Court of Cassation, No. 10-16.680 | Rory Wheeler, avocat (Paris) & solicitor (England)

Court of Cassation, First Civil Chamber, 29 June 2011, No. 10-16.680

SMEG NV

Vs.

LA POURPADINE

On the single ground, taken in its three parts :

Whereas, by contract of 11 August 2003, the French company Pourpadine sold 247 tonnes of feed wheat to the Belgian company Smeg NV. Whereas, on 12 November 2003, Pourpadine informed its co-contractor that it would not deliver the goods, the Belgian company was revoked its authorisation as a cereal collector-exporter by decision of the Director General of the ONIC (The National Interprofessional Cereals Office) on 3 June 2003, in application of the provisions of the Rural Code. Smeg brought an action before the Arbitration Chamber of Paris, by application of the arbitration clause provided for in Article 33 of the RUFRA clauses, for reimbursement of the goods purchased to replace those not delivered. By award of 5 January 2005, the Arbitration Tribunal, which it considered it had no jurisdiction to assess the relevance of the ONIC’s decision, taken in application of the rules of law applicable on French territory at the time of the conclusion of the contract and the conformity of French law with the provisions of Community law, found Smeg’s claims to be unfounded. Smeg filed an action for annulment, and the Court of Appeal, by judgment under appeal of 20 December 2007, declared that the arbitration is international and stayed the proceedings pending the outcome of the proceedings initiated by the European Commission against France following a complaint by Smeg. In an opinion of 12 December 2006, the European Commission found that the French regulations on the collection and marketing of cereals were contrary to the requirements of the freedom of establishment and the freedom to provide services. In a decree No. 2007-870 of 14 May 2007, the French regulations applicable to cereal collectors were amended;

Whereas Smeg objects to the judgment under appeal (Paris, 17 December 2009) which dismissed its action for annulment, and, according to the ground of appeal:

1°/ that the arbitrator shall decide the dispute in accordance with the rules of law, and must in this respect rule in accordance with the primacy of Community law over domestic law in order to carry out his mission, which is itself delimited by the subject matter of the dispute, as determined by the parties’ claims. In the present case and on the one hand, the arbitration clause stipulated by article 33 of the “RUFRA” rules (French rules and practices for the trade in grains, oilseeds produced by fraud and derivatives) was applicable to “any dispute between buyer, seller and/or commercial intermediary arising in connection with a contract referring to the present RUFRA rules”. On the other hand, an action by Smeg was brought to the arbitral tribunal under this arbitration clause for the purpose of deciding, inter alia, that the unilateral breach of the contract in dispute by Pourpadine was incompatible with Articles 30 to 34 of the EC Treaty. This breach was motivated by the ONIC’s withdrawal of Smeg’s authorisation, in that it resulted from a marketing and export restriction decided by a Member State, via public bodies. Consequently, the arbitral tribunal was also seised to order Pourpadine to pay damages to Smeg to compensate for the damage caused by the breach of this contract. Consequently, by declaring that the arbitral tribunal did not disregard its mission, as the dispute was limited to the contractual relations between the parties and therefore did not include the examination of the validity of the withdrawal of authorisation decided by the ONIC, which was imposed on Pourpadine, the Court of Appeal breached Articles 1474 and 1502-2 of the Code of Civil Procedure;

2°/ with regard to the mission of the Arbitral Tribunal, as delimited by the arbitration clause (applicable to “any dispute between buyer, seller and/or commercial intermediary arising in connection with a contract referring to the present RUFRA rules”), and by the subject matter of Smeg’s claim (that the unilateral breach of the disputed contract by Pourpadine lacked a legal basis under the applicable Community rules), stating that, in order to exclude the breach of international public policy invoked by Smeg, it was not within the mission of the arbitral tribunal to examine the conformity of Article L. 621-16 of the Rural Code with the provisions of the EC Treaty, the Court of Appeal breached Articles 1474 and 1502-5 of the Code of Civil Procedure;

3°/ that in international arbitration, the failure of an arbitrator to comply with a Community rule is detrimental to the French concept of international public policy, as long as the unfamiliar rule is mandatory and effectively applicable to the case. In the present case, Smeg stressed the importance of the Common Agricultural Policy in facilitating the integration of agriculture into the common market as it existed at the time of performance of the contract, before the European Commission found the restrictions provided for therein to be incompatible with the freedom of establishment and freedom to provide services and argued that the provisions of Article L. 621-16 of the Rural Code violated several essential principles of Community law. In particular, Smeg argued that these provisions were incompatible with the principle of freedom of establishment and freedom to provide services (Articles 43 and 49 of the EC Treaty), and the principle of free movement of goods (Article 29 of the EC Treaty), applicable to the production of and trade in agricultural products (Article 36 of the EC Treaty). Consequently, by merely stating that Smeg did not demonstrate how the solution adopted by the arbitral tribunal, which validated the exclusion of Smeg based on Article L. 621-16 of the Rural Code, violated in a flagrant, effective and concrete manner international public policy, without explaining how the disregard of these essential principles of Community law, which the Court of Appeal did not contest, did not affect, in contradiction with international public policy, the higher economic and financial objectives of the Common Agricultural Policy, and therefore a fundamental economic policy, the Court of Appeal deprived its decision of a legal basis in the light of Article 1502-5° of the Code of Civil Procedure;

Whereas, however, having noted that the dispute submitted to the arbitrators was aimed at assessing the merits of Pourpadine’s unilateral breach of contract, the Court of Appeal, as judge of annulment, which had no power to review the decision on its merits, was able to deduce from this that the arbitrators, by declaring, albeit wrongly, they had no jurisdiction to rule both on the conformity of the decision refusing to approve the company Smeg with Community law, decision handed down by the ONIC pursuant to the national regulations in force at the time, and on the legality of Article L. 211- 16 of the Rural Code with regard to Community rules, and in declaring the termination to be justified, had complied with their mission;

And whereas, on the other hand, the solution of the dispute, given by the award, namely that the termination of a sale of cereals was, in accordance with the national texts in force, well-founded, does not constitute a flagrant, effective and concrete violation of international public policy;

Hence it follows that the ground of appeal is unfounded;

FOR THESE REASONS:

DISMISSES the appeal;

Orders Smeg NV to pay the costs;

Having regard to Article 700 of the Code of Civil Procedure, dismisses the claim;

Thus ordered and judged by the Court of Cassation, First Civil Chamber, and pronounced by the President in its public hearing of the twenty-ninth of June two thousand and eleven.