Paris Court of Appeal, No. 10/18561 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal – First Chamber – 17 November 2011 – No. 10/18561

LICENSING PROJECTS SL vs. PIRELLI & C. SPA

Through a contract dated 18 December 2001, the Italian law firm Pirelli & C SPA (Pirelli) granted the Spanish firm Licensing Projects SL (LP) an exclusive license to produce and market footwear under several trademarks belonging to it. A dispute arose with respect to the use of the trademark Pzero. On 13 April 2007, Pirelli sent a letter of termination to LP after the latter had suspended the payment of royalties. The Court of Barcelona placed LP in a procedure of insolvency on 11 July 2007 and in a procedure of liquidation on 26 January 2009.

On 8 November 2007, Pirelli filed a request for arbitration before the International Chamber of Commerce in application of the arbitration clause in the license agreement.

The arbitral tribunal composed of Mr. M. Luzzatto and Mr. Ramos Mendez, arbitrators, and Mr. Mourre, chairman, rendered an interim award in Paris on 19 September 2008, which recognized its jurisdiction over the dispute, holding that, pursuant to Article 52 of the Spanish bankruptcy law, the opening of collective proceedings deprived the arbitration clause of effect when a domestic arbitration was involved but not, as in this case, an international arbitration. This partial award was not appealed.

By an award rendered in Paris on 19 October 2009, the same court:

noted the regularity of the termination of the license agreement,
prohibited LP from using the trademarks covered by the license,
ordered the delivery by LP to Pirelli of an inventory of the items bearing the trademarks in question as well as the labels and materials bearing those trademarks,
ordered LP to pay Pirelli the sum of 2. 992,000 euros in respect of unpaid royalties,
ordered LP to pay the sum of 288,750 USD in arbitration costs and 100,835.22 EUR in defense costs to Pirelli.

Three actions for annulment have been brought against this award. On 25 November 2009, LP filed an action against Pirelli, with summons of Mr. M K L D and H I Y, in their capacity as judicial agents, administrators of LP in judicial liquidation, and forced intervention of Mr. Q R B (case registered under RG 09/24158). On 14 September 2010, Mr. B filed an action against LP and against Mr. M D and Y, in their capacity as such (case registered under RG 10/18561). On 27 September 2010, Mr. B filed a new action, ‘annulling and replacing the previous one’, against Pirelli, the company LP which is in liquidation and the judicial representatives of the latter (case registered under RG 10/19144). It is specified that Mr. B, a creditor of LP, was authorized by order of the Commercial Court of Barcelona dated 12 March 2010 to exercise the annulment remedy, in the interest of the creditors and at his own expense.

In its submissions of 8 and 12 November 2010, Mr. B, as a voluntary intervener in the case 09/24158 and as a main party in cases 10/18561 and 10/19144, requests the combination of the three actions brought against the award of 19 October 2009, the annulment of this award and the order of Pirelli to pay the sum of 5,000 euros pursuant to Article 700 of the Code of Civil Procedure, in addition to all the costs of the arbitration and of the appeal.

In its submissions dated 25 March 2010, LP seeks the annulment of the award and the condemnation of Pirelli to pay the sum of 5,000 euros pursuant to Article 700 of the Code of Civil Procedure, in addition to the arbitration and appeal costs.

Mr. B and the company LP invoke the disregard of the right to a fair trial (Article 1502-4 and 1502-5 and 1504 of the Code of Civil Procedure), the non-compliance with the international public policy regarding the enforcement of an award rendered in violation of article 52.1 of Spanish Law no. 22/2003 of 9 July 2003, which prohibits the implementation of arbitration agreements when the debtor is bankrupt (articles 1502-5 and 1504 of the Code of Civil Procedure) and, lastly, the violation of the international public policy regarding the enforcement of an award incompatible with Spanish court decisions (articles 1502-5 and 1504 of the Code of Civil Procedure).

In its submissions of 8 and 17 November 2010, Pirelli requested the Court to declare that by judgment of 12 March 2010, the Commercial Court of Barcelona noted the refusal of the judicial administrators of LP to act in nullity of the award and granted M. B of this right. Pirelli also requested the Court to declare Mr. B’s request for forced intervention valid, to combine the appeals, to declare the appeals unfounded, to declare that this rejection entails the exequatur of the award, in accordance with Article 1490 of the Code of Civil Procedure, and lastly, to jointly and severally order Mr. B and LP to pay the sum of 50,000 euros pursuant to Article 700 of the Code of Civil Procedure.

M. M Y and D, in their capacities as such, to whom the proceedings were dismissed by deeds issued on 25 and 29 November 2010 in accordance with the provisions of Regulation (EC) No. 1393/2007 of the Parliament and of the Council of 13 November 2007, have not been admitted.

UPON WHICH

Whereas it is constant that Mr. B is entitled by order of the Commercial Court of Barcelona dated 12 March 2010 to bring the action for annulment on behalf of LP, in the interest of the mass of creditors and at its own expense. It is therefore in the interest of the proper administration of justice to combine the actions brought against the same award by LP and by Mr. B, actions registered under numbers RG 09/24158, 10/18561 and 10/19144;

On the grounds of annulment taken from the failure to comply with the right to a fair trial (articles 1502-4 and 1502-5 and 1504, which became 1520-4 and 1520-5 and 1518 of the code of civil procedure):

LP and M. B claim that LP’s counterclaim for damages for wrongful termination of the license agreement by Pirelli and for unfair competition was considered by the arbitral tribunal to have been withdrawn on the grounds that LP had not paid its share of the advance on arbitration costs, whereas LP, having suspended all payment was unable to make such an advance, it was thus unjustly deprived of its access to the judge and that Pirelli was placed in a more favorable situation than LP, in disregard of the principle of equality of arms set forth in article 6 § 1 of the European Convention on Human Rights.

Whereas the arbitration clause stipulated in the license contract refers to the Rules of Arbitration of the International Court of Arbitration of the International Chamber of Commerce and implies the adoption by the parties of the provisions of these Rules;

Whereas, under the terms of Article 30 of these Rules (in force as of 1 January 1998):
“1.After receipt of the Request, the Secretary General may request the Claimant to pay a provisional advance in an amount intended to cover the costs of arbitration until the Terms of Reference have been drawn up. 2.As soon as practicable, the Court shall fix the advance on costs in an amount likely to cover the fees and expenses of the arbitrators and the ICC administrative costs for the claims and counterclaims which have been referred to it by the parties. This amount may be subject to readjustment at any time during the arbitration. Where, apart from the claims, counterclaims are submitted, the Court may fix separate advances on costs for the claims and the counterclaims. 3.The advance on costs fixed by the Court shall be payable in equal shares by the Claimant and the Respondent. Any provisional advance paid on the basis of Article 30(1) will be considered as a partial payment thereof. However, any party shall be free to pay the whole of the advance on costs in respect of the principal claim or the counterclaim should the other party fail to pay its share. When the Court has set separate advances on costs in accordance with Article 30(2), each of the parties shall pay the advance on costs corresponding to its claims. 4.When a request for an advance on costs has not been complied with, and after consultation with the Arbitral Tribunal, the Secretary General may direct the Arbitral Tribunal to suspend its work and set a time limit, which must be not less than 15 days, on the expiry of which the relevant claims, or counterclaims, shall be considered as withdrawn. Should the party in question wish to object to this measure it must make a request within the aforementioned period for the matter to be decided by the Court. Such party shall not be prevented on the ground of such withdrawal from reintroducing the same claims or counterclaims at a later date in another proceeding.”

Whereas on 8 November 2007, Pirelli filed a request for arbitration seeking to declare that the termination of the license agreement announced on 13 April 2007 was lawful for lack of payment of royalties, to prohibit LP from using the infringing trademarks and to order LP to pay, in addition to the royalties due, damages for contractual breaches related to the unlawful continuation of the use of its trademarks and the resulting reputational harm;

Whereas LP brought a counterclaim seeking, on the one hand, a ruling that Pirelli deceived it by entrusting it with the license for the Pzero trademark which it did not own, that it wrongfully terminated the license agreement, and that it committed acts of unfair competition. On the other hand, LP requested the Court to prohibit Pirelli from entering into license agreements with third parties relating to the Pzero trademarks, and, lastly, to condemn Pirelli to pay the following sums:

3,672,498 in respect of royalties paid to Pirelli for the use of the Pzero trademark,
6,970,167.75 euros in respect of investments in the promotion of the Pzero trademark,
12,090,038 euros and 8,702,101.65 euros in respect of the loss of profit resulting from the unilateral termination of the license agreement;

Whereas with regards to the request presented by Pirelli on 10 March 2009, the International Court of Arbitration decided, on the basis of the aforementioned Article 30 of the ICC Arbitration Rules, to set separate advances on the principal claims and counterclaims. This decision was maintained despite the objections presented on 24 March 2009 by LP, claiming its insolvency.

Whereas on 25 August 2009, the Court informed the arbitral tribunal and the parties of the fact that the defendant having failed to pay the advance of costs, the counterclaims were considered withdrawn without prejudice to the possibility that they might be resubmitted in another proceeding;

Whereas, on the one hand, the right of access to justice implies that a person may not be deprived of the practical possibility of having their claims decided by a judge; that if restrictions may be brought to the exercise of this right, they must be proportionate to the requirements of the proper administration of justice; that the arbitral tribunals are not exempt from the application of these principles;

Whereas, on the other hand, the respect of due process (in French Principe de la contradiciton) requires that the parties be placed on an equal footing before the judge. This would not be the case if the defendant, authorized only to reply to the opposing claims, were deprived of the right to submit to the court counterclaims linked by a sufficient connection to the principal claims and of such a nature as to enable him to obtain, if necessary, his release by set-off between reciprocal claims;

Whereas, in the present case, the arbitration clause inserted in the license agreement provides that ‘any dispute relating to the validity, interpretation, performance or termination of this agreement (without prejudice to the jurisdiction of the ordinary courts in respect of interim or provisional measures engaged by any of the parties) shall be decided by a three-member arbitral tribunal in accordance with the Arbitration Rules of the International Chamber of Commerce’. Whereas the counterclaims submitted by X relating to the interpretation and performance of the license agreement shall fall within the scope of this clause and shall only be decided by arbitration under the tutelage of the International Chamber of Commerce;

Considering that the decision held that the counterclaims had been withdrawn due to non-payment of the advance on costs, whereas LP argued, and it was moreover constant, that it was placed in judicial liquidation by a judgment of the Commercial Court of Barcelona of 26 January 2009 and that it was not able to pay the provision set. Such a decision appears, in the circumstances of the case, to be an excessive measure which had the effect of depriving LP of the possibility of having its claims adjudicated. On the one hand, the ability of a company in liquidation to subsequently submit the same claims to another arbitral body is of a purely theoretical nature. On the other hand, the circumstance, alleged by Pirelli, that the grounds of LP’s counterclaims are to be analyzed exclusively as defenses to its own claims, to which the arbitral tribunal would have replied when examining the main claims, a circumstance that has not been demonstrated, is not of such nature as to remedy the imbalance between the parties;

Whereas the breach of the right of access to justice and of the principle of equality between the parties justifies the setting aside of the award in application of article 1520-4 and 1520-5 of the Code of Civil Procedure;

Whereas it is not up to the judge of annulment to decide on the arbitration costs. Thus, the request of Mr. B and LP on this point will be rejected;

Whereas Pirelli, who succumbs, will be ordered on the basis of article 700 of the code of civil procedure to pay to Mr. B and LP the global sum of 5.000 euros;

FOR THESE REASONS:

Orders the combination of the files registered under the numbers RG 09/24158, 10/18561 and 10/19144.

Set asides the award rendered between the parties on 19 October 2009.

Orders Pirelli & C SPA to pay the global sum of 5,000 euros to Mr. B and to F G SL in application of Article 700 of the Code of Civil Procedure.

Rejects all other requests.

Orders Pirelli & C SPA to pay the costs and admits the SCP Oudinot-Flauraud, appellate lawyers, for the benefit of Article 699 of the Code of Civil Procedure.

THE CLERK, THE PRESIDENT