Paris Court of Appeal, No. 12-15.582

Paris Court of Appeal - 1st Pole - 1st Chamber - 6 May 2014, No.12-15.582

AR B AP J (Y)

Vs.

E B AP J (A)

The brothers Edwin, E and AR B, founders of a group specialising in contract catering, signed a protocol on 1 May 1979 envisaging the creation of a holding company in Liechtenstein bringing together their activities worldwide (around 130 companies). Article 4 of the agreement specified that the intention of each party was to allocate its shares in the holding company to a family foundation, without this however being an obligation.

The articles of incorporation of the holding company named E B Corporation (AAC) were signed by the three brothers on 5 September 1979. Article 31 provides with an arbitration clause stating that any dispute which may arise during the life or the period of liquidation of the company between the shareholders and the company or between the shareholders themselves, relating in any way to the interpretation or implementation of the charter of constitution or the statutes, or to the acts or resolutions of the governing bodies of the company or to the activity of the company shall, failing amicable settlement, be submitted to three arbitrators in accordance with the rules of the International Chamber of Commerce in Paris.

AR and E B each founded a family foundation, AR B AP J (hereafter Y) and E B AP J (hereafter A).

Since Erwin B sold his shares to his brothers' family foundations, the holding company’s shareholders were Y and A with 15% and 85% respectively, Z Trust and I J each holder of a share.

In 1996 E B appointed its sons E F and AE “executive vice presidents”, each responsible for supervising half of the group’s activities worldwide.

E B died on the XXX and serious dissensions opposed his two sons and their mother X B. After various proceedings, they signed a “Settlement Agreement” between themselves on 26 April 2000, which was also signed on the same day by A. The agreement foreseeing the sale of the assets, approved by the Board of Directors of AAC, was submitted to the shareholders' meeting which ratified it despite the opposition of AR B and Y.

It is in these circumstances that Y filed a request for arbitration against A, AAC, Z Trust, I J and against X, AE and E F B (the B associates) seeking the annulment of various resolutions of the general meetings, in particular relating to the settlement agreement, and to obtain compensation for damages.

A first partial award rendered on 25 April 2005 by Mr. Crespi Reghizzi, Chairman, and Mr. W. Boesch and Mr. Günther J. Horvath, arbitrators, decided that the law applicable to the arbitration agreement is French law, that the law applicable to the merits is the law of Liechtenstein, that the arbitration agreement is valid and that the subject-matter of the dispute is arbitrable.

This award has not been appealed.

A second partial award of 22 May 2008, against which A, AAC, Z trust, I J, Ms X B and Mr AE AF and Mr E F B filed an action for annulment, has decided:

“(1) The Third, Fourth and Fifth Defendants [X, AE and E F B] are not bound by the Arbitration Agreement and therefore the Tribunal has no jurisdiction in their regard.

(2) All other decisions, including any decisions regarding costs in relation to the Third, Fourth and Fifth Defendants are subject to future awards.”

By judgment of 22 May 2008, this court annulled this partial award for failure by the arbitrators to comply with their mission since Mrs. X and Messrs. Merlon and E B could not legitimately claim to be third parties to the arbitration clause and its content which they could not have been unaware of considering that they had implicitly accepted in view of their interference in the operation and liquidation of the company during which they had behaved like the real partners of the holding company.

This judgment became final following the dismissal by judgment of 6 October 2010 of the appeal (in French Pourvoi en cassation) brought before the Court of Cassation against this decision.

A third award of 25 September 2008 declared all applications for annulment of the CAA’s deliberations of 30 May 2000, 30 November 2001 and 9 May 2003 to be prescribed and dismissed all other applications for annulment.

The action for annulment brought against this award was dismissed by this court’s decision of 25 September 2008, which became irrevocable following the dismissal by decision of 6 October 2010 of the appeal to the Supreme Court of the French Supreme Court against this decision.

Following the resignation of the arbitral tribunal, a new tribunal composed of Mr. S AA and Ms. O P, arbitrators, and Mr. S T, chairman, was constituted on 9 February 2009, which rendered in Paris on 30 May 2012 by a majority of its members, Mr. S AA having expressed a dissenting opinion on 6 April 2012, a final award, the operative part follows:

“(i) Declares that the judgment delivered by the Paris Court of Appeal on 22 May 2008 has the force of res judicata on the following issues:

(a) The Individual Defendants are bound by the arbitration clause;

(b) The Individual Defendants acted as de facto shareholders (having regard to their behaviour revealing acceptance of the arbitration clause);

(ii) Declares that the statement of the Paris Court of Appeal according to which the assets of the Company were sold in a de facto liquidation does not have the force of res judicata;

(iii) Decides that the claim for compensation of losses suffered by the Claimant as a result of the sale of the assets of AAC is not time-barred under § 1489 ABGB. The relevant date for calculating the limitation period is April/May 2011. The Statement of Claim, submitted on 23 October 2003, interrupted the limitation period;

(iv) Decides that the Claimant is not entitled to claim compensation for his losses, since:

(a) In accordance with Article 218 of the RMP, the Applicant did not suffer any direct damage of which he could claim direct compensation;

(b) In accordance with Articles 222§2 and 222§3 of the RMP, the Applicant did not suffer any indirect damage of which he could claim indirect compensation;

(v) Dismisses all of the Claimant’s claims for compensation for losses;

(vi) Dismisses the Claimant’s request for compensation for moral damages;

(vii) Declares it has jurisdiction to examine the request concerning the loans and accounts of the Applicant’s shareholders;

(viii) Declares that the application for loans and shareholder accounts of the Applicant is not time-barred;

(ix) Dismisses all applications relating to the loans and shareholder accounts of the Applicant;

(x) Declares it has jurisdiction to hear the objection to compensation raised by the Applicant;

(xi) Rejects the claim for set-off raised by the Applicant;

(xii) Orders the Claimant to pay to the Corporate Defendants, within four weeks from the date of notification of this Final Award, the amount of the advance on arbitration costs, i.e. US$ 850,000 (half of the total amount of the arbitration costs is equivalent to US$ 1,700,000);

(xiii) Orders the Claimant to pay the following procedural costs within four weeks from the date of notification of this Final Award:

(a) 90% of the costs engaged by the Corporate Defendants, being 4,229,826.21 pounds (£), 2,959,757.81 Swiss francs (CHF), 277,250 euros, and 762,530.36 US dollars;

(b) CHF 4,315,308 to Defendants 3 and 4; and

(c) CHF 4,296,343 to the Respondent 5;

(xiv) Dismisses all other requests made by the Parties.”

By declaration of 21 January 2013, Y brought an action for annulment of this final award.

Having regard to the summary submissions No. 4 filed through the Private Virtual Network for Lawyers (in French Réseau privé virtuel des avocats) on 6 March 2014 by Y pursuant to which the court is requested to:

— In view of the illegible nature of Exhibit No. 71 communicated by the Defendants to the appeal on 5 March 2014, dismiss the said exhibit;

— declare the action for annulment admissible;

— order, if necessary, the appearance of the chairman of the Arbitral Tribunal and of Mrs. Noëlle Rensch and Mrs. M N in order to be heard on the conditions of their participation in the deliberation and the establishment of the arbitral award;

— set aside in its entirety the arbitral award, issued with a dissenting opinion on 30 May 2012, with all legal consequences;

— order the Defendants jointly and severally to pay the sum of €20,000 pursuant to Article 700 of the Code of Civil Procedure and to pay the entire costs.

Having regard to the summary submissions No. 3 served via the Private Virtual Network for Lawyers (in French Réseau privé virtuel des avocats) on 5 March 2014 by the defendants seeking the rejection of all of Y’s grounds and claims and an order to pay the sum of 100,000 euros pursuant to Article 700 of the Code of Civil Procedure;

UPON WHICH:

On the request for rejection of a document:

Whereas Y requests that Exhibit No. 71 submitted by the defendants on 5 March 2014 be excluded from the proceedings in view of its illegible nature;

Whereas the examination of the document in question, which consists of a copy of a decision handed down by the Paris Court of Appeal on 9 June 1983 (No. RG J14819), is of extremely poor quality, as the defendants admit, moreover, which requires its contents to be deciphered, making its understanding uncertain;

in this respect, since compliance with due process (in French Principe de contradiction) requires that all the documents acquired in the proceedings may be usefully discussed, this requirement can only be satisfied if the documents produced can be read in conditions exclusive of any uncertainty by the opposing party, without it being necessary to distinguish between documents intended to provide evidence of the alleged facts and documents for purely informative purposes, such as case law references;

that, as a result, the disputed document will be removed from the proceedings, it does not matter whether it was resubmitted in a different version. Moreover, it was barely more readable or that the access path by hyperlink to the said document in a computerised database was communicated as soon as these formalities were completed after the closing order, withdrawal of which was not requested;

On the ground of annulment, alleging that the Arbitral Tribunal wrongly declared it had “jurisdiction to rule on the damage resulting from the de facto management of the Group by the heirs of E B” (Article 1520-1 of the Code of Civil Procedure, ground of appeal No. 3);

The claimant complains that the arbitral tribunal wrongly adopted a restrictive interpretation of the scope of application of the arbitration clause, considering that it did not confer jurisdiction on the tribunal to hear an action brought by AAC against a de jure or de facto director of AAC, even if he was a shareholder.

Whereas the Annulment judge shall examine the decision of the Arbitral Tribunal on its jurisdiction, looking for all the elements of law and fact that allow the existence and scope of the arbitration agreement to be assessed;

In the present case, Article 31 of AAC’s Articles of Association states that “Any dispute which may arise during the existence of the company or during the period of its liquidation, between the shareholders and the Company, or between the shareholders themselves, and relating in any way whatsoever to the interpretation or execution of the Charter of constitution and/or the Statutes and/or the acts or resolutions of the Company’s governing bodies and/or the activities of the Company shall be submitted, in the absence of an amicable settlement, to a panel of three arbitrators appointed in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce, Paris”;

In view of the wording of this clause, the arbitral tribunal was able, after an exclusive interpretation of any distortion and a reasoning which the court approved, to consider that “any attempt to engage the direct liability of legal persons or de facto managers is excluded from the scope of application of the arbitration clause”. Furthermore, since Y intended to seek the liability of the consorts B on an individual basis taken not in their capacity as shareholders of AAC but as de facto managers of the latter, this action was outside its jurisdiction as it did not fall within the scope of the arbitration clause. However, the arbitral tribunal still had jurisdiction to hear a liability action against AAC for acts which may have been committed by de facto directors;

As a result, the ground of appeal must be set aside;

On the ground that the Arbitral Tribunal was improperly composed due to the unsatisfactory nature of the answers of the President of the Arbitral Tribunal due to the participation of third parties in the preparation of the Final Award (Article 1520-2 of the Code of Civil Procedure, ground No. 1);

The claimant claims that certain “tortuous” reasoning by the Arbitral Tribunal, as well as “gross” errors of fact or confusions committed by the Arbitral Tribunal, which, in its view, are exclusive of any writing error, give rise to legitimate suspicions that persons outside the Arbitral Tribunal were involved in the preparation of the award. These suspicions could not be dispelled because of the refusal of the Tribunal to answer the specific questions raised by the appellant.

Whereas the signature affixed at the bottom of the award by the arbitrators, one of whom issued a dissenting opinion by means of a separate document annexed to the award, implies a presumption that the arbitrators, whose undisputed fact that they have heard the case and the pleadings, have, after the closure of the proceedings and after having deliberated, approved the terms of the decision of which they are deemed to be the authors;

that the errors should even have been qualified as “gross”, which is not the case, given their minor nature, as regards the composition of sibling B by the use of the word sister instead of brother, the reference to AE instead of Alberto, the use of the term “shares” instead of “assets” or the reversal of the percentages of the family foundations’ shareholdings in AAC in a 232-page award, as well as simple allegations of a pretended intrusion of third parties in the process of drafting the award. Those allegations were taken exclusively from critical assessments of the arbitrators' reasoning and argumentation without being supported by objective elements, is insufficient to rebut such a presumption;

It will also be noted that, contrary to what is claimed, the Chairman of the Arbitral Tribunal, in a letter dated 29 November 2012, answered precisely the questions of the claimant, stating that “the arbitrators in this case have exercised their jurisdictional functions to the fullest extent, without delegating them to anyone” and that the Secretariat of the International Court of Arbitration had been confined to the functions conferred on it by the ICC Rules, which makes the requests for a hearing requested by Y. in the alternative, irrelevant;

that the ground of appeal will be dismissed;

On the ground of annulment based on the fact that the Arbitral Tribunal ruled without complying with its mission because, firstly, of the above-mentioned questioning of the claimant concerning the participation of third parties in the drafting of the Final Award and, secondly, in that the Final Award “isolated the facts in order to qualify them and judge them separately [and thus] distorted the issue to be decided” (Article 1520-3 of the Code of Civil Procedure, grounds 1, 5 and 7);

The claimant argues that the arbitrators adopted a tortuous line of reasoning based on a “casuistic” approach, unusual for senior arbitrators, which led by subdividing “into a mosaic of sub-questions" to an “incongruous depiction” of a situation that should have been a whole, which “reinforces the impression of a collective work not resulting from deliberation”.

Whereas, as stated above, the apposition by the arbitrators of their signatures at the bottom of the award entails a presumption that the arbitrators have approved the terms of the decision of which they are deemed to be the drafters and that this presumption is not rebutted by any evidence;

Therefore, under the guise of the arbitrators' disregard of their mission for having allegedly ‘artificially [divided] the main question of the legitimacy of a precipitated liquidation and of the regularity of the Convention into irrelevant sub-questions without examining the liability of the shareholders with regard to the obligations provided for in the statutes of AAC and the Liechtenstein legislation on dissolution/liquidation”, Y invites the court to review the merits of the prohibited award to the annulment judge, who does not have to examine the relevance of the reasoning of the arbitrators;

Thus, the ground must rejected;

On the ground of annulment alleging that due process (in French Principe de la contradiction) was not respected on the one hand in that the Arbitral Tribunal’s rejection of Y’s request to exclude the law firm Marxer & Partner from the arbitration proceedings, former counsel for the Claimant and AAC, Z Trust and I J, violates “the rights of the defence and, in particular, the equality of the parties”, and the Arbitral Tribunal “failed to enforce the law of evidence required for a fair trial”. (Article 1520-4 of the Code of Civil Procedure, grounds in law No. 4 and No. 9);

The claimant requests that the arbitral tribunal rejected her request to exclude the law firm of Marxer & Partner, whose lawyers, including Dr. Rolf Schmidt and Dr. Rolf Schmidt, were not involved in the defence of AAC and A, and that AAC and A’s lawyers were not involved in the defence of AAC. Marxer & Partner, of which Dr. Marxer and Dr. Burger are partners, and thus violated the rights of the defence and, in particular, the principle of equality of the parties, since the latter was previously a director of AAC and counsel to all the parties to the dispute and, moreover, was deeply involved at all times, including during the arbitration, in the Group’s operations and business secrets.

The arbitral tribunal is also criticised for having ‘obeyed Y’s right to evidence’ on the one hand ‘by not ruling quickly enough on the request for an expert’s report which would have provided the necessary evidence’, which allowed them to be dissipated on the other hand by ‘evacuating’ them on numerous occasions, its] claims’ and thereby failing to comply with its obligation to enforce ‘the right to evidence required by an adversarial and fair hearing’ and thereby ‘giving effect to the real fraudulent misrepresentation of evidence by the Defendants in 2005’".

Whereas due process (in French Principe de la contradiction) indicates that each party must be given the opportunity to debate the facts of the case in an adversarial manner and that nothing that serves as a basis for the arbitrator’s judgment must escape the free discussion of the parties;

In the present case, Y does not show how the court, which had a duty to ensure compliance with the principle of contradiction, failed to comply with this obligation, since all the documents produced and acquired during the proceedings could have been usefully discussed by the parties;

Although Y had been aware since the initiation of the arbitration that two of the partners of Marxer & Partner, counsel to the defendants AAC and A in the arbitration proceedings, had previously been directors of AAC and counsel to all parties to the dispute, it only referred the difficulty resulting from a conflict of interest to the arbitral tribunal by letter of 25 January 2010. Y was dismissed by a decision of 4 March 2010 and refrained from referring the matter, as it was entitled to do, to the authorities competent to decide on deontological issues. Concerning a law firm registered at the Liechtenstein Bar, Y does not mention any specifically identified insider information to which counsel for the defendants had access and which was used to its detriment during the arbitration;

It states that Marxer & Partner was " deeply involved in all stages of the life of AAC" and presents Marxer & Partner as “a real party to the litigation”. It also states that the law firm is “very well placed to benefit the Defendants, not necessarily by revealing information about Y, but in particular by preventing the communication of documents and information requested by Y to which its many functions gave it access”, Thus, Y does not show that Marxer & Partner would have by its position obstructed the obtaining of documents held by its opponent. These documents were necessary for the defence of Y’s interests, even though Y was able to submit requests to the arbitral tribunal to obtain their forced communication. As stated above, the arbitral tribunal, in the exercise of its powers and in particular that of assessing the relevance of the documents whose production was requested for the resolution of the dispute, ruled on the requests referred to it;

Finally, Y, who does not show that the arbitral tribunal would have subjected it to discriminatory treatment prejudicial to the exercise of its rights. It also fails to demonstrate that the tribunal, by its passivity, would have contributed to the dissipation of decisive evidence fraudulently organised by its adversaries. Such evidence cannot result from the mere decision to regroup the AAC archives in Monaco, or to destroy documents not subject to an obligation to preserve them. Thus, Y intends in reality, under the guise of violation of due process (in French Principe de la contradiction), to criticise the exercise by the court of the powers granted to it with regard to the taking of evidence. Even if this ground falls within the scope of Article 1520-4 of the Code of Civil Procedure, it is in any event beyond the control of the annulment court;

The ground of appeal must be dismissed;

On the ground that the recognition or enforcement of the Final Award would be contrary to international public order (Article 1520-5 of the Code of Civil Procedure)

The claimant bases this breach of international public order on the fact that the Arbitral Tribunal, on the one hand, disregarded the res judicata effect of the Paris Court of Appeal’s judgment of 22 May 2008 and, on the other hand, refused to compensate the claimant for the performance of the Settlement Agreement, which would constitute both a violation of the right to compensation for damages and expropriation. Thirdly, the claimant considers that arbitral tribunal breached international public order by declaring inadmissible the claimant’s request for compensation for the losses resulting from the liquidation of AAC on the ground that they were indirect and fourthly, failing to respect the law of evidence. Fifthly, the claimant considers that arbitral tribunal breached international public order by disregarding the principle of a right of access to the court and, lastly, testifying to a “lack of impartiality” (grounds No. 2 and No. 6 to No. 11).

Whereas the arbitral tribunal dismissed the authority attached to the Paris Court of Appeal’s judgment of 22 May 2008 setting aside the partial award of lack of jurisdiction over E B’s heirs which was invoked by Y in support of its assertion of the “de facto liquidation” of AAC by holding that “the settlement agreement which in fact led to the liquidation of the company since the bulk of the assets were sold and no mortgage other than dissolution is envisaged…” does not constitute a “necessary” ground for the operative part of the judgment;

The arbitral tribunal also explained its refusal to grant Y’s claim for compensation based on the Settlement Agreement. In support of its refusal, the tribunal found that the Settlement Agreement as such did not constitute a legal obligation, that the general meeting of AAC validly adopted the Settlement Agreement, that the decision of the general meeting of AAC of 30 May 2000 to sell the company’s assets became irrevocable, and that Y was not entitled to claim compensation for indirect damages arising from the liquidation of AAC;

Moreover, as stated above, Y received from the court the opportunity to organise its defence and to produce all useful documents in support of its claims, without evidence, other than by assertion, of discriminatory treatment or of a breach of equality resulting from the use of privileged information to which only the defendant’s law firm could have had access, due to the previous positions held by some of its associate members;

Whereas by complaining to the court that it failed to enforce equality between the parties, that it did not put the court in a position, because of its ‘lack of responsiveness’, to have access to evidence held by the defendants, and that it violated its right to an impartial tribunal by ‘cutting up’ the dispute, by assessing the evidence of the parties ‘unequally’, by interpreting ‘texts that are variously assessed in doctrine in a way that is systematically contrary to [his own] thesis’ and ‘by affirming principles that morality cannot accept’, and finally by having disregarded his right of access to the judge by making him bear ‘exorbitant’ costs, without pronouncing on an order for the payment of punitive damages disproportionate to the prejudice suffered and the breach of the debtor’s contractual obligations, the court confined itself to distributing, in proportion to the respective succumbing power of the parties, the arbitration costs, the reality and quantum of which are not discussed, Y, who intends to discuss the relevance of the reasoning adopted by the arbitrators, their assessment of the value of the evidence produced, the quality of the legal reasoning of the award, as well as the court’s exercise of its powers for the investigation of the dispute, thus requests, under cover of the grounds of appeal, a review of the merits of the prohibited award by the annulment judge; Y thus intends to discuss the relevance of the reasoning adopted by the arbitrators, their assessment of the value of the evidence produced, the quality of the legal reasoning of the award, as well as the exercise by the arbitral tribunal of its powers for the investigation of the dispute. Consequently, under the guise of a ground of appeal, Y thus requests a review of the merits of the award, which the annulment judge cannot do;

that the ground of appeal must be dismissed.

Whereas Y, who is unsuccessful, shall pay 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 the defendants together a sum of 80,000 euros.

FOR THESE REASONS:

Dismisses from the proceedings the document communicated by the defendants to the appeal under No. 71;

Dismisses the action for annulment brought by AR B AP J, a foundation governed by Liechtenstein law, against the final award rendered in Paris on 30 May 2012 in the dispute between it and E B AP J, a foundation governed by Liechtenstein law, E B Corporation, a company governed by Liechtenstein law in liquidation, Z Trust, a company governed by Liechtenstein law, I J, a company governed by Liechtenstein law, as well as against Ms. X B, Mr. AE AF B and Mr. E F B ;

Orders AR B AP J to pay the costs and to pay the defendants together a sum of 80,000 euros pursuant to Article 700 of the Code of Civil Procedure;

Dismisses AR B AP J’s claim for compensation for irrecoverable costs.