Court of Cassation confirms setting aside of award for lack of due process where a tribunal had based its finding on a principle of law not discussed during the hearing

In 1998 Overseas Mining Investments Ltd (OMI), a privately held company incorporated in the Channel Islands, entered into a joint venture agreement with Cuban state mining concern Commercial Caribbean Niquel S.A. (CCN) to exploit nickel deposits in Cuba.  Following CCN's repudiation of the venture in 2004, OMI invoked the agreement's arbitration clause, seeking (among other claims) damages for lost profits.  The tribunal in an UNCITRAL arbitration held in Paris acknowledged OMI's right to lost profits in their October 2008 award.  Yet in granting OMI more than $50 million in damages and costs, the arbitral tribunal based its award instead on the distinct legal principle of lost chance, a theory the parties had not discussed before the tribunal.

CCN successfully petitioned the Court of Appeal of Paris to set aside the award for violation of the adversarial principle (principe de la contradiction), a rule of due process in French civil procedure that guarantees one party's right to counter arguments of fact or law raised by the other.  In a March 2010 judgment (CA Paris, 1^ère Ch., 25 mars 2010, n° 08-23901), the court accepted CCN's claim that the arbitrators had failed to respect due process when they rejected the lost profits theory actually debated by the parties and instead awarded damages to OMI on a legal basis—loss of chance—that OMI had neither raised nor been asked to discuss.  The fact that CCN had invoked the loss of chance principle in its counterclaim was not enough, the court held, to satisfy due process requirements.  Rather, arbitrators must give both parties the opportunity to present opposing arguments on the substantive law that forms the basis for their award.

In a decision dated 29 June 2011, the French Court of Cassation upheld the setting aside of the award, agreeing with the Court of Appeal that the arbitrators' failure "to invite the parties to express their views" on loss of chance violated the adversarial principle.  The court emphasized the fact that arbitrators had not used the theory of loss of chance simply as a rubric for estimating damages.  Instead, the arbitral tribunal had acted sua sponte by making loss of chance the legal foundation for the award of damages itself.  The court held such a ruling to be in violation of the due process guarantees in Article 1502 of the French Code of Civil Procedure.

The Court of Cassation ruling confirms the French courts' longstanding insistence on scrutinizing arbitral awards for strict compliance with fundamental principles of due process.  The Court of Cassation has long held that the adversarial principle in particular is "essential for the conduct of a fair trial" (C. cass., 1^ère civ., 5 fév. 1991, n° 89-14382).  This latest decision, therefore, fits squarely within the lines of previous French court decisions confirming that the adversarial principle is binding on arbitrators (C. cass., 1^ère civ., 14 mars 2006, n° 03-19764) and requiring arbitrators to base their reasoning on issues of fact and law that the parties have actually contested before the tribunal (CA Paris, 18 sept. 2003, Rev. arb. 2004, 311).  The Commercial Caribbean case is by no means a harbinger of change in French law.  It does however serve as a reminder that French courts expect arbitrators to apply all due process safeguards.

Overseas Mining Investments Ltd c/Commercial Caribbean Niquel SA (C. cass., 1^ère civ., 29 juin 2011, n° 10-23321)