Paris Court of Appeal, No. 11/17961 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, 26 February 2013, No.11/17961

Challenged decision: ICC Award No. 16395/ND

MR ALEX BERRIER

MR JULIEN SPRECHER

SPRECHER BERRIER & PARTNERS FZ CO

vs.

HIRVALON FINANCE LTD

GLADINON INVEST LTD

On 1 April 2000, the company SPRECHER BERRIER & PARTNERS FZ CO (SBP) was created in the Jebel Ali free zone in Dubai to market cosmetics and perfumery products in the Middle East. The functioning of this company is governed by its Articles of Association, entitled “Articles of Association” (hereinafter “the Articles”), and a Memorandum of Association (MOA) concluded at the same time. The initial shareholders were Alex Berrier and Julien Sprecher, each holding 30% of the capital, as well as two companies created in January 2000 in the British Virgin Islands: HIRVALON FINANCE LTD (10% of SBP’s capital) and GLADINON INVEST LTD (30% of SBP’s capital), both with capital consisting of bearer shares.

HIRVALON FINANCE LTD and GLADINON INVEST LTD was subject to voluntary winding up proceedings and was struck off the commercial register on 9 July 2004. Their shares in SBP were transferred to Alex Berrier and Julien Sprecher and this new capital distribution was ratified by the Dubai authorities on 10 July 2005.

Alleging that the winding up was the result of an administrative error, Mr. N X, a shareholder of GLADINON INVEST LTD and HIRVALON FINANCE LTD, obtained from the High Court of Justice of the British Virgin Islands a decision of 19 January 2009 to “restore” or re-establish these two companies, having the effect of retroactively nullifying the liquidation which took place in 2004.

By an action dated 17 June 2009, Mr. X, HIRVALON FINANCE LTD and GLADINON INVEST LTD initiated, under the arbitration clause stipulated in the Articles of Association, an arbitration procedure with a request to restore the shareholder rights of these two companies, to order Alex Berrier and Julien Sprecher to pay them 40% of the profits distributed since the creation of SBP and to order them to reimburse SBP for various sums which were allegedly fraudulently allocated to the defendants as remuneration.

The arbitral tribunal, constituted under the supervision of the International Chamber of Commerce by T. H and C, arbitrators and Mr. Y, Chairman, issued on 13 April 2010 in Paris a “Procedural Order No. 1” which designated French as the language of the arbitration. This deed was the subject of an action for annulment filed on 6 October 2011 by Alex Berrier and Julien Sprecher and by SBP (RG No. 11/17961).

By a partial award, rendered on 1 September 2011 in Paris, the arbitral tribunal, composed of Mr. H and Ms. B, arbitrators, and Mr. Y, chairman, declared it had jurisdiction to rule on the request for arbitration made by HIRVALON FINANCE LTD and GLADINON INVEST LTD against Alex Berrier and Julien Sprecher, as well as SBP. However, it declared that it had no jurisdiction with respect to Mr. X. An action for annulment of this award was brought on 6 October 2011 by Alex Berrier and Julien Sprecher and by SBP (RG 11/17969).

By submissions of 10 January 2013, Alex Berrier, Julien Sprecher and SBP request the court, principally, to set aside the order of 13 April 2010 and the partial award of 1 September 2011, in the alternative, to stay the proceedings pending the judgment to be handed down in the action they brought before the High Court of Paris on the unenforceability of the decisions handed down by the High Court of Justice of the Isles British virgins and, in any event, to dismiss the defendants’ application for partial annulment of the interim award and to order them to pay the sum of 150,000 euros pursuant to Article 700 of the Code of Civil Procedure.

Regarding the procedural order, they argue that this decision, which settles a point in dispute, is subject to appeal and that the arbitral tribunal, on the one hand, failed to fulfil its mission (Art. 1502-3 of the Code of Civil Procedure) by not interpreting the clause relating to the language of the arbitration in accordance with Dubai law, designated by the contract, and by not submitting the draft award to the International Court of Arbitration in accordance with Article 27 of the Rules. On the other hand, the arbitral tribunal violated due process (in French Principe de la contradiction) (Article 1502-4 of the Code of Civil Procedure) by issuing, against the parties’ expectations, a simple procedural order prior to the signing of the Terms of Reference and not an award.

With regard to the partial award, the claimants argue:

that the arbitral tribunal wrongly declared it had jurisdiction (Article 1520-1 of the Code of Civil Procedure), on the one hand, vis-à-vis the new GLADINON INVEST LTD and HIRVALON FINANCE LTD companies which are not parties to the SBP Articles of Association, and on the other hand, vis-à-vis the latter which is not bound by the arbitration clause and which was not a party to the arbitration proceedings according to the Terms of Reference,
that the award was rendered by an irregularly composed tribunal (Article 1520-2 of the Code of Civil Procedure) since Arbitrator C has been replaced in violation of the Arbitration Rules and the chairman of the arbitral tribunal has failed to fulfil his obligations of impartiality and independence,
that the arbitral tribunal has disregarded its mission (Article 1520-3 of the Code of Civil Procedure), on the one hand, by annulling the Terms of Reference signed by the parties in order to substitute another one which modifies the list of parties without the unanimous consent of the parties concerned, on the other hand, by retaining French as the language of arbitration,
in the alternative, assuming there is no stay of proceedings, that the award violates international public policy in that it gives effect to the decision of the High Court of Justice of the British Virgin Islands which is itself not in accordance with international public policy,
alternatively, that the award disregards international public policy in that it gives effect to a rule of “resurrection” of societies unknown in French law, which runs counter to the principle of legal certainty, the principle of estoppel and the right of ownership.

By submissions of 17 January 2013, HIRVALON FINANCE LTD, GLADINON INVEST LTD and Mr. X requested the court to declare that the procedural order of 13 April 2010 was not an arbitral award and that the action brought against was is therefore inadmissible, to dismiss the action brought against the partial award of 1 September 2012. In the alternative, if this award was set aside in so far as the arbitral tribunal, they requested the court to declare it had jurisdiction to hear the claims of GLADINON INVEST LTD and HIRVALON FINANCE LTD, to set aside the part of the award in which the arbitral tribunal declared it had no jurisdiction to hear the claims of Mr X, and in any event, to dismiss the opposing parties’ application for a stay of proceedings and order them to pay the sum of 120,000 euros pursuant to Article 700 of the Code of Civil Procedure

UPON WHICH:

Considering that it is in the interest of a proper administration of justice to join the cases registered under RG 11/17961 and 11/17969;

On the application for a stay of proceedings:

Considering that there is no reason to stay the proceedings pending the decision of the High Court of Paris, seized on 5 January 2012 by Alex Berrier and Julien Sprecher and by SBP, that the decisions handed down by the High Court of the British Virgin Islands ordering the reinstatement of GLADINON INVEST LTD and HIRVALON FINANCE LTD are not enforceable;

On the action brought against the procedural order of 13 April 2010:

The claimant s claim that the decision by which the arbitrators decide on the choice of the language of the arbitration - a decision improperly identified as a procedural order and which it is for the court to re-identify - is in reality an award that is immediately subject to appeal, since it resolves a procedural issue in dispute between the parties and constitutes a decision of a jurisdictional nature, especially when, as in the present case, it leads the arbitrators to assess, between two contradictory versions of the articles of association, which one should take precedence.

Considering that only arbitral awards, that is to say, the decisions of arbitrators who decide definitively, in whole or in part, the dispute submitted to them, whether on the merits, on jurisdiction or on a procedural ground which leads them to terminate the proceedings, may be immediately appealed against;

Considering that while it is for the court of appeal to analyse the nature of the decisions rendered by the arbitral tribunal in order to restore, where appropriate, their exact classification without stopping at the terms adopted by the arbitrators, it appears that in the case at hand, the question of the choice of language of arbitration was rightly decided by a procedural order, irrelevant that a dispute had arisen between the parties on this point, since that decision related only to the organisation of the proceedings, without prejudice to any ground that might be used by the parties against future awards on the content of that choice and the conditions under which it was made;

That the appeal directed against the procedural order of 13 April 2010 should be declared inadmissible;

On the ground against the partial award of 1 September 2011, alleging the lack of jurisdiction of the Arbitral Tribunal vis-à-vis the SBP company (Article 1520-1 of the Code of Civil Procedure) :

The appellants claim that the arbitral tribunal wrongfully claimed jurisdiction over SBP, which is not a party to the arbitration clause and which was not a party to the arbitration proceedings at the time the application was filed.

Considering that the arbitration clause inserted in an international contract has a validity and effectiveness of its own which requires its effects to be extended to the parties directly involved in the performance of the contract, where their situation and activities give rise to a presumption that they were aware of the existence and scope of this clause, stipulated in accordance with the usages of international trade;

Whereas the arbitration clause inserted in the articles of association of the SBP company stipulates that : “All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce”; that the arbitrators, having been referred of a request by persons claiming to be shareholders of SBP and requesting the return of shares vested in other shareholders, the reinstatement in the accounts of sums deducted by the latter, as well as the communication of the accounting documents of SBP, have rightly declared they have jurisdiction with respect to the latter even though it is not a signatory to its own articles of association;

That the ground must therefore be set aside;

On the ground against the partial award of 1 September 2011, alleging the lack of jurisdiction of the arbitral tribunal regarding companies HIRVALON FINANCE LTD and GLADINON INVEST LTD (Article 1520-1 of the Code of Civil Procedure):

The claimants argue that the arbitral tribunal wrongfully declared it had jurisdiction with regard to the “restored” companies HIRVALON FINANCE LTD and GLADINON INVEST LTD, whereas, on the one hand, the will of these new companies to participate in the arbitration cannot result from the law of the British Virgin Islands, but must be assessed exclusively in the light of the common will of the parties, on the other hand, in any event, the alleged court decisions of the British Virgin Islands were produced in draft form, without any element guaranteeing their authenticity, and that, moreover, it has not been shown that they had a retroactive effect, finally. The absence of commitment by a company to arbitration should be taken into account where its conduct gave rise to the legitimate belief that it was no longer bound by the arbitration agreement.

Whereas the companies HIRVALON FINANCE LTD and GLADINON INVEST LTD, which signed the articles of association of SBP which stipulate the arbitration clause, were subject to voluntary winding up proceedings and were struck off the commercial register on 9 July 2004; whereas a decision of 19 January 2009 of the High Court of Justice of the British Virgin Islands ordered their reinstatement;

Considering that the appreciation of the quality of the companies thus restored to exercise the rights of the original shareholders of SBP is a question of admissibility of the action brought before the arbitral tribunal and not a question of the arbitrators’ jurisdiction and cannot be challenged before the judge of appeal on the basis of Article 1520-1 of the Code of Civil Procedure;

That the ground must therefore be set aside;

On the ground against the partial award of 1 September 2011, alleging irregularity in the constitution of the arbitral tribunal (Article 1520-2 of the Code of Civil Procedure):

The claimants argue that Mr. C, the arbitrator they originally appointed, was improperly replaced by the International Chamber of Commerce and that the President of the arbitral tribunal failed to comply with his obligations of independence and impartiality by pressuring Mr. C to resign from his position as arbitrator.

Whereas, firstly, in accordance with the Rules of Arbitration of the International Chamber of Commerce, Mr. H and Mr. C were chosen respectively by the Claimants and the Respondents to the arbitration, and confirmed on 17 September 2009 by the International Court of Arbitration of the International Chamber of Commerce, which appointed Mr. Y on 22 October 2009 as Chairman of the Arbitral Tribunal;

Whereas in a letter addressed on 23 July 2009 to the Secretariat of the International Chamber of Commerce, Mr. C stated that his acceptance was “made on the basis that the language of the arbitration shall be English”;

Considering that, following the procedural order of 13 April 2010 which held that the arbitration would be conducted in French, the International Court of Arbitration of the International Chamber of Commerce decided to initiate replacement proceedings against M. C on the basis of Article 12 (2) of the Rules, which provides that: “An arbitrator shall also be replaced on the Court’s own initiative when it decides that he is prevented de jure or de facto from fulfilling his functions, or that he is not fulfilling his functions in accordance with the Rules or within the prescribed time limits”;

Pursuant to this text it invited on 21 May 2010 the parties to submit their observations and on 24 June 2010 it informed them of its decision to replace Mr. C;

That the defendants in the arbitration then appointed, subject to all reservations, M B which was confirmed by the Court of the International Chamber of Commerce on 4 August 2010;

Considering that the claimants, who voluntarily placed themselves under the Rules of the International Chamber of Commerce, may not derive any ground from a measure replacing an arbitrator taken, on the basis of Article 12 (2) of those Rules and in accordance with the procedure laid down in Article 12 (3), by an unreasoned decision of the competent organ of that institution;

Considering, secondly, that if Mr. Y was able to believe, following the procedural order of 13 April 2010, that Mr. C resigned and if he consequently, failed to send him a copy of an e-mail sent on 13 May 2010 to all the parties, such a misunderstanding is not, in the circumstances of the case, such as to constitute a lack of impartiality and independence on the part of the Chairman of the Arbitral Tribunal;

Considering that the ground, taken in its two parts, can only be dismissed;

On the ground against the partial award of 1 September 2011, alleging the failure of arbitrators to comply with their mission (Article 1520-3 of the Code of Civil Procedure):

The claimants claim, on the one hand, that the arbitrators amended the Terms of Reference signed by the parties by introducing a new party to the proceedings and, on the other hand, that they made an award in French whereas the language of the arbitration was English.

Considering, on the first branch of the ground, that the arbitrator’s mission, 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 solely on the statement of the issues in dispute in the Terms of Reference;

Considering that, as stated, the arbitration agreement included in the articles of association of the SBP company refers to “all disputes arising out of or in connection with this contract”;

That the requests expressed in their application by GLADINON INVEST LTD and HIRVALON FINANCE LTD sought the annulment of the decision to devolve to Alex Berrier and Julien Sprecher of 40% of SBP’s shares, the allocation of the corresponding share of profits, the auditing of SBP’s accounts and the reinstatement of levies made by Alex Berrier and Julien Sprecher; that such claims implicated the company SBP;

That, therefore, it was without exceeding their mission that the arbitrators rendered their award not only in respect of Alex Berrier and Julien Sprecher, defendants in the arbitration proceedings under the terms of the Terms of Reference, signed by the parties on 26 October 2010, but also in respect of SBP, which appeared in that document only under the heading “in the presence of” and which was included as a party to the proceedings in the amended Terms of Reference. Alex Berrier and Julien Sprecher refused to sign this new Terms of Reference but it was approved by the International Court of Arbitration of the International Chamber of Commerce pursuant to Article 18 (3) of the Rules; that the first part of the ground must therefore be set aside;

Considering that the second part of the ground is in fact missing, the language of the arbitration being French, according to the English version of the arbitration agreement, the only one signed by the parties, excluding the defective Arabic translation;

That the ground cannot be accepted in any of its parts;

On the ground against the partial award of 1 September 2011 alleging violation of international public policy (Article 1520-5 of the Code of Civil Procedure):

The claimants argue, firstly, that the award is contrary to international public policy in that it gives effect to decisions of the High Court of the British Virgin Islands which are themselves contrary to that public policy in that they are not reasoned, and in that they infringe the principle of legal certainty, the principle of estoppel and the right to property.

Secondly, the claimants allege that the award itself directly disregards these same principles, and therefore violates international public policy, in that it admits the “restoration” of societies.

Considering that an award which takes note of the legal situation created by a domestic court decision having reinstated two legal entities previously struck off the register of companies, and which is limited to noting the jurisdiction of the arbitral tribunal regarding the claims made by these companies, does not breach, regarding its effects, international public policy in an effective and concrete manner;

That the ground must therefore be dismissed in its two parts;

Whereas on the basis of the aforementioned facts, the action for annulment of the award rendered on 1 September 2011 by Alex Berrier and Julien Sprecher and by SBP must be dismissed;

On the counterclaim of companies GLADINON INVEST LTD and HIRVALON FINANCE LTD and Mr. X:

Considering that the counterclaim for partial annulment of the award, as the arbitrators declared that they do not have jurisdiction over Mr. X, is presented by the defendants to the action in the event that the main claim is upheld; that, as this is not the case, there is no need to examine this ground of claim;

On Article 700 of the Code of Civil Procedure:

Whereas the claimants, who succumb, cannot benefit from the provisions of Article 700 of the Code of Civil Procedure; whereas they will be ordered on this basis to pay the sum of 60,000 euros;

FOR THESE REASONS:

Orders the joinder of the cases registered under RG 11/17961 and 11/17969.

Rejects the application for stay of proceedings.

Declares inadmissible the appeal brought by Alex Berrier & Julien Sprecher and SPRECHER BERRIER & PARTNERS FZ CO against the procedural order of 13 April 2010.

Dismisses the action for annulment of the partial award rendered between the parties on 1 September 2011.

Rejects any other application.

Orders in solidum Alex Berrier and Julien Sprecher and SPRECHER BERRIER & PARTNERS FZ CO to pay the costs, which shall be recovered in accordance with the provisions of Article 699 of the Code of Civil Procedure.

Rejects the request of Alex Berrier & Julien Sprecher and SPRECHER BERRIER & PARTNERS FZ CO pursuant to Article 700 of the Code of Civil Procedure.

Orders in solidum Alex Berrier and Julien Sprecher and SPRECHER BERRIER & PARTNERS FZ CO to pay Mr. X and the companies HIRVALON FINANCE LTD and GLADINON INVEST LTD the total sum of 60,000 euros pursuant to Article 700 of the Code of Civil Procedure.