Court of Cassation, No. 08-20.563 | Rory Wheeler, avocat (Paris) & solicitor (England)

Court of Cassation, First Civil Chamber, 6 October 2010, No. 08-20.563

AAC

ROUNDHILL TRUST

AAFF

THE ROSEHILL FOUNDATION

CONSORTS X

Vs.

JAFF

Summary

The Court of Appeal, as the judge of annulment, reviews the decision of the arbitral tribunal regarding its jurisdiction, whether it has declared itself competent or incompetent, by searching for all elements of law or fact allowing to assess the scope of the agreement, and to deduce the consequences thereof with respect to the mission entrusted to the arbitrators.

Held that appeals S 08-20. 563 and H 09-10. 530 should not be consolidated;

On the sole ground of appeal, taken in its two branches:

Whereas Mr. Edwin, Mr. Albert and Mr. Joseph X. signed a protocol on 1 May 1979 providing for the establishment of a holding company in Liechtenstein which brought together their activities throughout the world. Under this protocol, each party allocated its shares to a family foundation. The articles of association of the holding company, Albert X. corporation (AAC), included an arbitration agreement. Mr. Joseph and Mr. Albert X. each set up a family foundation, Joseph X. set up Family Foundation (JAFF) and Albert X. set up Family Foundation (AAFF) and also bought back the shares of their brother Edwin. Following the death of Albert X., major disagreements arose between his sons, Mr. Albert Martin and Marlon X. and their mother, Mrs. Bärbel X. (the consorts X.). After various procedures, they signed a “Settlement Agreement” on 26 April 2000, which was also signed by the AAFF. This ‘Settlement Agreement’ was submitted, in principle, to the Board of Directors of the AAC and to the General Meeting; that the execution of this agreement, in particular by the consorts X., resulted in the sale of the assets of the AAC. JAFF initiated the arbitration proceedings. A first partial award ruled on the applicable law and on the arbitrability of the dispute. A second partial award of 22 May 2008 stated that consorts X. were not bound by the arbitration agreement and that therefore the arbitral tribunal has no jurisdiction;

JAFF filed an action to set aside the award;

Whereas the AAFF, the AAC, the Roundhill trust, the Rosehill foundation, and consorts X. challenge the decision under appeal (Paris, 22 May 2008) for having set aside the partial award of 22 June 2006; Whereas on the ground that:

1°) in international arbitration, an award may only be set aside for failure by the arbitrators to comply with their mission in the event of a breach of obligations resulting from express and precise clauses of the arbitration agreement. It is not for the State judge seized of an action for annulment to review the correct application of the procedural law or the law applicable to the merits of the dispute. In this case, the arbitration clause covered “any dispute that may arise between the shareholders and the Company or between the shareholders themselves”. The arbitrators, in applying the law and in interpreting this clause, the rules of 26 April 2006 as well as the behaviour of the Albert X. family in the execution of these rules, had ruled that Bärbel, Marlon and Albert Martin X. were not bound by the arbitration agreement. In reviewing this interpretation and the application made by the arbitrators of the French law applicable to the arbitration and in concluding that the arbitrators had not complied with their mission by holding that the three individuals were not bound by the arbitration agreement, the Court of Appeal violated articles 1502-3 and 1504 of the Code of Civil Procedure;

2°) if the arbitration proceedings may be extended to persons who are not signatories but who are involved in the performance of the contract and whose consent may therefore be presumed, this is not the case when the circumstances demonstrate the willingness of the signatory parties to limit the binding effects of the arbitration agreement to them alone. In the present case, the claimants argued that, under the terms of Article 4 of the Protocol of 1 May 1979, the three founding brothers had each expressed the intention to establish a family foundation to which the shares of the company Albert X would be allocated. This choice made by each of the three brothers to contribute their shares in the SAA to a family foundation, which would become the sole shareholder, revealed their desire to place these foundations between themselves and their beneficiaries, natural persons, and the Albert X company and also revealed their intension to exclude themselves individually from the arbitration agreement, the agreement having effect only towards the shareholders in a strict sense. In ruling as it did, without investigating whether the choice of the three founding partners of Albert X. was not to exclude natural persons from the scope of the arbitration agreement, whatever were their interests and responsibilities within the shareholder foundations of the company, the Court of Appeal deprived its decision of legal basis in the light of Article 2059 of the Civil Code, and Articles 1502-2 and 1504 of the Code of Civil Procedure;

Whereas, however, the annulment judge reviews the decision of the arbitral tribunal regarding its jurisdiction, whether it has declared itself competent or not, by searching all the elements of law or fact allowing to assess the scope of the arbitration agreement and to deduce the consequences thereof with respect to the mission entrusted to the arbitrators; Whereas the decision states, on the one hand, that for the purpose of the sale of the AAC, the settlement agreement provides the appointment of a special committee by Mrs. Bärbel X., Mr. Albert Martin and Mr. Marlon X., as well as and the appointment of an advisory committee by the latter two, in addition to the selection of a banker responsible for organising the sale of the shares. The agreement was ratified, in its principle, by the Board of Directors of the AAC and approved, while it was being implemented, by the General Meeting. The Court of Appeal held, firstly, that this agreement, which led to the de facto liquidation of the AAC, was an agreement included in the provisions of the arbitration agreement related to the life or liquidation of the company. The court of appeal held, secondly, that by signing the agreement in their personal capacity, the consorts X. had behaved like the true shareholders of the company, appointing even members of the Board of Directors, agreeing on the appointment of the Chairman and claiming to be shareholders themselves in official documents. The Court of Appeal rightly deduced from the foregoing that they could not legitimately claim to be strangers to the arbitration clause, the content of which they could not ignore and which they had implicitly accepted because of their interference in the functioning of the CAA; that the ground of appeal is unfounded;

FOR THESE REASONS:

DISMISSES the appeal;

ORDERS the AAFF, the AAC, the Roundhill trust, the Rosehill foundation, Mrs. Bärbel X. and Mr. Albert Martin and Mr. Marlon X. to pay the costs;

Pursuant to Article 700 of the Code of Civil Procedure, orders the AAFF, the AAC, the Roundhill trust, the Rosehill foundation, Mrs. Bärbel X. and Mr. Albert Martin and Mr. Marlon X. to pay a sum of 3,000 euros to the JAFF;

Thus, done and judged by the Court of Cassation, First Civil Chamber, and pronounced by the President in his public hearing of the sixth of October two thousand and ten.