Paris Court of Appeal, No. 13/17555 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, 2 December 2014, No. 13/17555

S.A.S. FIBRE EXCELLENCE vs. S.A.S. TEMBEC

On 19 March 2010, two holding companies under French law, FIBRE EXELLENCE SAS (FE), and TEMBEC FRANCE SAS (Tembec) concluded a contract for the acquisition by of the shares of three companies owned by the second: TEMBEC Saint-Gaudens SAS, TEMBEC Tarascon SAS and the Sud-Ouest timber exploitation company.

A dispute having arisen between the parties, and on 1 December 2010, Tembec called on an independent expert, in accordance with contractual provisions, to determine the amount of net working capital to realisation. However, in application of the arbitration clause, FE initiated an arbitration procedure on 8 December 2010, and the expert suspended his work.

By an award rendered in Paris on 16 May 2013, the arbitral tribunal constituted under the supervision of the International Chamber of Commerce of MM. X and B, arbitrators, and Ms. MD, president, decided, with provisional execution, that the arbitral tribunal had no jurisdiction to rule on the net working capital, the determination of which was entrusted by the contract to an expert independent. Moreover, the arbitral tribunal ordered the parties to resume the independent expertise procedure, and rejected any other request, in particular the claim that Tembec had committed fraud or intentional misrepresentation.

The award is enforceable by an order of the president of the Paris Tribunal of Grande Instance of 12 August 2013 was filed on 16 August 2013 on FE, which filed an appeal for annulment against it on 2 September 2013.

By submissions filed on 29 September 2014, FE requests the court to give Tembec notice that it recognises the international nature of the arbitration, to set aside the award for irregular constitution of the arbitral tribunal, to reject the party’s requests opposing party and order it to pay him the sum of 75,000 euros in application of article 700 of the code of civil procedure.

By submissions filed on 10 September 2014, Tembec requests the court to declare inadmissible and subsidiarily unfounded the ground for annulment and to order the opposing party to pay it 100,000 euros in damages for abusive proceedings and 75,000 euros in application of article 700 of the code of civil procedure.

The parties were invited to explain the classification of the arbitration. Tembec, by a note under advisement filed on 12 November 2014, and FE, by a note filed on 14 November 2014, maintained that the award had an international nature.

UPON WHICH

On the qualification of arbitration:

Whereas the contract which contains the arbitration clause and whose execution is the subject of the dispute submitted to the arbitrators provides that the Dutch company Paper D BV is the guarantor of the acquisition of securities by the French company FE SAS; that it follows that the transaction is not settled economically in a single country, so that the arbitration is international and that the grounds of annulment will be examined under the provisions of article 1520 of the code of civil procedure;

On the ground for annulment based on the irregularity of the composition of the arbitral tribunal (article 1520-2 of the Code of Civil Procedure):

FE argues that the award results from a deliberation in which Mr. B participated, when he had been considering for several months to leave the law firm to which he belonged to join the one who assisted Tembec in the arbitration proceedings. It adds that the acceptance by the Court of the International Chamber of Commerce of the resignation of this arbitrator did not remedy the irregularity, since the draft of the award, which was adopted by the arbitral tribunal, comprised at time the concerned party, who was not replaced in violation of the arbitration rules.

Whereas under Article 1466 of the Code of Civil Procedure: “[a] party that knowingly and without a legitimate reason fails to object to an irregularity before the arbitral tribunal in a timely manner shall be deemed to have waived its right to avail itself of such irregularity”.

Whereas the modalities of presentation of such grounds during the arbitration proceedings are fixed, if necessary, by the arbitration rules to which the parties have agreed to submit;

Whereas the securities acquisition contract concluded on 19 March 2010 contains article 10.15 which stipulates that all disputes arising from or relating to the contract are settled definitively in accordance with the arbitration rules of the International Chamber of Commerce by three arbitrators appointed in accordance with said Rules;

Whereas Article 12 of the Rules, in the version in force as from 1 January 1998, provides in paragraph 1: “An arbitrator shall be replaced upon his death, upon the acceptance by the Court of the arbitrator’s resignation, upon acceptance by the Court of a challenge or upon the request of all the parties”, and in paragraph 5: “Subsequent to the closing of the proceedings, instead of replacing an arbitrator who has died or been removed by the Court pursuant to Articles 12(1) and 12(2), the Court may decide, when it considers it appropriate, that the remaining arbitrators shall continue the arbitration. In making such determination, the Court shall take into account the views of the remaining arbitrators and of the parties and such other matters that it considers appropriate in the circumstances.”

Whereas the arbitral tribunal composed of Mr. X, arbitrator appointed by FE, Mr. B, arbitrator appointed by Tembec and Ms. MD, president, was confirmed by the Court of the International Chamber of Commerce on 23 March 2011; that the oral hearing took place on 30 May 2012 and was followed by some discussions; that in the arbitration proceedings, FE was assisted by lawyers from the firm Bredin Prat, and Tembec by lawyers from the firm XXX;

Whereas on 28 February 2013, Mr. B updated his declaration of independence to the parties and the International Chamber of Commerce in the following terms: “For several months, I have had discussions with my current law firm as well than with other firms, concerning the possibility that I leave the firm Herbert Smith Freehills Paris LLP to join another one. One of them was XXX ‘, a firm that Mr B actually joined on 30 April 2013;

Whereas on 27 March 2013, FE’s counsel sent the members of the arbitral tribunal an email which stated:

“We follow up on Mr. B’s letter dated 28 February 2013 in which the latter informed the parties that he is currently in negotiations with the firm XXX with a view to potentially joining this firm as a partner.

XXX being counsel for the Respondent, the Claimant considers that this situation clearly impacts the independence of Mr. B. The Claimant has no doubts as to the efforts that Mr. B is making to apply the highest professional standards in all cases, including those where he is appointed arbitrator. Nevertheless, negotiations relating to a potential position within the advisory body of the party that appointed him in an arbitration necessarily creates a conflict of interest that the Claimant cannot accept.

The parties are now facing a very sensitive situation where one of the members of the arbitral tribunal is challenged pending the award. However, given the specifics of the case and that this award is a first step in the procedure, after a thorough examination, the Claimant is convinced that there is no other alternative than to request the resignation of Mr. B”;

Whereas the latter presented his resignation by an email sent on 2 April 2013 to the other members of the arbitral tribunal as well as to the Court of the International Chamber of Commerce;

Whereas on the same day, the president of the arbitral tribunal sent an email to counsel for the parties which stated:

“On behalf of the arbitral tribunal, I acknowledge receipt of the letter from the Claimant dated 27 March 2013 requesting the resignation of Mr. B following his revelation of 28 February 2013.

Without prejudice to what has been mentioned above, the Tribunal wishes to inform the Parties that the draft award is currently subject to the review process of the ICC International Court of Arbitration and, pursuant to the Article 22 (1) of the Arbitration Rules, the arbitration procedure is said to be closed since 27 September 2012, following the last exchange that took place between the Parties, concerning the costs, the requests and the updated version of the declaration of independence and impartiality of the President”;

Whereas the Court of the International Chamber of Commerce wrote to counsel for the parties by email dated 4 April 2013:

“The Secretariat informs you that Mr. B, by a letter dated 2 April 2013, submitted his resignation as co-arbitrator. We note that a copy of Mr. B’s letter was sent directly to the parties, as well as to the other Arbitrators.

Pursuant to Article 12 (1) of the Arbitration Rules, the Court will be invited, at one of its forthcoming sittings, to consider the resignation of Mr. B and, if applicable, to fix his fees.

We invite you to make any observations or comments you have concerning what has been set out above, as well as in application of Article 12 (5) of the Arbitration Rules, before 12 April 2013”;

Whereas FE did not reply to this email;

Whereas at its session of 2 May 2013, the Court of the International Chamber of Commerce accepted the resignation of Mr. B and decided that the remaining arbitrators would continue the arbitration pursuant to article 12.5 of the arbitration rules; that the award was rendered on 16 May 2013, in this state, by the two arbitrators who remained in office;

Whereas against the end of inadmissibility of the single ground of annulment, drawn by Tembec from the failure of his opponent to reply to the email from the secretariat of the Court of the International Chamber of Commerce of 4 April 2013, FE argues that it invoked the irregularity of the composition of the arbitral tribunal before the arbitrators, requesting the resignation of Mr. B, as soon as it became aware of the circumstances likely to affect the independence and impartiality of the latter. The need to replace an arbitrator does not constitute a ground separated from the request for resignation. The acceptance of the resignation of Mr. B could not have the effect of purging the irregularity drawn from the conflict of interest since this arbitrator participated in the preparation of the award;

However, if it is for the appeal judge to assess, in the light of the requirement of independence and impartiality of the arbitrators, the merits of the implementation of the aforementioned article 12 (5) of the Arbitration Rules of the International Chamber of Commerce, it is on condition that the party criticising the application of this text has formulated objections when it has been usefully put in a position to do so;

Whereas, contrary to what FE argues, the mere fact that it requested the resignation of one of the arbitrators was not such as to exempt it from taking a position on the application of Article 12 (5) of the Arbitration Rules, since that provision, to which it had voluntarily submitted, is intended precisely to govern the case of the continuation of the arbitration after the closing of the proceedings with the only remaining arbitrators, when one of them has died, been challenged or has resigned;

Whereas it follows from the circumstances referred above that FE, by failing to reply within a reasonable period to the request to submit comments on the application of Article 12(5) of the Rules. It thus refused to reply at a time when it had requested the resignation of one of the arbitrators, with the result that the question of the possible continuation of the arbitration in his absence was already raised in the light of the provisions of the Rules, irrespective of the fact that the resignation of the person concerned had not yet been accepted. Moreover, his refusal came at a time when it knew that the award was already subject to the approval of the Court of the International Chamber of Commerce. FE implicitly but necessarily accepted that the decision was rendered as it stood, without reopening the proceedings or appointing a new arbitrator. It thus waived its right to invoke before the annulment judge of the alleged irregularity in the composition of the arbitral tribunal due to the lack of independence and impartiality of the resigning arbitrator.

Whereas it follows from the above that the single ground of annulment must be rejected and the appeal dismissed;

On the claim for damages for abusive proceedings:

Whereas it has not been demonstrated that the exercise of legal remedies has degenerated into abuse; that the request will be dismissed;

On the request made pursuant to article 700 of the Code of Civil Procedure:

Whereas FE, who succumbs, cannot benefit from the provisions of article 700 of the code of civil procedure and will be condemned on this basis to pay to Tembec the sum of 75,000 euros;

FOR THESE REASONS:

Dismisses the appeal for annulment of the award rendered between the parties on May 16, 2013.

Dismisses the claim for damages.

Orders SAS FE to pay the costs which will be recovered in accordance with the provisions of Article 699 of the Code of Civil Procedure.

Orders SAS FE to pay SAS Tembec the sum of 75,000 euros in application of Article 700 of the Code of Civil Procedure.