Paris Court of Appeal, No. 11/11153

Paris Court of Appeal, First Chamber, 13 November 2012, No. 11/11153

S.A. FAIRPLUS HOLDING (B) vs. JMB CORPORATION (F)

The Mauritian company JMB CORPORATION (hereinafter referred to as “F”) whose activity is the acquisition of shareholdings in the capital of companies, pursuant to a memorandum of understanding dated 31 October 2007, sold to the Swiss company S.A. FAIRPLUS HOLDING (hereinafter referred to as “B”), whose business is to acquire shareholdings in companies in the food sector, the 23.997 shares held by itself and by third parties with which it has a strong position, in the capital of the Malagasy company Aquaculture des Mascareignes (hereinafter referred to as “Aquamas”), which operates a shrimp farm.

The sale price, set at three million euros, was payable in part (one million euros) on the date of sale and in part eventually, with a variability clause based on the value of Aquamas’ inventories and outstanding liabilities.

By common agreement, the percentage of the price payable upon signature of the protocol was reduced to 687,123 euros. The difference was paid in the name and on behalf of Aquamas, to two banks as payment for the interest on loans taken out by Aquamas.

On the same day, i.e. 31 October 2007, a “Non-Compete Agreement” was signed concerning both seller F and Mr. D E, managing director of the sold company, B, the latter undertaking to pay F, in return for the commitments entered into, an indemnity of 2,512,877 euros payable over a period of four years in monthly instalments with interest at 4% per annum.

In accordance with the price variability mechanism set out in the memorandum of understanding of 31 October 2007, the parties signed an “Agreement on the valuation of inventories and outstanding claims” on 13 March 2008, for the purpose of carrying out an adversarial evaluation according to a mutually agreed upon method.

Such method revealed a development which the payment of a price supplement of 96,297.11 euros, which was stipulated to be payable within 45 days of the signing of the agreement.

Finally, an “Amendment to the Memorandum of Understanding dated 30 October 2007” was concluded between the parties on 31 March 2008 under the terms of which F and Refrigépêche Ouest agreed to waive receivables from Aquamas, with the latter assuming all the financial, legal, tax and other consequences thereof.

A dispute having risen between the parties due to the non-payment of the first instalment of the assignment price payable at due term, of the price supplement and of 42 of the 48 instalments of the non-competition indemnity, B filed a request for arbitration pursuant to the arbitration clause provided for in Article 17 of the Memorandum of Understanding of 31 October 2007.

The arbitral tribunal composed of Mr. X and Mr. de la Cotardière, arbitrators, and Mr. Keutgen, chairman, handed down an award in PARIS on 16 May 2011, pursuant to which it:

  • “Rejects B C’s request for a reduction of the share price as set forth in the 2007 Protocol and in the 2008 Convention as well as its request for reimbursement of the amount already paid by it under the Protocol,

  • Orders B C to execute the terms of the 2007 Protocol and the 2008 Convention and to pay to F G 2,000,000 euros pursuant to the Protocol and 96,297.11 euros pursuant to the Convention,

  • Orders B C to pay to F G the moratorium interests on these sums, i.e. 4% per annum on the sum of 2,000,000 euros as from 31 December 2008 and 6% per annum on the sum of 96,297.11 euros from 14 May 2008 until full settlement,

  • Orders B C to pay a late payment penalty of 12% per annum on the amount of 2,000,000 euros as of 26 February 2009 until full settlement, the amount paid in this respect not exceeding 240,000 euros,

  • Rejects F G’s request to declare the expiration of the contractual term provided for in the 2007 Protocol and in the 2008 Convention,

  • Declares B’s request to proclaim the 2007 Non-Competition Protocol null and void, inadmissible,

  • Rejects B C’s claim for restitution of sums already paid by it under the 2007 Non-Competition Protocol,

  • Rejects the parties’ claims for damages other than those covered by the agreements,

  • Decides that the costs of the arbitration set by the ICC Court at 381,000 will be borne by B C,

  • Decides that the costs borne by F G for the defence, which are estimated at 90,000 euros will be borne by B C,

  • Rejects all other requests of the parties,

  • Orders the provisional enforcement of the award”

Through a declaration of 15 June 2011, B filed an action for annulment against this award, requesting the Court, by final submissions filed on 4 July 2012, to set aside the arbitral award of 16 May 2011 rendered in ICC Arbitration No. 16288, to order the provisional enforcement of the decision to be implemented and to order F to pay an amount of 20,000 euros pursuant to Article 700 of the Code of Civil Procedure.

On its part, on 23 May 2012, F requested the Court to dismiss the action for annulment of B and to order B to pay it a sum of 100,000 euros in damages given the abusive and dilatory nature of B’s action, in addition to a sum of 70,000 euros pursuant to Article 700 of the Code of Civil Procedure. F also requested the payment as of 23 February 2012 of the penalty of 1,500 euros per day of delay pronounced by the pre-trial judge.

UPON WHICH,

On the sole ground for annulment based on the fact that the arbitral tribunal was irregularly constituted (Article 1520-2 of the Code of Civil Procedure):

B maintains that one of the arbitrators, Mr. de la Cotardière, does not meet the necessary requirements of independence and impartiality as, on the one hand, the law firm of which he is a partner is a counsel to Casino Group, an entity that is not a party to the arbitration, but which is one of those referred to in the ICC’s decision of 25 June 2010 concerned by the dispute insofar as numerous procedures oppose it to the Z family, shareholder of B through the companies Baudinter and LVH. On the other hand, this arbitrator, by omitting to indicate all these links has lacked transparency in the obligation of disclosure to which he was bound.

Whereas, firstly, B claims to justify the necessary independence of the arbitrators with respect to the Casino Group by the fact that, according to it, the case submitted to arbitration was “orchestrated by Casino”;

Whereas however, although the dispute between the Z family and the Casino Group, which stems from a sharp shareholder conflict, is constant in that it has given rise to various legal and arbitration proceedings, B claims to derive Casino’s involvement in the investment operation it carried out when it bought Aquamas, from the content of the investigation reports drawn up by an economic intelligence consultancy firm commissioned by Casino;

Whereas, although the reports produced on 21 April 2006, 7 February 2007 and 23 August 2007 contain negative assessments of the managers of LVH and B, they do not mention AQUAMAS, only the report dated 2 April 2009, two years after its acquisition, referred to it for the first time;

Whereas this latest report, in which the statements collected from an individual who wanted to approach the Casino group in order to monetise certain information allegedly held on the Z family, statements which the author notes are marked by strong vindictive resentment, which should have led him to recommend ceasing all communication with this person, contains no evidence or even an indication that the Casino group could have been involved in any way whatsoever in the investment operation carried out by B;

Whereas the ICC specifies on 25 June 2010 that Casino Group may be involved in the dispute, although not a party to the arbitration. This sole mention to Casino Group is in response to the concern to prevent any further application to challenge the arbitrators. The reason invoked by B for the existence of links likely to be maintained by the arbitrators with this group cannot be evidence of Casino Group’s actual involvement in the dispute submitted to arbitration;

Whereas the only link between Casino Group and the dispute can only result in this case, in a remote manner, from the interest taken in the operation by the Z family. This interest is itself very indirect, since it results from the participation of the Baudinter company, in which the Z family is a shareholder, in the capital of a company under Swiss law, La Valaisanne C (LVH), itself the parent company of B, which is established by the capital distribution table certified by LVH’s legal representative.

Whereas it is a principle that the arbitrator must disclose to the parties any circumstance likely to affect his decision and to provoke in the minds of the parties a reasonable doubt as to his qualities of impartiality and independence which are the essence of the arbitral function;

Whereas the duty to disclose of the arbitrator must be assessed in the light of the public nature of the situation criticized, its link with the dispute and its impact on the arbitrator’s decision;

Whereas, in this case, on the one hand, the relationship between the Casino group and the dispute submitted to arbitration is extremely tenuous and, on the other hand, Mr. de la Cotardière made it known in his declaration of acceptance of 30 June 2010, that “certain partners of [his] firm work with the Casino group on corporate law matters”, indicating, which is not refuted by the claimant, that he has “never represented this group in any proceedings whatsoever”;

Whereas, furthermore, although Mr. de la Cotardière stated on 8 September 2010, after pointing out that the real estate asset disposal transaction handled by the Paris office was definitively closed on 31 March 2010, that it represented 0.5% of the fees invoiced during the financial year in question and that the Paris office no longer handles any files for this group, that “some of our foreign offices, on a global scale, continue to work for this group (mainly in corporate, banking and tax matters)” it cannot be deduced from this that this arbitrator who, in response to the claimant’s objections, loyally extended his investigations into a possible conflict of interest to the foreign offices of his firm, tried to avoid the obligation of spontaneous disclosure that he was under and thus failed in his duty of transparency.

Whereas, furthermore, the link of an arbitrator to a party or third party interested in the arbitration, which a party may reasonably suspect as a threat to the impartiality and independence of the arbitrator, must be assessed in the light of the nature and extent of the relations maintained by the law firm with them when it is exclusively stated that they are clients of the law firm of which the arbitrator is a partner and that it is established that the arbitrator has never advised, represented or assisted them in any proceedings;

Whereas in the present case, the cases handled, and moreover completed on the date of acceptance by the arbitrator of his mission, on behalf of the Casino Group by Linklaters, an international law firm with foreign offices of which Mr de la Cotardière is a partner, represent, by the claimant’s own admission, 0.1% of the firm’s consolidated annual turnover. So in this case, the arbitrator and the appointed third party are not sufficiently close to give rise to reasonable doubt in the mind of the claimant as to the arbitrator’s independence and impartiality.

Whereas the claim for annulment must be dismissed and the action for annulment rejected.

On the request for damages

Whereas there is no reason to consider that, by making use of the remedies available by law, B has abused its right to take legal action, so that F must be dismissed for its request for damages for abusive and dilatory proceedings.

On the request for liquidation of the penalty payment.

Whereas by order of 8 December 2011, the Pre-trial Judge conferred the enforcement (in French Exequatur) of the award of 16 May 2011 and adjusted the provisional enforcement thereof by ordering that the sums due by B to F in execution of the award shall be paid to the President of the Paris Bar appointed as escrow for this purpose, within one month of the service of the order and after this deadline, subject to a provisional penalty payment of 1,500 euros per day of delay

Whereas it is justified that the order of 8 December 2011 was served on B on 23 January 2012, without the latter submitting to the obligation of consignment which was made within the time limit;

Whereas B, who does not contest it, does not further explain the reasons for its deficiency nor does it prove the existence of difficulties it may have encountered while trying to comply with the order;

Whereas the provisional penalty payment must be liquidated in the sum of 300,000 euros

On the requests made in application of article 700 of the Code of Civil Procedure.

Whereas B who is unsuccessful cannot claim the allocation of an indemnity in this respect and must be ordered to pay to F the sum of 70,000 euros in application of article 700 of the Code of Civil Procedure.

FOR THESE REASONS,

Rejects the action for annulment.

Orders the Swiss company B C to pay to the Mauritian company F G the sum of 300,000 euros as a provisional penalty payment imposed by order of 8 December 2011.

Orders the Swiss company B C to pay the costs which will be recovered in accordance with the provisions of Article 699 of the Code of Civil Procedure.

Orders the Swiss company B C to pay to the Mauritian company F G the sum of 70,000 euros in application of Article 700 of the Code of Civil Procedure.

THE REGISTRAR THE PRESIDENT