Paris Court of Appeal's refusal to grant annulment underscores consistent strict interpretation of available grounds and refusal to reconsider underlying merits (General Motors v Daewoo)

Paris Court of Appeal's refusal to grant annulment underscores consistent strict interpretation of available grounds and refusal to reconsider underlying merits (General Motors v Daewoo)

On 21 January 2014, the Paris Court of Appeal dismissed an application seeking partial annulment of an ICC award on grounds of excess of mandate and breach of due process. The court's decision underscores its continued policy of non-interference with the underlying merits of disputes and consistent interpretation of the limited available grounds for annulment of arbitral awards pursuant to art 1520 of the French Code of Civil Procedure. This article was written by Samuel Pape and Geoffroy Goubin, associates at Debevoise & Plimpton LLP.

Key points for practitioners

As examined below, the decision is a timely reminder of the Paris Court of Appeal's strict interpretation of the grounds for annulment of arbitral awards under art 1520 of the French Code of Civil Procedure (the Code) and consistent refusal to accede to applicants' attempts to have the underlying merits of awards reconsidered under the guise of art 1520 challenges.

While the decision will be of particular interest to practitioners in relation to arbitrations seated in Paris and related challenges, the grounds for annulment considered by the decision (excess of mandate and breach of due process) are also reflected in art 34(2)(a)(ii) and (iii) of the UNCITRAL Model Law and feature in the domestic arbitration laws of many of the most popular arbitral seats. While the interpretation of these grounds in any given jurisdiction is matter of domestic law, the Paris Court of Appeal's decision confirms the general, pro-arbitration, trend that such grounds are viewed increasingly restrictively.

Background: the arbitration

The underlying arbitration (seated in Paris) arose out of the acquisition by General Motors (GM) of the auto-motive division of Daewoo Motor Co Ltd (Daewoo) in 2002. Under the terms of this transaction, certain pre-acquisition liabilities relating, among other things, to vehicle recalls and third party claims were excluded. Daewoo agreed to indemnify GM for such liabilities and placed into escrow US$ 115 million, as well as US$ 100 million worth of shares. These funds and shares were to serve as the sole source of indemnification under the relevant agreement.

GM commenced arbitration seeking indemnification for various liabilities, while also seeking expressly to reserve for a future arbitration certain further claims for indemnification that it considered not yet ripe. Daewoo defended against GM's asserted claims and put forward a counter-claim requesting that the tribunal order the release of all remaining funds and shares held in escrow.

The tribunal dismissed some of GM's claims, but found in GM's favour with respect to others and unreservedly granted Daewoo's counterclaim, such that GM was ordered to co-operate with Daewoo to procure the return of the remaining sums and shares held in escrow.

Key points: excess of mandate

Seeking partial annulment of the award before the Paris Court of Appeal, GM contended that the tribunal had exceeded its mandate (a ground for annulment under art 1520(3) of the Code) by rendering an award containing a contradiction between its reasoning and the dispositive section of the award. Specifically, GM argued that while the award recognised GM's reservation of certain further claims for indemnification for a future arbitration, it ordered the release of the sums and shares held in escrow despite the fact that such sums and shares were, as a matter of contractual requirement, the only available sources of compensation for any such future claims.

Separately and also under art 1520(3) of the Code, GM argued that the tribunal had exceeded its mandate by ruling, by implication or effect, on GM's reserved claims and that such ruling was beyond the scope of the tribunal's mandate.

In summary, rejecting GM's arguments under art 1520(3), the court reasoned that:

  • a contradiction in reasons is not a valid basis for annulment under art 1520(3)
  • the mandate of the tribunal is limited by the scope of the dispute as determined by the parties' pleadings
  • while GM had in the arbitration sought to reserve certain claims for indemnification relating to future losses, Daewoo had put forward its counterclaim in the arbitration seeking the return of the remaining sums and shares held in escrow, and
  • GM's expressed intention to exclude from the arbitration certain claims relating to future losses could not prevent Daewoo from asserting its counterclaim in the arbitration and this counter-claim fell within the ambit of the arbitration agreement

Key points: due process

GM also sought partial annulment of the award on the basis that by ordering the return of the sums and shares held in escrow, the tribunal had effectively ruled upon the reserved claims and had done so in violation of GM's rights of due process by not affording GM any opportunity to be heard in relation to such claims (art 1520(4) of the Code).

The court also rejected this ground for annulment, reasoning that:

  • due process required that each party be given the opportunity to present their cases in fact and in law and to respond to their opponent's case, such that each element forming the basis of the tribunal's decision was subject to debate
  • Daewoo expressly argued before the tribunal that its indemnification obligations were limited to losses 'incurred or suffered' and which were notified prior to the sixth anniversary of closing of the transaction (which date had passed). Daewoo therefore requested, as part of its counterclaim, that the remaining sums and shares held in escrow be returned, and
  • by putting forward its counter-claim, Daewoo necessarily called into question the ability to in-demnifyiability of future losses and GM could not seek annulment on this basis having refused to address such an issue that was within the tribunal's mandate

Costs

The court awarded Daewoo an award of EUR 100,000 in costs pursuant to art 700 of the Code. This amount is among the largest ever awarded by the Court of Appeal in proceedings of this nature.

Judgment details

The application was heard in the Paris Court of Appeal on 3 December 2013 and judgment was rendered by President Acquaviva and Appellate Judges Guihal and Dallery on 21 January 2014.

Samuel Pape and Geoffroy Goubin are associates at Debevoise & Plimpton LLP.

This article was first published on Lexis®PSL Arbitration on 21 February 2014. Click here for a free trial of Lexis®PSL.

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