Paris Court of Appeal, No. 16/00194 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, First Pole, First Chamber, 28 November 2017, No. 16/00194

Mr. H I J P D E

vs.

Mr. H L M D-K

On 1 January 2011, H I J P D E (M. D E), a Saudi businessman, concluded an agreement in Paris with H L D- K (M. D-K), a Saudi lawyer, for advice and consultation on the legal representation of the former by the latter in Saudi Arabia and abroad. This agreement included an arbitration clause.

During 2011, letters dated 16 February, 19 June and 12 July set out the terms and conditions of remuneration for an assistance mission for the sale of shares in Jadawel International, owner of two residential complexes in Saudi Arabia. These agreements did not include an arbitration clause.

Following the sale of the complexes to a Saudi public pension fund, a dispute arose regarding the performance fee due to Mr. D-K.

The latter, on the basis of the arbitration clause stipulated in the contract of 1 January 2011, has filed a request for arbitration with the International Chamber of Commerce against Mr. D E as well as against MBI International & Partners, MBI & Partners UK Ltd, I J P D E & Sons, and Jadawel International Company Ltd.

By an award rendered in Paris on November 17, 2015, the arbitral tribunal composed of Messrs. X and Y, arbitrators, and Mr. ST JOHN SUTTON, Chairman:

declared itself competent with respect to Mr. D E and incompetent with respect to the other defendants,
said that the arbitration agreement contained in the contract of 1 January 2011 extended to the agreement of 12 July 2011,
ordered Mr. D E to pay Mr. D-K the sum of 30 million Saudi riyals with interest at LIBOR plus 2% from 30 November 2013, in addition to the fees and costs of the proceedings and the applicant’s expenses.

On 14 December 2015, Mr. D E appealed against this award.

By submissions notified on 6 September 2017, he asked the court to annul it and order the opposing party to pay him the sum of 50,000 euros pursuant to Article 700 of the Code of Civil Procedure. He invoked the arbitrators' lack of impartiality and independence, the arbitral tribunal’s lack of jurisdiction, the tribunal’s failure to comply with its mission and the violation of the principle of contradiction.

By submissions notified on 13 July 2017, Mr. D-K asked the Court to declare inadmissible and, in the alternative, unfounded the pleas based on Article 1520, 1°, 2° and 4° of the Code of Civil Procedure, to reject the plea based on Article 1520, 3°, to dismiss the action for annulment and to order the applicant to pay the sum of EUR 100,000 pursuant to Article 700 of the Code of Civil Procedure.

UPON WHICH:

On the ground based on the incompetence of the arbitral tribunal (article 1520, 1° of the code of civil procedure):

Mr. D-K claimed that the plea was inadmissible on the ground that the signing of the Terms of Reference with reservations concerning ratione personae jurisdiction but not ratione materiae meant that the claimant had waived a plea relating to subject-matter jurisdiction.

Mr. D E argued that his objection was admissible since he had formulated a general objection to the jurisdiction of the arbitral tribunal. On the merits, he argued that the intention of the parties to extend to the agreement of 12 July 2011 the arbitration clause contained in the agreement of 1 January 2011 could not be presumed due to the lack of indivisibility between the two contracts; that it could not be inferred from the terms of the arbitration clause that the parties intended to extend its scope beyond the agreement containing it ; that, in any event, the arbitration clause could not be extended to the agreement of 12 July 2011 insofar as the parties were not the same as those of the agreement of 1 January 2011;

Admissibility of the plea:

Considering that, in the present case, the request for arbitration which referred the matter to the I.C.C. was for the payment of the performance fee provided for Mr. D-K by the agreement of 12 July 2011; that it was based on the clause stipulated by the agreement of 1 January 2011, and that it was directed against Mr. D E (1), MBI International & Partners MBI (2), International & Partners Inc. (3), MBI & Partners UK Ltd (4), I R P D E & Sons (5) and Jadawel International Company Ltd (6);

Whereas the Terms of Reference signed by the parties and the members of the arbitral tribunal on 27th October 2014 set out the pleas of lack of competence raised by the defendants in the following terms:

Notwithstanding the joint filing of the Answer, the first Respondent raises a plea of lack of jurisdiction of the ICC and of any arbitral tribunal appointed in the case. A plea of lack of jurisdiction is also raised in respect of the third, fifth and sixth Respondents. With respect to the second Respondent, it is submitted that it is not a legal person and therefore this arbitration cannot take place against it.

In Section III of the Answer to the Request for Arbitration dated 10 March 2011, the Respondents state that the present arbitration is commenced before ICC pursuant to the Agreement which was signed on 1 January 2011 and which contains the aforementioned arbitration clause providing for arbitration by ICC in the event of a dispute.

Although the First Respondent has signed the Agreement containing the said arbitration clause, it has, in fact, not participated in any way in its negotiation or execution in its personal capacity. More precisely, throughout the business relationship between the Parties resulting from the Convention, the First Respondent has acted only in his official capacity as Chairman of MBI UK, the Second Respondent';

Considering that although the Terms of Reference develop objections to the jurisdiction of the arbitral tribunal with respect to some of the defendants, and drawn from their capacity to defend, it nevertheless contains, for Mr. D E, a general challenge to the jurisdiction of any arbitral tribunal, so that a clear and unequivocal willingness to enter into a compromise recognizing the jurisdiction of the arbitral tribunal with respect to the agreement of 12 July 2011 cannot be inferred from it;

And whereas, in their brief filed during the arbitral proceedings, the defendants submitted pleas of lack of ratione materiae jurisdiction , summarized by the award in the following terms:

‘(i) the agreement of 12 July does not contain an arbitration agreement although it was drafted by H L and the references required by French law are lacking;

(ii) the Convention and the 12 July agreement were signed on different dates and have a totally different scope and purpose, and different signatories;

(iii) the fact that the Agreement and the 12 July agreement were intended to be completely different and unrelated agreements is confirmed by the behavior of H L following the sale of the complexes; and

(iv) in any event, any doubt as to the interrelationship between these two agreements must, in accordance with French law, be resolved to the detriment of the Applicant and, consequently, of the jurisdiction of the Tribunal’;

Considering, therefore, that Mr. D E invoked in due time before the arbitral tribunal his plea of lack of jurisdiction, within the meaning of Article 1466 of the Code of Civil Procedure, which he submitted to the court;

That this objection is admissible;

The merits of the objection:

Considering that the annulment judge must review the decision of the arbitral tribunal on its competence, whether it has declared itself competent or not, by seeking all elements of law or fact allowing to assess the scope of the arbitration agreement and to deduce the consequences on the respect of the mission entrusted to the arbitrators;

Whereas, on 1 January 2011, Mr. D-E and Mr. D-K, both acting in a personal capacity, concluded an advisory and consulting agreement concerning the legal representation of the former by the latter in Saudi Arabia and abroad; whereas a lump-sum remuneration and a performance commission were provided for; whereas an arbitration clause was stipulated in the following terms:

“This Agreement shall be governed by the laws of France. All disputes arising out of or in connection with this Agreement which cannot be settled by the parties hereto shall be governed by the laws of France resolved amicably by the parties within three months from the date of written notification by one party to the other of the existence of a dispute, shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by a panel of three arbitrators appointed in accordance with the said Rules. The place of arbitration shall be Paris and the arbitration proceedings shall be conducted in English';”

Whereas by a letter dated 16 February 2011, Mr. D-E informed Mr. D-K of his wish to engage his firm, in association with Freshfields Bruckhaus Deringer, to handle all matters relating to a possible transfer of shares in the Saudi company owning the two Jadawel residential complexes; whereas this letter was signed by Mr. D-E whose name was followed by the words ‘MBI International’;

Considering that, on 19 June 2011, Mr. D E signed a further letter addressed to Mr. D-K, confirming that he would not only pay all the lawyer’s fees due to the firm, but would also pay the addressee, in his personal capacity, a performance fee upon the conclusion of the next transaction with the Public Pension Fund in Saudi Arabia following Mr. D-K’s contact with the Minister of Finance; that this performance fee was set at 3% of the sale price; finally, that a letter dated 12 July 2011, expressly replacing the previous agreement of 19 June, reiterated the principles of the previous agreement and stated that the lump sum payment would be 30 million Saudi riyals and that an additional 10 million riyals would be paid if the sale price exceeded 2.4 billion riyals; that this letter, like the previous one, was written on the letterhead of MBI International & Partners, 78- 80 Wigmore Street, Z, and was signed by M. D E “in my capacity as the owner of both properties and the registered chairman of the company”;

Considering, firstly, that no lack of identity between the parties to the two contracts is such as to prevent the extension of the arbitration clause;

Considering, on the one hand, that M. D E, who does not contest that he is not personally a party to the agreement of 1 January 2011, is also, contrary to what he claims, a party to the agreement of 12 July 2011; that, on the one hand, he signed this letter and the previous one, in his dual position as Chairman of MBI International & Partners and owner of the assets, on the other hand, this agreement follows on from the agreement of 16 February 2011, which was drawn up on a paper without letterhead, and mentions after his name and signature only an acronym - MBI International - which does not correspond to any legal entity, and whose legal non-existence has moreover been invoked by him in the arbitration proceedings;

Considering, on the other hand, that, contrary to what the applicant maintains, the agreement of 1 January 2011 was concluded with Mr. D-K personally and the following agreements with Mr. D-K in his personal capacity and as a representative of his firm,

Considering, secondly, that the common intention of the parties was to extend the arbitration clause stipulated by the agreement of 1 January 2011 to the agreement of 12 July;

Considering, on the one hand, that this agreement entrusted Mr. D-K with a very large mission of advice and consultation concerning the legal representation of Mr. D-E in Saudi Arabia or abroad; that it provided for remuneration in the form of a quarterly advance for 50 hours of work at an hourly rate of 1. 1,000 USD, with any excess being charged separately, reimbursement of expenses, and a ‘contingency fee, granted on a case-by-case basis and adjusted according to circumstances’ of 1.3% for acquisitions and banking and/or financial activity and 2-4% for all other matters; it follows that the parties intended to enter into specific agreements, as part of their general commitment, to set the contingency fee for each transaction;

Considering, on the other hand, that the sale of the Jadawel residential complexes fell within the category of ‘other matters’ within the meaning of the agreement and that the 3% performance fee provided for in the special agreement fell within the range of 2-4% stipulated in the framework agreement;

Considering, finally, that the arbitration clause in the convention, which refers to ‘all disputes arising out of or in connection with this Convention’, was conceived in terms sufficiently broad to cover disputes arising out of the special agreements concluded within its framework;

Whereas it follows that the arbitration agreement is applicable to the dispute between Mr. D-K and Mr. D E concerning the performance fee due pursuant to the agreement of 12 July 2011;

That the plea alleging the lack of jurisdiction of the arbitral tribunal must be rejected;

On the plea alleging the lack of independence and impartiality of an arbitrator (article 1520-2 of the Code of Civil Procedure):

In the first place, Mr. D-E complains that Arbitrator X failed to mention in his declaration of independence his doctrinal position in favour of the extension of arbitration clauses in groups of contracts, as well as his joint participation with Mr. D-K in several conferences and colloquia. Secondly, he argues that the arbitrator’s lack of independence and impartiality is demonstrated by his writings in favour of the theory of the extension of arbitration clauses. Thirdly, he claims that it was manifested by his hostile comments during the arbitration proceedings.

Mr. D-K concluded that the plea was inadmissible for failure to exercise the recourse to challenge the arbitrator under the conditions provided for in the arbitration rules, and subsidiarily that it was ill-founded.

Considering that a party who knowingly refrains from exercising, within the time limit provided for by the applicable arbitration rules, its right to challenge an arbitrator on the basis of any circumstance likely to call into question his independence or impartiality is deemed to have waived its right to do so before the annulment judge;

Whereas under Article 14. 2 of the ICC Rules of Arbitration (which came into force on 1 January 2012), to which the parties have agreed to be bound by: Such challenge must be made by a party under penalty of foreclosure, either within 30 days of receipt by that party of notification of the appointment or confirmation of the appointment of the arbitrator, or within 30 days of the date on which the challenging party was informed of the facts and circumstances on which it bases its challenge, if that date is later than the date of receipt of such notification" ;

On the admissibility of the plea in its first and second branches:

Considering that an article of doctrine published in 2001 and a judgment note published in 2006, in which Mr. X takes a position in favour of extending arbitration clauses to groups of contracts, are elements of information which were public at the date of the appointment of this arbitrator; that the same applies to Mr. X’s intervention in the present case. It is therefore irrelevant that this information was not included in the declaration of independence and that, consequently, a claimant who has not lodged an appeal for challenge within 30 days of being notified of the arbitrator’s appointment can no longer rely on the same grievances before the annulment tribunal;

On the admissibility of the plea in its third branch:

Considering that at the hearing of 16 July 2015, the counsel for Mr. D E stated: ‘What I have to say is that Dr. X is a typical example of a person who is not independent. He has already prejudged the case before any deliberation. If you look at the questions - and I say this very calmly, very respectfully - all the questions put to my client confirm the fact that Dr. X had already made up his own mind and was not independent’ (Transcript, pp. 439-440); that he added, however: ‘Now, we are not going to bring a challenge against you, M. X for the simple reason that it is so obvious that you are not independent, that we do not believe for a second that your position will be treated as that of an independent arbitrator. I say this to make it appear in the transcript, as counsel, not as F C, for my clients';

Considering that the appellant having knowingly waived his right to file a challenge based on the arbitrator’s comments during the arbitration, is deemed to have waived his right to avail himself of this grievance before the annulment judge;

Considering that the plea alleging lack of independence and impartiality of the arbitral tribunal is inadmissible in all its branches;

On the plea alleging the arbitrators’ disregard of their mission (Article 1520-3 of the Code of Civil Procedure):

Mr. D E maintains that the arbitral tribunal, by disregarding the law of 2 January 1970 which regulates the conditions for the exercise of the activities of intermediary for the sale of real estate, refused to apply French law designated by the arbitration clause and, therefore, misunderstood its mission.

Considering that the arbitration clause provides that the agreement is governed by French law;

Considering that the question of the scope of application of Law No. 70-9 of 2 January 1970 was discussed during the arbitral proceedings and that the court, for reasons drawn from French law and French case law, held that this police law was not intended to govern a sale of immovable property situated in Saudi Arabia (Award § 202 to 235);

Thus, contrary to the appellant’s contention, the arbitrators complied with the task entrusted to them by the parties to decide the dispute in accordance with French law;

On the plea alleging violation of the principle of contradiction (Article 1520, 4° of the Code of Civil Procedure):

The appellant submits:

that his counsel was repeatedly prevented from putting questions to Mr. D-K during his cross-examination;
that, conversely, during his own cross-examination, Mr. D-K’s two lawyers were supported by the president of the arbitral tribunal;
that Mr. D-K enjoyed complete freedom of speech, including when his remarks were insulting or extraneous to the dispute or revealed confidential information;
that the burden of proof of the parties' intention to extend the arbitration clause was reversed in favour of Mr. D-K.

Considering that the principle of contradiction requires only that the parties should have been able to make known their factual and legal claims and to discuss those of their adversary in such a way that nothing which served as a basis for the arbitrators' decision escaped their adversarial debate;

Considering that, in the present case, Mr. D-E does not dispute that he was able to acquaint himself with all the pleas and documents of his opponent and to plead in response to them; that he does not dispute the allegation of the opposing party that he was questioned for 155 minutes and that his counsel pleaded before the arbitral tribunal for 177 minutes, whereas Mr. D-K was questioned for 145 minutes and his counsel pleaded for 155 minutes;

Considering that Mr. D-E merely claims that the cross-examinations were unbalanced in favour of his opponent;

But whereas the duration and consistency of the hearings of witnesses or parties may vary according to the issue in dispute and the relevance of the testimony without prejudice to the rights of the defense and equality of arms;

Moreover, in the present case, the allegation of an imbalance cannot be inferred from the fact that, at the end of Mr. D-K’s cross-examination, Mr. D-E’s counsel stated: ‘You know, that sounded like anything but cross-examination. It was not limited - not even direct, but a two-day speech by Mr. D- K. I think the Tribunal let him get away with a lot of things, including putting things on the record that are completely irrelevant and totally new. I hope that at least the Tribunal will extend the same courtesy to my client’ (Transcript, 16 July 2015, p. 316);

That, in fact, a review of pages 253 to 316 of the transcript of the hearing of 16 July 2015 shows that Dr. C, counsel for Mr. D-E, conducted the cross-examination of Mr. D-K with complete freedom until he acknowledged that he had no further questions to ask; that it does not appear that the cross-examination of Mr. D-E gave rise to any interventions by the arbitral tribunal in favour of Mr. D-K’s counsel (hearing of 16 July 2015, pp. 319-448);

Considering that, if it is presumed to have been established, the fact that Mr. D-K made statements extraneous to the dispute, or even derogatory, does not constitute a violation of the principle of adversarial proceedings or of the rights of the defense, provided that the opposing party has been able to reply;

That, similarly, the number of lawyers assisting each of the parties was left to the discretion of each of them and had no influence on compliance with the principle of contradiction;

Considering, finally, that the allegation of a reversal of the burden of proof invites the court to examine the merits of the award, which is not allowed to the judge who pronounces the annulment;

Considering that the plea alleging violation of the principle of contradiction can only be rejected;

Whereas it follows from the above that the action for annulment must be rejected;

On Article 700 of the Code of Civil Procedure:

Considering that the applicant, who is unsuccessful, cannot benefit from the provisions of Article 700 of the Code of Civil Procedure and will be condemned on this basis to pay the other party the sum of 80,000 euros;

FOR THESE REASONS:

Dismisses the action for annulment of the award rendered in Paris between the parties on 17 November 2015.

H I J P D E is ordered to pay the costs and the sum of 80,000 euros to H L M D-K pursuant to Article 700 of the Code of Civil Procedure.