Paris Court of Appeal, No. 10/08745

Paris Court of Appeal, First Chamber, 12 May 2011, No. 10/08745

MASCHINENFABRIK MÖLLERS GMBH (MÖLLERS)

vs.

AL KHALEEJ SUGAR COMPANY LLC (AL KHALEEJ)

AL KHALEEJ SUGAR COMPANY LLC (AL KHALEEJ) is a company incorporated under the laws of the United Arab Emirates, it operates a sugar refinery. MASCHINENFABRIK X GMBH (MÖLLERS) is a company incorporated under the laws of Germany, it manufactures packaging equipment.

Pursuant to a contract dated 12 November 2003, MÖLLERS has undertaken to provide A with bagging and unloading facilities.

Difficulties having arisen, AL KHALEEJ referred the matter to the ICC International Court of Arbitration pursuant to the arbitration clause found in Article 17 of the contract.

By an award rendered in Paris on 22 March 2010 the arbitral tribunal composed of Laurence Shore, chairman, and Stephen Males and Detlev Kühner, arbitrators, said:

‘1. AL KHALEEJ is entitled to invoke the unilateral revocation of the contract by MÖLLERS. As a result, AL KHALEEJ ’s termination of the contract is valid.

2 As a consequence, MÖLLERS is ordered to reimburse AL KHALEEJ the contractual purchase price and direct damages for a total amount of AED 7,532,146.12 (i.e., AED 7,275,749.12 plus AED 35,397 plus AED 221,000). In addition, MÖLLERS will have to pay 8% interest on this compensated amount on a quarterly basis from 17 June 2008 until full reimbursement.

3. MÖLLERS will have to reimburse AL KHALEEJ the sum of £495,321.21 corresponding to its legal costs.

4. MÖLLERS will have to reimburse AL KHALEEJ the sum of US$98,000 corresponding to the arbitration costs.

5. All other claims or counterclaims of any kind by either Party are dismissed.’

MÖLLERS brought an action for annulment against this award. It invokes three pleas: the arbitral tribunal ruled on an expired agreement (article 1502-1 of the Code of Civil Procedure) without complying with the mission conferred upon it (article 1502-3 of the Code of Civil Procedure) and without respecting the principle of contradiction (article 1502-4 of the Code of Civil Procedure).

In its submissions of 27 January 2011, it requests the court, under Articles 1502-1, -3 and -4 of the Code of Civil Procedure and 15 and 22 of the ICC Rules of Arbitration, to annul the award to dismiss AL KHALEEJ ’s claim for damages and, more generally, any claim against it and to order AL KHALEEJ to pay 15.000€ in application of Article 700 of the Code of Civil Procedure.

By submissions of 24 February 2011 AL KHALEEJ requests that the appellant claims to be dismissed, that it be ordered to pay €175,000 in damages for abusive ‘appeal’, in addition to a civil fine, and €220,000 under Article 700 of the Code of Civil Procedure.

UPON WHICH,

On the first ground for annulment: the arbitral tribunal ruled on an expired agreement (Article 1502-1 of the Code of Civil Procedure).

MÖLLERS states that the ICC International Court of Arbitration had extended the deadline for the award to 31 December 2009, of which the parties had been informed by e-mail, so that the award had to be rendered by that date, whereas it was rendered on 22 March 2010 without the parties being notified of an extension of the deadline; that its counsel discovered upon reading the award that during the sessions of 3 December and 26 March 2010 the International Court of Arbitration extended the deadline until 31 March 2010 and then until 30 April 2010; that it is ‘permissible to doubt’ the reality of these extensions since no notice was sent to the parties and no justification is annexed to the award, by itself, the ICC certificate subsequent to the introduction of the present appeal is not likely to demonstrate the reality of these extensions which should at least have been the subject of minutes; that the last actions performed by the parties dating back to 23 November 2009 do not show that the parties expressed their intention to continue the arbitration and to accept the extensions of time.

It recalls that from the beginning of the arbitral proceedings it asked the court to ensure that the procedural timetable be respected and that it could in no way accept an extension of the duration of the arbitration which would result in a costly and time-consuming drift; that, moreover, the extension of the time limit had an impact on the amount of capitalized interest charged to it, which privileged the plaintiff.

Finally, it argues that Article 24§2 of the ICC Rules of Arbitration cannot be interpreted as giving the International Court of Arbitration a discretionary power to extend the period of time for arbitration, which would be contrary to the principles of speed, predictability and freedom of contract, which are major principles of arbitration.

Whereas Article 24 of the ICC Rules of Arbitration provides that:

‘1. The Tribunal shall render its final award within six months. This period shall run either from the date on which the last signature of the Arbitral Tribunal or of the parties has been affixed to the Terms of Reference or, in the case referred to in Article 18, paragraph 3, from the date of the notification to the Arbitral Tribunal by the Secretariat of the Court’s approval of the Terms of Reference.’

‘2. The Court may, upon a reasoned request of the Arbitral Tribunal or, if necessary, on its own motion, extend this time limit, if it deems it necessary. ‘;

That the parties, in submitting their dispute to arbitration in accordance with the ICC Rules, expressly referred to in the Terms of Reference, have agreed that the mechanism for setting the time limit for the arbitrators is binding;

That the Terms of Reference, paragraph 30, provides: ‘The Parties and the Arbitral Tribunal have agreed on the timetable for the proceedings attached hereto in a separate document, subject to modification by the Arbitral Tribunal at the reasoned request of one or both of the parties and/or for any other reason that the Arbitral Tribunal may determine as appropriate’; that the parties have not fixed the duration of the arbitrators’ mission in the Terms of Reference, nor in the procedural timetable;

That, pursuant to Article 24 of its Rules, it was therefore for the International Court of Arbitration, in the context of its institutional functions of organizing and supervising the procedure, to extend, on behalf of the parties, the period within which the award was to be rendered, without there being any provision of the Rules that provides that the Court should notify them of the decision to extend the period;

That thus the extensions of the time limit to 31 December 2009 during the session of 3 September 2009 (uncontested), then to 31 March 2010 during the session of 3 December 2009 and finally to 30 April 2010 during the session of 4 March 2010 recalled in the award (paragraph 35) and confirmed by the ICCI’s certification, were made in accordance with the provisions of the applicable arbitration rules and the award was rendered within the time limit for arbitration;

Moreover, MÖLLERS cannot in good faith claim that it was during the examination of the award on 26 March 2010 that its counsel literally ‘discovered’ the extensions, whereas its counsel did not express any concern to the International Court of Arbitration about the fate of the proceedings after 31 December 2009, the last date, according to them, for the rendering of the decision, or invoke in support of its argument the prejudice resulting from the impact of the extension of the time limits on the calculation of the capitalized interest, whereas, moreover, it is not disputed that, to date, it has not paid the amount of the convictions;

That the ground is rejected;

On the second ground for annulment: the arbitral tribunal ruled without complying with its mission (article 1502-3 of the code of civil procedure):

MÖLLERS complains that the arbitral tribunal:

• falsely stated in paragraphs 23 and 24 of the award that the parties complied with the timetable of the proceedings, when A filed a reply statement on 28 May 2009 and an unspecified schedule of damages on 15 June 2009, and that it did not sanction these procedural violations, which infringed the rights of the defense, other than by reducing the amount of the costs claimed by AL KHALEEJ;

• stated in paragraph 26 that the intervention of the court had not been necessary to resolve the parties’ disagreements on requests for production of documents;

• stated in paragraph 27 that the procedural incident which occurred as a result of the amendments made by AL KHALEEJ to the written testimony of one of its witnesses had been settled at the hearing, whereas it appears from the transcript of the proceedings (pages 182 to 186) that this is not the case;

• did not reject, in spite of its requests, this testimony as well as the shaken nomenclature of AL KHALEEJ’s exhibits on the Friday preceding the Monday of the hearing, which disorganized its defense;

• did everything to dissuade the defendant MÖLLERS from maintaining its protests and ‘made it obvious that it refused to give any value and effect to the demands of MÖLLERS’, thus violating the equality of arms.

However, whereas according to Article 18 of the ICC Rules of Arbitration the Terms of Reference must be signed by the parties and the members of the Arbitral Tribunal, the same does not apply to the timetable of the proceedings, paragraph 4 of the said Article providing: “When drawing up the Terms of Reference, or as soon as possible thereafter, the Arbitral Tribunal, after consulting the parties, shall set out in a separate document the provisional timetable it intends to follow for the conduct of the proceedings and shall communicate it to the Court and to the parties. Any subsequent modification of this timetable will be communicated to the Court and to the parties'; that in this case the timetable of proceedings has been signed by the sole chairman of the Arbitral Tribunal;

It is recalled that according to the Terms of Reference, paragraph 30, ‘The Parties and the Arbitral Tribunal have agreed on the timetable for the conduct of the proceedings attached hereto in a separate document, subject to any modification by the Arbitral Tribunal upon the reasoned request of one or both parties and/or for any other reason that the Arbitral Tribunal may deem appropriate’;

That it was therefore incumbent on the Arbitral Tribunal to ensure the proper conduct of the proceedings and, in this respect, to adjust its timetable, which was necessarily provisional, since its possible modification was expressly provided for;

That in the present case, the fact that a statement of claim and a schedule of damages not provided for were filed by AL KHALEEJ and were admitted, does not in any way characterize a non-compliance with the mission of the arbitral tribunal given that MÖLLERS had the opportunity to respond to it, these documents being filed on 28 May and 15 June 2009, i.e., more than three months before the hearing of the pleadings;

Similarly, as is apparent from MÖLLERS’s own writings, the incident of disclosure of documents was resolved between the parties and MÖLLERS does not show that the arbitral tribunal did not comply with its mission on that occasion.

That the arbitral tribunal’s taking into account of Mr. Y’s second testimony and the corrections made to his written testimony was accepted by MÖLLERS as reflected in the transcript of the hearing of 6 October 2009, page 1;

Finally, MÖLLERS does not show how the arbitral tribunal’s acceptance of the changes in the nomenclature or numbering of the exhibits produced by AL KHALEEJ would constitute a breach of its mission, when it does not establish that this modification affected the effectiveness of its defense and was in fact prejudicial to it;

That it alleges in vain a breach of the equality of arms;

That the ground, which is in fact lacking, is rejected;

On the third ground for annulment: the court did not respect the principle of contradiction (in french Principe de la contradiction) (article 1502-4 of the code of civil procedure):

MÖLLERS states that the court had fixed the following timetable for the justification of the costs incurred: on 5 November 2009, concomitant dispatch of documents for each of the parties, on 12 November 2009, commentary by each of the parties on the other’s costs; that in spite of this, on 5 November, A submitted a file without the annexed documents which it had only produced on 12 November; that MÖLLERS requested the rejection of these documents; that the arbitral tribunal announced to the parties on 20 November that it accepted these exhibits and that MÖLLERS could comment on them until 5:00 p.m. on 23 November which it did; that A provided further comments on MÖLLERS’s comments at 5:49 p.m.; that the arbitral tribunal did not reject this latter late communication, thus violating the principles of contradiction and equality between the parties, and limited itself to announcing the closing by e-mail on 24 November 2009.

Whereas the principle of contradiction requires that each party be given the opportunity to debate the facts of the case in a contradictory manner, and that nothing that serves as a basis for the arbitrator’s judgment should be left out of the parties' contradictory debate;

Whereas MÖLLERS had 11 days to study and comment on the documents relating to the costs produced by A on 12 November, since the time limit set by the arbitral tribunal for responding expired on 23 November; that, moreover, it does not claim to have been unable to reply contradictorily and fully to its observations of 23 November;

Moreover, AL KHALEEJ’s message addressed to the arbitral tribunal on 23 November 2009 at 5:49 p.m. did not constitute a reply to this last transmission but merely specified the exact function of Mr. Z; moreover, MÖLLERS does not justify having protested on this occasion to the arbitral tribunal, which in no way disregarded, contrary to what MÖLLERS maintains in support of its plea, the provisions of Article 15 of the ICC Rules of Arbitration, which require the Tribunal to conduct the proceedings in a fair and impartial manner, ensuring that each party has had an adequate opportunity to be heard, or of Article 22 of the said Rules, which provides that the Tribunal shall declare the proceedings closed when it considers that the parties have had an adequate opportunity to be heard and that, after such closure, no written submissions, arguments or evidence may be presented, except at the request or with the permission of the Arbitral Tribunal;

That the ground and the appeal are dismissed;

On AL KHALEEJ’s claims for damages for abusive procedure and civil fine:

Whereas AL KHALEEJ, who does not demonstrate that MÖLLERS has abused its right to sue, is dismissed from its claim for damages; whereas there is no need to impose a civil fine.

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

Whereas MÖLLERS who is unsuccessful is dismissed and pays AL KHALEEJ 100.000€;

FOR THESE REASONS:

DISMISSES the appeal;

CONDEMNS the company MASCHINENFABRIK X GMBH to pay the company AL KHALEEJ SUGAR COMPANYLLC 100. 000€ under Article 700 of the Code of Civil Procedure;

REJECTS any other request;

CONDEMNS MASCHINENFABRIK X GMBH to pay the costs and admits Me. Huyghe, avowed, to the benefit of Article 699 of the Code of Civil Procedure.

THE CLERK THE PRESIDENT