Paris Court of Appeal, No. 12/20550 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, First Chamber, 28 January 2014, No. 12/20550

GE MEDICAL SYSTEMS vs. ALBANNA GROUP FOR GENERAL TRADE CO. LTD

On 15 September 2008, the French limited partnership GE MEDICAL SYSTEMS SCS (GE MEDICAL) and the Iraqi company ALBANNA GROUP FOR GENERAL TRADE CO. LTD. (ALBANNA) entered into an agreement, under Iraqi law, entitled “International Distribution Agreement” (the “Agreement”). According to it, GE MEDICAL entrusted ALBANNA as a non-exclusive distributor, with the promotion and sale of medical products and the provision of various services related to these products.

Disputes arose between the parties in the performance of the agreement and ALBANNA terminated the contract on 5 March 2010.

The Parties disagreed over the contractual provision applicable to such termination, ALBANNA, represented by its counsel the law firm Derains & B, filed a request for arbitration against GE MEDICAL before the Secretariat of the ICC Court of Arbitration on 12 July 2011, under the arbitration clause set forth in Article 27. 2 of the Agreement, which reads as follows:

“Disputes arising out of the Agreement or any sale relating thereto shall be settled in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one (1) or three (3) arbitrators appointed in accordance with these Rules. If the Parties are unable to agree on the appointment of the sole arbitrator or presiding arbitrator, the ICC Court shall make such an appointment at the request of either Party, and in so doing, the ICC shall endeavor (but shall never be obliged) to appoint a sole arbitrator or presiding arbitrator who is knowledgeable in the field of medical equipment. The arbitration shall be conducted in English and shall take place in Paris, France.

Any award made by the arbitrator(s) shall be final and binding on the Parties. A judgment may be rendered on the basis of the award by any competent jurisdiction. Notwithstanding the foregoing, it is hereby expressly agreed that the Company may, at its discretion and at any time (whether before or after the commencement of the arbitration), and without prejudice to the foregoing, initiate proceedings in the courts of the Distributor’s domicile, registered office and/or any other competent jurisdiction, for the purpose of applying for interim measures, injunctions or other similar measures, in particular in respect of sums owed by the Distributor to the Company, the need for the Company to protect or enforce a patent, trademark, copyright or any other intellectual property right, confidential information or trade secrets, or in the context of legal proceedings brought by a third party.”

The ICC Court, in a decision dated 22 September 2011, stated that the dispute would be submitted to a sole arbitrator and in a decision dated 20 October 2011, appointed Mr. E F.

By an award rendered in Paris on 26 October 2012, the latter :

ordered GE MEDICAL to pay ALBANNA the sum of USD 2,898,449.51 and the sum of USD 1. 5,76.88 EUR, with interest at the 12-month average LIBOR USD (for amounts denominated in USD) or EUR (for amounts denominated in EUR) rate, plus two percent (2%), with annual capitalisation, according to precisely determined terms,
ordered GE MEDICAL to bear 100% of the arbitration costs fixed at 171,000 USD,
ordered GE MEDICAL to bear 80% of the costs of counsel and other costs incurred by ALBANNA in the arbitration, i.e. 194,000 euros and 23,718.06 USD respectively;

Claiming that the award was made in breach of the fundamental rules of good justice, Z, by declaration of 15 November 2012, filed an action for annulment on the basis of Article 1520 of the Code of Civil Procedure.

Having regard to the summary submissions filed on 28 November 2013 by Y and Z, according to which the court is requested to :

set aside ICC Award No. 18074 of 26 October 2012;
order D to pay to Z the sum of 50,000 euros pursuant to Article 700 of the Code of Civil Procedure;
order D to pay all the costs;

Having regard to the conclusions served on 21 March 2013 by Y by D, seeking the dismissal of Z and an order to pay the sum of 150,000 euros (excl. VAT) in application of Article 700 of the French Code of Civil Procedure;

UPON WHICH:

On the first ground of annulment alleging the irregularity of the constitution of the arbitral tribunal (Article 1520-2 of the Code of Civil Procedure)

GE MEDICAL which claims that it discovered in the course of the arbitration that the Adviser responsible for this case within the Secretariat of the ICC Court, acted as associate to ALBANNA’s law firm in the arbitration. This relationship was not disclosed by either the person concerned or the ICC, which was under the same obligation as appointing authority, or by ALBANNA’s counsel. GE MEDICAL argues that this lack of disclosure is likely to raise legitimate doubts about the independence and impartiality of the arbitrator appointed by ICC given that the Secretariat of the Arbitration Centre, in general, and its Counsel, in particular, are actively involved in the process of appointing the Arbitral Tribunal. In this case the sole arbitrator and Appendix II of the ICC Rules expressly invites members of the Secretariat who are “involved in any capacity whatsoever in proceedings pending before the Court, such person must inform the Secretary General of the Court upon becoming aware of such involvement. Such person must refrain from participating in the discussions or in the decisions of the Court concerning the proceedings and must be absent from the courtroom whenever the matter is considered”.

GE MEDICAL further argues that it is admissible to raise this ground since it made observations and reservations on this absence of disclosure as soon as it became aware of it during the arbitral proceedings during the months of May and June 2012, i.e., before the last written submissions, the hearing of witnesses and pleadings and, therefore, before the closing of the proceedings and the final award is pronounced.

GE MEDICAL considers that it cannot be blamed for not having made an official request for challenge before the arbitration centre since this alleged additional requirement is in no way provided for in Article 1466 of the Code of Civil Procedure. Moreover, it considers that the challenge procedure before the arbitration centre does not have the force of res judicata in the context of the review of the award based on the irregularity of the constitution of the Arbitral Tribunal before the annulment judge.

Considering that any ground raised against an award under Article 1502-2 of the Code of Civil Procedure must, in order to be admissible before the judge hearing the annulment, be raised, whenever possible, in the course of the arbitral proceedings;

Considering that GE MEDICAL, who first made known by letter of 24 May 2012 addressed to the arbitral tribunal that he “discovered by chance that Mr. X (counsel of the Secretariat of the ICC International Court of Arbitration, head of the team in charge of the case) had been bound to the claimant’s counsel by a contract of collaboration (the firm Derains et B) before joining the Court” and who in a second letter of 30 May 2012, was astonished “by the lack of reaction to this difficulty on the part of both the Arbitral Tribunal and the Claimant”. Thus, as it is clear from its letter of 20 June 2012 addressed to the Secretariat of the Court, GE MEDICAL deliberately refrained from implementing, even though it was still within the 30-day period of its “discovery” of the cause of challenge of the arbitrator appointed, the procedure initiated by Article 11 of the Arbitration Rules to which it agreed to submit;

The reasons presented by GE MEDICAL in this correspondence to justify its abstention in advance cannot be considered relevant in this regard, since it cannot seriously maintain that the Court would have taken the initiative itself to decide the dispute “excluding any possibility of a conflict of interest because of the links between Mr. X and the Derains & B law firm”. Indeed, the opinion that may have been expressed by the Secretariat on this matter in a letter dated 6 June 2012 is without prejudice, since the Court and not the Secretariat is, under the ICC Rules, the sole judge of the challenge. Thus, GE MEDICAL cannot claim by simple allegation that the Court would have “necessarily disqualified itself” by concealing itself this difficulty. A party cannot, on its own initiative and solely because of its critical opinion on the attitude of the Court, deprive the Court of the exercise of the powers conferred on it by the ICC Rules in accordance with Article 1456 of the Code of Civil Procedure;

Moreover, the fact that the Court’s decision rendered in application of the Rules on a challenge is devoid of res judicata before the judge of the annulment does not have any further effect if the Court were to consider that the ground for challenge is such as to constitute a new arbitral tribunal;

Whereas, consequently, GE MEDICAL, by voluntarily choosing, even though it was in a position to do so, not to institute proper proceedings to correct the defects which it considered had vitiated the appointment of the sole arbitrator is inadmissible to invoke the irregular nature of the constitution of the arbitral tribunal,

The ground is thus rejected;

On the second ground, alleging that due process (in French Principe de la contradiction) was not respected (article 1520-4 of the Code of Civil Procedure),

GE MEDICAL argues that in this case, the production of a witness statement by a party was a condition for that party’s ability to call the corresponding witness at the hearing devoted to the examination, essential phase of the arbitral proceedings which are the object of the present appeal. GE MEDICAL considers that at the cost of a formalism devoid of any legitimacy of substance, and for the sole reason that the witness statements were produced tardily (only 4 days, including one weekend), the sole Arbitrator excluded them from the debates, and thus deprived GE MEDICAL of the right to have three witnesses essential to the defense heard.

GE MEDICAL highlights in this respect that Article 15.2 of the ICC Rules of Arbitration, applicable in this case, provides that: “In all cases, the Arbitral Tribunal shall act fairly and impartially and ensure that each party has a reasonable opportunity to present its case”. So the arbitrator’s fundamental objective is first and foremost to organise the proceedings in such a way as to enable the parties to put forward all of their grounds and exhibits and that, consequently, the absence of simultaneous exchange of statements of evidence could in no way justify their exclusion from the proceedings.

Whereas, according to article 1464 of the Code of Civil Procedure, “unless the parties have agreed otherwise, the arbitral tribunal shall determine the arbitral procedure without being bound by the rules established for domestic courts, but the guiding principles of the proceedings set out in articles 4 to 10, first paragraph of article 11, second and third paragraphs of article 12 and articles 13 to 21, 23 and 23 (1) shall always apply. Whereas the parties and the arbitrators shall act expeditiously and fairly in the conduct of the proceedings”.

Whereas, in accordance with the timetable set out in the Procedural Order No. 1, following the observations made by the parties during the telephone conference of 6 December 2011, the time limits for the submission of evidence have been fixed;

Whereas the attention of the parties was specifically drawn by the Sole Arbitrator to the fact that, in accordance with Section 4. 2 of Procedural Order No. 1, extensions could only be granted “in the light of exceptional circumstances and only if a request is submitted immediately after the occurrence of the event preventing the party from complying with the time limit”;

Whereas in accordance with the provisional timetable, the simultaneous submission of evidence was set by the Arbitrator for 21 May 2012, which the parties were reminded of by Court Order of 9 May 2012;

Whereas by Procedural Order No. 2 of 25 May 2012, the Sole Arbitrator, in response to GE MEDICAL’s request for an extension of the deadline to 4 June 2012, authorized GE MEDICAL to submit its evidence until 30 May 2012, all evidence submitted after that date being inadmissible;

Therefore, GE MEDICAL, who, without, however, stating or justifying before the sole Arbitrator circumstances constituting force majeure that would have prevented it from gathering them in due time, submitted four witness statements on 4 June 2012. It cannot claim that the Arbitrator, who excluded the statements from the debates, “has shown, in contradiction with the very essence of his mission, a purely rigid attitude, privileging compliance with a disembodied procedural standard that is disconnected from the reality of the debates and the stakes of the dispute, and this in disregard of the rights of GE MEDICAL”, whereas the production of the witness statements in due time was precisely intended to allow an adversarial debate. Their prior submission within the time limits set, which conditioned the calling of witnesses at the pleading hearing scheduled from 18 to 20 July 2012, is the only way to allow a useful examination of the said witnesses;

Consequently, far from having disregarded due process (in French Principe de la contradiction), the Sole Arbitrator has, on the contrary, complied exactly with it so that the plea and the appeal will be rejected;

Considering that GE MEDICAL who succumbs and must bear the expenses, cannot claim compensation pursuant to Article 700 of the Civil Procedure Code and will be ordered on this basis to pay a sum of 50,000 euros.

FOR THESE REASONS,

Rejects the action for annulment brought by the French limited partnership GE MEDICAL SYSTEMS (GE MEDICAL) against the award rendered in Paris on 26 October 2012 by Mr. E F, sole arbitrator, in the proceedings opposing him to the Iraqi company ALBANNA GROUP FOR GENERAL TRADE CO. LTD. (ALBANNA).

Orders the French limited partnership GE MEDICAL SYSTEMS (GE MEDICAL) to the costs to be recovered in accordance with the provisions of Article 699 of the Code of Civil Procedure.

Dismisses the French limited partnership GE MEDICAL SYSTEMS (GE MEDICAL) from its claim for compensation for irreparable expenses.

Orders the French limited partnership GE MEDICAL SYSTEMS (GE MEDICAL) to pay to the Iraqi company ALBANNA GROUP FOR GENERAL TRADE CO. LTD. (ALBANNA) a sum of 50,000 euros in application of Article 700 of the Code of Civil Procedure.