Paris Court of Appeal, No. 06-09.002 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, 3 June 2008, No. 06-09.002

CERIC WISTRA PLC vs. BELART INDUSTRIES PLC

Following an international call for tenders for the purchase of two enamel firing kilns, BELART INDUSTRIES, based in Tunis, awarded the contract to CERIC WISTRA. BELART INDUSTRIES complained about defects in the kilns delivered and a dispute arose over the payment of the balance. BELART INDUSTRIES filed a request for arbitration with the ICC Court of Arbitration in application of the arbitration clause inserted in the contract.

The sole arbitrator, Mr. YZ, rendered an award on 14 April 2006, in which he:

stated that the contract was not performed by CERIC WISTRA in accordance with its contractual commitments,
stated that the company CERIC WISTRA shall pay to the company BELART INDUSTRIES: -as reimbursement of the sums paid for the two ovens, € 142,379.39; -in respect of the three second-hand ovens € 15,306.75 - € 67,000 representing the difference between the price of the initial contract and the current price of two new ovens to replace the disputed ovens, -€ 522,411.14 for the missed gain
stated that the company CERIC WISTRA will contribute € 15,000 to the fees of the lawyer of the company BELART INDUSTRIES
stated that CERIC WISTRA will pay BELART INDUSTRIES the sum of US$ 30,000 paid by the latter to the ICC
stated that the amounts shall bear annual interest at EURIBOR from 1 March 2005 until full payment is made
stated that CERIC WISTRA shall bear its own costs, the administrative costs and the fees and expenses of the arbitrator, as fixed by the ICC

CERIC WISTRA filed an action for annulment of the award, raising two grounds for annulment, the failure to comply with the Terms of Reference (Article 1502-3 of the Code of Civil Procedure) and the breach of due process (in French Principe du contradictoire) (Article 1502-4 of the Code of Civil Procedure). Besides requesting that BELART INDUSTRIES be ordered to pay the costs, it is also seeking to have the company ordered to pay the sum of EUR€ 15,000 pursuant to Article 700 of the Code of Civil Procedure.

BELART INDUSTRIES rejects the action for annulment on the grounds that it is unfounded and requests that CERIC WISTRA be ordered to pay € 1,236,313 in damages because of the abusive and dilatory nature of the action and € 60,000 pursuant to Article 700 of the Code of Civil Procedure.

UPON WHICH:

On the first ground for annulment: the sole arbitrator ruled without complying with the Terms of Reference given by the parties (Article 1502-3 of the Code of Civil Procedure)

CERIC WISTRA argues that the arbitrator did not comply with his mission because rather than resorting to the service of an expert, he considered a document drawn up by Mr. HAFNAOUI, entitled Expertise of 22 October 2004, as valid, concluding that the two furnaces did not fully comply with the objective. It explains that a damage report drawn up on 7 June 2005 by Mr. HAFNAOUI, which states that the furnaces are ‘unusable’, demonstrates ‘the total inconsistency of the assessment’ of 22 October 2004.

CERIC WISTRA explains that the sole arbitrator should have ordered an expert mission in order to establish the defects affecting the furnaces delivered, the cause and origin of these defects, and that the document of 22 October 2004 could not replace the necessary technical expertise; that the arbitrator did not comply with his mandate by refraining from commissioning the necessary expertise;

Whereas, according to Article 20 of the ICC Rules, the arbitral tribunal may, after consultation with the parties, appoint one or more experts; whereas, according to point 3 of the Terms of Reference, the arbitrator shall in particular determine the existence, nature, cause and consequences of any defect or defects in the two furnaces supplied by the defendant and referred to in support of the claim and ‘“seek the assistance from an expert if necessary…"; that by a decision of a Tunisian court, Mr. HAFNAOUI was appointed as an expert; that it is irrelevant whether the court had jurisdiction, or whether the legal qualification of judicial adversarial expertise applies to this expertise. Mr. HAFNAOUI’s report, which was included in the arbitral proceedings and submitted to the parties for discussion, thus constitutes a factual element of the proceedings. CERIC WISTRA explained this on page 4 of its summary report: “no measurement of industrial results is carried out… no verification of the functioning of the installed equipment is guaranteed”; that therefore, there is no obligation to seek assistance from an expert, and the sole arbitrator is not under any obligation to do so. That the arbitrator, who based his analysis on various elements of the case as stated in the award, such as “the correspondence between the parties, the applicable rules, the witness statements produced, the evidence gathered and the expert’s report reveal defects which have not been corrected”, did not disregard his mandate by not seeking the assistance from an expert, that CERIC WISTRA is in fact criticising the motivation of the award, which is not under the review of the annulment judge; that the first ground for annulment is rejected;

On the second ground for annulment: the arbitrator violated due process (in French Principe du contradictoire) (Article 1502-4 of the Code of Civil Procedure)

CERIC WISTRA maintains that the expertise of 22 October 2004, based on subjective assessments, should have been declared unenforceable against it since this report was rendered by decision of the Tunis Court, even though this court did not have jurisdiction, that CERIC WISTRA was neither regularly summoned to the expertise operations, nor called in due time, and that the conclusions of the expertise report are whimsical.

It further states that the arbitrator violated due process (in French Principe de contradiction) by failing to ensure that the factual elements on which he ruled were subject to communication and adversarial discussion; that in the present case, the arbitrator stated that he closed the hearing on 21 November 2005 and received the parties' observations on 5 and 6 December 2005 respectively, as well as the minutes of the hearing, without communicating these documents and giving rise to an adversarial discussion.

Lastly, it adds that the failure to comply with due process (in French Principe de contradiction) le is established because the arbitrator assessed the dispute in the light of the Vienna Convention, stating that his assessment was not contested by the parties; and that, although allegations of loss of margin were made by CERIC WISTRA’s opponent, no evidence was produced in the proceedings in support of this allegation of damage.

Whereas, as already stated, Mr. HAFNAOUI’s report was submitted to the parties for debate, to which they also submitted their observations; whereas, consequently, the sole arbitrator, in taking into account this factual element, under the conditions set out above, did not violate due process (in French Principe de contradiction);

Whereas the objection made in accordance with Article 1502 must be raised whenever possible before the arbitral tribunal; whereas it appears from the statements in the award that “the sole arbitrator closed the hearing on 21 November 2005, after having indicated to counsel that they could, within a period of fifteen days, send their observations on the evidence heard” and that “the parties declared that they had no comments to make and that they were able to express themselves fully and freely. They both waived the oral argument…"; that in the present case, CERIC WISTRA did not raise this claim with the sole arbitrator since it neither contested the exchange of observations to be made, of which it was notified at the end of the hearing, nor requested a copy of the minutes of the hearing, although it was aware of their existence because of the presence of the stenotypist during the debates, as mentioned in the award; that, moreover, the sole arbitrator did not have to submit to the parties' adversarial discussion his reasoning on the assessment of the damage on the basis of the elements which the parties had been led to discuss; that, once again, through its complains, CERIC WISTRA sought to obtain a review of the merits of the award; that no violation of due process (in French Principe du contradictoire) had therefore been demonstrated on these matters;

Whereas, finally, according to the authentic wording of the award (p. 22) and the fact that the Vienna Convention of 11 April 1980 was invoked by the claimant and not contested by the defendant, the sole arbitrator did not violate due process (in French Principe de contradiction) by referring to this international convention; that the second ground of appeal and consequently the action for annulment are thus rejected;

On the request for damages by BELART INDUSTRIES

Whereas that the company BELART INDUSTRIES does not establish any particular circumstances which turned the right of action exercised by the company CERIC WISTRA into an abuse; that it is therefore appropriate to reject the claim for damages made by the company BELART INDUSTRIES;

On Article 700 of the Code of Civil Procedure

Whereas the unsuccessful company CERIC WISTRA is ordered to pay the costs, its request under Article 700 of the Code of Civil Procedure is rejected, and is ordered to pay the sum of € 60,000 to BELART INDUSTRIES;

FOR THESE REASONS

Dismisses the action for annulment,

Rejects the claim for damages by BELART INDUSTRIES,

Orders the company CERIC WISTRA to pay the company BELART INDUSTRIES the sum of € 60,000 pursuant to Article 700 of the Code of Civil Procedure,

Orders the company CERIC WISTRA to pay the costs and admits the SCP BERNABE CHARDIN CHEVILLER, avowed, to the benefit of article 699 of the Code of Civil Procedure.