Paris Court of Appeal, No. 10/16525 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, 1st Pole 1 – First Chamber, 24 November 2011, No. 10/16525

EGYPTIAN GENERAL PETROLEUM CORPORATION (E.G.P.C)

Vs.

NATIONAL GAS COMPANY (NATCAS)

On the 6th of January 1999, a natural gas supply contract was concluded between E B C D (X), an Egyptian public establishment, and NATIONAL GAS COMPANY (Z), a public limited company under Egyptian law, for the supply of natural gas to residential and industrial areas and power stations located in the Egyptian governorate of Al-Sharqiyah. On 24 September 2001, the parties signed an amendment No. 1 relating to the supply of an additional geographical area.

As Z had taken out loans denominated in US dollars and euros to finance the operation, the change in the exchange rate of the Egyptian pound, decided by the Egyptian authorities in accordance with the decree of 28 January 2003, increased its financial expenses. X’s refusal to bear these additional costs led Z to file a request for arbitration with the Cairo Regional Commercial Arbitration Center (CRCICA) on the 2nd of February 2008, pursuant to the arbitration clause stipulated in article 20 of the contract.

By award issued in Cairo on 12 September 2009, the arbitral tribunal composed of Mr. M Issa and Zein-el- Abidine, arbitrators, and Mr. Afaki, President:

dismissed the ground of inadmissibility of the request for arbitration based on X’s status as a public entity;
rejected the ground of nullity of the contract on the grounds that article 2 of the Implementing Regulations of the Natural Gas Law No. 217 of 1980 was not in conformity with the Egyptian Constitution;
ordered X to pay to Z L.E. 253,424,668.31 plus interest at the rate set by the Central Bank of Egypt;
rejected the ground of nullity of the arbitration clause;
rejected the request for termination of the contract;
rejected the request for the appointment of a commission of experts;
pronounced on the sharing of arbitration costs.

The order of exequatur of this award delivered by the President of the District Court of Paris on 19 May 2010 was appealed by X on 6 August 2010.

In its submissions of 9 June 2011, X seeks the reversal of the order and the condemnation of Z to pay the sum of EUR 40,000 pursuant to article 700 of the French Civil Procedure Code.

It claims, firstly, that the arbitrators ruled without an arbitration agreement since, on the one hand, the contract had been transferred by X to the E Gas Company (EGAS) and, on the other hand, that the arbitration clause violated the mandatory provisions of Egyptian law on arbitration, applicable law whenever domestic arbitration was involved (article 1502 1° and 5° of the Civil Procedure Code), secondly, that the arbitral tribunal failed to observe the principle of contradiction and the rights of the defense (article 1502 4° and 5° of the Civil Procedure Code), in the third place that the arbitrators misunderstood the scope of their mission by not submitting to the Supreme Constitutional Court the exception of unconstitutionality that was before them (article 1502 3° of the Civil Procedure Code), in the fourth place, that the award violates the principle of international public policy of the relative effect of contracts (article 1502 5° of the Civil Procedure Code), finally that the award in dispute is non-existent because it was annulled by the Egyptian courts and therefore could not be subject to exequatur without contravening the provisions of articles 1498 and 1502 5° of the Civil Procedure Code.

By submissions of 8 September 2011, Z asks the Court to dismiss X’s claims and to condemn her to pay him the sum of EUR 60,000 based on article 700 of the Civil Procedure Code.

Z claims that the disputed contract was not assigned by X to EGAS; that the ground alleging the invalidity of the arbitration clause due to the lack of approval by X’s supervisory minister was submitted late and in bad faith and is contrary to the rule of estoppel; that, in any event, the rules of validity of the arbitration agreement set forth by Egyptian law are inapplicable to an arbitration which, contrary to what X claims, is international in nature; that the refusal of the arbitral tribunal to order an expertise does not infringe the contradiction and the respect of the rights of the defense; that the arbitrators have not disregarded their mission by dismissing, without referring to the Supreme Court, a ground of unconstitutionality that is not serious; that the principle of the relative effect of contracts is not a matter of international public policy and has, in any event, not been disregarded in this case; finally, that the ground based on the annulment of the award in Egypt is inoperative.

UPON WHICH:

On the ground based on the non-existence of the award whose enforceability is disputed (articles 1498 and 1502-5, now 1514 and 1520-5 of the Civil Procedure Code):

X argues that the contested award being purely internal to the Egyptian legal system and having been annulled by the Egyptian courts is non-existent and therefore cannot be subject to exequatur.

Whereas articles 1498 and following, now 1514 and following, of the Civil Procedure Code on the recognition and enforcement of arbitral awards are applicable both to international awards and to awards made abroad, regardless of whether the latter are domestic or international in nature; Whereas therefore, pursuant to article VII, 1 of the New York Convention of 10 June 1958 on the Recognition and Enforcement of Foreign Arbitral Awards, the more favorable French law on international arbitration, which does not provide for the setting aside of the award in its country of origin as a ground for refusing recognition and enforcement of the award made abroad, should be applied;

On the ground based on the absence or nullity of the arbitration agreement (article 1502-1 and 1502-5, now 1520-1 and 1520-5 of the Civil Procedure Code):

X argues that the arbitrators ruled without an arbitration agreement or on the basis of a null agreement since, on the one hand, the contract and all the rights and obligations arising therefrom had been assigned by her to EGAS, so that she was no longer bound by the arbitration agreement, on the other hand, that in an arbitration internal to Egypt, the arbitration clause was concluded by a public establishment without the approval of its supervisory minister in violation of the Egyptian law on arbitration in civil and commercial matters, which offends the French conception of international public policy.

Whereas X, a public establishment under Egyptian law, and Z, a public limited company under Egyptian law, entered into a contract on 6 January 1999 by which the former entrusted the latter with the construction, operation and maintenance of a natural gas supply network on Egyptian territory for the supply of private individuals and companies;

Whereas this agreement stipulates in its article 20 that: ‘If the parties fail to find a solution, any dispute, controversy or claim arising between the Public Establishment and the Company in connection with the Contract, or any element relating thereto, or in connection with the failure to comply with the terms thereof, or in connection with its termination or cancellation, shall be resolved by arbitration in accordance with the rules of the Cairo Regional Commercial Arbitration Centre';

Whereas, on the basis of this clause, the arbitral tribunal considered itself competent to examine the request made by Z to charge X with the additional costs incurred by X, following the change in the parity of the Egyptian pound, on the loans denominated in US dollars and euros which it had contracted with third parties for the financing of the project;

Whereas, firstly, assuming that it had been established that this contract had been assigned by X to the public establishment EGAS by virtue of a decree no. 1009 of 2001, a subsequent order of the Minister of Oil no. 669 of 9 August 2001 and an amendment no. 2 to the main contract, signed on 4 April 2004, did not affect the effectiveness of the arbitration clause stipulated in the contract of 6 January 1999; whereas it only had the effect, where appropriate, of modifying the respective obligations of the parties, which it was for the arbitrators to assess;

Whereas, secondly, as has been said, articles 1498 et seq., now 1514 et seq. of the Code of Civil Procedure on the recognition and enforcement of arbitral awards are applicable both to international awards and to awards made abroad, regardless, for the latter, of their domestic or international character; whereas the regularity of such awards is examined in the light of the rules applicable in the country where their recognition and enforcement are sought, the purpose of the exequatur procedure in France being to admit foreign awards into the French legal system under the sole conditions that it has laid down;

Whereas, in application of the principle of validity of the arbitration agreement, the will of the parties is sufficient to validate it, which is removed from the influence of national laws;

Whereas, consequently, assuming it is established, the circumstance that Egyptian law would make the conclusion by an Egyptian public establishment of an arbitration agreement subject to ministerial approval is irrelevant to the assessment of the effectiveness of the arbitration clause by the French exequatur judge, regardless of whether the award issued in Egypt has a domestic or international character; moreover, contrary to what X argues, the arbitration in question is not purely internal to Egypt since the technical expertise was provided by the Italian company Nord Italy Gas SPA. 15 of the contract expressly provides that Z has the obligation to retain it continuously as a partner and shareholder throughout the period of performance of the contract, so that the transaction is not economically resolved in a single country;

Whereas the ground taken of the absence or nullity of the arbitration agreement must therefore be dismissed in its two branches;

On the ground based on the violation of the principle of due process and of the rights of defense (article 1502-4 and 1520-5):

X claims, on the one hand, that Z belatedly submitted a large number of accounting documents without sufficient time being given to him to take cognizance of them and without his request for an expert’s report being granted, and on the other hand, that the arbitrators automatically raised a ground of inadmissibility for lateness of the plea of incompetence without putting the parties in a position to discuss the merits, whereas it was a question of incompetence of public policy admissible in any event.

Whereas, first of all, the principle of due process only requires that the parties have been able to make known their claims of fact and law and to discuss those of their adversary in such a way that nothing that served as a basis for the arbitrators’ decision escaped their contradictory debate;

Whereas the court decided that after the exchange of the briefs it would hold a hearing on 12 and 13 April 2009 and that it invited the parties to inform it before 10 February 2009 of the witnesses or experts they intended to call upon; whereas if X claims that Z would have produced many new accounting documents on the first day of the hearing, it appears, on the one hand, that during the two days of the hearing, the parties were able to question their respective experts and discuss the expert opinions produced (award p. 6), on the other hand, on the second day of the hearing, the parties declared that they had no objection or reservation to make regarding the procedure followed up to that point, a statement which was noted in the minutes of the hearing; whereas the arbitrators also allowed the parties to present a final brief in order to respond, if necessary, to the points raised during the pleadings; whereas it appears that the parties were thus given the opportunity to discuss all the arguments presented and the documents produced; whereas the arbitrators cannot, therefore, be blamed for having violated the principle of contradiction by considering that the discussions made it unnecessary to resort to an expert opinion and that X’s request to this effect, which the expert accountant had explained at length on the documents produced, was late and dilatory;

Whereas, secondly, the arbitrators are under no obligation to submit their statement of reasons to an adversarial discussion between the parties beforehand; that, contrary to what X maintains, the arbitral tribunal was thus able, without ordering the reopening of the proceedings, and without disregarding any principle of international public policy, to dismiss the ground of lack of jurisdiction raised by X on the ground that this ground had not been presented within the time limit set by § 2 of article 27 and § 3 of article 21 of the CRCICA arbitration Rules;

Whereas the ground of violation of the principle of due process and of the rights of defense must be rejected;

On the ground based on the violation by the arbitrators of their mission (article 1502-3, now 1520-3 of the Civil Procedure Code):

X claims that by rejecting the ground of unconstitutionality of the decree under which the contract had been concluded, without referring this question to the Constitutional Court, which alone is competent to rule on such a question, the court exceeded the limits of its mission.

Whereas if the arbitrators were to decide the dispute in accordance with Egyptian law, it does not follow from the mere fact that they refused to refer the ground of unconstitutionality of a decree to the Constitutional Court that they did not apply that law, since under Egyptian law relating to the Supreme Constitutional Court, it is for any judicial body to assess the seriousness of the ground of unconstitutionality brought before it;

Whereas the ground, under the guise of a failure by the arbitrators to comply with their mission, tends towards a revision of the merits of the award, which is not permitted to the judge of the exequatur; whereas it must therefore be rejected;

On the ground alleging violation of international public policy (article 1502-5, now 1520-5 of the Civil Procedure Code):

X claims that it cannot, without prejudice to the principle of international public policy of the relative effect of contracts, be held liable for the prejudice resulting for Z from financing agreements concluded with third parties prior to the signing of the contract between the parties to the arbitration.

Whereas article 7.13 of the contract concluded between the parties on 6 January 1999 stipulates: ‘The company shall comply with the laws and regulations emanating from the competent and relevant authorities in all matters relating to the object and scope of the contractual work, both those currently in force and those that will be in force during the execution without, however, increasing its financial charges provided for in the Contract';

Whereas the award condemns on this basis the grantor, X, to compensate the distributor, Z, for the additional costs incurred by the latter, following the change in the parity of the Egyptian pound, on the loans denominated in US dollars and euros that it had contracted with third parties for the financing of the project;

Whereas such a condemnation does not result in any flagrant, effective and concrete violation of international public policy; whereas the ground must therefore be dismissed;

Whereas it follows from all the foregoing that the order of exequatur must be confirmed;

Whereas X, who succumbs, cannot benefit from the provisions of article 700 of the Civil Procedure Code and will have to pay the sum of EUR 60,000 to Z on this basis;

FOR THESE REASONS:

Confirms the exequatur order.

Dismisses the E B C D of its application under article 700 of the Civil Procedure Code.

Having regard to article 700 of the Civil Procedure Code, condemns E B C D to pay the sum of EUR 60,000 to NATIONAL GAS COMPANY.

Condemns the E B C D to pay the costs and admits the SCP Fisselier Chiloux Boulay, avowed, for the benefit of article 699 of the Civil Procedure Code.