Paris Court of Appeal, No. 19/07575

Paris Court of Appeal, Fifth Pole, Sixteenth Chamber, 25 February 2020, No. 19/07575

DOMMO ENERGIA S.A vs. ENAUTA ENERGIA S.A., BARRA ENERGIA DO BRAZIL PETRÓLEO EGÁS LTDA

I - FACTS AND PROCEDURE

1. Dommo I S.A. companies (hereinafter “Dommo”), Barra Energia do Brasil Petróleo e Gás Ltda (hereinafter “Barra Energia”) and […], which became Enauta Energia S.A. (hereinafter “Enauta”) are three Brazilian companies involved in an offshore oil exploration and exploitation project in Brazil.

2. They were members of a Consortium governed by a joint operating agreement (“JOA”) entered into on 22 December 2000. The JOA sets out the financing obligations of the members of the Consortium, with Enauta being designated as the operator.

3. A dispute arose between the members of the Consortium, with Dommo complaining that Enauta had not fulfilled its obligations as operator and had caused, due to its management, delays in bringing the project into operation, resulting in additional costs and cash calls which Dommo refused to pay. Dommo has decided to sell the major part of its stake in the Consortium.

4. On 11 October 2017, Barra Energia and Enauta notified Dommo of its exclusion from the JOA for non-payment of calls for funds by invoking clause 8.4(D) of the JOA. This exclusion had the effect of preventing it from selling its shareholding.

5. It was in these circumstances that Dommo filed a request for arbitration against Barra Energia and Enauta before the London Court of International Arbitration (“LCIA”) to have clause 8.4(D) of the JOA declared null and void under Brazilian law, and for Barra Energia and Enauta to be ordered to cease any action likely to affect its shareholding in the Consortium and to be ordered to pay compensation for its loss.

6. In order to constitute the arbitral tribunal, Dommo has appointed Mr. X of C D and Barra Energia and Enauta have appointed Mr. E Y as arbitrators.

7. On 11 and 27 November 2017, the arbitrators submitted their declarations of independence and impartiality. On 11 January 2018, the parties appointed Mr. A B as president of the arbitral tribunal. The LCIA confirmed this appointment on 16 January 2018.

8. On 21 February 2018, the arbitral tribunal thus constituted made an interim award in Paris and decided to split the proceedings into several stages.

9. The arbitral tribunal rendered, in Paris, on 24 September 2018, an award known as “‘Award phase 1’” which deals with several preliminary issues under Brazilian law. On this occasion, the Arbitral Tribunal decided that clauses 8.4 and 8.6 of the JOA were valid under Brazilian law.

10. On 2 November 2018, Barra Energia informed the parties and the Arbitral Tribunal that a new lawyer had joined its team of counsel, which led Mr. Y to provide the parties with an update of his declaration of independence on 5 November 2018.

11. On 24 December 2018, the arbitral tribunal rendered an award in Paris concerning the arbitration costs (Additional Award). On the same day, the arbitral tribunal made another award concerning corrections to Enauta’s address and certain tax information (Consented Addendum to the Award in Phase 1).

12. On 31 December 2018, Dommo requested Mr. Y to provide additional information following his statement of 5 November 2018.

13. On 2 January 2019, Mr. Y responded to Dommo’s requests, which was related in particular to his relationship with the law firm Blakes.

14. On 14 January 2019, the arbitral tribunal issued an award in Paris terminating the 21 February 2018 Interim Award.

15. On 17 January 2019, Dommo filed a challenge with the LCIA against Mr. Y, the arbitrator appointed by Barra Energia and Enauta.

16. On 28 January 2019, the arbitral tribunal issued a partial award in Paris in Phase 2 of the arbitration ordering Dommo to pay Barra Energia and Enauta respectively the sum of R$16,996,914.19, plus interest, in respect of unpaid calls for funds.

17. On 20 February 2019, Professor Uff, appointed by the LCIA, rejected the application for the recusal of Mr. Y.

18. On 5 April 2019, Dommo filed an annulment appeal before the Paris Court of Appeal against the arbitral award rendered in Paris on 24 September 2018 (“Award Phase I”) registered under number RG 19/07575.

19. It then filed on 5 September 2019 four appeals against the other four awards, registered under numbers RG 19/15816, 19/15817, 19/15818 and 19/15819, with the arbitration continuing in Phase III.

20. The closing was pronounced on 16 December 2019.

II - CLAIMS OF THE PARTIES

21. According to its summary submissions communicated electronically on 8 November 2019, Dommo asks the court to kindly :

• PRONOUNCE the annulment of the Phase I Award of 24 September 2018 (hereinafter “‘the Award’” or “‘the Phase I Award’") pursuant to Article 1520 K.2 of the Code of Civil Procedure ;
• ORDER Barra Energia and Enauta to pay the sum of 50,000 euros pursuant to the provisions of Article 700 of the Code of Civil Procedure;
• CONDEMN Barra Energia and Enauta to pay all costs.

22. Under the terms of its submissions transmitted electronically on 28 November 2019, Barra Energia requests the court, under articles 32-1, 700 and 1520 of the code of civil procedure and article 1240 of the civil code, to kindly:

• REJECT the annulment appeal in its entirety;
• CONDEMN Dommo to pay Barra Energia damages of 100,000 euros under Article 32-1 of the Code of Civil Procedure;
• CONDEMN Dommo to pay Barra Energia the sum of 50,000 euros under Article 700 of the Code of Civil Procedure and to pay all costs.

23. According to its submissions transmitted electronically on 28 November 2019, Enauta requested the court, under articles 9, 1456 K.2, 1506 K.2 and 1520 K.2 of the Code of Civil Procedure, to kindly:

• STATE AND JUDGE that the appellant does not prove the existence of reasonable doubt likely to affect the independence and impartiality of Mr. Y and, therefore, to mark the composition of the arbitral tribunal which made the contested award as irregular;

Consequently,

• TO STATE AND JUDGE AS UNFOUNDED IN EVERYTHING IT INCLUDES Dommo’s action for annulment and to disallow the latter from all its purposes, claims and conclusions;
• TO ORDER Dommo to pay 250,000 euros to Enauta under Article 700 of the Code of Civil Procedure, as well as to pay all the costs of the proceedings, including the costs of the distraction in the benefit of SELARL LEXAVOUE PARIS-VERSAILLES, Lawyer in accordance with the provisions of article 699 of the same code.

III - CLAIMS OF THE PARTIES

24. Dommo claims, in substance, that, having undertaken extensive research into Mr. Y’s links with the defendants, it discovered by chance that Mr. Y, before carrying on his business independently, had close links with the law firm Blakes, whose regular clients include the controlling shareholders of Barra Energia and their subsidiaries. It maintains that Mr. Y failed to disclose these links and that the business relationships between Blakes and the shareholders of Barra Energia are such as to cast doubt on Mr. Y’s independence and impartiality, the doubt being sufficiently reasonable in light of his impartiality and independence to cause the award to be annulled.

25. It recalls that the notions of independence and impartiality are to be assessed objectively so that it is the appearance of non-independence resulting from undisclosed circumstances and the doubt that the latter are likely to raise in the mind of a party that makes it possible to characterise a breach of the duty of independence, that the relationship between an arbitrator’s firm and one of the parties or its affiliates is, in the eyes of a reasonable observer, such as to cast doubt on the arbitrator’s independence and impartiality.

26. It adds that the impartiality and independence of the arbitrator must be assessed not only at the time of the appointment of the arbitrator but also by taking into account the past situation and that the relationship between Mr. Y and the Blakes law firm that existed between 2012 and 2015 ceased only two and a half years before the arbitration began, which is close enough to be taken into consideration in respect of the risk to Mr. Y’s independence.

27. Dommo disputes that it can be accused of not having requested the disqualification of Mr. Y as soon as he was appointed. It points out that the duty of curiosity imposed on the parties at the beginning of the arbitration only requires reasonable diligence, the parties being under no obligation to carry out in-depth investigations. In this respect, it argues that the relationship between Mr. Y and Blakes was not well known and that the curriculum vitae that Mr. Y communicated to the parties at the beginning of the arbitration proceedings did not establish a link between Mr. Y and Blakes. It added that information relating to the relationship between Mr. Y, Blakes and the controlling shareholders of Barra Energia was not readily available, as these links did not appear either directly or indirectly on Mr. Y’s CV. It also refutes the presumption of notoriety based solely on the publication on the internet, as this publication is not necessarily easily accessible simply because it is on the internet.

28. It contests any belated nature of its application for disqualification, since the information did not come to its knowledge until after the second independence statement and through extensive research, as the situation is not well known. It finally seeks the annulment of the Award.

29. In response, Barra Energia. argues that the arbitrators’ obligation to disclose must be assessed in light of the notoriety of the criticized situation, its connection with the dispute and its impact on the arbitrator’s judgment.

30. It points out that the arbitrator must only inform the parties of any relationship which is not of a well-known nature and that, as such, the parties have an obligation of curiosity before the beginning of the proceedings when they can effortlessly gain knowledge of the facts complained of, a thing that Dommo has not done.

31. It specifies that the lack of disclosure alone is not sufficient to constitute a doubt as to a lack of independence or impartiality and that it is still necessary to show how the concealed elements undermine the arbitrator’s independence, that the circumstances thus concealed must be such as to create a “‘reasonable doubt’” in the minds of the parties as to the arbitrator’s independence.

32. In this respect, Barra Energia indicates that Mr. Y’s alleged links with the law firm Blakes, apart from being notorious because they were public and easily accessible on the internet at the time of the appointment of the arbitrator, were moreover old and of short duration and no longer existed at the time of acceptance of the arbitrator’s mission, that it was an insignificant fact, that it was not such as to affect the arbitrator’s judgment, nor to create a reasonable doubt in the minds of the parties as to his independence.

33. It states that the information according to which Blakes counted the shareholders of Barra Energia among its own clients was also available on the Internet, that in any event, Mr. Y stated several times and firmly that he never had any connection whatsoever with either First Reserve Corporation or O P, the said shareholders, and that, finally, the alleged links were very indirect and not established.

34. Finally, Barra Energia claims that the application for disqualification was made out of time, and asks for the annulment to be rejected and for damages for abusive procedure.

35. Enauta maintains that it was up to Dommo to take minimal steps to inform itself of the arbitrator’s independence, that it had easy access to information on the Blakes law firm and its links with Mr. Y, and that Dommo failed in its duty to “‘react’”.

36. Enauta also claims that the duty of disclosure on the part of the arbitrator relates to circumstances prior to his appointment and fades or disappears if, on the date of the arbitrator’s appointment, the links are too old, considering that two or three years are sufficient to ensure that any links directly involving the arbitrator, if they no longer exist on the date of appointment, are no longer likely to affect the arbitrator’s judgment.

37. Finally, it submits that there is no “‘direct’” conflict of interest between Mr. Y and the parties to the arbitration or any entity belonging to their respective groups, nor is there any “‘indirect’” conflict of interest of the arbitrator with any entity party to the arbitration, as Mr. Y has not had any connection with J K-U for nearly two and a half years and has not retained any connection with Blakes, which relieved him of any obligation to disclose concerning that past.

38. Italso stated that the burden of proof rested on Dommo and that it did not provide proof of the links it alleged.

The Court refers, for a fuller account of the facts and claims of the parties, to the decision referred and to the above-mentioned writings, pursuant to the provisions of Article 455 of the Code of Civil Procedure.

IV - GROUNDS FOR THE DECISION

On the admissibility of the request for challenge,

39. The inadmissibility of the application for annulment on the ground that the challenge to the independence and impartiality of the arbitrator was late, was not formulated in the claims of the parties set out in the operative part of their submissions, but only appears in the pleas developed by Barra Energia to challenge the application for annulment on the merits, on the grounds that Dommo had waived, because of the late nature of its challenge, the right to rely on any circumstance relating to the alleged links with Blakes and that this recourse would be abusive and dilatory, seeking only the rejection of the application for annulment and damages for abusive proceedings.

40. Pursuant to Article 954 K 3 of the Code of Civil Procedure, the court is therefore not seised of an application for inadmissibility of the action for annulment.

On the sole ground for annulment based on the irregularity of the composition of the arbitral tribunal (Article 1520-2) of the Code of Civil Procedure),

On the arbitrator’s duty of disclosure :

41. According to Article 1456 K 2 of the Code of Civil Procedure, applicable to international arbitration under Article 1506 of the same Code :

‘It is incumbent upon the arbitrator, before accepting his mission, to disclose any circumstance likely to affect his independence or impartiality. The arbitrator is also obliged to disclose without delay any circumstance of the same nature which may arise after accepting his mission'.

42. It follows that the arbitrator’s obligation to disclose is imposed both before acceptance of the appointment and afterwards, depending on whether the circumstances in question pre-exist or arise after acceptance of the appointment. These circumstances may be varied and may relate to possible conflicts of interest, relationships of interest or a course of business that the arbitrator may have had with the parties or third parties likely to have an interest in the dispute.

43. The duty of disclosure incumbent on the arbitrator must be assessed in the light of the notoriety of the situation criticised, its link with the dispute and its impact on the arbitrator’s judgment.

44. In the present case, it is clear from the documents filed in the proceedings, in particular E Y’s declaration of independence dated 27 November 2017, to which was attached his curriculum vitae taken from the “Who’s Who” website, that he did not declare that he had worked between 2012 and 2015 as a lawyer in a Saudi law firm called Dr. J K-U, an affiliate of the law firm Blakes, two of whose clients are US investment funds, themselves majority shareholders of Barra Energia, the parties opposing the notorious nature of this information and the reasonable doubt that this information may generate as to the arbitrator’s status of impartiality and independence.

On the notoriety of the undisclosed information:

45. It should be recalled in this respect that only easily accessible public information, which the parties could not fail to consult before the commencement of the arbitration, is likely to characterise the notoriety of a situation likely to temper the content of the obligation of disclosure incumbent on the arbitrator.

46. In the present case, it is clear, from the facts and the documents filed in the proceedings, that E Y’s declaration of independence and his CV made no mention of his background as a lawyer in any law firm, only the mention of “‘general counsel, country manager, financial director, commercial manager and economist’” appearing in the “Who’s Who” file, without precision, and that it was only after the appointment of a new counsel for Barra Energia of which Dommo was informed on 2 November 2018, the exchanges of new declarations of independence (5 November 2018) and of questions on the possible links that the arbitrators might have had with this new firm, that Dommo undertook research that led it to question Mr. Y on 31 December 2018 on his links with this new counsel (Mr. Z) and on his links with Blakes, whose clients it discovered to be First Reserve Corporation and O P Q, majority shareholders of Barra Energia.

47. Mr. Y then answered this question by email dated 2 January 2019, stating that he had been “‘senior international counsel’” between April 2012 and July 2015 within the law firm Dr. J K-U in Saudi Arabia, a law firm having an alliance with the law firm Blakes. In the same email, E Y indicated that he was not familiar with First Reserve Corporation and that he was not aware of any work that Blakes may or may not have done for it.

48. In this respect, regarding Mr. Y’s employment as a lawyer in the law firm Dr. J K-U affiliated to Blakes, it has not been established that Dommo could have had knowledge of this information other than through the statements thus provided by the interested party, nor that this information was easily accessible to a normally diligent party.

49. Although Barra Energia maintains that this information could have been known simply by consulting Mr. Y’s website, it should be noted that this website does not in any way mention in a clear, obvious and transparent manner any collaboration between the interested party and a law firm and that it is only by researching each of the eleven conferences listed on the “Disputes - Related Experience” page of the website and by consulting the details of these conferences that it is possible to find the information that Mr. Y was presented as Senior International Counsel of Blakes.

50. Similarly, it is clear from the facts of the case that it was only after an advanced consultation of the publications of the interested party accessible on the “Knowledge ' Publications” page of the site that it was possible to discover that two of them mentioned Blakes.

51. It follows from these elements that access to this information on the internet is only possible after a thorough analysis and careful consultation of the arbitrator’s website, which requires to open all the links relating to the conferences in which he participated and to consult one after the other the content of the publications to which he contributed.

52. Thus access to information requires several successive operations which are similar to investigative measures which cannot characterise easily accessible information in such a way that the information cannot be considered as notorious and that the arbitrator should therefore have revealed it as soon as he made his first statement.

On the link between the situation under criticism and the dispute and its impact on the arbitrator’s independence and impartiality

53. It should be recalled that the arbitrator’s failure to disclose information is not sufficient to constitute a lack of independence or impartiality. These elements must also be such as to give rise to reasonable doubt in the minds of the parties as to the arbitrator’s impartiality and independence, the assessment having to be made on objective grounds and taking into account the specific features of the case.

54. In the present case, Dommo justifies that Blakes represented Barra Energia’s controlling shareholders, as well as those of First Reserve Corporation and O P Q, between 2008 and 2014, which Mr. Y denied knowing, having stated on 2 January 2019, in response to Dommo’s application before the London Court of International Arbitration (LCIA), that he had never heard of First Reserve Corporation when he worked for the Saudi law firm Dr. Y. J K-U affiliated with Blakes, nor had he ever heard of the work Blakes was doing for that firm at that time. It further appears from his statement of 28 January 2019 that Mr. Y also indicated that he had not heard of O Holding Q either.

55. While such an answer may come as a surprise given that these companies are among the known investment funds in the energy sector, that the website of Barra Energia mentions them as its controlling shareholders and that Mr. Y has presented himself as a specialist in the energy sector for thirty-five years, these circumstances do not demonstrate that, even supposing he had knowledge of the shareholding of Barra Energia, he had a direct or indirect link, material or intellectual, with the said shareholders or their subsidiaries, whether through the law firm Dr. J K-U or Blakes, or that a business relationship existed between the arbitrator and these shareholders.

56. However, in order for the failure to disclose his activity as a lawyer within the law firm of Dr. J K-U or Blakes to raise a reasonable doubt as to his impartiality or independence, such activity would have to have generated such links with the shareholders of Barra Energia and have given rise to a line of business between the arbitrator and First Reserve Corporation or O P Q, which is not established, or that he had or still has any interest with Blakes that could create a conflict of interest, as Dommo maintains, which is also not established.

57. It does not appear from any documents that Mr. Y has at any time advised, represented or assisted the shareholders of Barra Energia.

58. The fact that Mr. Y worked as “Senior International counsel with Blakes in Saudi Arabia”, or the fact that he used Blakes' e-mail address, are also not elements that allow the existence of any link between Mr. Y and the shareholders of Barra Energia, nor are they of such a nature as to create reasonable doubt as to Mr. Y’s independence and impartiality, especially as the links between Mr. Y and Blakes were indirect, through the law firm Dr. J K-U, and had ceased two and a half years before the start of the arbitration . This may not be a sufficient period of time in the event of failure to disclose direct links or information likely to affect the arbitrator’s impartiality, but is irrelevant in this case as there is no evidence of any connection between Mr. Y and the companies that were shareholders of Barra Energia at the time Mr. Y worked for Dr. J K-U or afterwards.

59. The ground for annulment must be dismissed and the action for annulment rejected.

On Barra Energia’s claim for damages for abusive recourse,

60. Barra Energia claims that the present action would constitute an abusive and dilatory maneuver on the part of Dommo and on this basis is seeking 100,000 euros in damages. It argues that Dommo did everything possible to oppose the execution of the Partial Award Phase 1, by attempting to resist the transfer of its shareholding in the project to Barra Energia and QGEP and that Dommo continues to refuse to execute the Partial Award No. 2 which ordered it to pay the Cash Calls.

61. In response, Dommo claims that the actions for annulment, which do not have suspensive effect, did not have an impact on the way the project is being carried out and that Barra Energia’s rights in the arbitration were not affected. It adds that it has agreed to a very accelerated procedural timetable because it wants its application to be decided quickly and efficiently in the interest of all parties. It further contests that the remedies would be aimed at obtaining a review of the Award’s Phase 1 on the merits.

62. It maintains that there is no reason to consider that by using the remedies available to it by law, it has abused its right to take legal action, so that Barra Energia must be dismissed from its claim for damages for abusive proceedings.

On costs and expenses,

63. Dommo, which cannot claim the benefit of the provisions of article 700 of the code of civil procedure, must be condemned on the same basis to pay each of the defendant parties the sum of €15,000 for these proceedings, the other proceedings being dealt with autonomously giving rise to separate decisions in this respect.

FOR THESE REASONS, THE COURT

Notes that no request for inadmissibility of the appeal has been submitted to it,

Dismisses Dommo’s action to set aside the Phase I of the award of 24 September 2018,

Dismisses Barra Energia’s claim for damages for abusive recourse,

Orders Dommo to pay Barra Energia and Enauta the sum of 15,000 euros each under Article 700 of the Code of Civil Procedure, and orders it to pay all costs, including distraction in accordance with the provisions of Article 699 of the same code.