Paris Court of Appeal, No. 09/16174

Paris Court of Appeal, Pole 1 – First Chamber, 21 October 2010, No. 09/16174

Mr F C vs. SPRLU J-K N and SPRLU D X

In 2002 the law firm SOKOLOW, C, MERCADIER & A (hereafter SDMC), having decided to establish a secondary office in Brussels, partnered with two Belgian lawyers from the Brussels Bar, Me N and X, practising in the form of single-member companies being SPRLU J-K N and SPRLU D X. On 2 May 2002, the members of the SDMC and the two partners signed a memorandum of understanding with the aim of achieving full integration into the SDMC firm by setting up the adequate structures, with an arbitration clause being inserted in Article 19 of the agreement.

A dispute arose following the resignation of Me C from the SDMC firm on 27 February 2004. Thereafter, an extraordinary general meeting held on 8 September 2004 decided on the voluntary and amicable liquidation of SDMC Brussels.

As a result, SPRLU J-K N and SPRLU D X implemented the arbitration agreement.

By an award rendered on 31 May 2007 in Brussels, the President of the Bar Association, M. BIGWOOD, as the sole arbitrator mainly

• dismissed Mr F C of his claim which aimed to obtain a provisional interlocutory judgement for the production of SDMC’s annual accounts for fiscal years 2003 and 2004,

• stated that the capacity as partner in SDMC Brussels is not indivisible from the capacity as partner in SDMC Paris,

• stated that the date on which the resignation of Me C of the SDMC Brussels took effect is 31 August 2004,

• stated that SDMC Paris was bound through its managing partner Me C to take on 50% of the rent payments and other rental expenses of SDMC Brussels in 2002 and 2003 and 25% of the same fees in 2004, as well as to make lump sum contributions to SDMC of 5% of the revenues of SDMC Brussels in 2002, 10% in 2003, 20% in 2004 and 25% in 2005,

• ordered Me C to pay the sum of EUR 13,168.45 to each of the plaintiffs as damages.

The award was declared enforceable in France by order of the delegate of the President of the Court of First Instance on 3 June 2009.

Mr F C appealed against the order of enforcement. He requests that the court overturn the order that was taken and raises four grounds of appeal, being that the arbitrator ruled in the absence of an arbitration agreement and without respecting the time limits (Article 1502-1 of the Code of Civil Procedure), has been unlawfully designated (1502-2 of the Code of Civil Procedure), has not complied with his mission (Article 1502-3 of the Code of Civil Procedure), and the principle of adversarial proceedings has not been respected (Article 1502-4 of the Code of Civil Procedure).

In addition, he demands the condemnation of SPRLU AGNES and SPRLU J-K N to pay him a sum of EUR 2,500 pursuant to Article 700 of the Code of Civil Procedure.

SPRLU D X and SPRLU J-K N submit that the order for enforcement be confirmed, that the grounds for annulment be declared inadmissible, or alternatively that they are unfounded, and that Mr F C be convicted to pay them respectively the sums of EUR 5,000 for abusive and dilatory appeal.

UPON WHICH,

On the first ground for annulment: the arbitrator ruled without an arbitration agreement (Article 1502-1 of the Code of Civil Procedure)

First, Mr F C maintains that the arbitrator ruled without an arbitration agreement because he never signed the draft arbitration agreement of 9 September 2005 submitted to him by President Bigwood. It was signed by the Belgian parties on the same day as its date without waiting for his observations and for the requests for modification made by him.

Second, Mr F C states that the sole arbitrator has ruled on the basis of an expired agreement. The arbitration agreement stipulates that the award must be rendered within 15 days from closing. In the event of the extension of the time limits, the arbitral proceedings cannot be extended for more than 2 months from the date of the signature of the agreement. He explains that, assuming the existence of the arbitration agreement, such agreement was signed on 9 December 2005 by the Belgian parties and 23 September 2005 by Me MERCADIER. The sole arbitrator in rendering his award on 31 May 2007, ten months after the last signature of the agreement, ruled on the basis of an expired agreement, since no extension of the time limits was decided.

Whereas, Mr F C, by letter of 23 December 2005, submitted his observations on the issues subject to arbitration, without making any reservation as to the existence and validity of the arbitration clause, and without subsequently doing so. By an email of 13 September 2006, Mr F C requested the removal of the time limits initially set for the hearing of the proceedings and the rendering of the award. By letter dated 28 September 2006, the arbitrator accepted these observations and set a new timetable fixing the date for oral arguments on 8 December 2006. On 5 April 2007, the sole arbitrator asked the parties for an extension of the time limit. By letter dated 6 April 2007, Mr F C’s counsel agreed “to an extension of the time limit for the filing of the award until 31 May 2007”. Mr F C, by participating in the proceedings until the rendering of the award, expressed his unequivocal willingness to participate in the arbitration, and by accepting the extensions of time limits until 31 May 2007, the award having been rendered within that time limit, waived the right to invoke any irregularity on these grounds. Therefore, the first ground is inadmissible.

On the second ground: the arbitrator was unlawfully appointed (1502-2 of the Code of Civil Procedure)

Mr F C alleges that the appointment of Me John BIGWOOD, then President of the French Bar Association of Brussels, was not the result of the will of the parties but the application of the ethical rules of the Belgian Bar. There is no regulation in Brussels allowing for the President of the Bar to challenge his own appointment as arbitrator. This mechanism offers no guarantee of neutrality, independence and impartiality, in particular with regard to the ECHR.

Whereas, in order to be admissible, the complaint invoking Article 1502-1 must be raised, whenever possible, before the arbitral tribunal. In the present case, in the course of the arbitral procedure, Mr F C never contested the irregularity of the appointment of the arbitrator. On the contrary, he wrote to the latter on 23 December 2005 ‘I very much appreciate that you have agreed to intervene in this case in the capacity of arbitrator when your duties as President are already demanding’, then through his counsel on 11 January 2006 ‘my client retains his full confidence in you to arbitrate this dispute’. The appellant may not, without contradicting himself, claim that the designation of the arbitrator is irregular. The second ground is inadmissible.

On the third ground: the arbitrator ruled without complying with the mission entrusted to him (article 1502-3 of the Code of Civil Procedure)

Mr F C argues that the arbitrator had three points to settle, without having the power to rule beyond such points. However, more than one year after the date of the arbitration agreement, a claim was filed by the respondents in their submissions of 27 October 2006 to condemn him to the payment of damages to them for the harm caused by ‘the departure of Me C’ and for his refusal to participate in the reimbursement of the loan. Mr F C deduces therefrom that the arbitrator exceeded his mission, in receiving this claim despite the former’s protests, whereas the arbitration agreement did not allow for such an extension of the mission, even more so with respect to an extra-contractual claim.

Whereas, the mission of the arbitrator, defined by the arbitration agreement, is delineated mainly by the subject matter of the dispute as determined by the claims of the parties.

In the deed of 9 September 2005, described as an ‘arbitration agreement’, the parties agreed to submit their dispute to arbitration in accordance with Article 19 of the Partnership Agreement, and have listed three points in their dispute, which are essentially:

• whether the capacity as partner in SDMC Brussels is indivisible from the capacity as partner in SDMC Paris '

• the date on which the resignation of Me F C as a partner of SDMC Brussels should take effect '

• the financial commitments taken by SDMC for the benefit of SDMC Brussels '

Whereas, the arbitrator vested by the arbitration clause of ‘any dispute arising between the signatories of this agreement and relating either to the conclusion, its interpretation or execution’ could rule on all of the claims that were submitted to him in this regard, without focusing exclusively on the contentious issues set out in the Terms of Reference and without being limited by the claims listed in the ‘Request for Arbitration’ filed by SPRLU D X and SPRLU J-K N. The request of the latter, which is based on the impact of Mr. F C’s departure, does not exceed the scope of the arbitration agreement. Therefore, the sole arbitrator did not disregard his mission. This third ground is dismissed.

On the fourth ground: the arbitrator did not respect the principle of adversarial proceedings (article 1502-4 of the Code of Civil Procedure)

Mr F C explained that the existence of financial commitments that he would have undertaken in his capacity as manager of SDMC towards the Belgian secondary office opposed him to the other parties and that he could only exercise his defence by being given the accounts and in particular the annual accounts for the financial years 2003 and 2004. The arbitrator dismissed his claim for the communication of these essential documents, whereas he has been confronted with reports of TCLM auditors appointed several months after his resignation in the context of an amicable liquidation and who had access to these accounts for the purpose of drawing up their reports while he was denied such access. He added that the Paris Court of Appeal in no way allowed itself to be deceived by these reports of ‘auditors’, since it had simply noticed their inconclusive nature as they are ‘non-adversarial’. By depriving him of access to these accounting documents, the sole arbitrator did not comply with the principle of adversarial proceedings.

Whereas, the principle of adversarial proceedings requires only that the parties be given the opportunity to debate in an adversarial manner the grounds invoked and the documents produced. The refusal by the arbitrator to grant the request for communication of accounting documents does not constitute a violation of the principle of adversarial proceedings when the arbitral tribunal did not rule on the basis of these documents but only in consideration of the auditors’ reports which were communicated to Mr F C and which have been submitted for his discussion. Under the guise of an alleged violation of the principle of adversarial proceedings, Mr F C challenges the merits of the decision of the arbitrator. Consequently, the arbitral tribunal did not disregard the principle of adversarial proceedings, and the last ground is dismissed. Therefore, the order of enforcement of the arbitral award should be confirmed.

On the other claims

Whereas, SPRLU D X and SPRLU J-K N do not establish any special circumstances that have made the Mr F C’s appeal of the order of enforcement escalate into abuse, the claim for damages filed on this basis should be dismissed.

Whereas, Mr F C succumbs and is sentenced to the costs, and his claim under Article 700 of the Code of Civil Procedure is dismissed;

For these reasons

Confirms the order of enforcement of the award of 31 May 2007 issued by the President of the Paris Court of First Instance,

Dismisses the claim for compensation filed by SPRLU D X and SPRLU J-K N,

Orders Mr F C to pay the costs and grants SCP Patricia HARDOUIN the benefit of Article 699 of the Code of Civil Procedure.

THE CLERK THE PRESIDENT