Paris Court of Appeal, No. 10/21671

Paris Court of Appeal, First Pole, First Chamber, 10 January 2012, No. 10/21671

SHARIKAT AL IKARAT WAL ABNIEH (SIWA) S.A.L.

Vs.

BUTEC S.A.L

The Lebanese company SHARIKAT AL IKARAT WAL ABNIEH SAL (SHARIKAT), chaired by Mr. HZ, who, with his family held all of the share capital, began in the early 2000s to build a hotel on land it owned in Beirut. On 6 April 2002, 51% of the capital of SHARIKAT was sold to the Luxembourg company GENERAL MEDITERRANEAN HOLDING (GMH) headed by Mr. Y, who became Chairman of SHARIKAT, and Mr. Z had the status of Chief Executive Officer.

On 3 September 2003 a contract was signed between SHARIKAT and E S.A.L. (E SAL), a company incorporated under Lebanese law created in 1966 by Mr. Z. The purpose of this contract was the construction, renovation and equipment of the hotel.

A dispute arose between the parties relating to the reception of the work and the payment of the balance of the price, E SAL seized the International Chamber of Commerce with a request for arbitration under the arbitration clause stipulated by the book of special administrative clauses annexed to the contract.

By an award rendered in Paris on 7 July 2010, the arbitral tribunal composed of Messrs. Aynès and Cremades, arbitrators, and Mr. Hanotiau, president, has, with provisional execution:

• set the date of receipt at 29 August 2007,

• noted that in the absence of amicable settlement, E SAL was entitled to exercise the right of retention over the hotel until full payment of its claims,

• ordered SHARIKAT to pay E SAL various sums for the balance of the price, the cost of the modification works, the costs related to price and cost increases, in addition to indemnities, capitalized interest and arbitration costs.

On 5 November 2010, SHARIKAT filed an appeal against this award.

By submissions of 17 October 2011, it requests its annulment as well as the ordering of E SAL to pay the sum of 15,000 Euros in application of article 700 of the Code of Civil Procedure. It invokes, under article 1484-4 and 1484-6 of the Code of Civil Procedure, the disregard of the principle of contradiction and the rights of the defense, as well as the fraudulent concealment of decisive documents and information characterizing a violation of the principle of contradiction and public policy.

By submissions of 31 October 2011, E SAL requests the dismissal of the appeal and the order against SHARIKAT to pay the sums of 100,000 Euros as damages for abusive proceedings and 100,000 Euros in application of article 700 of the Code of Civil Procedure. It maintains, on the one hand, that the ground for annulment based on disregard of the principle of contradiction is inadmissible, because it was not presented to the arbitrators, and unfounded, and, on the other hand, that the letter of the Governor of the city of Beirut, which SHARIKAT relies on to allege fraud, reveals nothing new.

UPON WHICH:

On the qualification of arbitration:

Whereas the arbitration takes on an international character when the dispute submitted to the arbitrator concerns an operation which is not settled economically in a single State; that such is the case of a dispute born between a client and a Lebanese project manager, relating to the construction, in Beirut, of a hotel, and in the construction of which intervene French companies as subcontractors under the special administrative clauses annexed to the main contract, and for which a technical assistance mission has been entrusted to the American company HILTON INTERNATIONAL;

That the grievances articulated by SHARIKAT will therefore be examined with regard to Article 1502 of the Code of Civil Procedure;

On the admissibility of the grievances:

Whereas the action for annulment of an arbitral award rendered in international matters shall only be available in the cases exhaustively listed by article 1502 of the Code of Civil Procedure; that if the submissions of SHARIKAT evoke, without further precision, an “impressive succession of irregularities” committed during the arbitration proceedings, such as the lack of respect of the procedural calendar or the freedoms taken with the terms of the mission, and if they suggest that the assessment of the facts would be vitiated by partiality, these vague allegations, formulated without any reference to one of the cases of opening of the appeal, could not justify a request for annulment and will be dismissed;

On the ground of annulment taken from the violation of the principle of contradiction (in french Principe de la contradiction) and equal treatment of the parties (article 1502-4 and 1502-5 of the Code of Civil Procedure):

SHARIKAT maintains, firstly, that the arbitral tribunal considered decisive the testimonies of Mr. Z, his daughter, manager of the company A & A, architect of the transaction, and Mr. A, agent of A & A and E, when such testimony was not admissible and could not be considered as evidence given the links of the interested parties with E SAL; that in doing so, the arbitral tribunal did not respond to its plea which referred to a fraudulent consultation between the companies of the family group Z.

SHARIKAT alleges, secondly, that the arbitrators have established a questionable distinction between ‘expert witnesses’ and ‘fact witnesses’, and that they exempted the latter from the oath which should have led to their hearing as a matter of mere information.

SHARIKAT maintains, thirdly, that the arbitral tribunal created a rule according to which oral testimony was admissible only if it was preceded by written testimony annexed to the pleadings and that, due to a restrictive interpretation, by the chairman, of an ambiguous procedural order, it was deprived of the opportunity to call its own witnesses, and Mr. Y’s written testimony was not taken into consideration either.

Whereas, in order to be admissible before the annulment judge, the grievance against an arbitration award must, whenever possible, be raised before the arbitral tribunal itself;

Whereas the rules of procedure specific to the arbitral body opposing E SAL to SHARIKAT, have, in accordance with the Arbitration Rules of the International Chamber of Commerce, been adopted by the arbitrators in agreement with the parties;

That as it is recalled in a letter from the president of the arbitral tribunal dated 18 February 2010, the tribunal, on 5 December 2008, submitted to the counsel of E SAL and SHARIKAT the draft procedural order n ° 1 and the draft mission statement; that these two documents were the subject of a conference call on 19 December 2008 at the end of which they were adopted without objection from the parties;

Whereas the procedural order n ° 1 provides:

“II. Exchange of briefs and documents:

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8. Exhibits and witness statements (and expert reports) that the Parties wish to invoke in support of their arguments will be transmitted at the same time as their briefs in request and in response. The additional exhibits and witness statements (and additional expert reports) will be filed at the same time as replica and duplicate briefs.

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IV. Factual witnesses:

15. Any person may be a witness, including a party, its employees and agents.

16. The Parties shall provide written statements for each person they wish to present as a witness. The said written statements will specify the surname and first name of the witness, his or her profession, address, qualifications and the relations he or she may have had with one of the parties. It will contain an affirmation of the sincerity of the statement which will be also dated and signed.

17. Written statements shall be sufficiently detailed to avoid direct examination of the witness at the hearing. The hearing procedure will be therefore mainly devoted to the cross-examination of the said witness.

18. If a party disputes the evidence provided by a witness, it must request his or her presence at the hearing for his or her cross-examination.

19. Having been duly informed of the date of the hearings, the Parties shall make sure, immediately upon receipt of this order, to inform their potential witnesses of the dates chosen, so as to ensure their presence at the hearing and avoid any disruption of the procedural schedule.

20. Witnesses shall be invited to appear by the party relying on their testimony. If a witness cannot attend the hearing for a valid reason, the Arbitral Tribunal will decide on the probative value to be reserved for his or her written statement, after hearing the Parties.

21. The admissibility, relevance and probative value of a written statement or oral testimony will be determined by the Arbitral Tribunal.

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V. Expert witnesses

23. The foregoing provisions concerning factual witnesses are applicable mutatis mutandis to expert witnesses called by the Parties.

24. If the expert witnesses submit expert reports, they must, at the latest after the second exchange of briefs, meet, determine what are the points of agreement and the points of divergence between them, attempt to reach agreement on the latter, and indicate in conclusion the points of divergence remaining, as well as the reasons for which they diverge. They will submit a joint report recording these various points."

Whereas this order has been transmitted to the parties on 15 January 2009 with a procedural timetable, decided upon contradictorily, which set deadlines for the submission of briefs between March and December 2009 and set the week of 15 to 19 March 2010 for the hearing of witnesses ;

Whereas on February 2010, the board of directors of SHARIKAT requested the hearing of seven witnesses without the production written testimony; that by the aforementioned letter of 18 February 2010, the president of the arbitral tribunal indicated that he considered that these requests were late and did not meet the forecasts of the procedural order;

Whereas on 16 and 17 March 2010, the witnesses, whose written testimonies were produced by E, were heard, namely, Mr. HZ, Mrs.  FZ and Mr. JKLA; that their professional qualities and their links with each other and with SHARIKAT and E SAL appeared in the written testimony and that the question of whether or not they should be considered as parties gave rise to an adversarial debate;

Whereas, on the one hand, that it follows from the foregoing that the rules for investigating the case, which were intended to ensure a real fairness of the debates, admitted, without oath, the testimony of all people, including the parties, subject to prior production of a written testimony, annexed to the briefs, and explaining the qualities of the interested parties, with specific technical adjustments for the experts; that the probative value of these elements was left to the appreciation of the court; that these rules, devoid of ambiguity, had been adopted contradictorily with the parties, without any of them relying on rules of national law, which could have hindered their application in an international arbitral proceeding initiated under the supervision of the International Chamber of Commerce;

Whereas, on the other hand, that it results as much from the written testimonies as from the excerpts of the report of the debates and of the award itself, that the implication, of the three witnesses heard, in the litigation was in no way concealed;

That it is therefore in a perfectly clear manner that SHARIKAT recognized the regularity of the procedure during the arbitral proceedings; that it did so first by a letter from its counsel addressed to the arbitrators on 31 March 2010, that is to say after both the incident of February 2010 relating to its request to hear witnesses and the hearing of 16 and 17 2010, during which the witnesses of BULTEC were heard; that SHARIKAT reiterated its agreement on this regularity through its lawyer at the end of the hearing of pleadings held on 6 May 2010 (transcript of the debates, n ° s 23 and 26);

Whereas it follows that SHARIKAT waived the right to rely on alleged irregularities which it had refrained from invoking before the arbitrators;

That with regard to the assessment made by the arbitrators, relating to the probative value of the various oral testimonies with regard to the links between their authors and the parties, as well as the scope of the written certificate emanating from Mr. Y, the grievance of violation of the principle of contradiction and equality between the parties covers, in reality, a criticism of the merits of the reasons for the award and invites a review of the merits which is not allowed to the appeal judge;

Whereas the ground, in its various branches, cannot be accepted;

On the ground of annulment taken from the violation of international public policy and the principles of due process (in French Principe de la contradiction) resulting from procedural fraud (article 1502-4 and 1502-5 of the Code of Civil Procedure):

SHARIKAT maintains that the criminal offenses against urban planning law committed from 2004 to 2007 made it impossible, under Lebanese law, to issue a town planning certificate and, therefore, to receive the work, so that by deliberately concealing the existence of these infringements in order to ensure that the arbitrators pronounce the reception on 29 August 2007, E SAL committed procedural fraud. The Appellant adds that the existence of these infringements is attested by documents subsequent to the award which are nevertheless admissible in support of the action for nullity, since fraud and the retention of documents decisive for the solution of the dispute are among the cases of opening of the appeal for review provided for by article 595 of the code of civil procedure to which refers article1491  of the same code, so that if the revision itself is inadmissible as long as the action for annulment is pending, the invocation of a new fact may be admitted during the proceedings for annulment.

Whereas the arbitrators decided that the reception was deemed to have taken place on 29 August 2007, based essentially on the findings of the HILTON company (award § 700), on the reports filed in January 2009 by the experts appointed by the interim relief judge in Beirut (§ 702), as well as on the compliance report drawn up by the SOCOTEC control office (§ 703 to 705);

Whereas, in order to maintain that infringements of urban planning law, knowledge of which would necessarily have led to refusal of reception, had been concealed from the court, SHARIKAT invokes a letter which was notified to it on 22 March 2011 by the Governor of the City of Beirut;

Whereas the Appellant alleges that this letter declares inadmissible the request for reconstruction after demolition filed by Mrs.  FZ, architect, on behalf of the contracting authority represented by Mr. HZ, on the grounds of irregularities affecting the elevators, an overrun of authorized surfaces and construction of an external staircase encroaching on the public domain without authorization;

But considering that this document, dated 7 March 2011, is not analyzed as an inadmissibility of request for work as argued by SHARIKAT, but in a suspension of the investigation of the request for occupation permit; that it results, in fact, from an explanatory letter from the Governor of the City of Beirut dated 13 June 2011, addressed to Mrs. FZ: that “the letter dated 7 March 2011 in the course of instruction of the occupation permit does not constitute a refusal of the requested permit, but includes requests relating to plans that should be provided and questions to which it is necessary to provide an answer on your part and on behalf of the owner, and which are necessary for the continuation of the study of the file and the issuance of the occupation permit in accordance with the plans signed by B, Lebanese Company for Development and reconstruction of Beirut’s downtown, and the reality of the existing situation as it has been done. All this after having carried out the requested modifications and ensured the required parking space either by modifying the plans and parts or after having rectified the reality of the building. As for the other points, including the increase in surface area, you can come back to the Higher Council for Urban Planning in order to study the file in application of Article (5-5) of the Regulation approved by decree 5714/2001” that, in addition, the owner of the property, i.e., SHARIKAT, submitted an application “dated 16 May 2011 for the termination of the investigation of the application for a license of occupation for the cited property for reasons of its own”;

Whereas it cannot be inferred from these documents that infringements known to E SAL and likely to affect the conviction of the arbitrators as to the aptitude of the work to be accepted, have been concealed; that the reality of fraud, the proof of which lies with SHARIKAT, is therefore not established;

That the ground, in its two branches, can only be dismissed;

Whereas it follows from all of the above that the appeal must be dismissed;

On the claim for damages:

Whereas it does not appear that the exercise of the appeal has degenerated into abuse; that the claim for damages will be dismissed;

On Article 700 of the Code of Civil Procedure:

Whereas SHARIKAT who is unsuccessful will have to pay E SAL the sum of 100,000 euros on this basis;

FOR THESE REASONS:

DISMISSES the action for annulment of the award rendered between the parties on 7 July 2010.

DISMISSES E SAL’s claim for damages for abusive proceedings.

DISMISSES SHARIKAT of his application pursuant to Article 700 of the Code of Civil Procedure.

ORDERS SHARIKAT to pay E SAL the sum of 100,000 Euros pursuant to article 700 of the Code of Civil Procedure.

ORDERS SHARIKAT to pay the costs and admits SCP Duboscq-Pellerin, avowed, to benefit from the provisions of Article 699 of the Code of Civil Procedure.