Paris Court of Appeal, No. 19-15.818

Paris Court of Appeal - 5th Pole – 16th Chamber- 25 February 2020, No. 19-15.818

SOCIETE DOMMO ENERGIA S.A (Dommo)

Vs.

SOCIETE HI SA (H)

SOCIETE L I DO BRAZIL PETRÓLEO E GÁS LTDA (L)

I. Reminder of the facts and the proceedings

1. The companies Dommo I SA (hereinafter “Dommo”), LI do Brasil Petróleo e Gás Ltda (hereinafter “LI”) and Queiroz Galvão Exploração e Produção SA, now HI SA (hereinafter “HI”) 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”) concluded on 22 December 2000. The JOA sets the financing obligations by the members of the Consortium, company HI being designated as the operator.

3. A dispute arose between the members of the Consortium, the company Dommo complaining that the company HI had not fulfilled its obligations as operator and for having been at the origin, because of its management, of delays in the commissioning of the project, which generated additional costs and generated calls for funds (“cash calls”) that the company Dommo refused to pay. Dommo has decided to sell most of its stake in the Consortium.

4. On 11 October 2017, the companies LI and HI notified the company Dommo of its exclusion from the JOA for non-payment of calls for funds, invoking clause 8.4 (D) of the JOA. This exclusion had the consequence of preventing it from selling its stake.

5. It is in these circumstances that the company Dommo brought a request for arbitration against the companies LI and HI before the London Court of International Arbitration (“LCIA”) to have the nullity of clause 8.4 (D) of the JOA in application of Brazilian law, order the companies LI and HI to cease any action likely to affect its participation in the Consortium and see them ordered to compensate for its damage.

6. In order to constitute the arbitral tribunal, the company Dommo appointed Mr. X from C D and the companies LI and HI appointed Mr. EY as arbitrators.

7. On 11 and 27 November 2017, the arbitrators transmitted 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 designation on 16 January 2018.

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

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

10. On 2 November 2018, Company LI informed the parties and the arbitral tribunal that a new lawyer had joined its advisory team, which led Mr. Y to provide the parties with an update to his statement of independence on 5 November 2018.

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

12. On 31 December 2018, the company Dommo asked Mr. Y to provide additional information after his declaration of 5 November 2018.

13. On 2 January 2019, Mr. Y responded to claims from the Dommo company, which concerned in particular its relations with the law firm Blakes.

14. On 14 January 2019, the arbitral tribunal rendered 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 LI and HI.

16. On 28 January 2019, the arbitral tribunal issued in Paris a partial award relating to phase 2 of the arbitration (Award in Phase 2) ordering the company Dommo to pay respectively to companies LI and HI the sum of 16,996 .914.19 reals, in addition to interest, for unpaid calls for funds.

17. On 20 February 2019, Professor Uff, appointed by the LCIA, rejected Mr. Y’s challenge request.

18. On 5 April 2019, the company Dommo filed an action for annulment before the Paris Court of Appeal against the arbitration award issued in Paris on 24 September 2018 (“‘the Award Phase I’”) registered under number RG 19/07575.

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

20. 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 :

• DECLARE the annulment of the Sentence Consented Award of 24 December 2018 pursuant to Article 1520 K.2 of the Code of Civil Procedure;

• CONDEMN the companies L I DO BRASIL PETROLEO E GAS LTDA and H I S.A. to pay the sum of EUR 5,000 under the provisions of Article 700 of the Code of Civil Procedure;

• CONDEMN L I DO BRASIL PETROLEO E GAS LTDA and H I S.A. to pay all costs.

22. According to its submissions transmitted electronically on 28 November 2019, LI requests the court to approve articles 32-1, 700 and 1520 of the Code of Civil Procedure and article 1240 of the Civil Code:

• DISMISS the action for annulment in its entirety;

• CONDEMN the company Dommo to pay LI damages of EUR 100,000 under Article 32-1 of the Code of Civil Procedure;

• CONDEMN the company Dommo to pay LI the sum of 50,000 euros under Article 700 of the Code of Civil Procedure and to pay all costs.

23. According to its conclusions transmitted electronically on 28 November 2019, HI company under articles 9, 1456 K.2, 1506 K.2 and 1520 K.2 of the Code of Civil Procedure requests the court to approve:

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

Consequently,

• TO STATE AND JUDGE UNFOUNDED IN ALL THAT IT CONTAINS Dommo’s appeal for annulment and to dismiss the latter of all its purposes, claims and conclusions;

• CONDEMN Dommo to pay EUR 250,000 to the company HI under Article 700 of the Code of Civil Procedure, as well as the entire costs of the proceedings, including distraction to the benefit of SELARL LEXAVOUE PARIS-VERSAILLES, Lawyer, in accordance with the provisions of Article 699 of the same code.

III. Grounds of the parties

24. Dommo claims in substance that, having undertaken extensive research into Mr. Y’s ties with the defendants, it discovered by chance that Mr. Y, before carrying on his business independently, had close ties with the law firm Blakes, whose regular clients include the controlling shareholders of LI and their subsidiaries. It maintains that Mr. Y failed to disclose these ties and that these business relationships between Blakes and the shareholders of LI 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 points out that the concepts 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 which makes it possible to characterise a breach of the obligation 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 when the arbitrator is appointed but also by taking into account the past situation and that the relations between Mr. Y and the firm Blakes, which existed between 2012 and 2015, only ceased two and a half years before the start of the arbitration, which is close enough to be taken into consideration for the risk weighing on Mr. Y’s independence.

27. Dommo disputes that it may be accused of not having requested the disqualification of Mr. Y upon his appointment. It points out that the duty of curiosity imposed on the parties at the beginning of the arbitration only requires reasonable diligence, the parties not being required to carry out in-depth research. In this respect, she 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 law firm and the controlling shareholders of LI was not easily accessible, as these relations did not appear either directly or indirectly on Mr Y’s CV. She 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. Dommo denies any tardiness in its request for disqualification, the elements not having come to her knowledge until after the second declaration of independence and after in-depth research, the situation not being well known. It requests the annulment of the Award.

29. In response, company LI claims that the arbitrators' disclosure obligation must be assessed with regard to the notoriety of the situation criticized, its link with the dispute and its impact on the arbitrator’s judgment.

30. Company LI recalls that the arbitrator must only inform the parties of any relationship which is not of a notorious nature and that as such the parties have an obligation of curiosity before the start of the proceedings when they can access without effort to the knowledge of the alleged facts, which the Dommo company did not do.

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

32. In this regard, company LI indicates that Mr. Y’s alleged relations with the Blakes firm, in addition to being well-known because they were public and easily accessible on the internet at the time of the appointment of the arbitrator, were also old and of short duration and no longer existed at the time of the acceptance of the mission of arbitrator, that it was an insignificant fact, that it was not likely to affect the judgment of the arbitrator, nor to create a reasonable doubt in the minds of the parties as to his independence.

33. Company LI indicates that the information according to which the firm Blakes counted among its own clients the shareholders of the company LI was also accessible on the internet, that in any event, Mr. Y declared several times and firmly that he had never had any link whatsoever, neither with First Reserve Corporation, nor with OP, the said shareholders, that finally, the alleged links were very indirect and not established.

34. Finally, company LI claims that the application for challenge was made out of time and asks for the annulment to be dismissed and for damages for abusive proceedings as well.

35. HI claims that it was the responsibility of Dommo to take the minimum diligence to inform itself of the arbitrator’s independence, that it had easy access to information on Blakes law firm and its links with Mr. Y, and that Dommo failed in its duty of “‘reaction’”.

36. HI company also argues that the obligation of disclosure incumbent on the arbitrator relates to circumstances prior to his appointment and fades or disappears if, on the day the arbitrator is appointed, the links are too old, considering that two or three years are sufficient for any links directly involving the arbitrator, if they no longer exist on the date of appointment, to no longer be likely to affect the arbitrator’s judgment.

37. Finally, it argues 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 that is a party to the arbitration, as Mr. Y has not been associated with J K-U law firm for nearly two and a half years and has not retained any connection with Blakes firm, which relieved him of any duty of disclosure regarding that past.

38. The Court also stated that Dommo did not provide proof of the links it alleged, for which the burden of proof rested on it.

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

IV. Reasons for the decision

On the admissibility of the appeal,

39. The inadmissibility of the action for annulment on the ground that the contestation of the arbitrator’s independence and impartiality would be belated was not formulated in the claims of the parties set out in the operative part of their conclusions, but only appears in the reasons put forward by LI for contesting the application for annulment on the merits, on the grounds that Dommo company had waived, because of the belated nature of its contestation, the right to rely on any circumstances relating to the alleged relations with Blakes firm, and that this recourse would be abusive and dilatory, seeking only the dismissal of the application for annulment and damages for abusive proceedings.

40. Pursuant to Article 954 K 3 of the Code of Civil Procedure, therefore, the court is not seized 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 the terms of 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 duty to disclose is imposed both before acceptance of the mission and afterwards, depending on whether the offending circumstances pre-exist or arise after acceptance. These circumstances may be various 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 be interested 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 LI, the parties opposing the notorious nature of this information and the reasonable doubt that this information may generate as to the arbitrator’s impartiality and independence.

On the notoriety of 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 such as to characterise the notoriety of a situation likely to temper the content of the obligation of disclosure incumbent on the arbitrator.

46. In this case, it results from the factual elements 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 LI that Dommo was informed of on 2 November 2018, exchanges of new declarations of independence (5 November 2018) and 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 its links with this new board (Mr Z) and on its links with Blakes, whose clients it discovered to be First Reserve Corporation and O P Q, majority shareholders of the company LI.

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 at the law firm Dr. J K-U in Saudi Arabia, a firm with 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 First Reserve Corporation.

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. Indeed, if the company LI maintains that this information could be known by a simple consultation of the site of Mr. Y, it should be noted that this site does not mention in a clear, obvious and transparent way any collaboration of the interested party with a law firm and that it is only by carrying out research on each of the eleven conferences listed on the “Disputes' Related Experience” page of the site and by reviewing the details of these that it can be found the information according to which Mr. Y was presented as “Senior International Counsel” of the firm Blakes.

50. Similarly, it is apparent from the evidence in the case that it was only after an advanced consultation of the publications of the interested party accessible on the site on the “Knowledge ' Publications” page that it was possible to discover that two of them mentioned the law firm 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 him to open all the links relating to the conferences he has attended and to consult one after the other the content of the publications to which he has contributed.

52. Thus, access to information requires several successive operations which are similar to investigative measures that 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 in 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 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 this case, the Dommo company justifies that Blakes represented LI’s controlling shareholders, First Reserve Corporation and O P Q, between 2008 and 2014, which Mr. Y denied knowing, having declared on January 2, 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 law firm carried out for that company at that time. It further appears from his declaration 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 company LI 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 that he had knowledge of this shareholding of company LI, he had a direct or indirect link, material or intellectual, with the said shareholders or their subsidiaries, whether through the law firm Dr. Y. 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 in the law firm of Dr. J K-U to raise a reasonable doubt as to his impartiality or independence, such activity would have to have generated such links with the shareholders of LI company and have been the source of a business relationship 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 argued by Dommo, 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 LI.

58. The fact that Mr. Y worked as “‘Senior International counsel with Blakes in Saoudi 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 LI company to be established, 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 the Blakes law firm were indirect, through the firm of Dr. J. K-U and they have stopped two years and a half before 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 LI at the time Mr. Y worked for Dr. J K-U nor afterwards.

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

On the claim for damages for abusive proceedings made by the company LI,

60. The company LI claims that the present action would constitute an abusive and dilatory maneuver on the part of the company Dommo and on this basis is soliciting 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 the companies LI and QGEP, and that Dommo continues to refuse to execute till this day 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 had no suspensive effect, had no impact on the way the project was being carried out and that LI’s rights in the arbitration had not been 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. She further contests that the remedies would be aimed at obtaining a review of the Phase 1 Award on the merits.

62. It submits 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 LI must be dismissed from its claim for damages for abuse of process.

On the costs and expenses,

63. The Dommo company which cannot claim the benefit of the provisions of article 700 of the code of civil procedure must be condemned on this same basis to pay each of the defendant parties 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 request for inadmissibility of the appeal has been submitted to it,

2- Dismisses the Dommo company’s action for the annulment of the Award ‘Consented Addendum to the Award Phase 1’ of 24 December 2018,

3- Dismisses the company LI from its claim for damages for abusive proceedings,

4- Condemns the company Dommo to pay the companies LI and HI the sum of EUR 15,000 each under Article 700 of the Code of Civil Procedure, and condemns it to pay the entire costs, including distraction in accordance with the provisions of Article 699 of the same code.