Court of Cassation, No. 86-16.031 | Rory Wheeler, avocat (Paris) & solicitor (England)

Court of Cassation, First Civil Chamber, 10 May 1998, No. 86-16.031

MR. RENE A…

vs.

AMPAFRANCE

Whereas, according to the statements of the judgment under appeal (Paris, 13 May 1986), by an agreement dated 13 April 1981, Mr. A…, of Belgian nationality, transferred to the French joint-stock company Ampafrance 32,000 of the 40,000 shares comprising the capital of the joint-stock company Eurolando, having its registered office in Attiches (North). The share price was determined by taking into account Eurolando’s accounting position as on 30 April 1981. By an adjoining agreement entitled “guarantee” and signed between the same parties on 8 July 1981, Mr. A… guaranteed in particular any decrease in assets or the emergence of any liabilities that could be revealed, while undertaking to disburse the amount thereof to Eurolando. The two contracts included an arbitration clause. A dispute having occurred between the parties regarding, inter alia, the interpretation and the scope of the clauses concerning the guarantee of liabilities stipulated in favour of Ampafrance, the latter launched the arbitration procedure. During the proceedings, the same company filed a claim regarding the “extra pay” disbursed to Mr. Y…, director of Eurolando (which was higher than the one provided for in article 48 of the agreement dated 13 April 1981). By an award rendered in Paris on 31 October 1984, the arbitrators ordered Mr. A… to pay a sum of 6,436,000 francs to Eurolando in respect of the guarantee of liabilities, and a sum of 326,000 francs to Ampafrance, as compensation for the “extra pay” disbursed to Mr. Y… . Mr. A… filed an action for annulment against this award on the basis of Articles 1504, 1502-3 and 1502-5 of the new Code of Civil Procedure.

The judgment under appeal dismissed the action.

Regarding the first ground of appeal, taken in its three branches:

Whereas Mr. A… criticises the Court of Appeal for adjudicating as it did concerning the part of its decision relating to Mr. Y…’s extra pay, despite the fact that, first, and according to the ground of appeal, in an international arbitration as in any arbitration, the object of the dispute is delineated in the arbitration agreement, under penalty of annulment. Therefore, by adjudicating on a question that was not included in the arbitration agreement, the arbitrators, who have decided to apply French law in light of the agreement, have surpassed their mission. Second, the demand related to the extra pay of Mr. Y… was not an incidental claim to the question of the guarantee of liabilities but a distinct claim in its cause and object. According to the ground of appeal, by admitting nonetheless that the arbitrators could adjudicate on the basis of their powers of amiable compositeurs, the judgment under appeal distorted the arbitration agreement. Finally, by maintaining that the additional claim from Ampafrance “had been discussed in depth by René A…’s statement of claim (pages 23 and 24), under the heading “the incidental claims”, without the slightest reservation on the part of the latter on the admissibility of such a debate before the arbitrators”, the Court of Appeal raised a plea of its own motion, without respecting the principle of adversarial proceedings. However, whereas, firstly and according to the agreement, the arbitration was not governed by French law in regard to procedure, French law having only been chosen by the parties as the substantive law. The provisions of Article 1448 of the new Code of Civil Procedure, relating to the mentions of the arbitration agreement that are required under penalty of annulment – applicable to international arbitration only to the extent provided for by Article 1495 of the same code – were not in question. Therefore, the Court of Appeal, having found that an incidental claim was possible after the conclusion of the arbitration agreement, has not violated Article 1502-3 of the new Code of Civil Procedure by maintaining that the arbitral tribunal could adjudicate on this request. Subsequently, whereas the arbitrators only used their powers of amiable compositeurs to determine the amount of the compensation, as noted in the judgment under appeal, which did not distort the arbitration agreement. Finally, whereas Mr. A… maintained, in his conclusions submitted to the Court of Appeal, that he contested the admissibility of the incidental claim before the arbitrators and thus was submitted to the free discussion of the parties the question of knowing whether, in his submitted statement of claim, Mr. A… had raised the inadmissibility of this request or whether he was explaining himself on the substance thereof. Therefore, the principle of adversarial proceedings has not been violated. Hence, the ground of appeal cannot be admitted in any of its three branches.

Regarding the second ground of appeal, taken in its three branches:

Whereas Mr. A… also criticises the Court of Appeal for having dismissed his action for annulment, filed on the basis of Articles 1504 and 1502-5 and regarding the part of the award relating to the guarantee of liabilities, despite the fact that, on one hand, the arbitrators have ordered payment to the benefit of Eurolando without having required the intervention thereof, and therefore the aforementioned article as well as article 14 of the same Code would have been violated. On the other hand, Ampafrance did not have standing to file an action for the benefit of Eurolando, the rule “none may litigate by proxy” being violated as well. Finally, the trustee for the liquidation of Eurolando’ assets was not summoned to intervene before the arbitral tribunal. Therefore, the judgment under appeal, which refuses to invalidate the award, would have violated the public order provisions of Articles 13, 15 and 16 of the law dated 13 July 1967 and therefore Article 1502-5, of the new Code of Civil Procedure. However, whereas the Court of Appeal has maintained that by ordering Mr. A… to pay a certain amount of money to Eurolando, the arbitral tribunal only compelled the former to carry out the obligations borne by him under the agreement entered into with Ampafrance, and that it is of little importance that this conviction resulted in a third party benefiting therefrom, such third party being the only company whose liabilities were guaranteed in the relationship between Mr. A… and Ampafrance. Thus, the Court of Appeal did not violate the “none may litigate by proxy” rule and was able to consider that, by refraining from requiring the questioning of the trustee for the liquidation of Eurolando’s assets – who may incidentally only exercise the debtor’s actions to the extent that they are available –, the arbitrators have not disregarded a rule of public order. The ground of appeal must therefore be dismissed.

FOR THESE REASONS:

DISMISSES the appeal;