Paris Court of Appeal, No. 09/22247

Paris Court of Appeal, 1st Pole - 1st Chamber, 3 June 2010, No.09/22247

CHAUDRONNERIE MECANIQUE ARIEGEOISE CMA vs. ADJOR SOFAL NEMONETH PARS

In a contract dated 24 November 2000, the French company CHAUDRONNERIE MÉCANIQUE ARIÈGEOISE (CMA) undertook to work with the Iranian company G H I J (ASNP) for the design, manufacture, technical development and assembly of machines to equip a plant in Iran that produces bricks and tiles using an SBF process.

Alleging difficulties in the commissioning of this production line, ASNP referred the matter to the International Court of Arbitration in accordance with the arbitration clause provided for in the contract.

In an award made in Paris on 14 August 2009, the sole arbitrator, D-E F, terminated the 24 November 2000 contract for fault of the defendant, CMA, and ordered it to pay the claimant ASNP, 2,111,925.74 ¿ to be completed from the date of notification of the award and until full payment in accordance with the legal interest at the rate in force in France on the date of notification of the award, in addition to 96,541.33 ¿ for participation in the costs and attorney’s fees and USD 57,000 in reimbursement of the advance on the provision for arbitration costs.

CMA filed an action for annulment against this award.

CMA filed an action for annulment against this award, claiming two grounds: that the sole arbitrator ruled without complying with his mission (Article 1502-3 of the Code of Civil Procedure) and that due process (in French Principe de contradiction) (Article 1502-4 of the Code of Civil Procedure).

In its submissions of 15 March 2010, ASNP requested the court to dismiss the action for annulment, to declare the appeal inadmissible and to order ASNP to pay ASNP for its dilatory behaviour 38,621 ¿ for financial loss and 100,000 rial for damages, in addition to 15,000 ¿ for damages pursuant to Article 700 of the Code of Civil Procedure.

UPON WHICH:

On the first ground for annulment: the sole arbitrator ruled without complying with his mission (article 1502-3 of the Code of Civil Procedure):

The CMA company maintains that the mission of the arbitrator was to determine whether the parties respected their obligations under the contract; that it was not for the arbitrator, even though the machines were working perfectly and that the claimant complied with its obligations as a consequence thereof, to rule on the conformity of the SBF manufacturing process which he did not promote and which had been chosen by the ASNP company alone; that pursuant to Article 19 of the ICC Rules, the arbitrator could only extend his mission to the examination of this process if a request had been filed for this purpose and with the agreement of both parties; that, in addition, the arbitrator based his decision on a conviction, without reference to a standard and without ordering an expert report, and therefore did not give reasons for his decision, which on the whole fails to answer the fundamental questions of the Terms of Reference, namely whether the parties respected their contractual obligations.

It follows that the mission of the arbitrator as defined by the arbitration agreement is primarily defined by the subject matter of the dispute as determined by the claims of the parties; that it is not disputed that it was for the arbitrator to determine, in particular, whether CMA had fulfilled its obligations by delivering machines capable of producing the required quantity and quality of tiles and bricks;

By mentioning that (§283) “the principal and essential contractual obligation of CMA was the delivery of a plant equipped with machines allowing the SBF process to be used for the manufacture of bricks and tiles in quantity and quality defined by the documentary credit (Articles 1.1 and 7 of the Agreement)” the arbitrator necessarily ruled, on the one hand on the quantity produced, on the other hand the quality of this production and therefore the viability of the SBF process. The arbitrator considered that this process had never been mastered. The arbitrator established this opinion without any investigative measure, a measure that is not established would have been requested, and after having heard several witnesses and in particular Mr. A who has developed the SBF process. Finally, by observing that the company CMA vouched for the reliability of this process and undertook to deliver brick plant operating according to this process, which Mr. X, Z of the company CMA did not contest (§305 and 306), the arbitrator could, without disregarding the scope of his mission, conclude that CMA failed to comply with its obligations under which it guaranteed the reliability of the process;

That in reality CMA, by supporting this first ground which is in fact missing, requests the court to examine the relevance of reasons for award what is prohibited to the judge of the annulment;

That the first ground is therefore dismissed;

On the second ground for annulment: due process (in French Principe de contradiction) (Article 1502-4 of the Code of Civil Procedure):

CMA claims that the arbitrator wrongly rejected its statement of reply to the ASNP’s final statement of case, while the closing of the debates had not yet intervened, and to have heard the witnesses in conference call and not as planned through videoconferencing, which would not have made it possible to ensure their identity. CMA adds that the translator provided by the ASNP company did not accomplish his mission as expected and merely summarised “in his own way”. CMA also claims that the findings of Bureau Véritas in Iran have not been debated and that it has never been invited to attend the meeting relating to the status report of the delivered equipment even though the contract provided for the presence of the parties.

Whereas it appears from the award and the recount of the procedure, which is not contested by the parties, that (§202) on 5 March 2009 the arbitrator and the parties held a conference call during the course of which the parties agreed to file only one submission, that (§203) by mail of the same day the arbitrator served the parties with a provisional calendar schedule n°4, that (§205) by e-mail of the 20 March 2009 the parties requested a one week extension to file their final briefs which (§209) the arbitrator extended the deadline to the 1st April 2009 for the filing of final briefs, that (§210) the parties filed on that date their final memorandums with the arbitrator, who acknowledged this on 7 April 2009, indicating that if no objection was made by the parties, the additional documents produced up till 15 April 2009 would be recognised as validly submitted to the debates (§211), that by letter dated 21 April 2009 the defendant (CMA) submitted comments following the final statement of the claimant (§213), that on 27 April 2009 the arbitrator held a conference call between the parties during which the claimant objected to the production of the observations (§214), that by email of 28 April 2009 claimant supplemented its objections (§215) and that by letter of the same day the arbitrator noted the opposition of the claimant and concluded that “in the absence of agreement of the Parties on the possibility of replying to the final statement of case of the other party and in order to ensure the efficiency and control of the procedure, the Sole Arbitrator decides that this additional entry by the Defendant of 21 April 2009 will not be taken into account”(§216);

Whereas no response to the final memorandums was planned in the provisional calendar schedule which was widely discussed and amended at the request of the parties, in the absence of an agreement between them on such a response, and seeing as the issues were discussed at length, the sole arbitrator, who was responsible for overseeing the procedure, as ASNP points out, has, without disregarding due process (in French Principe du contradictoire), closed the proceedings which he considered to be complete.

Whereas, moreover, that any ground for setting aside the award under Article 1502 of the Code of Civil Procedure must, in order to be admissible before the judge of the annulment, be raised, as far as it is possible, before the arbitral tribunal itself;

That in this case, if for technical reasons the witnesses’ hearings were conducted through audioconferencing and not videoconferencing, ASNP notes that at the conclusion of the hearings upon being asked by the arbitrator if any grievances to be submitted, CMA’s counsel merely stated “we will raise grievances after the award”. Thus, by failing to protest against the process of the witness hearings, whether on the grounds of the elimination of videoconferencing or the lack of competence of the translator, which moreover is not demonstrated, CMA is inadmissible to raise these objections before the reviewing judge;

Whereas with respect to the inspection report by Bureau Veritas, it is not disputed that CMA was not represented, although perfectly informed of the date and time of the operations; that this absence is solely attributable to it, the circumstance invoked according to which its agent was delayed not being of such a nature as to exonerate it from the consequences of its negligence; and that moreover during the course of the arbitration proceedings, it did not raise any criticism with regards to the content of this report;

That finally, with regard to the delivery of the machinery, it invokes here in vain the absence of a contradictory report as these deliveries occurred prior to the commencement of the arbitral proceedings;

That the second ground for setting aside is thus dismissed, such as the appeal;

On the application to set aside the enforcement order (in French Ordonnance d’exequatur):

Whereas this request is without substance as pursuant to Articles 1507 and 1490 of the Code of Civil Procedure the dismissal of the action for annulment confers exequatur to the arbitral award;

At the request of the company ASNP:

Whereas ASNP company does not demonstrate that the CMA abused its right to take legal action; that consequently its request for a payment of 38,621¿ as compensation for financial damages resulting from suggested delaying tactics it alleges and 100,000¿ as compensation for the various damages resulting from this alleged abuse to take legal action are dismissed;

On applications under section 700 of the Code of Civil Procedure:

Considering that the CMA company which succumbs and whose application is dismissed pays to ASNP 15,000¿ and pays the costs;

FOR THESE REASONS:

DISMISSES the action for annulment;

ORDERS CHAUDRONNERIE MÉCANIQUE ARIÈGEOISE to pay to G H I J 15,000¿ in application of article 700 of the Code of Civil Procedure;

Dismisses all other requests;

ORDERS CHAUDRONNERIE MÉCANIQUE ARIÈGEOISE at the costs and admits the SCP Fisselier Chiloux Boulay, for the benefit of section 699 of the Code of Civil Procedure.