Paris Court of Appeal, No. 09-08.657 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal - 1st Pole - First Chamber - 24 June 2010, No. 09-08.657

INFORAD LIMITED

vs.

S.A.S TES ELECTRONIC SOLUTIONS

The company FOUR J’S, to the rights of which is the Irish company INFORAD LIMITED (“INFORAD”), specialised in the design and production of satellite geo-location devices for automobiles, issued a call for tenders, following which TES ELECTRONIC SOLUTIONS (TESES), a company incorporated under French law, sent it a commercial proposal on 4 March 2004, accepted on 25 March 2004 by INFORAD, which placed an order for 100,000 units for delivery, on 15 June 2004.

TESES, complaining that INFORAD failed to meet its contractual obligations and claiming payment of the contractual forfeiture clause, referred the matter to the ICC International Court of Arbitration under the arbitration clause inserted in the general terms and conditions of sale.

According to the preliminary award of 10 December 2007 rendered in Paris, the arbitral tribunal, composed of Mrs. LECUYER-THIEFFRY, Chairman, Mr. C and Mr. X, arbitrators :

recognised its jurisdiction pursuant to the arbitration clause contained in the general terms and conditions,
invited the parties to make any new claim, in particular concerning the performance of the contract guarantee in accordance with Article 19 of the ICC Rules of Arbitration,
applied the United Nations Convention on the International Sale of Goods of 11 April 1980 to the dispute, and for matters not covered by the Convention, the French law, it being specified that, in conformity with Article 17 of the ICC Rules of Arbitration, in all cases it will take into account the relevant provisions of the contract and trade usages.

INFORAD brought an action for annulment of the preliminary award and this action was dismissed by this court on the same day.

The arbitral tribunal rendered its award in Paris on 14 October 2008, in which it :

Ordered INFORAD to pay TESES the sum of 250,000, plus interest at the French legal rate from 26 September 2006 until full payment,

Ordered TESES to pay to INFORAD the sum of 20,000 as compensation for the damage suffered as a result of the defective products,

Stated that there is no need for compensation,

Ordered INFORAD to reimburse TESES the sum of 156,000 corresponding to the share of the arbitration provision that TESES had advanced,

Ordered INFORAD to pay TESES the sum of 187,698.09 in respect of the costs incurred in his defence,
Dismissed the parties from their other claims.

The President of the Paris High Court (in French Tribunal de Grande Instance de Paris), by order of 20 November 2008, declared the award of 14 October 2008 enforceable.

INFORAD brought an action for annulment of the final award of 14 October 2008, seeking its annulment and the condemnation of TESES to pay it the sum of 10,000 under Article 700 of the Code of Civil Procedure. It claims that the award should be set aside on the basis of Article 1504 of the Code of Civil Procedure on the ground that the arbitral tribunal made an award whose recognition and enforcement constitutes a flagrant, effective and concrete violation of international public policy (Article 1502-5 of the Code of Civil Procedure).

TESES requested the dismissal of the appeal and requested that INFORAD be ordered to pay a civil fine on the basis of Article 559 of the Code of Civil Procedure and the sum of 20,000 under Article 700 of the Code of Civil Procedure.

UPON WHICH,

On the sole ground for setting aside the award : the recognition or enforcement of the award is contrary to international public policy (Article 1520-5 of the Code of Civil Procedure):

INFORAD argues that the arbitral tribunal violated international public policy by making an award which, if enforced, will bring into the French legal system the breaches of good faith in contract and more generally the frauds perpetrated by TESES in the context of the transaction binding the parties. It states that TESES unilaterally modified the contractual conditions without its knowledge by replacing the general terms and conditions of sale of January 2003 by the ‘New General Terms and Conditions of Sale’,. This changed certain conditions of INFORAD’s order while retaining the FOUR J’S letterhead. INFORAD considered that TESES tried to conceal these changes from it by indicating that the conditions remained the same even though the modifications were substantial since their purpose was to reduce the delay penalties due by TESES, to make the latter the sole owner of the study and the tools developed, to introduce a forfeit clause and to give rise to a price increase. In deciding that the ‘New General Terms and Conditions of Sale’ were applicable, the arbitral tribunal gave effect to TESES’s bad faith and its fraud to the detriment of INFORAD.

INFORAD further claims that the arbitral award confirmed the bad faith of its counterparty during the tests on the pre-series products. It mentions that TESES was undertaken to manufacture twenty of them, but delivered only four. Only one of which was working, and TESES concealed the fact that three products were not working; that TESES’s bad faith is characterised by its refusal to receive of the defective products, its formal notice to INFORAD to pay the sum due pursuant to the forfeiture clause fraudulently inserted in the New Terms and Conditions of Sale without INFORAD’s knowledge.

Whereas, in the case of international public policy, only the recognition or enforcement of the award is examined by the annulment judge with regard to the compliance with solution with this public policy, the control of which is limited to the flagrant, effective and concrete nature of the alleged violation;

That in the present case, INFORAD denounces the behaviour contrary to the good faith of TESES on the basis of elements of fact and law which have already been submitted to the arbitrators; that on the one hand, the control of the court cannot concern the assessment that the arbitrators made of the rights of the parties; that, on the other hand, the consequences of a contractual dispute do not reflect requirements of international public policy; that, finally, INFORAD does not prove or allege that the award was obtained by fraud or that it was drawn up in disregard of the principle of good faith; that, consequently, the claimant does not show that the solution adopted by the arbitral tribunal is contrary to the French conception of international public policy and that there is a flagrant, effective and concrete violation of international public policy; that, in reality, INFORAD attempts to obtain a review of the merits of the arbitral award, which is prohibited by the annulment judge; that the sole ground and, consequently, the action for annulment are dismissed;

On the other claims

Whereas TESES does not establish the existence of special circumstances which caused INFORAD’s action for annulment to turn into abuse, nor the dilatory nature of that action; whereas TESES should therefore be dismissed from its claim that INFORAD should be ordered to a civil fine;

That INFORAD bears the costs and its application under Article 700 of the Code of Civil Procedure is dismissed and as such it should be ordered to pay TESES the sum of 20,000;

FOR THESE REASONS,

Dismisses the action for annulment of the arbitral award rendered in Paris on October 14, 2008,

Dismisses TESES’s claim based on Article 559 of the Code of Civil Procedure,

Orders INFORAD to pay TESES the sum of 20,000 € under Article 700 of the Code of Civil Procedure,

Orders INFORAD to pay the costs and admits Me TEYTAUD, avowed, for the benefit of article 699 of the Code of Civil Procedure .