Paris Court of Appeal, No. 16/04150

Paris Court of Appeal, Pole 1 - First Chamber, 25 June 2019, No. 16/04150

Mr. D E D B C
vs.
SHACKLETON AND ASSOCIATES LIMITED

On 6 October 2011, Shackleton and Associates Limited (hereinafter S&A), a company incorporated under the laws of Hong Kong, in which M. A S&A acts as counsel and attorney and Mr. D E D B C (hereinafter Mr. B C), an Emirati national, signed an agreement by which the former undertook to provide legal advice to the latter in case of an arbitration between Mr. B C and construction companies.

The agreement contained an arbitration clause referring to the “Rules of the International Chamber of Commerce”.

The dispute arose out of a dispute over the payment of the last invoice issued by S&A in the amount of GBP 39,475 for the said services and resulted in the initiation of arbitration proceedings by S&A.

By an award issued in Paris on 16 December 2015, the arbitral tribunal composed of the sole arbitrator Mr. Z Y:

• found that Mr. B C breached his obligation to pay the invoice due from S&A in the amount of GBP 39,475,
• stated that Mr. B C shall pay this amount with contractual interest at the annual rate of 4.36% accrued between 4 April 2012 and the date of the final award,
• stated that these sums, principal and interest, shall bear interest between the date of the award and the date of full payment at the rate of 12-month Libor for debts in British Pounds Sterling, plus 5% per annum,
• stated that Mr. B C will pay S&A the fees and expenses of the arbitration, including the costs of the arbitration as fixed by the ICC Court in the amount of USD 10,861, legal and public assistance costs in the amount of GBP 3,420, disbursements by S&A in the amount of GBP 24,069.72 and costs of self-representation of the Claimant in the amount of GBP 118,425, plus post-award interest as set out in the previous point, dismissed all other claims.

Mr. B C filed an action for setting aside the award on 16 February 2016.

In his final pleadings notified on 29 April 2019, Mr B C requested the court to set aside the award in part in so far as it ordered him to pay the sum of GBP 118,425 in respect of the costs of representing the claimant at the arbitration, to dismiss the claim of S&A for the payment of damages for abusive proceedings, to order S&A to pay him the sum of € 5,000 under Article 700 of the Code of Civil Procedure and to pay all the costs.

To support his action, Mr B C argues in substance that:

• the sole arbitrator did not comply with his mission by ruling ultra petita, firstly by awarding punitive damages and secondly by compensating a loss when he was seized of a claim for reimbursement of representation expenses;
• the sole arbitrator violated due process (in French: Principe de contradiction) in disregard of Article 1520-4 of the Code of Civil Procedure by awarding punitive damages and compensation for loss arising from the time spent by Mr. S&A on the arbitration proceedings, of which neither the principle, nor the justification, nor the level were discussed by the parties;
• the award of 16 December 2015 must be set aside in part on the ground that it is contrary to procedural international public policy, pursuant to Article 1520-5 of the Code of Civil Procedure, since it was issued a violation of due process (in French: Principe de contradiction) and punitive damages are prohibited under French law and their amount is disproportionate to the damage.

By final submissions notified on 10 May 2019, S&A requested the court to dismiss Mr B C’s action for annulment, to state in the operative part of the judgment that the dismissal of the action confers enforcement (in French: Exequatur) on the final award issued on 16 December 2015 by Mr Y, sole arbitrator, to order Mr B C to pay him the sum of €30,000 in damages for abusive proceedings, to order him to pay the costs and to pay him compensation of €90,000 under Article 700 of the Code of Civil Procedure.

S&A mainly replies that:

• the sole arbitrator complied with his mission and that Article 37 of the ICC Rules allows the arbitrators to decide on the arbitration costs, that the sole arbitrator did not award punitive damages but only allowed partial compensation to S&A for the arbitration costs to cover, in particular, the time spent by M. S&A to prepare the company’s defence, that he did not compensate a lost profit which had not been requested, that he merely used his discretion in assessing the claims and the ground, under the guise of the alleged violation of the terms of reference, was aimed at a review of the award on the merits;
• the sole arbitrator did not violate due process (in French: Principe de contradiction), since neither of the two grounds put forward by Mr. B C was proven;
• the recognition and enforcement of the award is not contrary to international public policy, in the absence of a manifest, effective and concrete violation of the French concept of international public order.

UPON WHICH:

On the ground for partial annulment based on the failure of the arbitrator to comply with his mission (Article 1520-3 of the Code of Civil Procedure):

Mr B C claims that the sole arbitrator did not comply with his mission contrary to Article 1520-3 of the Code of Civil Procedure and ruled ultra petita.

According to Article 37.1 of the ICC Rules, “The costs of the arbitration shall include the fees and expenses of the arbitrators and the ICC administrative expenses fixed by the Court (…), as well as the fees and expenses of any experts appointed by the Arbitral Tribunal and the reasonable legal and other costs incurred by the parties for the arbitration”.

The mission of the arbitrator is limited to the subject matter of the dispute, as defined by the claims of the parties.

It follows from the Terms of Reference signed on 9 December 2013, which summarises the respective claims of the parties (§ 5.1 of the document setting out the claims of S&A), and from the claimant’s claims to arbitration as set out in the arbitral award (§ 135 to 140), that S&A, claiming that it had already incurred and would continue to incur considerable time, costs and loss of ‘executive time’, requested the sole arbitrator to order M. B C, to pay it all legal fees and costs, including legal assistance costs, incurred by it in the arbitration proceedings.

S&A thus brought a claim before the arbitrator for the reimbursement of legal assistance costs which it considered it had reasonably incurred, amounting to GBP 186,900 in respect of the legal work of Mr. S&A in representing it in the arbitration proceedings.

On the first part of this ground,

Mr. B C argues that the sole arbitrator, ruling ultra petita, awarded punitive damages in an amount unrelated to the reimbursement of costs incurred in the defence of S&A, under the guise of a decision on arbitration costs, when neither party had asked him to do so.

But first of all, the sole arbitrator confined himself to stating the ratio generally applied, from one to three times the amount in dispute in the countries in which punitive damages are allowed, as an element of comparison for assessing the reasonableness of the claims made by S&A and their proportionality to the interest of the dispute.

Secondly, by limiting the partial reimbursement of the costs of legal assistance by Mr. S&A to the sum of GBP 118,425 and considering that the allocation could only have been considered punitive if it had exceeded three times the amount in dispute, the arbitrator merely assessed, without exceeding his mission by the parties, the costs reasonably incurred in his defence by S&A to which S&A was entitled to reimbursement, an assessment in respect of which the annulment judge has no power of review.

On the second part of this ground,

Mr. B C claims that, under the guise of representation costs, the sole arbitrator awarded damages to compensate for the allegedly loss of S&A resulting from a lost profit, which differed from the costs actually incurred for the purposes of his defence, and which did not fall within the scope of his mission.

S&A quantified its costs of representation by Mr. S&A in the arbitration proceedings, on the basis of summary tables of the time spent by him in the monitoring of these proceedings, allocated an hourly rate. In order to justify these costs, S&A referred to an ICC case no. 6345 which would set out a general principle which it referred in the arbitration proceedings and which states that “compensation must also be paid for the work of the parties and for time lost in the dispute” (§ 332 of the award). Mr B C replied by challenging the right of a self-represented party to obtain payment for legal costs and administrative time lost, the hourly rate applied by S&A and the number of hours spent, and the relevance of the precedent relied on by S&A.

To begin with, the arbitrator, who took into consideration, in the case of the claim for representation costs of S&A, which did not give rise to an invoice by an external law firm, the time spent by M. S&A within the company in which he carries out his activity, representing time lost in invoicing other clients of the company, while noting that any hour spent by Mr. S&A on this dispute had not substituted for an hour of work which would have been invoiced to another client (§ 348 of the award), ruled in the context of the debate as submitted to him by the parties without exceeding his mission.

Furthermore, the sole arbitrator, who took into consideration the replacement value of the representation costs which S&A would have had to incur if it had called in an external lawyer, assessed by equivalence with the amount of the fees which M. S&A had to refrain from invoicing other clients for the time spent on monitoring the arbitration proceedings, within the limits which he mentioned (§ 348 and 385 of the award), without exceeding his mission, merely exercised his discretion to quantify the reasonable costs incurred by S&A for its defence during the arbitration, in respect of which the annulment judge has no power of review.

The ground for partial annulment based on the failure of the arbitrator to comply with his mission will therefore be dismissed.

On the ground for partial annulment based on violation of the due process (in French: Principe de contradiction) (1520-4 of the Code of Civil Procedure):

Due process (in French: Principe de contradiction) requires only that the parties should be able to state their claims in fact and in law and comment those of the opposing party in such a way that anything which influenced the decision of arbitrators was subject to adversarial debate. The arbitral tribunal is not obliged to submit the legal reasons for its decision to the parties for discussion beforehand.

On the first part of the ground,

Mr. B C claims that the sole arbitrator violated due process (in French: Principe de contradiction) by awarding, under the guise of representational costs, punitive damages whose neither the principle, nor the reason and quantum was discussed by the parties.

However, firstly, it follows from the award that Mr. B C, who was aware of the writings made in the name of S&A and the documents concerning the arbitration costs for which the latter was requesting payment, was able to discuss them and respond to them in compliance with the due process (in French: Principe de contradiction).

Secondly, while M. B C argued before the sole arbitrator, in particular, that awarding S&A the full costs it claimed would result in a financial penalty for it (§ 378 of the award) and would constitute a windfall for S&A, and that it follows from the award (§ 366 et seq. of the award) that the parties were discussing the principle, the justification and proportionality between the amount of the costs and what was at stake in the dispute. Thus, the sole arbitrator, who did not have to submit his legal reasoning to the parties beforehand, merely used his discretion to assess the costs of legal representation of S&A, the amount of which he fixed, considering that it was not of a punitive nature.

This ground, raised by Mr. B C under the guise of non-compliance with due process (in French: Principe de contradiction), only aims at obtaining a review of the award on the merits.

On the second part of the ground,

Mr. B C claims that the sole arbitrator violated the due process (in French: Principe de contradiction) by awarding, under the guise of representation costs, compensation for a loss resulting from the time spent by Mr. S&A on the arbitral proceedings whose neither principle, justification nor quantum was discussed by the parties.

It follows from Mr. B C’s submissions of 2 September 2014 and from the award that, as already mentioned above, Mr. B C expressly contradicted all the grounds put forward by S&A before the sole arbitrator, that he contested the time spent by Mr. S&A in monitoring the arbitration, the hourly rate applied, the fact that the time spent by Mr. S&A. was wasted and that S&A may claim lost executive time, that S&A may be granted reimbursement of costs relating to internal work (§ 340 to 342), and finally that he mentioned the disproportionate nature of the claim in view of what was at stake in the dispute.

The sole arbitrator, who did not have to submit their reasoning in advance to an adversarial discussion between the parties, based his conviction only on the grounds and evidence submitted to him in adversarial manner by the parties in order to partially grant S&A’s claim for costs incurred in its defence in the arbitration, taking into account the time spent by Mr. S&A in the course of the arbitration proceedings.

This ground relating to the violation of due process (in French: Principe de contradiction) can therefore only be dismissed.

On the ground for partial annulment based on the non-compliance of the award with international public policy (Article 1520-5 of the Code of Civil Procedure):

On the first part of the ground,

Mr B C claimed that the award was contrary to procedural international public policy because it was issued in violation of due process (in French: Principe de contradiction), but since the ground based on this alleged violation of that principle was dismissed, no violation of international public policy could be found.

On the second part of the ground,

Mr. B C claims that the award violates international public policy because the amount of the sentence pronounced does not aim at full reparation of the damage and reimbursement of costs incurred in the arbitration proceedings, but this amount is punitive and disproportionate.

But in the first place, the sole arbitrator who considered, in view of the elements which were produced before him, that S&A had the right to obtain the costs of representation by itself in the course of the arbitration proceedings and assessed them by taking into account the time spent by Mr. S&A in following up the arbitration, by limiting the amount awarded to S&A to what he considered reasonable in view of what was at stake in the dispute, and by taking into account that S&A had itself contributed to the increase in time and costs of resolving the dispute, did not award punitive damages, so that the ground is not evidenced.

Secondly, the principle of an award of punitive damages is not, in itself, contrary to public policy and Mr B C does not establish in what way the fixing of the costs of representation of S&A at the sum of GBP 118,425 in view of the loss caused to the latter and the debtor’s failure to fulfil its own obligations would in this case manifestly, effectively and concretely conflict with the French concept of international public policy.

Therefore, this ground will also be dismissed.

It follows from the foregoing that Mr. B C’s action for partial annulment of the final award issued on 16 December 2015 by Mr. Z Y, sole arbitrator, must be dismissed. Pursuant to the second paragraph of Article 1526 of the Code of Civil Procedure, this dismissal of the action to set aside the award grants enforcement (in French: Exequatur) to this arbitral award, in which only its provisions relating to the costs of self-representation of company were challenged.

On damages for abusive proceedings,

S&A requests that the court order Mr. B C to pay it 30,000 euros in damages for abusive proceedings, alleging that the discussion initiated by Mr. B C before the court is nothing more or less than a criticism of the substance of the award, that these proceedings were only initiated to obstruct the claim against S&A, as evidenced by Mr. B C’s desire to conceal his home address.

The inaccurate assessment that a party makes on its rights is not sufficient to turn the exercise of this right into an abuse and is not in itself a fault.

In the course of the proceedings, Mr. B C settled his action for annulment by indicating his own address. In its judgment of 3 April 2018, ruling in summary proceedings on the Pre-trial judge’s order of 23 March 2017, the court held that the concealments alleged by S&A were essentially the result of the complexity of the Dubai addressing system and misunderstandings between the parties.

In the absence of evidence of its right to appeal, the claim for damages for abuse of process by S&A must therefore be dismissed.

On costs and the application under Article 700 of the Code of Civil Procedure

Mr B C, who is unsuccessful in all his claims, shall bear the costs and shall be ordered to pay compensation of EUR 50,000 to S&A under Article 700 of the Code of Civil Procedure.

FOR THESE REASONS:

Dismisses Mr. B C’s action for partial annulment of the final award issued on 16 December 2015 by Mr. Z Y, sole arbitrator.

Holds that this dismissal grants enforcement (in French: Exequatur) to the award.

Orders Mr. D E D B C to pay S&A and Associates Limited compensation of 50,000 euros under Article 700 of the Code of Civil Procedure.

Orders Mr. D E D B C to pay the costs.