Paris Court of Appeal, No. 13-01.333

Paris Court of Appeal – 1st Pole – 1st Chamber - 9 September 2014, No.13-01.333

Judicial Chronology:

ICC Partial Award, 15 November 2012 Paris Court of Appeal, 9 September 2014, No. 13-01.333 Court of Cassation, First Civil Chamber, 2 December 2015, No. 14-25.147

MR. FAISAL BIN FAYYADH AL GOBAIN vs. S.A. CRÉDIT FONCIER DE FRANCE

By a contract dated 10 July 2008, the French public limited company CREDIT FONCIER DE FRANCE (CFF) granted the Saudi company Gulf Leaders for Management & Services Holding Company (GULF LEADERS) a loan for the construction of a hospital in Daman (Saudi Arabia). Mr. MR. FAISAL BIN FAYYADH AL GOBAIN (Mr. Faisal), the borrower’s majority shareholder, stood as a guarantee for its commitments.

Disputes have arisen between the parties regarding the use of the funds, CFF terminated the loan on 30 July 2009 and initiated two arbitration proceedings before the International Chamber of Commerce, one against GULF LEADERS, the other against the guarantee. In the first case, the arbitral tribunal composed of Mr. Lévy and Mr. Molfessis, arbitrators, and Mr. X, President, rendered an award in Paris on 31 July 2012 ordering the principal debtor to reimburse the sum of 110 million USD, plus interest, penalties and costs. The action for annulment of this award was dismissed by a judgment of this court of 4 March 2014 (RG n° 1217681).

In the second case, the arbitral tribunal composed of Mr. Aynès and Mr. Molfessis, arbitrators, and Mr. X, President, ruling by a majority of its members, rendered a partial award in Paris on 15 November 2012, recognising the validity of the bond.

An action for annulment was filed by Mr. Faisal on 23 January 2013.

By an order of 12 June 2014, the Pre-trial judge granted enforcement (in French Exequatur) on the challenged award.

In its submissions notified on 22 July 2013, the claimant requested the court to set aside the award and order CFF to pay him the sum of 50,000 EUR pursuant to Article 700 of the Code of Civil Procedure. He invokes the irregularity of the constitution of the arbitral tribunal (Article 1520-2 of the Code of Civil Procedure), the non-compliance of the arbitrators with their mission (Article 1520-3 of the Code of Civil Procedure) and the infringement of international public policy in recognising the award in France (Article 1520-5 of the Code of Civil Procedure).

By submissions filed on 24 March 2014, CFF requested the court to dismiss the action for annulment and to order MR. FAISAL to pay it the sum of 150,000 EUR pursuant to Article 700 of the Code of Civil Procedure.

UPON WHICH:

On the ground of annulment based on the irregularity of the constitution of the arbitral tribunal (article 1520-2 of the code of civil procedure):

The claimant states that he objected to the appointment of Mr. X at the time of the constitution of the arbitral tribunal and that his challenge was dismissed by the Court of the International Chamber of Commerce. He argues that since Mr. X had previously chaired the arbitral tribunal which had ruled on the loan agreement, his opinion had been influenced by that fact in the judgement of the second case concerning the payment guarantee. In particular, he argues that the President of the arbitral tribunal expressed prejudices against him during the investigation of the first case. He adds that this prejudice is of particular importance in view of the powers vested in the President of the arbitral tribunal.

Whereas it is for the judge of the regularity of the arbitral award to assess the independence and impartiality of the arbitrator by noting any circumstance likely to affect the arbitrator’s judgment and to provoke in the minds of the parties a reasonable doubt on these qualities which are the very essence of the arbitral function;

Whereas, in the first place, the fact that an arbitrator, even the president of the arbitral tribunal, sits in two parallel instances is not, of itself, such as to give rise to reasonable doubts as to his independence and impartiality, unless the decision rendered in one of the cases constitutes an adverse bias against a party in the other instance; this is the case, however, only if the assessment made by the arbitrator in the first proceedings on an indissociable body of fact and law logically entails certain consequences for the issues to be decided in the second proceedings;

Whereas it is for the claimant to explain the elements of the first award from which an unfavourable prejudice towards him or her could be inferred; that Mr. Faisal merely states that the decision on the question of the termination of the loan agreement between CFF and Gulf Leaders, of which it is the majority shareholder, had a direct impact on the case of the payment guarantee, which is ancillary to the main contract, and that “the assessments made by the arbitral tribunal with regard to Mr. Faisal in the main case influenced the arbitral tribunal in the case of payment guarantee”;

Whereas, however, these general allegations are unsuitable to highlight, in the award dated 31 July 2012, a prejudice of the dispute having given rise to the current challenged award. The first arbitration proceeding opposed the lender, CFF, to the borrower, Gulf Leaders, dealt with the merits of terminating the loan agreement, and the second proceeding, opposed CFF to MR. FAISAL, dealt with the separate issues of the regularity of the payment guarantee and the existence of an obligation to provide a valid payment guarantee;

Whereas the claimant submits, secondly, that the conditions in which the first case was investigated manifested an alteration in Mr. X’s independence of mind towards him; that he explained that, having failed to testify in Paris for medical reasons relating to the fracture of a finger, a debate took place before the arbitral tribunal concerning his offer to be heard in Bahrain; that, on that occasion, the President expressed himself in the following terms: “I have taken a personal interest in the pathology of the left little finger. Apparently, it is a fracture that can be painful; it takes four to six weeks to heal. This does not seem to prevent you from flying. If Mr. Faisal decides not to fly, it is his responsibility. We believe that after six weeks he should be able to come and testify here in Paris if he does wish to testify”;

Whereas such statements, objective and measured, were not such as to give rise in the mind of the claimant to a reasonable doubt as to the independence and impartiality of Mr. X in the second proceedings; whereas MR. FAISAL also cannot suggest that a sense of prejudice on the part of the President of the Arbitral Tribunal towards him would be demonstrated by the fact that his testimony was not solicited in the second case. As a party to those proceedings, he was entitled to appear in that capacity and to be heard if he so wished;

Whereas the first ground of appeal must therefore be dismissed;

On the ground for annulment based on the non-compliance of the arbitrators with their mission (article 1520-3 of the code of civil procedure):

The claimant submits that the arbitral tribunal, by disregarding the application of Articles L. 341-2 and L. 341-3 of the French Consumer Code, failed to fulfill its mission, on the one hand, by refusing to apply the French law chosen by the parties, and on the other hand, by usurping the powers of amicable compositeur.

Whereas the arbitral tribunal was seised under the arbitration clause stipulated in the contract of surety of 10 July 2008; whereas Article 13 of this agreement provided for the application of French law to the guarantee;

Whereas Mr. Faisal argued during the arbitration proceedings that the payment guarantee was null and void since the handwritten mentions required by articles L. 341-2 and L. 341-3 of the Consumer Code had not been affixed to it by him but by his counsel;

Considering that in order to declare the contract valid, the arbitral tribunal, ruling by a majority, sought, on the one hand, the scope of application of these provisions in the international order with regard to the French rules of conflict of laws. Then, the arbitral tribunal considered, in interpreting the clauses of the contract in relation to each other, that by accepting that the handwritten formulas be affixed by the guarantor’s counsel, the common intention of the parties was to exclude the application of the aforementioned provisions of the Consumer Code;

Whereas the arbitrators, in basing their reasoning on the rules of French private international law, as well as on the principles established in the Civil Code for the interpretation of contracts, have complied with their mission to settle the dispute in law and by application of French law;

Whereas under cover of the non-compliance by the arbitrators of their mission, the ground of appeal invites the court to a review of the merits of the award which the annulment judge is prohibited from doing; that it can only be dismissed;

On the ground for annulment based on the violation of international public policy (Article 1520-5 of the Code of Civil Procedure):

The claimant submits that the enforcement in France of an award which gives effect to a payment guarantee without the handwritten indication required by Articles L. 341-2 and L. 341-3 of the Consumer Code is contrary to international public policy.

Whereas Article L. 341-2 of the Consumer Code states: “Any natural person who enters into a private agreement as a guarantee to a professional creditor must, under penalty of nullity of his commitment, precede his signature with the following handwritten statement, and only with this one: ‘I, as guarantee for X…, within the limit of the sum of … covering the payment of the principal, interest and, where appropriate, penalties or interest for late payment for the duration of …, undertake to reimburse the lender the sums due on my income and my assets if X. … does not satisfy this obligation himself’”; that according to Article L. 341-3 of the same Code: “Where the professional creditor requests a joint and several guarantee, the natural person who acts as guarantee must, if his undertaking is to be null and void, make the following handwritten statement before his signature: ‘Renouncing the benefit of discussion defined in Article 2298 of the Civil Code and obliging me jointly and severally with X.’. …, I undertake to reimburse the creditor without being able to demand that he first pursue X…”.

Whereas these texts establish standards whose disregard by an international award, assuming it is established, is not contrary to the French concept of international public policy; whereas the ground of appeal must therefore be dismissed;

Whereas it follows from the foregoing that the appeal must be dismissed;

On Article 700 of the Code of Civil Procedure:

Whereas Mr. Faisal, unsuccessful, could not benefit from the provisions of Article 700 of the Code of Civil Procedure; whereas it will be ordered on this basis to pay the sum of 100,000 euros to CFF;

FOR THESE REASONS:

Dismisses the action for annulment of the award rendered between the parties on 15 November 2012.

Orders Mr. M. Faisal Bin Fayyadh Al Gobain to pay the costs which shall be recovered in accordance with the provisions of Article 699 of the Code of Civil Procedure.

Orders Mr. Faisal Bin Fayyadh Al Gobain to pay SA CREDIT FONCIER DE FRANCE the sum of 100,000 euros in application of article 700 of the code of civil procedure.