Paris Court of Appeal, No. 15/17137 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, First Pole, First Chamber, 13 February 2018, No. 15/17137

STRUBE GmbH & Co.KG

Vs.

SESVANDERHAVE SA/NV

Strube GmbH & Co. KG (Strube), a company incorporated under German law, and SESVanderHave, a company incorporated under Belgian law, which is active in the development of new sugar beet varieties and the production and marketing of sugar beet seed, entered into a cooperation agreement in 1957, and again in 1977, 1997 and 2006.

The European Community’s new sugar policy has led the parties to renegotiate their convention. In the absence of an agreement, on 5 July 2011, SESVanderHave informed Strube that it was terminating the contract with a six-year notice period. Strube, arguing that the 2006 contract was contrary to European competition law, ceased to perform its contractual obligations. SESVanderHave did the same. On 9 October 2013, the parties concluded an arbitration agreement to settle their dispute under the auspices of the Belgian Arbitration and Mediation Centre, the arbitration being in accordance with the law and Belgian law applying to the substance of the dispute.

By a partial award delivered in Brussels on 11 June 2015, the tribunal composed of Messrs. X and G, arbitrators, and Mr. Y, president:

ordered Strube to pay overdue royalties and damages for an amount greater than EUR 115 million
prohibited it from using the genetic material (germplasm) and from marketing varieties developed from this material,
held that since the germplasm and the technology were presumed to belong to SESVanderHave, Strube had to return them in full, unless it could prove otherwise
imposed on SESVanderHave the obligation to grant Strube, upon its request for any germplasm or technology in its possession, a non-exclusive license to Strube’s improvements
required Strube to transfer the marketing authorizations for the seed varieties registered in its name.

The award was declared enforceable by an order of the President of the Paris Tribunal de grande instance of 10 July 2015, against which Strube appealed on 12 August 2015.

By an order of 31 March 2016, the Pre-Trial Judge dismissed the application for a stay of execution of the decision granting exequatur.

By submissions notiﬁed on 16 November 2017, Strube applied to the court to inﬁrm the order of 10 July 2015, to reject the application for exequatur, alternatively, to request the opinion of the Competition Authority on the impact of the award on the structure of the European sugar beet seed germplasm market, and the French markets for the marketing of certified seeds, finally to order SESVanderHave to pay the sum of 10,000 euros according to Article 700 of the Code of Civil Procedure.

It argues that the award is not enforceable, that the arbitral tribunal ruled ultra petita, that the award is not binding within the meaning of Article V(1)(e) of the New York Convention, and that its recognition or enforcement is contrary to international public policy.

By submissions notiﬁed on 28 November 2017, SESVanderHave asks the court to reject all of Strube’s claims, to conﬁrm the exequatur order and to order Strube to pay 1,000,000 euros for abusive proceedings, and 100,000 euros according to Article 700 of the Code of Civil Procedure.

UPON WHICH:

On the grounds of the arbitrators' failure to comply with their mission and the violation of the adversarial principle (in french Principe de la contradiction) (Article 1520-3 and 1520-4 of the Code of Civil Procedure)

Strube explains that the arbitrators, having found that the germplasm return clause and the non-compete clause were contrary to Article 101 of the Treaty on the Functioning of the European Union (TFEU), did not infer the nullity of the contract, which it sought, but the performance of the latter accompanied by the obligation for SESVanderHave to grant it a non-exclusive license on the improvements it had made to the germplasm and seeds, which neither party was seeking, following an analysis of Article 15.5 of the contract which had not given rise to an adversarial debate.

Whereas the parties entered into a cooperation contract in 1957 and again on 17 May 1977, 27 October 1997, and 29 September 2006; whereas the latter contract, of indefinite duration, provided that Strube could develop new varieties of sugar beet with the germplasm, i.e., a set of genes, cells, plants or parts of plants, made available to it by SESVanderHave; whereas the seeds thus developed, as well as all improvements made to the genetic material, became the property of SESVanderHave in return for compensation to Strube for its development activities; that Strube, in return for the payment of a royalty, could produce, distribute and market the resulting seeds under its name.

Considering that Article 15.1 (non-compete clause) prohibited Strube from carrying out, alone or in cooperation with third parties, competing selection or marketing activities outside the contractual framework without the consent of SESVanderHave; that this prohibition remained in force as long as the contract was in force and, consequently, including in case of termination, during the agreed six-year notice period.

Considering that under Articles 3.4, 3.5, 13.2, 13.5 and 13.6 (return clause), Strube waived any rights to the germplasm and technology developed under the contract; that in case of regular termination, it had to return them in full to SESVanderHav and could only continue marketing the varieties it was already marketing, finally that in case of termination for non-performance, it had to return, in addition to the germplasm and technology, all commercial seeds and promising seeds of new varieties immediately at cost price.

Considering that negotiations between the parties to restructure their contractual relations have failed, SESVanderHave notiﬁed Strube on 5 July 2011 that it was terminating the agreement with a six-year notice period.

That Strube, alleging that the contract was contrary to competition law, ceased to pay royalties and to share the results of its selection activities with SESVanderHave;

Whereas SESVanderHave requested before the arbitral tribunal, in substance, that the contract be terminated against Strube, that the return of the germplasm, the technology, the seeds, the plants and the research results be ordered, that expertise be conducted to identify the elements to be returned, finally that Strube be ordered to pay the arrears of royalties as well as damages.

Considering that Strube sought the dismissal of the main claims and, by way of the counterclaim (Award, § 132 et seq.), mainly, the annulment of the contract, in the alternative, the annulment of the license-back clause (Article 3.4), the waiver clause (Article 3.5), the license clause (Article 5.2), the royalty clause (article 6.1.1), the minimum royalty clause (article 6.1.2), the transfer clause (article 13.2) and the non-compete clause (article 15.1), finally, the order of SESVanderHave to refund the amounts paid under the cancelled contract.

Considering that the arbitrators, after having found that the collaboration between the parties had pro-competitive effects on the two relevant markets, namely the trade in breeding material and the marketing of sugar beet seed, and that the claim of infringement of competition law was therefore unfounded with respect to the contract as a whole, examined each of the clauses whose nullity Strube invoked separately;

That it dismissed the grounds for invalidity of the license and royalty clauses; that it held, on the one hand, that the non-compete clause, if acceptable as long as the parties worked together, had the effect, in the event of termination and during the six-year notice period, of preventing Strube from negotiating a collaboration with third parties for continuing its selection activity, on the other hand, that the return clause deprived Strube, as from the termination of the cooperation, of the possibility of exploiting the improvements it had made to the germplasm and/or seed varieties, even on a non-exclusive basis and on fair and reasonable terms; that the court inferred that the combined effect of these two stipulations would make it very difficult for Strube to remain on the market after the termination of the cooperation.

Having found that these two clauses entailed an appreciable restriction of competition and that they did not fall under the exemption provided for in Article 101 (3) TFEU, the arbitral tribunal held that they were partially invalid in the light of the public policy provisions of Article 101 of that Treaty.

That in order to hold that partial invalidity was permitted and imposed by the contract, the court relied on article 15.5, according to which:

Nothing in this Agreement shall be construed as requiring any act contrary to the law, and in the event of conﬂict between any provision of this Agreement and any substantive legislation or regulation made according to a statute or ordinance, such legislation or regulation shall prevail. In such case, the provisions of this Agreement shall be reduced and limited but only to the extent necessary to bring them into conformity with legal requirements, and such reduced and limited provisions, together with all other provisions of this Agreement, shall retain their full scope and effect following its terms.

Whereas the arbitral tribunal applied the principle of partial invalidity in the following manner:

it decided that Strube had violated the terms of the contract of 29 September 2006 by refusing to pay the royalties, by refusing to return the germplasm and the results of the selection work, and by announcing to third parties that its cooperation with SESVanderHave had ceased.
it ordered the dissolution of the contract on account of these violations
it ordered Strube to pay the outstanding royalties and damages
it ordered the restitution of the germplasm, the technology, the knowledge, the research results with the following limitations:

the restitution does not relate to the germplasm and technology which Strube demonstrates belonged to it before the entry into force of the 1977 contract, or which was acquired from third parties, or which was developed outside the contract,
the restitution is without prejudice to SESVanderHave’s obligation to grant Strube, upon its request, a non-exclusive license to exploit, on fair and reasonable terms, the improvements made by Strube to the germplasm and seed varieties in the framework of the cooperation between the parties.

Considering that the arbitrators, faced with reciprocal requests for performance of the contract and the annulment of certain clauses on account of their conflict with public policy, could, without exceeding their mission, attach to the order for the performance of the contractual obligations, adjustments that would make it compatible with the rules invoked in support of the annulment application.

Considering that Strube’s pleading before the arbitral tribunal held that even if the contract as a whole was not contrary to competition law, the invalidity of the individual clauses affected the substance of the agreement which in practice could not be applied without them (pleading of 18 November 2014, § 473); that it does not emerge from any of the documents filed in the proceedings that a practical alternative to the annulment in whole or in part was discussed during the arbitral proceedings; that in particular, the modalities of implementation of Article 15.5 requiring unlawful stipulations to be reduced or limited only to the extent necessary to comply with the provisions of public policy have not been discussed.

Considering that, contrary to what SESVanderHave maintains, the subsidiary application for annulment of certain clauses of the contract only did not necessarily involve a decision such as that chosen by the arbitrators, namely the enforcement of those clauses, with limitations relating to germplasm elements outside the contract and the obligation for SESVanderHave to grant Strube a non-exclusive license on the improvements made to the germplasm; that, moreover, it cannot be accepted that this provision, which is merely an option given to Strube, would not be detrimental to it, whereas it is a question of a rearrangement of the contractual balance not agreed by the parties, finally that it cannot be accepted that the grant of a non-exclusive license would be implicitly contained in the applications because it would be provided for in the contract in the event of termination without fault, even though SESVanderHave’s claims were not made in this context, that they related to termination for non-performance and that it is not alleged that they referred to the possibility of a license.

Considering that by deciding to make adjustments to the execution of contractual stipulations, whose validity was contested, which were not requested by the parties and which had not been submitted to their discussion, the arbitral tribunal disregarded the principle of contradiction; that the order which conferred exequatur on the award must be overturned.

On the claim for damages for abusive proceedings.

Considering that, having regard to the meaning of the judgment, this application will be rejected.

Under Article 700 of the Code of Civil Procedure.

Considering that SESVanderHave, which is not successful, cannot benefit from the provisions of article 700 of the Code of Civil Procedure and will be condemned, on this basis, to pay Strube the sum of 10,000 euros.

FOR THESE REASONS

REVERSES the order of the President of the Paris Tribunal de grande instance of 10 July 2015, which declared enforceable the arbitral award rendered between the parties in Brussels on 11 June 2015

REJECTS the claim for damages for abusive proceedings.

SESVanderHave SA/NV to pay the costs of the proceedings and to pay Strube GmbH & Co. KG the sum of 10,000 euros according to Article 700 of the Code of Civil Procedure.