Paris Court of Appeal, No. 07/06619 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, 9 October 2008, No. 07/06619

MERIAL COMPANY

Vs.

KLOCKE VERPACKUNGS - SERVICE GMBH

S.A.S. SOCIETE MERIAL (Merial), a company incorporated under French law, filed an action for annulment against the arbitral award issued in Paris on 22 February 2007 under the aegis of the ICC by Messrs E, President, B and A, arbitrators, in the dispute between it and Z VERPACKUNGS SERVICE GMBH (Verpackungs), a company incorporated under German law in connection with a contract for the packaging of veterinary products. In this award, the arbitral tribunal:

declared MERIAL’s action partially well-founded;
ordered VERPACKUNGS to pay to MERIAL EUR 276,601.91 with interest at the French legal rate from 17 November 2004 and then interest capitalized from 22 April 2005, the date of the request for arbitration;
ordered the offsetting of this principal amount and interest against the sums awarded to VERPACKUNGS in its counterclaim,
dismissed the remaining of MERIAL’s claims,
declared VERPACKUNGS’s counterclaim partially well-founded;
ordered MERIAL to pay VERPACKUNGS EUR 3,582,340;
ordered MERIAL to pay VERPACKUNGS EUR 152,317.34 in cash or a receipt for the ‘unused packaging items ordered’ in return for VERPACKUNGS’s simultaneous delivery of the goods referred to under headings 6084 and 6977 according to exhibit 77 in its file;
dismissed the remaining of VERPACKUNGS’s claims;
ruled on costs and expenses.

Arbitrator Mr. A issued a dissenting opinion and did not sign the award.

In support of its claims, MERIAL invokes the violation of international public policy (Article 1502-5 of the Code of Civil Procedure), the failure to comply with the principle of due process (Article 1502-4 of the Code of Civil Procedure), the absence of an arbitration agreement (Article 1502-1 of the Code of Civil Procedure) and the failure to comply with the Terms of Reference (Article 1502-3 of the Code of Civil Procedure).

MERIAL therefore asks the Court to annul the award in the light of the dissenting opinion issued by A, to annul the procedural order of 12 April 2006 and order VERPACKUNGS to pay EUR 50,000 under article 700 of the Code of Civil Procedure.

VERPACKUNGS requests that the case be dismissed and claims EUR 20,000 under Article 700 of the Code of Civil Procedure.

UPON WHICH

On the first and second grounds for annulment: the principle of due process (in french Principe de la contradiction) has not been respected and the recognition or enforcement of the award is contrary to international public policy (Articles 1502-4 and 1502-5 of the Code of Civil Procedure)

MERIAL first claims that the dissenting opinion constitutes a violation of the secrecy of the deliberations which leads to the nullity of the award for reasons of international public policy.

MERIAL further adds that the principles of due process and international public policy have been violated, and that the grounds for the decision were based on unidentified elements (documents and evidence), making it impossible to ascertain whether they had been submitted to the adversarial debate, that the hearing of VERPACKUNGS as a “know-it-all” by the arbitral tribunal violated the rights of defense and the principle of due process, as no one can constitute evidence for itself, and that the arbitrators reversed the burden of proof by withholding that VERPACKUNGS had special know-how, on the ground that it could not effectively demonstrate that VERPACKUNGS did not possess that know how.

Finally, MERIAL claims that it was unable to submit written arguments to VERPACKUNGS’s response and summary proceedings filed on 15 March 2006, less than two months before the oral pleadings, even though the latter contained new allegations that would disturb the state of the proceedings.

Whereas, however, concerning the violation of the secrecy of the deliberations, the Terms of Reference signed on 21 October 2005 by the parties and the arbitrators provide that the rules applicable to the proceedings are those resulting from the ICC Rules of Arbitration in force since 1 January 1998; whereas consequently, the principle of secrecy of the deliberations before the courts enshrined in Article 448 of the CPC, upon which MERIAL is relying, is not applicable in this case; whereas the secrecy of the deliberations, which is no more a ground for setting aside the award under international law than under domestic law, does not in principle prevent the expression of dissenting or separate opinions; whereas MERIAL thus does not identify how the existence of a dissenting opinion would be likely to violate the French concept of international public policy, provided that the principle of collegiality and deliberation has been respected, which is not disputed;

Whereas with regard to the complaints concerning the rigor of the award’s reasoning, the hearing of both parties by the arbitral tribunal and the evidence taken from them or the alleged reversal of the burden of proof, MERIAL makes a lengthy and carefully reasoned criticism on the merits of the award, with a view to a revision of the merits, which is prohibited by the judge in charge of the annulment;

Whereas, finally, following the filing by VERPACKUNGS of its brief no. 2 on 15 March 2006, MERIAL filed a response brief on 7 April 2006; whereas, moreover, the hearing of the pleadings took place on 12 May 2006, after which MERIAL had plenty of time to put forward his arguments; whereas moreover, it did not protest following the procedural order of 12 April 2006, which stated that “the parties' counsel gave full and complete explanations on the admissibility of the claims made by VERPACKUNGS in his brief No. 2 of 15 March 2006” and concluded that “the provisional timetable (…) is not appropriate for the hearing of the case (… ) is confirmed subject to such adjustments as the Arbitral Tribunal may consider necessary at the conclusion of the arbitration hearing of 12 May 2006"; whereas it then signed without reservation with VERPACKUNGS and the arbitrators the minutes of the hearing of 12 May 2006, which included the pronouncement of the closure of the proceedings, which it cannot seriously claim to concern only the conduct of the hearing and not the previous proceedings; thus, in application of the principle of estoppel, it cannot today usefully claim that it has been prevented from replying to VERPACKUNGS’s brief no. 2 in a contradictory manner;

Whereas, therefore, the first two grounds for annulment are rejected;

On the third and fourth grounds for annulment: the arbitrators ruled without an arbitration agreement and without respecting the mission entrusted to it (Articles 1502-1 and 1502-3 of the Code of Civil Procedure)

MERIAL claims that the Terms of Reference only concerned the contractual sphere (claims for various payments by MERIAL under the contract, counterclaim of VERPACKUNGS challenging the contract on fraud or poor performance) whereas in the end VERPACKUNGS’s counterclaim replacing its initial claim is based on tort relating to misappropriation of a specific know-how, and by declaring this claim admissible, which is not sufficiently connected to the original claim, nor does it supplement or modify it, the arbitral tribunal has ruled without an arbitration agreement or at least in violation of its mission.

Whereas, however, the procedural order of 12 April 2006 states in point 1 that “the arbitrators note that at this stage of the proceedings the parties' counsel have fully and negatively explained to each other the admissibility of the claims made by VERPACKUNGS in his statement of claim No. 2 of 15 March 2006” and in point 2 that “in accordance with Article 19 of the Arbitration Rules on ‘new claims’, the arbitral tribunal considers and finds that the new claims of VERPACKUNGS are within the limits of the Terms of Reference of 21 October 2005";

Whereas MERIAL, who has not protested against the terms of this deed and who, as indicated above, has signed without reservation the minutes of the arbitration hearing of 12 May 2006 declaring the proceedings closed, is no longer admissible, in application of the principle of estoppel, to criticize the award on these points before the annulment judge;

Whereas the third and fourth grounds for annulment and therefore the appeal are rejected;

On applications under Article 700 CPC:

Whereas the company MERIAL, which was unsuccessful and whose application on this ground is dismissed, pays EUR 20,000 to the company VERPACKUNGS;

FOR THESE REASONS

REJECTS the action for annulment of the arbitral award rendered in Paris on 22 February 2007 by Messrs E, B and A;

ORDERS company MERIAL to pay to company VERPACKUNGS SERVICE GMBH EUR 20,000 by application of article 700 of the Code of Civil Procedure;

REJECTS any other request;

ORDERS company MERIAL to pay the costs of the appeal and admits SCP Grappotte Benetreau Jumel, avowed, to the benefit of article 699 of the Code of Civil Procedure.