Paris Court of Appeal, No. 08/21144

Paris Court of Appeal, Pole 1 first Chamber 8 April 2010 No. 08/21144

TRANSNAMIB HOLDING LTD., AIR NAMIBIA (PTY) LTD VS. CHALLENGAIR SA

On 9 March 1998, CHALLENGAIR, a company incorporated under Belgian law, subleased a Boeing 767 aircraft to TRANSNAMIB HOLDING Ltd (TH Ltd), a company incorporated under Namibian law represented by AIR NAMIBIA. At the same time, on 26 March 1998, these same companies signed a maintenance and assistance contract.

Both contracts included an arbitration clause subject to the IATA regulation.

On 28 July 1998, the Commercial Court of Brussels bankruptcy proceedings regarding CHALLENGAIR and appointed Mr X as administrator.

Difficulties having arisen, on 31 May 2001, Mr X submitted IATA arbitration proceedings against the two Namibian companies based on the two contracts.

On 17 April 2002, Mr X withdrew his request for arbitration and lodged another one against the same companies and concerning the same facts.

On 15 and 16 December 2005, the parties agreed to replace the IATA arbitration with an ad hoc arbitration under the UNCITRAL Arbitration Rules.

In the final award dated 6 August 2008, the single arbitrator, C D.M. E. decided that:

(1) The Defendants [NH Ltd and AIR NAMIBIA] are liable to Plaintiff [CHALLENGAIR] for all late or unpaid SLC rent or lease payments, SLC insurance premiums and maintenance payments under the FT from 27 April 1988 [actually 1998] to 27 September 1999.

(2) The due date for the payment of SLC rents was two working days before the 27th day of each month.

(3) The due date for the payment of SLC insurance premiums was two working days before the 27th of each month.

(4) The due dates for FT maintenance payments were the first and 15th of each month

(5) Interest on unpaid or late rentals will be calculated at a rate of 3% above the principal or base rate of City bank NY’s commercial loans applied from time to time, such interest to be calculated daily and compounded monthly.

(6) Interest on unpaid or late paid maintenance amounts will be calculated at the rate of 0.025% per day for the first 30 days following the due date and thereafter at the rate of 0.05% per day until full payment is made.

(7) Interest on unpaid or late paid insurance premiums will be calculated at a rate of 3% above the principal or base rate of City bank NY’s commercial loans applied from time to time, such interest to be calculated daily and compounded monthly.

(8) The Defendants are liable to the Claimant for the payment of all costs relating to the state of restitution of the Aircraft under Article 15 of the SLC.

AIR NAMIBIA and NH Ltd have filed an action for annulment against this award.

They articulate three grounds: the arbitrator ruled based on an invalid agreement (Article 1502-1 of the Code of Civil Procedure), was improperly appointed (Article 1502-2 of the Code of Civil Procedure) and the award violates international public policy (Article 1502-5 of the Code of Civil Procedure )

In their pleadings of 16 February 2010, they request the Court: to declare their action admissible; to find null and void the agreement of 15 December 2005, the arbitration clause, and the appointment of the arbitrator contained in this agreement; to annul the arbitral award as contrary to the international public order concerning the French concept of public order; to reject the claim for damages by CHALLENGAIR for abusive recourse and to order it to pay them EUR 70,000 under Article 700 of the Code of Civil Procedure.

In their pleadings of 19 January 2010, CHALLENGAIR and Me X asked the court to declare the appeal inadmissible as the grievances were not raised before the arbitrator, and alternatively, to declare the arbitration clause and the appointment of the arbitrator valid, to declare that French international public policy is in no way threatened by the award, to order the plaintiff companies to pay it EUR 50,000 based on articles 32-1 of the Code of Civil Procedure and 1382 of the Civil Code and EUR 90,000 by application of article 700 of the Code of Civil Procedure.

CHALLENGAIR and Mr X submitted further pleadings on 3 March 2010, on the eve of the closing order issued on 4 March, seven days before the hearing of the pleadings.

By pleadings of 8 and 11 March 2010, AIR NAMIBIA and NH Ltd applied, according to Articles 15 and 16 of the CPC, for the rejection of these pleadings as belated, given that they contained a new plea regarding the principle of the estoppel.

In their pleadings of 11 March, CHALLENGAIR and Mr X asked the court to limit the rejection of the pleadings to the single argument based on the principle of estoppel and requested in the alternative that the court note that they waive the argument.

UPON WHICH

Considering that, according to Articles 15 and 16 of the CPC, the parties must make known to each other in good time the pleas in law which they invoke, and the judge must observe due process (in French: principe de contradiction) and may only take into account in his decision those pleas which the parties have been able to discuss in a contradictory manner.

That is the present case, AIR NAMIBIA and NH Ltd were not able to debate in a contradictory manner the new plea raised by CHALLENGAIR and Mr X on 3 March 2010, the day before the Closing Order, and seven days before the hearing.

Consequently, in the application of the above-mentioned texts, the pleadings of the company CHALLENGAIR and Mr X should be set aside from the debates of 3 March 2010.

On the three grounds for setting aside taken together: the arbitrator ruled based on an invalid agreement (Article 1502-1 of the Code of Civil Procedure) was improperly appointed (Article 1502-2 of the Code of Civil Procedure) and the award violates international public policy (Article 1502-5 of the Code of Civil Procedure)

AIR NAMIBIA and NH Ltd allege that while it is true that to be admissible before the judge of annulment the grievances under Article 1502 of the Code of Civil Procedure must have been raised before the arbitrator, this principle allows an exception concerning the grievance based on the violation of international public order.

They recall that Article V of the New York Convention allows for the refusal of recognition and enforcement of the award when one of the parties to the arbitration agreement had no capacity, under the law applicable to them. Then, AIR NAMIBIA and NH Ltd argue that according to Article 58 paragraphs 1 and 2 of the Belgian Bankruptcy Law of 8 August 1997, which constitutes public policy, applicable to CHALLENGAIR and Article 1676 of the Belgian Judicial Code, the administrator, Me X, could only agree to arbitration after having obtained the authorization of the supervising judge. They claim that the agreement of 15 December 2005 is therefore null and void, because Mr X did not seek such authorization and therefore did not have the authority to enter into a new arbitration clause.

They point out that the UNCITRAL procedure is new compared to the IATA procedure and not the continuation of the latter as claimed by the IATA.

They deduce from this that the arbitration clause of 15 December 2005 is null and void as is the appointment of the arbitrator because of the violation of the rule of public policy derived from Belgian law concerning the powers of the administrator to enter into arbitration agreements and that consequently, the arbitral award is null and void because it is contrary to the French conception of international public order.

Whereas, it is alleged that, according to Belgian bankruptcy law, Mr X could not, without the authorization of the bankruptcy judge, sign the agreement of the 15 December 2005 and that, in so doing, he has breached a rule of public policy likely to result, because of the French concept of international public policy, in the nullity of the arbitration agreement, the appointment of the arbitrator and, consequently, the award.

The defense of the French concept of international public order implies, indeed, that the annulment judge may annul the award if its enforcement runs counter to this concept even if the plea of public policy had not been raised before the arbitrators.

That, however, the pleas concerning the nullity of the arbitration clause and of the appointment of the arbitrator based on the lack of capacity of the administrator who lack capacity to agree to arbitration not having been raised during the arbitration proceedings remain inadmissible before the annulment judge, regardless of whether they are based on the allegation that by signing the agreement of 15 December 2005 Mr X has disregarded a rule of public order of the Belgian bankruptcy law.

As regards the award’s conflict with France’s conception of international public policy, it must be noted that no violation of a fundamental principle of bankruptcy law has been demonstrated. Mr X, the regularly appointed administrator, acted in the application of an arbitration clause provided for in the contracts signed by the directors of the company CHALLENGAIR, which was then good standing, regardless of the change of arbitrator or arbitration rules. The arbitrator’s decision, which was in favour of the company CHALLENGAIR, ruling on the liability of companies AIR NAMIBIA and NH Ltd for late payment or unpaid debts under the two contracts of 9 and 26 March 1998 or insurance premiums, does not violate the French concept of international public order in any flagrant, effective and concrete way.

That the appeal is dismissed

On the request of the company CHALLENGAIR and Mr X:

Considering that it has not been established that the company’s AIR NAMIBIA and NH Ltd have abused their right to take legal action; that the claim for damages of the company CHALLENGAIR and Me X is rejected;

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

Considering that the AIR NAMIBIA and NH Ltd, which are unsuccessful and whose application in this respect is rejected pay to the CHALLENGAIR and to Mr. X EUR 90,000;

FOR THESE REASONS:

REJECTS the conclusions of CHALLENGAIR and Mr X of 3 March 2010;

REJECTS the action for annulment;

Condemns the AIR NAMIBIA and NH Ltd to pay to CHALLENGAIR and Mr X EUR 90.000 under article 700 of the CPC;

CONDEMNS the AIR NAMIBIA and NH Ltd to pay the costs and admits the SCP Dubosq Pellerin, under Article 699 of the CPC

THE CLERK, THE PRESIDENT