Paris Court of Appeal, No. 16-10.379 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, 1st Pole – 1st Chamber, 20 November 2018, No. 16-10.379

SALAH AL DIN vs. INSTRUBEL

Between November 1985 and July 1990, the Iraqi Ministry of Industry, Research and Development, the Iraqi Ministry of Defence and the public establishment Salah Al Din concluded five contracts for the supply of military equipment with the Belgian company Instrubel SA.

Following the invasion of Kuwait by the Iraqi army, the United Nations Security Council adopted Resolution 660 on 2 August 1990 demanding the immediate withdrawal of Iraqi forces, followed on 6 August 1990 by Resolution 661 which, drawing the consequences of the Iraqi refusal to comply, introduced an economic and military embargo against Iraq.

On 27 January 1992, Instrubel filed a request for arbitration with the International Chamber of Commerce seeking compensation for loss of profits and damages resulting from the termination of the three contracts whose performance was prohibited by the embargo.

In a partial award rendered in Paris on 6 February 1996, the Arbitral Tribunal composed of Messrs. X and D E, arbitrators, and Mr. Y, presiding arbitrator, ordered the Ministry of Defence to pay the unpaid invoices for the first two contracts performed by Instrubel, ruled that as from 6 August 1990 the three other contracts which had not been performed, at least in part, by Instrubel as a result of the embargo, had lapsed and said that Instrubel was entitled to obtain compensation for the consequences of this lapse, subject to producing evidence of its loss.

In a partial award of 15 January 1998, the arbitral tribunal declared Belgian law applicable to the merits of the dispute, specified the substance of the compensable loss and decided to resort to an expert opinion on the evaluation of the latter.

By the final award of 22 March 2003, the arbitral tribunal condemned the Iraqi parties to pay Instrubel the total sum of 13,812,624.51 euros, plus interest, as compensation for the damages suffered.

On 4 May 2016, the Ministry of Finance of Iraq, on behalf of the Ministry of Defence, the Ministry of Industry and Minerals, as well as the public establishment Salah Al Din filed petitions for the annulment of the partial award of 6 February 1996 (file RG, No. 16/10379), as well as the final award of 22 March 2003 (file RG No. 16/10381).

By an order of 27 April 2017, the Pre-Trial judge dismissed the inadmissibility objection drawn from the Iraqi parties' lack of standing to challenge the partial award.

By submissions notified on 3 April 2017, the Iraqi parties request the Court to annul partly the partial Award of 6 February 1996 in so far as it upholds the principle of their liability. They claim that the arbitrators failed to give reasons for their decision on this point and thus failed in their mission. By submissions of the same date, they seek the total annulment of the final award for the same grievance. In each case, they request that Instrubel be condemned to pay them the sum of 20,000 euros pursuant to Article 700 of the Code of Civil Procedure.

By submissions notified on 5 September 2018, Instrubel asks the court to declare the complaint inadmissible and, in the alternative, unfounded, to dismiss the actions for annulment and to condemn the Ministry of Finance and the Ministry of Industry and Minerals of Iraq to pay in each case the sum of 30,000 euros.

UPON WHICH :

On the joinder:

Whereas it is in the interest of the proper administration of justice to join the files registered under numbers RG16/10379 and RG16/10381 relating to actions for the annulment of two awards rendered during the same arbitral proceedings;

On the ground based on the arbitrators' breach of their mission (Article 1520-3 of the Code of Civil Procedure):

The claimants argue that the arbitrators set out the reasons why they considered that the Iraqi State and its dependent entities could not avail themselves of the embargo as a case of force majeure; that, however, this issue was distinct from the question of whether there was an event giving rise to liability and that, on this point, the Tribunal, while acknowledging that the parties to the arbitral proceedings were distinct from the Republic of Iraq, admitted their liability without explaining the breach they had committed; it thus failed to comply with the duty to state reasons included in its terms of reference.

Whereas the requirement to give reasons for judicial decisions is an element of the right to a fair trial; whereas it is necessarily included in the mission of arbitrators, even if it does not appear in the arbitration rules to which the parties have submitted;

Whereas, however, the control of the annulment judge only covers the existence and not the relevance of the reasons for the award;

Whereas in this case, the arbitral tribunal reasoned as follows:

United Nations Resolution 687 has the effect of prohibiting both the Iraqi State and any person established in Iraq from invoking the force majeure resulting from the embargo, so that it is pointless to consider whether the Iraqi parties are entities distinct from the Republic of Iraq (partial award of 6 February 1996, translation, pp. 20-26),
the embargo entails neither nullity nor suspension but the lapse of current contracts (partial sentence of 6 February 1996, translation, pp. 33-35),
‘The question of whether the parties are released from their contractual liability is left open by the lapse, the question of their compensation cannot be answered automatically. This question can be answered in a classical manner: the parties who claim to be released from their contractual liability must, in one way or another, demonstrate a justificatory cause, for example, force majeure (…)’, yet it follows from the award of 6 February 1996 that the Iraqi parties cannot rely on force majeure, and are therefore required to compensate the damage resulting for Instrubel from the lapse of the contracts (partial award of 15 January 1998, pp. 10 to 13);

Whereas it appears, therefore, that the Arbitral Tribunal, through the various partial awards rendered in the same instance, set out the grounds on which it considered that the Iraqi parties were liable to their co-contracting party for the consequences resulting for the latter from the impossibility of performing the contracts;

Whereas the ground, which, under the cover of a breach of the terms of reference, tends to challenge the relevance of the reasoning followed by the arbitrators, can only be set aside;

Whereas the actions for partial annulment of the partial award of 6 February 1996 and for total annulment of the final award of 22 March 2003 will be dismissed;

On Article 700 of the Code of Civil Procedure:

Whereas the unsuccessful Iraqi parties will be condemned to pay Instrubel the sum of 30,000 euros pursuant to Article 700 of the Code of Civil Procedure;

FOR THESE REASONS :

Orders the joinder of the files registered under numbers RG16/10379 and RG 16/10381.

Dismisses the actions for partial annulment of the partial award of 6 February 1996 and for total annulment of the final award of 22 March 2003.

Condemns the Ministry of Finance of Iraq, the Ministry of Industry and Minerals and the public establishment Salah J Din to pay the costs and the sum of 30, 000 euros to the company Instrubel N.V. pursuant to Article 700 of the Code of Civil Procedure.