Paris Court of Appeal, No. 16/01358 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, Pole 1, First Chamber, 27 February 2018, No. 16/01358

RISERIA PRODOTTI DEL SOLE Vs. SAS SCAMARK

By contract of 30 June 2009, SAS Scamark, a company incorporated under French law which designs and develops the private labels of the sign E. Leclerc brand, entrusted the Italian company RISERIA PRODOTTI DEL SOLE (RPS) with the supply of Thai and basmati rice under the ‘Comptoirdu grain’ and ‘ECO+’ brands.

Scamark, invoking nonconformity of products, terminated the contract on 26 July 2010 with deferred effects from January to June 2011 depending on the rice references. It filed a request for expert appraisal with the President of the Créteil Commercial Court, which was ordered by orders of 1 and 28 June 2011. The expert’s report was submitted on 1 August 2014.

Scamark filed a referral procedure in September 2012, and in February 2013 initiated arbitration proceedings on the basis of the arbitration clause in the contract of 30 June 2009.

The arbitration agreement concluded on 20 February 2013 provided for arbitration under French law.

The ad hoc arbitral tribunal, composed of Mr. X and Mr. Tricot, arbitrators, and Mr. Y, President, issued an award in Paris on 3 November 2015 which:

declares the new claims submitted by RPS on 16 July 2015 inadmissible and, at the very least, unfounded,
takes note of the approval by a judgment of the Vercelli Court of 9 April 2015 of a preventive composition plan of RPS, and of the possibility of continuing the arbitration proceedings in progress, and the power of the arbitral tribunal to order the payment of damages against a debtor subject to a preventive composition plan,
declares the submissions of the expert to be relevant,
states that the decision of Scamark to withdraw does not amount to an abrupt termination of the established commercial relations,
orders RPS to pay damages in the amount of EUR 911,742 for breach of its contractual obligations, unless it withdraws, in whole or in part, the sum of EUR 449,872 to the extent that the goods have not been paid in full,
orders RPS to pay Scamark the sum of EUR 89,954 as a contractual penalty,
dismisses RPS’s counterclaims,
rules on the costs of the proceedings.

The award was given exequatur by an order of the President of the Tribunal of Grande Instance of Paris dated 30 November 2015.

RPS appealed against the award on 24 December 2015 and, by submissions notified on 8 January 2018, requested the court, to annul the award for failure by the arbitrators to perform their duties and for violation of international public order, as well as to dispel the enforcement order for violation of international public order. RPS calls for the conviction of the opposing party to pay the sum of EUR 15,000 pursuant to Article 700 of the Code of Civil Procedure.

By submissions notified on 5 December 2017, Scamark asks the court to reject the annulment appeal and to confirm the enforcement order. It seeks an order that RPS pay the sum of EUR 15,000 pursuant to Article 700 of the Code of Civil Procedure.

UPON WHICH

On the ground of annulment based on the arbitrators' failure to comply with their mission (Article 1520-3 of the Code of Civil Procedure):

RPS claims, firstly, that the arbitral tribunal failed to comply with its mission by adopting the expert’s submissions without examining the serious elements challenging the opposability and validity of his report.

Second, it submits that the arbitrators did not fully perform their task in that they did not determine Scamark’s claim, if any, within a range between EUR 461,872 and EUR 911,742.

Whereas, the first ground, which criticises the arbitral tribunal for not having considered the criticisms made by RPS as relevant, invites the court to reconsider the merits of the award, which is not permitted to the court of annulment;

Whereas, on the second branch of the ground, the failure to rule is not a case for the initiation of an action for annulment, the party claiming it having the right to refer the matter back to the arbitrators, by virtue of Article 1485 of the Code of Civil Procedure, applicable to international arbitration by referring to Article 1506;

Whereas the ground, in its two branches, must therefore be dismissed;

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

RPS claims that the principles of suspension of individual proceedings and equality of creditors, which are part of the French concept of international public order, are also provided for by the Italian bankruptcy law, applicable to the dispute by virtue of Regulation (EC) No 1346/2000; that the initiation of the Italian preventive composition procedure had the effect of freezing the executory and provisional actions against the debtor and required the previous creditors to comply with the provisions of the composition definitively approved . RPS claims that the award, by abstaining to specify that payment can only be made when the composition is final, and within the limit imposed by the composition on the repayment of unsecured creditors, clearly violates international public order.

Scamark claims, primarily, that by virtue of the principle of estoppel, RPS, which, on the one hand, did not call for the preventive composition procedure and, on the other hand, expressly maintained in the arbitration proceedings that the Italian collective proceedings did not constitute an obstacle to the issuance of a judgment, is no longer admissible to rely on the ground in question. It claims that the ground is still inadmissible under Article 1466 of the Code of Civil Procedure, as it was not presented to the arbitral tribunal. Alternatively, it seeks to declare the ground unfounded.

Whereas the principles of suspension of individual proceedings and equality of creditors in insolvency proceedings are a matter of public order in matters of management, so that neither the provisions of Article 1466 of the Code of Civil Procedure, nor the prohibition against contradicting oneself to the detriment of others (estoppel principle), can be relied on against a debtor who invokes them before the annulment court, when he had not raised them or even declared them inapplicable during the arbitration proceedings;

Whereas according to Article 4 of Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings:

“Applicable law 1. Unless otherwise provided for in this Regulation, the law applicable to insolvency proceedings and its effects shall be that of the Member State within the territory of which the proceedings are opened, hereinafter referred to as ‘the State of opening’.

2. The law of the State in which insolvency proceedings are initiated shall determine the conditions for the opening, conduct and closure of the insolvency proceedings. It shall determine in particular :

(…)

f) the effects of the insolvency proceedings on individual lawsuits, with the exception of pending proceedings.”;

According to Article 16.1: ‘Any decision initiating insolvency proceedings taken by a court of a Member State having jurisdiction pursuant to Article 3 shall be recognised in all the other Member States as soon as it takes effect in the State in which proceedings are initiated’;and that according to Article 17. 1 : ‘The decision to initiate [insolvency] proceedings shall, without any further formality, produce in any other Member State the same effects attributed to it by the State where proceedings are initiated’;

Whereas, according to Article 168 of the Italian bankruptcy law :

‘The effects of the submission of the application from the date of publication of the application [for preventive composition] in the register of the firms until the moment when the judgment approving the preventive composition with creditors becomes final, creditors by title or prior cause may not, on condition of nullity, initiate or continue enforceable and conservatory actions against the debtor’s assets’.

Whereas in this case the arbitration protocol was signed on 20 February 2013; the request for a preventive composition agreement was filed by RPS with the Vercelli court on 22 October 2014;

Whereas by a letter dated 28 April 2015, Mrs. B-C, judicial commissioner for the preventive composition agreement procedure of RPS, replied to the arbitration court requesting clarification on the consequences of this procedure, that the director of RPS had retained the power to represent the company in the proceedings and that :

‘The arbitration against the Scamark, which was initiated before the submission of the composition plan, is not interrupted in full by the request for the initiation of the collective proceedings filed by D E F G spa.

The preventive composition plan (concordat préventif) proposed by D to the creditors provides, through the liquidation of all the company’s assets, for the possibility of satisfying all the deductible and private credits; unsecured credits are likely to amount to 39%.

(…)

The creditors voted in favour of the preventive composition plan.

The eventual recovery of sums not provided for in the Preventivr Composition Plan for the mass of creditors is a fact that improves the proposal presented and approved.

As far as the costs of the arbitration proceedings and the costs of legal assistance are concerned, it should be noted that the Preventive Arrangement, by its nature, does not provide for a crystallized and defined liability, as long as the Commissioner explains its presumable outcome and not the certainty of reaching the proposed percentages.

In order for the Preventive Composition Plan to be considered as executed, however, it is necessary that the unsecured creditors be at least partically satisfied.

The judge seized by a creditor and a debtor in collective proceedings has the powers to establish the existence of the debt and its nature, as well as to order the payment of the same debt’;

Whereas, therefore, that the proceedings on the merits, initiated prior to the application to initiate the preventive composition agreement, continue until their term, including, where applicable, the condemnation of the debtor, which is imputed to the composition plan, based on the evolutionary evaluation of the assets and liabilities;

Whereas the preventive composition procedure has the sole effect of prohibiting a creditor from initiating protective or enforcement proceedings in violation of the rights of other creditors as they result from the composition plan; that this effect, which is inherent to the Italian law on insolvency proceedings, which, by virtue of Article 17 of Regulation (EC) No 1346/2000, applies by operation of law in the other Member States, does not need to be stated in the judgment, so that the latter, by pronouncing sentences without specifying the methods of their enforcement, does not involve any manifest, effective and concrete violation of international public policy;

Whereas it follows from the foregoing that the action for annulment of the award must be rejected ;

On the action for reversal of the order for enforcement for violation of international public order (Article 1520-5 of the Code of Civil Procedure):

In the alternative, RPS seeks the reversal of the exequatur order by claiming that it makes it possible, in violation of the principle of equality of creditors, to exercise enforcement measures in payment of the amount of previous credits, imperfectly determined in the award without taking into account the composition plan approved by the Vercelli Court on 9 April 2015, which sets the amount due for unsecured credits at 19.99%.

Scamark opposes the same grounds as to the second ground of the annulment of the award.

Whereas under the terms of Article 1524 of the Code of Civil Procedure: ‘The order granting exequatur is not subject to any appeal except in the case provided for in the second paragraph of Article 1522’.

Whereas, however, an annulment appeal of the award automatically entails, within the limits of the referral to the court, an appeal against the order of the judge having ruled on exequatur or the relinquishment of jurisdiction of that judge.

Whereas it results from this that the request for reversal of the order of exequatur of a sentence is inadmissible, with regard to which the recourse for annulment is rejected, noting, moreover, that exequatur does not have the nature of a measure of execution prohibited to a creditor whose debtor is the subject of insolvency proceedings;

On article 700 of the code of civil procedure:

Whereas RPS, which succumbs, cannot benefit from the provisions of article 700 of the code of civil procedure and will be condemned on this basis to pay Scamark the sum of EUR 15.000;

FOR THESE REASONS:

DISMISSES the action for annulment of the award issued in Paris between the parties on 3 November 2015.

Declares inadmissible the application for reversal of the exequatur order issued by the President of the Paris Tribunal of Grande Instance on 30 November 2015.

Orders the company RISERIA PRODOTTI DEL SOLE to pay the costs and the sum of EUR 15,000 to the company Scamark (SAS) pursuant to Article 700 of the Code of Civil Procedure.