Paris Court of Appeal, No. 08/21022

Paris Court of Appeal, 22 October 2009, No. 08/21022

HALYVOURGIKI vs. Y AKTIENGESELLSCHAFT, Y GLTD (The Y companies)

The company HALYVOURGIKI, which is incorporated under Greek law and operates one of Greece’s largest steel mills, uses large quantities of gaseous oxygen for its production.

The company Y AKTIENGESELLSCHAFT, incorporated under German law, and its subsidiary, the Greek company Y G LTD (hereinafter the Y companies) constitute a powerful group of liquid gas producers.

By contract of 24 April 2002 HALYVOURGIKI signed a supply contract with Y on its industrial site. The facilities were built by Y, which started producing and selling gaseous oxygen to the steel mill in April 2004. It was intended that the installations, built on the HALYVOURGIKI site in Eleusis and operated by Y, would remain its property for 15 years.

The production of liquid gas exceeded the needs of the company HALYVOURGIKI and Y sold the surplus gas to third parties.

This sale to third parties is at the origin of the dispute and in accordance with the arbitration clause provided for in article 21 of the contract of 24 April 2002 the company HALYVOURGIKI has referred the matter to the arbitration tribunal.

By Award in Paris of 25 June 2007 the Arbitral Tribunal composed under the supervision of the ICC International Court of Arbitration by Z A, Chairman, B C and D E, arbitrators, decided by a majority: "

2. That the Second Defendant [Y G] breached the contract by selling gas to third parties;

3. That the Second Defendant [Y G] shall cease and desist, within five working days of the award, from any sale of gas to third parties; that this decision prohibiting the sale of gas to third parties shall also apply, to the extent necessary, to the First Defendant [Y AKTIENGESELLSCHAFT];

4. That the Second Defendant [Y G] must cease using the weighbridge in sales to the market.”

The Y companies have filed an action for annulment of three points of the arbitral award. They claim that the award violates international public order (Article 1502-5 of the Code of Civil Procedure) in a flagrant, effective and concrete manner as contravening Article 81 of the EC Treaty to the extent that these three points introduce a limitation of anti-competitive production by object. Therefore, they request the court to annul points 2, 3 and 7 of the arbitral award and to order HALYVOURGIKI to pay them €50,000 under article 700 of the Code of Civil Procedure.

HALYVOURGIKI relies, in particular, on the principle that prohibits the review of the merits of arbitral awards and on the limitation of the control of the public order to the only flagrant violations to plead the inadmissibility of the appeal and, alternatively, that it must be rejected.

UPON WHICH,

On the admissibility of the request for annulment:

HALYVOURGIKI states that the action for annulment is inadmissible, because the ground of nullity was raised for the first time before the annulment judge who does not have the power to review the arbitral awards on the merits and whose control must be limited to the examination of the solution adopted by the arbitrators; that in this case, the claimant companies are trying to drag the court into the field of a complex economic analysis which it is not for the court to carry out.

Considering, of course, that in the case of violation of international public order the court is not the judge of the trial but of the award; that only the recognition or enforcement of the arbitral decision is examined with regard to compliance with international public order; it is indifferent that the question was not raised before the arbitrators, ‘le principe de la concentration des demandes’ requiring the parties to make known their claims before the arbitrators on penalty of inadmissibility before the reviewing court being inapplicable here, the extent of the judicial review as to the respect of international public order in which the mandatory rules of Community law take part is not conditioned by the attitude of the parties;

That in this case, as long as the Y companies base their appeal on the provisions of article 1502-5 of the Code of Civil Procedure and try to establish that the violation of public order is flagrant, effective and concrete, the appeal is admissible and it is up to the court to examine the grounds of the parties to judge whether or not it is founded;

On the sole ground of annulment: recognition or enforcement is contrary to international public order (Article 1502-5 of the Code of Civil Procedure).

The Y companies state that, judging from the Greek Civil Code applicable to the case and in the light of the principle of good faith and trade usages, that clauses 3.2 and 20. 2 of the contract of 24 April 2002 required them to use the gas production facilities solely for the needs of HALYVOURGIKI and that they had no right to exploit them to any other end, including that of production of gas intended for sale to third parties. Thus, they consider that the arbitral tribunal gave these clauses, by interpreting them thus, an anti-competitive object and effect within the meaning of Article 81§1 of the EC Treaty.

They intend to demonstrate that this interpretation, which leads to a limitation of the production of liquid oxygen to 31.3% of the Greek market, is anti-competitive by its object according to the very letter of the Treaty and affects trade between Member States. They state that the disputed clauses cannot be considered incidental restrictions to the contract, that the vertical exemption regulation is inapplicable to them and that the contract cannot be exempted on an individual basis if the agreement has an object restricting competition.

They deduce the existence of a flagrant, effective and concrete violation of Article 81 of the Treaty, which is an integral part of international public order.

Considering that in order to be able to determine whether the denounced restriction has as its object or for effect to harm competition, a question not debated before the arbitrators, it is necessary, in particular, to define the market, to analyse the position of the parties on this market, to look for the existence of potential competitors, to examine the specific elements of the contract, the prohibited restrictions in the exemption regulations by categories, the possible necessary and proportionate nature of the contractual restrictions, and to verify if the contract is of such a nature as to have effects on prices, production, innovation, diversity or quality of the products;

Now considering that the violation of international public order within the meaning of Article 1502-5 of the Code of Civil Procedure must be flagrant, effective and concrete;

That in this case, in order to claim to demonstrate the flagrant nature, the Y companies argue in thirty pages or so, offering the court an intellectual construction no doubt brilliant but lacking of concrete reliable elements (including market delimitation, position of Y, production capacities outside the Eleusis site); that HALYVOURGIKI, on its side, on the basis of a consultation of a law professor, Mrs H I, gives a contrary demonstration just as brilliant, but equally lacking of concrete elements;

That the annulment judge, who may make an assessment in law and in fact of the elements contained in the award referred to it for review, cannot rule on the merits of a complex dispute which has not been settled by the arbitrators and which would require a much fuller investigation than that resulting from an exchange of pleadings before it;

That the Y companies, which today claim the flagrant character of the violation of international public order that they invoke by relying on a breach of Community Competition law, have never raised this ground before the arbitrators, who did not notice it either, despite the alleged flagrant nature; that, moreover, the ICC International Court of Arbitration which, according to its rules checks the validity of the awards submitted to it in draft form did not make any observations to this effect;

Moreover, the claimant companies cannot in good faith explain their silence on this point during the arbitration proceedings, as it would have been contradictory to claim before the arbitrators on one hand, that the contract did not contain any exclusivity clause and, on the other hand, that it was contrary to Community competition law; that in fact it appears from the arbitral award paragraph 82 (b) that the arbitral tribunal was required to determine whether Y G could sell gas produced by the Eleusis site facilities to third parties when there was no clause in the contract authorising it to do so; Thus, as the question of the prohibition of sales to third parties was being debated, companies Y could, without contradiction, contest the claimed exclusivity and argue alternatively that the agreement, in case of exclusivity, would then have an anti-competitive object or effect ;

That the alleged violation of the EC competition rules has not been shown to be flagrant, effective and concrete; that the annulment judge cannot, under penalty of calling into question the final character of the determination of the arbitrators on the merits of the lawsuit, in the absence of a clear violation, engage in a new analysis of the contractual stipulations or of their conformity with the rules of competition;

That it follows that the ground and the appeal are dismissed;

On requests under Article 700 of the Code of Civil Procedure:

Considering that the Y companies which succumb and whose claims as such are rejected are condemned to pay to HALYVOURGIKI EUR 80,000 under article 700 of the Code of Civil Procedure;

FOR THESE REASONS:

DECLARES the action for annulment admissible;

REJECTS IT;

ORDERS the companies Y AKTIENGESELLSCHAFT and Y G LTD to pay to the company HALYVOURGIKI EUR 80,000 under article 700 of the Code of Civil Procedure;

REJECTS all other requests;

ORDERS the companies Y AKTIENGESELLSCHAFT and Y G LTD to pay the costs and admits the SCP Bernabé, Chardin, Cheviller, confessed, at benefits of Article 699 of the Code of Civil Procedure.

THE CLERK, THE PRESIDENT