Paris Court of Appeal, No. 07/14.539 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, 9 October 2008, No. 07/14.539

LA MAROCAINE DES LOISIRS

vs.

FRANCE QUICK

FRANCE QUICK, which belongs to an international group specialising in fast food, carries out this activity through a franchise network that it has developed in Morocco.

Pursuant to the memorandum of understanding of 27 March 2001, it entrusted La Marocaine de Loisirs (hereinafter MDL), a company incorporated under Moroccan law, with the establishment and development of the QUICK brand in Morocco, then concluded two franchise agreements with the latter relating to the opening of two restaurants in Casablanca and Rabat respectively.

FRANCE QUICK gave notice, on 18 March 2006, of the automatic termination of the three contracts. The company MDL contesting it, implemented the arbitration clause inserted in the three contracts.

On 29 January 2007, the ad hoc arbitral tribunal composed of Mr. VUILLARD, Chairman, Mr. Y and X, arbitrators, issued a partial award and the Court, by judgment of 28 February 2008, dismissed the action for annulment of the award made by MDL, which appealed against the judgment.

On 8 August 2007, MDL filed an action for annulment of the final award of 9 June 2007 issued in Paris by the ad hoc arbitral tribunal composed identically of Mr. VUILLARD, Chairman, Mr. Y and X, arbitrators, who:

‘Declare and Judge:

that FRANCE QUICK has rightfully terminated the Memorandum of Understanding of 27 March 2001 and the franchise agreements of 20 November 2002 and 17 February 2005 with effect from 31 May 2006, and that FRANCE QUICK is not at fault for this termination
that the continued operation by MDL, beyond 31 May 2006, of its restaurants in Rabat and Casablanca under the QUICK banner is illegal,

As a result:

Orders MDL to pay FRANCE QUICK a total amount of EUR 123,765.99 in respect of unpaid amounts with interest at one and a half times the French legal interest rate as of 11 May 2007,
Orders MDL to pay FRANCE QUICK a total amount of EUR 250,000 by way of compensation for early termination of the contract, which amount shall bear interest at the legal rate in force in France as of the date of service of the award,
Orders MDL to pay FRANCE QUICK the sum of €400,000 by way of compensation for the loss resulting from the unlawful continuation of the operation of MDL’s restaurants under the QUICK brand name beyond 31 May 2006, which sum shall bear interest at the legal rate in force in France from the date of service of the award,
Prohibits the MDL company from continuing to operate under the QUICK brand in the restaurants of Rabat and Casablanca under a penalty payment of EUR 2,000 per day of delay and per restaurant, which may be liquidated by the enforcement judge,
Orders MDL to bear the costs and fees of the arbitrators and, consequently, to pay FRANCE QUICK, after compensation, the sum of EUR 115,476, which shall bear interest at the legal rate in force in France from the date of service of the award,
Orders the provisional enforcement of the award’.

MDL requests the Court in limine litis to stay the proceedings until the Court of Cassation delivers its ruling following the action filed by MDL against the decision issued by the Court of Appeal on 28 February 2008. As a main claim, it seeks the annulment of the award on the basis of Article 1502 of the Code of Civil Procedure, on the grounds, essentially, that the award was made on the basis of a null mission statement, that it does not respect the rights of one of its directors, Mr. El KADIRI, that its execution would be contrary to French international public policy and that the fraudulent actions of the company FRANCE QUICK misled the arbitrators.

Finally, it requests that FRANCE QUICK be ordered to pay the sum of EUR 10,000 under Article 700 of the Code of Civil Procedure.

FRANCE QUICK requests the dismissal of the application for a stay of proceedings and the appeal, which it considered unfounded. It claims that MDL should be ordered to pay EUR 50,000 in damages for abusive proceedings and EUR 10,000 on the basis of Article 700 of the Code of Civil Procedure.

UPON WHICH, THE COURT:

On the stay of proceedings

Considering that MDL did not raise any new arguments in relation to the case already discussed in the action for annulment rejected by the Court by judgment of 28 February 2008, the application for a stay of the proceedings on account of the action filed against that judgment is dismissed;

On the action for annulment :

MDL claims that the Terms of Reference, signed on 15 September 2006 and drawn up by Mr. VUILLARD, Chairman of the Arbitral Tribunal, Mr. X arbitrator appointed by MDL and Mr. A arbitrator appointed by FRANCE QUICK, is null and void on the grounds that its consent was vitiated at the time of its signature because of an error regarding the independence and impartiality of Mr. VUILLARD, who was the lawyer of the company FRANCE QUICK in Algeria and who violated his obligation of disclosure by only revealing, on 11th December 2006, under duress, his links with this company; that his subsequent acceptance of the appointment of Mr. Y to replace him does not purge this defect of the consent insofar as the validity of the consent is assessed at the time of the formation of the contract. MDL adds that Mr. Y signed the amendment to the Terms of Reference agreeing to succeed Mr. A on 29 January 2007 and that the partial award was not made after his appointment but on the same day, and consequently with the participation of Mr. A. MDL argues that the arbitrators' disregard of the principle of collegiality, since Mr. Y did not take part in the investigation and then in the deliberations, resulted in the partial award being null and void and also affected the award of 9 July 2007 which ratified the award of 29 January 2007.

MDL then claims a violation of the rights of the defence and of Article 6 of the European Convention on Human Rights. It states that the three contracts that were terminated were concluded between three parties and not two, the arbitrators having concealed the fact that Mr. EL KADIRI, a director of the MDL company, was the essential co-contractor of France QUICK, which did not send Mr. El KADIRI neither a formal notice nor a letter of termination and, by its procedural manoeuvres, concealed the fact that the latter, although not a party to the arbitration proceedings, was the third contracting party to the disputed agreements. MDL explains that the absence of formal notice to Mr. EL KADIRI caused it personal harm since its co-contractor could have remedied the breaches formulated against it by the franchisor. MDL adds that the arbitral tribunal could not declare a termination, without notice to Mr. EL KADIRI, to be effective and not abusive, unless the latter was able to state his grounds for defence, and adds that it was not the task of the arbitral tribunal to rule on his rights as a QUICK franchisee. MDL concludes that the award flagrantly, effectively and concretely violates international public policy by consecrating a termination which is not effective because it was not notified to Mr. EL KADIRI, thus disregarding his rights.

Finally, MDL denounces the fraudulent actions of the company FRANCE QUICK, having produced false documents (complaints of Mr. C and Mr. D, slanderous complaint of Mr. and Mrs. E, fraudulent accounting statement) intended to mislead the arbitral tribunal, which constitute a cause for annulment. MDL specifies that these facts gave rise to the filing of criminal complaints in Morocco.

Whereas the action for annulment is only admissible in the cases listed exhaustively in Article 1502 of the Code of Civil Procedure; that none of these cases for annulment considers the nullity of the Terms of Reference, which MDL does not claim that it is in reality the arbitration agreement, the contractual links established with M A, who resigned on 20 December 2006, being a different issue from that of the validity of the arbitration agreement; whereas MDL does not draw any other conclusions from the fact that the partial award was issued by an arbitral tribunal comprising an arbitrator, M. Y, whose appointment became effective on the day on which the award was issued, and whereas it does not establish how its alleged disregard of the principle of collegiality of the investigation and of the deliberations of the arbitral tribunal in making the partial award of 29 January 2007 would affect the final award of 9 July 2007 issued by an arbitral tribunal composed, inter alia, of Mr. Y, an arbitrator appointed six months earlier, on the basis of a reasoning and statement of reasons which cannot be considered as merely endorsing the partial award;

Whereas MDL is inadmissible, by virtue of the rule of estoppel, to apply to the Court for the annulment of the award on the grounds of breach of the principle of collegiality and the nullity of the Terms of Reference, when MDL has itself referred the matter to the Arbitral Tribunal under the arbitration clause, and signed the amendment to the Terms of Reference by a deed dated 29 January 2007 replacing Mr. A by Mr. Y, and participated in the arbitration;

Whereas, finally, MDL does not establish any violation of international public policy of procedure with criticisms concerning the application of the resolutory clause of the three contracts at the initiative of France Quick in March 2006, which concern the merits of the case and of which the judge in charge of the annulment cannot examine; whereas, moreover, the award did not pronounce any personal measure against Mr. EL KADIRI;

Whereas neither the complaints filed with the Moroccan prosecuting authorities concerning the denunciation of the poor quality of the products and services of Quick restaurants in Morocco, nor the statement of accounts produced by France Quick in the arbitration proceedings, nor the complaint filed by MDL on 1 August 2008 against FRANCE QUICK for breach of contract and fraud, lead to the conclusion that there has been a violation of French international public policy;

That, consequently, the claimant’s action for annulment is hereby rejected;

On damages for abusive proceedings, costs and expenses and article 700 of the code of civil procedure:

Whereas France Quick does not establish the existence of particular circumstances that caused MDL’s action to degenerate into abuse; whereas its claim for damages in this respect is rejected;

Whereas the arbitral tribunal has already ordered MDL to bear the costs and fees of the arbitrators and, consequently, to pay FRANCE QUICK, after compensation, the sum of EUR 115,476, which shall bear interest at the legal rate in force in France from the date of notification of the award on arbitration costs and fees, FRANCE QUICK’s claim that all arbitration costs and fees shall be borne by the other company is irrelevant as soon as the claimant’s appeal against the award is dismissed;

Whereas the MDL company which is unsuccessful shall bear the costs, its application under Article 700 of the Code of Civil Procedure is rejected and it is ordered to pay France Quick the sum of EUR 10,000 for this purpose;

FOR THESE REASONS:

Rejects the request for a stay of proceedings filed by La Marocaine de Loisirs,

Dismisses the claimant’s application to set aside the award of 9 July 2007,

Condemns the company La Marocaine de Loisirs to pay the company France Quick the sum of EUR 10,000 under Article 700 of the Code of Civil Procedure,

Rejects any other request from the parties;

Condemns the company La Marocaine de Loisirs to pay the costs and admits Maître Teytaud, avowed, for the benefit of article 699 of the code of civil procedure.