Paris Court of Appeal, No. 9999
Paris Court of Appeal, 1 July 1999, No. 9999
Braspetro Oil Services (X)
Vs.
The Management and Implementation Authority of the Great Man-Made River Project (Y)
The Management and Implementation Authority of the Great Man-Made River Project (hereinafter Y by abbreviation), is a Libyan public law institution whose specific mission is the extraction, by drilling, of massive quantities of water, and its distribution from the water tables contained in the subsoil of the Libyan desert, in order to be used, in particular, for the irrigation of agricultural land throughout the country;
Within the framework of this project, Y concluded a contract, on 6 July 1986, with the private company of Cayman Islands, Braspetro Oil Services Company (X), under the terms of which the latter undertook to drill 270 artesian wells and 48 observation wells in the Sarir and Tazerbo areas, both located in the Libyan desert;
This contract, which was subject to Libyan law on administrative contracts, included an arbitration clause referring to arbitration by the International Court of Arbitration of the International Chamber of Commerce, knowing that disputes could arise from its execution;
In 1990, malfunctions, manifested by excessive quantities of sand in the water, appeared in the Sarir wells; it turned out that they were due to the rupture of the strainers installed at several points in the vertical column of the wells starting from a certain depth;
The parties found themselves in disagreement as to the accountability of these malfunctions. Y argued that they were due to an under sizing of the strainers by X, and the latter argued that they were due to poor water quality, which Y had failed to remedy;
It was in these circumstances that the dispute arose between the parties, and that arbitration proceedings were initiated by X, who was no longer paid, and had been prohibited from continuing its work;
In a partial award of 9 March 1995, the arbitral tribunal declared, inter alia, that the main cause of the malfunctions observed had been an under sizing of the strainers attributable entirely to X; it therefore held that Y’s termination of the contract was well-founded and referred the liquidation of its damages to the final award, that was to be made at the end of the second phase of the arbitration proceedings;
Y communicated, on 29 May 1997, during that second phase of the arbitration proceedings, documents which X considered to call into question the arbitrators' conclusions as to its liability, and which had been fraudulently concealed, X applied to the still constituted arbitral tribunal for a revision of its award of 9 March 1995;
After listening to the parties at the hearing of 19 December 1997, the arbitral tribunal issued a decision, which it described as an “order”, on 14 May 1998, the operative part of which is as follows:
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the admissibility of the application filed by X for revision of the Partial Award must be dealt with in accordance with French law; - under French law, the only acceptable ground for the revision of an award pronounced in France in an international arbitration is fraud;
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in order for X’s appeal for revision of the award to be admissible, X should have proved fraud; - X did not prove that the documents were fraudulently concealed by Y, nor proved any kind of fraud; - X’s application for revision of the award is not admissible.
Arguing that, despite its qualification as an “order”, the above-mentioned decision nevertheless constituted an “award” since it settled a contentious issue between the parties, X brought against it an action for annulment based on Articles 1504 and 1502 paragraphs 3, 4 and 5 of the new Code of Civil Procedure, since, according to X, the arbitrators had neither complied with the mission conferred to them, nor with the adversarial principle, and had rendered a decision in violation of international public policy;
It seeks the annulment of this “award” and the order of Y to pay the sum of 100,000 F on the basis of Article 700 of the new Code of Civil Procedure;
Y claims in the main proceedings that the disputed decision is not an award, and that the appeal is therefore inadmissible;
In the alternative, it claims that the conditions for the opening the said appeal are not met and that X should be dismissed from all its claims;
It requests the allocation of a sum of 100,000 F on the basis of Article 700 of the new Code of Civil Procedure;
The parties filed, in response to the arguments developed by the Public Prosecutor’s Office at the hearing, a memorandum under deliberation pursuant to Article 445 of the new Code of Civil Procedure;
UPON WHICH, THE COURT:
On the qualification of the disputed decision:
Whereas the qualification of “award” does not depend on the terms retained by the arbitrators or by the parties;
Whereas X applied to the arbitrators, on 15 October 1997, for a revision of the partial award of 5 March 1995, arguing on the one hand that Y had fraudulently concealed decisive documents that were in its possession from the beginning of the arbitration proceedings, and which would have been such as to call into question the decision relating to the liability concerning the disorders, and on the other hand, that in any event, these documents constituted the decisive factual revelation, which X itself had ignored, without fault of its own;
Whereas Y challenged the admissibility and the merits of the application;
Whereas the parties exchanged briefs on the disputed issue, and pleaded at the hearing of 19 December 1997, along with their respective ‘experts’ ; that in the light of all these elements, and after five months of deliberation, the arbitral tribunal finally issued the “order” of 14 May 1998, in which, after having discussed at length the respective merits of the arguments put forward by each side, it declared the appeal inadmissible, as X had failed to demonstrate the reality of the alleged fraud;
Whereas the reasoned decision by which the arbitrators thus, after examining the parties' contradictory arguments and carefully assessing their merits, definitively settled the dispute between the parties as to the admissibility of the application for revision initiated by X, rejecting X’s claims and putting an end to the dispute which had arisen in the proceedings before them, is clearly within the scope of the arbitral tribunal’s jurisdictional powers:
Whereas, furthermore, the ground put forward by Y according to which the disputed “order” could be analyzed as a decision to refuse to open proceedings for withdrawal, and should therefore be assimilated to the “decisions of administration of the procedure” taken by the arbitration institution to refuse to initiate arbitration proceedings or to call a third party to it, is unfounded, whereas in any event, and even supposing that the comparison is exact, if ICC decisions are not awards, whatever the nature of the difficulties they decide and the procedure followed, it is for the main reason that they do not emanate from an arbitral tribunal, which is obviously not the case here;
Whereas contrary to what Y claims and notwithstanding its qualification of “order”, the decision of 14 May 1998, which was not a decision participating in the arbitration investigation, is therefore a true award;
Whereas it follows that the action for annulment filed by X is admissible;
On the action for annulment:
Whereas by application of Articles 1504 and 1520 of the New Code of Civil Procedure, an arbitral award may be set aside if… 1520-3 the arbitrator has ruled without complying with the mission conferred upon him and if… 1520-4 the due process principle has not been respected;
Whereas, among other grounds, X specifically claims that the decision of 14 May 1998 would be subject to annulment on each of these grounds;
Whereas it claims, firstly, that since the decision in dispute was indeed an arbitral award and not a mere procedural order, Articles 21 and 23 of the Rules of Arbitration of the International Court of Arbitration of the International Chamber of Commerce required the arbitrators to submit it for approval to the International Court of Arbitration of the International Chamber of Commerce before signing it and notifying the parties; that by failing to take this prior step, the Arbitral Tribunal failed in its duty to make an award in accordance with the Rules of Arbitration chosen by the parties ;
Whereas, secondly, it claims that the arbitrators violated the fundamental rights of defense and the due process principle, together with Article 11 of the Arbitration Rules, which they had been instructed to apply, on the one hand, by declaring X’s application for revision inadmissible on the grounds that Y’s fraud had not been proven, even though this question had not yet been the subject of an adversarial debate and that X had not been given any opportunity to prove this despite its requests and protests, and, on the other hand, by addressing, even if “prima facie”, the merits of the dispute in disregard of the agenda which was limited to the admissibility of the appeal;
Whereas, on the first ground, according to the terms of Article 21 of the Rules of Arbitration of the International Court of Arbitration of the International Chamber of Commerce, to which the parties had chosen to refer,
“Before signing a partial or final award, the arbitrator must submit the draft award to the International Court of Arbitration;
The latter may prescribe changes of form. It may, while respecting the arbitrator’s freedom of decision, draw his attention to points relevant to the merits of the dispute.
No award may be made unless it has been approved in form by the Court”.
Whereas furthermore according to Article 23, the Award, once it has been issued under the above-mentioned conditions, shall be notified to the parties by the Secretariat of the International Court of Arbitration of the International Chamber of Commerce;
Whereas it is established in this case that the arbitrators refrained from submitting their draft “order” to the International Court of Arbitration and that the decision was notified to the parties without having undergone this prior control;
Whereas by thus failing to comply with an essential and characteristic provision of the Rules of Arbitration of the International Court of Arbitration of the International Chamber of Commerce, since it is intended to guarantee to the parties who refer to it the respect of minimum requirements as to the form and substance of the award to be made, and to ensure that they obtain a decision in conformity with these Rules, the arbitrators did not comply with the mission which had been entrusted to them;
Whereas, however, Y argues that by refraining from protesting immediately and waiting six months before filing its action for annulment and then refusing to proceed with the regularization which it had itself proposed, X has waived its right to rely on the irregularity which it raises today;
Whereas, however, such a renunciation cannot be opposed to the party, which, having had knowledge during the arbitration procedure of an irregularity of this one, refrains voluntarily from denouncing it and lets the procedure continue until its term without mentioning it;
Whereas in the present case, X only became aware of the arbitrators' failure to act once the decision had been given and notified to the parties, although the revision proceedings had been declared inadmissible and the arbitrators had already been relieved of the dispute they had decided;
Whereas it cannot therefore have waived the right to rely on an irregularity that it did not know about before the decision;
It was also observed that no useful regularization could be made once the “order” had been issued, as the Chairman of the Arbitral Tribunal himself agreed on this in his letter of 29 January 1999 addressed to the lawyers of both parties. Y is not entitled to deny X the right to invoke the arbitrators' failure to comply with the Arbitration Rules;
Whereas the fact of waiting to initiate an appeal cannot be considered as a waiver of the right to exercise it;
Whereas it can be concluded that on this basis the decision of 14 May 1998 is subject to annulment;
Whereas, on the second ground, the arbitrators are bound to respect the equality of the parties and the adversarial principle; that they must in particular ensure that each party has been able to assert its claims in fact and in law, to know those of its adversary, and to discuss them;
Whereas on 15 October 1997, X applied to the Arbitral Tribunal for a revision of the partial award of 9 March 1995, that it concluded as follows: " sum up: there is no doubt that an international arbitral tribunal, including an ICC tribunal, has the intrinsic power to revise its judgment if new facts of decisive importance are discovered before the tribunal becomes functus officio, provided that the other party could not have reasonably obtained such evidence in a timely manner. Fraud, including concealment of documents or other evidence, constitutes a “new fact” for purposes of revision. The new fact is “decisive” if “when added to the other facts of the case that were previously considered, it seriously tilts the balance, and consequently alters the conclusions reached by the tribunal”. Because this power of revision is inherent in the tribunal’s power to determine its own procedures, it need not be expressly mentioned in the agreement or in the tribunal’s constitutive file. The power of revision has long been recognized as confirming rather than contradicting the principle of irrevocability";
Whereas in his two cover letters of the same day, X requested the arbitral tribunal to declare that its application is admissible, and “that the question of revision be discussed by a hearing on the merits …” .
Whereas, having been given until 31 October to comment “both on admissibility and on the merits” (letter of the arbitral tribunal of 17 October), Y requested an extension until 14 November 1997 because of its need to “provide an adequate defense to the application”;
Having obtained the extension requested, it was not until 18 November 1997 that Y finally sent a reply of more than 500 pages in which it argued, inter alia, that proof of fraud was necessary for the admissibility of the application for revision, and that in this case it had not been provided;
Whereas on 19 November, X contested the admissibility of this reply, and replied with a two-page note devoted essentially to questions of admissibility and whether such admissibility involved proof of the alleged fraud or whether it was sufficient for the applicant to establish “prima facie the discovery of new facts of a decisive nature” and in which it reiterated its request for a hearing to “rule on the admissibility of its application for revision” and, if so, “to determine the procedure to be followed thereafter";
Whereas, by order of 20 November 1997, the Arbitral Tribunal decided to declare Y’s comments admissible, although they were sent with a delay, giving X until 21 November 1997 to reply and announcing that no new writing would be accepted after that date;
Whereas on 21 November, Y replied with a short note on the question of admissibility;
Whereas finally, on 27 November 1997, the Arbitral Tribunal set 1 December as the date for the hearing on the Request for Revision, stating that “This hearing will be limited to the admissibility of the Claimant’s claim, including the powers of the Tribunal to rule on this claim in the light of Article 1491 of the New Code of Civil Procedure or otherwise";
Whereas during this hearing which finally took place on 19 December 1997, the President of the Arbitral Tribunal specified to the parties that the existence or non-existence of fraud as a condition of admissibility should be debated; that Y, who had explained itself on this point in its commentary of 18 November, complied; Whereas X, on the contrary, protested that it had been misled as to the content of the notion of admissibility and immediately requested, in a memorandum under advisement dated 9 January 1998, that the proceedings be reopened to enable it to reach a conclusion on the proof of fraud and to reply on this point to the lengthy comments made by Y only three days before the closure of the investigation;
Whereas, however, both parties had had “the opportunity to present their arguments on the question of admissibility both in their written brief and at the hearing of December 1997” and that “the adversarial principle had been respected”, the Arbitral Tribunal decided to rule as it stood (Order of 17 March 1998) ;
Whereasit was under these conditions that it declared the application for revision inadmissible, as X had failed to demonstrate precisely the alleged fraud;
Whereas it follows from all of the above that even if Y had indeed been invited to conclude “on the merits” and if at no time had the arbitral tribunal clearly excluded from the agenda of the hearing to intervene on the revision, the question of proof on the merits of the alleged fraud, at the very least, it left room for ambiguity since it announced on 27 November 1997 that the proceedings would be limited to the “admissibility in principle” of the application for revision, that the length of the oral arguments would be limited to one hour for each party and that the decision would be handed down on the same day, from which it could legitimately be deduced, in the absence of any precision, that, as X had requested, the hearing would be exclusively devoted to defining, what remained to be done, the legal framework of the action and the rules applicable to it, in particular regarding the limits of the evidence to be adduced on the question of fraud about which there was a fundamental disagreement between the parties, it finally chose to take the next step immediately by addressing the discussion on the existence of the alleged fraud;
Whereas, however, although X had itself discussed the issue in its initial motion, it had not developed its comments on this point and had not attempted to prove its allegations;
Whereas the initial discussions had to be limited, according to the arbitral tribunal itself, “to the admissibility in principle” of its claim, X did not think that it had to respond to the very lengthy submissions made by Y on the issue only three days before the closure, nor did it attempt to obtain additional time to do so;
Whereas by refraining to dispel this obvious misunderstanding by making clear to the parties what it meant by “admissibility in principle”, and by ruling under these conditions, without even ordering a reopening of the proceedings, the arbitrators violated the adversarial principle and the rights of defense;
Whereas GRMA nevertheless objected that by refraining from immediately criticizing the terms of the order of 17 March 1998, X would again have waived the right to rely on the alleged irregularity;
Whereas, however, it was precisely because X had protested against what it considered to have been an infringement of its fundamental rights that the order of 17 March 1998 intervened and that it is hard to imagine what it could have done then, other than to bring an action for annulment before the Court of Appeal, as it resolved to do;
Whereas it follows that the second ground of annulment is also well-founded and that the “decision” of 14 May 1998 is also subject to annulment on this ground;
Whereas Y, who will bear the costs of the action, must also be ordered to pay X a sum of 50,000 F on the basis of Article 700 of the new Code of Civil Procedure, to the benefit of which it cannot claim;
FOR THESE REASONS
Declares the action for annulment brought by Braspetro Oil Services Company against the decision of 14 May 1998 admissible and well founded:
Annuls the aforementioned decision;
Orders Y to pay Braspetro Oil Services Company the sum of 50,000 F on the basis of article 700 of the new Code of Civil Procedure;