Paris Court of Appeal, No. 17/09133

Paris Court of Appeal, Pole 1 - First Chamber, 14 May 2019, No. 17/09133

Decision upheld by: Court of Cassation, Commercial Chamber, 12 November 2020, No. 19-18.849

LA S.C.P. CBF ASSOCIES ,
SAS IPSA HOLDING
vs.
ALPHA PETROVISION HOLDING AG IN LIQUIDATION
SELAS SELASU DAVID LACOMBE
SCP BROUARD DAUDE
ALPHA PETROVISION HOLDING AG

Decision referred to the Court: Order of 10 March 2017 issued by the delegate of the President of the Paris Tribunal de Grande Instance conferring the enforcement (in French: Exequatur) to the award issued in Zurich on 23 December 2016 by the arbitral tribunal composed of Mr. X and Ms. Y, arbitrators, and Mr. Z, president.

CLAIMANTS TO THE ACTION:
SAS IPSA HOLDING
taken in the person of its creditors’ representatives

PARTICIPANT IN THE PROCEEDINGS:
S.C.P. B C in the person of Maître D E, in his capacity as auditor for the performance of the financial insolvency plan (in French: Plan de sauvegarde financière) of the company IPSA HOLDING

DEFENDANT IN THE ACTION:
SCP F G taken in the person of Me L G, creditors’ representative of the Company IPSA HOLDING

Under an agreement dated 9 September 2011, the Swiss company Alpha Petrovision Holding A.G. (A) sold to ACG Private Equity 100% of the shares of the French company IPSA SAS, a mutual fund manager approved by the Autorité des marchés financiers (AMF). The sale was made at a price of one euro, pending the liquidation of the funds, and two earn-outs, one representing 50% of IPSA’s earnings (known as “Earn Out”) and the other based on the carried interest of the funds managed by IPSA (known as “Carried Interest”).

Following the sale by ACG of 100% of its shares in IPSA SAS to the French company IPSA Holding SAS in March 2012, A, ACG and IPSA Holding signed on 3 July 2012 a tripartite amendment to the agreement of 9 September 2011 confirming the substitution of IPSA Holding in all of ACG’s rights and obligations and the guarantee by ACG of IPSA Holding’s commitments.

On 12 November 2014, A initiated arbitration proceedings to settle a dispute relating to the payment of the earn-outs.

The arbitral tribunal, composed of Mr. X and Ms. Y, arbitrators, and Mr. Z, chairman, issued an award in Zurich on 23 December 2016 ordering IPSA Holding SAS to pay a total amount of 3,310,399.16 euros as principal and pre-award interest, plus post-award interest, as well as costs and expenses.

On 9 January 2017, the Paris Commercial Court opened insolvency proceedings against IPSA Holding.
An application to set aside the award brought before the Swiss Federal Court on 1 February 2017 was dismissed by a decision dated 11 January 2018.

On 8 March 2017, A, which was in voluntary liquidation, filed an application for the award to be declared enforceable in France. This was granted by an order of the delegate of the President of the Paris Tribunal de Grande Instance dated 10 March 2017.

IPSA Holding appealed against this decision on 3 May 2017.

On 16 February and 10 May 2017, A registered its debt as IPSA Holding’s liability. The bankruptcy judge, hearing the challenge to the admission of the claim, decided to stay the proceedings by an order dated 22 May 2018 pending the court’s decision on the appeal against the enforcement order (in French: Ordonnance d’exequatur).

By submissions notified on 3 December 2018, IPSA Holding requested the court to state that enforcement of the award would be contrary to international public policy (Article 1520-5 of the Code of Civil Procedure) and that the arbitral tribunal did not respect the due process (in French: Principe de contradiction) (Article 1520-4), consequently to overturn the order and, ruling again, to declare that there was no need for enforcement, in any event, to order A to pay the sum of 40.000 euros pursuant to Article 700 of the Code of Civil Procedure.

On the first ground, IPSA Holding invokes Article L. 622-21 of the Commercial Code under the terms of which:

‘I. - The opening judgment shall interrupt or prohibit any legal action by all creditors whose claim is not mentioned in I of Article L. 622-17 and which seeks to obtain:
1° The conviction of the debtor for the payment of a sum of money;
2° The termination of a contract for non-payment of a sum of money.

II.- It also stops or prohibits any enforcement proceedings on the part of such creditors in respect of both movable and immovable property as well as any distribution proceedings which have not produced an attributive effect prior to the opening judgment. […]'

The claimant also invokes Article L. 622-7 of the French Commercial Code, which provides that:

‘I. - The judgment initiating proceedings automatically prohibits the payment of any debt arising prior to the judgment initiating proceedings, with the exception of payment by set-off of related debts. […]’

On 9 January 2019, SCP F-G, in the person of Mr L G, creditors representative of IPSA Holding, concluded that the enforcement order (in French: Ordonnance d’exequatur) was overturned and that A should be ordered to pay the sum of 5,000 euros pursuant to article 700 of the French Code of Civil Procedure. It claimed a violation of the principle of international public policy resulting from article L. 622-22 of the Commercial Code, which provides: ‘Subject to the provisions of article L. 625-3, proceedings in progress shall be interrupted until the pursuing creditor declares his debt. They shall then be automatically resumed, with the court-appointed representative and, where applicable, the administrator or the plan performance commissioner appointed pursuant to Article L. 626-25 duly summoned, but shall be limited to the establishment of claims and the determination of their amount’.

On 10 January 2019, A notified submissions to confirm the decision taken, reject the adverse claims and order IPSA Holding and SCP F-G to pay the sum of 50,000 euros pursuant to Article 700 of the Code of Civil Procedure.

By submissions notified on 9 January 2019, SCP B C voluntarily intervened in the proceedings and declared that it would refer to the court on the merits of the appeal, though the person of Mr. D E, commissioner for the performance of IPSA Holding’s insolvency plan, which was approved by judgment of the Paris Commercial Court on 2 October 2018.

UPON WHICH

On the ground alleging breach of due process (in French: Principe de contradiction) (Article 1520-4 of the Code of Civil Procedure):

Ipsa Holding argues that, after setting out the formula to be applied for the calculation of the ‘Earn-out’ (Award, § 125), giving its interpretation of the term ‘total expenses’ in the annex to the SPA (Award, § 138), and determining which expenses should be excluded from the calculation (Award, § 132-143 and 146-156), the only points discussed were those on which it had focused, the arbitral tribunal recalculated the amount of the ‘Earn-out’ by examining each of the cost items without considering itself bound by the report of the auditing firm PriceWaterHouseCoopers (PwC) even though the choice of this firm was the result of the parties’ agreement and A had not discussed the audit report item by item.

Due process (in French: Principe de contradiction) only requires that the parties should be able to state their claims in fact and in law and comment those of the opposing party in such a way that anything which influenced the decision of arbitrators was subject to adversarial debate. The arbitrators do not have to submit their reasoning in advance to an adversarial discussion between the parties.

In the present case, it appears from the award that Ipsa Holding submitted to the arbitral tribunal not only the PwC report, but also documents drawn up by Ipsa Holding entitled: ‘Note on methodology’ and ‘Earn-out calculation note’ (Award, § 91), the second of which details, item by item, the various elements involved in the assessment of the ‘Earn-out’, and finally that each of these items was challenged by A (Award, § 164-165, § 170-171, § 176-177, § 182-183, § 188-189, § 193-194). It appears, therefore, that the discussion of charges item by item was introduced into the debate by the ‘calculation note’ filed by Ipsa and contested by A, and that it was, moreover, the subject of the hearing by the arbitrators of the Ipsa witness, as the Swiss Federal Court noted.

The ground alleging a breach of due process (in French: Principe de contradiction) is therefore unfounded.

On the ground alleging the violation of international public policy (Article 1520-5 of the Code of Civil Procedure):

IPSA Holding claims that as the application for enforcement of the award was filed after the insolvency proceedings were opened, and the order granting it violate the principles of international public policy, the stay of proceedings and the prohibition of payment of prior claims.

SCP F-G, in its capacity as legal representative of IPSA Holding, claims, on the basis of Article L. 622-22 of the Commercial Code, that the opening judgment prohibits any award of an enforceable title that could serve as a basis for a forced enforcement measure. Thus, a decision issued by a court after a lawful resumption of proceedings in progress at the date of the opening judgment can only be aimed at fixing its amount. It concludes that an order which confers enforcement (in French: Exequatur) on an arbitral award condemning a party in collective proceedings to pay various sums is contrary to international public policy.

A replied that the decision pronouncing the enforcement (in French: Exequatur) is declaratory in nature and that it merely recognises the enforceability of the award issued abroad. A also states that the application for enforceability is neither a legal action for payment of a sum of money within the meaning of Article L. 622-21 of the Commercial Code, nor a pending proceeding, insofar as it was brought after the opening judgment and is not the continuation of the arbitral proceedings, which ended prior to that judgment. Finally, A considers that the enforcement order (in French: Ordonnance d’exequatur) is not an enforcement measure (in French: Mesure d’exécution).

The principles of the stay of individual creditors’ actions, the divestment of the debtor and the interruption of proceedings in the event of insolvency proceedings are both of domestic and international public policy.

They imply, first of all, that when an arbitral award issued abroad has ordered a debtor against whom collective proceedings are opened by a subsequent judgment to pay a sum of money, the creditor may only apply for enforcement (in French: Exequatur) in France after having declared his claim.

Secondly, as the award can only be contested, in accordance with the provisions of Article 1525 of the Code of Civil Procedure, by way of appeal against the enforcement order (in French: Ordonnance d’exequatur) and for the reasons listed in Article 1525 of the same code, it is up to the creditor to request the enforcement of the award, when the verification of the claims reveals a dispute over which the official receiver has no jurisdiction. The enforcement order (in French: Ordonnance d’exequatur) pronounced in such circumstances can only give the recognition and the binding effect in France to the award. It cannot, without disregarding the principle of stay of individual creditors' actions, make a payment order enforceable.

In the present case, the disputed award, issued in Zurich on 23 December 2016, has the force of res judicata as soon as it is rendered, in accordance with Articles 1506, 4° and 1484 of the Code of Civil Procedure, ordered IPSA Holding SAS to pay various sums to A. In a judgment dated 9 January 2017, the Paris Commercial Court opened safeguard proceedings against IPSA Holding. On 16 February 2017, A registered the debt resulting from the award as a liability.

The enforcement order (in French: Ordonnance d’exequatur) issued on 10 March 2017, subsequent to this declaration, therefore excludes the claim of violation of the above-mentioned principles of international public policy as regards its recognition and binding effect in France of the award.

It is therefore appropriate to confirm the enforcement order (in French: Ordonnance d’exequatur) in so far as it entails recognition of the sentence, but to overturn it in so far as it renders enforceable an order for payment of sums of money.

On Article 700 of the Code of Civil Procedure:

Equity does not require that any of the parties benefit from the provisions of Article 700 of the Code of Civil Procedure.

FOR THESE REASONS:

Overturns the order issued on 10 March 2017 by the Delegate of the President of the Tribunal de Grande Instance de Paris in that it renders enforceable an order for the payment of sums of money.

Confirms it in so far as it entails recognition of the award issued on 23 December 2016 between the parties by an arbitral tribunal sitting in Zurich.

Dismisses the applications pursuant to Article 700 of the Code of Civil Procedure.

Holds that each party shall bear its own costs.