PARIS COURT OF APPEAL REFUSES TO SET ASIDE AN AWARD AND CONFIRMS THAT AN ARBITRAL TRIBUNAL DOES NOT EXCEED ITS MANDATE WHEN APPLYING UNIDROIT PRINCIPLES TO DECIDE ON THE MERITS OF A DISPUTE

In a judgment issued on 25 February 2020, the Paris Court of Appeal (the “Court”) refused to set aside an ICC award, dismissing all four grounds of annulment on which the claimant relied (Cour d'appel de Paris, 25 February 2020, n° 17/18001). The judgment, which reiterates well-established principles of French arbitration law, is a helpful illustration of how the Court, as the annulment court for an award issued in France, addresses the grounds to set aside an award under article 1520 of the French Code of Civil Procedure (“CPC”).

Background and arbitration proceedings

Prakash Steelage Ltd, a company incorporated in India (“Prakash”) and Uzuc SA, a company incorporated in Romania (“Uzuc”, and together with Prakash the “Parties”), entered into a sales agreement under which Prakash would deliver stainless steel tubes (the “Tubes”) to Uzuc (the “Sales Agreement”). Uzuc then planned to use the Tubes to build heat exchangers that would ultimately be delivered to QAFCO Qatar. Uzuc alleged that the Tubes were defective and filed a request for arbitration with the ICC on 19 December 2014, claiming compensation from Prakash.

On 13 June 2017, the tribunal issued an award ordering Prakash to pay EUR 1 million in damages to Uzuc for breach of its contractual obligations under the Sales Agreement (the “Award”).

The Court’s decision

In November 2017, Prakash commenced annulment proceedings before the Paris Court of Appeal on the grounds that (i) the tribunal had wrongly upheld its jurisdiction (article 1520 1° of the CPC); (ii) the tribunal had ruled without complying with the mandate conferred upon it (article 1520 3° of the CPC); (iii) due process was violated (article 1520 4° of the CPC); and (iv) enforcement of the award would be contrary to international public policy (article 1520 5° of the CPC). The Court rejected all four grounds and refused to set aside the Award. We consider each of the alleged grounds of annulment in turn below.

Lack of jurisdiction

Prakash argued that the tribunal should not have accepted jurisdiction as the reference to “Paris Court of arbitration” (Cour d’arbitrage de Paris) in an email between the Parties was not an effective arbitration clause. Prakash argued that the reference (i) was part of the negotiation process, and was not an expression of consent to arbitration; and (ii) did not include any indication as to the scope of the submission to arbitration, rendering it “impracticable”. According to Prakash,  it was entitled to rely on this ground before the Court as it had raised it previously in its answer to the request for arbitration (the “Answer”).

The Court rejected Prakash’s argument and held, consistent with previous decisions[1] and on the basis of article 1466 of the CPC,[2] that a party which actively participates in the arbitration proceedings is deemed to have waived its right subsequently to rely on any irregularities which it knowingly refrained from raising before the arbitrators. The Court noted that while Prakash did comment, in its Answer, that the Parties had not agreed to submit their disputes to arbitration, it did not in fact argue that the tribunal did not have jurisdiction in that document or at a later stage in the proceedings. Further, during the hearing, Prakash had expressly accepted the tribunal’s jurisdiction. The Court therefore concluded that Prakash could not challenge the Award on the basis of the tribunal’s alleged lack of jurisdiction.

Decision beyond the scope of the tribunal’s mandate

Prakash argued that the tribunal exceeded its mandate by applying the UNIDROIT Principles to the dispute. Prakash claimed that Indian law was applicable and that the tribunal’s decision to apply the UNIDROIT Principles instead amounted to a ruling in equity rather than in law, which exceeded the tribunal’s mandate.

The Court rejected this argument and held that the tribunal had not exceeded its mandate. The Court noted that, in light of the Parties’ disagreement as to the applicable law (with Prakash arguing that Indian law was applicable and Uzuc arguing that Romanian law was applicable), the tribunal issued two procedurals orders: (i) procedural order No. 1 which invited the Parties to examine the application of substantive norms and to consider the application of transnational principles such as the UNIDROIT Principles; and (ii) procedural order No. 3, which asserted the tribunal’s decision to apply the UNIDROIT Principles in accordance with article 21.1 of the ICC rules and article 1511 of the CPP. On the basis of those provisions and the Parties’ agreement on the direct application method of choice of law, the tribunal held that it enjoyed broad discretion to apply substantive norms it deemed appropriate, taking into account trade usages and without the need to refer to conflict of law principles. Applying this method to determine the law applicable to the dispute, and on the basis of the “largely international” character of the Sales Agreement, the tribunal applied the UNIDROIT Principles. The Court held that that this was a decision in law rather than in equity and that it did not exceed the tribunal’s mandate.

Breach of due process

Prakash alleged that the tribunal breached due process by (i) denying Prakash its right to be heard within a reasonable period of time, and adopting “an intolerable attitude tantamount to harassment”; and (ii) endorsing an expert report which was allegedly neither impartial nor independent.

The Court of Appeal rejected Prakash’s arguments and held that:

1. in accordance with established case-law,[3] the obligation for tribunals to comply with due process only requires that each party be given an opportunity to make its arguments known to the other party and to challenge the other party’s arguments. The Court further observed that, although the ICC Secretariat refused two of Prakash’s requests for extensions of time for the service of its Answer, it also granted several extensions at various stages of the proceedings, as did the tribunal. The Court concluded that there was no basis for a finding that due process had been breached; and
2. both Parties had instructed experts and had had an opportunity to cross-examine the other Party’s expert. It was not for the Court to consider whether the tribunal had erred in choosing not to rely on the evidence presented by Prakash’s expert.

Breach of international public policy

Finally, Prakash asserted that the Award breached international public policy by awarding Uzuc damages that were disproportionate to Uzuc’s loss.

The Court rejected this argument and reaffirmed, in accordance with its recent case-law[4], that awards could only be set aside for breaching international public policy if they manifestly, effectively and concretely conflict with the principles and values included in the notion of international public policy. The Court held that, while the award of punitive damages is not, by itself, contrary to French international public policy, the situation would be different if the amount awarded was disproportionate with respect to the loss suffered and the breaches of the debtor’s contractual obligations. In the circumstances, however, the Court noted that the tribunal in this case did not award punitive damages (which had not been claimed in any event) and therefore rejected the fourth ground of challenge.

Comment

The Paris Court of Appeal’s decision does not break new ground and, as discussed above, it mainly reiterates established principles. However, this case does provide useful guidance as to how the Court approaches the grounds for setting aside an arbitral award (such as the tribunal’s jurisdiction, due process, and international public policy). The judgment also provides useful guidance as to the arbitrators’ broad discretion under French law to apply transnational principles, such as the UNIDROIT Principles, where the parties have not expressly agreed an applicable law to their arbitration proceedings.

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[1] See for example, Cour d'appel de Paris, Pôle 1, Chambre 1, Arrêt du 22 janvier 2019, Répertoire général nº 16/23370 and Cour de cassation, Deuxième Chambre civile, Arrêt nº 799 du 11 juillet 2002, Pourvoi nº 00-21.823

[2] Article 1466 of the CPC is applicable to international arbitrations seated in France pursuant to article 1506 3° of the CPC

[3] See for example, Cour d'appel de Paris, Pôle 1, Chambre 1, Arrêt du 10 janvier 2017, Répertoire général nº 14/21345

[4] See for instance, amongst others, Cour d'appel de Paris, Pôle 1, chambre 1, Arrêt du 14 Juin 2016, n° 14/16113 and Cour d’appel de Paris, Arrêt du 26 septembre 2017, n° 16/15338