Paris Court of Appeal, No. 12/17653 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of appeal, 11 March 2014, No. 12/17653

ACCOR
vs. MOOR PARK REAL ESTATE PARTNERS

At the end of year 2006, S.A. ACCOR (ACCOR), a company under French law, decided to revise its hotel portfolio management strategy and, for this purpose, undertook to call upon long-term investors wishing to invest in 91 hotels in Germany and the Netherlands, through a simultaneous sale and leaseback operation, with the sale of the hotel premises being accompanied by an immediate lease to its subsidiaries, and with ACCOR retaining the operation of the hotels concerned.

It is in these circumstances that ACCOR and the limited partnerships subject to the law of Guernsey (Channel Islands) MOON PARK REAL ESTATE PARTNERS I LP and MOON PARK REAL ESTATE PARTNERS II LP Incorporated (which will be collectively referred to as MOON PARK), signed an agreement on 4 March 2007. This agreement was expressly qualified as intuitu personae and was entitled “Framework agreement in respect of certain German and Dutch assets and Dutch liabilities”. Through it, the parties stated their intention to “organise… a long-term partnership arrangement” and on 29 June 2007 a Strategic Partnering Agreement (hereinafter the “SPA”).

As a result of these transactions, MOON PARK directly or through its affiliated entities became the owner of the transferred premises, with a commercial lease being concluded for each hotel between a member of the investor’s group and a Dutch or German affiliated entity of ACCOR, for a minimum term of 12 years and, at ACCOR’s sole discretion, for a maximum term of 84 years.

The parties disagreed over the interpretation of Article 11 of the SPA that was inserted at the request of Merryll Lynch and Société Générale, the financial institutions that financed 85% of the transaction. This Article provided a waiver right of termination in favor of the lessor if the turnover achieved by one of the hotels falls below certain thresholds. MOON PARK filed a request for arbitration with the Arbitration Court of the International Chamber of Commerce (ICC) pursuant to the arbitration clause stipulated in Article 17.3 of the SPA for a ruling “on the confirmation of the meaning and scope of a provision of one of the contractual documents, namely Article 11 of the SPA”.

It is under these conditions that the arbitral tribunal, constituted under the aegis of the ICC of Messrs. Laurent Lévy (Chairman), F Z and D E, arbitrators, rendered an award in Paris, on 3 September 2012, by a majority of its members, with a dissenting opinion expressed by Mr. Z, ruling and declaring that:

“(1) For each of the Eight Hotels, pursuant to Articles 11.1 and 11.6 of the SPA, the Defendant is required to ensure that its relevant subsidiaries:

implement the watch list mechanism in accordance with Article 11.6, and accept and comply with any notice given by application of the exceptional right of termination of the Leases by the relevant Lessor if, at any time during the next three financial years ending on 31 December 2012, the turnover of the relevant Hotel(s) falls by a further 20% or more in relation to the financial year in which this fall occurs (“N-2” or “N-1” financial years).

(2) In respect of each and/or all or part of the Five Hotels, pursuant to Articles 11.1 and 11.7 of the SPA, the Claimants may ensure that their subsidiaries be in a position to give the relevant subsidiaries of the Defendant an exceptional notice of termination of the Lease.

(3) In respect of each and/or all and part of the Five Hotels, pursuant to Articles 11.1 and 11.7 of the SPA, the Defendant is obliged to ensure that its relevant subsidiaries accept and comply with any notice given by application of the exceptional right of termination of the Leases by the relevant Lessor.

(4) Each Party shall bear its own share of the costs of the arbitration (administrative costs and fees of the arbitrators).

(5) The Defendant shall pay the sum of £508,713.74 to the Claimants in respect of their legal fees and other costs, together with simple interest at GBP-X from the date of notification of the Award to the date of payment of the above fees and costs.

(6) All other requests and applications are dismissed”.

By act of 3 January 2013, ACCOR filed an action for annulment against this Award.

Pursuant to the summary conclusions No. 2, served on 14 January 2014 by ACCOR, the court is requested to refer to Articles 1482, 1506, 1510, 1512, 1520 of the Code of Civil Procedure in order to:

state that the Arbitral Tribunal has ruled without complying with the mission entrusted to it;

Consequently:

set aside the arbitral award delivered on 3 September 2012;
order MOON PARK to pay ACCOR the sum of €35,000 under Article 700 of the Code of Civil Procedure, and the entire costs.

Having regard to the conclusions served on 28 November 2013 by MOON PARK aiming at the rejection of the application and the condemnation of ACCOR to pay the sum of €120,000 pursuant to Article 700 of the Code of Civil Procedure, and to pay all costs;

UPON WHICH

On the ground for annulment based on the fact that the arbitrators did not comply with their mission (Article 1520-3 of the Code of Civil Procedure) and that the arbitral tribunal failed in its obligation to state reasons (Articles 1482 and 1506 of the Code of Civil Procedure).

It argues that the Arbitral Tribunal, seized of an action of a declaratory nature, confined itself to rule on the interpretation and application of certain contractual stipulations, to question the use that would be made of the award. Thus, it precludes any assessment of the fairness or otherwise of the effects of its decision.

More generally, it considers that the declaratory nature of the award is incompatible with the mission of ruling in amicable composition, and notes that the Tribunal itself highlighted “the fundamental contrariness” to want to reconcile an amicable composition mission with a request whose nature makes it impossible for the arbitrators to assess the consequences of the award they are going to make, and therefore whether it is fair or not.

Y argues that by issuing a general decision, without comparing it to the specific situation of each of the 13 hotels for which MOON PARK was seeking enforcement of the contract, and by failing to consider whether the decision was in accordance with equity on a hotel-by-hotel basis, the arbitral tribunal has failed in its duty to rule as amiable compositeur since “it was its job to assess the various possible options available to MOON PARK, as a result of its interpretation of the clauses, in order to select only those options that were fair in the light of the situation of the various hotels”.

Finally, ACCOR claims that the arbitral tribunal failed in its obligation to give fair reasons for its decision, as it was required pursuant to Articles 1482 and 1506 of the Code of Civil Procedure and by Article 25, paragraph 2, of the Arbitration Rules of the International Chamber of Commerce in the version in force as of 1 January 1998.

Whereas under the terms of Article 17.3 of the Strategic Partnering Agreement (SPA) the parties have agreed to submit to arbitration disputes arising of the interpretation of the contract;

that ACCOR no longer disputes, contrary to what it argued before the arbitral tribunal, the admissibility of a declaratory action;

that such an action is in no way inconsistent with the mission given to the arbitrators to rule in amicable composition, under the terms of the arbitration clause agreed between the parties;

that the nature of such an action does not necessarily imply a solution in law, because it does not prevent the arbitrators from ruling in equity on the question put before them;

Considering that the arbitral tribunal cannot be criticised for having handed down a general decision without specifically examining the situation of each of the establishments which, having been placed on the watch list established pursuant to Article 11.6 of the SPA, were likely to be concerned in the long term, unless their turnover was adjusted, by the application of the exceptional right to terminate the commercial lease granted to the lessor by Article 11. 7 of the said SPA, since provided that in the limits of their referral, the arbitrators could not consider, in the context of a declaratory action, and in the absence of knowledge of the conditions under which MOON PARK would choose to implement its rights at a later date, the effective consequences of the performance of the contractual provisions whose interpretation was submitted to them;

Considering that in its decision, the arbitral tribunal noted, after reminding that it had been given the mission of ruling in amicable composition and having analyzed precisely its obligations in this respect (paragraphs 413 to 417 of the award), on the one hand that “the occurrence of the financial crisis is not in itself sufficient to exclude the application of Article 11 of the SPA or to mitigate its effects” (paragraph 422). On the other hand, the arbitral tribunal noted that “the record does not establish that it would be fair and favorable to the long-term relationship between the parties to deny MOON PARK the special protection of Article 11 of the SPA in the particular circumstances of this case” (paragraph 423). Finally, it noted that “the majority of the Tribunal sees no valid reason to depart from the application of the contractual solution” (paragraph 424);

The tribunal also stated that it intended to focus on “the practical consequences of its award” to the very extent that “in the context of an amicable composition, it is necessary to determine that the decision does indeed lead to an equitable solution” (paragraph 431). Moreover, while admitting that it was not in a position to know under what conditions MOON PARK exercised its rights, it expressly held that “there is nothing unfair in holding that a party may choose to exercise certain (contractual) remedies, leaving it ultimately entitled to prefer to exercise them in part, in full, not at all, or to enter into negotiations with its co-contractor” (paragraph 433). It also deprived MOON PARK “from exercising its contractual rights at any time” would lead to a “result that would be unfair and contrary to the legitimate expectations of the parties”;

Considering therefore that the arbitral tribunal in so doing, and contrary to what is claimed by ACCOR, confronted its decision rendered in law with equity, and at the same time, respected its duty to state reasons;

Considering that the arbitral tribunal thus does not incur the ground which must be dismissed along with the action for annulment, which aims in reality to obtain a review of the merits of the award which the annulment judge is prohibited from doing;

Considering that ACCOR, who succumbs, must bear the costs without being able to claim compensation pursuant to Article 700 of the Code of Civil Procedure, and will be ordered on the same basis to pay a sum of €100,000.

FOR THESE REASONS,

Dismisses the action for annulment brought by ACCOR against the award rendered in Paris on 3 September 2012 in the proceedings against the limited partnerships subject to the law of Guernsey (Channel Islands) MOON PARK REAL ESTATE PARTNERS I LP and MOON PARK REAL ESTATE PARTNERS II LP Incorporated.

Dismisses the applications of ACCOR.

Orders ACCOR to pay the costs and the sum of €100,000 in application of Article 700 of the Code of Civil Procedure.