Paris Court of Appeal, No. 12-07.231 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, 17 December 2013, No.12-07.231

JNAH DEVELOPMENT SAL (JNAH)

vs.

MARRIOTT INTERNATIONAL HOTELS INC (MARRIOTT)

The Lebanese company JNAH DEVELOPMENT SAL (hereinafter referred to as JNAH) and the American company of the State of Maryland MARRIOTT INTERNATIONAL HOTELS INC (hereinafter referred to as (MARRIOTT) entered into agreements on 21 December 1994 relating to the operation by the latter of a hotel located in Beirut and belonging to the former.

Following disputes between the parties, they initiated arbitration proceedings in application of the arbitration clauses stipulated in these agreements.

In December 2001, MARRIOTT filed a request for arbitration, to be known as “JNAH I”, with the International Chamber of Commerce, this request, on 30 October 2003, led to an award that, on the one hand, rejected MARRIOTT’s claims that it had respected its contractual commitments and that JNAH had breached its own by interfering in the management of the hotel and, on the other hand, accepted JNAH ’s counterclaims based on various breaches of the agreements, in particular, the withholding of reimbursements due to JNAH, the employment of the hotel manager in tasks relating to the development of MARRIOTT that are outside the management of the hotel, and the disregard of the territorial limits attributed to MARRIOTT’s development.

On 20 June 2005, JNAH initiated a new arbitration procedure called “JNAH II” on the grounds of various breaches committed by MARRIOTT, which had to notify its decision to terminate the contractual relationship on 18 July 2007.

By an award of 4 June 2009, which became irrevocable following the dismissal of MARRIOTT’s action for annulment by this court on 9 September 2010, the arbitral tribunal ordered MARRIOTT to pay JNAH the sum of USD 6,857,541 for having failed to manage the establishment as a first-class hotel, and declared that it did not have jurisdiction to rule on the parties' claims relating to the termination.

Whilst these proceedings were taking place, the approximate 80% stake owned by family A in JNAH was sold to the Lebanese company Shayah Holdings SAL in May 2009, with the new shareholders and directors approving of the transfer of the outcome of the dispute between JNAH and MARRIOTT to Mr. A on 10 July 2009.

A Power of Attorney and an assignment of rights in favour of Mr. A were signed on 27 October 2009, as well as an undertaking by him to bear the costs and condemnations if the award was not favorable to JNAH.

In these circumstances, a third request for arbitration (JNAH III), based on the same arbitration clause as the two previous ones, was filed with the International Chamber of Commerce by Mr. A on behalf of JNAH on 14 June 2010, in order to obtain an award of damages for the loss caused by the termination of the hotel management contract.

By an award rendered in Paris on 3 February 2012 under the aegis of the International Chamber of Commerce, the arbitral tribunal composed of Mr. Aynès and Mr. Schwartz, arbitrators, and Mr. Lee, Chairman, declared itself incompetent.

An action for annulment of this award was filed on 18 April 2012 by JNAH and Mr. E A.

Seized of incidental pleadings, the Pre-Trial Judge, by order of 24 January 2013, after having considered, with regard to the exclusive authority vested in him by the combined provisions of Articles 771, 907, 914 and 1527 of the Code of Civil Procedure to rule on procedural exceptions as well as to declare the appeal inadmissible, that neither the exception based on the lack of power of Mr. A to represent JNAH in court, nor the plea of non-admissibility based on the lack of capacity to act on behalf of Mr. A, could be joined to the merits of the case, has:

dismissed the plea of nullity of the action for annulment brought by JNAH DEVELOPMENT SAL against the award rendered on 3 February 2012 in the proceedings opposing it to MARRIOTT INTERNATIONAL HOTELS INC INC,
declared inadmissible the action for annulment of the same award brought by Mr. A personally,
rejected the request for disclosure under penalty of the “JNAH/MARRIOTT settlement agreement” of 6 April 2011.

This order was referred to the court which, by judgment of 4 June 2013, after ordering the consolidation of proceedings No. 13/02582, 13/02591 and 13/04535 and declaring the appeal lodged by Mr. E A admissible, rejected the appeals lodged by Mr. X and Mr. E A on the one hand, and confirmed the order in question on the other hand.

Having regard to the submissions notified by Z on 4 October 2013 by JNAH seeking the annulment of the award and the condemnation of MARRIOTT to pay the sum of 150,000 euros pursuant to Article 700 of the Code of Civil Procedure;

Having regard to the submissions notified by Z on 10 October 2013 by MARRIOTT in which it is requested that the court:

rejects the action for annulment brought by JNAH, allegedly represented by Mr. E A;
dismisses JNAH, allegedly represented by Mr. E A, of all its claims.
orders JNAH to pay MARRIOTT the sum of 150,000 euros under Article 700 of the Code of Civil Procedure,
orders JNAH to pay all the costs.

UPON WHICH,

On the first ground for annulment based on the fact that the arbitral tribunal wrongly declared itself incompetent (Article 1520 - 1 of the Code of Civil Procedure)

JNAH argues:

-that it was validly represented in view of the irrevocable Power of Attorney authorizing Mr. A to defend Company JNAH in all matters relating to the existing dispute with Company MARRIOTT and arising out of the relationship with Company MARRIOTT prior to 4 May 2009, including the arbitration pending before the ICC; that this necessarily included the representation of JNAH for the purpose of initiating new arbitration proceedings relating to the rights arising out of the termination of the contracts entered into between MARRIOTT and Y prior to 4 May 2009, for the following two reasons:

the Power of Attorney related to all aspects of the dispute and not only to the arbitral proceedings then pending;
and that, in any event, the compensation for the termination, which was the topic of the new arbitration, was related to the previous arbitration proceedings, which had found JNAH not guilty of the contractual breach alleged by MARRIOTT to terminate the ongoing contracts;

Whereas MARRIOTT maintains that the ground is inoperative since the arbitral tribunal did not in fact rule on its jurisdiction, but rather on the admissibility of an arbitral claim brought on behalf of JNAH by an alleged representative, which cannot give rise to a “full review” of the arbitrators' decision;

Whereas it is for the judge of appeal to analyse the nature of the decisions rendered by the arbitral tribunal in order to restore, if necessary, their exact classification without stopping at the terms adopted by the arbitrators; that it is established, in the present case, that the arbitral tribunal, which was, incidentally seized by MARRIOTT of a memorandum on jurisdiction and which, after having held a hearing on jurisdiction, said in its award that it did not have “jurisdiction over this proceeding in a definitive manner”, considered, after having interpreted the Power of Attorney given by JNAH, represented by its new shareholders, to Mr. A in his capacity as representative of the former shareholders, that the scope of the Power of Attorney should be limited to the arbitration then in progress called “JNAH II”, without the possibility of it being extended more broadly as authorizing the initiation of a new arbitration, if the dispute arising out of the relations between JNAH and MARRIOTT prior to the change of shareholding had not been fully settled by the “JNAH II” arbitration, in progress at the date of the establishment of the Power of Attorney;

that in so doing, the court, having assessed the extent of its jurisdictional power, has ruled on its jurisdiction;

Whereas the annulment judge reviews the decision of the arbitral tribunal on whether or not it has jurisdiction, looking for all the elements of law and fact making it possible to assess the existence and scope of the arbitration agreement whose benefit has been transmitted to Mr. A;

Whereas whilst the arbitration proceedings known as “JNAH I” and “JNAH II” were pending following the disputes between JNAH and MARRIOTT, the participation of approximately 80% of the capital of JNAH held by the A family was assigned to the Lebanese company Shayah Holdings SAL on 4 May 2009;

That prior to this assignment, a settlement agreement was signed between assignors and assignees on 5 February 2009 under which “In the matter of ICC arbitration against MARRIOTT INTERNATIONAL HOTELS INC And upon the outcome of such arbitration proceedings, (i) if the award is made in favour of the Company, E shall be entitled to the full amount of any arbitral awards after deducting all fees, taxes and other related costs incurred since the commencement of the ICC arbitration case, including the fees, taxes and other incidental expenses of all local and international legal counsel and the costs of the arbitration, (ii) if the award is not in favor of the Company, E shall be liable for the full amount due by the Company, including fees and expenses, to MARRIOTT INTERNATIONAL HOTELS INC. In this unfavorable case, E irrevocably guarantees the payment of the balance and certifies that its assets will cover the balance. It is hereby understood that the Company shall issue an irrevocable Power of Attorney to E authorizing him to (i) monitor the arbitration proceedings, including the appointment of counsel, and (ii) accept payment on behalf of the Company in the event that the arbitration award is made in favor of the Company”.

that, moreover, the new shareholders and directors approved on 10 July 2009 the transfer to Mr. A of the outcome of the dispute between JNAH and MARRIOTT;

finally, a Power of Attorney and an assignment of rights in favour of Mr. A was signed on 27 October 2009 as well as an undertaking by him to bear the costs and condemnations if the sentence was not favorable to JNAH;

that the Power of Attorney stipulates:

“We, JNAH DEVELOPMENT SALCompany SAL (hereinafter the “Company”) represented by its Chairman and Chief Executive Officer, Mr. K L, have appointed Mr. E N A to plead on behalf of and defend the “Company” in all matters relating to the dispute with MARRIOTT INTERNATIONAL HOTELS INC and the “Company” and arising out of the relationship with the “Company” prior to 4 May 2009, including the arbitration case pending between the “Company” on the one hand and MARRIOTT INTERNATIONAL HOTELS INC on the other, before the International Chamber of Commerce and before courts of all types, levels, functions and characteristics (…)”;

Whereas it results from the chronology, content and purpose of these various documents that they constitute an indivisible whole, from which it follows that the new shareholders expressly intended to reserve to the former shareholders, of which Mr. E B was the lead manager, the right, provided that they assume potential financial risks, to act in the name of Company JNAH to safeguard their rights, in the context of disputes which, arising before the change of shareholding, opposed the latter to MARRIOTT, the parties thus making this transfer of rights a condition of the transfer of shares;

That it also results from the hearing of JNAH’s representative, Mrs. C, in her capacity as a witness, by the arbitral tribunal that the new shareholders' concern was to remain unaware of the disputes with MARRIOTT in which they had not been involved and in which they risked bearing unfavorable financial consequences, if any (transcript, points 65 and 66);

Whereas this Power of Attorney, contrary to the decision of the Arbitral Tribunal, empowers, in view of the generality of its terms, its beneficiary to act on behalf of JNAH as soon as the action finds its origin, which is the case here, in the contractual relations maintained with MARRIOTT before 4 May 2009;

That the object of the said Power of Attorney cannot, consequently, be limited to the arbitrations “JNAH I” and “JNAH II”; which renders inoperative the argument put forward by MARRIOTT on the expiry of the Power of Attorney by the extinction of its object, the dispute (“JANAH II”) which existed at the time of its establishment, and having ended with the dismissal by judgment of 9 September 2010 of the action for annulment brought against the award rendered in the said arbitration;

That it must be regarded as irrevocable, in accordance with the common intention of the parties expressed in the settlement agreement of 5 February 2009 and the principle of contractual loyalty, without the need to refer to a State law, provided that this irrevocability does not infringe any imperative rule of French law or international public policy;

As a result, in the absence of proof that JNAH would have judicially obtained the revocation of this power of attorney, Mr. B was still vested with the power to act on JNAH’s behalf, and the mere fact that JNAH may have expressed a wish not to appeal against the arbitral award handed down in the “JNAH III” case by letters addressed to Mr. B, Mr. X and his counsel, was insufficient to extinguish the effects of the power of attorney;

That it follows that the Arbitral Tribunal, by declaring itself incompetent, has misunderstood the extent of its jurisdictional power so that the ground and the appeal must be upheld and the award set aside;

Whereas MARRIOTT, who is unsuccessful and must therefore bear the costs, cannot claim compensation under Article 700 of the Code of Civil Procedure; whereas it shall be ordered on the same basis to pay JNAH the sum of 50,000 euros.

FOR THESE REASONS,

Annuls the arbitral award rendered in Paris on 3 February 2012 in the ICC case n°17203/VRO opposing the Lebanese company JNAH DEVELOPMENT SAL (JNAH) and the American company of the State of Maryland MARRIOTT INTERNATIONAL HOTELS INC.

Condemns the American corporation of the State of Maryland MARRIOTT INTERNATIONAL HOTELS INC to pay the costs and the sum of 50,000 euros pursuant to Article 700 of the Code of Civil Procedure.