Paris Court of Appeal, No. 13/09748 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, 23 June 2015, No. 13/09748

ETABLISSEMENT PUBLIC ECONOMIQUE

SOCIÉTÉ PAR ACTIONS CNAN GROUP SPA

Vs.

S.A.R.L. CTI GROUP INC. ( ILES CAYMAN )

SOCIÉTÉ INTERNATIONAL BULK CARRIER SPA

The company CNAN AE SPA, an Algerian public establishment whose main purpose is the maritime transport of goods and the chartering of ships, concluded, within the framework of the privatization of a part of the Algerian merchant fleet, on 27 December 2006, with a group of investors composed of the company Z AC AD AE AF, a company incorporated under Saudi law, the company CTI AE, a company incorporated under Cayman Islands law, and Mr K T G, a Memorandum of Partnership Agreement in order to form a joint venture.

On 27 May 2007, the company INTERNATIONAL BULK CARRIER SPA (hereafter Y) was created in Algeria by the company CNAN, sole shareholder for having made a contribution in kind of eight vessels.

Pursuant to the memorandum of partnership agreement, a share purchase contract was signed on 24 September 2007 between the parties. Under the terms of this contract, the companies Z and CTI each acquired 24.5% of the shares and Mr. Laradji 2% of the shares, the company CNAN remaining a shareholder up to the remaining 49%.

In addition, this purchase contract provided that the companies Z and CTI would have to grant Y an initial loan of USD 5 million to the associated current account.

From 2008, disagreements arose between the partners regarding the management of the joint venture and the repayment of the loan and could not be settled amicably; CNAN and Y considered in particular that a vast swindle had been set up through the repair invoices of Y’s vessels.

On 9 July 2010, the companies Z and CTI, under the arbitration clause stipulated in the contract, initiated arbitration proceedings with the International Chamber of Commerce.

On 26 November 2010, the Arbitral Tribunal was constituted, with the companies Z and CTI appointing Mr. A as arbitrator and the companies Y, CNAN and Mr. G, Mr. X and Mr. I being chosen by the two co-arbitrators as chairman of the Arbitral Tribunal.

The Terms of Reference were signed on 27 March 2011.

The companies Z and CTI requested the Arbitral Tribunal to terminate the purchase contract concluded with the company CNAN and order it to return the sale price of the shares to them, as well as to terminate the loan contract concluded with company Y in execution of the partnership agreement and order it to return the amount of the loan to them.

The company CNAN concluded that all the claims of Z and CTI had been dismissed and counterclaimed to order the liquidation of the company Y, to order the companies Z and CTI to pay a series of debts related to the operation and maintenance of the vessels and to pay damages for the lost profit.

In an award issued in Paris on 16 April 2013, the Arbitral Tribunal, in substance, declared that it had jurisdiction over Y, terminated the loan agreement against Y, and ordered Y to reimburse CTI and Z an amount of more than US$7 million in principal plus interest, pronounced the termination of the share purchase agreement and the return of the shares to CNAN against the payment by the latter of the value of said shares for a price of US$2,550,000, sharing the arbitration costs and the fees of the arbitral tribunal equally between Z and CTI on the one hand and CNAN, Y and M G on the other hand.

CNAN and Y filed an action for annulment against this award on 15 May 2013.

By order of 11 July 2014, the delegate of the first president of this court, seized by CNAN and Y of a request for a stay of execution of the award, declared himself incompetent in favor of the First Pole First Chamber’s pre-trial judge and ordered CNAN and Y in solidum to pay Z and CTI, each the sum of EUR 5,000 under article 700 of the Code of Civil Procedure.

By order of 15 September 2014, the pre-trial judge, after having dismissed the objection raised by Z, dismissed the request for a stay of execution of the arbitral award rendered in Paris on 16 April 2013, known as the order unenforceable against M. G, dismissed the other claims and ordered CNAN AE SPA and INTERNATIONAL BULK CARRIER SPA in solidum to pay the costs of the incident and to pay Z AC AD AE AF and CTI AE each the sum of EUR 5,000 under article 700 of the Code of Civil Procedure.

By petition dated 3 October 2014, the appellants have submitted to the first president of this court a request for referral, on the grounds of legitimate suspicion of two of the magistrates composing the First Chamber of the First Pole, of the proceedings in progress before this panel.

This request, which was referred to the Court of Cassation after the first president of this court had given his opinion, was dismissed by a decision dated 27 November 2014.

By submissions served on 7 April 2015, the appellants asked the Court to set aside the arbitral award, primarily on the grounds that the arbitral tribunal had been improperly constituted, and secondarily, that the arbitral tribunal had wrongly declared itself competent with respect to Y, that the principle of due process has been violated, that the arbitrators have not respected their mission, and that the arbitral award is contrary to public order and to condemn the defendants jointly and severally to pay the sum of EUR 440,000 under article 700 of the Code of Civil Procedure.

By submissions notified on 17 March 2015, the company Z asked the Court to dismiss the action for annulment, to dismiss all of the claims of the companies CNAN and Y, and to order them jointly and severally to pay each the sum of EUR 120,000 pursuant to article 700 of the Code of Civil Procedure, in addition to all costs.

By submissions notified on 6 May 2015 and resigned on 7 May 2015, the company CTI requests the Court to declare all of the claims made by the companies CNAN and Y inadmissible and to order the companies CNAN and Y jointly and severally to pay the sum of EUR 200,000 pursuant to article 700 of the Code of Civil Procedure in addition to all costs.

Mr. K G summoned by act of 24 October 2013 delivered in the form of the international notifications, did not appoint an attorney.

UPON WHICH,

Whereas by letter dated 6 May 2015, delivered to the clerk’s office and addressed to the counsels of the opposing parties by the RPVA on 7 May 2015, the board of appeal made known that Mr. G had died so that the proceedings were interrupted and could only resume after his heirs had been called into question;

Whereas if, under the terms of article 370 of the Code of Civil Procedure, the proceedings are interrupted by the death of a party in cases where the action is transferable, no justification is provided for the reality of this death or its date, as no civil status certificate has been submitted to the proceedings;

Whereas since the alleged event cannot, in view of its uncertainty, take effect, and since notification of it has not, moreover, been made to the parties themselves, the proceedings have not been interrupted and are continuing;

On the first ground for annulment based on the fact that the arbitral tribunal was improperly constituted (article 1520-2 of the Code of Civil Procedure)

The companies CNAN and Y claim that Mr. A, the arbitrator appointed by Z and CTI, did not mention his professional relations with the law firm O P, their counsel, nor his immediate neighborhood ties for many years with Mr. M Z, director of the company Z, and that, moreover, this arbitrator has imposed himself as the master of the arbitration procedure, ‘supported and assisted’ in this by the opposing parties, thus provoking in the minds of the claimants a reasonable doubt as to his impartiality and independence.

Whereas Mr. A was appointed as arbitrator jointly by the two claimants in the arbitration, the companies Z and CTI, in their request of 9 July 2010; that he was confirmed in his functions by decision of 20 October 2010 of the ICC International Court of Arbitration;

Whereas CNAN and Y have filed with the Secretariat of the ICC International Court of Arbitration, by letters dated 2 August 2011 and 27 December 2011, two successive requests for the disqualification of this arbitrator on the grounds, firstly, of what he allegedly failed to disclose in his declaration of independence dated 21 July 2010, which he only did by a letter dated 27 October 2010, that he had been appointed by the law firm O P, counsel for the plaintiffs, in two arbitrations completed in 2006 and 2007 and had established, at the request of the same law firm, two consultations in 2005 and 2008, and secondly that there would exist close ties between the said arbitrator and the directors of the company Z, party to the arbitration, characterized by their domiciliation at the same address;

Whereas these requests for challenge were rejected by the ICC International Court at its sessions of 13 September 2011 and 2 February 2012, which was brought to the attention of the parties and their counsel by the secretariat of the Court;

Whereas, however, that the decisions of arbitration institutions on the challenge of arbitrators are mere policy decisions of the arbitration body, As they do not have the authority of res judicata, the appellants are entitled to criticize again, before the judge supervising the award, the lack of impartiality of the arbitrator, the fact that the Rules of Arbitration of the International Chamber of Commerce, to which the parties have agreed to submit, stipulate in article 7 paragraph 4 that the ICC International Court shall rule ‘without recourse’ on the requests for challenge before it, being indifferent in this respect;

Whereas, while the arbitrator must disclose to the parties any circumstances likely to affect his judgment and give rise to a reasonable doubt in the minds of the parties as to his impartiality and independence, which are the essence of the arbitral function, in the present case the appellants do not adduce evidence of any circumstances likely to cast a legitimate doubt on Mr. A’s independence or impartiality;

Whereas this arbitrator informed the parties by letter dated 27 October 2010, supplementing the declaration of independence signed on 21 July 2010 that he had been appointed by the O P law firm representing the plaintiffs in two arbitrations completed in 2006 and 2007 and had prepared, at the request of the same firm, two consultations in 2005 and 2008;

Whereas it cannot be inferred from this information, of which the parties were aware even before the signing of the Terms of Reference, that there is a suspicious proximity between the arbitrator and this law firm, whereas the elements revealed, which it is not maintained that they were not exhaustive, are insufficient to characterize the existence of a sufficiently significant stream of cases to affect the arbitrator’s independence of mind;

Whereas, moreover, the circumstance that the consorts Z directors of the company Z, plaintiff in the arbitration either for one owner and for the other usufructuary of an apartment in a building located XXX in Paris in which M. A resides and owns his business premises himself, or that these premises are located on the same floor, is not such as to cast legitimate doubt on the independence and impartiality of the arbitrator since it is not stated, other than by hypothetical assertion, whereas this neighborhood would have allowed the establishment of personal relations or even favored as alleged ‘promiscuity’, whereas it is proved that the Z consorts do not reside in this housing which is occupied by a Redec company, subsidiary of the Z group, which has been liquidated since 2011 as it has been justified, and that it is not shown that the arbitrator has, because of this geographical proximity, been in personal or professional relations with this company or its managers;

Whereas no further inference can be drawn from the arbitrator’s conduct during the proceedings, evidence or even an indication of bias or activism intended to promote the interests of the companies claiming arbitration;

Whereas, indeed, the questions put by Mr. A to the counsel of the appellant companies and to the witnesses during the pleadings hearings, appearing in the passages of the transcripts selected and reproduced by the appellants in their conclusions cannot be regarded as the manifestation of a willingness to surprise the good faith of the party to whom they were addressed, but must be analyzed as proceeding from the office of the arbitrator since they only tended to obtain from the parties, in order to be fully enlightened, factual explanations useful for the solution of the dispute;

Whereas they do not further reveal, in view of the objective nature of the information requested from the parties and witnesses, the expression by the arbitrator of an already settled opinion on the settlement of the dispute in favor of the claimant parties;

Whereas the ground must be dismissed;

On the second ground of annulment based on the fact that the court wrongly declared itself competent (article 1520-1 of the Code of Civil Procedure)

The companies CNAN and Y claim that the purchase contract, which stipulates in its article 14 the recourse to arbitration in the event of a dispute, was not signed by the company Y and that there is no reason to extend the arbitration clause to Y, so that the Arbitral Tribunal wrongly declared itself competent in its regard.

Whereas the annulment judge must review the arbitral tribunal’s decision on its jurisdiction by looking for all the legal and factual elements as they result from the case file in order to assess the scope of the arbitration agreement and to deduce the consequences on the respect of the mission entrusted to the arbitrators;

Whereas in this case, Y, relying on the provisions of article 106 of the Algerian Civil Code, declined the jurisdiction of the arbitral tribunal on the grounds that not being a signatory of the purchase contract, it cannot be bound by the arbitration agreement it contains;

Whereas, however, it is established that Y is a signatory of Annex 6 of the purchase contract entitled ‘Undertaking of assignment of claim’ and of Annex 7 of the same document entitled ‘Act of pledge of bank account’, annexes expressly stipulated by articles 1.1 and 1.2 of the purchase contract as forming an integral part thereof;

Whereas, furthermore, under the terms of article 7 of the purchase contract, rights were created in favor of Y, beneficiary of the initial loan of 2 million four hundred thousand US dollars, a condition precedent to the application of the purchase contract, which Y accepted under the terms of Annex 6;

Whereas, on the other hand, Y, by signing the acts of assignment of claim and pledge of bank account attached to the purchase contract, performed the obligations stipulated in articles 3.3.1.1 and 3.3.1.2 of the purchase contract, which provided for the assignment by CTI/Z to the benefit of CNAN of part of the claim held against it in repayment of the initial loan, on the one hand, and for the pledge to the benefit of CNAN of part of the advances granted by CTI/Z to CNAN, on the other hand, and for the pledge to the benefit of CNAN of part of the advances granted by CTI/ Z ;

Whereas it follows that Y is bound by the arbitration clause stipulated in the purchase contract even though it was not a signatory to it, so that the arbitral tribunal rightly declared itself competent on the basis of this clause with respect to all parties, it being further noted that after having initially declined the jurisdiction of the arbitral tribunal, Y expressly admitted in its statement of claim of 14 August 2011 its status as defendant no. 2 and made counterclaims, thus unequivocally acknowledging the tribunal’s jurisdiction;

Whereas the ground must be dismissed;

On the third and fourth grounds for annulment taken together alleging that the arbitral tribunal failed to respect the principle of due process (in french Principe de la contradiction) (Article 1520-4 of the Code of Civil Procedure) and did not comply with its mission (Article 1520-3 of the Code of Civil Procedure)

The appellants claim that the Arbitral Tribunal violated the due process principle and misconstrued the scope of its mission:

by allowing the companies Z and CTI, which presented for the first time at the oral hearing a claim in the amount of USD 13,221,478,887 relating to ship repairs, to file an important part of the file without themselves being able to make observations,
by unilaterally deciding on the question of interest rates and its legal basis, by automatically applying the compensation and by assessing the current value of company Y without having invited the parties to discuss it even though these questions were foreign to their mission.

Whereas the principle of due process requires that the parties should have been able to make known their claims of fact and law and to discuss those of their adversary so that nothing that served as a basis for the tribunal’s decision escaped their contradictory debate; that the arbitrators should, in all circumstances, themselves observe and uphold this principle;

Whereas, moreover, the mission of the arbitrators defined by the arbitration agreement is delimited primarily by the subject matter of the dispute as determined by the parties' claims.

Whereas in their request for arbitration, the claimant companies have assessed their claim for ship repairs exposed to the advanced costs of Y at the sum of 12,375,843.34 euros and 762. 453.94 USD; that in their supplementary statement of claim dated 22 January 2012, the companies Z and CTI requested the arbitral tribunal to give them notice that they reserved ‘their claim for the reimbursement of the expenses incurred for the advanced costs of Y for ship repairs in accordance with the position adopted by the tribunal in the LMAA arbitration proceedings’;

Whereas at the hearing on 16 February 2012, the claimant companies asked the arbitral tribunal to be allowed to produce the award to be made in the coming weeks in the LMAA arbitration proceedings followed in London, insofar as this decision, which had to determine whether or not the charterer was entitled to compensation, was likely to have ‘potentially an adjustment impact on the cost of repairs’;

Whereas by letter dated 22 February 2012 (and not 22 January as erroneously indicated in the appellants' submissions on page 132) the arbitral tribunal authorized the plaintiffs to submit the award to the proceedings on the condition that they ‘make no comment on it but draw only consequences with regard to the updating of the amount of their claim’;

Whereas it results from the transcript of the proceedings of the hearing of 1 June 2012, the plaintiff companies quantified their claim for reimbursement of the costs of repairs to the vessels for which Y is responsible, drawing the consequences of the LMAA award (pages 280 et seq.), it being noted that as early as December 2011, for justification of their claim, the plaintiff companies had filed 19 binders of invoices in a ‘data room’;

Whereas it cannot, therefore, be seriously argued that the plaintiff companies would have presented for the first time at the hearing of pleadings a claim in the amount of USD 13,221,478,887, this amount being only the actualization of the claim formulated at the time of the request for arbitration;

Whereas, moreover, this same transcript reveals that CNAN and Y, who, moreover, did not raise any protest, were able to usefully discuss the relevance of these invoices (pages 376 et seq.), the CNAN board even going so far as to affirm that by the communication of these binders, the plaintiffs, far from ‘destabilizing’ them, ‘gave them the rope to hang them’, which shows that the claimants were able to usefully analyze the documents produced, it being noted that they have mandated for the purpose of examining the 19 binders of documents, Mr. Q R, a marine mechanical engineer and marine expert who was heard as a witness by the arbitral tribunal on 15 February 2012;

finally, the arbitral tribunal requested the parties to produce, for the next day’s hearing, a summary and synthetic sheet summarizing their claims with figures and legal heads, which did not give rise to any reservations or observations on the part of the appellants;

Whereas the court could not be further criticized for having unilaterally decided the question relating to interest rates and its legal basis, by automatically applying the compensation and assessing the current value of company Y without having invited the parties to discuss it and while these questions were foreign to their mission;

Whereas it is in fact common ground that under the terms of the financial summary note requested by the tribunal from each of the parties containing an update of their respective claims, which were discussed in a contradictory manner during the oral argument hearing of 2 June 2015, the arbitral tribunal was requested by Z and CTI to sums claimed both as a result of the termination of the sale contract and for vessel repair costs bear interest on arrears at a rate of 7.81%, such rate being intended to compensate them for the investments they were unable to make in view of the mobilization of these sums;

in addition, CTI and Z have expressly requested in their writings the compensation between the amount of the sums owed by the claimants and those of which they themselves were debtors in respect of the charter rentals liquidated by Y on 13 May 2012 by the release of the Corporate Guarantee;

Whereas finally, the court was seized, failing the resolution of the purchase contract requested by the plaintiffs, of a request for termination of the said contract requested mainly by CNAN and subsidiarily by CTI and Z ;

Whereas it follows that the three questions in issue were in the debate;

Whereas they were, moreover, contradictorily discussed;

Whereas thus, CNAN contested the application of a default interest rate of 7.81% since it was neither a conventional interest nor a legal rate in force in Algeria, whereas it opposed any compensation on the grounds that it would be prohibited by the exchange regulations and could be, in any event, possible only if it was the same contract and whereas it has, finally, for the evaluation of the shares of Y, the current valuation of their value was debated, stressing that account should be taken in particular of the fact that the vessels were reduced to the state of a wreck and that their value, even if it was established on the basis of the price of scrap steel, should be corrected by discounting the price and the additional costs incurred both for the vessels and for the operation of Y;

Whereas it follows that the arbitral tribunal, in deciding to set aside the rate of interest on arrears claimed by the plaintiffs, in ordering the offsetting of the reciprocal claims and in fixing the discounted value of Y’s shares on the basis of the elements that had been produced to it and that had been discussed before it, did not, in so ruling, disregard either the scope of its mission or the principle of contradiction;

Whereas these grounds must be rejected;

On the ground of annulment based on the fact that the arbitral tribunal did not comply with its mission (article 1520-3 of the Code of Civil Procedure)

The appellants claim that by agreeing to hear Messrs. D and B as witnesses despite their protests and by disregarding the rules of the Algerian Code of Civil Procedure applicable under the purchase contract, the arbitral tribunal failed to comply with the terms of its mission;

Whereas during the hearings dedicated to this purpose, held on 15 and 16 February 2012, the tribunal proceeded to the hearing of the witnesses and witnesses presented by the parties ;

Whereas the Tribunal cannot be accused of having failed to comply with its mission by hearing Messrs D and B, summoned by the plaintiffs, whereas article 20/3 of the ICC Rules in its then applicable wording, to which the parties agreed to submit under the terms of the arbitration clause, reserves to the Tribunal the right to hear witnesses or experts presented by the parties or any other person likely to enlighten it in the resolution of the dispute referred to it;

Whereas in reality, under cover of this complaint, the appellants intend to criticize the decision of the court which, dismissing the objections of the appellants who contested the validity of these two testimonies on the grounds of the provisions of article 151 paragraph 2 of the Algerian code of civil and administrative procedure, decided to admit the statements of expert witnesses and representatives of the parties heard, while reserving their probative force subject to its assessment;

Whereas in doing so, they invite the court to revise the award on the merits, which is prohibited to the judge of the annulment;

Whereas the ground and the appeal must, consequently, be dismissed.

Considering that the appellants who succumb in the proceedings and who have to bear the costs cannot claim compensation pursuant to article 700 of the Code of Civil Procedure and will be condemned on the same basis to pay to H on the one hand and CTI on the other hand a sum of EUR 120,000 each;

FOR THESE REASONS,

DISMISSES the action for annulment brought by CNAN AE SPA, an Algerian public establishment, and INTERNATIONAL BULK CARRIER SPA, a company incorporated under Algerian law, against the award rendered in Paris on 16 April 2013 in the dispute between them and Z AC AD AE AF, a company incorporated under Saudi law, CTI AE, a company incorporated under Cayman Islands law, and Mr. K T G.

ORDERS the company CNAN AE SPA, an Algerian public establishment and the company INTERNATIONAL BULK CARRIER SPA, a company incorporated under Algerian law in solidum to pay the costs and to pay each to the company Z AC AD AE AF, a company incorporated under Saudi law on the one hand and to the company CTI AE, a company incorporated under Cayman Islands law, on the other hand, a sum of 120,000 euros in application of article 700 of the Code of Civil Procedure.

DISMISSES the surplus of the claims.