Paris Court of Appeal, No. 06/14764

Paris Court of Appeal, 27 March 2008, No. 06/14764

A SPA vs. B C UNION, SUD C

On 7 August 2006, A SPA filed an action for annulment of the arbitral award rendered in Paris on 2 July 2006 under the supervision of the Arbitration Chamber of Paris by the arbitral tribunal, ruling at second instance, composed of Mr. C, chairman, Mr. BS and Mr. Z, arbitrators, which:

• ordered A SPA to pay B C UNION the sum of EUR 99,537.84 for the balance of the unpaid invoices and late payment penalties, plus interest at the French legal rate from 31 January 2005, the date of the request for arbitration, until full payment,

• ordered B C UNION to pay A SPA the sum of EUR 13,351.58 in respect of rebates and transport costs, plus interest at the French legal rate from 31 January 2005, the date of the request for arbitration, until full payment, and states that this sum will partially offset the amount owed by A SPA,

• rejected A SPA’s claims for damages and compensation for commercial disruption and abusive resistance,

• ordered B C UNION to pay A SPA the sum of EUR 10,000under Article 700 of the NCPC.

A SPA requests the Court to set aside the award and order SUD C to pay the sum of EUR 5,000 under Article 700 of the new Code of Civil Procedure. It invokes three grounds for annulment: that the arbitral tribunal did not comply with its mission, the violation of due process (in French: principe de contradiction) and the breach of international public order (Article 1502-3, 1502-4 and 1502-5 of the Code of Civil Procedure).

SUD C, which was assigned the rights of B C UNION, alleges that the appeal must be dismissed because the grounds for setting aside which were raised are unfounded. It thus requests that the company A SPA be ordered to pay it the sum of EUR 8,000 under Article 700 of the Code of Civil Procedure.

UPON WHICH:

On the first ground for annulment based on the breach of due process (in French: principe de contradiction) (Article 1502-4 of the Code of Civil Procedure)

A SPA complains that the arbitral tribunal ruled that there was no need to refer to the usage that would have been established between the parties to render its decision on the financial aspect of the transaction. It thus automatically raised a legal provision which was not accepted between the parties, without first obtaining their explanations on this issue. It states, moreover, that the arbitral tribunal, in awarding a manifestly excessive damages clause, did not allow it to form a request for reduction of the clause on the basis of Article 1152 paragraph 2 of the Civil Code.

The arbitrators stated in the award that “if the use to the Vienna Convention was justified to find a solution to the problem of notice, the contract and the agreement of 18 May 2004 are perfectly clear on the terms of payment and there is thus no need to refer to a usage which would have been established”. The tribunal also considered that A SPA did not pay the invoices relating to the goods delivered according to the terms agreed between the parties, limited themselves to assessing the conditions of the financial contractual performance which the parties discussed at length in their statements, and therefore did not raise a legal argument ex officio. Furthermore, since SUD C, in its pleadings of 15 March 2006, requested the payment of contractual compensation of 0.15% per day of delay, it was incumbent on A SPA to demonstrate the excessive nature of the compensation claimed, without it being able to complain to the arbitrators that it had not invited it to do so.

The first ground is therefore rejected.

On the second ground for annulment for violation of international public order (Article 1502-5 of the Code of Civil Procedure)

A SPA claims that the arbitral tribunal ordered it to pay the sum of EUR 66,466.81 as compensation for late payment in application of an unspecified INCOGRAIN formula and to pay late payment interest, in view of the INCOGRAIN clause, of 54.5% per year, a rate that is clearly excessive and contrary to the French concept of international public order. It adds that the arbitrators neither sought nor established the existence of a fault on it part to justify the application of a compensation for delay under the clause of the INCOGRAIN contract. Finally, it argues that the arbitral tribunal’s disregard of the rule of applicable law undermines the French concept of international public order; that in fact, since SUD C did not refer to the provisions of Articles 1156 et seq. of the Civil Code, the arbitrators were not entitled to refer to the contract and the agreement of 18 May 2004, without mentioning the legal basis for the interpretation of the clauses of the contract.

However, considering that A SPA does not demonstrate how the solution adopted by the arbitral tribunal, by holding that it has disregarded its contractual commitments, by referring to the contract and the agreement of 18 May 2004, discussed by the parties, and by condemning it to interest for late payment, offends international public order.

The second plea for annulment is therefore rejected.

On the third ground for annulment based on the non-compliance of arbitral tribunal to its mission (Article 1502-3 of the Code of Civil Procedure)

A SPA states that the arbitral tribunal failed to enforce the rules of the law chosen by the parties. It explains that with regard to financial performance, the arbitral tribunal had to apply the provisions of Article 74 of the Vienna Convention, whereas it ruled ultra petita by raising ex officio a ground relating to the application of the contract and agreement of 18 May 2004 which did not set the amount of damages due in case of payment.

A SPA summarises with this last ground all the arguments of its previous grounds, all of which are inadmissible and unfounded, and once again attempts to obtain a review of the merits of the award, which the annulment judge is prohibited from performing.

The last plea and hence the action for annulment are dismissed.

Considering that the company A SPA should be ordered to pay the company SUD C the sum of EUR 5,000 under Article 700 of the Code of Civil Procedure.

FOR THESE REASONS:

Dismisses the action for annulment,

Condemns the company A SPA to pay the company SUD C the sum of EUR 5,000 pursuant to Article 700 of the Code of Civil Procedure,

Orders the company A SPA to pay the costs and admits the SCP NABOUDET-HATET, Appeal Lawyers, the benefit of Article 699 of the Code of Civil Procedure.

THE CLERK, THE PRESIDENT