Paris Court of Appeal, No. 08/01578 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, 26 March 2009, No. 08/01578

PAPILLON GROUP CORPORATION vs. ARAB REPUBLIC OF SYRIA , THE GENERAL INSTITUTION OF FOREIGN TRADE

For the purpose of organising the 10th Mediterranean Games which were to take place in Latakia (Syria), the President of the Syrian Republic, by order of the 3 May 1984, set up an Organising Committee composed of its president, the head of the departmental office of youth and sports, of four members the Minister of Education and Culture, the Minister of Information, the secretary of the Party’s branch of Latakia, the governor of Latakia, and six reporters, the president of the general sports union, the Deputy Minister of Education, the Director of physical training in the armed forces, two sports and financial experts and the head of the banking group in the central field of control and inspection.

This Organising Committee charged of the preparation, equipment and organisation of the Games set up an advertising committee under the presidency of the Director of the Arab Organisation of Advertising (hereinafter Y). Following a call for tender, Y. selected that of the company PAPILLON GROUP CORPORATION and on 22 March 1986, the two parties concluded an initial framework contract, followed by several contracts, in which is inserted an arbitration agreement under the supervision of the ICC.

On 30 October 1999, the PAPILLON GROUP CORPORATION sent the ICC secretary a request for arbitration against the ARAB REPUBLIC OF SYRIA and Y. By award of 21 December 2001, the arbitrator tribunal, jointly ordered Y. and the SYRIAN ARAB REPUBLIC to pay to the sum of US$ 2,875,459.66 to PAPILLON GROUP CORPORATION and the annulment action of the award was rejected by judgment of 19 June 2003.

On 24 September 2003, once again, PAPILLON GROUP CORPORATION referred the matter to the ICC. The court arbitrator composed of Messrs. Z, MITRY, arbitrators and BELAID, Chairman, issued in Paris on the 11 October 2007 the following award, with a dissenting opinion of Mr. Z:

“I - Declares that the arbitration tribunal does not have jurisdiction to decide on the claimant’s requests against: a - The XXX, Defendant I b - The general institution of Consumption and, c - The “commercial bank of Syria”.

II - Rejects: a - On the proceedings: 1 - The defendants' objections regarding the identity of the PAPILLON GROUP CORPORATION, 2 - The defendants' objections regarding Mr. B C-D, as Representative of PAPILLON GROUP CORPORATION in these very arbitral proceedings, and 3 - The request of the claimant to take into consideration the aforementioned ‘Agreement' of 25 November 1987. b - On ‘applicable law’: 1 - The request of the claimant party which intends to demonstrate the existence of a sort of “solidarity” between the defendants and an “indivisibility” between contracts and other agreements or documents involved in the present litigation and, in particular, to declare that the “Republic” and Y have acted as guarantors for the fulfilment of the contracts related to goods by the Gota institution. 2 - The claimant’s request to hold that the arbitration proceedings initiated on 1997 and 1999 had the effect of suspending the limitation period of its claims for compensation in the present case.

III - On “claims for compensation”: a - Declares that it does not have jurisdiction to examine: 1 - The claimant’s request to order the Republic to the restitution of the bank guarantee of US$ 800,000 and the payment of the claimed amount of US$ 2,017,857.14 in respect of the subsequent losses. 2 - The claimant’s request for payment of the “total value of imported goods” (US$ 5,920,431). 3 - The claimant’s request to compensation for “losses in the value of exported goods” (US$ 10,317,045).

b - Declared inadmissible for period of limitation, 1 – The claimant’s request for condemnation of the defendants to the sum of US$ 1,769,871.96 as “financial interest”, 2 - The claimant’s request for condemnation of the defendants to pay the “interest for late payment” at the rate of 14% per year starting 31 December 1987 and until full payment of the sums due. 3 - The claimant’s request for payment by the defendants of the “2% commission”. 4 - The claimant’s request for payment by the defendants of the sum of 8,758,652 L.S. for “bank interest”. 5 - The claimant’s request for payment by the defendants of the sum of US$ 10,564,000 for “losses in the value of imported goods”.

IV - Rejects for lack of merits: a - The claimant’s request for payment by the defendants of the sum of US$ 107,155 for the 38% commission. b - The claimant’s request for payment by the defendants of the sum of US$ 2,664,194.85 as “profit margin” on the basis of 45%. c - The claimant’s request to order the defendants to pay him the amount of US$ 17,903,225.53 and brought back to US$ 15,421,427.21 after correction for “loss on the goods' value”. d - The related request of the claimant to payment by the defendants of the sum of US$ 399,484.28.

V - Rejects all other claims of the claimant,

VI - rejects all other requests of the claimants,

VII - States and commands the following: a - The claimant shall bear the full cost of the present arbitration fixed by the Court International Arbitration in the sum of US$ 540,000; b - Each Party shall bear the costs and fees it has incurred for the defence of its interests in these proceedings”.

The company PAPILLON GROUP CORPORATION filed an action for setting aside of the award on the following grounds:

that the arbitral tribunal declaring it did not have jurisdiction by an arbitral award that is irreconcilable with the award of 21 December 2001 violated the principle of res judicata that this very award earned according to Articles 1476 and 1500 of the Code of Civil Procedure, and that the recognition by the French courts of the award issued in 2007 would violate international public policy on procedure by enforcing an award that is contrary to a previous award,
that the arbitral tribunal failed to carry out its mission (Article 1502-3 of the Code of Civil Procedure) by declaring it did not have jurisdiction to rule on applications against the ARAB REPUBLIC OF SYRIA whereas it is bound by an arbitration agreement stipulated in the contract of 22 March 1986 and that by such it had necessarily waived its jurisdictional immunity,
that the award violates international public policy on procedure because the arbitrators did not comply with due process (in French Principe du contradictoire) (Article 1502-5 of the Code of Civil Procedure),
that the arbitral tribunal was improperly composed (Article 1502-2 of the Code of Civil Procedure) since the president of the arbitral tribunal was not independent.

PAPILLON GROUP CORPORATION requests the Court of Appeal to order Y, the General Institution of Foreign Trade (hereinafter GOTA) and the ARAB REPUBLIC OF SYRIA to pay in solidium the sum of 40,000 € under Article 700 of the Code of Civil Procedure.

The ARAB REPUBLIC OF SYRIA, Y. and GOTA claim that the court does not have jurisdiction since the ARAB REPUBLIC OF SYRIA benefits from a jurisdictional immunity and that no arbitration agreement is made with the claimant. They argue to dismiss the claimant’s action for annulment, and request that the Commission be ordered to pay them a sum of 40,000 € under Article 700 of the Code of Civil Procedure.

They state that the various annulment grounds given by PAPILLON GROUP CORPORATION are unfounded.

UPON WHICH:

On the ground for annulment based on the failure of the arbitral tribunal to comply with its mission, especially on the jurisdiction (Article 1502-3 of the Code of Civil Procedure):

The PAPILLON GROUP CORPORATION company underlines above all that the arbitral tribunal had jurisdiction regarding the ARAB REPUBLIC OF SYRIA according to the effect of res judicata acquired by the award issued on 21 December 2001; it says that this arbitral award, has definitively established the jurisdiction of the arbitral tribunal constituted under the supervision of the ICC to rule on any dispute arising from its framework agreement concluded on 22 March 1986, rejecting the ground of challenge to jurisdiction raised by the ARAB REPUBLIC OF SYRIA, and that the ARAB REPUBLIC OF SYRIA by not contesting the arbitrators' decision on jurisdiction when it appealed for an annulment of the award who was later rejected by the Court of Appeal of Paris, waived its jurisdictional immunity. The PAPILLON GROUP CORPORATION adds that the requirements for res judicata, which are the existence of identical parties and an identical cause of action, are met since the issue regarding the jurisdiction over disputes between the ARAB REPUBLIC OF SYRIA and the company PAPILLON GROUP CORPORATION was settled concerning the same economic operation and the same contracts on the basis of the same arbitration agreement. Moreover, there is an identical subject-matter since the objection of jurisdiction raised by the ARAB REPUBLIC OF SYRIA based on the very allegation upon which it would not have signed any of the contracts in cause.

The PAPILLON GROUP CORPORATION does also argue that the arbitral tribunal whose award is the object of the present appeal has wrongly declared itself incompetent over the ARAB REPUBLIC OF SYRIA even though the latter is a party to the arbitration agreement that the ‘Ministerial Committee’, on whose behalf Y. has concluded the framework contract, is a Syrian State body without independent legal status This Committee receives and executes instructions from ministerial meetings to which ministers participate and is accountable to the Prime Minister of its decisions and that the ARAB REPUBLIC OF SYRIA intervened through its officials and ministers in the negotiation and performance of the contracts.

Given that, according to Article 1500 of the Code of Civil Procedure, for awards issued in the international field by reference to Article 1476, an arbitral award has a res judicata effect, as soon as it is issued in respect of the challenge it has settled;

Given that the annulment judge has to review the decision of the arbitral tribunal on its jurisdiction by seeking all elements of law and fact such as they exist in the file enabling to reveal the scope of the arbitration agreement and to deduce the consequences of the compliance to the mission entrusted to the arbitrators;

Given that in order to organise the 10th Mediterranean Games, the President of the Syrian Republic set up an organisation committee, by order of 3 May 1984, took in application of the legislative decree of 28 July 1971 giving competence to set up permanent or temporary committees to perform missions and works related State affairs; that this Organisation Committee is responsible for the preparation, implementation and the equipment and organisation of the 10th Mediterranean Games (Article 2 of the by-law), may form secondary committees (Article 4) and that “the decisions of the Committee shall be exempt from all laws and rules in force” (Article 7);

That the Organising Committee set up an advertising committee under the presidency of the director of Y., MR. A;

Considering that after a call to tender, Y. retained the offer of the company PAPILLON GROUP CORPORATION; that subsequently, several contracts and amendments were signed:

a first initial contract signed on 22 March 1986 between Y and PAPILLON GROUP CORPORATION, whose object is to concede to the company PAPILLON GROUP CORPORATION the exclusive rights of advertisement of the Games, in which, in the Article 27 on “Litigation”, it is stipulated that disputes would be submitted to ICC arbitration;
a clarification statement of 22 April 1986 and then a its addendum of May 1986 between Y and PAPILLON GROUP CORPORATION, which specifies, amends and cancels certain previous provisions,
an appended contract concluded on 15 February 1987 between Y and PAPILLON GROUP CORPORATION,
a marketing agreement concluded on 6 April 1987 between Y and PAPILLON GROUP CORPORATION relating to the internal and external marketing of a number of products,
a ‘consensual agreement contract’ on 4 June 1987 regarding the import and export concluded between the Trading and Distribution Institution, GOTA, and the PAPILLON GROUP CORPORATION', stating that the following are an integral part of the contract; the one signed on 22 March 1986 and its annex, the Marketing Agreement of 6 April 1987, and the minutes of the special committee meeting of 19 May 1987 ;

Given that on 30 October 1999, PAPILLON GROUP CORPORATION requested to the secretariat of the ICC an arbitration proceeding against the ARAB REPUBLIC OF SYRIA and Y; that on 21 December 2001 the arbitral tribunal jointly ordered Y and the REPUBLIC OF SYRIA to pay to the PAPILLON GROUP company CORPORATION the sum of 2,875,459.66 US dollars; that the claimant’s annulment appeal was rejected by judgment of 19 June 2003;

Given that, on 25 September 2003, PAPILLON GROUP CORPORATION requested a new arbitration proceeding to the ICC against the ARAB REPUBLIC OF SYRIA, Y and GOTA ;

Given that the first arbitral tribunal in issuing its award on 21 December 2001, rejected the ‘inadmissibility’ ground raised by the Court of Appeal and stated that the arbitration agreement in the contracts commits him;

That if in both arbitrations the disputed question on the jurisdiction of the arbitral tribunal and the application of the arbitration agreement to the ARAB REPUBLIC OF SYRIA is identical to settle this challenge, the first court arbitral tribunal, in the award of 21 December 2001 “page 8 of the translated act'', set apart from two contracts applicable to the present procedure, the marketing agreement of 6 April 1987 and the consensual contract of 4 June 1987 as it constitutes an aspect of the relationship between the parties that PAPILLON GROUP CORPORATION intended not to submit to arbitration; that the requests of PAPILLON GROUP CORPORATION in the second arbitration proceeding intend to obtain compensation for non performance of obligations, separate from the compensation already obtained under the advertising contract, on the basis of both of the latter contracts regarding import and export operations; moreover, whereas the ARAB REPUBLIC OF SYRIA had signed the Terms of Reference in the first procedure, it refused to do so in the second one; that finally, parties between the two arbitration proceedings are distinguishable, two in the first procedure, three in the second; that, thus, the disputes settled by both arbitration tribunals being different, PAPILLON GROUP CORPORATION invokes in vain the res judicata effect of the award of 21 December 2001 as well as the violation of international order public on the grounds that the recognition in France of the award of 11 October 2007 would give effect to an arbitral award which conflicts with the previous one ;

Given that the initial framework agreement of 22 March 1986 containing an arbitration agreement was signed between PAPILLON GROUP CORPORATION and Y; that the fact that it is explained there that Y is ‘mandated by the Organising Committee in the Games’ operations' does not establish that the ARAB REPUBLIC OF SYRIA has been a co-contracting party whereas Y, which has legal status, unlike the Organising Committee, was personally committed and that all contracts except the consensual agreement contract of 4 June 1987 are signed by Mr. A, General Manager of Y and not a Syrian state authority; that, moreover, the agreement of the 22 March 1986 stipulates respective obligations that for PAPILLON GROUP CORPORATION only (Articles 3 to 18) and Y (Articles 19 to 24);

Given that the claimant refers to an agreement concluded on 25 November 1987 between the Organising Committee represented by Mr. A and Y on one hand and the company PAPILLON GROUP CORPORATION on the other hand; that, however, the arbitral tribunal rejected it , for reasons drawn from the taking of evidence. The tribunal noted that PAPILLON GROUP CORPORATION did not report “any approach to the law firm of Mr Rodrigue HOWEISS, lawyer in Paris, before whom however, this contract would have been signed, in order to ask him about the existence of an any clue of this document in his archives'; that unless a prohibited review of the award is carried out to the annulment judge PAPILLON GROUP CORPORATION cannot invoke this claimed agreement of 25 November 1987 supporting that it commits the ARAB REPUBLIC OF SYRIA, being observed that the documents submitted only include the same photocopy on which the arbitrators have given their opinion;

Given that if Article 5 of the Ancillary Agreement of the 15 February 1987 states that ‘the Prime Minister bears full responsibility for contracts signed’, it is an appendix to the advertising contract and this stipulation does not concern the marketing agreement which will be concluded at a later, on 6 April 1987; that the annex to the marketing agreement of the 8 July 1987 states that Y and the Organising Committee shall be liable for any damage or delay in the export of the goods but this statement is insufficient to extend the arbitration clause to the ARAB REPUBLIC OF SYRIA at that time; that the presidential decree establishing the Committee does not entitle him to represent the ARAB REPUBLIC OF SYRIA to conclude an arbitration agreement;

That the fact that Syrian ministers, in their capacity as public authorities, monitored the progress of the organisation of international games to be held on their territory, and were concerned about this, as recorded in various minutes, such as that of the meeting of 13 May 1987 during which a “discussion” took place on matters to be imported and exported, without any particular commitment on the part of the ministers concerned, does not bind the ARAB REPUBLIC OF SYRIA with regard to contracts which it did not sign; since the latter did not sign an arbitration clause and was not a party to any contract on the basis of which PAPILLON GROUP CORPORATION’s claims in the present proceedings were founded, the arbitrators, in stating that the ARAB REPUBLIC OF SYRIA is not bound by the arbitration clause, did not disregard their mission; That the first ground for this annulment is therefore rejected;

On the ground for annulment based on the irregular composition of the arbitral tribunal (article 1502-2 of the Code of Civil Procedure) :

The PAPILLON GROUP CORPORATION claims that the president of the arbitral tribunal, Mr. BELAID, refrained from disclosing the intellectual links and the support that it generally gave to one of the parties to the proceedings, Syria. It adds that its application for disqualification was wrongly rejected by the ICC while the lack of independence and impartiality of Mr. BELAID affects the entire procedure of the arbitration.

But given that the PAPILLON GROUP CORPORATION which is a Panamanian company involved in a dispute relating to the performance of an agreement contract is in no way affected by the Israeli-Palestinian conflict, about which Mr. BELAID wrote two press articles about the geopolitical situation of the region without disclosing the geopolitical situation of the region, without revealing he is a zealot for the Syrian cause; that the society PAPILLON GROUP CORPORATION does not prove neither Mr. BELAID’s partiality nor his dependence on one party, the second ground is rejected;

On the ground for annulment based on a violation of due process (in French Principe du contradictoire) (Article 1502-4 of the Code of Civil Procedure) and failure of the arbitral tribunal to comply with its mission (article 1502-3 of the Code of Civil Procedure) :

The PAPILLON GROUP CORPORATION claims that the arbitral tribunal took procedural rules in favour of the ARAB REPUBLIC OF SYRIA without consulting the PAPILLON GROUP CORPORATION, placing it in the a disadvantageous situation with regard to the ARAB REPUBLIC OF SYRIA. Thus, PAPILLON GROUP CORPORATION mentions, on the one hand, an alleged lack of authority of the Organising Committee and states that ‘the interministerial committee of the games could not engage the ARAB REPUBLIC OF SYRIA in an arbitration agreement. On the other hand, PAPILLON GROUP CORPORATION complains that the arbitral tribunal excluded two of the Clarification Statement of May 1986, and the contract of 25 November 1987, an essential document for the responsibility for the fund of the ARAB REPUBLIC OF SYRIA, whose reality and existence had been neither contested by the ARAB REPUBLIC OF SYRIA.

The PAPILLON GROUP CORPORATION supports that the rule of collegiality has been violated, one of the arbitrators Mr. Z having informed, in two letters of July 10 and 1 October 2007, of its opposition to be excluded from the deliberations.

Given that the mere fact of having said that the Organising Committee did not receive an express power to bind the REPUBLIC ARABIA OF SYRIA, while the arbitral tribunal explained at length the reasons why the ARAB REPUBLIC OF SYRIA is not bound by the arbitration agreement does not characterise a breach of the principle of equality nor a violation of due process (in French Principe du contradictoire) ;

Given that the arbitral tribunal, in assessing the Impact of the clarification statement of May 1986, only made a finding by noting that a written document simply annulled the subsequent clarification statement’; that as a matter of fact the claimant attempts to obtain a prohibited review of the award by the annulment judge ;

The fact that the parties discussed the exclusion of the agreement of 25 November 1987, as explicitly stated in the award on pages 27 to 33, meant that the question of the existence of the disputed agreement was not put to the arbitral tribunal on its own initiative without the parties having had the opportunity to discuss it;

Considering finally that, in the present case, the principle of collegiality presupposes that each arbitrator was given the opportunity to discuss the decision with the others; that M. Z having had the freedom to express his opposition through a dissenting opinion, this arbitrator himself stating in a letter of 20 July 2007 that a ‘collegial meeting’ had been held in Paris, the principle of collegiality was not violated;

Given that these grounds and hence the action for setting aside are therefore rejected;

On costs and Article 700 of the Code of civil Proceedings,

Given that the company PAPILLON GROUP CORPORATION is ordered to the costs and dismissed of its application under Article 700 of the Code of Civil Proceedings on title of which it should be ordered to pay to the ARAB REPUBLIC OF SYRIA, the Arab Advertising Organisation (Y) and the General Institution of Foreign Trade (GOTA) the global sum of 40 000€;

FOR THESE REASONS;

Rejects the claimant’s appeal for annulment of the award issued on 11 October 2007,

Orders the PAPILLON GROUP CORPORATION to be paid to the ARAB REPUBLIC OF SYRIA, the Arab Advertising Organisation (Y) and the General Institution of Foreign Trade (GOTA) the total sum of €40,000 in application of Article 700 of the Code of Civil Procedure,

Orders the company PAPILLON GROUP CORPORATION at the expense and admits SCP BERNABE CHARDIN CHEVILLER, confessed, according to Article 699 of the Code of Civil Proceedings.

THE CLERK, THE PRESIDENT