La défenderesse a fabriqué et vendu à l'entreprise A des systèmes de propulsion destinés à être installés sur des machines construites par A. Ces systèmes comportaient des moteurs qui devaient être logés dans des bâtis fabriqués par l'entreprise B conformément à un contrat entre celle-ci et la défenderesse. Un incendie s'est déclaré dans le moteur monté sur une machine fournie par A à l'entreprise C et qui était munie d'un tel système de propulsion. C a réclamé des dommages-intérêts à A et les deux entreprises sont parvenues à une transaction. Par la suite, A a été indemnisée par son assureur, pour une partie du montant de la transaction. L'assureur a ensuite engagé la présente procédure d'arbitrage, en qualité de subrogé de A, en vue d'obtenir une indemnisation de la part du fabricant du moteur.

'6. Factual Background

The following is a summary only of the factual background to the present dispute, intended to put the Preliminary Issues into context, and is not intended to be complete or exhaustive recital of all the relevant facts:

6.1 The Claimant is an insurance company organized and existing under the laws of France, with its principal place of business in France. . . .

6.2 The Defendant is a Swiss company . . . It is engaged, inter alia, in the manufacture and supply of . . . propulsion systems.

6.3 The Claimant brings this action claiming a right of subrogation under the French Insurance Code, Art. L 121-12 para. 1, to any rights which [A] may have against the Defendant as a result of the events summarized hereafter.

6.4 Pursuant to the provisions of the Basic Agreement . . . Defendant sold to [A] certain . . . propulsion systems designed to equip [machines] manufactured by [A]. The propulsion systems comprised, inter alia, engines which were to be inserted into [casing]. The [casings] were manufactured by [B] in accordance with a contract made between the Defendant and [B] . . . The Basic Agreement contained provisions relating, inter alia, to warranties (Art. XVI), liability limitation (Art. XX) and applicable law (Art.XXXII).

6.5 [A] subsequently supplied [a machine] equipped with such . . . propulsion systems to [C].

6.6 In . . . a fire broke out in the right engine of a [machine belonging to C]. The fire was extinguished by the . . . fire services. As a consequence of the fire the . . . engine and the [casing] sustained damage.

6.7 [C] claimed damages from [A] and the claim was settled in . . . upon the payment of . . . by [A] to [C].

6.8 In . . ., [A] was indemnified by its insurers, [Claimant], in the amount of . . .

6.9 Having paid monies to [A] by way of insurance indemnification the Claimant . . . now seeks indemnification from [Defendant] by way of subrogation to [A]'s rights against [Defendant] allegedly stemming from the above-described engine incident.

. . . . . . . . .

The Issues to be determined in this Award

9.1 The Preliminary Issues involved in this dispute have been disposed of by the Interim Award . . .

9.2 The remaining substantive issues to be determined in this final Award are the following:

9.2.1 Liability

(i) Was [Defendant] in breach of any obligation to [A] in the supply of the propulsion system to [A]? If so, in what respects?

(ii) If [Defendant] was in breach of any obligation, did that breach or those breaches cause the damage alleged? If so, were there any other causes of this damage? If so, what were those causes and what is or are the consequence/consequences of that fact?

(iii) If [Defendant] was in breach, and if such breach caused the alleged damage, is [Defendant] liable to [A] (or [Claimant]) for such damage?

(iv) In so far as [Claimant]'s claim is based upon the fact that [A] settled [C]'s claim against it, is [Defendant] bound by the amount of that settlement?

9.2.2 Damages

In so far as [Defendant] is liable to [Claimant], what is the amount of damage for which it is liable? Is interest to be added to such amount, and, if so, for what period and at what rate?

9.2.3 Costs

How should the costs of this Arbitration, including costs of any experts and legal costs, be apportioned between the parties?

10. Discussion

10.1 The Status of [Claimant]

10.1.1 The question of [Claimant]'s status in this arbitration was decided as part of the Interim Award . . . it was determined that [Claimant], as an insurer, was subrogated as a matter of law to any rights which its insured (here [A]) had or might have had against any third party (here including [Defendant]) arising out of the covered events. Accordingly, [Claimant] has a right to bring this claim in arbitration against [Defendant], but in doing so it can rely only on those rights which [A] itself would have had, and it is subject to the same defenses which [Defendant] would have had against [A]. In other words, [Claimant] stands in the shoes of [A] for all purposes.1

10.1.2 Nonetheless, whatever may have been the amount of any possible claim by [A], [Claimant] as the insurer is limited in its subrogated claim to the amount which it actually paid to its insured . . .

10.1.3 The detailed reasoning and conclusions contained in the Interim Award with respect to [Claimant] and its rights of subrogation will not be repeated here, but are incorporated and confirmed by reference.

10.2 The Technical Aspects:

Having carefully considered the evidence, including both the documentary evidence and the testimony presented at the Hearing, the Arbitrators have unanimously reached certain conclusions concerning the factual background, the technical aspects involved, and the probable circumstances at the time of the engine fire, as follows:

10.2.1 The fire wall installed on the . . . engine contained two small holes. Such holes were not foreseen in the engine specifications (as referred to in the Basic contract) and apparently did not exist on the initial prototype of the engine which was tested by [A]. Such holes could and did permit the passage of fine jets of liquid and/or vapour between the forward, relatively cool section of the engine and the center core zone which had very hot operating temperatures. Such holes therefore compromised the fire proof integrity of the fire wall, and constituted a technical manufacturing and/or design defect, which did not conform to the specifications of the Basic Contract.

. . . . . . . . .

10.2.5 On balance, the Arbitrators are prepared to accept the scenario advanced by the Claimant . . ., namely that hydraulic fluid leaked in the forward section of the engine, that it leaked or sprayed into the core zone by the way of the two holes in the fire wall, and that it ignited in the core zone and flashed back via the holes into the forward zone, causing fire damage in both the forward and core zones of the engine. There was more than enough evidence to support such scenario, including traces of burnt hydraulic fluid in both zones, and no other, more plausible chain of events has been shown. [Defendant] . . . accepted that such a scenario was not unreasonable, although at an early stage in the investigation and before any dispute had arisen.

10.2.6 Apart from the above factors relating to the origin of the fire, there can be little doubt that, once the fire began, the actions, or nonactions, of the, [C] crew in not following the prescribed safety procedures, caused the damage to be greater than it would otherwise have been. The Arbitrators have taken note in this respect of [Defendant]'s submission, comparing the elapsed times of the fire warning alarms and the failures to respond by the [C] crew; while such time comparisons cannot pinpoint the precise moment of the flashback, and hence of the main damage, they do support the proposition that the crew's failure to act at several intervals allowed, or contributed to, the resulting damages.

10.2.7 Taking all the above into consideration, the Arbitral Tribunal concludes that all those factors, attributable to three different organizations, caused or contributed to the damage resulting from the engine fire:

(i) The holes in the fire wall, which unquestionably constituted a technical defect, attributable to [Defendant] or its subcontractor [B]. [Defendant]'s responsibility in this respect is enhanced because it changed the design, after the testing of the prototype engines, and without informing [A].

(ii) The faulty tightening of the hydraulic fluid connection which allowed the leak, and which is attributable to [A] . . .

(iii) The inexplicable failure of the [machine] crew to follow prescribed safety regulations, clearly attributable to [C].

Consequently, from the standpoint of a technical analysis and based on the evidence before the Tribunal, all three entities must bear a portion of the responsibility for the damage caused.

10.3The Contractual Aspects :

. . . . . . . . .

10.3.4 Having carefully considered the arguments advanced by both Parties on this issue, the Arbitrators conclude that [A], and hence [Claimant], are subrogated as a matter of law to such rights as [C] may have had against [Defendant]. At the time [A] made its settlement payment to [C], it did so in the belief that it was primarily responsible. Only after a full investigation, and after many months, did it become clear that part or even most of the fault was that of [Defendant] (or its subcontractor) in having delivered a defective part. The Arbitrators take cognizance of the fact that [A], as . . . manufacturer, must stand behind its products and provide prompt assistance and relief to its customers, in cases where there has been some equipment failure, even under circumstances where a full investigation has not yet been completed. Here, [A] made a settlement with the customer (who had no active contacts with [Defendant]) under urgent circumstances, and only later discovered that part at least of that settlement was to cover [Defendant]'s responsibility. Under such circumstances, and under applicable French law, a party ([A]) which, having obligations along with others to a third party, has an interest in discharging such obligations and does so, is subrogated as a matter of law to the rights of the obligee against the others.2 Such a right of subrogation arises as a matter of law; it is not a form of assignment or other contractual transfer (which [C] would have been precluded from doing by the terms of its warranty). [A] therefore acquired the rights under warranty, if any, which [C] had against [Defendant], and [Claimant], as [A]'s insurer, succeeded to such rights.

10.3.5 The standard form of warranty from [Defendant] to the [machine] operators apparently does not contain an arbitration clause as such.3 In any event, the present arbitration has not been brought under such warranty directly (or under any such arbitration clause if one existed). Instead, the claims of [A] which [Claimant] now seeks to enforce, and the dispute to which they have given rise, are clearly "with respect to the interpretation, performance or breach" of the Basic Agreement, since such claims are the very ones which [Defendant] asserts were transferred from [A] to [C] pursuant to the Basic Agreement, but have now become vested in [A] once again by way of subrogation (see para. 10.3.4). Claims or disputes between [A] and [Defendant] which are "with respect to" the Basic Agreement are subject to the arbitration clause in the Basic Agreement (Art. XXIII). As such, these claims are properly within the jurisdiction of this Arbitral Tribunal.4 The fact that these claims are based on warranties originally extended to [A], but which were assigned to [C] at the time the [machine] was delivered, and that those warranties have now come [A] by way of subrogation, may be a coincidence, but one which emphasizes the close connection between the several contractual obligations and the parties involved.

10.4Conclusions

10.4.1 Based on the foregoing, the Arbitral Tribunal concludes that [Defendant] (either directly or by way of its subcontractor [B]) is responsible, for a manufacturing defect in the engine fire wall, which caused, at least partly, the fire and the resulting damage. Such defect constituted a breach of the warranty provisions, which were initially in the Basic Contract [sic] (Sec. XVI) and were thereafter transferred to [C]. [A] became the beneficiary under such warranties, by way of subrogation (and [Claimant], in turn, was subrogated to [A]'s rights). Therefore, [Defendant] is responsible to [Claimant] for the damages by its breach.

10.4.2 [Defendant] is not, however, liable for all the damages caused by the fire in the engine, because a number of other factors, outside [Defendant]'s control, contributed to or increased the damage. As set out more fully above, the holes in the fire wall, attributable to [Defendant] (or its subcontractor) are only one of the causes of the fire and the resultant damage. Two other factors contributed to the fire:

a. The leak in the hydraulic fluid system, allowing the combustible fluid to be present, attributable to [A];

b. The negligence of the [C] crew in not following prescribed safety procedures when the alarm was triggered (on two occasions), allowing the fire to continue and/or spread, attributable to [C].

Having considered the evidence, including the analysis by [Defendant] of the elapsed times during which the fire continued (see, e.g., Expert Report . . .), the Tribunal concludes that each of these three factors contributed equally to the damages, and that each of the three responsible entities must bear one third of the responsibility therefore.

. . . . . . . . .

10.4.8 . . . . . . . . .

The Arbitrators recognize that both of the factors referred to above [circumstances surrounding negotiations prior to the arbitration and the bringing of the arbitral proceedings] are difficult to establish or to quantify with any precision. Nevertheless, the Arbitrators are persuaded that [Defendant]'s position has been prejudiced to some degree, and that some adjustment should be made in the amount to be paid by [Defendant] to [Claimant]. Applying their judgment, the Arbitrators find that an aggregate amount of . . . should be deducted, to reflect such prejudice.

10.4.9 Accordingly, the Arbitrators determine that [Defendant] is liable to pay to [Claimant], standing in the shoes of [A], a net amount . . ., representing its share of responsibility for the damages cause[d] by the engine fire as adjusted.'

1
See, Code Civil, Art. 1249-1251; Cour de Cassation, Comm. 13 May 1966 ; Revue de l'Arbitrage (1988) L'Arbitrage et les Tiers, p. 446.

2
See French Code Civil, Art. 1251 "La subrogation a lieu de plein droit ... (3) au profit de celui qui, étant tenu pour d'autres ou avec d'autres au paiement de la dette, avait intérêt de l'acquitter ... " Such rights of subrogation, under Art. 1251(3) have been applied, inter alia, among joint tort feasors precisely in the case of a settlement agreement by one of them (see, e.g., Cass. Civ. 2d, 23 Oct. 1984, Bull. Civ. 1 No. 276, p. 235).

3
The actual form of warranty between [Defendant] and [C], if any was specifically exchanged, has not been submitted in this proceeding. Reference is made, however, to the standard form, attached as Ex. C to the Basic Agreement . . .

4
See, generally, Craig, Paulsson, Park, ICC Arbitration, 2d Ed., pp. 108-110, 194-201. Indeed, applying the precise language of the arbitration clause in the Basic Agreement, this dispute, even if part of the claim has its genesis in the derivative warranty from [Defendant] to [C], seems clearly to be "with respect to the interpretation, performance or breach" of the Basic Agreement. Had [Claimant] (ie, [A]) sought to pursue its claim before a national court, it is more than likely that [Defendant] would have invoked the existence of the arbitration clause, which governs [Defendant]'s relationship with [A], in defense.