Paris Court of Appeal, No. 17/03659 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, Pole 1 - First Chamber, 28 May 2019, No. 17/03659

UEG EXHIBITS GROUP ADM APS ,
INTERNATIONAL EXHIBITS HOLDING APS
vs.
THE MINISTRY OF CULTURE OF THE REPUBLIC OF IRAQ
IRAQ CULTURAL PROJECT ORGANISATION

On 20 July 2004, the Danish company United Exhibits Group J (HJ) and the Iraqi company Iraq Cultural Project Organisation (A), which is in the process of being set up and whose capital was to be held 90% by a Danish company J and 10% by the Iraqi State, concluded a contract with the Iraqi Minister of Culture on 20 July 2004 for the organisation of an international itinerant exhibition of artefacts from the archaeological site of Nimroud.

Several amendments were made concerning the organisation of a preliminary exhibition in Baghdad, a postponement of the schedule and compensation in the event of cancellation.

The Danish company J was incorporated on 30 November 2004 by H J with two other investors under the name International Exhibits J APS (IEH) and subscribed the capital of the Iraqi company A.

On 19 December 2006, H J went into bankrupt and was liquidated in January 2011.

On 29 May 2009, Mr Z, Chairman of H J, created a new company called H I APS (HI).

The Iraqi Ministry of Culture never provided the artefacts and on 30 October 2011 pronounced the cancellation of the contract of 20 July 2004.

IEH, HI and A have initiated arbitration proceedings under the supervision of the International Chamber of Commerce in application of the arbitration clause included in this agreement.

By an award issued in Paris on 10 July 2015, the arbitral tribunal composed of Messrs. X and F G, arbitrators, and Mr. Y, chairman:

declared that it had no jurisdiction over IEH and HI,
declared that it had jurisdiction over A and the Ministry of Culture,
rejected A’s claim for compensation of USD 90,379,341 on the grounds of force majeure,
rejected the Ministry of Culture’s counterclaim of USD 7,000,000,
shared the arbitration costs.

On 15 February 2017 IEH, HI and A filed proceedings to set aside this award.

By submissions notified on 28 February 2019, they requested that the annulment of the award, arguing that the arbitral tribunal had wrongly declared that it had no jurisdiction over the first two claims and that the award, which disregarded the principle of equality of arms and which was obtained through fraud on the part of the Ministry of Culture, who’s aim was to support the claim of force majeure, violated international public policy. They request that the defendant’s claims be dismissed and that it be ordered to pay the costs of the arbitration, namely the sum of 3,124,873.05 euros, as well as 20,000 euros to each of them pursuant to Article 700 of the Code of Civil Procedure.

By submissions notified on 26 March 2019, the Ministry of Culture requests the court to dismiss the claimants' claims and to order them in solidum to pay the sum of 45,000 euros pursuant to Article 700 of the Code of Civil Procedure.

UPON WHICH:

On the ground that the arbitral tribunal wrongly declared that it did not have jurisdiction over IEH and HI (Article 1520-1 of the Code of Civil Procedure):

First of all, the claimants argue that the contract of 20 July 2004 provided that the Danish company J, namely IEH, had an obligation to set up Iraqi company A and to finance it in order to enable the exhibition, so that IEH was indeed a party to that agreement. Secondly, they claim that IEH did indeed finance the project, in accordance with the contractual provisions, and that the Ministry of Culture was aware of this material performance of the contract and approved it. Thirdly, they argue that the fact that Article 8.2 of the contract enables A to assign the rights and obligations under the contract to the Danish company J, without seeking the consent of the Ministry of Culture or even notifying it, reflects the fact that the Danish holding company (i.e. IEH) would have a major role in the performance of the project, i.e. not only in financing the project but also in exercising management authority over A. Fourth, the claimants assert that, by deed of 27 February 2005, H J transferred all its rights and obligations to IEH while continuing to participate actively in the exhibition, which gave IEH the status of party. Fifthly, they invoke the group of companies theory. They allege that IEH and H I, which are part of group H, having voluntarily intervened in the arbitration proceedings, the arbitrators should have extended their jurisdiction to these companies, and, moreover, the Ministry of Culture entered into a contract with group H, whose various entities were, in its view, interchangeable. Finally, the claimants argue that the Ministry of Culture knowingly agreed between 2009 and 2011 to negotiate an amicable settlement with HI and that it was to the latter that it sent its termination letter.

The annulment judge shall review the decision of the arbitral tribunal on its jurisdiction, whether it has declared it has jurisdiction or not, by examining all the legal and factual elements that make it possible to determine the scope of the arbitration agreement and to deduce the consequences of this on the compliance of the arbitrators with their mission;

The ground concerning IEH:

Firstly, the contract of 20 July 2004 was concluded between, on the one hand, the Iraqi Ministry of Culture (MoC) and, on the other hand, A (in the process of being set up) jointly with United Exhibits Group J A/S, No. CVR 12086997, Sundkrogsgade 30, Copenhagen (UEGH). It was signed by the Iraqi Minister of Culture and by Mr K Z for A (under formation) and H J.

After the designation of the parties, the contract states:
Whereas A is incorporated as a limited liability company belonging to the following Shareholders:
([…], and
(2) A company of J Danish owned in equal parts by the following shareholders: UEGH, the Danish Industrialisation Fund for Developing Countries and a group of private investors.

Whereas A was incorporated with the following priorities and objectives:

Objective 1: To develop, produce, distribute and present the international itinerant exhibition provisionally entitled ‘Gold of Nimrud - Hidden Treasures of Iraq’ (hereinafter referred to as the Exhibition); and

Objective 2: To build up resources in order to give A the opportunity to actively participate, on a commercial basis, and contribute to the rehabilitation of Iraq’s cultural infrastructure while at the same time bringing the importance of Iraq’s cultural heritage to an international audience’.

The incorporation and financing of EIH and A are presented in a preamble and are not included in the body of the articles. This introductory statement is a reminder of the environment of contractual relations which creates neither obligations under the contract nor makes IEH a party to the contract.

Moreover, IEH was finally incorporated on a different basis from what was contemplated in that preamble since the capital was taken out, in three equal shares, by H J and by two private investors, the Danish companies RHL J ApS and MEKA APS (Shareholders' Agreement of 21 February 2005, Exhibit H No. 32).

Secondly, the claimants claim that the funds provided by the subscription of IEH’s capital and by the credit lines made available to it by its shareholders enabled A to dispose of USD 7,500,000, by means of which it paid the costs of reproduction of the throne room of the Nimroud Palace by a third party company, incurred costs for the design and documentation of the exhibition, mandated intermediaries for the setting up of insurance, the search for sponsors and logistics. They add that at the end of a trip to Europe an Iraqi delegation approved the progress of the work.

However, the contract of 20 July 2004 was for the organisation of the exhibition of artefacts from the Nimroud excavations in twelve museums around the world over a five-year period between March 2005 and March 2010. It provided that A/H J was responsible for the transport, insurance and security of the artefacts and that the Ministry of Culture had to make the artefacts available in return for a commission of USD 500,000 for each of the exhibition sites, as well as the handing over at the end of the loan of all elements of scenography, drawings and models, and all recording and documentation media relating to the exhibitions. The purpose of the contract was therefore the material implementation of the operation, not the amount and terms of its financing. The fact that IEH was used as a financial vehicle between its three shareholders and A did not involve IEH in the performance of the 20 July 2004 contract and did not have the effect of making IEH a party to that contract. The fact that A has begun to be committed by A for the performance of the contract with the funds provided by IEH does not change this analysis, regardless of the fact that these initial steps have been approved by the Ministry of Culture.

Thirdly, IEH relies on Article 8.2 of the Agreement, which provides that:

This Agreement shall not be assigned, in whole or in part, by a Party without the prior written approval of the other Parties. However, the Parties agree that A may assign its rights and obligations under this Agreement to the Danish Company J, which holds the majority of A’s shares and is therefore the majority shareholder of A.’.

Contrary to IEH’s claim, this provision does not have the effect of making it a party to the contract as long as the assignment does not take place, which did not happen since A was itself a claimant in the arbitration and is a claimant against the award.

The act of 27 February 2005 by which HJ transferred all its rights and obligations under the contract to IEH has no effect in accordance with the aforementioned Article 8.2, because it was not approved by the other parties.

The parts of the ground common to IEH and HI:

IEH and H I claim the principle by which the effect of the international arbitration clause contained in a contract extends to the parties directly involved in its performance.

In the first place, contrary to the claimants' contention, the mere fact that IEH and H I spontaneously presented themselves as claimants in the arbitration does not suffice to make them parties to the arbitration agreement, nor does the fact that they admitted their status as counterclaimants on the subsidiary claim for compensation brought by Iraq in the event that the Arbitral Tribunal were to overrule its plea of lack of jurisdiction.

Secondly, the claimants argue that the intention of the Ministry of Culture was to contract indiscriminately with ‘Group H’ and not specifically with one or the other company of this group. According to them, the only interlocutor that mattered to the Ministry, beyond the different social forms, wa Mr. K Z, president of H. They refer to minutes of meetings and exchanges of correspondence which refer to the ‘United Exhibits Group’ or ‘H/A’. They further argue that another company of the group, United Exhibits II A/S, was expressly referred to in the 2004 contract (Article 2.10) as being involved in the performance of that contract as the exclusive distributor of the reproductions of artefacts, which supports the argument that the contract was concluded with a group rather than with a company.

However, there is no evidence that the Ministry of Culture has considered IEH, of which H J is only a one-third shareholder and which appears separately in the 2004 contract as the ‘Danish J Company’, to be part of an ‘H group’.

As regards HI, it was created on 29 May 2009 by Mr. Z following the bankruptcy in December 2006 of H J and United Exhibits II, which were subsequently liquidated in January 2011.

Contrary to what HI claims, it does not appear from any document in the file that the Ministry of Culture was informed of the liquidation of HJ. The only exhibit produced by the claimants (Exhibit No. 2) is a presentation entitled ‘The Golden Tombs of Iraq, the Treasures of Nimroud’ to which is appended a chronology of activities from 2004 to 2012, from which it is not known whether it was actually handed over to the Iraqi party. Moreover, this document mentions the ‘dissolution’ of the service provider United Exhibits II and indicates that a new company, H ApS, is taking over its missions. It makes no reference to the bankruptcy of H J.

In the following relations, there was still an ambiguity. A report was issued on 29 September 2011 of meetings held from 25 to 29 September 2011 between the Iraqi Ministry of Culture and ‘H/A’ to try to obtain the delivery of the artefacts or the payment of the sum of USD 15,000,000 provided for in Addendum No. 4 to the benefit of H J in the event of termination of the 2004 contract. The Ministry’s representative is still designated as ‘H/A’, but on the last page under the indication ‘for H/A’ is stamped with a round stamp: ‘H-H I APS Frederiksberggade, 15, 3 DK-1459 CPHK’ (claimant’s exhibit 14). The claimants wrongly infer from this that the Ministry of Culture knew that H I was coming for H J’s rights and that it had agreed to negotiate with her in that capacity.

Similarly, H I claims that it received the letter of 30 October 2011 terminating the contract (Exhibit 15). Actually, it was an e-mail addressed to H ApS sent to K@H.dk. While H I claims that this email was necessarily addressed to it since H J no longer existed, this inference only makes sense if the Ministry of Culture was then aware of the disappearance, which it challenges and which has not been established. With regard to the letter sent on 6 March 2013 by the Embassy of the Republic of Iraq to the company H I, it precisely claims that this company was not incorporated on the date of the 2004 contract in order to declare this contract null and void.

The fact that, incorporated under conditions that were not very explicit after the bankruptcy of H J and United Exhibits II, under the guise of the proximity of names between the old and the new company, H I has imposed itself in relations with the Ministry of Culture, without informing the latter of the liquidation of H J, cannot confer on it the status of party to the contract or to the arbitration clause.

It follows from the foregoing that the ground based on the fact that the arbitral tribunal wrongly declared that it had no jurisdiction over IEH and H I is unfounded.

On the ground alleging a violation of international public policy (Article 1520-5 of the Code of Civil Procedure):

Firstly, the claimants argue that the arbitral tribunal failed to respect the equal treatment of the parties, on the one hand, because it granted the Ministry of Culture much longer time to reach a conclusion than the parties themselves had enjoyed. On the other hand, it accepted the late submission of a ground of force majeure on which the award is precisely based, it did not issue a partial award on jurisdiction although it had announced its intention to do so, and that it hastily closed the proceedings without allowing them to express themselves one last time.

The claimants claim, secondly, that the award was based on false statements and biased witness statements produced by the Ministry of Culture.

On the first part of the ground:

The principle of equality of arms implies that each party should have a reasonable opportunity to present its case in conditions that do not place it at a distinct disadvantage in relation to the opposing party.

The arbitration proceedings were initiated on 21 December 2012. Until September 2013 the Ministry of Culture was a defaulting party and therefore the Court of Arbitration of the International Chamber of Commerce appointed the second arbitrator and approved the Terms of Reference. Subsequently, the defendant has, admittedly with delay, paid the separate advance. While successive delays were granted to the respondent to submit its submissions and documents, these decisions were justified by the need to provide a State disrupted by years of war and still in turmoil with the ground to effectively defend itself against parties which were not exposed to such tribulations. The arbitral tribunal notes in this regard that ‘it is well known that in early June 2014 Sunni extremists took control of north-western Iraq, including Mosul, and that even Baghdad appeared threatened’ (Award, § 442). He points out that in June 2014, the Ministry requested an extension of two months to file its response on the quantum of the main application, arguing that because of the catastrophic situation in Iraq, it lost all contact with its counsels and was even considering leaving Baghdad for Basra (Award, § 115).

Firstly, the claimants argue that they had only two and a half months after the first conference on the management of the procedure held on 4 June 2013 to file their statement of claim, while the Ministry of Culture was granted a period of five months from receipt of that statement (14 August 2013). However, the claimants, which initiated the procedure, were in fact granted a period of eight months between the filing of the claim and the filing of their statement of claim.

Secondly, the claimants argue that they had only one month to reply to the plea of lack of jurisdiction raised by the defendant in its statement of defence of 14 January 2014. They do not, however, allege that they requested an extension of time which they were not granted.

Thirdly, after announcing in the amended procedural timetable of 17 December 2013 that it would make a partial award on jurisdiction in April 2014, the arbitral tribunal finally abstained from doing so and ruled on jurisdiction in the final award. Contrary to what the claimants claim, this decision, which was equally binding on all parties, did not create any inequality between them.

Fourthly, the claimants claim that the Ministry of Culture only invoked the ground of force majeure - which overruled the decision of the arbitral tribunal - only in submissions dated 19 September 2014, whereas the closure was to take place on 24 February 2015. In fact, the possibility of removing the artefacts from the Central Bank’s vaults in the light of the security context in Iraq (including the allegation that the situation would improve between 2007 and 2011) was at the centre of the debates and was in particular developed by the claimants in their statement of claim of 30 May 2014 (Award, § 109 (c)). This statement was supported by factual reports on the improvement of the situation in Iraq from 2006 to 2011, drawn up by the Leshekovna Group on 9 August 2012, and by witness statements relating specifically to that point, in particular that of Mr B, a United States serviceman whom the claimants intended to entrust with the security of the operation (sentence, § 110 and 111). Moreover, following the Respondent’s Memorial of 19 September 2014, the claimants replied in a Memorial of 13 October 2014, and again in post-hearing submissions of 23 February 2015 dealing with legal issues and, in particular, the nature of force majeure under Danish law.

Finally, the claimants argue that it was foreseen in the timetable of 12 February 2015 that they could file a final statement in reply to the Ministry’s claim for compensation, but that the chairman of the arbitral tribunal decided unexpectedly by letter of 24 April 2015 to close the counterclaim proceedings by that date and to dispense the claimants from their final statement. However, since the counterclaim was rejected in its entirety, the claimants failed to establish that the arbitral tribunal, which considered itself sufficiently informed after the previous exchanges of statements of case, failed to comply with the principle of equal treatment by exempting them from the final explanations which, in fact, they had submitted.

It follows from the foregoing that the ground, in so far as it alleges infringement of the principle of equality of arms, must be dismissed.

On the second part of the ground:

The claimants claim that the award violates international public policy because it is based on false statements and biased witness statements.

Procedural fraud committed in the context of an arbitration may be sanctioned in view of procedural international public policy. It presupposes that false documents have been produced, false witness statements have been taken, or documents relevant to the resolution of the dispute have been fraudulently concealed from the arbitrators, so that the arbitrators' decision has been misled.

The annulment judge must examine all the circumstances likely to characterise the alleged fraud, without the ground based on the prohibition on review of the merits of the awards being usefully binding, since the dispute relates precisely to the alteration, by one party’s actions, of the arbitrators' interpretation of the facts.

Firstly, the claimants argue that the Ministry of Culture did not reply to the allegation that the squandering of the treasury was the real reason for its non-representation and that the arbitral tribunal, in accepting the theory of force majeure, based its award on an explanation contrary to reality. The arbitral tribunal to which this ground was submitted did not find necessary to carry out additional investigative measures. Its decision was therefore in no way misled on this point.

Second, the claimants argue that the Ministry of Culture described the road from the centre of Baghdad to the airport as exposed to constant bombing and called it ‘‘the road of death’’, despite a note from the Ministry of Finance dated 5 January 2017, which states that this road had been used continuously since 2003 for the transfer of foreign exchange from the Central Bank to its branches across the country and to local authorities. It appears, however, that the arbitral tribunal based its decision not on the impossibility of ensuring the security of a direct transport of the treasury from the Central Bank to the airport, but on the impossibility of ensuring such security during all the operations of restoration and exhibition of artefacts in Iraq (Award, § 444, 445 and 456), so that the information contained in the note cited by the claimants - which was, moreover, drawn up several years after the arbitration and obtained under conditions which do not appear to be very clear - would not have affected the assessment of the arbitral tribunal.

Thirdly, the claimants alleged that the Ministry of Culture pressured two Iraqi witnesses to go back on their initial statements: Mr. L C, Director of the Iraqi National Library and Archives, and Ms. T N-O, an archaeologist and adviser to the Ministry of Culture. They claim that the former, in an e-mail sent to Ms M D on 8 May 2014, and the latter, in an affidavit drawn up on 19 May 2014, both stated that the refusal to perform the 2004 contract was due not only to the security situation but above all to political instability, lack of interest in the exhibition and concern about accusations of corruption (Exhibits nos. 152 and 168).

However, the charge of pressure on Ms. N-O is not supported in any way. Moreover, it does not appear that this witness was heard by the arbitral tribunal, which was only aware of her initial statement and put it into perspective by pointing out that the witness, although she regularly travelled to Baghdad, was in fact resident in London (Award, § 470).

As regards Mr C, on 3 October 2014 he drew up a statement before the lawyers of the Ministry of Culture (respondent’s exhibit no. 45) in which he states that the e-mail he sent to Ms D had been obtained under questionable conditions, concealing from her the fact that that exhibit would be used in proceedings against the Ministry of Culture. Mr C explains that he felt in 2004 that the Ministry’s refusal to lend the artefacts on security grounds was exaggerated, that he believed that the treasure would be safer abroad than in Iraq. However, he had not been closely associated with the project, was unaware, in particular, that the itinerant exhibition had to be preceded by a presentation in Iraq, and he acknowledges that this aspect of the programme was incompatible with the prevailing insecurity in Iraq.

The arbitral tribunal was fully aware that the email of 8 May 2014 was sent to a person, Ms. D, who worked for H, while the witness statement of 3 October 2014 was taken by counsel for the Ministry of Culture. The arbitrators were therefore in a position to form their own opinion on the differences between these two documents. Moreover, it was not Mr C’s explanation of the motives of the Ministry of Culture that caught the attention of the tribunal, but the blog he managed from December 2006 to July 2007, a document dated at the same time as the facts, unaltered for the purposes of the case and which, in the words of the award, ‘impressively describes the terrible conditions in Baghdad’ (Award, § 470). When the arbitrators add: ‘His fear of being misunderstood in Iraq was palpable’, they are referring to this blog, and not to Mr E’s statement of 3 October 2014.

Finally, the claimants allege that in a press article published on 20 December 2015 in an Iraqi newspaper, as well as on its Facebook pages, the Ministry of Culture, in violation of its obligation of confidentiality, disclosed the fact that it had deliberately delayed the arbitration because of its lack of arguments and not because the security situation hindered the organisation of its defence or prevented the exhibition (Claimants' Exhibits Nos 83 and 85). However, the possible breach of the confidentiality agreement concluded at the time of the arbitration is not a ground for setting aside the award. Moreover, the documents which are challenged by the claimants are elements of the public communication of the Ministry of Culture, which are not at all precise and which, moreover, do not contain, contrary to what the claimants claim, any confession of duplicity on the part of the Iraqi authorities, which only acknowledge that they had to delay the arbitration because they initially lacked documents to support their defence.

Consequently, the ground of appeal, in that it alleges procedural fraud, is unfounded.

It follows from all of the foregoing that the ground alleging A violation of international public policy must be dismissed and that the action for annulment of the award must be dismissed.

On Article 700 of the Code of Civil Procedure:

The appellants cannot benefit from the provisions of article 700 of the code of civil procedure and will be ordered on this basis to pay the Ministry of Culture the sum of 45,000 euros.

FOR THESE REASONS:

Dismisses the action for annulment of the award issued in Paris between the parties on 10 July 2015.

Dismisses the requests of the companies A, IEH ApS and H I ApS.

Orders them in solidum 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 Ministry of Culture of the Republic of Iraq the sum of EUR 45,000 pursuant to Article 700 of the Code of Civil Procedure.