Paris Court of Appeal, No. 12-09.983

Paris Court of Appeal - 1st Pole - 1st Chamber - 19 February 2013, No.12-09.983

THAI LAO LIGNITE (THAILAND) CO , HONGSA LIGNITE LOA CO LTD vs. LAO People’s Democratic Republic (Lao PDR)

THAI-LAO LIGNITE CO, LTD (TLL) is a company incorporated under Thai law to develop in Hongsa, Laos, a lignite mining and power generating project from this ore.

On 29 May 1992 TLL concluded a mining concession contract with the LAO People’s Democratic Republic (Lao PDR) authorising exploration and exploitation work on a perimeter of 20 km2. HONGSA LIGNITE LAO CO. LTD. (HLLC), a company incorporated under Laotian law, 75% owned by TLL and 25% by the Lao PDR, was formed to perform this contract.

An amendment of 21 July 1993 extended the area of the concession and authorised TLL to undertake studies for the construction of a lignite-fired power station.

On 22 July 1994 RDP LAO and TLL concluded a Project Development Agreement (PDA) for the construction of the power station to supply Thailand. This agreement stipulated an arbitration clause by an ad hoc tribunal, based in Kuala Lumpur, under the UNCITRAL Arbitration Rules.

The power station was not built as a result of the financial crisis that affected Thailand in the late 1990s.

By two letters dated 5 and 11 October 2006, the LAO PDR terminated the PDA and then the mining concession.

On 26 June 2007, TLL and HLLC jointly filed a request for arbitration against RDP LAO on the basis of the arbitration clause of the PDA.

By award rendered in Kuala Lumpur on 4 November 2009, the arbitral tribunal composed of Mr. CR and Mr. CW, arbitrators, and Mr. X, chairman, ordered the LAO PDR to terminate the proceedings and ordered the LAO PDR to pay TLL and HLLC jointly the sum of USD 56,210,000 in compensation, in addition to USD 1,000,000 in costs of the proceedings.

This award was enforced by an order of the President of the Paris Civil Court (Tribunal de Grande Instance) of 15 July 2010, which was appealed on 5 November 2010 by the RDP LAO.

A judgment of this Court of 14 February 2012 invited the parties to produce a translation, either by sworn translator or by agreement between them, of all the documents they intend to present before the Court and, in particular, the mining concession and its amendment, the PDA, the memorandums before the arbitral tribunal, the testimonies produced during the arbitral proceedings, as well as the minutes of the proceedings.

The case was withdrawn pending the completion of these steps and then re-opened on the understanding that the requested translations had been exchanged.

In its pleadings of 4 December 2012, the RDP LAO seeks the annulment of the order made and the joint condemnation of TLL and HLLC to pay the sum of 50,000 euros pursuant to Article 700 of the Code of Civil Procedure. It claims that the arbitrators ruled without an arbitration agreement, ratione materiae, in that they ruled on the dispute relating to the mining concession, and ratione personae in that they ruled with regard to HLLC, a third party to the PDA, and on damages suffered by two other companies (article 1502-1 of the Code of Civil Procedure), that the court was irregularly constituted as soon as the provisions of the arbitration clause of the PDA and not those of the mining contract were implemented (Article 1502-2 of the Code of Civil Procedure); that the arbitrators failed to fulfil their mission by applying the same legal regime to disputes arising from the PDA as to those arising from the mining concession (Article 1502-3 of the Code of Civil Procedure); finally, that they violated due process (in French: principe de contradiction) and procedural public policy by modifying the basis of the claim for compensation without inviting the parties to explain themselves on this point (Article 1502-4 and 1502-5 of the Code of Civil Procedure).

By pleadings of 21 November 2012, TLL and HLLC seek confirmation of the enforcement order, the dismissal of the RDP LAO’s claims and its order to pay each of them the sum of 35,000 euros pursuant to Article 700 of the Code of Civil Procedure.

On 11 January 2013, the LAO PDR issued conclusions for the revocation of the termination issued on 20 December 2012, in order to take into consideration, the judgment issued on 28 December 2012 by the High Court of Kuala Lumpur which annulled the disputed award.

UPON WHICH :

On the request for revocation of the closing order:

Whereas the annulment of a foreign award by the courts of the State in which it was rendered is not a case of refusal of recognition in France; that there is therefore no reason to revoke the order closing the proceedings in order to allow the submission of the judgment rendered in Kuala Lumpur, the seat of the arbitration, which allegedly annulled the award.

On the ground based on the absence of an arbitration agreement (Article 1502-1 of the Code of Civil Procedure, in the wording in force at the time):

RDP LAO argues that the Mining Concession Agreement of 29 May 1992 and the PDA, concluded on 22 July 1994, are two entirely separate contracts, stipulating incompatible dispute settlement clauses and the application of different substantive rules; that, therefore, in calculating the damages awarded to TLL and HLLC for the investments made under both the PDA and the mining concession, the arbitrators ruled without an arbitration agreement.

Whereas the enforcement judge examines the decision of the arbitral tribunal on its jurisdiction by looking for all the elements of law or fact making it possible to establish the existence of the arbitration agreement;

Whereas on 29 May 1992, the Lao PDR granted TLL a concession to exploit a lignite deposit in the Hongsa region of north-western Laos; that the concession put the investor in charge of providing the capital, materials and equipment necessary for the exploitation of the mine, as well as the construction of a 30-km road to the Thai border (art. 23) and the development of the road network in the exploitation area;

Whereas the mining concession contract stipulated in its Article 31 that disputes would be submitted either to the Laotian Board of Economic Conciliation, to the Laotian courts or to the Laotian Court of International Economic Dispute settlement organization, the latter being an arbitration body for investment matters established by the Laotian authorities with its own arbitration rules; that Article 2 of the concession stipulated the exclusive application of Laotian law and that Article 30 specified that: the conditions for the termination of the agreement and the dissolution of the operation or the premature termination of the agreement will be subject to the law on foreign investment in Laos';

Whereas by the Project Development Agreement (PDA) concluded on 22 July 1994, the Lao PDR granted TLL a concession to build a lignite-fired power station in Hongsa and to operate it for 31 years after which its property would be transferred to the Lao State; that Article 14.1 provided that all disputes arising out of the contract would be submitted to ad hoc arbitration in Kuala Lumpur in accordance with UNCITRAL rules; that Article 18.1 envisaged the application of Laotian law to the authorisation and signing of the contract, the various authorisations, the rules on foreign investment, the lease and the act conferring mineral rights and the application of the law of the State of New York on all other points and, in particular, for the interpretation of the contract;

Whereas Article 19.11 of the PDA stipulates a ‘completeness clause’ according to which: ‘This contract contains the entire agreement between the parties as to its subject matter, except that both parties acknowledge the existence and continuing validity of previous Contracts’; Article 19.12, entitled ‘Acknowledgement’, provides that the parties acknowledge and ratify previous contracts; Article 19. 13, entitled ‘Incompatibility’, states that: ‘This Agreement replaces and governs all previous arrangements between the parties, except that the rights of Hongsa Lignite and/or TLL under the previous Agreements, which are broader or more extensive than those contained herein, shall remain in force and unchanged by this Agreement. The parties agree that neither this Agreement nor the Prior Agreements shall have any adverse effect on each other but rather reflect two separate but related projects;

Whereas in spite of their ambiguities, these contractual clauses show the common intention of the parties to preserve the autonomy of the different contracts, reaffirming the preservation of the rights resulting from the conventions prior to the PDA;

Whereas the award in dispute was made by an ad hoc arbitral tribunal, based in Kuala Lumpur, constituted pursuant to the arbitration clause of the PDA; that, in accordance with the PDA, the tribunal conducted its proceedings in accordance with the UNCITRAL Arbitration Rules and applied the law of the State of New York to the merits of the dispute;

Whereas the arbitrators, after finding that the termination of the PDA initiated by the RDP LAO was irregular, having failed to comply with the contractual guarantees from which the concessionaire benefited, and after finding that the concession could no longer be executed, its termination should be pronounced, examined TLL and HLLC’s claims for damages in the light of the provisions of Article 15.1 of the PDA which stipulates: ‘In the event of termination of this Contract, TLL or the Government, as the case may be, shall be paid compensation in an amount to be determined by an arbitration panel constituted in accordance with Article 14 hereof, and which shall include the total investment cost borne by TLL, plus a bonus and compensation to Lenders and Investors if the breach in question is committed by the Government’;

Whereas the arbitral tribunal took into account the construction of roads as one of the investments made by TLLC; that it retained for the costs of advice and studies amounts reflecting TLL’s claims (Award § 121), which include all road works, even though it is clear from the discussions that the major part of the road system was built and put into service before mid-1994, although the PDA was not signed until 22 July 1994 (testimony of M. Z, TLL’s majority shareholder, of 17 Dec. 2008, § 37);

Whereas, contrarily to what TLL and HLLC argue, the RDP LAO has always maintained before the arbitrators that the ‘total investment cost’, which could give rise to a right to compensation for the benefit of TLL, was aimed exclusively at the costs engaged under the PDA and not in execution of the previous contracts, which were governed by other rules of liability and calculation of compensation (RDP LAO’s brief of 20 February 2009 before the arbitral tribunal, § 3.5.2.2);

Whereas in ruling on compensation for damages arising from contracts separate from the PDA, which contained their own dispute settlement clauses and which remained in force after the conclusion of the PDA, the arbitrators ruled in part without an arbitration agreement;

Whereas the award being a sum of the compensation awarded to TLL and HLLC, the order made should be reversed in its entirety;

Whereas TLL and HLLC, who are defeated, cannot benefit from the provisions of Article 700 of the Code of Civil Procedure; that they will be ordered on this basis to pay the sum of 50,000 euros to the RDP LAO;

FOR THESE REASONS:

DISMISSES the request for a revocation of the closing order.

REVOKES the order of the President of the Paris first instance court of 20 July 2010 which declared the enforcement of an arbitral award rendered between the parties on 4 November 2009 in Kuala Lumpur.

CONDEMNS the company THAI LAO LIGNITE CO LTD and the company HONGSA LIGNITE CO LTD to the costs which will be reclaimed in accordance with the provisions of article 699 of the Code of Civil Procedure.

DISMISSES the application made pursuant to Article 700 of the Code of Civil Procedure by THAI LAO LIGNITE CO LTD and HONGSA LIGNITE CO LTD.

CONDEMNS in solidum the company THAI LAO LIGNITE CO LTD and the company HONGSA LIGNITE CO LTD to pay to the PEOPLE’S DEMOCRATIC REPUBLIC OF LAO the sum of 50,000 euros pursuant to Article 700 of the Code of Civil Procedure.