Case Overview

In Cardno v. Central Bank of Iraq, the dispute arose from a 2016 Consultancy Agreement under which Cardno ME Limited (Cardno), a UAE-based engineering firm, was to provide supervision services for the construction of the Central Bank of Iraq's (CBI) new headquarters in Baghdad. The project was designed by Zaha Hadid Architects. The arbitration, administered by the International Court of Arbitration (ICC) and seated in Paris, was heard by a sole arbitrator, Bassam Mirza. Cardno initiated proceedings after CBI failed to pay numerous invoices and after two of Cardno's senior employees were arrested and imprisoned in Iraq following a meeting with the CBI Governor convened to resolve the payment dispute. Cardno sought payment for outstanding invoices totaling approximately USD 5.8 million, compensation for the remaining value of the contract after it was forced to demobilize, and an order for the release of its performance bond, which CBI had wrongfully called.

Procedural History

Cardno filed its Request for Arbitration on June 2, 2021. A defining feature of the proceeding was the Respondent's complete non-participation. CBI failed to file an Answer to the Request for Arbitration, a Statement of Defense, or any other submission, and did not appear at the hearing. The Tribunal proceeded with the arbitration pursuant to Article 6(8) of the ICC Rules. After the evidentiary hearing was held, the proceedings were declared closed on December 13, 2022, and the sole arbitrator submitted a draft award to the ICC Court for scrutiny. Subsequently, on January 1, 2023, CBI retained counsel (Cleary Gottlieb Steen & Hamilton) and submitted an application to the Tribunal. This late application sought to reopen the proceedings, alleging for the first time that the Consultancy Agreement was procured by fraud and that the arbitration agreement was therefore void. The Tribunal issued Procedural Order No. 4, declaring CBI's application and its supporting evidence inadmissible. The Tribunal found that CBI had been given every opportunity to participate and had offered no valid reason for its failure to do so or for its delay in raising the fraud allegations, which were based on events known to it since August 2021. The Final Award was rendered on February 26, 2023. Following the award, on March 17, 2023, CBI filed an application with the Paris Court of Appeal to set aside the award.

Key Issues and Positions

Jurisdiction and Admissibility

A central preliminary issue was whether Cardno's claims were admissible, given its non-compliance with a multi-tiered dispute resolution clause in the Consultancy Agreement that mandated mediation prior to arbitration. Cardno argued that any attempt at mediation was rendered futile by CBI's conduct, particularly its non-payment, its refusal to engage in discussions, and its role in the arrest and detention of Cardno's project manager and general manager. Cardno contended that these actions destroyed any reasonable prospect of an amicable settlement.

Merits

On the merits, Cardno claimed that CBI was in fundamental breach of the contract for failing to pay seven invoices for services rendered between September 2020 and March 2021. Cardno argued that this non-payment, coupled with the hostile actions against its staff, forced it to suspend performance and demobilize from the project. Consequently, Cardno sought damages for the remaining value of the contract, calculated as its lost profit. Cardno also claimed that CBI's subsequent call on the performance bond was wrongful and sought reimbursement of legal fees incurred in Dubai to secure an attachment order preventing the bank from paying out on the guarantee.

Tribunal/Court Reasoning and Holdings

Admissibility

The Tribunal undertook a detailed analysis of the pre-arbitral mediation clause, applying French law as the law of the seat of arbitration. It characterized the issue as one of admissibility rather than jurisdiction. The Tribunal agreed with Cardno that the mediation requirement was excused on the grounds of futility. It found that CBI's complete lack of engagement and, most significantly, its involvement in the arrest of Cardno's representatives, demonstrated that mediation would have been a pointless exercise. The Tribunal concluded that Cardno's claims were therefore admissible.

Merits and Damages

The Tribunal found that CBI had breached its payment obligations under the Consultancy Agreement. It dismissed CBI's pre-arbitration justifications for non-payment, such as the submission of invoices in soft copy rather than hard copy, holding that CBI was estopped from this argument by its prior course of dealing where it had accepted and paid numerous electronic invoices. The Tribunal awarded Cardno the full amount of the outstanding invoices, USD 5,847,530. The Tribunal further held that Cardno's decision to demobilize was a justified suspension of performance in response to CBI's fundamental breach. It found that Cardno was wrongfully deprived of the remaining value of the contract and was entitled to compensation. After reviewing Cardno's quantum evidence, the Tribunal awarded USD 4,342,924.15 for the loss of the contract, representing lost profits less saved costs. The Tribunal also found CBI's call on the performance bond to be wrongful and awarded Cardno USD 14,506 for the legal costs it incurred in the related Dubai court proceedings.

Costs

Given Cardno's success on all its primary claims and CBI's failure to participate in the proceedings, the Tribunal applied the "costs follow the event" principle. It ordered CBI to bear 100% of the arbitration costs and to fully reimburse Cardno for its legal fees and other expenses, which amounted to USD 947,763.56.

Annulment/Set-Aside

Before the Paris Court of Appeal, CBI sought to annul the award on several grounds, including that its recognition would violate international public policy due to the underlying fraud, that the arbitrator had failed to comply with his mission, and that the principles of due process and equality of arms had been violated. CBI argued that its late participation in the arbitration was due to its unfamiliarity with international arbitration and its belief that an Iraqi court's finding of fraud would nullify the arbitration agreement. In its judgment of January 21, 2025, the Paris Court of Appeal rejected CBI's application in its entirety. The Court held that CBI's arguments related to fraud and public policy were inadmissible. Applying Article 1466 of the French Code of Civil Procedure, the Court found that CBI had waived its right to invoke these irregularities by knowingly and without a legitimate reason refraining from raising them during the arbitral proceedings. The Court noted that CBI was aware of the alleged fraud long before the close of proceedings but chose not to participate for over 18 months. The Court dismissed CBI's justifications for its absence as unreasonable. The Court also rejected the claims of due process violations. It found that the sole arbitrator had provided CBI with every opportunity to be heard throughout the proceedings and that the decision to refuse reopening the case after it was closed was a proper exercise of the arbitrator's authority, particularly given CBI's prolonged and unjustified non-participation. The Court concluded that CBI's predicament was a consequence of its own procedural choices and that no breach of due process or equality of arms had occurred. In parallel, Cardno sought enforcement of the award in the Netherlands. In a judgment dated July 16, 2024, the Amsterdam Court of Appeal granted recognition and enforcement. CBI had opposed enforcement on the same grounds of material and procedural fraud it raised in Paris. The Dutch court, applying a deferential standard, found the material fraud allegations inadmissible because CBI had known of them during the arbitration but failed to raise them. It likewise dismissed the procedural fraud claims, finding no violation of due process in the arbitrator's refusal to reopen the proceedings. The court also denied CBI's request to stay enforcement pending the French annulment decision.

Disposition / Relief

The Tribunal ordered the Central Bank of Iraq to pay Cardno ME Limited a total of USD 10,190,454.15 in principal damages, comprising USD 5,847,530 for unpaid invoices and USD 4,342,924.15 in compensation for the remaining value of the contract. The Tribunal also awarded an additional USD 14,506 for legal costs related to the performance bond. Simple interest at a rate of 5% per annum was awarded on these amounts. The Tribunal also ordered CBI to take all necessary steps to release the bank guarantee issued in its favor. Finally, CBI was ordered to reimburse Cardno for all of its arbitration and legal costs. In subsequent set-aside proceedings, the Paris Court of Appeal dismissed CBI's application to annul the award and ordered CBI to pay Cardno an additional €200,000 for its legal costs.