Paris Court of Appeal, No. 13/12002

Paris Court of Appeal, Pole 1, First Chamber, 8 November 2016, No. 13/12002

Judicial Chronology:

ICC Award dated 26 February 2007

French Tribunal of Conflicts, 24 April 2017

REPUBLIC AND BA’ATHIST IRAQ

vs.

MASCHINENFABRIK AUGSBURG-NÜRNBERG SE (M.A.N)

On 27 May and 10 June 1981, the Scientific Research Council of the REPUBLIC of IRAQ and the joint venture KRUPP/M.A.N./Carl Zeiss signed a contract for the construction of an astronomical observatory on the summit of Mount Korek in Iraq. Following the bombardment of the partially completed structures, the work was terminated. A dispute arose between the parties concerning the execution by IRAQ of a document dated 12 December 1988, referred to by the lessors of the works as the “act of recognition”.

On 27 November 2003, THYSSENKRUPP and M.A.N. (hereinafter, the German companies), coming under the rights of the Joint Venture, initiated arbitration proceedings against the REPUBLIC OF IRAQ at the International Chamber of Commerce, pursuant to the arbitration clause stipulated in the 1981 contract.

By an award rendered in Paris on 26 February 2007, the Arbitral Tribunal composed of Mr. X, Ms. Y, arbitrators, and Mr. Kemicha, President, declared it had jurisdiction to settle the dispute, recognised the parties’ standing to act and defend in the arbitral proceedings and ordered the REPUBLIC OF IRAQ to pay the sums of 6,374,959.51 Euros and 406,329.51 Iraqi Dinars, in addition to interest and arbitration costs liquidated in the sum of 300,000 USD.

On 14 June 2013, the Government of The Republic Of Iraq (IRAQ) filed an appeal against this award.

By submissions notified on 16 December 2014, it requests the annulment of the award and an order for the opposing parties to pay it the sum of 60,000 euros pursuant to Article 700 of the Code of Civil Procedure. It invokes:

• that arbitrators did not comply with due process (in French Principe de la contradiction) and equality of arms (Articles 1520-4 and 1520-5 of the Code of Civil Procedure) in that the arbitration proceedings, instituted fifteen years after the alleged recognition and seven months after the start of the third Gulf War, continued even though the war taking place on its territory made IRAQ unable to organise its defence,

• that the arbitral tribunal was irregularly composed (Article 1520-2) in that the Court of Arbitration of the International Chamber of Commerce appointed an arbitrator on its behalf on 23 July 2014 without taking into consideration the letter sent on 18 July 2014 by which it chose its arbitrator,

• that the arbitral tribunal lacks jurisdiction (Article 1520-1) in that it wrongly held that it (IRAQ) should be retained as defendant and that the “statement of the deliveries” was opposable to it.

By submissions notified on 5 December 2014, the German companies request the court to dismiss IRAQ’s application for annulment based on the violation of due process (in French Principe de la contradiction) and equality of arms, and to declare this application inadmissible or at least ill-founded, in that it is based on the irregular composition and lack of jurisdiction of the arbitral tribunal. They request that the opposing party be ordered to pay the sum of 50,000 euros pursuant to Article 700 of the Code of Civil Procedure.

By an order issued on 22 January 2015, the Pre-Trial Judge declared the appeal admissible.

UPON WHICH

On the ground alleging the failure of arbitrators to comply with due process (in French Principe de la contradiction) and equality of arms (Article 1520-4 and 1520-5 of the Code of Civil Procedure):

IRAQ argues that the international and internal conflicts it experienced during the period when the arbitration was taking place did not enable it to effectively organise its defence.

Whereas the arbitration took place from 27 November 2003, the date on which the claim was filed, to 9 November 2006, the date on which the proceedings were closed;

Whereas, in order to establish the difficulties in organising its alleged defence, IRAQ provided a Wikipedia article and a chronological table from a press organ. Whereas, as a result - which is moreover constant - its territory was invaded on 20 March 2003 and subjected to foreign occupation until 18 December 2011, and during this same period, hostage-taking, acts of terrorism and insurrection have been incessant and on an extreme scale. These internal and international conflicts caused, in addition to considerable material damage, the death of more than one million Iraqi victims, the fleeing to neighbouring states of two and a half million refugees and the displacement, within Iraq’s borders, of one million eight hundred thousand people;

Whereas, firstly, the German companies point out that IRAQ requested for the first time on 31 March 2006 the stay of proceedings, after two years of proceedings and after concluding in defence with the benefit of very broad deadlines;

Whereas, however, it follows from the wording of the award (§ 49) that “the documents submitted by the Defendant in the arbitration have always been submitted in such a way that it was pointed out that not all of the documents submitted by the Defendant were available, that none of the Iraqis involved in the project could be located and that its lawyer was unable to communicate adequately with his client because of the situation prevailing in Iraq”. IRAQ cannot therefore be complained that it was belatedly invoking this argument;

Whereas, secondly, the German companies, as well as the arbitral tribunal, object to IRAQ which did not comply with the request to provide concrete and convincing examples of the difficulties it invoked, in particular the destruction of files or the impossibility of tracing witnesses. The German companies add that the most destructive American operations took place between 30 March 2003 and 1 May 2003, when the end of the fighting against the regular Iraqi army was announced. The economic data for the years 2004 and 2005 show a recovery which demonstrates that the Iraqi State was regularly administered (Respondent’s Exhibit No. 9) and that, moreover, the Iraqi State defended itself in several instances during the litigious period;

Whereas, however, it is constant that the Iraqi Government has been deposed by the coalition, that about 15,000 to 30. 000 members of the Ba’ath Party were excluded from the civil service (Iraq Exhibit No. 10), and that the reconstruction of the infrastructure and the restoration of the functioning of the institutions was entrusted to an American civilian administrator. It cannot reasonably be maintained that it was possible to remedy between May and November 2003, and even in the following years, the annihilation of state structures, the cleansing of the administration, the displacement or disappearance of about one-sixth of the population, in an environment characterised, moreover, by permanent insecurity. The appointment of the Ministry of Justice to monitor proceedings before the arbitral tribunals and foreign courts, which was made by a decree of 4 September 2003 by the administrator of the Coalition Provisional Authority (Defendants' Exhibit No. 10), in no way presupposes the real capacity of that administration to carry out its task. IRAQ’s ability to assert its rights does not result either from the fact that it has been a defendant in several cases before foreign courts, or that the improvement in the country’s economic situation can be explained only by the lifting of international sanctions and the resumption of production and export of oil under foreign control (IRAK Exhibit No. 9);

Whereas, in such circumstances, IRAQ cannot be reproached for failing to provide more specific evidence - negative evidence, moreover - that the files or witnesses relevant to its defence would be untraceable;

Thirdly, the German companies argue that the Arbitral Tribunal rightly decided that if the Claimant was able to prove its case satisfactorily, the fact that the Respondent’s files were not available was irrelevant. They also consider that the Arbitral Tribunal rightly decided that most of the questions put to the parties on 28 October 2005, 28 January 2006 and 10 February 2006 did not require the Defendant to produce specific documents, but rather elements of Iraqi administrative law that were available even outside Iraq, and that a stay of proceedings would not serve any purpose if, as claimed by IRAQ, the relevant documents were destroyed. Finally, the German companies agree with the decision of the arbitral tribunal that the IRAQ had been given the opportunity to present its defence and had effectively exercised this right, in particular by granting additional time (Award, § 61-68);

Whereas it has been established that IRAQ was able to discuss all the grounds and exhibits of its opposing parties, that it was given sufficient time to do so, and that none of the elements on which the arbitrators based their decision escaped the adversarial debate;

Whereas, moreover, failure to produce evidence in defence should not have the effect of depriving the claimant of its right to have the merits of its claims judged. Whereas, however, the application of this principle should be assessed on a case-by-case basis, respecting the equality of arms which is an element of a fair trial protected by international public policy;

Whereas in the present case, it is common ground that the debate was linked solely to the evidence produced by the German companies, the arbitral tribunal held that IRAQ was unable to prove the impossibility of gathering documents and witness statements, and presumed that in any event, if its files were destroyed, it could usefully defend itself by merely criticising the opposing documents, without producing any documents other than legal analyses;

Whereas, however, as stated above, IRAQ’s allegation that it was impossible to trace the parties to the disputed contract until the institutional situation had been stabilised appears to be well-founded in the circumstances of the present case;

Whereas, on the other hand, the postulate of the arbitral tribunal that the rights of defence were sufficiently guaranteed by the mere criticism of the documents produced in the application may be all the more disputed since the sentence pronounced is based essentially on two documents contested by IRAQ: the document known as the “Statement of Account”, signed by persons whom the court recognises as unidentified (award, § 129), and the document known as the “Deed of Recognition”, which the arbitrators consider corroborates the previous one, but which was produced by the German companies only in copy, since the court exempted them from providing the original on the ground that their archives were too voluminous to allow a quick search (award, § 112);

Whereas, in such circumstances, the only option left for IRAQ to challenge the documents against it, without being able to prove the contrary, only ensured respect for the rights of the defence in a purely formal manner and established a real inequality between the parties in the administration of evidence;

Whereas, fourthly, that the German companies argue that the indefinite stay of the arbitration proceedings, which was requested by IRAQ, would have constituted a genuine denial of justice;

Whereas, however, it is incumbent on the arbitrators to seek, on a case-by-case basis, a fair balance between the claimant’s right to have his or her claims examined within a reasonable time and the defendant’s right to organise his or her defence in a meaningful way;

Whereas in the present case, on 17 February, 31 March and 13 June 2006, IRAQ requested the stay of the proceedings pending normalisation of its situation. On 7 December 2006 it communicated a statement by the Secretary-General of the United Nations referring to “the level of violence, the level of killings (…) the deterioration of the situation” creating a state “far worse than civil war”;

Whereas it was incumbent on the tribunal to adapt the duty of celerity in the conduct of the arbitration to these exceptional events, especially since the German companies, which did not claim to have gone through similar tribulations, waited fifteen years to introduce in November 2003, eight months after the beginning of the war, a claim based on a document dating from December 1988. The mere granting of two or three months of additional time for the submission by IRAQ of each of its statements of case does not in any way appear likely, in such circumstances, to restore equality between the parties and the fairness of the proceedings;

Whereas it results from the foregoing that IRAQ was placed at a substantial disadvantage in relation to its opposing parties. Whereas the recognition or enforcement in France of an award made in disregard of the principle of equality of arms, an essential component of the right to a fair trial, is contrary to international public policy. Whereas the annulment sought by the claimant must be ordered;

On Article 700 of the Code of Civil Procedure:

Whereas the German companies, which succumb, cannot benefit from the provisions of article 700 of the Code of Civil Procedure and will be ordered on this basis to pay IRAQ the sum of 60,000 euros;

FOR THESE REASONS

Sets aside the award rendered in Paris between the parties on 26 February 2007.

Orders the companies THYSSENKRUPP and M.A.N. to pay the costs which may be recovered in accordance with the provisions of Article 699 of the Code of Civil Procedure, and to pay to the GOVERNMENT OF THE REPUBLIC OF IRAQ the sum of 60,000 euros pursuant to Article 700 of the Code of Civil Procedure.

Dismisses the claim made by the companies THYSSENKRUPP and M.A.N. pursuant to Article 700 of the Code of Civil Procedure.