Paris Court of Appeal, No. 14-07.043

Paris Court of Appeal, First Pole, First Chamber, 14 April 2015, No.14-07.043

HELLENIC REPUBLIC

vs.

BOMBARDIER INC

On 20 November 1998, the GREECE concluded firstly a main contract with BOMBARDIER INC for the acquisition of ten amphibious fire-fighting aircrafts and other related services, and secondly a set-off agreement which provided for the supply of free products to the Greek Armed Forces, as well as a commitment by BOMBARDIER to subcontract work to Greek companies.

As disputes arose in the course of the performance of the Set-off Agreement, BOMBARDIER commenced arbitration proceedings with the Secretariat of the International Chamber of Commerce on 29 December 2008.

By an interim award of 12 March 2010, the arbitral tribunal composed of Mr. Hanotiau and Mr. Flogaitis, arbitrators, and Mr. Werner, chairman, decided that Greek law would be applicable to the substance of the dispute.

In an award rendered in Paris on 30 December 2013, the same arbitral tribunal, ruling by a majority, declared itself competent and decided that the set-off agreement was null and void ab initio since the aircraft had been acquired for civil use, and the obligation to use Greek subcontractors violated the public policy rules of European law and in particular Article 34 of the Treaty on the Functioning of the European Union (TFEU).

On 28 March 2014, the GREECE lodged an appeal against this award.

By submissions notified on 26 February 2015, it requested the court to annul the decision and to order BOMBARDIER to pay the sum of EUR 50,000 pursuant to Article 700 of the Code of Civil Procedure. It invoked the lack of competence of the arbitral tribunal, the arbitrators' disregard of their mission and of the adversarial principle, as well as the award’s violation of international public policy.

By submissions notified on 5 March 2015, BOMBARDIER asks the court to declare the GREECE inadmissible and, in the alternative, poorly founded to invoke disregard of a prior conciliation clause in an action for annulment, to declare the other grounds for annulment to be poorly founded, to dismiss the reference for a preliminary ruling, as well as the action, and to order the GREECE to pay the sum of EUR 80,000 pursuant to Article 700 of the Code of Civil Procedure.

UPON WHICH:

On the first ground for annulment based on the lack of competence of the arbitral tribunal (Article 1520-1 of the Code of Civil Procedure):

The GREECE argues, first of all, that it follows from the restrictive terms of the arbitration clause that the arbitrators were competent to rule on the interpretation and execution of the set-off agreement, but not on its validity, and that it is all the more unlikely that the agreement of the parties included such a question as it is non-arbitrable under Greek law and falls within the exclusive competence of the administrative courts.

Whereas the judge of appeal shall examine the decision of the arbitral tribunal on its jurisdiction by seeking all elements of law or fact allowing to assess the existence and scope of the arbitration agreement;

Whereas Article 25 of the set-off agreement provides:

25.1 If the HMOD or SUPPLIER disagree regarding the content and value of the compensation programmes and/or the fulfilment of the eligibility criteria and/or the credit granted and/or other obligations of both parties under this Compensation Agreement and/or any other matter or dispute in connection with this Compensation Agreement, the HMOD/GDA and SUPPLIER agree to discuss this matter in good faith and to endeavour to resolve this disagreement amicably as soon as possible.

25.2 If no solution is found, despite the good will of both Parties, the resulting disputes shall be settled in accordance with the Rules of Arbitration of the International Chamber of Commerce in Paris';

Whereas, pursuant to that clause, BOMBARDIER initially brought claims before the arbitral tribunal for recognition of the set-off it had made and for the release of the guarantee it had provided; whereas it subsequently invoked the irregularity of the set-off agreement in the light of the rules of public policy of European law which prohibit any agreement which has the effect of giving preference to goods or services of one Member State to the detriment of others, unless that agreement concerns goods intended for military use;

Whereas the Arbitral Tribunal, having dismissed the grounds of lack of jurisdiction of the GREECE, has, on the basis of Article 34 TFEU, declared the set-off agreement void ab initio;

Whereas the GREECE claims that it could not agree to submit to arbitration the question of the validity of an administrative contract for which its internal law reserves the competence to the administrative courts;

But whereas by virtue of a substantive rule of international arbitration law, the arbitration clause is legally independent of the main contract which contains it directly or by reference and its existence and effectiveness are assessed, under the mandatory rules of French law and international public policy, according to the common will of the parties, without it being necessary to refer to a State law; whereas this principle applies without regard to the administrative nature of the contract which contains such a stipulation;

And whereas it follows from the very comprehensible terms of the clause referred to above that the parties intended to submit to arbitration not only disputes concerning the interpretation and performance of the contract, but also any dispute of any nature whatsoever in connection therewith, including the assessment of the validity of the agreement; that the GREECE cannot evade the clear and precise terms of the commitment it entered into by maintaining that it could not have wanted what its domestic law did not permit, it being observed, moreover, that according to Professor Lazaratos, a Greek expert witness who intervened in the arbitration proceedings, Greek law does not prohibit the annulment of an administrative contract by an arbitral tribunal;

That the ground of lack of competence of the arbitral tribunal must therefore be dismissed;

On the second and third grounds of annulment arising from the arbitrators' disregard of their mission and of the adversarial principle (Article 1520-3 and -4 of the Code of Civil Procedure):

The GREECE claims that the arbitral tribunal, on the grounds of the confidentiality of the negotiations, refused to order the production of the elements relating to the settlement discussions and thus disregarded its mission and violated the adversarial principle by not putting itself in a position to verify that BOMBARDIER’s new application for annulment of the contract for breach of European public policy had been submitted beforehand, in accordance with the agreement, on amicable negotiation.

Whereas, in the first place, it follows from the award (§ 26) that the arbitrators have examined the motion to dismiss arising from the failure to comply with the precondition of conciliation in relation to the application for annulment based on European law, and have set it aside by considering that the reality of the negotiations on this point was established by the minutes of the 2013 hearing on pages 618 to 622; that the ground which alleges that the arbitral tribunal failed to investigate to what extent this attempt at conciliation had been undertaken seriously and in good faith invites the court to review the merits, which is not permitted to the annulment judge;

Whereas, secondly, the adversarial principle requires only that the parties should have been able to express their claims in fact and in law, and to discuss those of their adversary in such a way that nothing that served as a basis for the arbitrators' decision has escaped their contradictory debate;

Whereas the appellant does not maintain that the arbitral tribunal relied on elements which were not discussed by the parties, but reproaches it for not having ordered the production of documents which it did not consider useful for the resolution of the dispute; whereas, in so doing, the GREECE, under the pretext of infringement of the adversarial principle, again invites the court to substitute its assessment to that of the arbitrators on the nature of the documents which, in its view, should have been included in the case;

Whereas both grounds are ill-founded;

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

The appellant alleges infringement of international public policy resulting from the application, to a contract concluded in 1998, of Community rules, which the Commission had never required to be respected before Directive 2009/81 came in and required that Member States' laws be brought into conformity. In the alternative, it requests that a preliminary question be referred to the CJEU for a preliminary ruling on the validity, under Article 28 of the EC Treaty (now Article 34 TFEU), of compensatory agreements concluded before the entry into force of Directive 2009/81.

Whereas under Article 28 of the EC Treaty, now Article 34 of the TFEU: ‘Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States’;

Whereas the Arbitral Tribunal ruled that the disputed compensation agreement placed restrictions on intra-Community trade contrary to those provisions which were not justified either by the considerations of public policy and public security envisaged by Article 36 TFEU, nor by the permission given to Member States, by Article 346 of the same Treaty, to take measures they deem necessary for the protection of the essential interests of their security, and which relate to the production of or trade in arms, munitions and war material;

Whereas the Treaties are directly binding upon the Member States and, as far as the GREECE is concerned, as from 1 January 1981, the date of its accession; whereas their provisions on the prohibition of restrictions on intra-Community trade and on the grounds for exceptions to that prohibition have not varied since their origin;

Whereas, as noted in the award, the scope of the exception for war material was defined restrictively by Council Decision No. 255/58, adopted in 1958, which specified the list of equipment concerned;

Whereas, on the one hand, if Directive 2009/81/EC of the European Parliament and of the Council of 13 July 2009, on the coordination of procedures for the award of certain works contracts, supply contracts and service contracts by contracting authorities or entities in the fields of defence and security, and amending Directives 2004/17/EC and 2004/18/EC, clarified the conditions for the award of defence contracts, it has in no way altered the scope of provisions fixed by primary law, on the other hand, that although the European Commission has so far not brought any infringement proceedings in respect of compensation agreements concluded in the military field, this does not give the Member States any right to be exempt from the rules deriving from the Treaties;

Whereas, therefore, contrary to the appellant’s claim, it was by non-retroactive application of clear and precise provisions of Community law that the arbitral tribunal decided that a contract for the supply of aircrafts manufactured for fighting forest fires, whose design intended them to be used mainly, if not exclusively, for civil purposes, could not benefit from any exception to the prohibition of restrictions on intra-Community trade, and that the offsetting agreement, which required BOMBARDIER, in return for that order, to use Greek subcontractors, infringed such a prohibition; that the award does not disclose any actual and concrete violation of international public policy;

Whereas the ground for annulment should therefore be dismissed and the reference for a preliminary ruling rejected;

On Article 700 of the Code of Civil Procedure:

Whereas the GREECE, which lost the case, cannot benefit from the provisions of Article 700 of the Code of Civil Procedure and will be condemned on this basis to pay BOMBARDIER the sum of 80,000 euros;

FOR THESE REASONS

Dismisses the action for annulment of the award rendered between the parties on 30 December 2013.

Dismisses the request for a preliminary ruling.

Orders the GREECE to pay the costs and to pay the company BOMBARDIER INC the sum of 80,000 euros pursuant to Article 700 of the Code of Civil Procedure.

Dismisses all other requests.

THE CLERK THE PRESIDENT