Court of Cassation, No. 08-10.281

Court of Cassation, First Civil Chamber, 6 May 2009, No. 08-10.281

MRS. Z. (LIQUIDATOR OF THE COMPANY JEAN X.)

vs.

THE COMPANY INCOME

Whereas the company JEAN X. ET COMPAGNIE (“Jean X”) concluded three contracts with the Egyptian company INTERNATIONAL COMPANY FOR COMMERCIAL EXCHANGES (“Income”), regarding the sale of granulated sugar, and included an arbitration clause providing for arbitration proceedings in the event of a dispute, under the supervision of the Refined Sugar Association; that difficulties of performance of the contracts arose and the company Income referred the matter to the arbitral tribunal on 5 October 2001; that by judgment of 20 May 2003, the company Jean X. was declared to be in receivership, Mr. Y being appointed as judicial administrator and the Selafa MJA, in the person of Mrs. Z., as representative of the creditors; that the company Income has declared its claim; that by judgment of 1 July 2003, the company Jean X. was placed in judicial liquidation, Selafa MJA, in the person of Mrs. Z. being appointed as liquidator; that after having addressed various notices to the company Income and to Selafa MJA in the person of Mrs. Z., the arbitral tribunal rendered an award on 9 February 2004 ordering the company Jean X. to pay certain amounts to the company Income; that the liquidator appealed against the enforcement order (in French Ordonnance d’exequatur) dated 20 February 2006;

On the sole ground, taken in its first part:

Whereas the judgment under appeal is challenged for confirming the enforcement order (in French Ordonnance d’exequatur); whereas, when a court decides to raise a ground ex officio, it is required to comply with due process (in French Principe de contradiction) by requiring the parties to explain themselves on it; that by opposing to Mrs. Z., the rule of estoppel which was not invoked by the company Income, without inviting the parties to submit their observations on the application of that rule in the case in point, the Court of Appeal violated Article 16 of the Code of Civil Procedure;

But, whereas, in its submissions to the Court of Appeal, the company Income argued that the liquidator voluntarily refrained from taking part in the proceedings after having been fully informed and having been implicated, which prevented him from complaining about it on appeal, and concluded that he was supposed to have waived his right to rely on any procedural irregularities; that the company added that the liquidator had acted knowingly, by fraudulent collusion and in order to save a legal remedy against the award; that, since the respective areas of application of the estoppel rule and the principle of waiver may, in certain cases, be identical and it is up to the annulment judge to ensure that the procedural fairness of the parties to the arbitration is respected, it is without violating the adversarial principle that the Court of Appeal qualified the liquidator’s procedural attitude as estoppel;

Hence it follows that the ground cannot be upheld;

On the sole ground, taken in its third part:

Whereas the judgment under appeal is challenged for having thus ruled, then, according to the ground, that by stating that it belonged to Mrs. Z., who was informed of the arbitral proceedings, to put forward before the arbitral tribunal the ground based on the absence of questioning of the judicial representatives of the company Jean X. and co., when the fact of keeping the judicial representatives informed of the progress of the arbitration proceedings is not sufficient to make them parties to this instance, in such a way that Mrs. Z., in his capacity, was not in a position to put forward any argument before the arbitrator, the Court of Appeal violated by refusal of application Article L. 621-41 of the Commercial Code and Articles 68 and 373 of the Code of Civil Procedure, and by misapplication Article 1502-5, of the Code of Civil Procedure;

But whereas the judgment notes that Mrs. Z., as a partner of Selafa MJA, was the recipient of the correspondence exchanged between the board of the company Income and Mr. Y., director, to ensure the continuity of the defence of Jean X. Then, once he was appointed liquidator, he was the recipient of documents relating to the arbitration proceedings and of any information relating to the stages of the proceedings. The Refined Sugar Association even expressly invited him to contact it and made itself available to provide him with any information or document; that the Court of Appeal was able to deduce that the liquidator, fully informed of the progress of the procedure, could not complain about the irregularity of the resumption of proceedings, after the declaration of the claim of the company Income, due to the lack of summons by a bailiff; that the ground was unfounded;

On the sole ground, in its fourth and fifth parts:

Whereas the judgment under appeal is still challenged for having thus ruled, then, according to the ground:

1°/ that an arbitral award rendered in violation of the due process (in French Principe de contradiction) cannot be enforced; that in considering that the rule of estoppel precluded Mrs. Z., in his capacity, from invoking the ground that the arbitral award had been expressly made in the absence of due process (in French Principe de contradiction), because he “found nothing to say during the arbitration”, when in fact Mrs. Z. could not be accused of any abstention during the arbitration proceedings, to which he had not been duly called as he should have been, the Court of Appeal violated by refusal of application Article L. 621-41 of the Commercial Code and Articles 68 and 373 of the Code of Civil Procedure, and by misapplication Article 1502-4, of the Code of Civil Procedure;

2°/ that after having noted that the arbitral tribunal examined the case “without organising adversarial debates”, the Court of Appeal must have deduced from this the impossibility for the French judge to give exequatur to such an award, without questioning the existence of the parties' consent to the option chosen by the arbitrator; that by ruling as it did, the Court of Appeal violated Article 1502-4, of the Code of Civil Procedure;

But whereas the judgment first notes that faxes were exchanged between the company Income and the Refined Sugar Association, whose liquidator was the recipient, requesting their opinion on the possibility for the arbitral tribunal to rule, in the light of the exchanged documents, without oral debates in order to limit the arbitration costs; then, that it results from the award that the liquidator did not object to this procedure being carried out, within the time limit, and that he did not produce more on behalf of the company Jean X. that, above all, as the company Income invoked, that such a possibility was expressly provided for in the arbitration rules, the court of appeal, analysing the liquidator’s behaviour, was able to decide that no violation of the adversarial principle had been established and that the ground was unfounded;

But on the sole ground, in its second parts:

Having regards to Article 1502-5 of the Code of Civil Procedure, together with Article L. 621-41 of the Commercial Code in its then applicable wording;

Whereas according to the second of these texts, the proceedings in progress at the date of the opening judgment are suspended until the creditor declared his claim; whereas they shall then be resumed by operation of law, with the creditors' representative and, where applicable, the administrator duly called, but are solely aimed at establishing the claims and fixing their amount; that the principle of suspension of individual bankruptcy proceedings is both a matter of internal and international public policy;

Whereas, in order to reject the liquidator’s request and confirm the enforcement order (in French Ordonnance d’exequatur), the judgment first of all holds that, in order to constitute a violation of international public policy, the recognition or enforcement of the award must contravene it in an effective and concrete manner, which is not the case of a purely formal violation of the impossibility of pronouncing a sentence against a liquidated legal entity; second of all, that, in this case, the rule of equality of creditors is not disregarded since the company Income produced at the liquidation of the company Jean X. and requests that it be acknowledged not resuming the execution of the award;

That in so deciding, whereas the award ordered the company Jean X. to pay various sums to the company Income in violation of the rule of the suspension of individual proceedings, which is a rule of international public policy, once the claim was declared and the liquidator was implicated, the court of appeal only had the power to determine the claim, it has thus violated the above-mentioned texts;

Having regards to article L. 411-3 of the Code of judicial organisation;

FOR THESE REASONS:

REVERSES AND ANNULS, in all its provisions, the judgment handed down on 8 November 2007, between the parties, by the Paris Court of Appeal;

States that there is no referral to be made;

Rejects the request for enforcement (in French Exequatur) filed by the company Income;

Orders the company Income to pay the costs incurred before the Court of Appeal and the Court of Cassation;

Holds that on the instructions of the Public prosecutor at the Court of Cassation, this decision will be transmitted to be transcribed in the margin or following the reversed decision;

Thus made and judged by the Court of Cassation, First Civil Chamber, and pronounced by the president in its public hearing of 6 May 2009.