Court of Cassation, No. 17-20.573 | Rory Wheeler, avocat (Paris) & solicitor (England)

Court of Cassation 1st Civil Chamber, 6 November 2019, No. 17-20.573

Challenged decision: Paris Court of Appeal, Pole 1 - First Chamber, 28 February 2017, No. 15/06036

DRESSER-RAND HOLDINGS SPAIN, S.L.

DRESSER-RAND GROUP INC

Vs.

SEI TA LAU, S.L.

VILLAMENDI, S.L.

DIANA CAPITAL I, F.C.R.

CAIXA CAPITAL FONDOS

SOCIEDAD DE CAPITAL RIESGO D E REGIMEN SIMPLIFICADO SA

IBAINARKO, S.L.

CENTAURO CAPITAL, S.L.U.

SUGAR MAGNOLIA 2003, S.L.

ALDAIA BI, S.L.

OPCION FOTOVOLTAICA 24, S.L.

FOND-ICOPYME

F.C.R. DE REGIMEN SIMPLIFICADO

E-NOVATING VENTURE, S.L.

EL PORTILLO 2005, S.L.

Whereas, according to the facts as stated in the judgment under appeal, (Paris, 28 February 2017), under the terms of an agreement signed on 3 March 2011, twelve Spanish companies, Centauro Capital, Villamendi, Sei Ta Lau, Sugar Magnolia 2003, Ibainarko, Aldaia Bi, ElPortillo 2005, Diana Capital I, Fond-ICopyme, E-Novating Venture, Opcion Fotovoltaica 24, Caixa Capital Fondos (the assignors), formerly known as Cajaso Inversiones de Capital, have undertaken, subject to conditions precedent, to sell all the shares of the Spanish company Grupo Guascor to the Delaware state company Dresser-Rand Group Inc. , the purchase price to be adjusted after the sale in accordance with contractually defined accounting and financial concepts; the sale took place on 4 May 2011; on 29 April 2012, Dresser-Rand Group Inc. transferred its rights under this agreement to Dresser-Rand Holdings Spain; a dispute arose between the parties and, pursuant to the arbitration clause in the contract, the assignors initiated arbitration proceedings in accordance with the arbitration rules of the International Chamber of Commerce (ICC); Procedural Order No. 1 provided that if procedural issues had not been settled by the ICC, the arbitral tribunal, after consultation with the parties, would have determined the applicable procedure and that it could have referred to the International Bar Association’s 2010 Rules of Evidence without being bound by those rules; an award was made on 11 February 2015; that the Dresser-Rand companies (the assignee) filed an action to partially set aside the award on the basis of Articles 1520-3 and 1520-4 of the Code of Civil Procedure;

Whereas the assignee objects to the judgment rejecting his appeal, then on the ground of appeal: 

1°/ the arbitral tribunal must ensure respect for the rule that the parties should be heard and that nothing that served as a basis for its decision should escape the adversarial process; 2°/ by dismissing the ground for setting aside the award, based on the arbitral tribunal’s infringement of the rule that the parties should be heard, for having applied it ex officio of Article 9 (5) of the IBA 2010 Rules of Evidence in International Arbitration, without first requesting an explanation from the parties, and for finding that the failure of the Dresser-Rand companies to produce the audit reports of UBS and KPMG would be adverse to the interests of the Dresser-Rand companies, in particular to the extent that such documents could demonstrate actual knowledge of the violation of Article 3.5 (b) and (c), on the grounds that the majority of the arbitrators “excessively referred to Dresser-Rand’s failure to produce the UBS and KPMG reports”, which the majority of the arbitral tribunal excessively considered that these documents were detrimental to the interests of UBS and KPMG, in particular to the extent that they could demonstrate actual knowledge of the violation of Articles 3.5(b) and 5(c), on the grounds that the majority of the arbitrators “excessively referred to Dresser-Rand’s failure to produce the reports of UBS and KPMG”, which the majority of the arbitral tribunal excessively considered that these documents were detrimental to the purchaser" and that “the grounds for opposing the application of the adverse inference are therefore not such as to lead to the setting aside of the award”, even though the majority of the arbitrators' inference drawn from the failure to produce these reports was one of the reasons for the conclusion that the Dresser-Rand companies had violated Article 4.10 of the deed of assignment, the Court of Appeal violated articles 1510 and 1520-4 of the Code of Civil Procedure ; 

2°/ in any event, the judge shall not distort the writing submitted to him; by deciding that the majority of the arbitrators “excessively referred to Dresser-Rand’s failure to produce the UBS and KPMG reports” and “the majority of the arbitral tribunal excessively found that “the grounds against the application of the adverse inference are therefore not such as to lead to the setting aside of the award”, in order to conclude that the majority arbitrators’ inference drawn from the failure to produce these reports was one of the bases for the conclusion that the Dresser-Rand companies had violated Article 4. 10 of the deed of assignment, the Court of Appeal distorted the arbitral award issued between the parties in Paris on 11 February 2015, in violation of the principle that the judge shall not distort the written documents submitted to him; 

3°/ the arbitral tribunal must ensure respect for the rule that the parties should be heard and that nothing that served as a basis for its decision should escape the adversarial process; by dismissing the ground for setting aside the award, based on the arbitral tribunal’s infringement of the rule that the parties should be heard, for having applied it ex officio of Article 9 (5) of the IBA 2010 Rules of Evidence in International Arbitration, without first requesting an explanation from the parties, and for finding that the failure of the Dresser-Rand companies to produce the audit reports of UBS and KPMG would be adverse to the interests of the Dresser-Rand companies, in particular to the extent that such documents could demonstrate actual knowledge of the violation of Article 3.5 (b) and (c), on the grounds that the majority of the arbitrators “excessively referred to Dresser-Rand’s failure to produce the UBS and KPMG reports”, “which the majority of the arbitral tribunal excessively considered that these documents were detrimental to the interests of UBS and KPMG, in particular to the extent that they could demonstrate actual knowledge of the violation of Articles 3.5(b) and 5(c), on the grounds that “since the parties had agreed that the arbitrators should refer to the IBA rules on the administration of evidence, the mechanism of the adverse inference was automatically part of the proceedings without the need for the assignors to make express use of it or for the court to specifically invite the parties to explain themselves on this point”, the Court of Appeal violated Articles 1510 and 1520-4 of the Code of Civil Procedure; 

4°/ the arbitral tribunal must ensure respect for the rule that the parties should be heard and that nothing that served as a basis for its decision should escape the adversarial process, by ruling as it did, after finding that the arbitral tribunal based its arbitral award, without an adversarial process, on the non-referred provisions of Article 9 (5) of the IBA 2010 Rules on the Administration of Evidence in International Arbitration, the Court of Appeal violated Articles 1510 and 1520-4 of the Code of Civil Procedure; 

5°/ the contradiction in the grounds means the failure to state grounds; by noting, on the one hand, that at the request to produce the KPMG and UBS audits from the assigning companies, “Dresser-Rand replied in these terms: D-R objects to the production of the audit report and the draft audit reports prepared by E… T…” and “D-R also objects to the production of any part of the audit reports internally prepared and covered by business secret” and, on the other hand, Dresser-Rand, the defendant to the setting aside of the award was “able to comment on it and did not raise any objections”, as regards the “request to produce the audit reports of KPMG and UBS”, the Court of Appeal, thus contradicting itself, violated Article 455 of the Code of Civil Procedure; 

6°/ the award may be set aside if the Arbitral Tribunal has ruled without complying with its mission, in particular when it has not applied the procedural rules chosen by the parties; that by dismissing the ground for setting aside based on the arbitral tribunal’s failure to comply with its mission, on the grounds that the majority of the arbitrators “excessively referred to Dresser-Rand’s failure to produce the reports of UBS and KPMG”, “which the majority of the arbitral tribunal excessively considered that these documents were detrimental to the purchaser” and that “the grounds for opposing the application of the adverse inference are therefore not such as to lead to the setting aside of the award”, even though it was noted that the inference of the majority of the arbitrators, based on the failure to produce these reports, was one of the reasons for the conclusion that Dresser-Rand had infringed Article 4. 10 of the deed of assignment, the Court of Appeal infringed Article 1520-3 of the Code of Civil Procedure; 

7°/ in any event, the judge must not distort the writing submitted to him; that in deciding that the majority arbitrators “excessively referred to Dresser-Rand’s failure to produce the UBS and KPMG reports” and “that the majority of the arbitral tribunal excessively considered that these documents were detrimental to the purchaser”, to hold that “the grounds for opposing the application of the adverse inference are therefore not such as to lead to the setting aside of the award”, after having found that the majority arbitrators' inference drawn from the failure to produce these reports was one of the reasons for the conclusion that the Dresser-Rand companies had violated Article 4. 10 of the deed of assignment, the Court of Appeal distorted the arbitral award issued between the parties in Paris on 11 February 2015, in violation of the principle that the judge must not distort the written document submitted to him; 

8°/ the judge must not distort the writing submitted to him; that it follows from Article 11 of Procedural Order No. 1 of the Arbitral Tribunal that “the Arbitral Tribunal may refer to the IBA 2010 Rules on the Taking of Evidence without being bound by the said Rules” only “after consulting the parties” in the case of “procedural matters not provided for in this Procedural Order”; by ruling as it did, on the grounds that “the case-by-case consultation of the parties on the procedural provisions not provided for did not concern the IBA 2010 Rules which the parties allowed the arbitrators to apply in advance”, the Court of Appeal violated the principle according to which the judge must not distort the writing submitted to him; 

9°/ that the award may be set aside if the arbitral tribunal has ruled without complying with its mission, in particular when it has not applied the procedural rules chosen by the parties; that the Arbitral Tribunal did not have to specifically invite the parties to explain the mechanism of the adverse inference before applying it, having nevertheless noted that Article 9.5 of the IBA 2010 Rules on the Administration of Evidence in International Arbitration states that “If a Party fails without satisfactory explanation to produce any Document requested in a Request to Produce to which it has not objected in due time or fails to produce any Document ordered to be produced by the Arbitral Tribunal, the Arbitral Tribunal may infer that such document would be adverse to the interests of that Party”, which means that the application of the adverse inference supposes to first invite the defaulting party to explain the reasons that led it not to produce the requested document, the Court of Appeal violated Article 1520-3 of the Code of Civil Procedure, together with Articles 1464, paragraph 3 and 1506-3 of the same Code; 

Whereas, however, the judgment states that after recalling that Article 4.10 of the contract provided that the assignee could not claim the guarantee if it had effective knowledge of the facts or circumstances which constituted a material breach by the assignors of their obligations, the arbitral tribunal noted that the assignee received the disclosure of accounting and financial information, and in particular the reports of the auditors of the company Guascor do Brasil, from which the Eletrobras debt was not recorded in the accounts of the main affiliate, could not be recorded in the consolidated accounts and that, in these circumstances, the transferee, who had examined these documents, had necessarily taken this circumstance into account in its assessment of the purchase price of the shares of Guascor do Brasil; from these statements, from which it resulted that the arbitral tribunal, in order to rule out the obligation of the assignors to guarantee the liabilities resulting from the commitments of Guascor do Brasil towards Eletrobras, relied, in accordance with Article 4.10 of the contract, on the assignee’s effective knowledge of the alleged material breach, resulting from the documents submitted for audit, which was sufficient to justify its decision, the Court of Appeal found, without distorting the award, that the reason of the award which is challenged, and referred to the assignee’s failure to produce the reports of UBS and KPMG and to the application of the adverse inference doctrine under Article 9.5 of the rules of the International Bar Association on Taking Evidence, did not determine, even partially, the adopted solution, was excessive; that, consequently, it held correctly that the arbitrators had neither exceeded their mission nor disregarded due process (in French: Principe de contradiction); that the ground of appeal, unjustified in its second and seventh sections and inoperative for the rest, in that it opposed to the excessive grounds of the judgment, could not be upheld; 

FOR THESE REASONS: 

DISMISS the action; 

Orders Dresser-Rand Group Inc. and Dresser-and Holdings Spain to pay the costs; 

Pursuant to Article 700 of the Code of Civil Procedure, rejects their application and orders them to pay the companies Centauro Capital, Villamendi, Sei Ta Lau, Sugar Magnolia 2003, Ibainarko, Aldaia Bi, ElPortillo 2005, Diana Capital I, Fond-ICopyme, E-Novating Venture, Opcion Fotovoltaica 24 and Caixa Capital Fondos, the sum of 3,000 euros ; 

Thus done and judged by the Court of Cassation, First Civil Chamber, and pronounced by the President in its public hearing of November six, two thousand and nineteen. 