Paris Court of Appeal, No. 12/08215 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, 21 January 2014, No. 12/08215

GENERAL MOTORS COMPANY GM KOREA COMPANY vs. DAEWOO MOTOR CO. LTD

In 2002, DAEWOO MOTOR CO. LTD (DAEWOO), incorporated under Korean law, sold certain of its assets and liabilities to the company GM DAEWOO AUTO & C Z, incorporated under Korean law, now known as GM KOREA COMPANY, a subsidiary of the U.S.-based company GENERAL MOTORS COMPANY (both parties hereafter referred to as GM).

A dispute arose between the parties with respect to the indemnification of the liabilities not transferred to the acquirer. It gave rise to arbitration proceedings initiated in 2008 under the supervision of the International Chamber of Commerce by GM on the basis of the arbitration clause stipulated in the “Framework transaction agreement” of 30 April 2002.

The final award rendered in Paris on 30 March 2012 by the tribunal composed of Messrs. Hanotiau and Chang, arbitrators, and Mr. Peter, chairman,:

Ordered DAEWOO to pay various sums to GM, in addition to interest
Granted the counterclaim of DAEWOO and held that DAEWOO had no obligation to indemnify under the Indemnity Agreement until the corresponding damages were actually suffered and the conditions for indemnification were met,
Ordered GM to cooperate with DAEWOO to make payment to DAEWOO of the amounts remaining in the escrow account and the pledge account under the terms of the Indemnity Agreement,
Held on the arbitration costs.

An action to set aside this award was filed by GM.

By an order dated 4 July 2013, the pre-trial judge dismissed the bar to the proceedings opposed by DAEWOO on the grounds of the delay in the appeal.

According to the submissions notified through Virtual Private Network Lawyer (in French Réseau Privé Virtuel Avocat or RPVA) on 21 October 2013, the GM companies requested the court to partially set aside the final award in that it declares the counterclaim of DAEWOO admissible and to order the opposing party to pay them the sum of EUR 100,000 pursuant to article 700 of the Code of Civil Procedure. They argued that the award, in the first place, was made by the arbitral tribunal in disregard of its mission (art. 1520-3 of the Code of Civil Procedure), on the one hand, because of contradictions between the grounds and the operative paragraph, on the other hand, in that it ruled ultra petita on the issue of reserved claims which was not included in the Terms of Reference. Secondly, they argued that the award violated due process (in French Principe de la contradiction) in that it ruled on reserved claims, not submitted to arbitration and not debated during the arbitral proceedings (article 1520-4 of the Code of Civil Procedure).

According to the conclusions served through Virtual Private Network Lawyer (in French Réseau Privé Virtuel Avocat or RPVA) on 13 November 2013, DAEWOO requested the court to dismiss the application for partial annulment of the award and to order GM to pay it 100,000 euros pursuant to article 700 of the Code of Civil Procedure.

UPON WHICH:

On the first ground for annulment, based on the fact that arbitrators did not comply with their mission (Article 1520-3 of the Code of Civil Procedure):

GM states that the arbitrators authorised the restitution to DAEWOO of the sums and values appearing in the escrow account and the pledge account, the amount of which exceeded the amount of the sentences pronounced by the award. These accounts constituted the limit of DAEWOO’s guarantee, the arbitral tribunal thus implicitly dismissed the future damages related to the vehicle recalls, even though, on the one hand, the claims relating to these damages were expressly reserved and were therefore not included in the assignment and, on the other hand, the arbitrators, in their reasons that contradicted the operative paragraph, recognised that the assignees could reserve their rights in this respect.

Considering, firstly, that except in the cases defined by article 1520 of the Code of Civil Procedure, of violation of due process (in French Principe de la contradiction) or of international public order, the content of the reasons for the international award is beyond the control of the annulment judge. The ground based on a contradiction in the reasons for the arbitral decision is therefore inadmissible on the basis of article 1520-3 of this code;

Considering, secondly, that the mission of the arbitrators, defined by the arbitration agreement, is delimited mainly by the subject matter of the dispute as determined by the claims of the parties;

Considering that the sale by DAEWOO of most of its assets and certain liabilities gave rise to the conclusion of several agreements with GM. The Framework transaction agreement dated 30 April 2002, which contained the arbitration clause, provided that the purchaser exclusively assumed the liabilities listed in Article 3.1. The Indemnification Agreement dated 17 October 2002 provided that DAEWOO agreed to indemnify GM for certain losses arising from assets or liabilities that were not expressly assigned. Finally, that by an escrow agreement and a pledge agreement dated 17 October 2002, DAEWOO established a “fiduciary” escrow agreement with GM 115 million indemnification fund and pledged USD 100 million in preferred shares, which constituted the guarantee of payment of the indemnifiable losses and the ceiling of the transferring company’s commitment;

Whereas the arbitration clause in the Framework transaction agreement applies to “any dispute, controversy, claim arising out of, relating to or in connection with the Agreement or any Settlement Document, including, without limitation, any dispute as to the validity, termination or performance of, or any breach of, such Agreement or Document”;

Considering that it results from the summary of the parties’ claims, as summarized by the engagement act signed on 23 April 2009, that GM made claims for damages resulting, on the one hand, from the recalls of defective products, on the other hand, from actions brought by third parties, in particular by the dealers, and finally from other acts or omissions of DAEWOO, in particular with respect to unpaid taxes. IT limited its claims only to damages already suffered or incurred, and reserved the right to claim future damages that may result from future vehicle recalls. DAEWOO, for its part, challenged the merits of the principal claims and counterclaimed for the allocation of the sums and values appearing in the escrow account and in the pledge account after settlement of the sums that would be allocated by the award to GM and that could only compensate for losses already suffered, excluding future damages. In response to this counterclaim, GM objected, on the one hand, that all its claims in the arbitration were not quantifiable and, on the other hand, that the security should be maintained for potential claims, notified to DAEWOO but not mentioned in the arbitration;

Considering that if GM expressed the intention to exclude from the arbitration claims for future damages, this intention could not have the effect of depriving DAEWOO of its right to submit to the arbitrators a counterclaim, within the scope of the arbitration clause, seeking the return of the balance of the sums and values sequestered after payment of the amounts corresponding to the damages already suffered;

That the ground alleging that the arbitral tribunal disregarded its mission can only be dismissed;

On the second ground of annulment based on the violation of due process (in French Principe de la contradiction) (Article 1520-4 of the Code of Civil Procedure):

GM argues that the order for the release of the amounts and actions in receivership implies that the arbitral tribunal implicitly decided that the damage resulting from the reserved claims was not likely to materialise or that it was not likely to materialise within the contractual timeframe, or that, for any other reason of fact or law, it was not compensable, even though none of these issues were discussed during the arbitration.

Considering that due process (in French Principe de la contradiction) requires that the parties should have been able to make known their claims of fact and law and to discuss those of their opposing party in such a way that nothing that was used as a basis for the arbitrators’ decision escaped their contradictory debate;

Considering that DAEWOO expressly argued, as is apparent from the wording of the award (§ 783), that its obligation to pay compensation was limited to “damages” which are “accepted or suffered” and which were notified to it before the sixth anniversary of the closing date. DAEWOO inferred from this that it was not obliged to bear any future costs, expenses or losses in the present arbitration and that it was therefore appropriate to return to it the sums and values sequestered in excess of the amounts awarded by the award;

Considering that, in requesting the return of the balance of the sums and values in the escrow account and the pledge account, which were consistently held to constitute the limit of its obligation, DAEWOO necessarily brought into the debate the question of the compensatory nature of future losses. GM cannot complain that it refused to discuss a point that was included in the missions of arbitrators;

Considering that the ground of violation of due process (in French Principe de la contradiction) shall therefore be dismmised;

Considering that the GM companies, which succumb, cannot benefit from the provisions of article 700 of the Code of Civil Procedure; that they will be ordered on this basis to pay DAEWOO the sum of 100,000 euros;

FOR THESE REASONS:

Dismisses the action for partial annulment of the award rendered between the parties on 30 March 2012.

Orders GM KOREA COMPANY and GENERAL MOTORS COMPANY to pay the costs.

Orders GM KOREA COMPANY and GENERAL MOTORS COMPANY to pay DAEWOO B CO. LTD the sum of EUR 100,000 pursuant to article 700 of the Code of Civil Procedure.