Paris Court of Appeal, No. 13-10.256 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, 4 November 2014, No. 13-10.256

Challenged decision:

Paris Tribunal of Grande Instance, 25 April 2013, No. 13/1505

S.A.S MAN DIESEL & TURBO FRANCE

Vs.

AL MAIMANA GENERAL TRADING COMPANY LTD

The French company S.E.M. T PIELSTICK, whose rights are transferred to the French company MAN DIESEL & TURBO FRANCE (hereinafter referred to as MAN DIESEL) – specialising in the manufacture of diesel engines for use in power stations – signed a contract on 8 June 2000 with the Iraqi company AL MAIMANA General Trading Co Ltd. (hereinafter referred to as AL MAIMANA) under the terms of which the French company appointed the Iraqi company as its exclusive representative in Iraq, in return for the payment of a commission of 5% of the amount of orders placed in that country.

By an amendment of 23 January 2002, the contract was extended to 3 June 2003 and its scope extended to an agreement that MAN DIESEL was supposed to sign on 6 March 2002 with the Syrian company General Co. For Electrical & Communication Works (SYRIANET) for an amount of EUR 161 million.

On 4 October 2002, MAN DIESEL paid a Western Investment Company on behalf of AL MAIMANA the sum of 4.9 million euros pursuant to the representative agreement.

After unsuccessfully putting MAN DIESEL on notice to pay a sum of EUR 22,956,500 in commissions, AL MAIMANA, in a letter from its board of directors dated 19 October 2009, implemented the arbitration clause stipulated in the representative agreement, which provided for the constitution of an arbitration tribunal sitting in Lausanne, under the supervision of the ICC.

On 9 July 2012, the Arbitral Tribunal, composed of Mr. H I F K, Mr. François Perret, arbitrators, and Mr Jacques Werner, Chairman, issued an award in Lausanne (Switzerland) ordering MAN DIESEL to pay its contracting party the principal sum of EUR 10.4 million with interest at 5% from 22 June 2005, US$ 355,000 in arbitration costs and US$ 858,407.10 in legal and associated costs.

In a decision dated 17 January 2013, the Swiss Federal Supreme Court dismissed the claimant’s action for annulment of the award filed by MAN DIESEL.

By an order dated 25 April 2013, the President of the Paris Tribunal of Grande Instance declared the award enforceable in France.

On 22 May 2013, MAN DIESEL appealed against this decision.

By order dated 28 November 2013, the Pre-trial judge confirmed the parties’ agreement to deposit with the Caisse des Dépôts et Consignations the sums owed by MAN DIESEL pursuant to the arbitral award in dispute.

Having regard to the submissions notified by Y by MAN DIESEL on 23 September 2014, pursuant to which the court is requested:

-Before ruling/stating law, to transmit the case to the Public Prosecutor’s Office so that the latter may intervene in the proceedings,

-Pending the position of the Public Prosecutor’s Office, return the case to a future hearing,

-In the alternative and in substance,

To declare and rule that ICC arbitral award No. 16684/FM/MHM of 9 July 2012 was issued by an arbitral tribunal which failed to comply with its mission
To declare and rule that the ICC arbitral award No. 16684/FM/MHM of 9 July 2012 does not respect due process (in French Principe de la contradiction) and that its recognition and enforcement in France is in clear contradiction with international public policy;
Consequently, reform the Order of 25 April 2013 declaring the ICC Award No. 16684/FM/MHM of 9 July 2012 enforceable and refuse such enforceability in France.

Reject AL MAIMANA’s requests;
Order AL MAIMANA to pay EUR 30,000 to MAN DIESEL under Article 700 of the Code of Civil Procedure
Order AL MAIMANA to pay all the costs of the proceedings;

Having regard to the submissions notified by Y on 24 September 2014 by AL MAIMANA requesting the dismissal of the request for transmission of the case to the Public Prosecutor’s Office and of the appeal against the order of enforcement (in French Ordonnance d’exequatur) of the arbitral award, the confirmation of the order of enforcement (in French Ordonnance d’exequatur) of the arbitral award and the order of MAN DIESEL to pay the sum of EUR 25,000 pursuant to Article 700 of the Code of Civil Procedure and to pay all costs;

UPON WHICH,

On the request for transmission of the case to the Public Prosecutor’s Office:

Whereas MAN DIESEL requested the Court to transmit the case to the public prosecutor’s office, pursuant to Articles 423 and 427 of the Code of Civil Procedure, before giving judgment, so that the latter could carry out the necessary investigations to determine whether, in the event that the enforcement order (in French Ordonnance d’exequatur) were confirmed, the sums allocated to AL MAIMANA would not be used to fund terrorist activities;

Whereas although the court may of its own motion decide to refer a case to the public prosecutor’s office, such a decision, which in any event falls within its discretionary power, is, in the present case, irrelevant since AL MAIMANA has itself taken the initiative, as is justified, to remit the submissions exchanged by the parties in the present proceedings to the public prosecutor’s office on 4 September 2014, and whereas such a step is sufficient to ensure that the public prosecutor’s office is informed and to enable it to assess the appropriateness of its intervention;

On the ground that the arbitral tribunal failed to comply with its mission (Article 1520-3 of the Code of Civil Procedure):

MAN DIESEL claims that the arbitral tribunal failed to fulfil its mission by ruling extra petita on the one hand and as amiable compositeur on the other hand. It argues that by deciding on its own initiative to modulate, in order “to eliminate its corruptive nature”, the amount of the commission owed by MAN DIESEL when it was not requested to do so by the parties, the tribunal did not act in accordance with its mission. Moreover, for the sole purpose of eliminating “the suspicious nature of the contract”, the arbitral tribunal assumed the powers of amiable compositeur which had not been granted to it;

Whereas the mission of the arbitrators as defined by the arbitration agreement is delimited mainly by the subject matter of the dispute as determined by the parties’ claims.

Whereas, according to the Terms of Reference, the arbitral tribunal was entrusted with the mission of deciding questions “arising out of submissions made by the parties during the arbitral proceedings, with the exception of such other questions of fact or law that the arbitral tribunal, on its own initiative or at the request of one of the parties, may deem it necessary to decide upon in order to determine the claims of the parties and, if any, their counterclaims”;

Whereas, according to the submissions exchanged by the parties, AL MAIMANA requested that MAN DIESEL be ordered to pay the sum of “at least EUR 22,894,000” plus compound interest from 1 April 2005 at the rate of 5% in accordance with Swiss law, while MAN DIESEL, after declining the jurisdiction of the arbitral tribunal, requested that all of AL MAIMANA’s claims be dismissed;

Whereas the fact that the arbitral tribunal granted AL MAIMANA’s claims only in part cannot be regarded as a breach of the arbitral tribunal’s mandate, whereas it was precisely for the arbitral tribunal to decide on the existence of the disputed obligation whose performance the claimant was pursuing and to determine the amount thereof, and whereas the arbitral tribunal in particular found that one of the documents (Exhibit C-10) on which AL MAIMANA based part of its claim was not conclusive;

Whereas, moreover, the arbitral tribunal, which, in order to interpret the contractual documents issued by the parties’ contradiction [– i.e., the agreement of June 8, 2000 indicating a commission rate of 5%, - the letter of July 8, 2002 referring to a remuneration of 3.5% and - the amendment no. 3 of March 8, 2002 mentioning a rate of 8.5% –] referred for this purpose to trade customs, in accordance with Article 17 of the ICC Rules. The article states that “in all cases the Arbitral Tribunal shall take account of the provisions of the contract and the relevant trade usages”. The arbitral tribunal, [in accordance with the provisions of the arbitration clause stating that the arbitration shall take place in Lausanne (Switzerland) and that the Agreement and all matters shall be governed by Swiss law], applied Article 42.2 of the Swiss Code of Obligations, which allows the judge, when the amount of the prejudice cannot be established, to determine it “equitably”. Whereas the arbitral tribunal has ruled in law and has not made use of the powers of amiable compositeur which were not granted to it,

Whereas the ground must be rejected;

On the ground alleging the breach of due process (in french Principe de la contradiction) (Article 1520-4 of the Code of Civil Procedure) :

MAN DIESEL complains that the arbitral tribunal, in order to admit the ratification by AL MAIMANA of documents executed by representatives, who, according to it, were not authorised and therefore, retain the validity of the initiation of the arbitral proceedings, decided to base its decision on a document whose translation was read during the hearings without it being able to discuss it, because that document was not communicated to it and was not included in the proceedings;

Whereas due process requires that each party be placed in a position to debate the facts of the case in a adversarial manner and requires that all the elements on which the arbitrators’ decision is based be freely discussed by the parties, this principle has not been disregarded by the arbitral tribunal in this case;

Whereas the transcript of the proceedings before the arbitral tribunal shows that the disputed document, consisting of a written attestation by Mr. Z-A, whom the arbitral tribunal declared itself “interested, willing and eager” to receive at the hearing of 27 September 2011, was handed over at the hearing of 29 September 2011; Whereas MAN DIESEL’s counsel, stating “Just for the sake of clarity, we do not oppose this document”, thereby consented to the proceedings;

Whereas, MAN DIESEL, having viewed and examined this document, which is confirmed by the fact that in its statement of case dated 30 March 2012, expressly referred to the said document and was able to discuss it usefully. Thus, it does not demonstrate that its rights have been violated in any way;

Whereas the breach of due process cannot result, in any event, from the fact that the tribunal, (which was seized of the challenge to the validity of the deeds performed by the representatives of AL MAIMANA in order to implement the arbitration proceedings), in order to rule that said deeds were performed by persons qualified to initiate the arbitration proceedings, validated the document, not by examining its content, but by merely upholding the fact that Mr. Z-A responded in writing to AL MAIMANA’s request for advice revealed the tacit intention of AL MAIMANA, who, as of 19 November 2011, has regained his functions and powers as Chief Executive Officer to ratify the acts performed by the latter as AL MAIMANA’s agents;

Whereas the ground must, therefore, be rejected;

On the ground alleging a violation of international public policy (Article 1520-5 of the Code of Civil Procedure):

Whereas the appellant claims that the enforcement of the award would be contrary to international public policy, insofar that the contract, on the basis of which the award was issued, was corrupt; whereas the arbitral tribunal, whose reasoning discloses that it “was in fact convinced or at least had very strong doubts as to the illegality of the subject matter of the contract”, instead of taking investigative measures, using its investigative powers as required by all international standards, deliberately accepted the risk that the award could be used as an instrument for corrupt payments, limiting itself to reducing the amount of the commission so that it “does not seem to raise suspicions that it was used to bribe Syrian officials”;

Whereas the French company S.E.M. T PIELSTICK, whose rights are transferred to the French company MAN DIESEL & TURBO FRANCE – specialising in the manufacture of diesel engines for use in power stations – signed a contract on 8 June 2000 with the Iraqi company AL MAIMANA General Trading Co Ltd under the terms of which the French company appointed the Iraqi company as its exclusive representative in Iraq, in return for the payment of a commission of 5% of the amount of orders placed in that country;

Whereas by an amendment of 23 January 2002, the contract was extended to 3 June 2003 and its scope extended to an agreement that MAN DIESEL was supposed to sign on 6 March 2002 with the Syrian company General Co. For Electrical & Communication Works (SYRIANET) for an amount of EUR 161 million.

Whereas, on the same day, they signed an agreement entitled Amendment No. 2, by which they agreed that AL MAIMANA had to choose a shipping company for the transport of the goods, and that MAN DIESEL had to add 5% of the value of the contract with SYRIANET to the price invoiced by the shipping company;

Whereas on 5 March 2002, the parties concluded a new agreement under which the 5% commission provided for in the initial agreement was increased to 8.5%; whereas by letter of 10 April 2002, MAN DIESEL informed AL MAIMANA that it had included EUR 6 million in the total price, to be paid on invoice ‘in accordance with our common agreement'; a draft bank guarantee letter was sent on 20 April 2002 by AL MAIMANA to MAN DIESEL for the payment of this sum;

Whereas before the arbitral tribunal seized by AL MAIMANA, MAN DIESEL contested the authenticity of the amendment No. 3, claimed that both the contract of 8 June 2000 and the contract concluded with SYRIANET were null and void as violating the sanctions imposed by the United Nations and the European Union on Iraq, and finally claimed that it should be released from all obligations on the grounds, firstly, that Mr. Z A had financed a terrorist organisation, which is prohibited under Swiss law by virtue of Swiss international public policy, and, secondly, that AL MAIMANA intended to make or had made corrupt payments to third parties, in particular Syrian officials;

Whereas, in order to consider that bribery was not materially established, the arbitral tribunal essentially held that MAN DIESEL itself admitted that the allegations of witnesses X and F-G were not proven and that the sales manager of MAN DIESEL who negotiated the contract with AL MAIMANA had himself ruled out such a possibility during his hearing before the arbitral tribunal;

Whereas the arbitral tribunal furthermore ruled that the increase in the commission from 5% to 8.5% provided for in the third amendment - the authenticity of which had to be accepted in the light of the MAN DIESEL representative’s acknowledgement of his signature on that document -, was justified by an increase, beyond the provisions of the initial agreement, in the costs incurred by AL MAIMANA to “bring the MAN DIESEL-SYRIANET contract to a successful conclusion”;

Whereas the arbitral tribunal noted, finally, that in accepting AL MAIMANA’s claim for the sum of EUR 10,400,000, AL MAIMANA’s commission rate, taking into account the commissions already received, was less than 11% of the amount of the net order, which was in accordance with the corresponding commercial practices and ruled out any suspicion that part of the remuneration had been artificially increased to allow hidden payments to third parties;

Whereas when it is claimed that an award gives effect to a contract secured by corruption, it is for the judge hearing the case for setting aside the award, seized of an action based on Article 1520-5° of the Code of Civil Procedure, to seek in law and in fact all the elements allowing him to rule on the alleged unlawfulness of the agreement and to assess whether the recognition or performance of the award effectively and concretely violates international public policy;

Whereas bribery, in connection with the conclusion of a private contract, implies the giving or promising of an advantage, directly or indirectly, to a person who, in the course of a professional or social activity, performs a managerial function or work for a natural or legal person, in order for that person to perform or refrain from performing an act of his activity or function, or an act facilitated by his activity or function, in breach of his contractual or professional obligations;

Whereas, in the present case, MAN DIESEL does not dispute neither the importance of the contracts awarded through its representative in Iraq nor the reality of the services issued by AL MAIMANA in order, in particular, to conclude the contract with the SYRIANET Company for an amount of EUR 161 million;

Whereas it is not claimed that AL MAIMANA’s activity of representing MAN DIESEL’s interests was carried out in a secret manner; that there is no evidence, which MAN DIESEL has admitted, or even evidence that any part of AL MAIMANA’s commission was or should have been diverted to be paid to third parties for their services;

Whereas, therefore, in the absence of MAN DIESEL’s demonstration that the elements characterising corruption are present in this case, the ground that the award gave effect to a corrupt contract must be dismissed as lacking in fact;

Whereas therefore, the appeal of MAN DIESEL must be dismissed and the order confirmed;

Whereas MAN DIESEL, who is unsuccessful, must be ordered to pay the costs and cannot claim the application, in its favour, of the provisions of Article 700 of the Code of Civil Procedure; whereas it will be ordered on the same basis to pay a sum of EUR 25,000 pursuant to Article 700 of the Code of Civil Procedure ;

FOR THESE REASONS:

Rules that there is no need to communicate the case to the public prosecutor’s office;

Confirms the order referred;

Orders MAN DIESEL & Turbo France, a company incorporated under French law, to pay the costs of the case and the sum of EUR 25,000 to AL MAIMANA General Trading Co Ltd., a company incorporated under Iraqi law, pursuant to Article 700 of the Code of Civil Procedure;

Rejects any other application.