Paris Court of Appeal, No. 16-24924 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal- Pôle 1 - Chamber 1, 18 December 2018, No. 16-24924

EUROPE CORPORATE ADVISORY LTD (NECA)

EPIC fFINANCIAL CONSULTING GmbH (EPIC)

Vs.

D CAPITAL SP. Z.o.o (Y)

TWELVE HORNBEAMS SARL OF LUXEMBOURG (D/5 L.P., acting as liquidator)

TRG MANAGEMENT UK LLP OF ENGLAND
Replaced with CITI VENTURE CAPITAL INTERNATIONAL ADVISERS (C)

EUROPEAN TELECOM INVESTMENT Cooperatief U.A. of the Netherlands. (ETIC)

By a consulting service contract (CSC) of 13 July 2012, Y Capital LLC (Y), registered in Delaware (USA), acting as leader of a consortium of investors, has entrusted to the Bulgarian company New Europe Corporate Advisory Ltd (NECA), and the Austrian company EPIC Financial Consulting GmbH (EPIC) a mission of financial assistance and strategic assistance in the context of the submission to a call for tender launched by Kosovo for the privatisation of 75% of Post & Telecommunication of Kosovo (PTK), the national provider of mobile and fixed phone services, internet and cable TV.

Claiming that the consortium had been selected in the pre-selection procedure but had not submitted a bid to tender, the companies EPIC and NECA asked the International Chamber of Commerce, under the arbitration clause stipulated by the CSC in order to obtain payment of the sum of 31,071.50 euros for their fees and expenses, as well as the sum of 250,000 euros for the termination indemnity provided for in the contract. Their claim was directed not only against Y (defendant no. 1 in the arbitration) but also against companies presented as members of the consortium, namely, the Polish company D capital Sp. Z.o.o (defendant no. 2), Twelve Hornbeams SARL of Luxembourg (defendant no. 3), TRG Management UK LLP of England (defendant no. 4), which has acknowledged the rights of Citi Venture Capital International Advisers (C) of England, and European Telecom Investment Cooperatief U.A. of the Netherlands. (ETIC, defendant no. 5), also claiming, according to the plaintiffs, the rights of C. EPIC and NECA subsequently added a negligence claim against Y, D Capital Sp. Z.o.o. and C.

Ms. X, sole arbitrator, rendered a partial award on 10 November 2016 in Paris in which she declared herself competent with regard to defendant 1, who had no jurisdiction over the other defendants, reserved her decision on whether the claim for compensation fell within the scope of the arbitration clause, and ordered EPIC and NECA to pay defendants 2 to 4 the costs incurred in their defence. It rejected the extension of the arbitration clause to defendants 2 to 5 on the basis of the intention of the parties to the CSC, and ruled out the application of the apparent mandate, estoppel and stipulation for third parties theories.

On 12 December 2016, EPIC and NECA filed an action for annulment of this award.

By submissions notiﬁed on 18 September 2018, they seek the annulment of the decision and a conviction that the defendants be jointly and severally liable to pay each of them the sum of EUR 30,000 pursuant to Article 700 of the Code of Civil Procedure. They claim that the sole arbitrator wrongly declared himself incompetent with regard to defendants 2 to 5 (Article 1520, 1° of the Code of Civil Procedure).

By submissions notiﬁed on 12 September 2018, D capital Sp. Z.o.o. (defendant no. 2 in the arbitration) and D/5 L.P., acting as liquidator of Twelve Hornbeams LLC (defendant no. 3), requested the court to dismiss the action for annulment and to order in solidum EPIC and NECA to each pay the sum of EUR 45,000 pursuant to Article 700 of the Code of Civil Procedure.

The statement of appeal and the first submissions were notified to the company Y in person on 5 July 2017, and to the company TRG Management by registered letter undelivered and deposited at the post office, as a result of a certiﬁcate from the judicial authorities of the United Kingdom on 24 August 2018. These two companies did not appoint lawyers. It follows finally from the certificate of the competent Dutch authority dated 1 March 2018 that the statement of appeal and the submissions could not be notified to the company European Telecom dissolved on 2 September 2013 and struck off the register of companies on 9 December 2013.

UPON WHICH,

On the sole ground for annulment based on the fact that the arbitrator wrongly declared himself incompetent (Article 1520, 1° of the Code of Civil Procedure):

EPIC and NECA claim, on the one hand, that the CSC arbitration clause should be extended to the defendants in Arbitration Nos. 2 to 5, since, although they did not sign this contract, they were involved in its execution and, on the other hand, Y, by signing the CSC, stipulated in favour of the current and future members of the consortium.

D Capital Sp. z o.o. and D/5 L.P., ex officio, claim that they neither negotiated nor signed the CSC, nor authorised Y to make commitments on their behalf, and that they were not members of the consortium. Whereas the plea alleging that the stipulation for third parties, they argue that French law is not applicable in the present case and that, if it were, the conditions of the stipulation for third parties are not satisfied, since Y was a member of the consortium, which was therefore not a third party in relation to it, on the other hand, that a stipulation for third parties can only give rise to rights for the benefit of third parties, and not to obligations such as submission to an arbitration clause, finally, and in any case, that this stipulation has not been ratiﬁed by the alleged beneficiaries. With regard to the plea based on the extension of the arbitration clause by reason of participation in the performance of the CSC, D capital Sp. Z.o.o. and D/5 L.P., ex officio, claim, on one hand, that their intervention in the performance of the contract was provided for by the latter with a limited scope, on the other hand, that the obligation to perform some of the obligations resulting from the CSC was imposed by the memorandum of understanding (MOU) ﬁxing the conditions of operation of the consortium, finally that such participation was purely passive. They added that they only became aware of the CSC in the arbitration proceedings three years after the conclusion of the disputed contract.

Whereas the Annulment Judge shall review the decision of the Arbitral Tribunal on its jurisdiction, whether it has declared itself competent or incompetent, looking for all elements of law or fact making it possible to assess the scope of the arbitration agreement and to deduce the consequences on the respect of the mission entrusted to the arbitrators;

Whereas according to a substantive rule of international arbitration law, the arbitration clause is legally independent of the main contract which contains or refers to it and, provided that no mandatory provision of French law or international public order is aﬀected, that its existence and validity depend solely on the common intention of the parties without the need to refer to a national law;

Whereas in the present case, the consulting service contract (CSC), containing the arbitration clause pursuant to which the arbitration was initiated, was signed on 13 July 2012, on the one hand, by ‘Y Capital LLC, a corporation registered under the laws of the State of Delaware, duly represented by Mr. I Z (hereinafter referred to as the “Client”) and acting as lead investor for a consortium of investors', on the other hand, by EPIC and NECA, referred to as ‘EPIC/NECA’ or the ‘Consulting Group'; that it is further specified: ‘the Customer and EPIC/NECA being hereinafter referred to as a ‘Party’ and collectively as the ‘Parties’';

Whereas the contract was for a financial consultancy mission and strategic advice for the submission of a call for tender (‘the Transaction’) issued by the Kosovo government to ﬁns for the privatisation of 75% of the capital of Kosovo Post and Telecommunications;

Whereas its Article 2 states:

‘Scope of the mandate

a. The Client will take part in the Transaction as principal investor of the Consortium. At the date of the Agreement, the Consortium is composed, or is likely to be composed, of the following potential investors and/or financiers:

i. Y Capital LLC

ii. […], Luxembourg, which is a specific vocation entity belonging to funds advised by D Capital Sp. Z.o.o., J K, […]; and

ii. International finance corporation, 2121 […].

b. the composition of the consortium may change, in which case the Client must promptly notify the Consulting Group of such changes, but the Client or its subsidiaries must always be included.

C. The Advisory Group will provide the Consortium with advice and assistance in connection with the preparation, audit, negotiation and closing of the Transaction (…)';

Whereas articles 2.6 to 2.8 explain the nature of the services that the Advisory Group undertakes to provide to the Consortium; Whereas article 2.6 provides as follows:

‘a. The Advisory Group will prepare a contact strategy to be submitted to the Consortium for approval before or on 21 September 2012, updating it on an ongoing basis. The Advisory Group will support and advise the Consortium in contacts with key stakeholders in line with the strategy including, inter alia, the governments of Kosovo, the United States and Serbia. Upon request, the Advisory Group will represent or, at the choice of the Consortium, contribute to the representation of the Consortium in meetings with stakeholders, as appropriate.

b. The Consultancy Group will at all times act in accordance with the strategic and financial interests of the Consortium, and in accordance with all legislation applicable to the Client and the Consortium, including the English Bribery Act and the American FCPA.

c. The Advisory Group will contact key stakeholders as part of the lobbying efforts to ensure that the tender documents, rules and procedures of the Transaction are consistent with generally accepted business practices, the Consortium’s leveraged buy-out objectives, the Consortium’s ambitions for access, monitoring and subsequent resale of the investment, etc. To this end, the Advisory Group will work with the Consortium and its various advisors to ensure, among other things, that the explanatory notes and suggestions of the Consortium and its advisors relating to the Transaction are well presented and explained to key stakeholders';

Whereas article 4 relates to the financial counterparts of the contract; whereas articles 4.1, 4.2 and 4.3 provide that the Client shall pay a monthly provision of 10,000 euros during the term of the contract, that it shall reimburse the Consulting Group for its outlays and that it shall pay a performance fee in the event of success; that article 4.5 stipulates that if the Client or the Consortium chooses to terminate the contract, the Client shall pay the Consulting Group a lump-sum termination indemnity of 250,000 euros; at last, that Article 4.6 provides that any payment will be made to EPIC who will be responsible for sharing with NECA and that ’The Customer shall be responsible for all payments to EPIC under the terms of the Agreement, and shall be the recipient and payer of EPIC’s invoices’;

Whereas, finally that Article 14 states:

‘Law and arbitration

This Agreement and any non-contractual obligations or disputes arising out of this Agreement shall be governed by and construed in accordance with the laws of England and Wales without regard to its conflict of law provisions. All disputes between the Parties arising out of or relating to the breach, termination or cancellation of this Agreement shall be finally settled in accordance with the Rules of the International Court of Arbitration of the International Chamber of Commerce in Paris, France (ICC Rules) before an arbitrator appointed in accordance with these Rules. The award shall be final, enforceable and without appeal. The working language of this procedure will be English, and the procedure will take place in Paris, France’;

Whereas in October 2012, without the date of signature being indicated, the consortium’s Memorandum of Understanding (MOU) was concluded; whereas the last page of the Main Contract was signed by Mr. Z, representing Y Capital, by Mr. A, representing C and by Mr. B, representing Fund Advisors Ltd (’ D ‘); whereas all the pages of the Main Contract and the appendices bear a single initials, presumably that of Mr. A;

Whereas this MOU ﬁxes the financing terms of the operation and the operating conditions of the consortium; whereas it deﬁnes in particular the role and powers of the management committee composed of Mr. Z for Y, Mr. A for C and Mr. B for D, as well as observers, including Ms. E and Mr. F for D, and Mr. L M and N O for C;

Whereas Annex 1 of the MOU sets out the budget for the costs incurred for the transaction; whereas this is a list of diﬀerent providers of legal advice, ﬁnancial, tax and accountancy services with an indication of the amount of their remuneration; whereas for EPIC/NECA it mentions the reimbursement of disbursements, 150,000 euros, and a remuneration for results;

Whereas EPIC and NECA claim that the CSC arbitration clause is opposable to the defendants insofar as they intervened in the execution of this contract;

Whereas, firstly, the defendants argue that the CSC stipulates that EPIC and NECA provide their services to the ‘Consortium’, but that it reserves the status of ‘Client’ and ‘Party’ to Y, that it provides that only Y receives and pays the invoices and that it states that the arbitration clause applies to disputes between the ‘Parties to the Contract’ (article 14); that they deduce from this that the signatories of the CSC were willing to involve the members of the consortium in the preparation of the draft response to the tender, without it being possible to infer from this intervention an extension of the arbitration clause, the field of which is expressly reserved for the signatories alone;

Whereas, however, the arbitration clause inserted in an international contract has its own validity and efficacy which command to extend its application to the parties directly involved in the execution of the contract and in the disputes which may result from it, as soon as it is established that their situation and their activities give rise to a presumption that they had knowledge of the existence and scope of the arbitration clause, although they were not signatories to the contract stipulating it;

Whereas, secondly, contrary to what the defendants claim, the fact that the third party’s involvement in the performance of the contract stipulating the arbitration clause results from obligations contracted under another contract - in this case the MOU - does not exclude that such involvement entails the extension of the arbitration clause to that third party;

Whereas, in the third place, the defendants claim that their intervention in the execution of the CSC was essentially passive and therefore cannot have for eﬀect to extend the arbitration clause to them;

Whereas, however, it emerges from the documents filed that Mr P B and/or Ms Q E - respectively member and observer of the management committee set up under the MOU - not only participated in the meetings organised with the members of the consortium and with the representatives of EPIC/NECA, but that they also sent comments, grievances and instructions to EPIC/NECA by e-mail; an email from Krzysztof B sent on 10 October 2012 from kkrawczyk@innovacap.com to consortium members and EPIC/NECA representatives proposing an agenda before a conference call; an email signed by ‘Q E, Managing Director, D Capital, J K, 00-124 Warsaw, Poland’, sent on 12 October 2012 from mmagnuszewska@innovacap.com to the EPIC and NECA staff, requested the establishment of a virtual data room for the exchange of questions and information; an e-mail dated 22 October 2012 from the same sender to the same recipients requested regular updates on the status of competitors; a new e-mail dated 6 November 2012 indicated that ‘The information flow process in the virtual data room (VDR) is not going as planned, so we see delays in delivery in most of the flows, and to that end I would prefer to accept a few days delay in exchange for good quality material, rather than handing out a work in progress. Please coordinate with Tomek and N on the evaluation/modelling work as specified in the email below';

Whereas D Capital Sp. Z.o.o. and D/5 LP, ex officio, claim that Mr. B. and Ms. E. were wrongly presented in the list of parties to the project as ‘managing partner’ and ‘managing director’ of D Capital respectively, although they did not have this status, as can be seen from the extracts from the register of companies of August and November 2012, which indicate that the managing directors are Ms. G. and Mr. H;

Whereas, however, the defendants do not dispute the authenticity of the e-mails sent to EPIC and NECA by Ms. E and signed by her in her capacity as Managing Director of D Capital with the indication of a registered office which is indeed the one appearing on the extract from the register of companies;

Whereas Mr. B, who, according to the corporate documents, is a director of Fund Advisors Ltd, a sole partner of D Capital Sp. Z.o.o., has also sent his e-mails to members of the consortium and to EPIC and NECA from an innovacap.com address; that he is speaking on behalf of D;

Whereas, moreover, D Capital cannot, without contradicting itself, avail itself of these same exchanges of e-mails to maintain that its intervention in the execution of the CSC was modest and claim that it did not take part in it;

Thus, regardless of the status of Mr. B and Ms. E within D, it is established that they gave orders on his behalf to EPIC and NECA and that their authority to do so was not discussed by their interlocutors; whereas D Capital did indeed intervene directly in the execution of the CSC;

Wehreas, finally, if D Capital maintains that it was not aware of the arbitration clause of the CSC, it appears that on the MOU the indication of the company Fund Advisors Ltd as a party is followed by the mention in brackets ‘( D ) ‘, and that at the end of the act the signature of Mr. B is affixed ‘in the name and on behalf of D’; annexes are attached to the MOU, one of which contains a list of consultancy providers with an indication of the corresponding budget, (fixed and results costs and fees);

Whereas the MOU is signed by the representatives of Y, D and C but is initialled page by page only by the latter; whereas it cannot, therefore, be inferred from the absence of Mr B’s initials on the annexes that he was not aware of them, even though he did not initial the main contract;

Whereas the situation and activity of D Capital, an investment company, which participated in a consortium created to bid on an international call for tender and which, moreover, was aware of the existence of the consultancy contract concluded by Y with EPIC and NECA, give rise to the presumption that it was aware of the existence and scope of the arbitration clause, although it was not a signatory to the contract stipulating it;

Whereas the award should be annulled in so far as the sole arbitrator declared himself incompetent with regard to D Capital and awarded him a sum for the costs of the proceedings;

Whereas, similarly, Citi Venture Capital International (C), which is not a signatory of the CSC but a signatory of the MOU, has participated in the joint work of the consortium and EPIC/NECA through its representatives on the consortium’s management committee, Mr S A (member) and Messrs L M and N O (observers), as a result of e-mails sent from the addresses N.O@citi.com and L.M@citi.com;

Whereas, for the same reasons as those set out above, the award should be annulled as the sole arbitrator declared himself incompetent with regard to TRG coming to C’s rights and awarded him a sum for the costs of the proceedings;

Whereas it is appropriate, on the other hand, to conﬁrm the award in that the sole arbitrator has declared himself incompetent in respect of D/5 LLP coming to the rights of the company Twelve Hornbeams whose intervention in the execution of the contract is not demonstrated, and in respect of which it is not justiﬁed by another cause for extension of the arbitration clause;

Whereas it is also appropriate to conﬁrm the award in that the sole arbitrator has declared himself incompetent with regard to ETIC which it has not been shown to come within C’s rights;

On Article 700 of the Code of Civil Procedure:

Whereas the company D Capital, which succumbs, cannot benefit from the provisions of Article 700 of the Code of Civil Procedure; that it will be condemned jointly and severally with TRG to pay to each of the claimants the sum of EUR 30,000 euros on this basis;

Whereas fairness does not require that D/5 LLP benefit from the provisions of Article 700 of the Code of Civil Procedure;

FOR THESE REASONS:

Annuls the award but only in so far as the sole arbitrator:

declared itself incompetent with regard to the Polish company D Capital Sp. Z.o.o. and condemned the Bulgarian company New Europe Corporate Advisory Ltd and the Austrian company EPIC Financial Consulting GmbH to pay it the sum of EUR 5,916.78 as costs of the proceedings,
declared itself incompetent with regard to the English company TRG Management UK LLP and ordered New Europe Corporate Advisory Ltd and EPIC Financial Consulting GmbH to pay it the sum of £54,648.05 as costs of the proceedings.

Condemns D Capital Sp. Z.o.o. and TRG Management UK LLP jointly and severally to pay the costs which may be recovered in accordance with the provisions of Article 699 of the Code of Civil Procedure and to pay each of New Europe Corporate Advisory Ltd and EPIC Financial Consulting GmbH the sum of EUR 30,000 pursuant to Article 700 of the Code of Civil Procedure.