Paris Court of Appeal, No. 15/17234

Paris Court of Appeal, First Pole - First Chamber, 21 March 2017, No. 15/17234

THE YEMENI MINISTRY OF OIL AND MINERALS

THE REPUBLIC OF YEMEN

Vs.

ALKOR PETROO LIMITED

WESTERN DRILLING CONTRACTORS PRIVATE LIMITED

GUJARAT STATE PETROLEUM CORPORATION LIMITED

The Republic of Yemen and the Yemeni Ministry of Petroleum and Minerals (together, Yemen) have been linked to a group of three Indian companies (XXX together, the Group) by three Production Sharing Agreements (PSA) concluded on 13 April 2008 for the exploration of the subsoil and the production of oil in three areas of the Yemeni territory, called “oil blocks” No. 19, 57 and 28.

These agreements entered into force on 17 March 2009 following their ratification by the President of Yemen.

On 10 April 2011, the Group raised an event of force majeure constituted by the deterioration of public security in Yemen to justify its delay in the execution of its services. On 13 February 2013, considering that the event of force majeure had continued for more than six months, the Gorup terminated the contracts pursuant to article 22.4 of the agreements.

On 25 February 2013, the Group initiated arbitration proceedings under the arbitration clause of the PSAs, which provided for arbitration in Paris, in accordance with the arbitration rules of the International Chamber of Commerce, with application of Yemeni law to the merits of the dispute.

On 10 July 2015, the arbitral tribunal, composed of Mr. C and Mr. Rix, arbitrators, and Mr. X, President, handed down an award in Paris which found that the termination was lawful, prohibited Yemen from drawing on the standby letters of credit issued by the International Bank of Yemen, denied the claim of the Group for indemnification and counterclaims of Yemen, and ordered Yemen to pay 75% of the arbitration costs in addition to a portion of the costs incurred by the Group to extend the validity of the letters of credit.

On 10 August 2015, Yemen filed an appeal against this award.

By submissions filed on 23 December 2016, it requested the court to set aside the award and to order the opposing parties to pay the sum of 10,000 euros pursuant to article 700 of the Civil Procedure Code. It invokes the breach of international public order resulting from the breach of public security imperatives, as well as the principle of equality of arms in the production of evidence (article 1520-5 of the Civil Procedure Code), the breach of due process (in French Principe de la contradiction) and the breach of the principle of equality between the parties resulting from the abnormally long duration of the proceedings (article 1520-4 and 1520-5 of the Civil Procedure Code), finally the irregularity of the composition of the arbitral tribunal and the breach of the principle of equality between the parties in that it was unable to give an adequate response to the updating of the declaration of independence of one of the arbitrators (article 1520-2 and 1520-5 of the Civil Procedure Code).

By submissions filed on 1 February 2017, the Group requested the court to declare the three grounds for annulment inadmissible and, in the alternative, unfounded, to dismiss the appeal, to consider that such dismissal would make the award enforceable, and to order Yemen to pay the sum of 100,000 euros pursuant to article 700 of the Civil Procedure Code.

In an order of 20 October 2016, the pre-trial jduge (in French Conseiller de la mise en l’état) dismissed the request of Yemen for a stay of enforcement of the award.

UPON WHICH

On the first ground for annulment based on the breach of international public policy (article 1520-5 of the Civil Procedure Code):

Yemen maintains that the recognition and enforcement of an award based on a reversal of the burden of proof and on negative consequences arising from the failure to produce certain confidential documents, without taking into consideration the fact that their disclosure would undermine its national security and the fight against terrorism and without accepting the alternative solution of hearing witnesses, are contrary to procedural international public policy, since the imperatives of public security and the principle of equality of arms have not been respected.

The Group replies that the ground calls into question the arbitrators' sovereign power to assess the evidence. The arbitrators did not draw any negative consequences from the failure to produce the documents claimed to be confidential, and that in any event French international public policy is not affected by the mandatory rules of Yemeni law.

Whereas the unilateral provisions by which the competent authorities of a State designate, in accordance with a legally established procedure, the documents whose confidentiality that State intends to protect in the interest of national security or defense pursue a legitimate goal that is the subject of an international consensus. In an international arbitration body, that State, its organs, or the persons subject to compliance with these rules, which are subject to criminal sanctions, cannot find themselves in a situation where they have to disclose confidential information or be deprived of the means to present their defense in an effective manner;

Whereas it is up to the arbitrators, under the supervision of the judge of appeal, to ensure that such mandatory rules (in French Lois de police) are in accordance with the principles of a fair trial;

Whereas, in this case, the debate before the arbitral tribunal concerned the interpretation of article 22.2 of the PSA, according to which : “Force Majeure, for the purposes of this Agreement, means any order, regulation or decision of the GOVERNMENT or (with respect to the ENTREPRENEUR) of the government of the country in which one of the companies forming the ENTREPRENEUR is incorporated, whether enacted by law or otherwise, or any fortuitous act, insurrection, riot, war, strike (or other civil commotion), fire, flood or any cause not attributable to the fault or negligence of the party asserting an event of force majeure, whether or not similar to the foregoing, provided that such cause is beyond the reasonable control of the party asserting it”;

Whereas on 16 December 2013, in the document production phase, the Group requested Yemen to include in the proceedings: “All internal reports, notes, analyses and similar documents within the meaning of the IBA (International Bar Association) rules of evidence in International arbitration (i) prepared for or by the Yemeni Interior Ministry, the Yemeni Ministry of Defense or (ii) submitted to the Yemeni Parliament or the President of Yemen in connection with the

1.1 AQPA and Other terrorist activities

1.2 Mutinies, defections, insurrections or other forms of collective disobedience in the Yemeni army and conflicts between military factions;

1.3 Attacks against oil and gas companies, contractors and other oil or gas related activities (at least in the Governorates of Sana’a, Marib, Al-Z, A, Hadhramaut and Shabwa) between the 1 January 2011 and 13 February 2013”;

That Yemen objected that the documents in question, if they exist, would relate to matters of national and international security, or relations with parliament, and would therefore be classified;

Whereas, on 31 January 2014, the arbitral tribunal issued procedural order No. 2, which dismissed Yemen’s arguments on the grounds that they were too general and unsubstantiated, and ordered Yemen to produce the documents requested by the Group. Whereas the order nevertheless stated: “the Tribunal understands that its decisions may require the disclosure of documents that may be protected on the basis of national and/or international security. If this is the case, the tribunal invites (Yemen) to inform (the Group) and the tribunal respectively, describing the documents in question, specifying the nature and scope of the protection claimed and indicating the extent to which such protection applies to the documents concerned. In consultation with the parties, the tribunal will then issue appropriate directions”;

Whereas, on 18 February 2014, Yemen produced only part of the required documents, as well as public summaries of reports to parliament, but not all of these documents, which it acknowledged to exist (award § 102);

Considering that the arbitrators found that Yemen failed to provide a detailed explanation, as required by procedural order No. 2, as to why the documents withheld were likely to have an impact on national security when they were more than two years old (Award § 102);

Whereas, on the scope to be attributed to this refusal to disclose, they explained that they reserved the right to be guided by the IBA rules on the taking of evidence in International arbitration, according to which, if a party fails to comply with a decision on the production of documents taken by the arbitral tribunal, the latter may infer that the document in question is contrary to the interests of that party (award § 101);

Considering, however, that in its subsequent analysis of the evidence, the arbitral tribunal did not rely at any time on this adverse inference mechanism. Considering, however, that by accepting that the force majeure within the meaning of the contracts could result from riots or insurrections occurring not only in the concession blocks, but also along the service roads, as well as in the capital Sana’a, the arbitrators had recourse only to public documents - the issuance of travel warnings by various governments, UN resolutions, declaration of a state of emergency by the Government on 18 March 2011 and approval of this measure by the chamber of deputies on 23 March 2011 - which established facts of inter-tribal clashes, attacks and kidnappings whose material reality was not disputed. Considering that with regard to the two witnesses, Messrs. Al Rassas and B, both members of the Yemeni Government, whose examination the claimant maintains could have compensated for the failure to produce documents that were either classified or non-existent in view of the Yemeni oral culture, it appears that while the Arbitral Tribunal decided not to hear any of the parties' witnesses, as they were not the subject of requests for cross-examination. However, the arbitral tribunal specified that this did not affect the probative value of the written statements made by the witnesses, which would be assessed in the light of their relationship with the parties (Award, § 78-82);

Whereas it follows from the foregoing that the arbitrators, without disregarding the constraints resulting from the legitimate interests of Yemen’s national defense and security, on the one hand, endeavored to circumscribe the scope of the matter by inviting Yemen to describe the documents whose disclosure was refused, to specify the nature and scope of the protection claimed and to indicate the extent to which such protection was applicable to each of them. On the other hand, the arbitrators did not draw disproportionate consequences from a partial production. Thus, contrary to the claimant’s contention, the arbitrators gave each party the opportunity to present its case, including its evidence, under conditions that did not place it at a distinct disadvantage in relation to its opponent;

Considering furthermore that the allegation of a reversal by the arbitrators of the burden of proof, invites the court to a review on the merits of the award which is not allowed to the judge of appeal;

Whereas the first ground must be set aside;

On the second ground of annulment alleging violation of due process (in French Principe de la contradiction) and the principle of equality of the parties (article 1520-4 and 1520-5):

Yemen maintains that by issuing its award within an unusually long period of time, while giving erroneous indications to the parties as to the deadline by which the award would be rendered and by failing to manage the constraint related to the bank guarantees that it itself created, the arbitral tribunal created an imbalance in favour of the Group, especially in that the arbitral tribunal could not fail to be influenced by the situation prevailing in Yemen at the time of its deliberations in 2015 when it had to rule on the period from 2011 to 2013, and in that it did not take into consideration its own chronology of events and relied exclusively on that presented by the opposing party.

Whereas the arbitral tribunal was constituted on 12 July 2013. Whereas on 20 September 2013, the parties were provided with a procedural timetable which provided for a hearing on the merits to be held during the week of 8 September 2014, followed by further exchanges of written submissions. Whereas on this basis, the ICC Court set as the deadline for delivering the award pursuant to article 30(1) of the rules, the 31 December 2014. The last written submissions were exchanged on 12 December 2014. The deadline for issuing the award was extended by the ICC Court, pursuant to rule 30 (2) until 27 February, 29 May and 31 July 2015. The Award was handed down on 10 July 2015;

Considering, first, that it is common ground that the extensions were regularly made pursuant to the provisions of the arbitration rules to which the parties agreed to apply. So the arbitration agreement was not expired when the arbitral tribunal issued its award;

Considering, secondly, that, assuming that the duration of the arbitration was prejudicial to Yemen, particularly with regard to the costs of maintaining a bank guarantee, this circumstance does not constitute inequality between the parties and does not constitute an action for setting aside the award. Considering, thirdly, that the allegation that the arbitrators were influenced, in their assessment of the situation in Yemen from 2011 to 2013, by the further aggravation of insecurity calls into question the assessment of the facts made by the tribunal and intends to a review of the merits of the award which is not allowed to the judge of appeal;

Considering, finally, that due process (in French Principe de la contradiction) requires only that the parties have been able to make known their claims of fact and 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;

The choice of the arbitral tribunal to rely on some of the documents produced and discussed between the parties rather than on others cannot be considered as a breach of due process (in French Principe de la contradiction), but is within the arbitrators' power of appreciation of the evidence presented to them, a power which is not subject to the control of the judge of appeal;

That the second ground can only be dismissed;

On the third ground of annulment based on the irregularity of the constitution of the arbitral tribunal and the breach of equality of arms (article 1520-2 and 1520-5 of the Civil Procedure Code):

Yemen alleges that the update made on 11 May 2015 by the arbitrator C of his declaration of interest could not receive an adequate response from him because the award, which appeared imminent at the time, was in fact delayed until July 2015, resulting in an irregularity in the constitution of the arbitral tribunal and a breach of the equality of arms.

Whereas a party who knowingly and without legitimate reason fails to exercise, within the period of time provided for in the applicable arbitration rules, its right to challenge an arbitrator on the basis of any circumstance likely to call into question the independence or impartiality of an arbitrator shall be deemed to have waived such right before the judge of annulment;

Considering that, according to article 14 of the ICC rules of arbitration, the reasoned request to A challenge based on the arbitrator’s lack of impartiality and independence must be submitted to the secretariat, to avoid to be time-barred, “either within thirty days of the receipt (by the party in question) of the notification of the appointment or confirmation of the arbitrator, or within thirty days of the date on which the party making the challenge was informed of the facts and circumstances on which the challenge is based if such date is subsequent to the receipt of such notification”;

Whereas on 11 May 2015, Mr. C updated his declaration of independence to indicate that his wife would be joining the law firm that assisted the Group as a partner “during summer”. The parties therefore had a period expiring on 11 June 2015 to exercise their right of recusal;

That by an email of 13 May 2015, the counsel of Yemen replied: “Based on this confirmation (that the arbitrator considered that his impartiality and independence were not impaired) and the advanced stage of the proceedings, the defendants have no objection at this time”;

Whereas if Yemen argues that it did so only because it believed that the deliberations had been completed and the award was about to be issued, it appears in fact that in an email sent by its counsel to the arbitral tribunal on 26 May 2015, it stated : “we understand that the decision will now be delivered in July at the earliest”, which was indeed the case. Thus, Yemen, contrary to what it claims, was in possession of all the elements to assess the situation at a date when the time limit for challenge had not expired and could usefully challenge the composition of the arbitral tribunal. The third ground for annulment must therefore be dismissed;

Whereas it follows from the foregoing that the appeal for annulment must be dismissed. Whereas this dismissal has the effect of granting enforcement (in French Exequatur) to the award pursuant to article 1527 of the Civil Procedure Code;

On Article 700 of the Civil Procedure Code:

Whereas the unsuccessful claimants cannot benefit from the provisions of article 700 of the Civil Procedure Code, and will be ordered on this basis to pay the companies of the Group the global sum of 50,000 euros;

FOR THESE REASONS

Rejects the appeal for annulment of the arbitral award issued between the parties in Paris on 10 July 2015.

Says that this rejection confers exequatur on the award.

Orders the Republic of Yemen and the Yemeni Ministry of Oil and Minerals to pay the costs of the proceedings and to pay the companies Alkor Petroo Ltd, XXX the global sum of 50,000 euros pursuant to article 700 of the Civil Procedure Code.

THE REGISTRAR THE PRESIDENT