Paris Court of Appeal, No. 07/22164

Paris Court of Appeal, 12 February 2009, No. 07/22164

S.A. J & P AVAX SA

Vs.

SOCIETE TECNIMONT SPA

The company B S.p.A. (hereinafter B), a company incorporated under Italian law, has entered into a subcontracting agreement with J&P Z (hereinafter Z), a company incorporated under Greek law, for the construction of a 130,000-ton-per-year propylene plant in Thessaloniki. A dispute having arisen between them, B implemented the arbitration clause inserted in the contract in article 27.2 providing for recourse to ICC arbitration in Paris, appointed as arbitrator, Ms. Y. Z appointed A, who was replaced following her death on 13 August 2003 by Mr. I, and the two arbitrators appointed Mr. E as President of the arbitral tribunal, as confirmed by the Secretary General of the ICC International Court of Arbitration on 12 November 2002.

Following a partial award issued in Paris on 10 December 2007, the arbitral tribunal ruled on the principle of liability in the terms referred to by the court.

Z filed an appeal for annulment of the award on the basis of article 1502-2 of the Code of Civil Procedure for failure by Mr. E to comply with his duty of disclosure and his duty of objective independence due to the nature of the links existing between the law firm in which he practices and B.

Z requests to condemn B to pay the sum of EUR 70,000 pursuant to article 700 of the Code of Civil Procedure.

B claims that the appeal is inadmissible and in the alternative, that Z’s claims be dismissed, and requests that Z be ordered to pay the sum of EUR 80,000 under article 700 of the Code of Civil Procedure.

B raised the inadmissibility of the appeal on the grounds that the application for challenge against Mr. E filed with the ICC on 14 September 2007 was declared inadmissible as time barred. In the alternative, B claims that the action should be dismissed because Mr. E did not breach either his duty of disclosure or his duty of independence.

UPON WHICH, THE COURT:

On the sole ground for annulment: the arbitral tribunal was improperly composed (article 1502-2 of the Code of Civil Procedure)

Z claims that the award should be annulled for improper composition of the arbitral tribunal, on the grounds that Mr. E, the President of the arbitral tribunal, failed to comply with his obligation to disclose to the parties a circumstance likely to affect his independence and that Mr. E’s objective independence was lacking in view of the links existing between the law firm L M in which he works and B.

Z argues that Mr. E failed in his duty of disclosure in his statement of independence of 30 October 2002, by failing to disclose that the law firm had advised the parent company of B, C, until 2002 and retained it as a client until 2005, so that when Mr. E was appointed President of the arbitral tribunal, C was among L M’s clients. Z adds that E was required to disclose spontaneously the links between his firm and B and its parent companies and subsidiaries, and disclose that the Paris office of the law firm represented D, a wholly-owned subsidiary of B, from February 2004 until today in a dispute before the French courts, advised it in a tax matter. In December 2004, a lawyer from L M was appointed sole arbitrator in an arbitration to which D is a party, that from July 2005 to April 2007, this law firm advised B and a consortium composed of D and B on the Fujian project in China, and that L M advised EDF, which became B’s parent company in May 2005.

Finally, Z argues that Mr. E lacked independence due to the numerous and renewed links maintained over the last five years between the law firm and B, its parent and subsidiary companies.

Whereas the arbitrator must disclose to the parties any circumstance likely to affect his judgment and cause the parties to have reasonable doubt in their minds as to his impartiality and independence, which are the essence of the arbitral function;

Whereas B raises the inadmissibility of the challenge on the grounds that, on the one hand, the challenge against Mr. E filed with the ICC on 14 September 2007 was declared inadmissible because of facts known to Z more than 30 days before his challenge - time limit provided for in article 11 of the ICC rules - and that, on the other hand, Z refrained from filing a new challenge because of facts that came to his knowledge after the rejection of his challenge;

Whereas in his declaration of independence of 30 October 2002, Mr. E, electing to accept his appointment, stated that “last year, the Washington and Milan offices of L M, assisted B’s parent company in a case that is now closed. I have never worked for this client”;

Whereas Z explains that having conceived doubts about the existence of undisclosed links between Mr. E and B after having fortuitously learned of the program of an international conference held in London in May 2007, she requested information from the arbitrator on 16 July 2007, to which the arbitrator replied on 17 and 21 July; whereas Z filed a challenge request combined with a request for the replacement of M. E on 14 September 2007, which the ICC dismissed in a decision on 26 October 2007, the reasons for which were not disclosed to the parties; whereas on 31 October 2007, Z expressed reservations, and proceeded with the arbitration by protesting, and then again questioned the President of the arbitral tribunal on its relationship with B by letters on 20 November 2007, 22 January 2008 and 25 January 2008 to which Mr. E. replied on 18 October, 21 December 2007, 22, 29 January and 20 March 2008, gradually distilling revelations on the precise nature of L M’s activities with B and its parent and subsidiary companies; whereas, since the situation criticized was not known to the appellant prior to the issuance of the partial award, since Z had not waived her right to challenge Mr. E’s independence, the ground for annulment based on the irregular composition of the arbitral tribunal is admissible;

Whereas, in his declaration of independence, Mr. E revealed information relating to a possible conflict of interest between B and the law firm that counts it among its clients, a firm to which Mr. E is structurally linked in his capacity as counsel in the Paris office of L M;

Whereas, however, his disclosure of L M’s role in B’s parent company was not exhaustive, since the law firm was still acting for C in April 2002, six months before the arbitrator’s declaration of independence, and did not close C’s client account until 2005; whereas L M advised the consortium D B on the Fujian project in China, three months during 2005, whose account was closed in L M’s books on 16 April 2007; whereas, moreover, this law firm has, since 2004, represented D, a wholly-owned subsidiary of B, in a legal dispute “still ongoing”, as M writes. E in its letter of 26 September 2007, consisting of ‘representing the client in a judicial expertise and before the French courts in consideration of damages suffered by two turbines in a cogeneration plant built by a consortium of which D is one of the members'; that in addition, L M also advised D in a tax case relating to a Franco-Greek tax treaty in February 2004;

Whereas the bond of trust between the arbitrator and the parties must be preserved on an ongoing basis, the parties must be informed throughout the arbitration of any relations which could in their view have an impact on the arbitrator’s judgment and which could affect his or her independence, without B, which could be aware of cases in which it, one of its subsidiaries or its parent company had called on L M, being able to oppose the worldwide size of the law firm, 2200 lawyers, noting however that a department is responsible for the verification of disputes and that the information provided by Mr. E to the parties to the arbitration was communicated to him by his firm;

Whereas these activities, taken as a whole, of advising a subsidiary of B during the arbitration, of assisting its parent company a few months before the acceptance by the President of the arbitral tribunal of its appointment, and of representing a subsidiary of B, by the Paris office of L M - where, moreover, Mr. E. works - during the arbitration and again after the issuance of the partial award, the amount of the fees paid to L M as counsel and representative of B and D, USD 116,057, establish the existence of a conflict of interest between the President of the arbitral tribunal and one of the parties to the arbitration; moreover, Mr. E, in proposing his resignation, which was accepted, observed that “I do not exclude that a party may see in this situation an incompatibility with the requirement of independence";

Whereas, as a result, because of the arbitrator’s lack of independence, the arbitral tribunal was improperly composed; whereas the sole ground for annulment being admissible and well-founded, the partial award of 10 December 2007 should be annulled;

On article 700 of the Code of Civil Procedure and costs

Whereas B who succumbs is condemned to pay the costs and that it is appropriate to condemn her to pay Z the sum of EUR 70 000 under article 700 of the Code of Civil Procedure;

FOR THESE REASONS

ANNULS the partial award delivered on 10 December 2007,

ORDERS B S.p.A. to pay J&P Z the sum of EUR 70,000 based on article 700 of the Code of Civil Procedure,

ORDERS B S.p.A. to pay the costs and admits SCP DUBOSCQ & N O, with the benefit of article 699 of the Code of Civil Procedure.