Paris Court of Appeal, No. 09/08191

Paris Court of Appeal, 1st Pole, First chamber, 27 May 2010, No. 09/08191

MR. COHEN (MR. A)

Vs.

S.A TOTAL OUTRE MER

The shareholders of Total Bitumes Algérie (TBA) are SA Total Outre Mer (TOM) for 55%, Messrs. A, de Z and KETFI each for 15%.

On 14 November 2001, they entered into a shareholders' agreement providing, in article 8, for the power of SA TOM to acquire by priority the shares of a minority shareholder in the event of persistent disagreement between them on fundamental issues relating to the management of SA TBA.

As a disagreement arose between SA TOM and Mr. A, the company notified Mr. A of its intention to apply article 8 of the shareholders' agreement and Mr. A refused the transfer of his shares and SA TOM initiated the arbitration provided for in article 20 of the shareholders' agreement.

By award issued in Paris on 12 March 2009 under the supervision of the International Chamber of Commerce (ICC), the sole arbitrator, C D:

“a) Ordered Mr. A to transfer to SA TOM the 300 shares he holds in SA TOM [in reality TBA], under penalty of 10,000 euros per day of delay starting from the fifteenth clear day after the notification of the present award by ICC for a period of 90 days;

b) States that the transfer price of the said shares shall be 890,850 for the 300 shares transferred;

c) Orders Mr. A to pay SA TOM the sum of 112,500 for the latter’s reasonable defense costs;

d) Orders Mr. A to pay SA TOM the sum of US $60,000 for the costs of the arbitration;

e) States that Mr. A shall reimburse to SA TOM the sum of US$ 9,996 corresponding to the advance made by SA TOM to ICC on the VAT due to the arbitral tribunal;

f) Declares inadmissible, under Article 19 of the Rules, the request of SA TOM that Mr A shall be ordered to pay half of Mr X’s legal appraisal costs, the sum of US$ 11,983.

g) Rejects all other requests of the parties.”

Mr. A filed an appeal for annulment against this award, which based on two grounds: the arbitrator ruled without complying with his mission (article 1502-3 of the Code of Civil Procedure) and the recognition or enforcement is contrary to international public policy (article 1502-5 of the Code of Civil Procedure).

He therefore requested the court, by submissions dated 23 February 2010, to set aside the award and to order the company TOM to pay him 30,000 pursuant to Article 700 of the Code of Civil Procedure.

In its submissions of 4 March 2010, SA TOM requested the court to declare the appeal inadmissible, to reject it and to order Mr. A to pay him 900,000 in damages for abusive procedure and 30,000 under Article 700 of the Code of Civil Procedure.

At the same time, in his statements dated 19 February 2010, Mr. A referred to the pre-trial judge (in French Conseiller de la mise en état) for a stay of proceedings until a final decision was handed down on the criminal action filed on 18 December 2009 to the public prosecutor of Nanterre Tribunal of Grande Instance and ordered him to pay Mr. A 3,000 pursuant to article 700 of the CPC.

In its submissions of 4 March 2010, the company SA TOM opposed to the request and requested 15,000 based on article 700 of the CPC.

In its submissions dated 18 March 2010, SA TOM lodged an incident communication of documents under penalty payment (exhibits 22 to 25 and a criminal complaint) before the pre-trial judge (in French Conseiller de la mise en état), to which Mr. A, in his submissions of 23 March 2010, objected and claimed 2,000 under Article 700 of the Code of Civil Procedure.

The pre-trial judge (in French Conseiller de la mise en état) joined the incidents to the merits and the closing was issued on 25 March 2010.

UPON WHICH,

On the admissibility of the appeal for annulment:

Whereas in order to conclude that the appeal is inadmissible, SA TOM merely notes that the arbitrator complied with his mission and that under the guise of an appeal for annulment, Mr. A tends to obtain a review of the merits of the award, which represents an objection to the grounds for annulment and cannot characterize the inadmissibility of the appeal, which is based on two of the grounds of article 1502 of the CPC is admissible;

On the incidents joined to the merits:

Whereas according to article 4 of Criminal Procedure Code, the initiation of public prosecution does not require the stay of other actions brought before the civil court, of any nature whatsoever, even if the decision to interfere in criminal proceedings can have a direct or indirect influence on the outcome of the trial; that in this case, apart from the fact that there is no justification for the initiation of public prosecution, the criminal complaint filed for abuse of corporate assets does not require a stay of proceedings regarding the grounds of annulment before the court;

That this request is rejected and consequently the incident of communication of documents concerning the criminal complaint, as well as the requests under article 700 of the CPC formed within the framework of the incidents;

On the first ground for annulment: the sole arbitrator ruled without complying with his mission (article 1502-3 of the Code of Civil Procedure) :

Mr. A states that SA TOM referred to the arbitrator through a request to repurchase all its shares, i.e 450 shares, whereas he ordered the transfer of only the 300 shares he originally owned, omitting the 150 shares that had been allocated to it following a capital increase.

He also states that the arbitrator applied Algerian law whereas French law had been chosen by the parties.

But whereas the mission of the arbitrator is defined by the arbitration agreement and delimited by the object of the dispute as determined by the parties' claims;

That in this case, the sole arbitrator was referred to a claim for the transfer to SA TOM, pursuant to the shareholders' agreement which he ordered, in accordance with the shares of TBA held by Mr. A. The fact that his decision concerned 300 shares and not 450 shares could only constitute an omission to rule; that the ground under article 1502-3 of the Code of Civil Procedure cannot be raised against an award that ruled ‘infra petita’. The grounds for this action for annulment shall be interpreted restrictively, especially since the impossibility of referring the matter to the sole arbitrator again has not been demonstrated or even alleged;

Moreover, Mr. A claims in vain that the sole arbitrator applied Algerian law to the TBA company and not the French law chosen by the parties, whereas, as the SA TOM company points out, Algerian law, the law of the seat of the TBA company, similar to French law, governs the rights and obligations of its directors and shareholders;

That the ground is rejected;

On the second ground: the recognition or enforcement is contrary to international public policy (article 1502-5 of the Code of Civil Procedure):

M. A argued that the reasons for the disagreement between him and SA TOM within the shareholder structure were that, suspecting a practice of overcharging to the benefit of SA TOM and to the detriment of TBA. He wanted to fully exercise his role as director - which is a right and an obligation - by requesting information that was refused to him. One cannot trigger the forced sale of shares held by a director because he exercises his powers, without violating both international public policy specific to the good governance of public limited companies and to ownership, the right of a shareholder to own shares being guaranteed both by Articles 544 et seq. of the Civil Code and by Article 1 of Amendment No. 1 of the ECHR; that the present case here since the sole arbitrator merely replied first, ‘[that Mr. A] did not establish that according to the Algerian law applied to the company, he is, in his capacity as director, entitled to obtain the information requested …’. (award §113) then, ‘In any event, the implementation of article 8 of the agreement simply presupposes a persistent disagreement between the parties. On the other hand, it is not necessary to establish the lawful or unlawful nature of the company’s refusals to answer the questions of its directors, nor does the implementation of the agreement presuppose that the correctness or otherwise of the conditions for the performance of the technical assistance contract entered between SA TOM and the company’ (award §114), thus admitting that, through an agreement, the directors may be deprived of any effective power and prohibited from fulfilling their obligations.

Whereas the sole arbitrator, after having held that article 8 of the preferential subscription agreement should be qualified as a unilateral promise to transfer shares entered into under a suspensive condition and not as an exclusion clause (award § 83 and 84), ruled on the objections raised by M. A to the validity of this promise; that examining the power conferred by the buy-back clause on the majority shareholder and responding to Mr. A’s argument that article 8 of the shareholders' agreement would be contrary to the public policy of company law in that ‘if it is accepted that it is sufficient for a minority shareholder to be in opposition with the majority shareholder on a so-called fundamental issue (…), the shareholders’ agreement is not a unilateral promise to buy back the shares of the company' (award § 83 and 84). …) to be expelled from the company, this means that the clause defeats the mandatory rules governing the functioning of general meetings and boards of directors of limited companies' (award §101) the arbitral tribunal observed ‘that it does not follow from any text or case law that the clause conferring on the majority shareholder the power to compel the minority shareholder to leave the company by repurchasing its shares would be contrary to the public policy of company law. A minority shareholder is free to grant a majority shareholder an option to purchase its shares. In this respect, it would not be relevant to mention an abuse of the majority, since the decision to invoke article 8 of the agreement concerns the relations between the shareholders concerned and does not require the company to take a decision, contrary to its interest, with the aim of favoring the interests of the majority to the detriment of those of the minority’ (award § 103 and 104);

That the reasons of the award, recalled in the above-mentioned statement of Mr. A’s ground (award § 113 and 114), stigmatized as revealing a failure of the arbitrator to comply with the requirements of public policy, good governance of limited companies and the right of ownership, concern only the answer of the arbitral tribunal to the question of the legitimate interest of the TOM company to implement article 8 of the shareholders' agreement, which is based solely on the finding of a persistent disagreement between the parties, regardless of the merits of the grounds for the disagreement;

The arbitral tribunal stated (award §132) “The parties are in fact in disagreement as to the conditions under which SA TOM provides services to the company within the framework of the technical assistance contract of 18 December 2002. Mr. A claims in this respect that SA TOM is overcharging to the company’s detriment, and that the company refuses to provide him with the information he requested in this respect. It should be recalled, however, that the arbitral tribunal is not referred to the existence of this overcharging, and that the company is not a party to the arbitration”;

That by thus giving effect to the share buyback clause inserted in the shareholders' agreement, a clause that is valid as long as the shareholder consented in advance to his departure from the company under conditions that he determined and that consequently entails the loss of his status as director, which is not contrary to the French concept of public policy, the award issued by the sole arbitrator does not offend the French conception of international public policy;

That in reality Mr. A, who thus does not demonstrate that the arbitral award ordering the transfer of his shares at the price set by the expert violates in a flagrant, effective and concrete manner the international public policy, criticizes the arbitrator’s reasoning which led him to admit the validity and implementation of article 8 of the shareholders' agreement and consequently invites the court to exercise a review which escapes it on the relevance of this reasoning;

That the second ground for annulment is rejected, as is the appeal;

On the request of the company SA TOM for damages for abusive procedure:

Whereas SA TOM did not demonstrate that Mr. A turned his right of action into an abuse of right, its claim for damages is dismissed;

On claims pursuant to article 700 of the Code of Civil Procedure:

Whereas Mr. A bears the costs, his action is dismissed and he is ordered to pay to the company SA TOM 30.000;

FOR THESE REASONS:

The appeal for annulment is admissible;

REJECTS the request for a stay of proceedings and the incident communication of documents;

REJECTS the appeal for annulment;

REJECTS the request for damages from SA TOTAL OUTRE MER;

ORDERS Mr. A to pay to SA TOTAL OUTRE MER 30,000 pursuant to article 700 of the CPC;

ORDERS Mr. A to pay the costs and admits SCP Fisselier Chiloux Boulay, avowed, for the benefit of article 699 of the CPC.

THE REGISTRAR, THE PRESIDENT