Paris Court of Appeal, No. 11/13243

Paris Court of Appeal, 13 November 2012, No. 11/13243

BORU HATLARI ILE PETROL TASIMA A.S. (BOTAS)

vs.

TEPE INSAAT SANAYII A.S. (TEPE)

Under a fixed price turnkey contract dated 19 October 2000, Boru Hatlari ile Petrol Tasima A.S. (hereafter referred to as Botas), a company incorporated under Turkish laws, was entrusted by a consortium of energy companies designated as Participants in the Main Export Pipeline (‘PPE’) led by British Petroleum (BP) with the construction of the Baku-Tblissi-Ceyhan oil pipeline designed to enable the transport of crude oil from the Caspian Sea to the Mediterranean port of Ceyhan.

Following a call for tenders, and by a contract dated 20 September 2002 subject to English law, Botas instructed Tepe Insaat Sanayii A.S. (hereinafter referred to as called Tepe), a company incorporated under Turkish laws, to carry out engineering works, as well as supply and construction works for four pumping stations and an intermediary station for scraping, on the Turkish segment of the oil pipeline and for a fixed price of 88 million US dollars.

This contract was terminated by Botas on 29 March 2005, after having been amended several times, including for the increase of the price to 91 million US dollars.

Difficulties arose between the parties during the performance of the contract and upon its termination. Therefore, Tepe submitted the dispute to arbitration under the arbitration clause stipulated by Article 20-1 of the contractual conditions part 1 of the contract.

Upon the parties’ joint request, the arbitral tribunal composed of Mr X and Mr Akenhead, arbitrators and Mr Schwartz, President, rendered a first partial award in PARIS on 5 June 2009, by which it ruled on the questions of liability, while issues relating to the quantification of damages were reserved for a later stage.

This first award was subject to an action for annulment which was dismissed by a judgment of this court of 2 December 2010. An appeal filed before the court of cassation is currently pending.

In a second partial award rendered in Paris on 31 January 2011, the arbitral tribunal stated that:

‘(i) Tepe is entitled to receive USD 39,941,704 from Botas, excluding VAT, under clause 16-4 of the contract and this amount will be paid by Botas to Tepe with interest, as provided for in (ii)

(ii) Interest will accrue on the amount stated in (i). above at an annual rate equal to three and a half per cent (3.50%) in addition to the LIBOR rate for three-month deposits in US Dollars, compounded every month, until the date of payment of the corresponding amount, as of (i) 30 March 2005, in respect of a portion of USD .6,308,150 of the said amount, (ii) 24 May 2010, in respect of a portion of USD 33,362,695 of the said amount and (iii) 1 June 2005 or, if they occur later, the dates of the payments constituting the sum of USD 270,859 spent to maintain the Fund Retention Guarantee brought by Tepe since 30 March 2005,

(iii) Tepe became entitled to the return of its Fund Retention Guarantee since 30 March 2005, and, in addition to the above sums, Botas will have to reimburse to Tepe all other sums that the latter has been obliged to pay, or would be forced to spend in the future for the maintenance of these guarantees after 10 April 2010 until the return of these guarantees to Tepe, with interest at the rate specified in (ii) above),

(iv) except with respect to the costs of the arbitration, which are reserved for a final award and, in accordance with (i)-(iii) above, neither of the parties will have any other obligation towards the other in respect of any other matters referred to in this arbitration’.

On 12 July 2011, Botas filed an action for annulment against this second partial award, requesting the court by responsive summary submissions served on 28 June 2012 to declare the award null and void, to dismiss all of Tepe’s claims and to order the latter to pay the sum of 50,000 euros under Article 700 of the Code of Civil Procedure.

For its part, according to the summary submissions served on 21 September 2012, Tepe submitted the dismissal of the appeal, the confirmation of the award in all of its provisions and the condemnation of Botas to the payment of a sum of 100,000 euros under Article 700 of the Code of Civil Procedure.

UPON WHICH :

On the ground for annulment based on the non-compliance with the principle due process (in French Principe de la contradiction) and thus the violation of international public order (Article 1520-4 and 1520-5 of the Code of Civil Procedure) :

Botas argues that the arbitral tribunal disregarded the principle of due process (in French Principe de la contradiction) and thus violated the international public order. The tribunal did not base its decision on the Anglo-Saxon law criterion of the ‘balance of probabilities' that the parties had discussed. On the contrary, in order to endorse Tepe’s right to obtain payment of the sums disbursed for the execution of the works it raised ex officio, without obtaining the parties’ explanations, that a very substantial cost was incurred by Tepe for the execution of the works'.

Whereas, the principle of due process (in French Principe de la contradiction) requires that each party be put in a position to debate the facts of the case in an adversarial manner and that all the elements that will form the basis of the arbitrators' decision be submitted to the free discussion of the parties. In contrast, in order to render its decision, the arbitral tribunal is not required to submit to the parties the legal argumentation that supports its reasoning, which derives from its role as arbitrator.

Whereas, in the present case, contrary to Botas’ arguments, the arbitrators did not disregard the principle of the ‘balance of probabilities’ in so far as they were careful to point out, in their award (paragraph 118), that Tepe clearly bears the burden of proving that it has incurred the costs that it wishes to recover. If and insofar as its documentation is not sufficient to prove the requested costs, Tepe would simply not recover them. As a final analysis, if Tepe establishes that, according to the balance of probabilities, the actual cost it has incurred is equal to a certain amount, Tepe has the right to receive payment of this established cost under clause 16-4, which payment will certainly be subject to the deductions that the Tribunal would consider appropriate and to previous payments.

Whereas, it is after examining the evidence provided by Tepe and drawn from documents and accounting records, the relevance of which was assessed by the tribunal by comparing them in particular to the expert’s reports served by the parties and the statements and witness statements presented to it, and after ruling on the ‘doubts and uncertainties’ invoked by Botas, that the arbitral tribunal determined the amount of the actual costs of the works performed. Tepe was entitled to reimbursement of these costs in accordance with the provisions of clause 16-4 of the contract governing the financial relations of the parties in the event of total or partial suspension of the works by the client.

Whereas, the arbitral tribunal stated that it is ‘convinced on the basis of the whole file that a very substantial cost has been incurred by Tepe for the execution of the Works’ (point 152) and then determined the quantum thereof. In this manner, the arbitral tribunal merely responded to Botas’ objection contained in its summary conclusions (page32 b), being that ‘the court could not be reasonably satisfied’ in case Tepe significantly defaults on its obligation to maintain ‘complete and accurate documentation regarding its costs’. Therefore, the tribunal, far from raising a new ground ex officio, only expressed the effect, on its opinion, of the elements of assessment submitted to it and assessed their conclusive force precisely in terms of the ‘balance of probabilities’ criterion, and while expressly recalling that such criterion is imposed on Tepe.

Whereas, the arbitrators having not disregarded the principle due process (in French Principe de la contradiction), the ground must therefore be dismissed.

On the ground for annulment based on the non-compliance of the arbitral tribunal with its mission (Article 1520-3 of the Code of Civil Procedure) :

Botas argues that the arbitral tribunal did not comply with its mission because it dismissed the converging interpretation given by the parties of clause 16.4, the implementation of which required the application of the ‘balance of probabilities’.

Whereas, the mission of the arbitrators as defined by the arbitration agreement is delimited mainly by the subject matter of the dispute as determined by the claims of the parties.

Whereas, the arbitrators who have adjudicated in a first partial award on the questions of liability, were entrusted to rule on the right to compensation invoked by Tepe pursuant to clause 16-4 of the contract, which they did.

Whereas, in their award, the arbitrators established Tepe’s right to compensation on the basis of the provisions of clause 16-4 of the contract, which determined the eligibility conditions and the scope thereof. Therefore, far from having ruled out the ‘balance of probabilities’ criterion as Botas claims, the arbitrators assessed the elements of evidence submitted to them by applying this principle in order to determine the amount of the compensation.

Whereas, the arbitrators having complied with their mission, the ground must be dismissed.

On the ground based on the risk of contradiction between decisions :

Finally, Botas invokes the risk of contradiction between decisions, which violates Article 618 of the Code of Civil Procedure and international public order. This risk may result from the validation of the second partial award in the event that the first award was declared null and void, as the second award is only a mathematical application in regard to the liabilities retained.

Whereas, the claimed risk of contradiction of decisions being purely hypothetical, the ground is unsuccessful.

Whereas, on the basis of all of the foregoing, the appeal must be dismissed.

On the claim made on the basis of Article 700 of the Code of Civil Procedure :

Whereas, Botas, who succumbs, will have to indemnify Tepe for its procedural costs up to the amount of 50,000 euros.

FOR THESE REASONS :

Dismisses the appeal.

Orders (XXX), a company incorporated under Turkish laws, to pay the costs that will be recovered in accordance with Article 699 of the Code of Civil Procedure.

Orders Boru Hatlari ile Petrol Tasima A.S., a company incorporated under Turkish laws, to pay to Tepe Insaat Sanayii A.S (TEPE), a company incorporated under Turkish laws, the sum of 50,000 euros under Article 700 of the Code of Civil Procedure.