Paris Court of Appeal, No. 15-03.504

Court of appeal Paris, 28 June 2016, n° 15-03.504

VIJAY CONSTRUCTION (PROPRIETARY) LTD vs. EASTERN EUROPEAN ENGINEERING LTD

Through six contracts concluded between April and December 2011, EASTERN EUROPEAN ENGINEERING LTD, a company registered in the Seychelles, has entrusted VIJAY CONSTRUCTION (PROPRIETARY) LTD, also registered in the Seychelles, with the construction of the Savoy Resort hotel complex in Mahé (Seychelles).

After disputes arose between the parties, on 10 September 2012, EEE initiated the arbitration proceedings based on the arbitration clause stipulated by each of these contracts.

On 17 June 2013, the arbitral tribunal constituted under the aegis of the International Chamber of Commerce of Mr. IJ, sole arbitrator, issued in Paris a partial award by which he declared himself competent. On 14 November 2014, he issued his final award in Paris which declares the termination of the contracts by EEE valid, and which orders VIJAY to pay him, under contract no.6, the sums of EUR 12,857,171.04 for project completion, and of EUR 150,000 as damages for breach of confidentiality provisions, and under contracts n ° s 1 and 5 the sum of EUR 600,449.32 for damages caused by delays and for the supply of reinforcing steel, in addition to default interest, orders EEE to pay to VIJAY EUR 905,849 for the value of the work carried out by VIJAY under contract no. 1 and the acceleration bonus in the event of timely completion of the work under contract no. 4, and EUR 250,000 for the loss caused by EEE’s occupation of VIJAY’s temporary structures, in addition to interest for late payment, and finally orders VIJAY to pay 80% of the costs of the proceedings.

On 17 February 2015, VIJAY filed an appeal against these two awards.

By submissions notified on 23 March and then on 10 May 2016, VIJAY requests the annulment and the ordering of the opposing party to pay her the sum of EUR10,000 in application of article 700 of the code of civil procedure. It argues that the arbitrator wrongly declared himself competent (article 1520-1 of the code of civil procedure), that the principle of due process and the principle of equality between the parties were disregarded (article 1520-4 and 1520-5 of the Code of Civil Procedure) that the recognition or enforcement of the award violates international public order (article 1520-5 of the Code of Civil Procedure), finally, that the arbitrator has failed to carry out his mission (article 1520-3 of the Code of Civil Procedure).

By submissions notified on 3 May and then on 19 May 2016, EEE requests the court to reject VIJAY’s requests and order her to pay the sum of EUR 100,000 in application of article 700 of the code of civil procedure.

By submissions notified on 20 May 2016, VIJAY requests the court to set aside the submissions and Exhibit No. 17 served by EEE on 19 May 2016, the closing day.

By submissions notified on 24 May 2016, EEE requests the court to reject these procedural findings and, in the alternative, if it were upheld, to also exclude from the proceedings the written submissions notified by VIJAY on 10 May 2016.

UPON WHICH:

On the procedural conclusions:

Whereas VIJAY’s first submissions were notified on 18 May 2015; that EEE replied on 17 September 2015 that VIJAY replied on 23 March 2016 and EEE on 3 May 2016; that VIJAY again submitted pleadings on 10 May and EEE on 19 May, the closing day;

Whereas the last two sets of written submissions from the parties contain new allegations to which the opposing party has not been able to fully respond; whereas said submissions should be excluded from the debates;

On the ground for annulment based on the lack of jurisdiction of the arbitral tribunal (article 1520-1 of the code of civil procedure):

VIJAY claims that EEE not having respected the dispute resolution mechanism provided by the parties in clause 20 of the contracts, the arbitration proceedings were initiated prematurely and that, therefore, the arbitrator was not competent.

Whereas clause 20 of the contracts binding the parties stipulates:

“20 .1 Friendly settlement. In the event of a dispute between the Parties under the Contract, or under the execution and completion of the Works, or the repair of defects (…), each Party shall notify the other Party of such a dispute, and the two Parties attempt to settle their dispute amicably before the commencement of arbitration proceedings.

However, unless the Parties decide otherwise, the arbitration will not begin before the expiration of a period of 2 months from the date of the notice of dispute, even if attempts to settle the dispute amicably cannot be done.

20.2 Arbitration. Provided that the procedure described in paragraph 20.1 of the Contract has been followed, any dispute, disagreement or claim arising out of this contract is finally settled by arbitration in accordance with the Arbitration Rules of the International Chamber of Commerce.”;

Whereas the ground based on a prior conciliation clause does not constitute an exception to lack of jurisdiction but a question relating to the admissibility of the requests, which does not enter into the cases of opening of the action for annulment listed by article 1520 of the Code of Civil Procedure;

That, contrary to what VIJAY claims, the imperative terms employed by the contract to govern the preliminary conditions for conciliation do not affect the classification of the grounds; that it is therefore not up to the judge of the annulment to review the arbitrator’s assessment of the conditions for notifying the dispute and the observation of a time-period prior to its referral;

That the ground based on the lack of jurisdiction of the arbitral tribunal must therefore be dismissed;

On the ground of setting aside the award and from the violation of the principle of due process and equality of arms (Article 1520-4 and 1520-5 of the Code of Civil Procedure)

VIJAY claimed that the arbitrator accepted, after the hearing, the third report of EEE’s expert, Mr. X, which contained new elements on which the award was based, allowing VIJAY to respond only by a written brief of 10 pages and without having recourse to any experts or witnesses other than those who had intervened at the hearing, although VIJAY was not assisted at that time by any expert, Thus VIJAY was deprived of a reasonable opportunity to respond and placed at a significant disadvantage.

Whereas in accordance with the procedural schedule established on 24 June 2013, the parties presented two series of briefs prior to the hearing; whereas the hearing took place from 2 to 6 June 2014; whereas the transcript issued shows that on the fourth day, Mr. X, quantum expert of EEE was cross-examined by counsel for VIJAY, who was assisted by an expert, Mr. H, who, not having been previously denounced to the opposing party, was not authorized to question the witness directly, but had the option of suggesting the questions asked by VIJAY’s lawyer; that Mr. X, having been unable to reply fully to the questions asked during the hearing, established a third report which EEE attached to his post-hearing memorandum transmitted on 15 July 2014;

Whereas the arbitrator, considering that this document contained new elements useful for the solution of the dispute, issued on 4 August 2014, a procedural order by which he accepted the report and allowed VIJAY to reply to it by a written response of ten pages at most, as well as documents whose volume would not exceed that of the third report and its annexes, the arguments of VIJAY having to relate only to the new elements of the third report and the documents having to consist of proof, attestations of witnesses or expert reports, provided they are witnesses or experts who testified at the hearing; that VIJAY having contested these restrictions and asked to respond with an expert report on all the questions that it considered necessary to deal with, or to have an independent expert appointed by the arbitrator, the arbitral tribunal, by its procedural order of 2 September 2014, noted that these solutions could have been implemented during the period of one and a half years since the signing of the Terms of Reference, consequently rejected the suggestions of VIJAY and proposed a cross-examination of Mr. X, following which each of the parties could make 10-page conclusions on the new issues raised by the third report; that VIJAY having refused this solution, the arbitrator closed the proceedings on 24 September 2014;

Whereas it follows from the foregoing that the Appellant, contrary to what it claims, has benefited from an effective and proportionate faculty to respond to the arguments and evidence put forward by its opponent; that the ground based on the violation of the principle of contradiction and equality of arms can only be rejected;

On the ground against the final sentence, alleging violation of international public order (article 1520-5 of the Code of Civil Procedure):

VIJAY claims procedural fraud resulting from false statements made by Mr Y, former EEE’s project manager, under pressure from EEE.

Whereas on 3 January 2014, VIJAY submitted to the arbitrator written testimony, written on 1st March 2013 by Mr. Y, project manager of EEE, which argued that he holds a PhD in Management of development projects, a professional project manager diploma in G and that he had nine years of experience in the field of hotel project G, and which reported that the work of VIJAY gave complete satisfaction both in terms of quality and in terms of speed of execution; that however, on the order of EEE, part of the employees of the Savoy site had been transferred to the Coral Strand Hotel site which was in difficulty; that EEE had not kept his promise to adjust the schedule accordingly and had stopped all payments in March 2012;

Whereas on 11 March 2014, Mr. Y established a second testimony according to which his first statement was ‘not entirely correct’; that in reality “during the activities of G carried out by VIJAYG (Pty) Limited (VCL), workers, engineers and other employees of VCL made various errors, some relating to the G itself, which could have led to further violations of the operating rules after the hotel opened, of which I was later informed orally. I had not identified any faults before the inspection of the professional committee specially set up by my Employer because I am not a specialist in G’s work. The experts raised and confirmed these previously unknown faults.

I guess that the failure to disclose these flaws and to have purchased a plot of land in Seychelles without notifying my Employer made him have suspicions about my honesty, which led him to terminate the contracts concluded with VLC some time later” ;

Whereas VIJAY claims that this ‘volte-face’ was forced on Mr. Y by threats, blackmail, promises of sums of money and civil and criminal proceedings brought against him both in Seychelles and in his country of origin, Russia;

Whereas it follows from article 1520-5 of the Code of Civil Procedure that an action for annulment is admissible against an international award issued in France if the recognition or enforcement of this decision is contrary to international public policy; that procedural fraud committed in the context of an arbitration can be sanctioned with regard to the international public order of procedure; that it supposes that false documents have been produced, that false testimonies have been collected or that documents concerning the solution of the dispute have been fraudulently concealed from the arbitrators, so that the decision of the latters was taken by surprise;

Whereas in the present case, the transcript of the hearing of 3 June 2014 shows that the two parties renounced the offer made to them by the arbitrator to proceed to an examination of Mr. Y and have left it to the court to rule on the probative value of the two successive testimonies;

Whereas it follows from the developments in the award on termination that the arbitrator considered that Mr Y’s allegation of corruption, which could have constituted an independent cause for termination, was not established since the two parties had given up calling this witness (award § 191 to 195), and that, in examining the other grounds for termination, the arbitrator disregarded Mr. Y’s statements;

The decision of the arbitral tribunal not having been surprised by one or the other of the two suspicious testimonies, the ground must therefore be dismissed;

On the ground directed against the final award and based on the arbitrator’s disregard of his mission (article 1520-3 of the Code of Civil Procedure):

VIJAY claims that the arbitrator failed to carry out his mission by ruling on the question of the obligation to notify the dispute under the stipulations of the contract and not under Seychelles law.

Whereas paragraph X of the mission statement on the law applicable to the merits of the dispute reiterates the stipulations of clause 1.4 of each of the contracts according to which: ‘The contract is governed by the law of the Republic of Seychelles’;

Whereas by stating that on the obligation of notification, the terms of the contract were clear and that it was not necessary to turn to Seychellois law or to commercial practices, as requested by VIJAY, the arbitrator did not place himself outside the law of Seychelles to settle the dispute but simply noted that, on this point, it was not necessary to have recourse to its supplementary provisions at the will of the parties;

That the grounds must therefore be dismissed;

Whereas it follows from the foregoing that the appeal against the two awards must be dismissed;

On article 700 of the code of civil procedure:

Whereas VIJAY, who is unsuccessful, cannot benefit from the provisions of article 700 of the code of civil procedure and will be condemned on this basis to pay to EEE the sum of EUR 60,000;

FOR THESE REASONS:

Set aside from the debates the submissions notified on 10 May by VIJAY LTD and on 19 May by EASTERN EUROPEAN ENGINEERING LTD.

Dismisses the action for annulment of the awards to be held in Paris on 17 June 2013 and 14 November 2014 between the parties.

Orders VIJAY LTD to pay the costs and payment to EASTERN EUROPEAN ENGINEERING LTD of the sum of EUR 60,000 in application of article 700 of the code of civil procedure.