philipp BROTHERS Company;

Whereas in these conditions the grounds regarding the independence of the arbitrators, taken personally, cannot be upheld;

Whereas the Company Philipp BROTHERS accuses the representative of the Arbitration Chamber of the A.F.C.C., in charge of appointing the arbitrators composing the court of second instance, of being linked to a competitor group, General Cocoa, one of its adversaries in the arbitration proceedings in question;

Whereas, however, the requirement to respect the fundamental principles of the proceedings concerns the person of the arbitrators themselves, whose independence gives the arbitration its jurisdictional value;

Whereas, therefore, the question of the independence of the authority appointing the arbitrators cannot be distinguished from that of the independence of the arbitrators, which is an absolute requirement of any arbitral procedure;

Whereas in the present case, the arbitration body or its representative cannot be held liable for failing to fulfil its obligation to appoint independent arbitrators, since, on the one hand, the rules freely adopted by the parties required them to be chosen from the lists accepted by the parties and, on the other hand, the challenge proceedings brought by Philipp BROTHERS against the appointed arbitrators were dismissed in respect of all the arbitrators who were called upon to rule after two of them had been replaced;

Whereas it thus appears that the arbitral tribunals which have ruled in all disputes have been appointed in accordance with the procedure provided for in the arbitration agreement, and have been recognized as competent to rule after a precise examination of the grounds for challenge which may affect the independence of their members;

Whereas the grounds based on the irregularity of the composition of the arbitral tribunals must therefore be dismissed, in so far as they concern both the arbitration body and the appointed arbitrators, and whereas, therefore, the ground based on a lack of consent in the conclusion of the arbitration agreement must also be dismissed, as there is no evidence that the arbitration body was unable to appoint independent arbitrators;

THIRD GROUND: The arbitrators are accused of not having complied with their mission by disregarding the arbitration rules, in its articles II - which stipulates that arbitrators have the obligations of judges - and 47 - which requires that the grounds for disqualification be revealed spontaneously (art. 1502-3):

Whereas this ground, in its first part (violation of Article 11 of the arbitration rules) merely repeats in another way the ground relating to a lack of independence of the arbitrators, which was rejected for the reasons set out above;

Whereas, with regard to the violation of Article 47 of the Rules, the arbitrators communicated by letter that they did not assume in their own person any grounds for challenge, thus complying with the obligation of information imposed by the arbitration rules, without it being possible for them to be blamed on the fact that this reply was given by all in identical terms, this similarity of form not having the effect of vitiating the declaration thus made - and subsequently confirmed by the rejection of the challenges presented by the Philipp BROTHERS Company;

That this ground is also unfounded;

FOURTH GROUND: the violation of the principle of contradiction and of the rights of the defence (art. 1502-4):

Whereas the Philipp BROTHERS Company claims the irregularity of the arbitration procedure, in that, on the one hand, the documents were not communicated, which could be explained by the nullity of article 49 of the rules, and, on the other hand, the hearing of pleadings gave rise to an abnormal haste and condensation, the 18 cases having had to be pleaded on the same day, which had the effect of violating the rights of the defense and of disrupting the equality of the parties;

Whereas Article 49 of the Rules of Arbitration, which provides for the transmission of documents to the Arbitral Tribunal, cannot be interpreted as authorising the parties not to communicate to the opposing party the documents they intend to rely on in the proceedings, the rule of contradictory communication of documents being subject to the guiding principles of the proceedings, applicable to all proceedings, whether judicial or arbitral;

Whereas in order to maintain that certain documents have not been communicated to it, the Company Philipp BROTHERS provides the debates with the letters and telexes by which it objected to the arbitral tribunal, in the proceedings opposing it to the I.C.C.O;

Whereas, however, these assertions alone are not sufficient to characterise in this case a violation of the principle of contradiction and that it appears, regarding the ground concerning the filing by his opponent of an undisclosed “file”, that it is in fact the so-called “pleading file” (the post-hearing submissions), handed over according to custom to the court which heard the oral explanations of the parties' counsel, without prior communication to the opposing party, the adversarial debate requiring only that the documents included in this file be duly communicated;

Whereas, lastly, it appears from the documents produced that the ground concerns an arbitration hearing held on 15 November 1988, and therefore does not concern the proceedings or the awards criticised by the present appeal, which were issued by the arbitral panels of the second degree, formed after the first degree awards were issued on 20 December 1988;

Whereas this ground concerns the procedure of the first degree, which no longer exists since the request for the formation of arbitral tribunals of the second degree has deprived the draft awards rendered at the first degree of any effect;

Whereas, on the violation of the rights of defence raised in connection with the oral debates, Whereas the arbitral tribunal, like any court of law, is the master of the organisation of the oral argument hearings, in accordance with the nature of the cases, their connexity and the foreseeable extent of the oral explanations given on this occasion;

Whereas the close connection of the disputed proceedings, resulting from identical factual situations for each of the contracts in question, as well as the similarity of the arguments developed by the Philipp BROTHERS Company in their regard, fully justified the holding of arbitral hearings on the same day, without any violation of the rights of the defence or a breach of the equality of the parties - whatever the constraints arising for the Philipp BROTHERS Company from its position as sole defendant in 18 proceedings against six other parties - being characterised in this case;

Whereas the ground must, therefore, be rejected;

FIFTH GROUND: violation of international public policy (art. 1502-5):

Whereas the Company Philipp BROTHERS claims, on the one hand, that the recognition and enforcement of awards, pronounced in conditions that are prejudicial to the rights of the defence by irregularly composed courts, would be contrary to international public policy, and, on the other hand, that the setting by the arbitrators of an “aberrant” termination rate would be the result of a fraudulent manoeuvre, vitiating the awards with the same defect with regard to the requirements of international public policy;

Whereas, however, on the first point, the grounds raised by reference to international public policy with regard to the rights of the defence and the composition of the arbitral tribunal have already been examined and rejected by the present judgment;

Whereas, regarding the setting of the rate of termination, the accusation made against the arbitrators on this point concerns an assessment of the merits which is beyond the Court’s control, since no rule of international public policy has to intervene in this matter to impose on the arbitral tribunal a method of determining the rate of termination applicable in the event of breach of contract;

Whereas the allegation of fraud is not supported by any evidence of such a nature as to characterize the fraudulent deal attributed to the arbitrators;

That the ground must, therefore, be dismissed;

FOR THESE REASONS

Consolidates the proceedings entered in the general roll of the Court under the numbers: 89 - 11,715 - 89 - 11,716 - 89 - 11,717 - 89. 11,718 - 89 - 11,719 - 89 - 11,720 - 89. 11,721 - 19 - 20,986 89,20987 - 89,20988 - 89 - 21,137 - 89. 21,138 - 89. 21,139 - 89 - 21,410 - 89. 21,141 - 89. 21,142 - 89. 21,143 and 89. 2,82884;

DISMISSES the appeals;

Condemns the Company Philipp BROTHERS to pay the International Company CACAO ORGANISATION as well as to the Companies X, GENERAL COCOA CY HOLLAND NV, P S R, Y and L M, each an indemnity of 10,000 frs on the basis of article 700 of the New Code of Civil Procedure;

Charges the costs to the Company Philipp BROTHERS and acknowledges the attorneys of the case, each one in his own respect, to the benefit of article 699 of the New Code of Civil Procedure.