Court of Cassation, No. 11-10.973 | Rory Wheeler, avocat (Paris) & solicitor (England)

Court of Cassation, First Civil Chamber, 19 December 2021, No. 11-10.973

SOCIETE APAX PARTNERS

vs.

SOCIETE MARSA FASHION COMPANY

SOCIETE PARTNER TEXTILE

SOCIETE FINO

SUMMARY

Since the arbitrators are not required to submit to the parties the reasons behind their award prior to its issuance, and since they did not rely on facts other than those raised by the claimants, and not ones that the defendant was not able to debate, and since they only relied on a fact taken from a document that was regularly submitted to the proceedings, they rightly decided to rule, without first inviting the parties to explain this fact, and without disregarding the requirements of due process.

THE COURT OF CASSATION, FIRST CIVILE CHAMBER, issued the following judgment:

Whereas, according to the judgment under appeal (Paris, 9 November 2010), Marsa fashion company, Fino and Partner textile (the Tunisian companies) have summoned the French company Morgan before Tunisian courts, in compensation for their loss, claiming to be the victims of an abusive termination of commercial relations established with the French company due to sharp fall in orders in 2007.During this procedure, negotiations were initiated between the parties, in which participated, on the one hand, Mr. X, main shareholder and manager of the Tunisian companies, and on the other, Mr. B…, Chief Executive Officer of the company Apax partners (the Apax company), whose activity is the administration of an investment fund managing mutual funds of investment holders with voting rights in the company. Morgan international participation (the company MIP), which itself holds the entire share capital of the Morgan company. On 25 January 2008, these negotiations have led to the signing of a settlement agreement, providing for the renunciation of the Tunisian companies of their legal action in return for the Morgan company’s commitment to ensuring a certain volume of orders during three years;

Considering that the Morgan company had failed to meet its commitments, the Tunisian companies have first implemented the arbitration proceedings provided for by the arbitration clause stipulated in the settlement agreement and then, following the placement of the Morgan company in receivership, concluded with the company Apax an arbitration agreement, on which they relied to initiate new arbitration proceedings for compensation of their prejudice. The arbitral tribunal, by an award issued in France, found the company Apax, represented by Mr. B…, liable for having withheld essential information from Mr. X… during the negotiations that successively led to the conclusion of the settlement agreement and to the withdrawal of the Tunisian companies from their legal action. As a result, The arbitral tribunal has condemned the company Apax to pay certain sums to the Tunisian companies as compensation for damages;

On the first ground of appeal:

Whereas Apax complains that the judgment under appeal dismissed its appeal to set aside the award. Whereas, according to the ground:

1°/ that the arbitral tribunal must imperatively comply with and ensure compliance with the principle of due process (in french Principe de la contradicition). The arbitral tribunal may not systematically raise any ground, de facto or de jure, without inviting the parties to present their observations. By dismissing the ground to set aside the award - ground alleging that the arbitral tribunal had disregarded the principle of due process by relying on an undisputed fact - which consisted in a concealment by Mr. B… from Mr. X…, during the settlement negotiations, of the request of the Morgan company’s bankers, who were solicited for the rescheduling of the company’s debt, its recapitalization by the shareholders, on the inoperative ground that the report of the Board of Directors of MIP, from which the arbitral tribunal had drawn this fact, had been regularly deposed to the proceedings, the court of appeal had therefore not legally justified its decision with regard to the articles 1502-4 and 1504 of the code of civil procedure, in their applicable version;

2°/ that the arbitral tribunal must imperatively comply with and ensure compliance with the principle of due process. The arbitral tribunal may not systematically raise any ground, de facto or de jure, without inviting the parties to present their observations. In dismissing the ground for setting aside the award – a ground alleging that the arbitral tribunal had disregarded due process by relying on an undisputed fact, - which consisted in a concealment by Mr. B… from Mr. X…, during the settlement negotiations, of the request of the Morgan company’s bankers, who were solicited for the rescheduling of it’s the company’s debt, its recapitalization by the shareholders, and after having however noted that the Tunisian companies had claimed, before the arbitrators, that Mr. B…" in the negotiations leading to the conclusion of the settlement agreement, had concealed the financial situation of the company Morgan and Apax’s desire to rapidly dispose of its shares in this company", which meant that the arbitrators had relied on a ground that had not been debated by the parties, the Court of Appeal did not legally justify its decision in the light of articles 1502-4 and 1504 of the Code of Civil Procedure, in its applicable version;

Whereas, however, after having found that the allegation, upon which the arbitrators were seized, of the concealment of two circumstances likely to affect the negotiations, (i.e. the compromised financial situation of Morgan company and the willingness of Apax to withdraw from the capital of the latter), was in fact debated in a contradictory manner, the judgment notes that the MIP Board of Directors’ report, providing the difficulties in restructuring the company’s debt, had been regularly submitted to the debates Whereas having thus noted that the arbitrators had not relied on facts other than those raised by the plaintiffs, and had not relied on facts that Apax would not have been able to debate. The Court of Appeal thus rightly held that the arbitral tribunal, who is not required to submit to the parties the reasons behind its award prior to its issuance, had not failed to observe the requirements of due process. The ground is therefore not founded in any of its branches;

On the second ground of appeal:

Whereas the company Apax raises the same ground once again;

Whereas, furthermore, it is by a sovereign and exclusive interpretation of distortion, made necessary by the ambiguity of the terms of the award, that the Court of Appeal decided that by indicating that the amount of the repairs was accompanied by accounting evidence and have been certified by the auditors of the Tunisian companies, the arbitral tribunal had intended to examine the technical reports measuring the losses incurred by these Tunisian companies as well as the financial statements of these companies for certain financial years, accompanied by the statutory auditors’ reports, and has concluded, without distorting these financial statements, that the arbitrators had not relied on documents that had not been submitted to the debates. The ground is therefore unfounded in all of its branches;

FOR THESE REASONS:

DISMISSES the appeal;

Orders Apax to pay the costs;

Having regard to Article 700 of the Code of Civil Procedure, orders the latter to pay to the companies Marsa fashion company, Fino and Partner textile the total sum of EUR 2,500 and rejects its application ;

Thus done and judged by the Court of Cassation, first instance, the Civil Chamber, and delivered by the President in his public hearing of the nineteenth of December two thousand twelve.