Paris Court of Appeal, No. 08/13618

Paris Court of Appeal, 3 December 2009, No. 08/13618

ENGEL AUSTRIA GMBH SARL vs. DON TRADE

In the autumn of 2004, the company ENGEL AUSTRIA, and the company DON TRADE, companies that are respectively governed under Austrian and Serbian law, concluded a sale contract for the delivery of an industrial system for molding of preforms for the production of plastic bottles in PET plastic, called “macPET 4550/320/72-fold”. The company ENGEL AUSTRIA delivered this system to company DON TRADE on site by end of December 2004 and installed it in January 2005.

A dispute has arisen between the parties due to the insufficient productivity of the industrial system, the company DON TRADE filed an application with the International Court of Arbitration with the ICC, on the basis of the arbitration clause inserted in the contract. The company DON TRADE appointed Mr. Y Z, as arbitrator, while the company ENGEL AUSTRIA appointed Mr. G H and Mr. D-B C was appointed as chairman of the arbitral tribunal.

According to the award handed down in Paris on January 24, 2008, the Arbitral Tribunal:

(1) rejected the application of DON TRADE in payment of damages of € 1,790,637 for the loss of earnings from the 2005 season,

(2) rejected the request of the company DON TRADE in payment of damages of € 1,592,615 for the loss of earnings of the 2006 season shortfalls,

(3) pronounced the nullity of the contract as regards the MHT injection mould cold half XXX,

ordered the company ENGEL AUSTRIA to pay the sum of € 267,310 to the company DON TRADE with regard to the purchase of the mentioned mould, in exchange for returning the “MHT injection mould cold half XXX at the expense of the defendants on the premises of the company DON TRADE. The said sum is payable as soon as DON TRADE will have informed the company ENGEL AUSTRIA that the MHT injection mould cold half XXX” will be at its disposal in its premises,

dismissed the application regarding the additional amount of € 68,690;

(4) ordered the company ENGEL AUSTRIA to pay interest at rate of 4% per year on the amount of € 267,310 starting from 30 January 2006 and until the date of the award,

(5) ordered the company ENGEL AUSTRIA to pay interest on the amount of € 267,310 from the date of the award and until full payment is made, by fixed rate provided for in Article 352 of the corporation Code of Austria, i.e. 8% above the average base rate of the European Central Bank, the basic rate applicable on the last day of the civil semester is to be retained for the following civil semester;

(6) and (7) rejected the other claims of DON TRADE;

(8) decided that the Applicant shall pay for 70% of the Defendant’s counsel’s fees and expenses, €147,129.71, in addition to 30% of the counsel’s fees and expenses of the Applicant, i.e. € 113,578.90 which means the Claimant’s ordered to pay the Defendant the amount of € 33,550.81;

(9) decided that each party will pay for the costs of the as mentioned in the paragraphs 192 to 194 above, and, accordingly, ordered the Claimant to pay the amount of US$ 65,000.00 to the Defendant;

(10) rejected any other claim.

The company ENGEL AUSTRIA filed an action for annulment of provisions 3, 4, 5, 8 and 9 of the award and sought the condemnation of the company DON TRADE to pay the sum of € 40,000 in respect of Article 700 of the Code of Civil Procedure. In support of its action for partial annulment, the ENGEL AUSTRIA claims the arbitration tribunal violated due process (in French Principe du contradictoire) (Article 1502-4 of the Code of Civil Procedure).

The company DON TRADE rejects the appeal in the following terms considering that the grounds are not established, and states that ENGEL AUSTRIA invites the court to examine the arbitrators' reasoning and to review the merits of the award regarding due process (in French Principe du contradictoire). It requests the the Claimant be ordered to pay € 100,000 under Article 700 of the Code of Civil Procedure.

UPON WHICH:

On the GROUND of annulment taken from the violation of due process (article 1502-4 of the Code of Civil Procedure):

ENGEL AUSTRIA argues that the arbitral tribunal partially terminated the sales contract and ordered it to reimburse the portion of the sales price in exchange for the return of the moulding tool. The legal basis of this decision, which was not invoked by the parties and not debated in a contradictory manner, was the rule of Wegfall der Geschäftsgrundlage, a rule of Austrian law presented by the arbitrators as the only possible basis upon which the contract can be terminated.

The company DON TRADE replies that the rule of Geschäftsgrundlage was discussed before the tribunal which means that the tribunal complied with due process (in French Principe du contradictoire), adding that the aforementioned rule is one of the guiding principles of the Austrian law which company ENGEL AUSTRIA has asked application of. At the hearing, DON TRADE’s lawyer responded to the arguments of ENGEL AUSTRIA’s lawyer, explaining thereby the reasons behind the necessity of applying of the contractual hardship theory under French law (in French Théorie de l’imprévision contractuelle) and that finally in its note under deliberation the company ENGEL AUSTRIA has tried to reduce the company DON TRADE’s claims with reference to an insignificant error on the cause. The defendant adds that the application of the hardship theory under French law (in French Théorie de l’imprévision contractuelle) retained by the arbitral tribunal is a basic part of the discussion on the lack of consent, that it is complementary to general theory on defects in consent and that the parties did not limit their pleadings to an exclusive rule of law, whether derived from autonomous Austrian law, the contracts, or the Vienna Convention.

Given that due process (in French Principe de contradiction) imposes that each party be given formal notice to debate contradictorily on the facts of the case and that nothing used as the basis for the arbitrators' judgment shall escape the contradictory debate between the parties;

Given that the arbitrators explained in the award that “according to the applicable Austrian law, the termination or modification of a contract may be requested in the event it is impossible to perform it ("Wegfall der Geschäftsgrundlage"). The fundamental requirement is that an objective which is at least implicit in the contract, shared by the parties… is made impossible by subsequent events. Consequently, the Wegfall der Geschäftsgrundlage provides courts and arbitral tribunals with a flexible instrument allowing them to terminate (totally or partially) a contract when it would not appear fair to keep the contract unchanged despite the impossibility for one of the parties to perform it";

Given that neither the company DON TRADE nor the company ENGEL AUSTRIA did invoke the application of the Geschäftsgrundlage rule; that as soon as the arbitral award states that this “constitutes the only possible basis upon which the contract can be partially terminated; that “the claimant only raised a partial termination of the contract, without reference to any rule of Austrian law” and furthermore that “the issue regarding the Geschäftsgrundlage rule has not been discussed between the parties”, it is established that the rule constitutes a legal ground that is distinct from those invoked by the parties, and that the arbitral tribunal did not comply with due process (in French Principe de contradictoire) by basing its decision on a law which it raised ex officio without first having invited the parties to submit their observations; that the ground for annulment is therefore well-founded and, as long as the different issues of the dispute on which the arbitrators have ruled are separable, it is appropriate to pronounce the partial annulment of the award on the issues that have not been debated in a contradictory manner, i.e. the points 3, 4 and 5 of the award ;

On the application for annulment of points 8 and 9

Given that the company ENGEL AUSTRIA supports that provisions 8 and 9 of the Award regarding the distribution of the lawyer’s fees and expenses and arbitration costs ‘are reached by the failure to comply with due process (in French Principe du contradictoire) because “the arbitral tribunal found it appropriate to consider that the major part of the costs, i.e. 70%, shall be paid by the defendant to the action”;

However, the company ENGEL AUSTRIA writes “the annulment of a well-founded award on a defect that affects only separated parts of the decision shall extend only to those parts”. The claimant claims a general violation of due process (in French Principe du contraditoire) on points 8 and 9, without demonstrating it, and does not cite any of the other grounds listed in Article 1502 of the Code of Civil Procedure. Thus, it limited its claims to the misjudgment of the arbitrators whereas the review of the award by the court of annulment is prohibited; that the appeal for annulment of points 8 and 9 of the arbitration award should therefore be rejected;

On the request made under Article 700 of the Code of Civil Procedure

Considering that the action for annulment of DON TRADE company shall be rejected and that it shall be ordered to pay the costs under Article 700 of the Code of Civil Procedure, on the basis of which it should be ordered to pay the sum of € 40,000 to the company ENGEL AUSTRIA;

FOR THESE REASONS:

Set aside provisions 3, 4 and 5 of the arbitral award rendered in Paris on 24 January 2008,

Rejects all other requests,

Orders DON TRADE to pay the sum of € 40,000 to ENGEL AUSTRIA in respect of Article 700 of the Code of Civil Procedure,

Orders the company DON TRADE to pay the costs of the proceedings, and admits Maître Gilbert THEVENIER, avowed, in respect of Article 699 of the Code of Civil Procedure.

THE CLERK, THE PRESIDENT