Paris Court of Appeal, No. 88-1686 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal - 1st chamber - section c - 16 February 1989, No. 88-1686

SOCIETE DE DROIT HELVETIQUE X D

vs.

SOCIETE FRANÇAISE C D

According to a private agreement of 6 May 1986, the French company C D gave the Swiss company X D an exclusive mandate for the worldwide distribution of the film entitled “La dernière image”, directed by Lakhdar Hamina.

A dispute having arisen in the execution of this agreement, the Company C D, raising the arbitration clause inserted in the contract, filed a request for arbitration with the Professional Cinematographic Association for Conciliation and Arbitration (Association Cinématographique Professionnelle de Conciliation et d’Arbitrage - A.C.P.C.A.), the body designated by the arbitration clause, and the arbitration tribunal, composed of three members under the aegis of this association, ruling as a last resort and in amicable composition by application of the arbitration rules of the A.C.P.C.A., On 19 October 1987, the arbitrators - after having retained their jurisdiction by disregarding the public policy nature of the rules of the National Cinematography Centre (C.N.C.) invoked by C D, and judging that the contractual six-month period for ruling had been interrupted by the receivership and then the judicial liquidation of C FILS - issued an award under the terms of which the arbitrators set out the following provisions:

1°/ the contract for the worldwide distribution of the film “The Last Image” signed on 6 May 1986 between C D and X D is terminated as of 31 July 1986.

2°/ C will take over and carry out the contract for the purchase and sale of the goods under the same conditions as those under which the distribution in FRENCH CANADA contract was signed concluded on 13 May 1986 between X D, as representative of C, and D E F.

3°/ X shall return to C the advance of 5,000 Canadian dollars paid by D E F to X by deducting only from this sum: - the cheque of 869.60 Swiss francs sent by X to C and not cashed on the day of the hearing of the arbitral tribunal; - the amount of the costs incurred for this sale in CANADA by X and accepted by C. In the absence of agreement between the parties on the amount of these costs, they shall be fixed at 35% of the first instalment of 5,000 Canadian dollars of X.

4°/ C D will pay X as damages a lump sum of 100,000 francs (one hundred thousand francs).

5°/ C is authorised to set off the sums due to X under the present arbitral award against the sums due to ALIRA under the same award.

6°/ The remainder of the conclusions of C D’s claim on the one hand, and of X D’s counterclaim on the other hand is rejected.

7°/ The arbitration costs shall be borne by C D.

X D has filed an action for annulment against this award, which was made in international arbitration, based on the provisions of Article 1502, 1°, 3°, 4° and 5°, adding that the arbitral tribunal : -ruled on an expired compromise, the award having been made after the six-month period provided for by the applicable arbitration rules; - disregarded the terms of its mission and the principle of due process by raising arguments of fact and law tending to terminate the contract which were not invoked by C D; - committed an excess of power such as to prohibit the award from being recognised and enforced, by ruling on a question of public policy, in accordance with the provisions applicable to the National Cinematography Centre regime;

The Company C D requested to declare the appeal inadmissible under the provisions of Article 8 of the Arbitration Rules excluding any possibility of recourse against the award and, in the alternative, requested that the appeal be dismissed.

Both parties requested the application in their favour of Article 700 of the New Code of Civil Procedure.

THE COURT,

On the admissibility of the appeal

Whereas under the terms of article 1505 of the New Code of Civil Procedure, the arbitral award rendered in France in international arbitration matters may be subject to an action for annulment in the cases provided for in article 1502;

Whereas it follows from this text that the recourse thus provided for refers, in particular, to awards pronounced in the last resort, even when the arbitration agreement or rules exclude any possibility of recourse, as it is the case here;

Whereas the appeal must, therefore, be declared admissible;

On the grounds for annulment

First ground: article 1502-1 [now Article 1520-1 of the Code of civil procedure].

The arbitral tribunal is criticised for having issued its award on 19 October 1987 despite the fact that the period of six months provided for in Article 7 - 5e, of the arbitration rules, starting from the closure of the proceedings - which took place in this case on 16 March 1987 - had expired on 17 September 1987, and this despite the intervention of the receivership (judgement of 18 June 1987) and then the judicial liquidation (judgement of 6 July 1987) of the Company C D, since:

the arbitral tribunal applied French procedural law ex officio by deciding that the arbitration period had been interrupted, yes reopened, pursuant to Articles 1465 and 369 of the New Code of Civil Procedure, whereas the only reference in the arbitration agreement to procedural rules was to the arbitration rules of the A.C.P.C.A. ;
the arbitrators extended the time limit for the arbitration ex officio, although this power was reserved to the parties, according to the Arbitration Rules, the only source of procedural rules applicable in this case ;
the extension of the time limit was in no way necessary, as the arbitral tribunal had more than two months to rule - from 2 July to 16 September 1987 - from the day on which C D’s legal redress became known;
the request for the resumption of proceedings by the liquidating agent of the Company C D was made on 6 October 1987, i.e. after the expiry of the above mentioned six-month period, so that this expression of will must be declared inoperative in this case;

Whereas, on the one hand, the rule of public policy of the cessation of individual proceedings resulting from the law of 25 January 1985 was imposed on the arbitrators, who had to note the suspension of the arbitration proceedings;

Whereas under the terms of Article 8 of the A.C.P.C.C.A. Arbitration Rules to which reference is expressly made in the arbitration clause contained in the agreement of 6 May 1986 (Article XVIII, 4th paragraph), the Arbitral Tribunal is not bound to observe either the rules of procedure or the time limits prescribed by the Code of Civil Procedure and shall rule as amiable compositeur;

Whereas the mission of amiable compositeur thus defined gives to the arbitrators, seized of an international dispute, extensive powers in the execution of this mission, for the search of an equitable solution;

Whereas it was therefore open to them to admit, as far as the procedure was concerned, that the opening of collective proceedings against C D, which occurred during the six-month period provided for in the arbitration rules, had the effect, in addition to interrupting the arbitration proceedings due to a mandatory legal obstacle, of opening a new period of six months from the interrupted event;

Whereas, in fact, the arbitrators, as amiable compositeurs, could not, without compromising the rights of the defence with regard to the Company C D, have limited themselves to noting the expiry of the arbitration agreement, whereas the representative of the Company subject to the collective proceedings was unable to take a useful position before knowing his exact status and his powers in the context of these proceedings;

Whereas it thus appears that the arbitrators, using the powers granted to them by their mission, ruled regularly, without incurring any of the grievances of the ground, which must consequently be rejected;

Second ground: article 1502-3 and 1520-4 [now Articles 1520-3 and 1520-4 of the Code of civil procedure]

X D further criticises the arbitrators for not having complied with their mission and for having disregarded the principle of contradiction, by basing their decision to terminate the contract of 6 May 1986 on a breach of the obligations of the contract which had not been invoked by C D, thus introducing into the debate a set of factual and legal grounds not debated between the parties;

Whereas, however, on the one hand, C D’s claim was, in particular, for the termination of the contract “due to the non-performance by (Company X D) of all its contractual obligations” (brief filed by C D before the arbitrators, page 6, 3rd paragraph), and that, for its part, ALMIA D reported before the arbitrators the numerous breaches by C D of its contractual obligations and claimed damages for “commercial prejudice”;

Whereas thus, in the state of these claims forming the object of the dispute, it is in the execution of their mission as amiable composers that the arbitrators have analysed the respective obligations of the parties and their execution in order to pronounce the termination of the contract, taking into account all the economic data of the dispute, without introducing into the debate elements which the parties would not have been able to discuss contradictorily;

Therefore it results that the ground of appeal is unfounded;

Third ground of appeal: Article 1502-5 [now Article 1520-5 of the Code of civil procedure].

The award is still criticised for having ruled on a question of public policy and therefore falling within the sole competence of the State courts, so that its recognition or enforcement would be contrary to international public policy.

Whereas the arbitral tribunal ruled on the main grievance opposed by C D to X D, which arose from the fact that the latter company had falsely declared that it was the holder of a C.N.C. licence to practice, in violation of a regulation qualified as a matter of public order;

Whereas, however, the arbitrability of a dispute with regard to public policy should not be understood to mean that the arbitrators are prohibited from applying mandatory provisions, but only from ruling on a matter falling by its nature within the exclusive competence of the State court, or from establishing by their decision a violation of public policy - which is not the case here;

Whereas, moreover, in the case of international arbitration, the award may only be declared null and void if the recognition or enforcement of the award is contrary to international public policy, and whereas the contested award in no way offends against the French concept of international public policy in that it merely retains the contractual fault of Company X D in its relations with Company C D;

Whereas the ground of appeal must therefore, like the previous ones, be set aside and the appeal dismissed;

FOR THESE REASONS

Declares the action for annulment admissible;

Dismisses it;

It is not necessary to apply article 700 of the New Code of Civil Procedure in this case;

Places the costs at the charge of the Company X D, and admits Attorney VARIN, solicitor, with the benefit of article 699 of the New Code of Civil Procedure.