Paris Court of Appeal, No. 17-18.001 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal – 1st Pole – 1st Chamber, 25 February 2020, No. 17-18.001

PRAKASH STEELAGE LIMITED

Vs.

UZUC SA

Pursuant to a sales contract entered into on 5 and 11 November 2008, PRAKASH STEELAGE Ltd (“Prakash”), a company incorporated under Indian law, undertook to supply the company incorporated under Romanian law, Uzuc SA, with welded and seamless stainless steel tubes in accordance with technical specifications provided by Uzuc. The steel tubes were to be incorporated into heat exchangers that Uzuc was to manufacture and supply to its customer, GE Oil & Gas, which was then to install the heat exchangers in a fertilizer plant for the end user, QAFCO Qatar. Uzuc’s order confirmation dated November 7, 2008 and sent by e-mail on 11 November 2008, which accepted the purchase order issued by PRAKASH Ltd on 5 November 2008, included the following clause: “Arbitration: Paris Court of Arbitration”.

Following problems attributed to stainless steel pipes, Uzuc filed a Request for Arbitration on 19 December 2014 with the Secretariat of the International Court of Arbitration of the International Chamber of Commerce (ICC).

By an award issued in Paris on 13 June 2017, the arbitral tribunal composed of Messrs E F X and G H I, co-arbitrators, and Mr B Y, President, has, by a majority of votes of Messrs X and Y :

confirmed that the UNIDROIT Principles 2010 are the rules of law applicable to the dispute,
stated that it was competent to hear all the claims submitted in the course of the present arbitration procedure, with the exception of the labour costs relating to three heat exchangers which do not fall within the subject matter of the Contract,
stated that Uzuc’s claims are admissible as not being time-barred,
stated that PRAKASH Ltd has breached its contractual obligations and the UNIDROIT Principles 2010,
stated that PRAKASH Ltd had to pay EUR 1 million in damages, together with simple interest from 17 February 2014 at the rate of 2.4% per year until full payment,
stated that PRAKASH Ltd had to bear its own costs and fees and had to pay the costs and fees incurred by Uzuc in the amounts of 416,891.86 and 39,861.56 euros together with simple interest from the date of the award at the rate of 2.4% per year until full payment,
stated that PRAKASH Ltd was to pay as arbitration costs 244,000 USD together with simple interest from the date of the award at the rate of 2.4% per year until full payment.

Mr. G H I, co-arbitrator, issued a dissenting opinion on 16 June 2017 in which he considered that the arbitral tribunal did not have jurisdiction to hear all the claims relating to steel tubes, that Uzuc’s claims were inadmissible because they were time-barred and that Uzuc failed to prove the merits of its claims.

PRAKASH Limited filed an action for annulment against this award on 25 November 2017.

In its submissions notified on 22 February 2018, PRAKASH Limited asked the court to find that its action for annulment did not relate to the main points of the award in that it declared that it did not have jurisdiction to hear Uzuc’s claims concerning the labour costs relating to three heat exchangers which did not fall within the subject matter of the contract and in that it rejected Uzuc’s claims for compensation for its “lost profit” estimated at 250,000 euros, annul it for the remainder, order Uzuc to pay the costs with distraction, order Uzuc to pay him the sum of EUR 50 000 under Article 700 of the Code of Civil Procedure and dismiss all of Uzuc’s claims.

In its submissions notified on 20 August 2018, Uzuc asks the court to declare the grounds raised by PRAKASH Ltd inadmissible and, failing that, to declare them unfounded, to dismiss the action for annulment, to dismiss PRAKASH Ltd’s claims and to order the latter to pay it the sum of EUR 80 000 pursuant to Article 700 of the Code of Civil Procedure, in addition to the costs.

UPON WHICH,

On the first ground of lack of jurisdiction of the arbitral tribunal (Article 1520-1 of the Code of Civil Procedure):

PRAKASH Ltd claims, on the one hand, that the parties did not intend to submit their disputes to arbitration, the only mention of “Cour d’arbitrage de Paris” in an exchange of e-mails with Uzuc only revealing that the disputed arbitration clause was still at the stage of negotiation and drafting without the parties' consent. Since the willingness to consent to arbitration was not presumed, PRAKASH claimed that the arbitral tribunal, which had itself held that the agreement between Uzuc and PRAKASH originally included an arbitration clause which was crossed out, should have held that this arbitration clause had been refused by it. It added, on the other hand, that the “Paris Court of Arbitration” arbitration clause contained no indication as to its scope and extent and that it would, as such, be “impracticable”. It adds that this ground is admissible before the annulment judge for having been raised at the very beginning of the arbitration proceedings in its reply to the arbitration request of 4 June 2015.

Uzuc claims that under the provisions of Article 1466 of the Code of Civil Procedure, applicable in international arbitration under Article 1506-3 of the same Code, PRAKASH is inadmissible to raise this ground, which was not raised before the arbitrators. Uzuc argues that the arbitral tribunal was in any event competent.

However, according to Article 1466 of the Code of Civil Procedure, made applicable to international arbitration by Article 1506-3 of the same code, a party who, knowingly and without legitimate reason, fails to invoke an irregularity before the arbitral tribunal in a timely manner shall be deemed to have waived the right to invoke it.

A party having actively participated in the arbitration shall be deemed to have waived the right to invoke at a later date any irregularities which it knowingly failed to invoke before the arbitrator.

While PRAKASH indicated in its Answer to the Request for Arbitration of 4 June 2015 that, “From the start, as a preliminary matter, the Defendant disputes the arbitral character and validity of the Request for Arbitration of the Claimant and the claim(s) and the competence of the Arbitral Tribunal to examine the case as set out below”, it has not developed in this document any arguments relating to the incompetence of the Arbitral Tribunal. Throughout the proceedings, C D. has never taken up or developed this complaint about the Arbitral Tribunal’s lack of jurisdiction. Moreover, the arbitral tribunal noted that “in all its subsequent writings, the Defendant did not raise any objection to the existence or validity of the arbitration clause” (Award, §143).

On the contrary, the arbitrators held that “despite the relatively vague terms of the arbitration clause (“ARBITRATION: COURT OF ARBITRATION OF PARIS”), the Parties acknowledged the existence of the said clause and did not contest its validity …”. This was expressly confirmed by the Parties at the Hearing at the invitation of the President of the Tribunal" (Award §§ 144 and 145).

During the arbitration proceedings, only the extension to order form IMP 079 of the arbitration clause contained in order form IMP 721 was contested by C D. This limitation of the scope of the arbitration to purchase order IMP 721 was already invoked by Uzuc, which identified precisely the eleven heat exchangers manufactured using the tubes purchased under Purchase Order IMP 721 in the following terms:

" More precisely, as stated in the same technical requirements (part C2), stainless steel tubes were to be incorporated in the manufacture of 11 pieces of equipment for the QAFCO Qatar project, namely: 6 stainless steel welded tube heat exchangers (E 0201 - 2 pieces, E 0202 - 2 pieces, E 0203 - 2 pieces) and 5 stainless steel seamless tube heat exchangers (E 1201 - 1 piece, E 1202 - 1 piece, E 1203 - 1 piece, E 0111 - 2 pieces). “(pages 4 and 5 of the request for arbitration).

Also, PRAKASH has never contested before the arbitrators the existence, validity and effectiveness of the arbitration clause contained in the IMP 721 order form.

At the end of the hearing, invited to express its position as to the arbitral jurisdiction, C D, while opposing the extension of the arbitration clause to the IMP 079 order form, acknowledged that it did not object to the jurisdiction of the arbitral tribunal with regard to the IMP 721 order form, as it appears from the transcript of the hearing of 28 January 2017 (afternoon 3):

“THE COURT: All right. Regarding your objections, do you want to rephrase them for the record, or are you satisfied that what we heard from you during the proceedings is sufficient since the hearing was recorded ‘(…)

C: Yes. Firstly, regarding the law applicable in the case, secondly, regarding the court, whether IMP 079 can be taken into consideration, thirdly, as regards the heat exchanger number, if it is also available’.

THE COURT: Jurisdiction of the arbitral tribunal…'.

C: Gentlemen, this is not IMP079, this is a different purchase order. It’s 721 that we are interested in, and we continue. 721 we are before this court for jurisdiction, we have no objection to that”.

Following the exchange of pleadings between the parties, the arbitral tribunal limited its jurisdiction to claims relating to the IMP 721 order form (award §§ 142 to 153).

Having expressly acknowledged the competence of the arbitral tribunal during the proceedings to hear claims relating to the IMP 721 order form, PRAKASH cannot challenge it before the annulment judge.

The ground is therefore inadmissible.

On the second ground, alleging that the arbitrators violated their mission (Article 1520-3 of the Code of Civil Procedure):

PRAKASH claims that the arbitral tribunal violated its mission, firstly, by distorting the will of the parties who agreed, according to an email dated 7 May 2009, to consider that the contract had been properly executed, secondly, by making an award in equity and not according to Indian law, which was the only applicable law, thirdly, by ruling ultra petita by awarding compensation unrelated to the IMP 721 purchase order to which the arbitration was limited and, finally, by applying the UNIDROIT Principles to the dispute in preference to Indian law which was the law chosen by the parties.

However, on the one hand, the arbitrator’s mission, as defined by the arbitration agreement, is mainly delimited by the subject matter of the dispute, as determined by the parties' claims.

Responding to Uzuc’s request to apply Romanian law and to C D’s request to apply Indian law to the dispute, the arbitral tribunal adopted Procedural Order No. 1 inviting the parties to “examine the application of rules of substantive law and make proposals regarding the application of other rules of law, such as rules of transnational law (e.g. UNIDROIT, CISG…)”.

In its Procedural Order No. 3 of 2 December 2015, the arbitral tribunal ruled that the UNIDROIT Principles 2010 constituted the rules of law applicable to the dispute in accordance with Article 21.1 of the ICC Rules and Article 1511 of the Code of Civil Procedure.

In line with this decision, the Arbitral Tribunal stated in its award that “on the basis of the agreement between the Parties to apply the direct path method, as well as Article 21(1) of the Rules, the Arbitral Tribunal shall apply such rules of law as it considers appropriate. As such, it is a well-established principle that arbitral tribunals have a wide discretion and may apply rules of law directly, without conducting a conflict of law analysis. Moreover, Paris, France, being the place of arbitration, Article 1511 of the French Code of Civil Procedure also provides that the tribunal shall decide the dispute in accordance with such rules of law as it deems appropriate. It shall take into account, in all cases, the usages of commerce” (award page 29 § 29).

Finding that the contract was of a “largely international” nature, the arbitral tribunal applied the UNIDROIT 2010 rules.

Contrary to C D’s assertion, the parties to the arbitration had not agreed to apply Indian law to the dispute and the arbitrators did not rule in equity but in law by applying the UNIDROIT 2010 Principles.

The ground, taken in its second and fourth branches, is therefore unfounded.

On the other hand, the office of the Court of Appeal, seized pursuant to Article 1520 of the Code of Civil Procedure, is limited to the examination of the defects listed by that text. The distortion of the contractual documents by the arbitrators does not constitute such a defect, which cannot be assimilated to a breach by the arbitrators of their obligation to comply with their mission, which was to enforce the contract.

The ground, which consists in criticizing the arbitrators for not having considered that the e-mail sent by Uzuc on 7 May 2009 according to which “Everything is OK” did not constitute a contractual agreement of the parties who agreed that the contract had been properly performed by C D, does not constitute an infringement which the annulment judge, who is prohibited from reviewing the award, may sanction.

Finally, according to the post-hearing brief, Uzuc made the following claims before the arbitral tribunal:

“(i) order the Defendant to pay compensation for the damage suffered in the amount of EUR 1,000,000;

(ii) order the Defendant to pay interest from the date of 17 February 2014 until the date of the award;

(iii) to order the Defendant to pay interest on any sum awarded until the date of its actual payment by the Defendant;

[…]” (award page 22 §134).

The arbitral tribunal only examined C D’s liability resulting from the IMP 721 order form, which related to tubes for the manufacture of 11 heat exchangers delivered in June-July 2009 prior to the conclusion of the IMP 079 order form (page 33 §§ 142 to 163, especially § 162 of the award). He recalled that the IMP 721 order form included equipment to be incorporated into the manufacture of 6 heat exchangers with welded stainless steel tubes (E 0201, E 0202, E 0203) and 5 heat exchangers with seamless stainless steel tubes (E 1201, E 1202, E 1203 and E 0111) (award page 31 and 32 §§ 154 and 157).

It then analysed the defects affecting the tubes used to manufacture the 11 heat exchangers, whose references are cited above. These defects consisted of puncturing corrosion, loss of wall thickness, mixing of grades, defective welds and erroneous marking.

The arbitral tribunal then ruled that PRAKASH was liable for the defects affecting each of the abovementioned facilities which were equipped with the equipment supplied in accordance with the IMP 721 order form, i.e. :

“perforating corrosion affecting one of each of the following types of heat exchanger: E1201, E1202, E0202 and E0203 ;

- steel grade mix affecting one unit of E1201 ;

- weld defects affecting all units containing welded tubes, i.e. two units of E0201, two units of E0202 and two units of E0203; and

- the erroneous marking affecting one unit of E1201 and one unit of E1202” (award page 51 §287).

From these defects, the arbitral tribunal found that this resulted in a loss proven by Uzuc in the amount of 1,210,451.40 euros as costs of remedial measures (award page 59 §344). Noting that Uzuc limited its claim to the sum of 1,000,000 euros in principal damages, the court limited its principal award to that amount.

The arbitral tribunal therefore did not rule ultra petita.

The ground is therefore unfounded.

On the third ground, alleging violation of the principle of due process (in french principe de la contradiction) (Article 1520-4 of the Code of Civil Procedure):

PRAKASH affirms that the arbitrators violated the principle of due process by, on the one hand, depriving her of the opportunity to be heard within a reasonable time and adopting an attitude which she described as intolerable and indicative of harassment and, on the other hand, by endorsing expert reports vitiated by the expert’s lack of independence and impartiality.

However, on the one hand, the principle of due process requires only that the parties should have been able to make known their claims in fact and in law and to discuss those of their adversary so that nothing that served as a basis for the arbitrators' decision escaped their contradictory debate.

The secretariat’s refusal of 13 March 2015 to comply with C D’s request of 11 March 2015 to suspend the arbitration proceedings for three months was due to the absence of an agreement between the parties to the proceedings on this point. The new refusal by the secretariat on 14 April 2015 of a new request to that effect submitted the day before by PRAKASH resulted from the refusal expressed by Uzuc (Award page 10 §§ 33 and 34). C D’s last request for suspension of the arbitral proceedings on 5 May 2015 in order to reach an amicable settlement was rejected on 20 May 2015 for the same reason.

The course of the arbitral proceedings reveals that PRAKASH has benefited from numerous postponements granted either by the secretariat or by the arbitral tribunal itself.

Although the request for arbitration was notified to PRAKASH as early as 9 January 2015, the company did not comply with the thirty-day deadline for submitting its reply by 11 February 2015 and was granted successive postponements until the filing of its reply on 4 June 2015. Similarly, during the arbitration proceedings, PRAKASH was granted an extension to 15 October 2015 to file its brief following a request to do so on 29 September 2015.

On 22 August 2016, two days before the date set for the filing of its counter-memorial, C D’s counsel informed the arbitral tribunal that it was withdrawing and that it no longer represented the company. Despite Uzuc’s refusal to grant PRAKASH a further period of time, the arbitral tribunal, by Procedural Order No. 5, granted PRAKASH an additional 15 days to file its counter-memorial.

Once again, on 24 December 2016, PRAKASH informed the arbitral tribunal that its consolidation expected on the same day according to the amended procedural timetable would not be filed until two days later, i.e. 26 December 2016. It was only on 27 December 2016 that this document was transmitted to the arbitral tribunal, which admitted it to the proceedings despite Uzuc’s refusal.

Far from revealing an attitude that PRAKASH qualifies as intolerable, the conduct of the arbitration proceedings reveals that the arbitrators have, for each delay attributable to this company, granted additional time in order to enforce the principle of due process.

On the other hand, in the arbitral proceedings, each party appointed an expert who prepared a report and was allowed to summon the opposing party’s experts for cross-examination at the hearing.

Therefore, PRAKASH submitted an expert report prepared by Unique Metallurgical Services (Exhibit R-32 of the arbitration file), for which Uzuc requested a cross-examination, which was refused by C D.

Drawing the consequences of this refusal in the light of Rules 3.9 and 4.2 of the mutually agreed rules of procedure, the arbitral tribunal, in its Procedural Order No. 7, adopted after an adversarial hearing, decided to set aside the expert’s report contained in Exhibit R-32, as PRAKASH had not provided a “compelling reason”, within the meaning of the mutually agreed rules of procedure, why its expert did not appear at the hearing for cross-examination.

PRAKASH submitted a new expert report (Exhibit R-36 of the arbitration file) prepared by Mr. Z one month before the hearing, which was cross-examined at the hearing.

For her part, Uzuc requested the Center of Technology and Engeneering for Nuclear Projects as an expert (Exhibit C-71 of the arbitration file), whose representative Mr. A was cross-examined at the hearing.

It results from the conduct of the procedure followed before the arbitrators that the parties were able to respond to the arguments and evidence brought forward by their opponent and were able to present their own evidence on the condition that it was submitted to the adversarial debate. The arbitral tribunal therefore relied on evidence that was debated before them.

It is not up to the court, the judge in charge of the annulment of the award, to review the merits of the decision of the arbitrators who chose not to retain the expert opinions presented by C D.

The ground of infringement of the principle of due process (in french principe de la contradiction) can only be set aside.

On the last ground of infringement of international public policy (Article 1520-5 of the Code of Civil Procedure):

PRAKASH claims that the award violates substantial international public policy by awarding Uzuc disproportionate damages for the prejudice suffered by the latter.

However, the control exercised by the annulment judge in defence of international public policy is only aimed at examining whether the execution of the measures taken by the arbitral tribunal is manifestly, effectively and concretely contrary to the principles and values included in international public policy.

Thus, the principle of an order for the payment of punitive damages is not, in itself, contrary to French international public policy. The situation is different if the amount awarded is disproportionate to the damage suffered and to the debtor’s failure to comply with his contractual obligations.

The arbitral tribunal did not condemn PRAKASH to pay punitive damages, which, moreover, were not requested by Uzuc.

In addition, the arbitrators limited the principal compensation awarded against PRAKASH to the sum of EUR 1,000,000 in view of Uzuc’s claims, which limited its claims to that amount, whereas the arbitrators considered that Uzuc had proved that it had suffered a loss of EUR 1,210,451.40 as a result of C D’s contractual breaches.

The arbitrators, after refusing to award the lost gain claimed by Uzuc, awarded interest on the condemnations at a rate of 2.4%, whereas Uzuc was claiming a rate of 6%.

As a result, the pecuniary sanction, including arbitration costs and fees, is not manifestly disproportionate to the damage suffered by Uzuc.

The ground must be set aside.

It follows from the foregoing that the action for annulment must be dismissed.

On Article 700 of the Code of Civil Procedure:

C D, who succumbs, cannot benefit from the provisions of article 700 of the code of civil procedure and will be condemned on this basis to pay Uzuc the sum of EUR 80,000.

FOR THESE REASONS,

Dismisses the parties' appeal for the annulment of the award rendered in Paris on 13 June 2017,

Condemns PRAKASH Ltd. to pay the costs and to pay Uzuc SA the sum of EUR 80,000 pursuant to Article 700 of the Code of Civil Procedure.