Court of Cassation, No. 14-23.822

Court of Cassation, First Civil Chamber, 30 January 2019, No. 14-23.822

Challenged decision: Paris Court of Appeal, 6 May 2014, No. 12/15582

D… X… FAMILY FOUNDATION (JAFF)

Mr. Y… (Judicial Liquidator)

Vs.

E… X… CORPORATION (AAC)

FAMILY FOUNDATION (AAFF)

Gives notice to Mr. Y… of his resumption of proceedings in place of the D… X… Family Foundation, as liquidator;

Whereas, according to the judgment under appeal (Paris, 6 May 2014), Mr J…, Mr E… and Mr D… X… signed a protocol on 1 May 1979, providing for the creation of a holding company in Liechtenstein which brought together their activities throughout the world. Under this agreement, each party allocated its shares to a family foundation. The articles of association of the holding company, E… X… Corporation (AAC), included an arbitration agreement. D… and E… X… each established a family foundation: D… X… established the Family Foundation (JAFF) and E… X… established the Family Foundation (AAFF). Messrs D… X…. and E… X… also bought out the shares of their brother J….

E… X… died and serious disagreements arose between his two sons E… C… and B… X… and their mother Mrs. A… X… (hereinafter “the consorts X…"). After various procedures, they signed a “Settlement Agreement” between them on 26 April 2000, which was also signed the same day by AAFF. This “Settlement Agreement” was in principle submitted to the Board of Directors of the AAC and to the General Meeting. The agreement providing for the sale of the assets, approved by the board of directors of AAC, was submitted to the shareholders' meeting which ratified it despite the opposition of E… X… and JAFF. Then, JAFF initiated arbitration proceedings, resulting in an award rejecting its claims for compensation against the AAC and AAF.

JAFF then filed an action to set aside the award;

Of the first four grounds and the fifth ground, taken in its first part, hereafter annexed:

Whereas there is no need to rule by a specially reasoned decision on these complaints, which are clearly not of a nature that could lead to cassation;

On the second part of the fifth ground and the sixth ground:

Whereas the JAFF and Mr. Y…, the claimants, object to the judgment of the court of appeal rejecting their claim, then, according to the ground:

1°/ that the Settlement Agreement provided that if JAFF and D… X… refused to sign it, it would nevertheless enter into force between the heirs X…, AAFF and AAC as soon as they had signed it; that JAFF and D… X… having effectively refused to sign the Convention, the latter entered into force on 28 April 2000 without being binding on them. This means that the general meeting of AAC of 30 May 2000, which subsequently reiterated the adoption of the Convention, could not have the effect of making it binding on JAFF and D… X… which its stipulations refused. Nevertheless, by declaring the liquidation lawful, it violated Articles 17, e), 18. 2 and 29 of the Statutes and the provisions of Liechtenstein law which would have ensured JAFF’s right to participate in the appointment of the liquidators and to supervise the liquidation, the judgment under appeal further breached Article 1520-3, of the Code of Civil Procedure ;

2°/ that the question asked to the arbitrators was whether, in a family group, the majority shareholder could dismantle the group for the sole purpose of putting an end to its internal conflict, at the expense of the minority shareholders. The arbitral tribunal deflected this question by agreeing with the defendants who claimed that “in democratic countries at least individuals are normally free to disagree”. Thus, the tribunal concluded that a family dispute cannot give rise to liability, and the essential questions of attribution of the damage suffered as a result of the precipitated liquidation were therefore swept aside on the pretext that “the dispute in itself does not constitute a reprehensible act”. By stating in principle that there was no legal obligation to maintain family harmony, the arbitral tribunal did not settle the dispute referred to it by the claimant and cannot be considered as having fulfilled its mission, which it was up to the Court of Appeal to sanction on the basis of Article 1520-3, of the Code of Civil Procedure;

Whereas, however, the annulment judge is the judge of the award and can admit or refuse its inclusion in the French legal system, and not the judge in the case for which the parties concluded an arbitration agreement; whereas, under the guise of the unfounded allegation of violation of Article 1520-3, of the Code of Civil Procedure, the ground, which accuses the Court of Appeal of not having sanctioned an error of law allegedly committed by the arbitrators, only seeks to obtain a review of the merits of the arbitral award; whereas it cannot be upheld;

FOR THESE REASONS:

DISMISSES the appeal;

Orders the D… X… Family Foundation and Mr. Y…, to pay the costs;

In view of Article 700 of the Code of Civil Procedure, rejects their application and orders them in solidum to pay to E… X… Family Foundation, E… X… Corporation, Mrs. X…, Mr. B… and Mr. E… X…, the Roundhill Trust, the K… Foundation and Mr. Z…, in their capacity as such, the total sum of 3,000 euros;

Thus done and judged by the Court of Cassation, First Civil Division, and pronounced by the President in his public hearing of thirty January two thousand and nineteen.