Paris Court of Appeal, 25 February 2020, No. 17/18001

Prakash Steelage Ltd. (“Prakash Steelage” or “Respondent“), an Indian company, entered into a sale agreement with a Romanian company Uzuc S.A. (“Uzuc” or “Claimant“) to deliver stainless steel tubes. As part of its manufacturing process, Uzuc then incorporated these tubes in the heat exchangers that it manufactured for GE Oil & Gas, who, in turn, installed the exchangers in a fertilizer plant for the final client, QAFCO Qatar.

The stainless steel tubes delivered proved to be defective and Uzuc commenced an ICC arbitration in Paris against Prakash Steelage in July 2014, pursuant to an arbitration clause contained in the purchase order issued by Uzuc on 7 November 2008 and sent to Prakash Steelage on 11 November 2008. The clause merely stated “Arbitration: arbitration court in Paris.”

In an award dated 13 June 2017, the tribunal (with a dissenting opinion) considered that it held jurisdiction to hear the dispute, found that Prakash Steelage breached the agreement and ordered it to pay damages for an amount of EUR 1 million plus interest to Uzuc in compensation for the loss caused. Prakash Steelage applied before the Paris Court of Appeal to set aside the award, arguing, among other grounds, the tribunal’s lack of jurisdiction[1] and violation of the mission entrusted by the parties.[2]

The Paris court dismissed all the grounds.

Unsurprisingly, the court considered that a party that actively participated in the arbitration waived the right to challenge the tribunal’s jurisdiction if it refrained from doing so before the tribunal.[3] The court noted that not only did the Respondent fail to argue lack of jurisdiction for the specific purchase order to which the dispute was ultimately limited, but also, at the request of the tribunal, confirmed after the hearings that it had no objection to the tribunal’s jurisdiction regarding the purchase order at issue. Clearly, it was too late to argue an alleged absence of consent to arbitration or impracticability of the arbitration clause once the arbitration was over.

The decision is more noteworthy regarding the second ground for setting aside the award, i.e., the fact that the tribunal would have allegedly violated its mission to rule in law by applying the 2010 UNIDROIT principles to the dispute. Previously, the Paris Court of Appeal considered an award founded in law where the tribunal applied UNIDROIT principles chosen by the parties as a supplement to the law applicable.[4] However, it seems to be the first time that a French court was to rule on the application of the UNIDROIT principles as the only rules governing the dispute and in the absence of any indication by the parties.

Indeed, in the case at hand, the parties did not choose the law applicable to their agreement and disagreed on this issue. Prakash Steelage contended that Indian law should be applicable, whereas Uzuc argued in favor of Romanian law. To resolve the issue, the tribunal invited the parties to express their views on the application of other transnational rules, such as the UNIDROIT principles. Considering the international nature of the agreement at issue and the tribunal’s power to determine the law applicable under Article 21 of the ICC Rules of Arbitration and Article 1511 of the French Code of Civil Procedure, applicable as law of the seat, the tribunal ruled that the 2010 UNIDROIT principles applied to the dispute.

The International Institute for the Unification of Private Law developed the UNIDROIT Principles of International Commercial Contracts, which were published in 1994. Revised versions were later edited in 2004, 2010 and 2016. Due to their private nature, the UNIDROIT principles have no legal force and are not binding unless parties refer to them in their agreement.[5] Some authors consider, however, that the UNIDROIT principles are part of lex mercatoria.[6]

The question was therefore: does the absence of a binding effect and any indication from the parties as to the application of the UNIDROIT principles mean that the tribunal ruled in equity? The court of appeal’s answer is no and, in our opinion, ruling the opposite way would have been inconsistent with the discretion the arbitrators have under French law to determine the law applicable to the dispute.

The court based the decision on the international nature of the contract at issue and Article 21 of the ICC Rules, as well as Article 1511 of the French Code of Civil Procedure, which entitle the arbitral tribunal, in the absence of a choice by the parties, to resolve the dispute according to the “rules of law it deems appropriate.” When the parties did not choose the law governing the contract, under French law, the arbitrators have the power to choose the law applicable without even referring to the conflicts of law method.[7] Furthermore, they may select “rules of law” and not necessarily a national “law,” meaning that they have the freedom, as the parties, to consider a variety of sources when determining the applicable law, including general principles of law or translational law.[8] The French Supreme Court has already confirmed the validity of awards where, in the absence of a choice by the parties, the tribunal applied lex mercatoria.[9]

 

[1] Article 1520, 1 of the French Code of Civil Procedure.

[2] Article 1520, 3 of the French Code of Civil Procedure.

[3] See also CA Paris, 22 January 2019, No. 16/23370.

[4] CA Paris, 2 March 2006, Société Fashion Box Group SPA v. Société AJ Heelstone LLC, Rev. arb., Vol. 2006 Issue 3, pp. 733-736.

[5] Fauvarque‐Cosson B., “Droit européen et international des contrats: l’apport des codifications doctrinales,” D. 2007, p. 96; Mazeaud D., “À propos du droit virtuel des contrats: réflexions sur les principes d’Unidroit et de la Commission Lando,” in Mélanges Cabrillac M., Dalloz‐Litec, 1999, p. 205.

[6] P. Mayer, “Principes Unidroit et lex mercatoria,” in L’actualité de la pensée de Berthold Goldman, Éditions Panthéon‐Assas, 2004, p. 31.

[7] Paris, 13 July 1989: Gaz. Pal. 1990. 1. Somm. 156; Rev. crit. DIP 1990. 305, comment. Oppetit.

[8] Fouchard, Gaillard, Goldman, International Arbitration, Kluwer Law, International; Kluwer Law International 1999, pp. 865-882.

[9] Cass. Civ. 1re, 22 October 1991, No.°89-21.528; Cass. Civ. 1re, 15 June 1994, No. °92-17.075.

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