Paris Court of Appeal, No. 19/15817 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, Pole 5 – Sixteenth Chamber, 25 February 2020, No. 19/15817

DOMMO ENERGIA S.A (DOMMO)

vs.

BARRA ENERGIA DO BRAZIL PETROLEO EGAS LTDA (BARRA ENERGIA)

ENAUTA ENERGIA S.A.

I. FACTS AND PROCEDURE

DOMMO ENERGIA S.A. (hereinafter “DOMMO”), BARRA ENERGIA DO BRAZIL PETROLEO EGAS LTDA (hereafter “BARRA”) and QUEIROZ GALVÃO EXPLORAÇÃO E PRODUÇÃO S.A., now ENAUTA ENERGIA S.A. (hereafter “ENAUTA”) are three Brazilian companies involved in an offshore petroleum exploration and exploitation project in Brazil.
They were members of a Consortium governed by a joint operating agreement (“JOA”) concluded on 22 December 2000. The JOA sets out the obligations of the members of the Consortium, ENAUTA being appointed as the operator.
A dispute arose between the members of the Consortium, DOMMO challenging ENAUTA for not having performed its obligations as operator and for having caused, because of its management, delays in the implementation of the project, which led to additional costs and generated calls for capital that DOMMO refused to pay. DOMMO decided to sell the major part of its stake in the Consortium.
On 11 October 2017, BARRA and ENAUTA notified DOMMO of its exclusion from the JOA for failure to pay the calls for capital by invoking clause 8.4(D) of the JOA. This exclusion resulted in DOMMO being prevented from selling its stake.
It is in these circumstances that DOMMO filed a request for arbitration against BARRA and ENAUTA before the London Court of International Arbitration (“LCIA”) to obtain a ruling providing for the annulment of clause 8.4(D) of the JOA under Brazilian law, to see BARRA and ENAUTA ordered to cease any action likely to affect its stake in the Consortium and to see them ordered to compensate DOMMO from the prejudice that incurred.
In order to constitute the arbitral tribunal, DOMMO appointed Mr X from C D and BARRA and ENAUTA appointed Mr E Y as arbitrators.
On 11 and 27 November 2017, the arbitrators gave their statements of independence and impartiality. On 11 January 2018, the parties appointed Mr A B as Chairman of the arbitral tribunal. The LCIA confirmed this appointment 16 January 2018.
On 21 February 2018, the arbitral tribunal constituted in this manner rendered an interim award in Paris and decided to split the procedure into several stages.
The arbitral tribunal rendered in Paris on 24 September 2018 an award known as “Award Phase I” which focuses on several preliminary issues of Brazilian law. On this occasion, the arbitral tribunal ruled that clauses 8.4 and 8.6 of the JOA were valid under Brazilian law.
On 2 November 2018, BARRA informed the parties and the arbitral tribunal that a new lawyer joined his legal team, which led Mr Y to provide the parties with an updated statement of independence on 5 November 2018.
On 24 December 2018, the arbitral tribunal issued in Paris an award concerning arbitration costs (Additional Award). On the same day, the arbitral tribunal rendered another award pertaining to corrections to the address and some fiscal information of ENAUTA (Consented Addendum to the Award in Phase 1).
On 31 December 2018, DOMMO requested that Mr Y provide additional information after his statement of 5 November 2018.
On 2 January 2019, Mr Y responded to DOMMO’s requests which concerned in particular his relations with the law firm Blakes.
On 14 January 2019, the arbitral tribunal rendered in Paris an award terminating the interim award of 21 February 2018 (Award Terminating the 21 February 2018 Interim Award).
On 17 January 2019, DOMMO lodged before the LCIA a claim for recusal against Mr Y, the arbitrator appointed by BARRA and ENAUTA.
On 28 January 2019, the arbitral tribunal rendered in Paris a partial award relating to Phase 2 of the arbitration (Award in Phase 2) ordering DOMMO to pay BARRA and ENAUTA respectively the sum of 16,996,914.19 reals, in addition to interest, for the unpaid calls for capital.
On 20 February 2019, Professor Uff, appointed by the LCIA, dismissed the claim for the recusal of Mr Y.
On 5 April 2019, DOMMO formed an action for annulment before the Paris Court of Appeal against the arbitral award rendered in Paris on 24 September 2018 (" ‘the Award Phase I’ “) registered under number RG 19/07575.
DOMMO then lodged on 5 September 2019 four appeals against the other awards, registered under the numbers RG 19/15816, 19/15817, 19/15818 and 19/15819, while the arbitration continued, and phase III was still in progress.
The closing was announced 16 December 2019.

II. CLAIMS OF THE PARTIES

According to its summary submissions communicated electronically on 8 November 2019, DOMMO requests the court to :

DECLARE the annulment of the Additional Award of 24 December 2018 pursuant to Article 1520 K.2 of the Code of Civil Procedure;
ORDER BARRA I DO BRASIL PETROLEO E GAS LTDA and ENAUTA I S.A. to pay the sum of 5,000 euros pursuant to the provisions of Article 700 of the Code of Civil Procedure;
ORDER BARRA I DO BRASIL PETROLEO E GAS LTDA and ENAUTA I S.A. to pay all of the costs.

According to its submissions made electronically on 28 November 2019, BARRA requests the court, on the basis of Articles 32-1, 700 and 1520 of the Code of Civil Procedure and Article 1240 of the Civil Code to:

DISMISS the action for annulment in its entirety;
ORDER DOMMO to pay to BARRA an amount of 100,000 euros under Article 32-1 of the Code of Civil Procedure;
ORDER DOMMO to pay to BARRA the sum of 50,000 euros under Article 700 of the Code of Civil Procedure as well as all of the costs.

According to its submissions transmitted electronically on 28 November 2019, ENAUTA requests the court, on the basis of Articles 9, 1456 K.2, 1506 K.2 and 1520 K.2 of the Code of Civil Procedure, to:

TO DECLARE AND RULE that the claimant does not provide evidence of the existence of a reasonable doubt likely to affect Mr Y’s independence and impartiality and, consequently, to vitiate with irregularity the constitution of the arbitral tribunal having issued the contested award;

Consequently,

TO DECLARE AND RULE AS UNFOUNDED IN ALL OF ITS ELEMENTS the action for annulment filed by DOMMO and to dismiss all of the latter’s purposes, claims and submissions;
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 to the benefit of SELARL LEXAVOUE PARIS-VERSAILLES, Lawyer, and such in accordance with the provisions of Article 699 of the same Code.

III. GROUNDS OF THE PARTIES

DOMMO essentially argues that, having undertaken extensive research on the links between Mr Y and the defendants, it incidentally discovered that Mr Y, before carrying out his activity in an independent manner, maintained close ties with the law firm Blakes, which has among its regular clients the controlling shareholders of BARRA and their respective subsidiaries. It submits that Mr Y failed to disclose these links and that these business relations maintained by the law firm Blakes with the shareholders of BARRA are of such a nature as to raise doubts about the independence and impartiality of Mr Y. It argues that the doubt with respect to his impartiality and independence is sufficiently reasonable to overturn the award.
DOMMO reminds that the concepts of independence and of impartiality are assessed objectively so that it is the appearance of non-independence resulting from undisclosed circumstances as well as the doubt that these circumstances are likely to create in the mind of a party that allow for a breach of the duty of independence to be characterized. It also reminds that the relations maintained by an arbitrator’s firm with one of the parties or the companies affiliated thereto are, in the eyes of a reasonable observer, of a nature as to characterise doubt on the independence and impartiality of this arbitrator.
It adds that the impartiality and independence of the arbitrator must be assessed not only upon the appointment of the arbitrator but also by taking into account the past situation, and that the relations between Mr Y and the firm Blakes, which occurred between 2012 and 2015, were only ceased two years and half before the beginning of the arbitration, which is close enough to be taken into consideration in respect of the risk weighing on the independence of Mr Y.
DOMMO contests the reproach addressed to it regarding the fact that it did not claim the recusal of Mr Y as soon as he was appointed. It states that the duty of curiosity which is imposed on the parties at the beginning of the arbitration requires only the performance of reasonable diligence. The parties are not required to carry out in-depth research. In this respect, it argues that the relations between Mr Y and Blakes were 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 adds that the information relating to the relations between Mr Y, Blakes and the controlling shareholders of BARRA were not easily accessible, these links appearing neither directly nor indirectly on the CV of Mr Y. It 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.
It disputes the belated nature of its claim for recusal, since the information only came to its knowledge after the second statement of independence and after in-depth research, as the situation is not well-known. It requests the annulment of the Award.
In response, BARRA argues that the duty of disclosure borne by the arbitrators must be assessed in light of the notoriety of the criticised situation, its link to the dispute and its impact on the judgment of the arbitrator.
It recalls that the arbitrator must only inform the parties of any relationship that does not have a well-known character and that, as a result, the parties have a duty of curiosity before the start of the proceedings when they can effortlessly obtain knowledge of the contested facts, which DOMMO did not do.
It states that failure to disclose is not sufficient in itself to constitute a doubt about a lack of independence or impartiality and that it is also necessary to demonstrate how the concealed elements infringe upon the independence of the arbitrator. It states that the concealed circumstances must be of such a nature as to create a “reasonable doubt” in the minds of the parties on the independence of the arbitrator.
In this respect, BARRA indicates that the alleged links between Mr Y and Blakes, in addition to the fact that they were notoriously public and easily accessible on the internet at the time of the appointment of the arbitrator, were also old and short in duration and were no longer occurring at the time of the acceptance of the mission of arbitrator. BARRA also indicates that it was a non-significant fact and that it was not of a nature as to affect the arbitrator’s judgment, nor to create a reasonable doubt in the minds of the parties on his independence.
It states that the information pursuant to which Blakes’ clients included shareholders of BARRA was also accessible on the internet, and that in any case, Mr Y has firmly declared several times that he had never had any connection whatsoever with First Reserve Corporation, nor with O P, which are the said shareholders. The alleged links were very indirect and not established.
BARRA finally argues that the claim for recusal was made after the time limit and requests the dismissal of the action for annulment as well as damages for abuse of process.
ENAUTA maintains that it was up to DOMMO to undertake minimal diligence in order to get informed about the independence of the arbitrator, that it could easily have accessed the information about Blakes and its relationship with Mr Y, and that DOMMO defaulted on its duty to " ‘react’ “.
ENAUTA also argues that the duty of disclosure borne by the arbitrator concerns circumstances prior to his appointment, and fades or disappears if, on the day of the appointment of the arbitrator, the links are too old. It considers that two or three years are sufficient regarding any link involving the arbitrator directly, if it no longer exists on the date of the appointment, to no longer be likely to affect the judgment of the arbitrator.
Finally, ENAUTA argues that there is no “direct” conflict of interests between Mr Y and the parties to the arbitration or any entity belonging to their respective groups, nor any “indirect” conflict of interest of the arbitrator with any entity party to the arbitration, as Mr Y has not had any link with the firm J K-U for almost two and a half years and did not conserve any link with Blakes, which relieved him of any duty to disclose this past.
It further states that DOMMO does not provide evidence of the links that it alleges and for which it bears the burden of proof.

The Court refers to the referred decision and to the above-mentioned entries for a more detailed statement of the facts and claims of the parties, as per the provisions of the Article 455 of the Code of Civil Procedure.

IV. REASONS FOR THE DECISION

On the admissibility of the challenge,

The inadmissibility of the action for annulment on the basis that the challenge of the arbitrator’s independence and impartiality is belated has not been formulated in the claims of the parties stated in the operative part of their submissions. On the contrary, this challenge figures only in grounds developed by BARRA to contest the merits of the action for annulment, which maintained that, as a result of the belated nature of DOMMO’s challenge, the latter would have waived its right to invoke any circumstance relating to the alleged links with Blakes and that this process is abusive and dilatory, seeking only the dismissal of the action for annulment and damages for abuse of process.
Pursuant to Article 954 K 3 of the Code of Civil Procedure, no claim for the inadmissibility of the action for annulment is therefore brought before the court.

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

On the arbitrator’s duty of disclosure:

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

“Before accepting a mandate, an arbitrator shall disclose any circumstance that may affect his or her independence or impartiality. He or she also shall disclose promptly any such circumstance that may arise after accepting the mandate.”

The abovementioned text entails that the duty of disclosure borne by the arbitrator is imposed both before the acceptance of the mission and thereafter, depending on whether the circumstances already exist or arise after the said date of acceptance. These circumstances may be varied and may concern potential conflicts of interests, possible relations of interest or a stream of business that the arbitrator may have had with the parties or with third parties likely to be interested in the dispute.
The duty of disclosure borne by the arbitrator must be assessed considering the notoriety of the criticised situation, its link with the dispute and its impact on the arbitrator’s judgment.
In the present case, it is clear from the documents used in the debates and in particular the statement of independence of E Y of 27 November 2017, to which was attached his curriculum vitae taken from the Who’s Who website, that he did not declare having worked between 2012 and 2015 as a lawyer in a Saudi law firm called Dr. J K-U, affiliated with the law firm Blakes, of whom two clients are US investment funds, who are majority shareholders of BARRA. The parties are disputing the notorious nature of this information and the reasonable doubt that this information may create on the arbitrator’s impartiality and independence.

On the notoriety of the undisclosed information:

It should be reminded in this respect that only the easily accessible public information, that the parties could not fail to consult before the beginning of the arbitration, are such as to characterise the notoriety of a situation likely to temper the content of the disclosure obligation borne by the arbitrator.
In the present case, it is clear from the facts and from the documents used in the debates, that the statement of independence of E Y and his CV did not make any mention of his background as a lawyer in any firm, only the mention of “general counsel, country manager, financial director, commercial manager and economist” appearing in the Who’s Who card, without any precision. It is also clear that it is only after the appointment of a new counsel for BARRA of which DOMMO was informed on 2 November 2018, and the exchange of new statements of independence (5 November 2018) and the questions on the possible links that the arbitrators could have had with this new firm, that DOMMO undertook research that resulted in its questioning of Mr Y on 31 December 2018 over his links with this new counsel (Mr Z) and on his links with Blakes, DOMMO having discovered that Blakes had as clients First Reserve Corporation and O P Q, majority shareholders of BARRA.
Thereafter, Mr Y, by mail of 2 January 2019, answered this question, specifying that he was “senior international counsel” between the month of April 2012 and July 2015 within the law firm Dr. J K-U in Saudi Arabia, a law firm having a collaboration with the law firm Blakes. By the same e-mail, E Y indicated that he did not know First Reserve Corporation and that he was not aware of the work that Blakes may or may not have done for this company.
In this respect, as regards the employment of Mr Y as a lawyer in the law firm Dr. J K-U affiliated with Blakes, it is not established that DOMMO could have been aware of these elements other than by the statements so provided by the relevant person, nor that this information was easily accessible to a normally diligent party.
Indeed, if BARRA maintains that this information could have been known by a simple consultation of Mr Y’s site, it is advisable to note that this site makes no clear, obvious and transparent mention of any collaboration of the interested party with a law firm, and that it is only by performing research on each of the eleven conferences listed on the “Disputes” “Related Experience” page of the site and by looking at the details thereof that the information pertaining to Mr Y’s presentation as “Senior International Counsel” of the firm Blakes can be found.
Similarly, it is apparent from the facts of this case that it is only after an advanced consultation of the publications available on the “Knowledge” “Publications” page of the site that it was possible to discover that two of them mentioned Blakes.
These elements entail that access to this information on the internet is only possible after an in-depth analysis and meticulous consultation of the arbitrator’s website and requires the opening of all the links related to the conferences in which he participated and to consult, one after the other, the content of the publications to which he contributed.
Therefore, access to the information requires several successive operations which are like investigative measures which cannot characterise easily accessible information. As a result, the information cannot be considered as notorious, and the arbitrator should therefore have disclosed it upon his first statement.

On the link between the criticised situation and the dispute, and its impact on the arbitrator’s independence and impartiality:

It should be reminded that the non-disclosure of the information by the arbitrator is not sufficient to constitute a lack of independence or impartiality. It is also necessary that these elements be of such a nature as to provoke, in the minds of the parties, a reasonable doubt as to the impartiality and independence of the arbitrator, the assessment thereof being made on objective bases and taking into account the particularities of the case.
In the present case, DOMMO proves that Blakes represented the controlling shareholders of BARRA, which are First Reserve Corporation and O P Q between 2008 and 2014. Mr Y denied knowledge thereof, having stated on 2 January 2019, in response to the claim made by DOMMO before the London Court of International Arbitration (LCIA), that he never heard of First Reserve Corporation while he worked for the Saudi law firm Dr. J K-U affiliated with Blakes, nor did he have knowledge of the work that Blakes was doing for this company at that time. It is furthermore apparent from his statement of 28 January 2019, that Mr Y also indicates that he had not heard about O Holding Q either.
While such an answer may be surprising given that these companies are investment funds renowned in the energy sector, that the website of BARRA mentions these companies as being its controlling shareholders and that Mr Y presents himself as a specialist in the sector of energy for thirty-five years, these circumstances do not however demonstrate, even supposing that he had knowledge of this shareholding of BARRA, that he had a direct or an indirect link, material or intellectual, with the said shareholders or their subsidiaries, whether through Dr. J K-U or Blakes, or that a business stream existed between the arbitrator and these shareholders.
However, in order for the failure to disclose his activity as a lawyer within the firm Dr. J K-U to allow for the raising of a reasonable doubt as to his impartiality or independence, it would be necessary that this activity have generated similar links with the shareholders of BARRA and a stream of business between the arbitrator and First Reserve Corporation or O P Q, which is not established, or that he has or had any further interest with Blakes that could create a conflict of interest as maintained by DOMMO, which is not established either.
No documents prove that Mr Y has, at any time, advised, represented, or assisted the shareholders of BARRA.
The fact that Mr Y worked as “Senior International counsel with Blakes in Saudi Arabia”, or the fact that he was using Blakes’ e-mail address, are not elements that make it possible to establish the existence of any link whatsoever between Mr Y and the shareholders of BARRA, nor are they of such a nature as to create reasonable doubt as to Mr Y’s independence and impartiality, especially since the links between Mr Y and Blakes were indirect, through the firm of Dr. J K-U and ceased two and a half years before the start of the arbitration. This may not have been 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 at the time Mr Y worked for Dr. J K-U or afterwards.
The ground for annulment must be dismissed and the action for annulment dismissed.

On BARRA’s claim for damages for abuse of process,

BARRA maintains that the present action constitutes an abusive and dilatory manoeuvre by DOMMO and, on this basis, is seeking 100,000 euros in damages. It argues that DOMMO has done everything possible to contest the enforcement of Partial Award Phase I, by trying to resist to the transfer of its stake in the project to BARRA and QGEP, and that DOMMO continues until this day to refuse to enforce Partial Award No. 2 which ordered the latter to pay calls for capital.
In response, DOMMO argues that since the actions for annulment do not have a suspensive effect, they did not have an impact on the way the project was implemented, and that the rights of BARRA in the arbitration were not affected. It adds that it agreed to a very accelerated procedural timetable because it wants its claim to be adjudicated quickly and efficiently in the interest of all parties. It furthermore contests that the actions aim to obtain the review of Award Phase I on the merits.
DOMMO argues that there is no basis to consider that, by making use of the legal remedies available by law, it derailed its right to take legal action into an abuse of process. Therefore, BARRA’s claim for damages on the basis of abuse of process should be dismissed.

On the costs and expenses,

DOMMO, which cannot claim the benefit of the provisions of Article 700 of the Code of Civil Procedure must be ordered on this same basis to pay each of the defendants the sum of €15,000 for these proceedings, the other proceedings being dealt with autonomously and giving rise to a separate decision in this respect.

FOR THESE REASONS,

The court,

1- Notes that no claim for inadmissibility of the appeal was lodged before it,

2- Dismisses DOMMO’s action for annulment of the Additional Award of 24 December 2018,

3- Dismisses BARRA’s claim for damages for abuse of process,

4- ORDERS DOMMO to pay to BARRA and ENAUTA the sum of 15,000 euros each, in respect of Article 700 of the Code of Civil Procedure, and orders DOMMO to pay all of the costs, including those provided for in the provisions of Article 699 of the same Code.