Paris Court of Appeal, No. 11/18244

Paris Court of Appeal, Pole 1, First Chamber, 2 April 2013, No. 11/18244

Upheld by: Court of Cassation, First Civil Chamber, 18 March 2015, No. 13-22.391

S.A.R.L. BLOW PACK

vs.

WINDMOLLER & HOLSCHER KG

The Tunisian company BLOW PACK specialised in the manufacture of agricultural films and packaging films has purchased from the German company WINDMOLLER & HOLSCHER KG (WINDMOLLER), specialised in the manufacture of machines for the production and processing of plastic films, a “FILMEX” type machine and a “VAREX” type machine.

Disputes have arisen concerning each of these machines. The “VAREX” machine ordered by BLOW PACK in 2005 was resold by WINDMOLLER. The “FILMEX” machine, subject to a contract dated 27 October 2007, delivered in Tunisia, was the subject of a request for termination of the contract on the ground that the machine did not consist solely of new components.

Both contracts include an arbitration agreement drafted as follows: “In the event of a problem, failing an amicable settlement, any dispute arising out of this contract shall be finally settled in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce in Paris (ICC), by one or more arbitrators appointed in accordance with these rules. Lawyers and judges must be professionals. The applicable law is the law of the GENEVA Convention”. The clause of the “FILMEX” contract adds “The language of the arbitration is French”.

On 18 September 2008, BLOW PACK filed a request for arbitration with the ICC.

In a final award rendered in Paris on 14 September 2011 by Mr. Eugène IBIG, Chairman, Mr. Christian LASALLE and Mr. XXX, arbitrators, the arbitral tribunal decided:

  • as far as VAREX is concerned, to declare admissible the counterclaims made by WINDMOLLER in relation to the VAREX machine, to order BLOW PACK to pay to WINDMOLLER essentially an amount of € 348,682 as compensation for the damage resulting from the termination of the VAREX contract, in addition to the sum of € 27,357.75 as compensation for the additional costs of storing the machine and € 13,737.04 as compensation for the costs caused by the unjustified call on the guarantees and the interest on these sums;

  • as far as FILMEX is concerned, to order BLOW PACK to pay WINDMOLLER 228,900 € in settlement of the last part of the price of FILMEX, in addition to the sum of 10,111.72 € as compensation for the costs incurred by the call for performance bonds and the interest on these sums, order WINDMOLLER to pay BLOW PACK an amount of €31,050 plus interest for loss of profit,

  • regarding arbitration fees and defence fees, to charge BLOW PACK 75% of the arbitration fees and 75% of the defence fees of WINDMOLLER and to charge WINDMOLLER 25% of the defence fees of BLOW PACK

  • regarding the fees of the expert’s report, to order BLOW PACK to pay them,

  • to reject all other requests.

An action for annulment was brought against this award by BLOW PACK.

By submissions dated 21 February 2013, the appellant seeks the annulment of the award made, the rejection of the opposing claims and the condemnation of WINDMOLLER to pay it €30,000 under Article 700 of the Code of Civil Procedure. It maintains that:

  • first, that the arbitrators, by using the German language at several stages of the proceedings, did not respect their mission (1520-3 of the Code of Civil Procedure), did not comply with due process (in French Principe de la contradiction) (1520-4) and breached international public policy (1520-5),

  • second, that the arbitrators, in their conduct of the expertise intervention, v did not comply with due process (in French Principe de la contradiction) (1520-4) breached international public policy (1520-5),

  • thirdly, that the award is vitiated by fraud and violates international public policy (1520-5).

Beforehand, in its submissions of 10 January 2013 addressed to the Pre-trial judge, BLOW PACK requests “the court”, under Articles 1520-5 of the Code of Civil Procedure and 4 of the Code of Criminal Procedure, to stay the proceedings pending the outcome of the proceedings before the High Court of Paris (in French Tribunal de Grande Instance de Paris) for the registration of forgeries.

By submissions of 14 February 2013, WINDMOLLER requests the court to:

  • to reject the requested stay of proceedings,

  • as a preliminary point, to find that BLOW PACK only seeks the annulment of the provisions of the award related to the FILMEX machine, so that those related to the VAREX must be maintained, and to declare inadmissible the action for annulment, under Article 1466 and 1506-3 of the Code of Civil Procedure in so far as it is based on alleged irregularities which BLOW PACK has tacitly or expressly waived during the arbitration proceedings,

  • in any event, to reject the action for annulment, to find that the award is automatically granted enforcement (in French Exequatur) pursuant to the provisions of Article 1527-2 of the Code of Civil Procedure and to order BLOW PACK to pay the sum of €35,000 under Article 700 of the Code of Civil Procedure.

UPON WHICH:

On the application for a stay of proceedings:

Considering that BLOW PACK claims that the outcome of the ongoing criminal proceedings is likely to have an influence on the solution of the action for annulment in that it invokes the lack of authenticity of the documents numbered D 66 and D-67, D-70 and Y to X, the subject of its complaint, produced by WINDMOLLER during the arbitration proceedings under Article 1520-5 of the Code of Civil Procedure;

Considering that in the case of an action for annulment of an arbitral award and in accordance with article 4 paragraph 3 of the Code of Criminal Procedure, the initiation of the public action does not require the stay of the proceedings, even if the decision to be taken in criminal proceedings is likely to have a direct or indirect influence on the outcome of the civil proceedings, which did not deal with a civil action for compensation for damage directly caused by a criminal offense;

Considering that the criminal complaint concerns documents produced by WINDMOLLER in the course of the arbitral proceedings; that while BLOW PACK states that it has already contested their authenticity on 26 November 2010, it follows from the award (§396) that these documents “were not taken into account for the conclusion reached by the Arbitral Tribunal”,

That under these conditions, for the proper administration of justice, there is no reason to grant the application for a stay of proceedings submitted

On the three grounds for annulment based on the failure of arbitrators to comply with their mission (1520-3 of the Code of Civil Procedure), the failure of arbitrators to comply with due process (in French Principe de la contradiction) (1520-4) and the violation of international public policy (1520-5) in that the German language was used at various stages of the arbitral proceedings

BLOW PACK argues that:

  • by admitting on several occasions in the course of the proceedings the use of German when the language of the arbitration was French without any particular circumstances justifying such a exemption and when the arbitrator it appointed was the only one who did not know German like itself and its counsels, the arbitral tribunal operated an imbalance, between the parties and breached the arbitration clause, in the Terms of Reference and Procedural Order No. 1 issued by the arbitral tribunal on 25 May 2009, despite its repeated protests,

  • by failing to comply with the rules of procedure chosen by the parties concerning the language of the arbitration, the arbitral tribunal violated its mission to which BLOW PACK was considerably disadvantaged,

  • by admitting the production of documents in German and by translating documents selected by the expert by one of its members, it violated its obligation to conduct a collegial investigation under Article 1467 of the Code of Civil Procedure,

  • by failing to put BLOW PACK in a position to discuss a number of documents and information in the proceedings, which were understood by its opponents as well as certain members of the tribunal, the arbitrators violated due process (in French Principe de la contradiction)

Finally, it argues that an arbitral award cannot be recognised as effective if it does not respect due process (in French Principe de la contradiction), the rights of defence, equality of arms between the parties and within the arbitral tribunal, and the obligation to instruct collegially.

BLOW PACK argues that:

  • WINDMOLLER produced a large number of documents in German which were not translated or only very partially translated: test protocols and technical documents (Y), invoices and elements apparently relating to the quantum of the damage (D-49), doctrines and case law, documents D640, D649, D-Lex-11, D-Lex 17, D-Lex 18 and D-Lex 19,

  • the German language was used during the hearings, as some members of the arbitral tribunal spoke in German with WINDMOLLER’s witnesses and at the expert’s hearing,

  • The expertise was conducted in German on the basis of documents submitted by WINDMOLLER in German and the report was submitted in English to which were annexed documents in German.

Considering that according to the arbitration clause in the FILMEX machine contract: “The language of the arbitration is French”;

That the Terms of Reference signed on 20, 25 and 27 May 2009 by BLOW PACK, WINDMOLLER and the arbitrators specify:

“XII. Language of Arbitration

105. The arbitration agreement provides that the proceedings shall be conducted in French.

106. Consequently, all procedural documents or memoranda must be translated into French. The same will apply to any form of evidence which the parties produce in the course of the proceedings. Exhibits and any other evidentiary documents in another language must therefore be translated into French, unless special permission is granted by the Arbitral Tribunal, taking into account all the circumstances”;

Considering that 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 nothing that is used as a basis for the arbitrator’s judgment should escape the advesarial debate of the parties;

Considering that in response to BLOW PACK’s challenge to the partial translation of Exhibit D 48 produced in German by WINDMOLLER, the arbitral tribunal sent an e-mail dated 19 October 2009 in the following terms:

“With regard to the document filed in German - and partially translated by the Respondent- the Arbitral Tribunal notes that while a party may be required to produce documents in its possession, it may not necessarily be required to translate them if they exist only in a language other than the language of the arbitration.

In the present case, the defendant has translated the elements of this document which it apparently intends to rely on in these arbitration proceedings. Conversely, the Claimant may have other elements of this document translated if it finds them relevant. The cover sheet - also translated by the Respondent - may guide it in its choice”;

That the arbitral tribunal reiterated this reply by e-mail of 23 October, stating: “It [The respondent] cannot be compelled to translate the whole document if it considers that the other parts of the document are of no relevance to the argument it has put forward - it, as Respondent- in these proceedings. As a corollary, the Respondent limits itself, in this way, from referring to the untranslated parts of this document and thus to the context to which these parts of the document might possibly relate.

However, the Claimant is, of course, free to have other parts of the document translated if it considers them to be relevant to its arguments.

In short, each of the parties must submit in the language of the arbitration the written evidence it intends to rely on or have it translated into the language of the arbitration if the documents in question have been written in another language. Each party must therefore submit its written evidence in French, irrespective of whether these documents were in its possession or in the possession of the other party”.

Considering that according to the letter of 29 September 2010 from the Arbitral Tribunal: “… the Expert has drawn up a report in English language. On the other hand, the documents annexed to his/her report are in German … However, the data on which the Expert relied are essentially figures or dates, or even codes or abbreviations which are specific to the SAP system. …. The Arbitral Tribunal has nevertheless endeavoured to translate these documents, at least partially, in order to enable both Parties to clearly identify their nature. The data on which the Expert relied (circled in red on the documents annexed to his/her report) were printed in the translations using ‘Arial’ fonts …”;

Whereas the award mentions:

(§40) “… The documents annexed to the Expert Report have been translated by the Arbitral Tribunal from German into French, at least for the relevant parts thereof”. (§390), “the conviction of the Arbitral Tribunal that Extruder WINDMOLLER and the Air Knife of the FILMEX sold to BLOW PACK were manufactured from new materials and components is based exclusively on the Expert Report and the documents annexed thereto (and, in the case of Extruder WINDMOLLER, also on the photograph produced by the Claimant)”;

Considering on the one hand that by allowing WINDMOLLER to produce partially translated documents at its sole discretion, except for BLOW PACK to translate the remainder, and on the other hand by allowing itself, in the person of its chairman, to make partial translations itself without setting any criteria as to the method of their selection, even though the language of the arbitration was French, the arbitral tribunal, which based its award exclusively on an expert’s report to which partially translated documents were annexed, violated due process by not putting the Tunisian company in a position to usefully discuss all the documents brought to the attention of the arbitral tribunal and the German company, in the absence of acquiescence on its part;

Considering that WINDMOLLER erroneously objected that BLOW PACK would have waived its right to rely on these irregularities under Article 1466 of the Code of Civil Procedure;

In order to be admissible before the annulment court, the ground brought against an arbitral award must, whenever possible, be raised before the arbitral tribunal itself. It must be noted that the appellant has pointed out on several occasions that the language of the arbitration was French, indicating (in its letter of 13 November 2008): “…. BLOW PACK opposes and will oppose the communication of any document in a language other than the language of the arbitration (French)”. It informed the arbitrators (in its letter of 16 October 2009) of its dissatisfaction with WINDMOLLER’s proposal to translate the documents it would like to see translated, stating: “… how could BLOW PACK know which pages it intends to have translated if it is not in a position to know their content”. No acquiescence on its part is proved. On this point, while BLOW PACK replied “‘no” to the question of the chairman, of the arbitral tribunal concerning the existence of remarks, observations and reproaches “regarding the conduct of this hearing and of the proceedings up to now”, BLOW PACK added “nevertheless, I have a question which remained open on the previous subject of the communication of documents” (minutes of the hearing of 20 November 2009, p. 32). Likewise, when questioned by the Chairman as to “any remarks, observations or complaints to be made with regard to the conduct of the proceedings to date, including today’s hearing”, BLOW PACK replied as follows: “On today’s hearing, no”. (Minutes of the expert’s hearing of 26 October 2010 p. 52); that, in addition, it indicated the 1 September 2010 to reiterate ‘in addition, as necessary, any other ground developed in its previous statements for reasons not to the contrary”;

Considering that the grounds for annulment developed by BLOW PACK concern the dispute related to the FILMEX machine; that in the absence of indivisibility of the award, which also relates, in a separate part, to the dispute concerning the VAREX machine, which was not the subject of an expert opinion, this award should be partially set aside in so far as it relates to the FILMEX machine;

On the other requests

Considering that WINDMOLLER is ordered to pay BLOW PACK the sum of 30.000 € in application of article 700 of the code of civil procedure;

Whereas further or contrary requests of the parties are furthermore rejected;

FOR THESE REASONS,

Rejects the application for a stay of proceedings;

Partially sets aside the award rendered in Paris on 14 September 2011 by the arbitral tribunal in this case.

that it relates to the FILMEX machine;

Rejects all other requests;

Orders WINDMOLLER & HOLSCHER to pay the costs and to pay BLOW PACK the sum of € 30,000 pursuant to Article 700 of the Code of Civil Procedure.