Court of Cassation, No. 16-21.391 | Rory Wheeler, avocat (Paris) & solicitor (England)

Court of Cassation, First Civil Chamber, 10 January 2018, No. 16-21.391

Judicial Chronology:

ICC Award dated 4 June 2009

Paris Court of Appeal, Pole 1, First Chamber, 9 September 2010, No. 09/13550

ICC Award dated 3 February 2012

Paris Court of Appeal, Pole 1, First Chamber, 17 December 2013, No. 12/07231

Court of Cassation, First Civil Chamber, 18 March 2015, No. 14-13.336

Versailles Court of Appeal, 30 June 2016, No. 15/03050

Versailles Court of Appeal, 22 February 2019, No. 18/01509

JNAH DEVELOPMENT SAL

vs.

MARRIOTT INTERNATIONAL HOTELS INC

THE COURT OF CASSATION, FIRST CIVIL CHAMBER, delivered the following judgment:

Whereas, according to the judgment under appeal (Versailles, 30 June 2016), delivered on referral after cassation (1st Civ., 18 March 2015, appeal No. 14-13.336, Bull. 2015, I, No. 54), that the Lebanese company Jnah Development SAL (the Jnah company) has entrusted, by contracts of 21 December 1994, the operation of a hotel belonging to it, […], to the American company Marriott International Hotels Inc. (the Marriott company). Disputes between the parties have arisen and two separate arbitration procedures were initiated, under the supervision of the International Chamber of Commerce (ICC) in application of the arbitration clauses, carried out respectively by the companies Jnah and Marriott. Two awards, entitled “Jnah I” and “Jnah II” were issued on 30 October 2003 and 4 June 2009. During the “Jnah II” procedure, the family X …, holding 80% of the capital of the company Jnah, sold them, the new buyers approving the sale, to Mr X .. “of the outcome of the dispute” between the companies Marriott and Jnah, and giving the former a power of attorney to act on behalf of the latter. Mr X …, in the name of the company Jnah introduced a third request for arbitration on 14 June 2010 to obtain damages in compensation for damage resulting from the termination of the contract by the company Marriott. On 6 April 2011, the company Jnah, through its new shareholders, and the company Marriott entered into a transaction in which Jnah undertook, with the Marriott, to provide any assistance required in the arbitration “Jnah III”, in particular by the production of witness statements, in order to convince the arbitral tribunal that Mr X … was not authorised to initiate the procedure, in return for the payment of a lump sum and a profit-sharing in the result of the award to come conditional on rejection by the arbitral tribunal requests from Mr X .., for lack of jurisdiction of the arbitral tribunal or lack of power of Mr X. By an award dated 3 February 2012, the arbitral tribunal declared it had jurisdiction concerning this procedure on the grounds that the power of attorney was limited to the current proceedings, “Jnah II”, and did not authorise a new arbitration to be initiated. Mr X …, acting on behalf of the company Jnah, filed an action for annulment of the award.

On the second, fourth and fifth parts of the first ground and the fifth part of the third ground, hereinafter annexed:

Whereas these grounds are clearly not of such a nature as to lead to cassation;

On the first ground, taken in its first and third parts:

Whereas Mr. X… objects to the judgment which rejected his action for annulment then, according to the ground:

1°/ that international public policy precludes the recognition and enforcement of an arbitral award based on witness statements that were given in return for a promise of compensation by one of the parties to the arbitral proceedings, even if this compensation is only indirect, insofar as it was promised to a legal person with which the witnesses have a related interest. In the present case, it resulted from the arbitration award “Jnah III” of 3 February 2012, in order to interpret the power of attorney granted by the company Jnah to Mr X .. and decide that the latter did not authorise Mr X .. to engage a new arbitration procedure against Marriott, the arbitral tribunal relied on the certificates and witness statements of Mr. B., chairman and managing director of the company Jnah, and of Mrs. C …, lawyer and member of the board of directors of this company. However, it emerges from a transactional memorandum of understanding dated 6 April 2011, the challenged judgment of which notes that the content was only disclosed after the delivery of the arbitration award, that the company Marriott, defendant in the “Jnah III” arbitration, promised to pay the new shareholders of the Jnah company immediate compensation of US $ 800,000 and deferred compensation of US $ 2,400,000 subject to the favourable outcome of the award. Meanwhile the Jnah company took the commitment to produce, within the framework of the arbitration procedure, certificates, letters and testimonies from its manager, Mr B .., and his counsel, Ms C …, in order to convince the arbitral tribunal that Mr X … was not authorised by Jnah to initiate the new arbitration procedure “Jnah III”. While noting that this promise of compensation gave the company Jnah an interest in the arbitral tribunal ruling that Mr X … had no standing or had not been authorized to initiate the “Jnah III" procedure, the court of appeal nonetheless dismissed the ground for annulment based on the violation of international public policy by the recognition of the arbitral award brought about under such conditions on the grounds that “it (was) not demonstrated that the persons having testified at the request of the company Marriott before the arbitral tribunal, namely Mr. B., Chairman and CEO of the company Jnah, and Ms. C …, Lebanese lawyer for the new shareholders of the company Jnah who took part in the drafting of the disputed deeds of cession and power of attorney, personally received sums of money in order to determine them to testify in favour of the company Marriott” In ruling so, while the concomitant subscription of a promise by Marriott to pay the company Jnah a significant compensation indexed to the result of the upcoming arbitration award and a reciprocal commitment by the latter to testify before the arbitrators its president and its lawyer in support of Marriott were sufficient, given the professionals and patrimonial bonds between the witnesses and the company benefiting from this promise of compensation, to characterise a bribery pact of witnesses constituting procedural fraud. The court of appeal violated articles 1520-5, 1464, paragraph 3, and 1506-3, of the code of civil procedure, together the rule fraus omnia corrumpit)

2°/ that the concealment by a party of decisive information that should have been known to the arbitral tribunal characterises a procedural fraud that must be sanctioned with regard to the international public policy of procedure by the annulment of the award. That it appeared from the settlement agreement concluded on 6 April 2011 between Marriott and Jnah, the content of which was not disclosed by order of the Beirut Court of Appeal until after the “Jnah III” arbitration award had been made. Marriott promised to pay Jnah and in return, Jnah undertook to produce, within the framework of the ongoing arbitration proceedings, certificates, letters and witness statements from its chairman and CEO, Mr. B…, and its counsel, Ms. C…, in order to convince the arbitral tribunal that Mr. X… was not authorised by Jnah to initiate the new “Jnah III” arbitration proceedings. Nevertheless, the Court of Appeal held that the applicants for annulment failed to demonstrate the existence of the alleged fraud, stating that “on 13 April 2011, Mr B… sent a letter to the Secretary General of the ICC Court of Arbitration in which, in his capacity as Chairman and CEO of Jnah, he disavowed the initiative taken by Mr X… s former shareholder, to initiate new arbitration proceedings”, so that “the court could not ignore that the witness statement of Mr B…, as well as that of Ms C…, for the new shareholders, would be, whatever the particular interest that the interested parties were likely to derive from it, a priori favourable to the thesis supported by the Marriott company”. Then the Court of Appeal added “that Mrs. C…, as far as she was concerned, did not systematically support a point of view in line with the thesis of the Marriott company, as shown by the prior discussion on the revocation or expiry of the power of attorney given to Mr. X…”. By determining on such grounds, when the most elementary respect for the rights of the defence and procedural fairness required at the very least that the arbitral tribunal be fully informed of the financial conditions of this agreement and of the details of the commitments entered into by Jnah with a view to convincing this arbitral tribunal that Mr X… was not qualified or entitled to initiate the ‘Jnah III’ procedure, so that the arbitrators were able to assess the sincerity and probative value of the evidence collected, the Court of Appeal violated Articles 1520-5, 1464, paragraph 3, and 1506-3 of the Code of Civil Procedure, together with the rule of fraus omnia corrumpit ;

But whereas the judgment notes that it is not proven that the persons who testified at the request of Marriott before the arbitral tribunal, namely Mr. B…, chairman and managing director of Jnah, and Ms. C…, lawyer for the new shareholders of this company, personally received sums of money in order to determine them to testify in favour of Marriott. The arbitral tribunal was aware that Jnah, after its change of ownership, was opposed to the initiation of arbitration proceedings on its behalf by Mr X… since Mr B… sent a letter to the Secretary General of the ICC Court of Arbitration in which he disavowed the initiative taken by the latter to initiate a new arbitration procedure, so that he could not be unaware that this testimony would be, whatever the particular interest that the interested parties might have had in it, a priori favourable to the thesis supported by the Marriott company. The arbitral tribunal added that Mrs C… did not systematically support a point of view in line with the thesis of the Marriott company. From these statements and findings, the Court of Appeal deduced that Mr X… did not provide evidence of the existence of fraudulent manoeuvres committed by the Marriott company. That the ground cannot be upheld;

On the second ground:

Whereas Mr. X… made the same objection at the judgment, according to the ground, that, whatever the procedure chosen, the arbitral tribunal guarantees the equality of the parties and respects due process (in French Principe de la contradiction). In order to ensure that the procedure is effectively adversarial and respects equality of arms, the fact that witness statements were obtained by means of the promise of direct or indirect compensation subscribed by one of the parties to the arbitral proceedings must be brought to the attention of all parties. So they can articulate requests for the rejection of the witness statemnts in question or at least contest their validity, sincerity or probative value. In this case, it resulted from a settlement agreement of 6 April 2011 which was duly submitted to the proceedings, whose judgment under appeal notes that the content was not disclosed until after the delivery of the arbitration award, that Marriott, defendant in the “Jnah III” arbitration, promised to pay to the new shareholders of the company Jnah immediate compensation of 800,000 US dollars and deferred compensation of 2,400,000 US dollars subject to a favourable outcome of the award, in return for the commitment of the company Jnah to have certificates and letters produced as part of the arbitration procedure and witness statements of its chairman and managing director, MB .., and of its counsel, Ms. C …, in order to convince the arbitral tribunal that Mr X … was not authorised by Jnah to introduce the new arbitration procedure “Jnah III”. In order to judge that the full communication of this settlement agreement with the details of its financial conditions would not have placed the claimants in a different position with regard to the exercise of their defence, the Court of Appeal held that “the company Jnah and Mr X… do not demonstrate that Mr B… and Mr C… would have personally received financial benefits from the Marriott company so as to determine them to testify in its interest”. Moreover, the claimants to the referral could not be unaware that these persons, linked to the new shareholders of the Jnah company which was unfavourable to the initiation of new arbitration proceedings by Mr X… would support a position a priori favourable to the thesis defended by the Marriott company" and “that the parties had the possibility of cross-examining each other”; that by ruling on such grounds, which are not sufficient to remove the breach of due process (in French Principe de la contradiction) and the rights of the defence, since knowledge of the financial conditions of this agreement and the details of the commitments entered into in order to convince the arbitral tribunal that Mr. X.. X… was not qualified or entitled to initiate the proceedings would, at the very least, have enabled the claimant to file an incident to oppose the statements of the witnesses in question and, in the alternative, to put forward arguments seeking the rejection of their statements, the Court of Appeal deprived its decision of a legal basis in the light of Articles 1510 and 1520-4 and 1520-5 of the Code of Civil Procedure;

But whereas Mr. X… argued before the court appeal, that the arbitral tribunal did not have knowledge of the existence of the agreement dated 6 April 2011, the ground, which alleges a breach of due process (in French Principe de la contradiction) and equality of the parties due to the failure to communicate this document to it, is inoperative; that it cannot be upheld;

On third ground, taken in its first four parts, which is admissible:

Whereas Mr. X… makes the same complaint in the judgment then, according to the ground:

1°/ that the parties may not, before the annulment, support a position incompatible with the exceptions or grounds that they successfully argued before the arbitral tribunal. In the present case, the claimants to the action for annulment argued that Marriott was inadmissible to argue before the annulment judge that the operative part of the award of 3 February 2012, by which the arbitral tribunal declined jurisdiction, should be recharacterised as a decision to dismiss the claims for lack of standing of Mr X…, since this company had, from the beginning of the arbitration proceedings, argued principally that the arbitral tribunal did not have jurisdiction. It was apparent, in fact, in paragraph 18 of the award that “on 12 April 2011, Crowell & Moring send a letter to the court informing it that Marriott recently became aware of information that required the court to bifurcate these proceedings in order to determine whether it had jurisdiction over the parties and claims in these proceedings, which Marriott said it did not have”. This information deals with, as the award points out, a limitation of the scope of the power of attorney and of the transfer of rights granted in favour of Mr. X… to the sole arbitration “Jnah II”. It then results from two further statements of case dated 14 July and 21 October 2011, both entitled “Memorandum on Jurisdiction”, that Marriott concluded that “if the tribunal decides that Mr X… lacks the capacity to initiate the arbitration, it should decline jurisdiction and terminate the proceedings. (). The tribunal is not required to deal with a mere question of capacity that is somehow separable from the question of jurisdiction”, because “the questions of whether Jnah ever agreed to Mr. X… stating the claims on its behalf in this arbitration - and whether Marriott ever agreed to arbitrate claims with any party other than Jnah - are fundamental to the jurisdiction of this tribunal”, and finally that “all extrinsic evidence supports the interpretation of the Power of Attorney given by Marriott above: the purpose of the Power of Attorney was limited to Jnah II and the ancillary proceedings that would arise therefrom. () As there is no basis for Mr X.. to raise the Marriott-Jnah arbitration clause to bind Jnah III on behalf of Jnah, the Tribunal should terminate Jnah III for lack of jurisdiction”; that by affirming nevertheless that the grounds on which the parties submitted to the arbitral tribunal, on a principal basis, did not at any time relate to the question of the extent of its jurisdictional power and thus did not introduce a debate on jurisdiction, the Court of Appeal distorted the clear and precise terms of the award and of the two memoranda referred to above, in violation of Article 1134 of the Civil Code;

2°/ that it is not within the powers of the annulment judge to restore to the issues submitted by the parties to the arbitrators their true characterisation, such a power, assuming it is acquired, belonging only to the arbitrators. In the present case, in order to rule that the arbitral award did not settle a question of jurisdiction, but a question of admissibility of the action brought before the arbitrators, the Court of Appeal ruled that it was up to it, in the context of its role as an annulment judge, “to restore to the questions submitted by the parties to the arbitrators their true characterisation”. By considering itself vested with a power to reclassify the arguments raised before the arbitrators, which could only have been vested in the arbitrators, the Court of Appeal violated Article 1520-1, of the Code of Civil Procedure;

3°/ that it is not within the powers of the annulment judge to modify, under the guise of recharacterisation, the decision of the arbitrators, as expressed by an express section of the operative part of their award, even if he or she considers that there is a discrepancy between the operative part and the reasons. In the present case, in order to find that the arbitral award did not settle a question of jurisdiction, but a question of admissibility of the action brought before the arbitrators, the Court of Appeal noted that, after mentioning in a concluding paragraph that “for the above-mentioned reasons, the majority of the tribunal considers that the power of attorney does not confer any power on Mr. X… X… to initiate or continue these proceedings”, the award stated in its operative part that “the majority of the tribunal concludes that the tribunal does not have jurisdiction over these proceedings in a definitive manner”, and then considered that it was up to the tribunal, in the context of its role as an annulment judge, to restore to the issues submitted by the parties to the arbitrators their true characterisation, “particularly in the presence of the contradiction thus noted in the award”; By determining itself in this way, the Court of Appeal modified, under the guise of requalification, the content of an express section of the operative part of the arbitration award, thereby vitiating its decision by violating Article 1520-1 of the Code of Civil Procedure and by exceeding its powers;

4°/ that the subject matter of the arbitration dispute is determined by the respective claims of the parties within the limits of the arbitration agreement. In the present case, the claimants to the action for annulment pointed out that Marriott, from the very beginning of the arbitration proceedings, argued primarily that the arbitral tribunal lacked jurisdiction. Indeed, paragraph 18 of the award stated that “on 12 April 2011, Crowell & Moring wrote to the tribunal to inform it that Marriott recently became aware of information that required the tribunal to proceed with the bifurcation of these proceedings in order to determine whether it had jurisdiction over the parties and the claims in these proceedings, which Marriott said it did not have”. This information was, as the award points out, related to an alleged limitation of the scope of the power of attorney and the assignment of rights in favour of Mr. X… to the “Jnah II” arbitration only. It then followed from two further statements of case dated 14 July and 21 October 2011, both entitled “Memorandum on Jurisdiction”, that Marriott concluded that “if the Tribunal decides that Mr. X… does not have the requisite capacity to initiate the arbitration, it should decline jurisdiction and terminate the proceedings. (). The tribunal is not required to deal with a mere question of capacity that is somehow dissociable from the question of jurisdiction”, because “the questions of whether Jnah ever consented to Mr X… to state the claims on his or her behalf in this arbitration - and whether Marriott ever agreed to the arbitration of claims with any party other than Jnah - are fundamental to the jurisdiction of this tribunal”, and finally that “all extrinsic evidence confirms Marriott’s interpretation of the terms of the Power of Attorney above: that the subject matter of the Power of Attorney was limited to Jnah II and the ancillary proceedings that would arise therefrom. () As there is no basis for Mr. X…to raise the Marriott-Jnah arbitration clause to initiate Jnah III on behalf of Jnah, the court should terminate Jnah III for lack of jurisdiction”. To hold that the arbitral award did not decide a question of jurisdiction, but a question of admissibility of the action before the arbitrators, the court of appeal stated that the arguments put before the arbitral tribunal by parties V, as their principal claim, did not at any time relate to the question of the scope of its jurisdictional power and therefore did not introduce a debate on jurisdiction. In so ruling, the Court of Appeal distorted the clear and precise terms of the award and the two pleadings referred to above, in violation of Article 1134 of the Civil Code;

But whereas the Court of Appeal, which was required, pursuant to Article 125 of the Code of Civil Procedure, to take up ex officio the plea of non-admissibility resulting from the absence of an appeal procedure, was required to analyse the decision handed down by the arbitral tribunal in order to restore, where appropriate, its exact characterisation, without limiting itself to the terms used by the arbitrators or proposed by the parties;

And having retained, by an interpretation made necessary by the contradictions and ambiguities of the arbitral award and the memoranda of the Marriot company, that the grounds brought before the arbitral tribunal by the parties did not relate to the scope of its jurisdictional power but to the powers available to Mr. X.. had the power to submit, on behalf of Jnah, a new request for arbitration, the Court of Appeal deduced exactly that the arbitral tribunal ruled on a question relating not to the scope of its jurisdiction, but to the admissibility of the request for arbitration, which could not be challenged in an action for annulment;

From which it follows that the ground is unfounded;

FOR THESE REASONS:

DISMISSES the appeal;

Orders Mr. X… to pay the costs;

Considering article 700 of the code of civil procedure, orders it and the company Jnah Development SAL to pay to the company Marriott the sum of 5000 euros and rejects their request;

Thus done and judged by the Court of Cassation, first civil chamber, and pronounced by the president in his public hearing of January ten, two thousand and eighteen.