Case text (English translation) [second draft]
Queen Mary Case Translation Programme
Court of Appeal (Cour d'appel) Paris, 6 April 1995
1st Civil Chamber
Thyssen Stahlunion GmbH
v.
Maaden General Foreign Trade Organisation for Metal & Building Materials
Translation [*] by Katarina Kunce Kern [**]
Translation edited by Charles Sant 'Elia [***]
[Facts of the case]
On 3 November 1988, a contract of sale of goods was concluded between the German company Thyssen Stahlunion GmbH [seller], and the Syrian organization Maaden General Foreign Trade Organisation for Metal & Building Materials [buyer]. The object of the contract was 24,055 tons of steel bars, twelve meters long, at a total price of US $8,077,927. The contract provided for a quality control designation to be made by [buyer] - which chose the French company Socotec - of a company with "international reputation" and stipulated that its verification would bind the parties. There were six shipments to the port of Tartous, Syria, between 11 January and 10 February 1989; each had an inspection certificate of conformity issued by Socotec. Subsequently, on 18 February, [buyer] sent a telex to [seller], informing of defects in certain bars in the third shipment; two days later [buyer] asked [seller] to cease delivery.
[First instance: Arbitral award]
On 8 September 1989, [buyer] submitted the dispute to the International Court of Arbitration of the International Chamber of Commerce, as it was authorized by an arbitration clause contained in the contract of 3 November 1988. The Arbitral Court, which had to comply with the rules of French law, was constituted and on 20 December 1990 accepted to arbitrate the dispute. On 26 March 1993, the Arbitral Court, seated in Paris, delivered its decision by majority, which stated that:
| - | The inspection certificates issued by Socotec were only simple and rebuttable presumptions about the conformity of delivered goods; | |
| - | The numbered portions 1, 4, 5, 8, 9, 11 and 12, were non-conforming; | |
| - | Consequently, the [seller] had not completely fulfilled its contractual obligations. |
The Arbitral Court therefore declared the [seller's] liability for the partially avoided contract concerning the non-conforming portions. [The Arbitral Court] required the [seller] to refund the amount of US $3,213,950.98, with interest calculated from the date on which payment was made by [buyer], at the LIBOR [*] rate of interest for one year, plus one-half of the arbitration expenses, leaving each party to pay his own expenses incurred.
[Seller's pleadings on appeal]
[Seller] lodged an appeal to quash that decision, in two pleas:
| - | The first plea stated that the Arbitral Court did not conform to the arbitral mission submitted to it (article 1502-3 NCPC [*]), in the way that the Arbitral Court extended its own arbitral competence regarding the certificate of conformity; [the Arbitral Court] compared the contract stipulations and gave itself the competence to estimate the value and deviate from conclusions which cannot be changed by arbitration; [the Arbitral Court] restricted the consequences of dispositions of contractual value behaving like an amiable compositeur. | |
| - | [Seller's] second plea stated that the Arbitral Court had acted beyond the limits of the arbitral mission submitted to it, and did not respect the principe de la contradiction [right to be heard fully on a matter of fact or law] (article 1502-3 and 4 NCPC) in the way that the Arbitral Court required [seller] to refund the interest on the payment, even though that was not the dispute submitted for arbitration; and in the way that the Arbitral Court did not give the parties an opportunity to be heard on the ways and means of the order to pay interest, nor on the rules it applied ex officio. |
In a subsidiary plea, [seller] requested the partial annulment of the arbitral award that required [seller] to pay, in addition to the principal amount, interest calculated at the LIBOR [*] rate for one year, starting from the date of payment by [buyer].
[Buyer's pleadings on appeal]
[Buyer] pleaded the rejection of [seller's] pleadings and subsidiary request for the annulment of the arbitral award that had declared the [buyer's] interests. [Buyer] requested [the Appellate Court] to confirm the enforceability of that decision, or its remainder, and to grant to [buyer] the amount of f [French francs] 20,000 under Article 700 of the New Code of Civil Procedure.
[Decision of the Court of Appeal]
The Court of Appeal has concluded:
On the [seller's] first plea:
At first instance, the Arbitral Court decided that, under French law, Socotec's legal qualification for control and [Socotec's] following reports have irrevocable value, meaning that "this report is incorporated in the contract and it has the same value as other contract provisions, but [the Arbitral Court] should not have reconsidered these reports since [the Arbitral Court] has no power to reconsider the contract concluded between the parties. [The Arbitral Court] granted itself the power to assess the value of the certificates and to cast aside the pleadings on this point. An arbitrator cannot modify or mitigate the consequences of contract provisions unless endowed with the powers of an amiable compositeur.
Considering that:
| - | The Arbitral Court considered the question of whether it had the power to consider the value of Socotec's quality control certifications of the deliveries; | |
| - | [The Arbitral Court] evaluated the statements of [Socotec] that were incorporated in the contract and had the same value as the contractual dispositions, on which the parties agreed upon anyway; | |
| - | [The Arbitral Court] has concluded that in some cases [the Arbitral Court] has - as in this case of verification certificates - the same power to evaluate and interpret as to any contract stipulation; | |
| - | In evaluating the will of the parties, which is expressed not only in the initial agreement on 3 November 1988, but also in later agreements, [the Arbitral Court] decided that the certificates were only simple presumptions on the conformity of delivered goods; |
Considering that:
| - | The [seller] does not dispute the Arbitral Court's power to interpret the contractual dispositions, and by extension the conformity certificates if their content is doubtful; | |
| - | Whatever terms be used, that is the interpretation that the Arbitral Court used, and cannot exempt [seller] under the rules of the arbitral mission signed by both parties; [seller] has to determine whether the inspection certificates provided by the Socotec company, [buyer's] agent, do or do not create an unrebuttable presumption of conformity of the examined steel bars pursuant to the terms of the contract; | |
| - | [Seller] repeated its agreement since, as the Arbitral Court remarked, [seller] admitted in its pleadings (p. 58) that the matter involves a point of interpretation of the contract and of the will of the parties that [seller] leaves to the assessment of the arbitrators who have moreover remarked that the parties had modified the original contract and agreed, subsequent to the appearance of the non-conformity, to resort to some further tests (agreements of 21 March, 13 April and 12 July 1989); | |
| - | Also, the plea of [seller] on the misjudged mission of arbitral jurisdiction has to be rejected. |
On the [seller's] second plea:
Considering that:
| - | That the Arbitral Court decided on a matter which was not pleaded, ordering the [seller] to pay, besides the principal amount, interest on this amount calculated from the date on which the purchase price of the goods was paid; | |
| - | That [the Arbitral Court] violated the principe de la contradiction [right to be heard fully on a matter of fact or law], the parties being deprived of any opportunity to be heard on the issue, either on the law or on the modality of the award itself. | |
| - | The arbitral mission consists of the determination of a legal dispute according to limits established by the parties; | |
| - | The principe de la contradiction implies that the Arbitral Court cannot raise any plea on fact or law if the parties have not been invited to reply on it. |
Considering that:
| - | The Arbitral Court answered in the affirmative the question whether the designated interest in Article 84 of the CISG, which constitutes the French law of international sale of goods, was obligatory rather than merely a "formal claim." The CISG specifies that if the seller is bound to refund the price, he "must" (and not "may") also pay interest on the price calculated from the date on which the price was paid, and the French law of obligations provides in Article 1153-1 of the Civil Code that interest is obligatory in all matters, "even if this was not pleaded;" | |
| - | The CISG does not expressly settle the mode of determination of interest rate; [the Arbitral Court] offered as a solution "the most logical one, from an economic point of view," acknowledging the LIBOR [*] rate for "one year;" | |
| - | [The Arbitral Court] resolved the questions under discussion without hearing the parties, pointing out that the international trade usage invoked by [buyer] does not provide a method for determining the interest rate; | |
| - | On this question, [the Arbitral Court] did not respect the principe de la contradiction, the relevant part of [the arbitral award] on interest, divisible from other dispositions, has to be quashed; |
On these grounds, the Court of Appeal:
| - | Quashes the arbitral award delivered on 26 March 1993, in Paris, in ICC case no. 6653/ES/FMS between [buyer] and [seller], in which [the Arbitral Court] had ordered [seller] to pay, in addition to the principal payment, interest calculated at the LIBOR rate for one year, accruing from the date on which the price was paid; | |
| - | Dismisses the [seller's] appeal against the other dispositions of the [arbitral award], granting the enforcement of the remainder [of the arbitral award]; | |
| - | Dismisses [buyer's] claim based on Article 700 of the New Code of Civil Procedure. |
The expenses are common to both parties; [the Court of Appeal] decides that the expenses shall be divided in half and be borne by each party, and it acknowledges the attorneys in the matter the benefit of Article 699 of the New Code of Civil Procedure.
FOOTNOTES
* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Plaintiff-Appellant, Thyssen Stahlunion GmbH of
Germany, is referred to as [seller]; the Defendant-Respondent, Maaden General Foreign
Trade Organisation for Metal & Building Materials of Syria, is referred to as [buyer].
Monetary amounts in the currency of France [French francs] are indicated by [f].
Translator's note on other abbreviations: LIBOR = London International Bank Offered Rate
NCPC = Nouveau Code de Procedure Civile [New French Code of Civil Procedure].
** Katarina Kunce Kern, a law graduate of the University of Zagreb, is a member of the Bar of
Croatia who has worked with French diplomats in Croatia. The second-iteration redaction of
this translation was by Dr. John Felemegas of Australia.
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