Paris Court of Appeal, No. 14/19164

Paris Court of Appeal, 15 March 2016, No. 14/19164

Republic of Madagascar

vs.

S.A.R.L. POLO GARMENTS MAJUNGA (GARMENTS)

SOCIÉTÉS.A. CEBELEC

S.A. DS ((DS)2)

The SARL POLO GARMENTS MAJUNGA (GARMENTS) is a company incorporated under Malagasy law which carries out a manufacturing activity of textile articles on the territory of the REPUBLIC OF MADAGASCAR. Its capital is held by Mr. G F, a Belgian national, as well as by the Luxembourg company (DS)2, itself held by Mr. G and Mr. E F.

GARMENTS, whose factory was looted and burned down in January 2009, approached its insurer, the Malagasy company Ny Havana, which refused to cover the loss on the grounds that it was the consequence of political events not covered by the policy. A judgment of the trial court of X of 20 October 2010 ordered Ny Havana to pay GARMENTS 14,337,978,960 ariary (5,855,586.25 euros) on the grounds that the ransacking of the plant was the result of a labor dispute within the company and not of politically motivated riots. The confirmatory judgment of the Court of appeal of X of 4 July 2011, enforceable under Malagasy law, was first appealed by Ny Havana on a non-suspensive appeal, and then by the Attorney General of the Supreme Court on an appeal in the interest of the law, suspending enforcement.

GARMENTS, (DS)2 and Messrs. F filed a request for arbitration with the International Chamber of Commerce against the REPUBLIC OF MADAGASCAR on the basis of the bilateral treaty for the protection of investments concluded between the latter and the Belgian-Luxembourg Economic Union.

By an award rendered in Paris on 29 August 2014, the arbitral tribunal constituted of a sole arbitrator, Mr. Y :

  • declared itself incompetent with respect to the claims made by GARMENTS,

  • recognized itself competent to examine the claims of the other three plaintiffs,

  • ruled that in this case, the appeal in the interest of the law had been brought, not in order to correct an error in the public interest, in accordance with Malagasy law, but with the sole aim of suspending the execution of a decision unfavourable to an insurance company, whose capital was majority owned by the REPUBLIC OF MADAGASCAR

  • ordered the latter to pay (DS)2 and Messrs. F, the sum of 691,233.40 euros, corresponding to the application, from the date of the appeal in the interest of the law and until 30 June 2014, of a rate of 6% on the principal amount that had been awarded by the Court of appeal of X, in addition to interest at 6% per annum on the principal amount of 1 July 2014 and until the withdrawal of the appeal in the interest of the law or the final outcome of any proceedings before the Malagasy Court of Cassation.

On 22 September 2014, the REPUBLIC OF MADAGASCAR filed an action for annulment of this award.

By an order of 17 December 2015, the counsel for the Pre-Trial Chamber declared inadmissible as delayed, pursuant to Article 909 of the Code of Civil Procedure, the submissions served on 7 July 2015 by SARL POLO GARMENTS MAJUNGA, SA (DS)2, and Messrs. G and E F, as well as the submissions served on 7 December 2015, whereupon they tend to declare the annulment action null and void.

By submissions served on 3 February 2016, the REPUBLIC OF MADAGASCAR asks the court to declare inadmissible, as incompatible with the contractual nature of the arbitration, the voluntary intervention of SA CEBELEC, to annul the award and to condemn on the basis of article 700 of the Code of Civil Procedure GARMENTS, (DS)2 and Messrs. F, in solidum, to pay the sum of 150,000 euros, and CEBELEC that of 10,000 euros.

It invokes the lack of jurisdiction of the arbitral tribunal by arguing:

  • firstly, that (DS)2, which does not have an effective registered office in Luxembourg, but a simple postal address, is not a protected investor within the meaning of the treaty, and that Messrs. F. do not have this status either, since they claim to hold bearer shares, and that this anonymity does not allow them to claim the protection of a State which has not been able to identify them,

  • secondly, that there is no protected investment in this case, because the ‘claim at the end of the insurance contract’ that was retained by the arbitrator was not invoked by the plaintiffs, the decisions of the Malagasy courts were subject to pending appeals and therefore, as they stand, do not give rise to any rights, and, finally, the condition, provided for by the treaty, of an investment or reinvestment in a sector of economic activity was lacking,

  • in the third place, that there is no dispute between a protected investor and the Malagasy State, because the insurance contract, the court decisions and the appeal in cassation concern only GARMENTS which, as a Malagasy company, is not a protected investor within the meaning of the treaty and has moreover been dismissed by the arbitrator,

  • fourthly, that the condition of negotiation or conciliation prior to the initiation of arbitration proceedings has not been observed.

The REPUBLIC OF MADAGASCAR argues that the arbitral tribunal failed in its mission:

  • by extending its jurisdiction in disregard of the will of the parties,

  • by interpreting the treaty by reference to French language dictionaries and not with regard to the principles of interpretation accepted in international law,

  • by condemning the claimants to the benefits that they had been deprived of, even though this measure was a matter of equity and not of the treaty or international law,

  • by assessing the compliance of the appeal with Malagasy law in the interest of the law formed in this case,

  • by awarding compensation corresponding to the benefit that the claimants had been unable to obtain, when no such claim had been made,

  • by retaining an interest rate of 6% without reference to any provision of the treaty or to any rule of international law.

The REPUBLIC OF MADAGASCAR alleges that the arbitral tribunal disregarded the adversarial principle:

  • by taking into consideration international conventions and arbitral case law that were not cited by the parties,

  • by awarding damages for the benefit that the claimants were unable to obtain, when such a claim was not made, the arbitrator thus changed the basis of the claim without inviting the parties to explain it.

Finally, the REPUBLIC OF MADAGASCAR argues that the recognition and enforcement of the award is contrary to international public policy in that:

  • it orders the Attorney General to withdraw an appeal in the interest of the law,

  • it prevents the Court of Cassation from serenely examining the appeal before it,

  • it enshrines the fraud of the respondents who use the treaty to impute a private claim to the State when their rights are purely provisional, and to try to obtain a double condemnation,

  • it diverts the arbitration procedure to become a means of recourse against internal appeals,

  • it impedes the actions of attorneys general and judges,

  • it renders a decision that is irreconcilable with Malagasy court decisions,

  • it makes an arbitrator a supervisory body of the decisions and actions of the supreme courts

By submissions served on 10 December 2015, SA CEBELEC, a company incorporated under Belgian law, voluntarily intervened in the proceedings, claiming that it had granted (DS)2 and Messrs. F a loan as security, for which the borrowers pledged any present or future claim on the basis of the award of 29 August 2014. It asks the court to declare the action inadmissible or, in the alternative, unfounded.

UPON WHICH:

On the admissibility of the voluntary intervention of CEBELEC :

Considering that the voluntary intervention in the proceedings for an action for the annulment of an award is incompatible with the contractual nature of arbitration;

That it is therefore appropriate to declare inadmissible the intervention of a third party company, in the arbitral proceedings, which avails itself of the pledge that the parties to the arbitration would have consented to on the claim resulting from the award undertaken;

On the ground alleging violation of the adversarial principle (in French Principe de la contradiction) (Article 1520-4 of the Code of Civil Procedure):

The REPUBLIC OF MADAGASCAR argues that by awarding damages for the benefit that the claimants were unable to obtain, when such a claim was not made, the arbitrator who modified the basis of the claim without inviting the parties to explain himself, disregarded the adversarial principle.

Considering that the company GARMENTS has obtained in first instance and on appeal, before the Malagasy courts, the condemnation of its insurer Ny Havana to guarantee it against the fire and ransacking of its factory; that an appeal, not suspensive according to Malagasy law, was lodged by Ny Havana; that while enforcement measures were in progress, an appeal in the interest of the law, suspensive in nature, was lodged by the Attorney General at the Court of Cassation;

Considering that the arbitral tribunal was seized by GARMENTS and its Belgian and Luxembourg shareholders on the basis of the bilateral treaty for the protection of investments concluded between the Belgian-Luxembourg Economic Union and the REPUBLIC OF MADAGASCAR (the Agreement), the arbitral tribunal considered that ‘the appeal in the interest of the law, in the circumstances of the case, is not in conformity with the obligations of article 3 (2) of the Agreement requiring the State to exclude ‘any unjustified measure’. Nor is this appeal consistent with the obligation of fair and equitable treatment under Article 3 (1) of the Agreement’; that it ordered the REPUBLIC OF MADAGASCAR to pay to (DS)2 and Messrs. F, the sum of 691. 233.40 euros, corresponding to the application, from the date of the appeal in the interest of the law and until 30 June 2014, of a rate of 6% on the principal amount that had been awarded by the Court of appeal of X, in addition to interest at 6% per annum on the principal amount of 5,885,333.02 euros after 1 July 2014 and until the withdrawal of the appeal in the interest of the law or the final outcome of any proceedings before the Malagasy Court of Cassation;

Considering that the award sets out, in paragraph 242, the claims that were submitted to the arbitrator in the following terms : ‘The plaintiffs claim damages in an amount corresponding to the sum charged to Ny Havana in the operative part of the judgment of the Court of appeal of X. This amount is 14.3 billion ariary and corresponds to 5.2 million euros. The plaintiffs also claim interest at 6% (six percent) corresponding to the sum of 627,130 euros (for the period until 17 April 2012) and the sum of 691,233 euros (for the period from 17 April 2012 to 30 June 2014). This rate of 6% corresponds to the legal rate applicable in Madagascar according to the plaintiffs (proposal not contradicted by the defendant)';

Considering that the arbitral tribunal responded to these claims as follows: ‘246. There is no causal link between most of the damages claimed and the violations of the Agreement established by the claimants. The claim for the amount set out in the Court of appeal’s decision would be well-founded in the presence of expropriation or dispossession under article 7 of the Agreement. Yet, no dispossession has been established. On the contrary, as noted above, GARMENTS still has its claim against Ny Havana and also still benefits from the Court of appeal’s judgment (….)

  1. The violations of the Agreement established above concern the suspension of the execution of the judgment of the Court of appeal. The violations do not concern the continuation of the proceedings before the Court of Cassation, which may result in a decision in favor of GARMENTS or against it.

  2. If the execution of the judgment had not been suspended, GARMENTS would have executed it against Ny Havana, a solvent company based on the evidence presented. GARMENTS could have benefited from the amount set in the judgment, even during the proceedings before the French Court of Cassation. The decision that will be rendered at the end of these proceedings will determine whether or not GARMENTS should return the sums it should have received from Ny Havana (…)

  3. The violations of the Agreement established by this award have resulted in GARMENTS not being able to benefit from the amount awarded by the judgment since the appeal was filed in the interest of the law. There is a causal link between the violations established and this damage. However, there is no causal link between the violations and the other damages claimed by the plaintiffs.

  4. The arbitral tribunal then decides that the defendant shall pay the claimants damages for the benefit that they were unable to obtain. In the absence of the appeal in the interest of the law, GARMENTS would have been able to use the amount awarded by the Court of appeal’s decision since the appeal was filed to date. The arbitral tribunal considers that this benefit not obtained by GARMENTS should be calculated until 30 June 2014 (paragraph 114 of the statement of defence). This paragraph includes a calculation of the interest due at the legal rate of 6%, interest calculated on the amount due to GARMENTS according to the decision of the Court of appeal of 17 April 2012. The amount due on that date was 5,885,333.02 euros. The arbitral tribunal considers that the interest on this amount at the rate of 6% corresponds to the profit from which GARMENTS was not able to benefit’;

Considering that the arbitral tribunal could not, without inviting the parties to explain it, substitute to the request for the allocation of the principal of the sentence pronounced by the Court of appeal of X, together with the interest at the legal rate in force in Madagascar, a request for compensation for the loss of profits during the period of the proceedings in cassation, a request which the arbitrator decided to calculate by reference to the Malagasy legal interest, but which does not proceed from a different basis than the one before him;

Considering that this disregard of the adbersarial principle entails the annulment of the award;

On Article 700 of the Code of Civil Procedure:

Considering that equity does not require the application of article 700 of the code of civil procedure;

FOR THESE REASONS:

Notes the inadmissibility of the submissions of the SARL POLO GARMENTS MAJUNGA, the SA (DS)2, and Messrs. G and E F.

Declares inadmissible the voluntary intervention of the company CEBELEC.

Annuls the award rendered between the parties on 29 August 2014.

Dismisses any other request.

Condemns in solidum the SARL POLO GARMENTS MAJUNGA, the SA (DS)2, Mr. G F and Mr. E F to the costs.

THE CLERK, THE COUNCILLOR, acting as Chairperson