Paris Court of Appeal, No. 11/19801

Paris Court of Appeal, Pole 1, First Civil Chamber, 10 September 2013, No. 11/19801

SEMAPA INVESTIMENTO E GESTÃO CIMENTOSPAR-PARTICIPACOES SOCIAIS vs. BETON CATALAN S.A. CRH PLC

SEMAPA INVESTIMENTO E GESTÃO (SEMAPA), an investment holding company incorporated under Portuguese law, belonging to the E F group, which has become the sole shareholder of SECIL, a Portuguese cement manufacturer, through CIMENTOSPAR-PARTICIPACOES SOCIAIS (CIMENTOSPAR), a company incorporated under Portuguese law, of which it owns the entire share capital, sold in 2004 45.15% of the shares and 49% of the voting rights in SECIL to CRH PLC (CRH), a company incorporated under Irish law, which in turn owns the entire share capital of BETON CATALAN S.A., a company incorporated under Spanish law.

On June 2, 2004, Z and B signed a shareholders' agreement subject to Portuguese law, regulating in particular their relationship in the event of contractual breaches and determining the method of compensation for such breaches if the formal notice to remedy the breach remained unheeded. This method of compensation differs whether the alleged breaches were to be qualified as ‘material’ or not ‘material’, the so-called ‘material’ breaches being exhaustively listed by the parties in Annex 2 of the shareholders’ agreement (hereafter “Agreement”).

Difficulties had arisen between the parties and SEMAPA claims that CRH was in breach of its contractual obligations. By a letter dated 20 May 2009, SEMAPA gave CRH formal notice to remedy the situation and the thirty-day period provided for in article 16.2 of the shareholders’ agreement. This period expired and the discussions between the parties remained fruitless. Thus, SEMAPA notified by letter dated 15 October 2009 its will to implement the share valuation procedure prior to the exercise by the non-defaulting party of the purchase option, reserved for its benefit by the shareholders’ agreement.

As the valuation carried out separately by the investment bank appointed by each of the parties showed a difference of more than 10%, a third investment bank was appointed as third party arbitrator in accordance with the terms and conditions provided for in the Agreement for the purpose of determining the final value of the shares.

In the meantime, CRH, in turn, by letter dated 10 November 2009, gave SEMAPA formal notice to remedy certain breaches and by letter dated 18 November 2009, initiated arbitration proceedings before the International Chamber of Commerce in Paris, in accordance with the provisions of article 22.2 of the Agreement.

By an award rendered in Paris on 25 July 2011, the arbitral tribunal composed of Messrs. LEVY, DERAINS arbitrators and Mr. X, chairman, declared SEMAPA’s purchase option valid, but withdrew the 10% reduction of the contractually agreed purchase price, thereby valuing it at € 574. 280,000, in view of the existence of substantial mutual breaches by both shareholders, and further ordered CRH to bear 60% of the costs of the arbitration and to reimburse the defendants 50% of the fees incurred by it in the arbitration.

By declaration dated 7 November 2011, SEMAPA and CIMENTOSPAR filed an action for annulment against the mentioned arbitral award.

Regarding the submisions filed by SEMAPA and CIMENTOSPAR on 30 January 2013 who request the Court to set aside the award rendered on 25 July 2011, and to order CRH to pay a sum of € 100,000 pursuant to article 700 of the Code of Civil Procedure.

Regarding the submissions filed on 10 August 2012 by CRH and BETON CATALAN, jointly and severally liable with CRH for all the obligations borne by the latter under the Agreement, pursuant to which the court is requested to uphold the award, and to order SEMAPA to pay a sum of € 100,000 under article 700 of the Code of Civil Procedure.

UPON WHICH,

On the ground of annulment based on what the arbitral tribunal ruled without complying with its mission (1520-3 Code of Civil Procedure):

The claimants argue that the arbitral tribunal ruled ultra petita by modifying the price of the call option as set by the third-party arbitrator, a price that it should have validated, and by imposing on SEMAPA, by removing the 10% allowance provided for in the Shareholders' Agreement in the event of exercise of this option, a sanction that was not requested by either party.

Considering that the mission of the arbitrators is essentially delimited by the subject matter of the dispute as determined by the respective claims of the parties;

Considering that the shareholders' agreement between Z and B reserves to each of the parties the right to exercise an option either to purchase the shares held by the other party when the latter is guilty of substantial breaches or to sell to the other party the shares held by itself if the breaches committed by the latter cannot be qualified as substantial within the meaning of Appendix 2 of the said agreement which exhaustively lists fourteen situations of opening of proceedings;

Considering that CRH brought the matter before the arbitral tribunal pursuant to the arbitration clause stipulated in the shareholders' Agreement because it considered that SEMAPA committed substantial breaches that authorised it to exercise the call option. Moreover, the request for arbitration also results from the fact that it contested the possibility for SEMAPA to implement the share valuation procedure prior to the exercise of the put option, on the grounds that there was no breach that could be imputed to it.

The arbitral tribunal heard conflicting claims, in which each of the parties imputed to the other contractual breaches which, if characterized, could lead to the recognition of both parties as being in default, whereas the call and put options were reserved under the terms of the shareholders' agreement to the only ‘non-defaulting’ party. Thus, under the terms of the Terms of Reference signed on March 11, 2010, the arbitral tribunal was expressly entrusted with the mission to ‘define the criteria for resolving the conflict of the parties’ rights to compensation under the Shareholders' Agreement';

Considering that in the statements they filed before the arbitral tribunal, the parties explained this conflict and the remedy, if this conflict is proven ;

Thus, CRH requested the application in this case of Article 335 of the Portuguese Civil Code, which authorises the court in the event of reciprocal contractual breaches to adjust the compensation in accordance with their seriousness and number. SEMAPA contested the existence of such a conflict of rights, classified it as an artificial creation and considered in any case that Portuguese law excluded the application of the legal provisions claimed by CRH when ‘the conflicting rights to reparation are merely apparent (rather than real)’ or when ‘one of the parties deliberately caused a situation of conflict’;

that in these circumstances, the arbitral tribunal, in finding the mutual failures of the parties to comply with their obligations and drawing the consequence on the right to compensation, in accordance with the Portuguese law to which the shareholders' agreement was subject, ruled within the limits of the mission entrusted to it, so that the ground must be dismissed;

On the ground of annulment based on the fact that due process (in French Principe de la contradiction) was not respected (1520-4 of the Code of Civil Procedure).

The claiamnts argue that the award was made in disregard of due process (in French Principe de la contradiction) whereby the arbitral tribunal did not invite the parties to discuss the condemenation imposed on SEMAPA, which is contested by CRH, who claims that the tribunal specifically requested the parties to submit their observations.

Considering that it follows from the transcript of the proceedings before the arbitral tribunal (Exhibits 14 and 15) that the arbitral tribunal specifically addressed the parties, inviting them to explain the possible consequences of contractual breaches committed by each of them, whether qualified as substantial or non-substantial, and to consider “all possible scenarios”;

that, in order to respond to the request of the arbitral tribunal, the defendants sent a note referring to the case of reciprocal breaches to which was attached a synoptic table listing for each of the hypotheses that could be retained the consequences that could result from the application of article 335 of the Portuguese Civil Code. This note particularly referred to ‘the possible adjustment of the 10% reduction in view of the relative seriousness, of the number and importance of the breaches of both parties’;

As a result, the arbitral tribunal, which, in order to take into account the reciprocal failures committed by both parties, modulated the amount of the right to compensation of the party authorised to exercise the purchase option, after firstly obtaining the observations of the parties. Thus, it did not disregard the due process (in French Principe de la contradiction);

that the ground which tends, under the cover of the violation of due process (in French Principe de la contradiction), to obtain a revision of the merits of the award, which is prohibited to the judge in charge of the annulment, must, consequently, be dismissed.

On the ground of annulment based on the fact that the recognition and enforcement of the award would be contrary to international procedural public order (1520-5 of the Code of Civil Procedure).

The claimants allege a breach of the principle of equality of arms in that the arbitral tribunal relied on arguments developed by Z in an unfair manner, since his counsel, Y, who was the lawyer of Mr E F, Chairman of the Board of Directors of SEMEPA in a separate proceeding, used personal knowledge in breach of its ethical obligations and professional secrecy in order to gain access to confidential information on that occasion.

Considering that the claimants, who do not specify the confidential information to which the board of Z could have had access, merely complain that the board has negatively presented both the personality and the management methods of the director of B. In any event, the claimants do not show, even supposing that the defendant’s lawyer knows that he allegedly breached his ethical obligations, in what way such information would have influenced the decision of the arbitral tribunal or how the rights of defence would have been affected;

that the ground and the action must accordingly be dismissed.

Considering that SEMAPA and CIMENTOSPAR, who succumb, cannot claim compensation pursuant to article 700 of the Code of Civil Procedure and must be ordered on the same basis to pay to CRH PLC, incorporated under Irish law, and BETON CATALAN, incorporated under Spanish law, together the sum of € 50,000 pursuant to article 700 of the Code of Civil Procedure.

FOR THESE REASONS,

Rejects the action for annulment brought by the companies SEMAPA and CIMENTOSPAR, incorporated under Portuguese law, against the arbitral award rendered in Paris on 25 July 2011, in the proceedings opposing them to the company CRH PLC, incorporated under Irish law, and the company BETON CATALAN, incorporated under Spanish law.

Orders the company SEMAPA, incorporated under Portuguese law, and CIMENTOSPAR, incorporated under Portuguese law, to pay the costs to be recovered in accordance with the provisions of article 699 of the Code of Civil Procedure and to pay a sum of € 50,000 pursuant to article 700 of the Code of Civil Procedure.