Paris Court of Appeal, No. 15/17742

Paris Court of Appeal, Pole 1, First Chamber, 28 March 2017, No. 15/17742

SASU EMILE & CO
vs.
RÖSLE METALLWAREN FABRIK GMBH & CO KG

On 1 January 1992, La Bourguignonne Distribution, to whose rights SASU EMILE & Co. is entitled, entered into a contract with the German company RÖSLE METALLWAREN FABRIK GMBH & CO (RÖSLE) for the exclusive distribution of the latter’s products on French territory.

On 30 November 2012, RÖSLE notified EMILE & Co. the termination of the contract with a two-year notice period. Claiming violations of its contractual exclusivity by third parties, EMILE & Co. initiated arbitration proceedings before the Arbitration Centre of the Franco-German Chamber of Commerce and Industry, in accordance with the arbitration clause.

In an award issued in Paris on 25 June 2015, Mr. X, sole arbitrator, dismissed all of EMILE & Co.’s claims and ordered EMILE & Co. to assume the costs of the arbitration and to compensate RÖSLE for its procedural expenses.

On 24 August 2015, EMILE & Co. filed an action for annulment against this award.

By submissions served on 11 January 2017, it requested the court to set aside the award, to refer the parties to a new arbitral tribunal and to order RÖSLE to pay the sum of 10,000 euros pursuant to article 700 of the Civil Procedure Code. It invokes the breach of due process (in French Principe de la contradiction) and the violation of international public policy.

By submissions filed on 12 January 2017, RÖSLE requests the court to dismiss the claims EMILE & Co. and to order it to pay the sum of 10,000 euros pursuant to article 700 of the Civil Procedure Code.

UPON WHICH:

On the first ground of annulment based on the breach of due process (in French Principe de la contradiction) (article 1520-4 of the Civil Procedure Code):

EMILE & Co. states that the arbitrator disregarded due process (in French Principe de la contradiction) by finding, on its own motion, without inviting the parties to explain, that the RÖSLE distribution network was neither selective nor homogeneous and by deducing that the supplier’s obligation to enforce exclusivity was only a best-effort obligation.

Whereas the due process (in French Principe de la contradiction) only requires that the parties have been able to make known their claims of fact and law and to discuss those of their adversary in such a way that nothing that served as a basis for the arbitrators' decision escaped their advesarial debate;

In the present case, the parties agreed that their contractual relations were governed by the Vienna Convention of 11 April 1980 on Contracts for the International Sale of Goods and, for the rest, by French law;

Whereas EMILE & Co., relying on a judgment of the Commercial Chamber of the Court of Cassation of 20 February 2007, argued before the arbitral tribunal, on the one hand, that articles 1 and 2 of the agreement of 1 January 1992 provided for a reinforced exclusivity, which made RÖSLE responsible for ensuring that the other distributors respected the territorial exclusivity granted to one of them; that RÖSLE, for its part, argued since competition law prohibits absolute territorial protection and enshrines the lawfulness of “parallel imports”, it was impossible to prohibit a third party to the exclusive contract from obtaining supplies outside the conceded territory and reselling them in that territory (summary statement of case, p. 9);

Whereas, after reminding the relevant provisions of the contract on pages 7 to 9 of the award, and in particular in articles 1 and 2, the sole arbitrator states, p. 15 and 16: “The agreement does not contain any provision requiring RÖSLE to enforce the dealer’s exclusivity on other dealers. This is also logical, because RÖSLE’s distribution network is not a ‘selective’ and homogeneous network. In Germany, the network consists of dealers who do not benefit from territorial exclusivity.

Even if the distribution contract does not contain a stipulation such as the one discussed above, the supplier has an obligation to monitor the network and to enforce the exclusivity granted to the distributors. This duty to “police” arises from the judgment of the Commercial Chamber of the Court of Cassation of 20 February 2007 (No. 04-17.752) (see also Cass. Com. 2 October 1973, No. 72-12.168). The scope and boundaries of this obligation must, however, be specified. The two mentioned decisions concern selective distribution networks or, in the case of the 1973 decision, an “agreement” between dealers and the licensor not to engage in active sales in the territories of other dealers. Where there is no selective distribution network, this obligation is limited. The licensor/supplier may not go beyond the contractual rights it holds under the contracts with its partners. Moreover, it must respect the limits imposed by competition law. Although he has an obligation to do, this obligation is not a performance obligation but only of due diligence: the supplier is not, in a case such as ours, bound by an obligation to ‘guarantee’ the behaviour of other dealers, but only by an obligation to intervene with diligence and celerity”;

Whereas it appears that the arbitrator confined himself to find that no contractual stipulation expressly placed RÖSLE under an obligation to act against third parties who would infringe the exclusivity; however, a duty of diligence falls on the supplier by virtue of the case law of the Court of Cassation mentioned by EMILE & Co., but that the nature and extent of this duty had to be analyzed in the light, on the one hand, of the consistency of the distribution network for RÖSLE’s products, in particular in Germany - which was a fact in the proceedings - and, on the other hand, of the constraints of competition law, which were invoked by RÖSLE;

Whereas it follows that the arbitrator relied exclusively on facts and rules of law which had been discussed between the parties, so that the ground based on the breach of due process (in French Principe de la contradiction) must be set aside;

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

EMILE & Co. argues that the absence or insufficiency of reasons for the award, when the obligation to give reasons is provided for, as in this case, by the arbitration rules, offends international public policy. The claimant claims that the arbitrator did not provide any textual or case law justification to affirm that the supplier would be bound only by an obligation of due diligence; that in the dispute concerning the distributor Chronostock, the arbitrator relied on the testimony of a RÖSLE employee without reference to any other document used in the proceedings, which constitutes a lack of reasoning. In the dispute concerning RÖSLE products distributed in France through Amazon, the arbitrator answered only on one of the criteria for assessing the ‘active’ nature of the sale on the Internet and assumed that the sale on the Internet was tolerated by the parties when numerous letters proved the contrary. In addition, the arbitrator failed to take a position on the evidence of online advertising and payment to a search engine or online advertising provider; finally, the arbitrator confined himself on p. 20 of the award to reiterate the arguments developed above that RÖSLE could not be accused of active breach of exclusivity.

Whereas the requirement to give reasons for judicial decisions is an element of the right to a fair trial; that the recognition or enforcement of an award without reasons is manifestly, effectively and concretely contrary to the French conception of the international public policy of procedure; that, however, the review of the annulment judge can only concern the existence and not the relevance of the reasons, which is of little importance in this respect since the obligation to give reasons for the award is contained in the arbitration rules;

Whereas in the present case, as stated above, the arbitrator set out the considerations of fact and law which led him to hold RÖSLE liable for an obligation of due diligence and not of result in the defense of EMILE & Co..’s exclusivity;

Whereas, with respect to the Chronostock dispute, the ground for annulment, which criticised the value given by the arbitrator to the testimony of an employee of RÖSLE, invites the court to a review of the merits of the award, which is not permitted to the annulment judge; that the same applies to the grounds concerning the Amazon dispute, that being observed that the arbitrator, who responded on pages 17 and 18 of the award on the ‘active’ nature, within the meaning of European Regulation 330/2010 and the European Commission guidelines, of sales of RÖSLE products made via the Internet, was not required to give a detailed answer to each argument of the parties;

Whereas the ground alleging violation of international public policy must be rejected;

Whereas it follows from the foregoing that the action for annulment shall be dismissed;

Based on article 700 of the Civil Procedure Code:

Whereas EMILE & Co., which is unsuccessful, cannot benefit from the provisions of article 700 of the Civil Procedure Code and will be condemned on this basis to pay RÖSLE the sum of 10,000 euros;

FOR THESE REASONS:

Rejects the action for annulment of the award delivered in Paris between the parties on 25 June 2015.

Orders SASU EMILE & Co.. to pay the costs, which may be recovered in accordance with the provisions of article 699 of the Civil Procedure Code, and to pay RÖSLE Metallwaren Fabrik GmbH the sum of 10,000 euros pursuant to article 700 of the Civil Procedure Code.

THE REGISTRAR THE PRESIDENT