Paris Court of Appeal, No. 13/18811 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, 28 October 2014, No. 13/18811

THE LIBYAN GOVERNMENT , THE LYBIAN MINISTRY OF ECONOMY , THE GENERAL COUNCIL FOR THE PROMOTION OF INVESTMENT AND PRIVATISATION , THE LYBIAN MINISTRY OF FINANCE , THE LIBYAN INVESTMENT AUTHORITY vs. MOHAMED ABDULMOHSEN AL-KHARAFI & SONS CO

On 8 June 2006, at Y, the Libyan Service for the Development of Tourism and MOHAMED ABDULMOHSEN AL-KHARAFI & SONS CO for Commerce, Enterprises and Industrial Constructions (AL-KHARAFI), a company incorporated under Kuwaiti law with its headquarters in the Arab Republic of Egypt, concluded a “contract for the lease of a plot of land for the implementation of a tourism investment project”.

Under the terms of this contract, AL-KHARAFI was given a lease for a period of 90 years on a 24-hectare plot of land located in the district of Y, with the obligation to conduct research, to build a touristic complex and to return to the lessor all the constructions without indemnity at the end of the contract. In 2010, following disputes concerning the execution of this contract, the People’s General Committee for Industry, Economy and Trade cancelled the approval given to AL-KHARAFI, which had to abandon the building site.

Under the arbitration clause provided in the contract, AL-KHARAFI initiated arbitration proceedings under the Unified Convention for the Investment of Arab Capital in Arab Countries (in French: Convention Unifiée pour l’Investissement des Capitaux Arabes dans les Pays Arabes) (hereinafter the “Convention”). In a final award rendered in Cairo on 22 March 2013, between AL-KHARAFI on the one hand and, on the other hand, the Libyan Government, the Ministry of Economy of Libya, the General Council for the Promotion of Investment and Privatisation (representing the rights of the Libyan Service for the Development of Tourism), the Ministry of Tourism, the Ministry of Finance of I (hereinafter “the defendant”) and the Libyan Investment Authority (LIA), the arbitral tribunal composed of Mr. A B and Mr.F E-G, arbitrators, as well as Mr. C D E-L, President, one of whom refused to sign the award:

stated that the project, subject matter of the lease contract, is subject to the law in force at the time of its conclusion and to the “Convention”,
stated that it is empowered to rule on its own jurisdiction and on the extension of the scope of the arbitration clause to the claim for compensation of damages,
stated that the arbitration was initiated in accordance with the proceedings provided for in the arbitration clause and was not premature,
stated that this clause is validly applicable against the “defendant” and dismissed the claim for the implication of the LIA,
stated that the claim for compensation made by the claiming party falls within the scope of the arbitration clause and within the competence of the arbitral tribunal,
held that the defendant committed contractual and legal faults confirming its contractual and legal liability,
ordered the defendant jointly and severally to pay to AL-KHARAFI the sum of US$ 936,940,000 with interest at the rate of 4 % from the date of which the award was issued,
ordered the provisional enforcement of the award and declared it immediately enforceable,
dismissed the other claims.

In an order dated 13 May 2013, filed on 28 June 2013, the delegate of the President of the Paris Tribunal of Grande Instance declared the arbitral award rendered on 22 March 2013 enforceable.

The actions for annulment brought before the Cairo Court of Appeal and the Arab Investment Court were not successful.

An appeal was lodged before the Court of Cassation against the Cairo judgment.

On 27 September 2013, the LIA filed an appeal against this order.

On 7 October 2013, in turn, the Libyan Government, the Ministry of Economy of Libya, the General Council for the Promotion of Investment and Privatisation as well as the Ministry of Finance of Libya appealed this order.

These cases were subject to a separate registration.

In its submissions filed through Private Virtual Network for Lawyers (in French Réseau privé virtuel des avocats or RPVA) on 2 July 2014 in both cases, the LIA requests the Court to overturn the order of enforcement (in French Ordonnance d’exequatur) of 13 May 2013 and to order AL-KHARAFI to pay it €10,000 under Article 700 of the Code of Civil Procedure.

The LIA argues, based on Articles 1520 and 1525 of the Code of Civil Procedure, first, that the arbitral tribunal has been unlawfully constituted because the LIA was deprived from its right to participate in the appointment thereof as it was forcefully brought into the arbitral proceedings, and second, that the arbitral tribunal ruled without complying with its mission by adjudicating on its legal classification in relation to the Libyan State.

The Libyan Government, the Ministry of Economy of Libya, the General Council for the Promotion of Investment and Privatisation and the Ministry of Finance of Libya (hereinafter the claimants), by inscriptions served on 24 July 2014, request the Court to declare that they are not concerned with the claim for the inadmissibility of the appeal filed by the LIA and do not intend to respond thereto. They also request to overturn the undertaken order and to order AL-KHARAFI to pay them €20,000 pursuant to Article 700 of the Code of Civil Procedure.

They claim, under the aforementioned Articles 1520 and 1525 and the judgments of the First Civil Chamber of the Court of Cassation of 6 January 1987, 23 June 2010 and 28 March 2013, that the arbitral tribunal had no jurisdiction to settle the dispute that led to the award, and that it ruled outside the scope of its jurisdiction as defined by Article 29 of the contract of 9 June 2006, that there is a violation of fundamental rights which is an infringement on the French concept of public order and of the international public order, thus prohibiting any French court from authorising the enforcement of this award on French territory. They added that they benefit from an immunity from execution on French territory, which prohibits to pronounce an order against them for the enforcement in France of a foreign decision and in any case, to enforce such a decision on French territory.

AL-KHARAFI, by submissions filed on 5 September 2014, requests the Court to uphold the undertaken order and the conviction in solidum of the claimants to pay to AL-KHARAFI €200,000 in respect of Article 700 of the Code of Civil Procedure.

UPON WHICH:

On the joinder

Whereas, it is necessary to join the cases registered under numbers 13/18811 and 13/19246, having regard to the links connecting them.

On the grounds raised by the LIA:

On the first ground raised by the LIA resulting from the unlawful constitution of the arbitral tribunal (1520-2 of the Code of Civil Procedure):

The LIA submits that it was deprived from its right to participate in the constitution of the arbitral tribunal as it was forcefully brought into the arbitral proceedings. Therefore, the arbitral tribunal is unlawfully constituted.

Whereas, according to Article 1466 of the Code of Civil Procedure applicable to international arbitration, the party who knowingly and without a legitimate reason, refrains from mentioning in due course an irregularity before the arbitral tribunal is deemed to have waived the right to raise it.

Whereas, contrary to its contentions, the LIA does not establish that it raised this ground before the arbitral tribunal, even though, and while it was not admitted as a party to the arbitral proceedings, it was invited to make its position known and to invoke its grounds, to which the arbitral tribunal responded. Indeed, the response of AL-KHARAFI to the ground challenging its implication indicated that the acceptance of this implication does not require an increase of the number of members of the arbitral tribunal (p.195 of the award). This cannot be considered by the LIA as submitting the ground based on the unlawful constitution of the arbitral tribunal to discussion.

Consequently, this ground is inadmissible as it was raised by the LIA for the first time before the court, even though the LIA is deemed to have waived it.

On the second ground raised by the LIA and resulting from the non-compliance of the arbitral tribunal with its mission (1520-3 of the Code of Civil Procedure):

The LIA maintains that the arbitral tribunal ruled without complying with its mission by ruling on its legal classification in relation to the Libyan State.

Whereas the mission of the arbitrators is essentially delimited by the subject matter of the dispute as determined by the respective claims of the parties.

Whereas, by a claim filed by AL-KHARAFI for the implication of the LIA as the fifth defendant for the award to be enforceable against it, the arbitral tribunal dismissed this claim by indicating (p.249 of the award) that the LIA is not concerned by this arbitration. In its motives, the tribunal merely confirmed that “nevertheless, apart from the place of its investments, whether they are made in I or abroad, the Libyan Investment Authority remains an integral part of the Libyan state, to which the arbitral award is applicable in all of its administrations and institutions, whether or not called upon in the case”, and thus merely made its position known without creating any rights with respect to AL-KHARAFI. Therefore, the arbitral tribunal ruled within the scope of the mission conferred thereto.

The ground raised by the LIA and based on the arbitrator’s non-compliance with its mission can only be dismissed.

On the grounds raised by the claimants

On the first ground resulting from the absence of jurisdiction of the arbitral tribunal and its non-compliance with its mission (1520-1 and 1520-3 of the Code of Civil Procedure):

First, the claimants argue that the Government of the Libyan State, the Ministry of Economy of Libya and the Ministry of Finance of Libya were not party to the contract of 8 June 2006 which was concluded only between the Libyan Service for the Development of Tourism and AL-KHARAFI, and that therefore the arbitration clause was not enforceable against them, adding that their implication as well as the implication of the LIA only aimed to facilitate the enforcement of the forthcoming award. They deduce therefrom that the arbitral tribunal had no jurisdiction to settle the dispute, and that it has ruled beyond its mission and the scope of its jurisdiction.

Second, the claimants argue that the arbitral tribunal did not also have jurisdiction to rule with respect to the General Council for the Promotion of Investment and Privatisation, despite it representing the rights of the Libyan Service for the Development of Tourism which signed the contract of 8 June 2006. They argue that the arbitration clause as defined in Article 29 provides for the recourse to arbitration proceedings only during the period where the contract is in force and not after its termination, and concerning only a question relating to the interpretation or performance of the contract and not, as in the present case, concerning a claim for compensation due to the cancellation of the operating licence taken from the Libyan Ministry of Industry, Economy and Trade nor concerning a termination of contract resulting from a decision taken by an administrative authority which is not party to the contract. Consequently, the claimants consider that this action was a liability action falling within the sole jurisdiction of the Libyan administrative court, so that the award cannot be granted enforcement in France as it was rendered by judges that have no jurisdiction to settle the dispute and in an unlawful manner.

Whereas the judge ruling on enforcement reviews the decision of the arbitral tribunal regarding the latter’s jurisdiction by looking for all the elements of law and fact as they result from the case, thus allowing for the assessment of the scope of the arbitration agreement and for the inference of the consequences thereof on the compliance by the arbitrators with their mission.

Furthermore, the arbitration clause inserted in an international contract has its own validity and efficiency, which demand the extension of its application to the parties directly involved in the performance of the contract and in the disputes that may arise as a result thereof.

Whereas the contract stipulates in its article 29: “…. In the event of a dispute arising out in connection with the interpretation or performance of a contract in the period during which it is in progress, its amicable resolution must be carried out, and if such a resolution is not possible, the dispute shall be settle by arbitration in accordance with the provisions of the Unified Convention for the Investment of Arab Capital in Arab Countries signed on 26 November 1980".

Whereas, as a result of the reference to the Convention contained in the arbitration clause and of Article 30 of the contract which designates the applicable laws in the event of a dispute, according to which: “In the absence of a contractual stipulation on a matter, the provisions of Law No 5 of 1426 Heg. (1997 A.D.) regarding the promotion of foreign capital investment and its Implementing Regulation will be applied, as well as Law No. 7 of 1372 A.P. (after the Prophet) (2004 A.D.) on tourism and its Implementing Regulation, and other laws in force in the Great Jamahiriya". These laws include the conventions ratified by the Libyan State. This Convention is an integral part of the contract which concerns the investment of Arab capital in Libya. Therefore, the common will of the parties to see the Unified Convention applied to the contract itself is established.

Whereas, therefore, the reference to the Unified Convention contained in the clause has its own existence and cannot be limited solely to the modalities of the implementation of the arbitration.

Whereas on the first part of the ground that it is constant that the land subject to the contract was the property of the Libyan State. The contract was preceded by an authorisation of the Libyan Minister of Tourism and that was attached to the Ministry of Economy, the General Council of Attribution of Property and Investment. The latter replaced the General Council for the Promotion of Investment and Privatisation, which comes to the rights of the General People’s Committee of Tourism and the Department of Tourist Development, signatory of the contract (Tourist Development Service). These institutions oversee the investment policy of the Libyan State. As a result, the arbitration clause was applicable to the Libyan State, the Libyan Ministry of Economy and the General Council for the Promotion of Investments and Privatisation;

Whereas, this clause was also enforceable against the Libyan Ministry of Finance, which is required to enforce the final judicial decisions rendered in I or abroad against Libyan public bodies financed by the Public Treasury, which includes the General Council for Tourism and Handicrafts. Therefore, the Libyan Ministry of Finance is required to enforce the decisions rendered against the General Council of the Promotion of Investments and Privatisation which, today, is the General Council for the Attribution of Property and Investment.

Whereas, consequently, the arbitral tribunal had jurisdiction towards those who were granted the status of party to the arbitration. Therefore, the arbitral tribunal ruled in respect of the Government of the Libyan State, the Ministry of Economy and the Ministry of Finance of I without disregarding its mission.

The ground taken in its first part and resulting from the absence of jurisdiction of the arbitral tribunal and from its non-compliance with its mission is dismissed.

On the second part of the ground, the wording of the arbitration clause which was, and which refers to the Unified Convention states that the disputes arising from its application will be settled through arbitration. Therefore, the arbitration clause covers cases of non-performance, whatever the cause.

Consequently, the arbitral tribunal had jurisdiction to hear the claim made by AL-KHARAFI for compensation as a result of the termination of the contract following the cancellation of the operating permit and the claim fell within the scope of application of the arbitration clause. By ruling thereon, the arbitrators did not disregard their mission.

The ground based on the absence of jurisdiction of the arbitral tribunal and its non-compliance with its mission taken in its second part, can only be dismissed.

On the claimants’ second ground resulting from the violation of the international public order by the recognition of the award (1520-5 of the Code of Civil procedure):

The claimants argue, first, that the absence of jurisdiction of the arbitral tribunal which has ruled outside the scope of its jurisdiction as defined by Article 29 of the contract, violated fundamental rights which is an infringement on the French concept of public order and on the international public order. In turn, these violations impede the enforcement of the award on French territory. Furthermore, they added that the Government of the Libyan State as well as the Libyan Ministries of Economy and Finance benefit from immunity from execution, which prohibits the enforcement in France of a decision rendered against them in a foreign country.

Second, the claimants argue that there are factual considerations that raise doubts as to whether the arbitrators ruled in the context of a fair trial within the meaning of Article 6 of the European Convention on Human Rights since one of the arbitrators refused to sign the award. The LIA and the Libyan Ministry of Finance were brought in late in the proceedings and had little time to defend themselves. The initial claims were multiplied without valid grounds to reach disproportionate figures, without the arbitral tribunal having justified the convictions rendered, including USD 30,000,000 as moral prejudice.

Whereas, first, the grounds resulting from the absence of jurisdiction of the arbitral tribunal and its non-compliance with its mission were rejected and the violation of the international public order is not constituted otherwise than by the immunity from execution. Such immunity does not preclude the enforcement (in French Exequatur) sought, as it does not constitute an act of execution. Therefore, the ground alleging that the recognition of the award violates the international public order must be dismissed.

Whereas, second, the fact that the decision was rendered by the majority does not disregard the requirements of a fair trial. On the other hand, since the LIA (which does not contest this matter) and the Libyan Ministry of Finance were able to be heard, and to develop their grounds to which the arbitral tribunal responded (pp. 247-248 of the award), the claimants do not demonstrate the alleged violation of the rights of defence. Finally, the alleged lack of reasoning does not in itself constitute a case for the opening of an action for annulment in the field of international arbitration, it being observed in any case that the award is not devoid of such reasoning.

That the ground resulting from the violation by the award of the international public order can only be dismissed.

As a result, the undertaken order granting enforcement (in French Exequatur) to the award is confirmed.

On the other claims:

Whereas the LIA and the unsuccessful claimants are dismissed from their respective claims under Article 700 of the Code of Civil Procedure and are ordered to pay on this basis, in solidum, the sum of 100,000 euros to AL-KHARAFI.

FOR THESE REASONS

Decides to join the case registered under number 13/19246 to the case registered under number 13/18811.

Upholds the order of enforcement (in French Ordonnance d’exequatur) issued by the President of the Paris Tribunal of Grande Instance on 13 May 2013.

Dismisses the other claims.

Orders in solidum the LIA, the Libyan Government, the Ministry of Economy of Libya, the General Council for the Promotion of Investments and Privatisation as well as the Ministry of Finance of I to pay the costs and to pay to MOHAMED ABDULMOHSEN AL-KHARAFI & SONS CO the sum of 100,000 euros under Article 700 of the Code of Civil Procedure.

THE CLERK THE PRESIDENT