Paris Court of Appeal, No. 11/01378 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, 20 November 2012, No. 11/01378

INDUSTRIA CONCIARIA VIRGINIA SPA

Vs.

FORWARD LEATHER COMPANY

D VIRGINIA SPA, incorporated under Italian law, specialising in the manufacture of finished leather, to whose rights the company INDUSTRIA CONCIARIA VIRGINIA SPA, incorporated under Italian law, (hereinafter referred to as ICV) currently belongs, following a merger-absorption operation, entered into a partnership agreement on 4 February 2004 with the FORWARD LEATHER COMPANY, incorporated under Indian law, (hereinafter referred to as FLC), operating in the same sector of activity, a joint venture agreement to set up D E CHENNAI Private Ltd (hereinafter referred to as JVC), a company incorporated under Indian law, for the conception, design, development, manufacture, distribution and sale of finished leather products for both domestic and export markets.

The parties have agreed to each appoint two directors and to appoint Mr. H B C, an officer of FLC, as Chairman of the Board of Directors without casting vote and Mr. K L C, also a director of JVC, as Managing Director.

A shareholders’ agreement was signed on 7 April 2004 between D VIRGINIA SPA, FLC represented by Mr. K L C and JVC, and a tripartite agreement was concluded on 25 November 2005 between FLC, on the one hand, and the company D E, incorporated under Italian law, and the company INDUSTRIA CONCIARIA CALLIGIANA AH, incorporated under Italian law, the latter two of which were subsequently merged to form ICV,

A dispute has arisen between the shareholders of JVC which led to a blocking of the company’s operations. ICV implemented the arbitration clause stipulated in both the joint venture agreement and the shareholders' agreement.

The sole arbitrator, Mr. Z A, appointed by the International Court of Arbitration, rendered his award in Paris on 23 November 2010, pursuant to which :

A. The claimant’s request for joinder of Mr. B H C and the company D E CHENNAI Private Ltd, incorporated under Indian law, (hereinafter referred to as JVC), is dismissed.

B. The arbitral tribunal shall have jurisdiction over all partners of FORWARD LEATHER- including the second defendant, in its capacity as partner of the first defendant.

C. The request for the appointment of a managing director of the JVC is dismissed.

D. The claimant shall sell, and the first defendant shall buy its shares in D E CHENNAI Private Ltd having its registered office at XXX against payment of a price of 10 Indian rupees,

E. At the time of the transfer of the shares, the first defendant will adopt the necessary measures to change the name of “D E CHENNAI Private Ltd” without using any name or word associated with the claimant or its predecessors, and without using any Italian word.

F. The following contracts concluded between the plaintiff and its predecessors on the one hand and the first defendant on the other hand are terminated with effect as of 31 March 2007:

The joint venture agreement of 4 February 2004 between DEAH et FGCompany.
The shareholders' agreement dated 7 April 2004 between DEAH, FLC and JVC.
The tripartite agreement dated 25 November 2005 between D E INDUSTRIA CONCIARIA CALLIGIANA AH and FORWARD LEATHER COMPANY.

G. The claimant and the defendants will each retain their own costs and fees.

H. The total cost of the arbitration, amounting to US$ 122,000.00, shall be borne respectively by the claimant on the one hand and by the defendants on the other hand, half of which shall be borne by the claimant and half by the defendants.

By declarations dated 25 January 2011 and 4 May 2011, ICV filed an action for annulment.

The two actions were joined by order of 28 June 2011.

In view of the summary conclusions of ICV served on 25 April 2012 seeking the annulment of the arbitral award rendered on 23 November 2010, the joint and several condemnation of FORWARD LEATHER Company and Mr. Q L C to pay the sum of 30,000 euros pursuant to article 700 of the French Code of Civil Procedure and to pay all costs.

Regarding the conclusions served by FORWARD LEATHER Company and Mr. Q L C on 21 October 2012, pursuant to which the court is requested to dismiss the action for annulment and to order the company INDUSTRIA CONCIARIA VIRGINIA SPA, incorporated under Italian law to pay a sum of 30,000 euros in application of article 700 of the Code of Civil Procedure and to pay all costs.

UPON WHICH,

Considering that in the case of an award rendered before the entry into force of the decree of 13 January 2011, the grounds of annulment invoked by the claimant must be examined not about the provisions, wrongly referred to, of article 1520 of the Code of Civil Procedure, in its wording resulting from the said decree, but about the provisions of article 1502 of the Code of Civil Procedure in its then applicable wording.

On the grounds of annulment based on the arbitral tribunal’s disregard of its mission and the violation of the arbitration rules (article 1520-3 and 1520-4 of the Code of Civil Procedure, former Articles 1502-3 and 1502-4)

On the one hand, the claimant objects to the Arbitral Tribunal which:

exceeded its mission by considering, although the parties did not agree in the shareholders' agreement on a forced sale of shares, that the generality of the terms of the arbitration clause gave it the power to order such a measure.
erroneously assumed, without regard to the jurisdiction reserved by Indian law to state courts only, that he had the power to order the compulsory sale of the shares.

Considering that the arbitrator’s mission, as defined by the arbitration agreement, is delimited mainly by the subject matter of the dispute, as determined by the parties' claims, without there being any need to focus on the mere statement of the issues in dispute in the Terms of Reference ;

Considering on the first branch of the ground that the defendant’s request made to the arbitrator to exclude the claimant from the capital of the company JVC, a joint venture, by the forced transfer “for a nil or symbolic price” of the shares held, is only the reply to the request for forced repurchase, formulated as a subsidiary request by the claimant itself in its statement of claim (pages 77-79) and set out in the Terms of Reference (page 11 point f. iii (1)) signed by the parties and the arbitrator, requesting that the arbitrator “order the defendants to purchase the claimant’s shares in the joint venture company at a price of EUR 550,000”;

Considering that the claimant, which itself requested the arbitrator to order the defendants to compulsorily buy back for its benefit the shares it held in the joint venture company, which subsequently waived this subsidiary request, cannot, except in breach of procedural fairness, reproach the arbitrator for granting the request for exclusion by compelled assignment of its shares made by its opponent as a counterclaim;

Considering that the arbitrator who ruled on a request which was duly submitted to him did not disregard the scope of his mission.

Considering the second part of the ground that, under cover of the allegation that the arbitrator exceeded his mission, the claimant argued unsuccessfully before the arbitrator, in particular that such a claim would fall within the sole jurisdiction of the Indian Company Law Board and then, on appeal, of the Indian state courts. The claimant also argued that such a claim would not be recognised in any event by international commercial law and the law of business and that it could not be invoked in view of the oppression exercised by the defendants over the other shareholders and their management contrary to the interests of the company. All these arguments were rejected by the arbitrator. By these arguments, the claimant is in fact seeking a review of the merits of the award, which is not within the power of the annulment judge.

On the ground of annulment based on the non-respect of due process (in French Principe de la contradiction) (article 1520-4 of the Code of Civil Procedure, former Article 1502-4).

The claimant argues that the sole arbitrator ruled on the defendant’s request for the forced sale of its shares at a nil or symbolic price without being able to reply to a request that was not included in the Terms of Reference and that it had, due to its lateness, requested the arbitrator to declare inadmissible.

Considering that the arbitrator ruled on a ground of claim which, as stated, was duly submitted to it as a counterclaim by the defendant parties in reply to the request for compulsory takeover, formulated as a subsidiary claim by the claimant;

Considering that the claimant, without ever invoking its inadmissibility for lateness, but only the “inadmissible” nature of this claim, discussed it in its submissions in reply of 16 November 2009 (points 299 to 311). So due process was not disregarded, and the ground must be dismissed;

On the ground of annulment based on the failure to rule (article 1520-3 of the Code of Civil Procedure, former Article 1502-3)

The claimant alleges that the arbitral tribunal failed to rule on four indivisible claims, namely to accept its claims as filed not only in its own name but also on behalf of JVC, to recognise its right of preemption, which was disregarded by Mr. Q B C, and to order the transfer of the irregularly sold shares, and to pronounce the violation by the defendant parties of their commitments after 31 March 2007 and, in so doing, to have violated international public order.

Considering that the failure to rule cannot be assimilated to a violation by the arbitrator of his or her mission in order to open the action for annulment by application of article 1502-3 of the Code of Civil Procedure;

Considering furthermore that the claimant which does not allege that it was, either as a result of the prohibition of the Rules of Arbitration of the International Chamber of Commerce (ICC). I) under the authority of which the parties were placed themselves by virtue of the arbitration clause, or by reason of a material impossibility of reconstituting the arbitral tribunal, in the impossibility of referring the matter to the arbitrator for compensation for the alleged failure to rule, cannot claim that the award which it is in a position to have supplemented, if necessary, would offend the French conception of international public order;

Considering finally that the claimant, which maintains that “the omissions to rule are indivisibly linked” and which affirms, moreover in hypothetical terms “that the non-judgement had, as a consequence, a distorted reasoning of the arbitrator which is difficult to see, in view of his practices, how he could wisely be called upon to complete his award”. As a result, the award is “entirely vitiated”. By these terms, the claimant intends to set up the judge of annulment as a judge for the review of the award, which is forbidden so that the ground must be rejected.

On the ground of annulment based on the exclusion of parties which should have participated in the arbitral proceedings and on the violation of international public order (articles 1520-3 and 1520-5 of the Code of Civil Procedure, former articles 1502-3, 1502-4 and 1502-5)

The claimant objects to the decision of the arbitral tribunal, which maintained the exclusion of Mr. B C and did not take into account the conclusions reached in favour of JVC and thus disregarded due process (in French Principe de la contradiction) and the fairness of the debates as well as international public order.

Considering that in implementing the arbitration procedure provided for by the arbitration clauses drafted in the same terms by article 27 of the joint venture agreement and article 4 of the shareholders' agreement, the claimant has submitted to the Arbitration Rules of the International Chamber of Commerce in France ;

Whereas the ICC Court of Arbitration, in accordance with article 6.2 of the Rules in its version of 1 January 1998 then in force, decided at its session of 7 December 2007 that “arbitration would be conducted … between Indistria Conciairia Calligiana AH (Italy) and 1. FORWARD LEATHER company (India) and 2. Mr K L C (India) only and … to join D VIRGINIA SPA as a party to the arbitration”;

Considering that the claimant twice referred to the court during the arbitration proceedings a new request to join Mr B C on the one hand and JVC on the other hand as parties to the arbitration. These requests were first rejected by letter dated 3 July 2008 and then under the terms of Procedural Order No. 1 dated 18 February 2009 (erroneously dated 2008), the arbitrator held, on the one hand, that the JVC was not subject to the request for arbitration and did not receive a copy of the request for arbitration in accordance with article 24 of the ICC Rules. On the other hand, the tribunal was “convinced that it is not empowered to overturn [the] decision” of 7 December 2007, thus endorsing its reasoning. The ICC Court of Arbitration considered that Mr B C could not be sued for not having signed neither the arbitration agreement nor the JVC’s agreement of ‘joint venture’ nor the shareholders' agreement.

Considering that the arbitrator is criticised with the express endorsement of article 1520-3, 1520-4 and 1520-5 of the Code of Civil Procedure, i.e. in reality former articles 1502-3, 1502-4 and 1502-5, for having disregarded the scope of his mission and due process (in French Principe de la contradiction) t and thus the international public order, by refusing to extend the effect of the arbitration clause to a party involved, according to the claimant, in the performance of the contract;

Considering that such a ground can only be formulated within the framework of the provisions of article 1502-1 of the Code of Civil Procedure, which were not invoked in the present case. Moreover, the claimant, which merely asserts that “it is obvious - upon reading the award - that the admission of JVC as a party to the proceedings would have led to a different decision by the arbitrator”, refrains from characterising the concrete impact on the content of the arbitrator’s decision of the refusal to include the parties concerned in the proceedings. Finally, the claimant, which retains its rights against the excluded parties and which can initiate separate arbitration proceedings against them, which it expressly admits (submissions page 23 paragraph 2), only mentions hypothetically the risk of contradiction that could result;

Considering that the claimant does not show how its essential rights were infringed and does not establish the resulting violation of international public order of procedure, the ground can only be dismissed.

On the fifth ground for annulment, alleging a lack of reasoning on procedural and substantive issues (article 1520-3 of the Code of Civil Procedure, former article 1502-3)

The claimant criticised the arbitral tribunal, which rendered an award without any reasons on several claims that, in its view, ”required a thorough and coherent reasoning by the arbitrator”.

Considering that from the express endorsement of article 1520-3 of the Code of Civil Procedure, it necessarily follows that the claimant intends to base this ground on the arbitrator’s non-compliance of his mission.

Considering that the reading of the award shows that, contrary to what the claimant maintains, the arbitral tribunal, after analysing the evidence submitted to it, ruled on each of the claims before it, stating the reasons for its decision;

Considering that, apart from the cases defined in article 1502 of the Code of Civil Procedure, of violation of due process (in French Principe de la contradiction) or of international public order, the verifying of the existence of the reasons can only be material. The content of the reasoning of the arbitral award is beyond the control of the annulment judge, so that, in this case, the ground of insufficiency of reasons which in fact tends to criticise the reasoning on the merits of the award is inadmissible in this regard.

Considering that, as a consequence of the foregoing, the action must be dismissed.

Considering that the claimant, which is unsuccessful and will bear the costs of the proceedings cannot claim compensation on the basis of article 700 of the Code of Civil Procedure and must be ordered to pay to the FORWARD LEATHER Company and to Mr. Q L C, together, the sum of 30,000 euros pursuant to this same text.

FOR THESE REASONS,

Dismisses the action for annulment.

Condemns the company INDUSTRIA CONCIARIA VIRGINIA SPA, incorporated under Italian law, to the costs to be recovered in accordance with the provisions of article 699 of the Code of Civil Procedure and to the payment of a sum of 30,000 euros in application of article 700 of the same code.