Paris Court of Appeal, No. 14/16113

Paris Court of Appeal, 14 June 2016, N° 14/16113

Mrs. B Y

vs.

SUBWAY INTERNATIONAL B.V (SUBWAY)

On 15 January 2007 Mrs. B Y and SUBWAY INTERNATIONAL B.V. (SUBWAY) entered into a franchise agreement for the business operation of a restaurant in Pau under the SUBWAY brand.

On 15 June 2010, the franchisor initiated arbitration proceedings in New York and obtained an award on 29 September 2010 ordering the franchisee to pay royalties and advertising costs. This award was enforced by order of the Delegate of the President of the Paris trial Court of 11 February 2011, which was overturned by a decision of that court of 16 October 2012 due to the fact that the arbitral tribunal had disregarded the adversarial principle and the principle of equality of arms.

SUBWAY filed a new request for arbitration. The amended final award, which was rendered on 2 April 2014 in New Haven under the auspices of the ICSID by the sole arbitrator Mr. De Z, ordered Mrs. B Y to pay various sums to the franchisor as fees and advertising costs, in addition to the costs of the proceedings, prohibited her, under penalty payment, from using the names, trademarks, distinctive signs and advertising material of SUBWAY, and ordered her to pay sums in the event that she carries on an activity in breach of the non-competition clause.

This award was enforceable by an order of the delegate of the president of the Paris Trial Court of 30 June 2014, which Mrs. B Y appealed against on 25 July 2014.

By submissions served on 1 October 2015, she asked the court to annul the award and to declare SUBWAY inadmissible in its applications, to reform the exequatur order, subsidiarily, to order a stay of proceedings until the Pau Court of Appeal has handed down its decision, in response to a request to apply Article L.7321-2 of the Labor Code to the dispute with the franchisor, to dismiss SUBWAY’s claims and to order it to pay her 5,000 euros pursuant to Article 700 of the Code of Civil Procedure.

She invokes the lack of jurisdiction of the arbitral tribunal, the violation of the adversarial principle and the principle of equality of arms, as well as the violation of international public policy.

By submissions served on 11 March 2016, SUBWAY requests the court to declare the application to set aside the award inadmissible, to confirm the order made, to dismiss Mrs. B Y’s claims and order her to pay the sum of 3,000 euros pursuant to Article 700 of the Code of Civil Procedure.

UPON WHICH:

On the plea alleging lack of jurisdiction of the arbitral tribunal (Article 1520-1 of the Code of Civil Procedure):

Mrs. B Y claims, on the one hand, that the franchise contract signed on 15 January 2007, was retroactively taken over by ‘SUBWAY du Palais’, a company formed on 1 August 2007 to operate the business, so that she is no longer bound by the franchise contract nor by the arbitration agreement contained therein, on the other hand, insofar as the arbitration clause was thus manifestly inapplicable and the matter had previously been referred to the Labour tribunal, the latter, pursuant to Article 1448 of the Code of Civil Procedure, did not have to relinquish jurisdiction over the case in Favour of the arbitral tribunal, and lastly, the arbitration clause was unenforceable against her for failure to comply with the provisions of Article L. 7321-5 of the Labour Code, which prohibits arbitration clauses in a Labour dispute, and for being stipulated in a franchise contract contrary to Article L. 420-1 of the Commercial Code relating to unlawful agreements.

Whereas the court, seized of an appeal against an order conferring exequatur on an arbitral award, shall review the decision of the arbitral tribunal on its jurisdiction, whether it has declared itself competent or not, by seeking all elements of law or fact making it possible to assess the scope of the arbitration agreement and deduce the consequences thereof on the respect of the mission entrusted to the arbitrator;

Considering, firstly, that the franchise agreement in dispute was signed by Mrs. B Y as a natural person without any stipulation stating that she was acting as a manager of a legal person or for a company in formation; that, moreover, Article 9(a) expressly prohibited the transfer of the contract and the restaurant to a legal person; that, therefore, contrary to what the appellant maintains, the company she had created, named SUBWAY du Palais, did not take her place in the performance of the franchise agreement;

Considering, secondly, that the arbitration clause inserted in an international employment contract is not opposable to the employee who has regularly seized the competent French court under the rules of the Labor Code, regardless of the law governing the contract;

Considering that in the present case, Mrs. B Y entered into a franchise agreement with SUBWAY INTERNATIONAL B.V. on 15 January 2007 for the operation of a fast-food restaurant in Pau; whereas on 28 April 2010, SUBWAY terminated the contract for non-payment of royalties and ordered the franchisee to cease operations; whereas on 1 June 2010, Mrs. B Y filed a request with the Pau Labour tribunal; whereas on 15 June 2010, SUBWAY filed a request for arbitration with the American Dispute Resolution Centre based on the arbitration clause; whereas Mrs. B Y was in default at the arbitration proceedings;

Considering that in a judgment of 26 November 2015, which is not final, the Court of Appeal of Pau dismissed Mrs. B Y’s claims, considering that she was wrongly relying on the provisions of Articles L.7321-1 et seq. of the Labor Code relating to branch managers;

That the appellant is therefore not entitled to invoke the unenforceability of the arbitration clause based on the provisions of Article L. 1411-4 of the same Code;

Considering, thirdly, that the arbitration clause is legally independent of the main contract; that the circumstance, if it is shown, that the franchise agreement would be contrary to the provisions of article L. 420-1 of the Commercial Code relating to unlawful agreements, is therefore without influence on its validity;

Whereas it follows from the foregoing that the ground based on the lack of jurisdiction of the arbitral tribunal must be dismissed;

On the ground based on the violation of the adversarial principle (in French Principe de la contradiction) and the principle of equality of arms (Article 1520-4 and 1520-5):

Mrs. B Y claims that the case was heard in a language she does not understand and that various procedural documents were not communicated to her.

Considering that the adversarial principle requires that the parties should have been able to make their factual and legal claims known, and discuss those of their opponent in such a way that nothing that served as a basis for the arbitrator’s decision could have escaped their adversarial debate;

Considering that it follows from the documents produced and from the statements of the award that Mrs. B Y received on 2 August 2013 notification of the filing of the Request for Arbitration which specified the substance and basis of SUBWAY’s claims; that on 10 September 2013 she received an invitation to select an arbitrator from a list; that on 30 September 2013 she received notification of the appointment of M. A De Z as arbitrator; that on 28 October 2013, she received the arbitration schedule; that SUBWAY submitted its documents and evidence to the Arbitration Centre with a copy to Mrs. B Y on 28 November 2013, i.e., before 29 November, in accordance with the schedule; that the franchisee, which had a deadline expiring on 20 December 2013 to file her defense, abstained from doing so; that on 3 February 2014, Mrs. B Y was notified of the award of 29 January 2014, and on 6 March 2014 of the request for rectification of the clerical error affecting the date of termination in that award;

Whereas it thus appears that the appellant received all the documents in the proceedings and that she was given reasonable time to prepare her defense, even though she was not familiar with the language contractually provided for in the arbitration agreement;

That the ground alleging disregard of the adversarial principle and the principle of equality of arms must be dismissed;

On the ground alleging violation of international public policy (Article 1520-5 of the Code of Civil Procedure):

Mrs. B Y argues that the recognition and enforcement of the award is contrary to international public policy in so far as the award is based on a contract contrary to the provisions of Article L. 7321-5 of the Labour Code, but also because SUBWAY did not apply the contract in good faith by depriving her of supplies and thus placing her in a position that makes it impossible for her to fulfil her commitments, then by instituting arbitration proceedings without respecting the prior mediation requirement and in disregard of the referral to the Labour tribunal, and finally, by requesting termination at her own expense, whereas the initiative for the termination lay with the franchisor.

Considering that, on the one hand, as stated above, the Pau Court of Appeal definitively ruled that the disputed agreement did not fall within the provisions of Articles L. 7321-1 et seq. of the Labour Code;

Considering, on the other hand, that the enforcement of an award which condemns a franchisee to pay unpaid fees, forbids him under penalty to use the distinctive signs of the franchisor, and prohibits him for one year, under penalty of payment of various sums provided for in the contract, from carrying on a sandwich shop activity in the premises where the franchise was operated, does not manifestly, effectively and concretely violate any principle of international public policy; that the ground, on the pretext of disregard of good contractual faith, tends to call into question the arbitrator’s assessment of the circumstances and causes of the termination, and invites the court to review the merits of the award, which is not allowed to the exequatur judge;

That the ground must be dismissed;

Whereas it follows from the foregoing that the exequatur order must be confirmed;

On the application for a stay of proceedings:

Considering that, as stated above, the Court of Appeal of Pau ruled on 26 November 2015 on the action brought by Mrs. B Y against SUBWAY; that the application for a stay of proceedings until it has given its decision has therefore become devoid of purpose;

On Article 700 of the Code of Civil Procedure:

Considering that the appellant, who is unsuccessful, cannot benefit from the provisions of Article 700 of the Code of Civil Procedure and will be ordered on this basis to pay the respondent the sum of 3,000 euros;

FOR THESE REASONS

Declares the request for a stay of proceedings without object.

Confirms the order of 30 June 2014, which conferred exequatur on the amended final award rendered in New Haven (Connecticut USA) on 2 April 2014.

Orders Mrs. B Y to pay the costs and to pay SUBWAY INTERNATIONAL B.V. the sum of 3,000 euros pursuant to Article 700 of the Code of Civil Procedure.

Rejects all other claims.