Paris Court of Appeal, No. 10/04688

Paris Court of Appeal, First Pole, First Chamber, 5 May 2011, No. 10/04688

S.A.R.L. KOSA FRANCE HOLDING

S.A.R.L. INVISTA

Vs.

S.A.S RHODIANYL

S.A.S. RHODIA OPERATIONS

On 23 April 1974, N O France and the company USINES CHIMIQUES RHÔNE POULENC entered into a partnership agreement to form a joint venture in the form of a general partnership, A SNC, with a purpose of building a factory in France, on the Chalampé site, to produce adiponitrile, a chemical product which, by condensation with adipic acid, enables the production of certain nylons, using a technology called GEN I developed by N O. Article 9 of the partnership agreement provides that neither of the parties will reveal to third parties or use, unless otherwise agreed, for a period of fifteen years from the date of their communication, confidential information relating to the manufacture. At the same time, several separate contracts annexed to the partnership agreement were signed for future activities, the majority of them containing their own arbitration clauses. Then, following various transfers, B, a company under French law wholly owned by Z SA, took over USINES CHIMIQUES RHÔNE POULENC, and N O France sold its stake in A to KOSA France Holding, a subsidiary of X B.V., a company under Dutch law, which owns X Sarl, a company under Luxembourg law. A is one of the world’s leading producers of adiponitrile. The Z and X groups have respectively undertaken to develop their adiponitrile production outside Europe, in Asia.

In a letter dated 28 September 2007, X SARL prohibited Z SA from using the GEN I technology outside of A’s business, and then initiated proceedings against it in the courts of Texas, New York and Delaware.

On 3 October 2007, companies B, Z K, and later Z SA, filed an application with the ICC Court of Arbitration against companies X SARL, X North America and KOSA France Holding, pursuant to the arbitration clause inserted in Article 23 of the partnership agreement, essentially to find that the latter did not own the GEN 1 technology, that the know-how relating to this technology, which is not protected by a patent, is not protected by French law, and that the period of protection of the GEN I process was limited and has now expired with respect to certain confidential information.

The arbitral tribunal composed of Mr. Mourre, Mr. Schwartz, arbitrators, and Mr. Lévy, chairman, has, according to the partial award of 13 January 2010 rendered in Paris, essentially said:

  • that it is competent to hear the dispute arising from the partnership agreement of 23 April 1974 opposing the companies B and Z K to the companies KOSA France Holding and X SARL,

  • that it does not have jurisdiction over Z SA and X North America,

  • that it is not competent to hear disputes arising directly and solely from annexes C,D,E,F,G,H,I,L,M and N to the partnership agreement,

  • that article 9 of the partnership agreement provides for the protection of all confidential information, including technical data,

  • that the protection is limited to a period of 15 years from the time the confidential information is disclosed by A or a party to the other party,

  • that the claimants are free to use or pass on to a third party all confidential information, including technical data relating to the GEN I manufacturing process that was communicated to them more than 15 years ago,

And

  • ruled on certain specific requests of the parties

  • reserved all other decisions for a later stage of the procedure.

The companies KOSA France Holding and X SARL filed an action for partial annulment of the arbitral award and requested, by submissions of 24 March 2011, its partial annulment in as much as the arbitral tribunal declares itself competent in their regard, and the joint and several condemnation of the defendants to the payment of the sum of € 30,000 under Article 700 of the Code of Civil Procedure.

They argue that the arbitral tribunal wrongly declared itself competent, and base their appeal on articles 1502-1 and 1504 of the Code of Civil Procedure, which provide that the award may be set aside when the arbitrator has ruled without an arbitration agreement.

In accordance with the submissions of 10 March 2011, Z K SAS and B SAS requested the dismissal of the appeal and ordered the claimants to pay the sum of €90,000 pursuant to Article 700 of the French Code of Civil Procedure.

They argue that the ground for annulment is unfounded insofar as X SARL and Z K were involved in the execution of the partnership agreement and that, consequently, they are parties to the arbitration agreement inserted therein.

UPON WHICH,

On the sole ground for annulment: the arbitral tribunal wrongly declared itself competent (Articles 1502-1 and 1504 of the Code of Civil Procedure)

KOSA France Holding and X SARL state that the arbitral tribunal’s jurisdiction is based on the parties' agreement that the jurisdiction of an arbitral tribunal may extend to non-signatories of the arbitration clause', that in this case ‘the partnership agreement, taken as a whole with its annexes, expresses, at least in part, a group-to-group approach…’ and that it is appropriate ‘to analyze the behavior of each of the entities considered in the light of this overall context’. The appellants argue that the necessary condition for an arbitration clause to be invoked or opposed to a non-signatory party is that the latter and the one who signed it had the common will that the non-signatory party be bound by the arbitration clause; that in this case, the arbitrators misunderstood the will of the parties involved in the industrial project by confusing specific services of individuals belonging to the companies X SARL and Z K within the framework of the execution of an industrial project with the acceptance of an arbitration clause. They maintain that neither the interweaving of the contract concluded by KOSA France Holding and X SARL with other contracts included in the parties' agreement, nor the interest they could derive from the partnership agreement are such as to justify an extension of the arbitration clause; that the performance of services in the context of the economic operation is determined on the basis of the annexes to the partnership agreement and not on the basis of the contract itself; that it cannot be deduced from the participation, as observers, of representatives of X SARL in some general meetings of A, an agreement on the arbitration clause inserted in the partnership agreement but to that provided for in the articles of association. The appellants underline that there is no involvement of X SARL and Z K in the execution of the contract of association, nor acceptance of such an involvement by KOSA France Holding and B which allow to deduce the existence of a common will of all these companies to be bound by this contract and the arbitration clause.

Considering that the arbitration clause inserted in an international contract has a validity and effectiveness of its own which requires its application to be extended to the parties directly involved in the performance of the contract and in the disputes which may arise therefrom;

Considering that the partnership agreement concluded on 23 April 1974 between KOSA France Holding who took over N O France and B SAS who took over USINES CHIMIQUES RHÔNE POULENC has for object the formation of a general partnership for the construction and the exploitation of a factory intended to produce adiponitrile for the needs of the parties and their affiliated companies, the factory using ‘technical information of N’; that according to the arbitration clause contained in Article 23 of the partnership agreement ‘the provisions of this Article shall not apply to annexed contracts which contain their own arbitration clauses’; that since these contracts were annexed to the partnership agreement, the contracting parties were necessarily aware of the arbitration clause inserted in it;

Considering that KOSA France Holding’s corporate purpose is ‘to act as a holding company, and in this capacity, to manage and take interests and shareholdings in any business or commercial company’; that this holding company not being able to structurally assume the obligations arising from the partnership agreement, in the absence of any employee, had a ‘permanent representative’ within A, from 2004 to 2007, in the person of M. CG employee and then Vice President Intermediates Europe of X SARL, who certified on 12 February 2009 that he had been in charge of the activities related to adiponitrile ‘which included the supervision of the joint venture A’ and ‘acted as a permanent representative until 2007’; that, moreover, he signed the minutes of the general meetings for one of the partners of A;

Considering, on the execution of the partnership agreement, that contrary to what the appellants maintain, the representatives of X SARL within A did not limit themselves to being observers ‘admitted in session either because they play a role in the execution of the industrial project… or simply because they were made available to A’ ; that indeed, on the one hand the minutes of the general assemblies of A, certainly without mention of the capacity in virtue of which these people intervene, specify that they sit for X SARL and not in a personal capacity, that on the other hand the systematic character of this presence at the general assemblies, with the exception of two of them [minutes of 29 April 2004, 29 October 2004, 29 April and 24 October 2005, 24 October 2006, 23 May and 26 October 2007] testifies to the participation of X SARL in the execution of the partnership agreement; that is also evidenced by the fact that the general meeting of A gave a broad delegation of signature to Messrs. Brian Padley and H I, representatives of X SARL, “in financial matters”, “borrowing”, “relations with the administration”, “insurance” and “management of surplus cash”; that in this respect, since the principles governing the distribution of dividends to the shareholders by A are provided for in Article 13 of the partnership agreement, it is Mr. E, an employee of X Sarl, who referred in two e-mails to Z K to the distribution of those dividends, a resolution approved at the general meeting of A on 19 July 2007; that, moreover, by requiring the institution of a procedure for welcoming group’s staff in the terms of the e-mail ‘it is imperative that X’s employees have full access to A’s facilities’, sent on 19 April 2006 by one of its employees, Mr. D, X SARL was again involved in the execution of the partnership agreement, a decision which was subsequently endorsed by the general meeting of A’s partners on 23 May 2007, in the presence of Mr. D. Finally, the general meeting of A of 4 December 2000, having created an industrial property committee responsible for advising the manager of A on this question, and composed of ‘the permanent representative of each of the Partners to the Management’, an employee of X SARL, Mr. L M, was appointed there, in view of the single minutes of the meeting of the committee which has been communicated;

Considering that Z K became the owner, on 1 January 2007, of the rights and obligations relating to annexes D, H and G of the partnership agreement; that the performance by Z K of these contracts, for which the arbitral tribunal declined jurisdiction due to the existence of its own arbitration clauses, does not exclude that it participated in the performance of the partnership agreement; that in this case, Z K participated in all the general meetings of A, Mr. Y, an employee of Z K, was present and was regularly assisted by other employees under conditions similar to those of X SARL; that like the latter, Z K has received broad powers of delegation for all raw materials, services and benefits for relations with the administration, and has been involved in the distribution of dividends as already mentioned;

That consequently, like X SARL alongside KOSA France Holding, Z K alongside B exercised de facto the prerogatives of partner, and these two non-signatory companies having performed the obligations of the partnership agreement are also parties to the arbitration agreement inserted in the contract; that consequently, the sole ground according to which the arbitral tribunal wrongly declared itself competent in their respect is unfounded; that, consequently, the action for partial annulment of the arbitral award of 13 January 2010 is dismissed ;

On the other requests

Considering that KOSA France Holding and X SARL, being unsuccessful in their recourse, are condemned to the costs and their request made under article 700 of the code of civil procedure is dismissed, and on this basis it is appropriate to order them to pay to Z K and B S.A.S the total sum of 30 000€;

FOR THESE REASONS

DISMISSES the action for partial annulment of the award rendered in Paris on 13 January 2010,

ORDERS KOSA France Holding and X SARL to pay Z K and B S.A.S. the total sum of 30 000€,

DISMISSES all other applications,

ORDERS the companies KOSA France Holding and X SARL to the costs and admits the SCP FISSELIER CHILOUX BOULAY, avowed, to the benefit of article 699 of the Code of Civil Procedure.