Paris Court of Appeal, No. 18/09616

Paris Court of Appeal, Pole 1 – First Chamber, 16 June 2020, n° 18/09616

SAS LODI DISTRIBUTION vs. SOCIÉTÉ MEDITERRANEAN FEED INDUSTRY TUNISIA- MFI

The company MEDITERRANEAN FEED INDUSTRY TUNISIA, hereinafter referred to as MFI, is a company under Tunisian law created in 2007 by Mr. C D. Its activity consists of manufacturing and exporting abroad, particularly in Brazil, the Middle East, North Africa and Europe, animal feed supplements based on phosphate products.

The company LODI DISTRIBUTION, hereinafter referred to as LODI, is a simplified joint stock company under French law, created in May 2016, whose director is Mr. E F, and whose main purpose, directly or indirectly, is the import, export and distribution of all agri-food products and more particularly all raw materials used in the composition of animal feed.

On 12 May 2016, MFI and LODI, currently being formed, signed an exclusive distribution contract for a period of 10 years, for the supply, sale and distribution of supplements for animal feed in the French market, the products supplied by MFI being loaded in Tunisia. The contract, which provided in particular for obligations regarding the quality of the products supplied and storage conditions, deadlines for making available the products ordered, and the procedures for determining the quarterly purchase price of the goods, was subject to French law and included an arbitration clause rendered in amiable composition.

Disputes between the parties arose, in December 2016 on the quality of the goods delivered, on the determination of the price, then on an order of 2,500 metric tons of products in January - February 2017 placed by LODI, MFI having finally refused the loading of its goods in the port of Gabès on board the vessel chartered by LODI in July 2017 and the goods having been then destroyed.

LODI took the initiative to implement the arbitration clause contained in article 12 of the exclusive distribution contract. Mr. Y designated in this clause having refused to arbitrate the dispute between LODI and MFI, the arbitral tribunal composed of Messrs. A-I J and X of G-H, co-arbitrators, and Mr. A B, chairman, ruling in amiable composition, rendered its arbitral award in Paris on 26 April 2018 under the terms of which, declaring itself validly constituted and competent to hear the dispute, it has :

• declared that MFI’s request for aadjournment of the proceedings is without purpose;
• states that there was no need to order the compelled production by LODI of the documents requested by MFI company;
• dismissed LODI’s claims for compensation related to the quality and price of the goods;
• declares that LODI has failed to fulfill its obligations in connection with the sale of 2,500 metric tons of goods ;
• ordered LODI to pay to the MFI company the sum of 88,526 euros in damages;
• terminated the distribution agreement entered into on 12 May 2016;
• states that this resolution does not give rise to restitution or compensation;
• ordered LODI to pay to the MFI company the sum of 150,000 euros for arbitration costs;
• dismissed the parties from their other claims.

On 15 May 2018, LODI brought an action for the annulment of this award before the Paris court of appeal.

In its final conclusions, notified on 13 August 2018, the company LODI distribution requested the court, under article 1520 of the French Code of Civil Procedure, to declare it admissible and well-founded in its appeal, to set aside the arbitral award and to refer to the dispute, ruling anew, to :

• declare that the company MFI has not performed its contractual obligations to its prejudice;
• order the company MFI to pay it the sum of 312,997 euros, in addition to the legal interest from 11 July 2017, as damages;
• declare that the company MFI has abusively terminated the contract concluded on 12 May 2016 with LODI;
• order the company MFI to pay it the sum of 9,133,000 euros, in addition to the legal interest from 11 July 2017, as damages;
• order the company MFI to reimburse all the costs and fees paid in the context of the arbitration undertaken and an indemnity of 50,000 euros under article 700 of the Code of Civil Procedure, as well as the costs, including distraction in accordance with article 699 of the Code of Civil Procedure.

LODI claims that the arbitral tribunal ruled without respecting the mission entrusted to it and did not respect the principle of due process, that the award undertaken is contrary to international public order.

By final submissions notified on 12 November 2018, the company MFI requests the court to find that LODI’s action for annulment does not meet any of the conditions of article 1520 of the Code of Civil Procedure, to declare LODI’s action for annulment against the arbitral award dated 26 April 2018 inadmissible, to dismiss LODI from all its claims, to state that there is no need to rule again or to evoke the merits of the case, to order LODI to pay a compensation of 75,000 euros under article 700 of the Code of Civil Procedure and to pay the costs, including distraction in accordance with article 699 of the Code of Civil Procedure.

GROUNDS

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

Whereas LODI claims that the arbitral tribunal ruled without respecting the mission entrusted to it, without explaining the reasons that led it to adopt the solutions to the legal problems that were submitted by the parties, so that the court of appeal seized is thus unable to determine what grounds led the tribunal to choose equity or the rule of law and for what reasons the solutions chosen by the tribunal to judge the terms of the dispute are in accordance with the mission of amiable compositeur.

The company MFI responds that LODI and MFI have mutually agreed that the arbitral tribunal should rule as amiable compositeur, that the arbitral tribunal was thus relieved of the obligation to rule in accordance with the rules of law, which allowed it to rule in equity by seeking the most appropriate solution to the dispute, and that the arbitral tribunal respected its mission by ruling in amiable composition.

According to article 1512 of the French Code of Civil Procedure, the arbitral tribunal shall rule on the basis of an ‘amiable compositeur’ if the parties have given it this mission.

The amiable compositeur clause constitutes a waiver agreement of the effects and benefit of the rule of law, the parties losing the prerogative to demand its strict application and the arbitrators receiving correlatively the power to modify or moderate the consequences of the contractual stipulations whenever equity or the best interest of the parties requires it.

Article 12 of the exclusive distribution contract of 12 May 2016 relating to the arbitration clause provides that “The sole arbitrator or the arbitral tribunal shall rule as amiable compositeur. They shall render the award within one (1) month from the date of their appointment or constitution”. The parties clearly recalled in the Terms of Reference they signed on 15 December 2017 that “The Arbitral Tribunal shall rule in amiable composition”.

After having recalled on page 11 of its award the obligation for the arbitral tribunal to rule in amiable composition, the arbitral tribunal ruling on the issue of the quality of the goods, considered that the documents produced by LODI did not establish with certainty that the defects of quality that it invoked existed at the time of loading of the goods, that there was no evidence that the levels of dioxin, PCBs and heavy metals did not comply with European standards, that on the contrary, LODI had had these analyses carried out for at least one of the orders and confirmed that these values were in conformity with European regulations and the GMP+ specifications, that it deduced from this that LODI did not show that it had suffered any prejudice on this count, and dismissed it, that it stated that equity did not require any other solution.

The arbitral tribunal, then ruling on the sale of 2,500 metric tons of goods in January/February 2017, found that because of “the material breach by LODI of its obligation to pay”, the seller had consequently been able to proceed with the resolution of this sale. It then examined all of the compensation items for which the MFI was seeking compensation for the loss resulting from the resolution of the sale. It found:

• that this included the loss of profit due to the non-realization of the sale, which it quantified in consideration of the company’s profit margin on the sale transaction, at 38,000 euros;
• that for remaining the owner of unsold goods, it was fair to limit to limit the compensation granted to 12,000 euros, finding that MFI had contributed to its own loss;
• by way of bank, administrative, handling and storage costs of the goods for one year, MFI had had them assessed by its chartered accountant at the amount of 200,000 euros but the justification for this sum appeared to be poorly documented.

Consequently, it decided in equity to retain a total loss due to the resolution of the sale at the amount of 250,000 euros.

Finally, the arbitral tribunal, ruling on the termination of the distribution contract, held that it would not seem reasonable to maintain a contractual relationship between parties that both sought its termination and decided in equity to terminate the said contract on the date of the award, and considering that each of the parties was seeking an order that the other party pay compensation for the damage suffered as a result of this resolution, considered that since the resolution was not pronounced against one of the parties, there was no reason to grant these claims for compensation and that equity did not require other solutions.

Whereas, however, contrary to LODI’s contention, the arbitrators did not merely make formal references to equity, but exercised their power to modify or moderate the consequences of the application of the rules of law and contractual stipulations in order to rule as they did, the court of appeal not having to review the equity of the solution given to the dispute by the arbitrators. The arbitrators therefore ruled in conformity with the mission entrusted to them.

Whereas this ground for annulment must therefore be dismissed.

On the ground alleging that the arbitrators disregarded the principle of due process (article 1520-4 of the Code of Civil Procedure)

Whereas LODI criticizes the arbitral tribunal for having accepted, subsequent to the pleading hearing, the communication by MFI of observations and a new document on 10 April 2018, at the last moment and without the tribunal’s authorization, to which it was unable to respond, creating a significant imbalance between the parties and violating the fundamental principles of procedure that must be respected in accordance with article 1510 of the Code of Civil Procedure.

Whereas MFI responds that both parties were regularly represented by counsel, that they presented their arguments and exhibits to the arbitral tribunal within the time limits and that no request for referral was made by counsel for LODI to produce his observations prior to the oral hearing.

Whereas, pursuant to article 1510 of the Code of Civil Procedure, the arbitral tribunal must guarantee the equality of the parties and the principle of contradiction.

The principle of contradiction ensures the fairness of the debates and the equitable character of the trial. It prohibits a decision from being rendered unless each party has been able to assert its claims in fact and in law, to know the claims of its adversary and to discuss them in such a way that nothing that served as a basis for the arbitrators' decision has escaped their contradictory debate.

Equality of arms implies the obligation to give each party a reasonable opportunity to present its case - including the evidence - in conditions that do not place it at a substantial disadvantage in relation to its adversary.

In this case, the oral hearing took place on 29 March 2018, in the presence of the parties and their counsel was heard. By a procedural order dated 30 March 2018, the arbitral tribunal ordered the parties to produce at the hearing, no later than Friday 6 April 2018, any necessary additional documents as well as their observations on the opposing documents communicated. LODI filed its supplementary documents on 4 April and MFI filed its comments on LODI’s documents at the end of the day on 6 April. The latter then requested an extension of the deadline until the evening of 9 April, which was granted by the arbitral tribunal and sent its comments on 9 April. On 10 April, MFI then asked the arbitral tribunal for a new deadline, which was also granted, to submit its comments in response to LODI’s comments. On 10 April, it thus submitted its observations and an additional document no. 74 in accordance with the “schedule of analyses”.

On the same day, LODI commented on the last elements communicated by MFI and in particular on this last exhibit to the arbitral tribunal (its exhibit no. 106). While asserting that it could not accept the production of a new unauthorized exhibit and a late note, ‘after analyzing these documents’, it explained the reasons why exhibit no. 74 had no probative value and responded to the elements contained in MFI’s latest submissions.

The closing was pronounced on 11 April 2018, the arbitrators having admitted all of the writings and documents exchanged between the parties prior to that date.

Whereas, therefore, LODI, claimant in the arbitral proceedings, was aware of all the pleadings and documents submitted to the arbitral tribunal and was able to usefully discuss the last observations and the accompanying document sent by MFI on 10 April 2018, the rejection of which it did not request by the arbitral tribunal, that the latter has put the parties in a position to put forward their arguments in fact and in law and to respond to the opposing arguments before the closing order, that the arbitral tribunal has thus ensured that the principle of contradiction and equality of arms is respected, LODI not having been placed at a substantial disadvantage in relation to its opponent.

Whereas this ground for annulment must also be dismissed.

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

Whereas LODI claims that MFI recognized that it did not carry out the analyses required both by the European rules on the protection of the European consumer and on undesirable substances in animal feed, which require manufacturers who export their products intended for animal feed to the European Union to systematically carry out analyses that are fundamental to public health and to respect the obligation to deliver healthy, fair and marketable goods, and by the European rules on dangerous substances; that the absence of analyses and the use by MFI of false certificates of analysis and false MSDS (Material Safety Data Sheet) not showing the dangerousness of the product constitute a violation of the international rules on the transport of dangerous products and of the various European regulations on the use and transport of these goods; that the arbitral award, which authorizes MFI not to systematically carry out analyses on contaminating and dangerous products, clearly violates international public order; that the award deserves annulment on this ground.

Whereas MFI replied that LODI, which claims that the decision of the arbitral tribunal is contrary to international public order in the sense that it knowingly failed to meet its obligations in terms of quality by exporting products to the European Union in complete disregard of the regulations in force and the procedures to be observed, nevertheless refrained from denouncing it to the public authorities. It adds that international public order is defined in French law as the set of “principles of universal justice considered in French opinion to be endowed with absolute international value”, LODI produces no valid reason to think that MFI’s behavior would at any time, and in any way, have violated such principles, that by arguing that MFI had not systematically itself carried out analyses fundamental to public health, LODI again provides no evidence for its assertions.

The control exercised by the annulment judge in defense of international public order is limited to examining whether the execution of the provisions taken by the arbitral tribunal manifestly, effectively and concretely violates the principles and values included in international public order.

Whereas It follows from the wording of the award that LODI requested the arbitral tribunal to order MFI to compensate MFI for damages suffered as a result of the latter’s breach of contract, in particular with respect to the quality of the goods.

The arbitral tribunal recalled that in December 2016, LODI had twice complained to MFI about the quality of the products sold and that in the second case, MFI replied that it had delivered ‘FOB’ and in good condition, which LODI also complained about to MFI, which was GMP+ certified, the non-conformity of the goods with the said certification on the grounds that MFI did not carry out the analyses for dioxins and PCBs (polychlorinated biphenyls) on the goods, that considering that the certificates of analysis issued by MFI were forgeries, LODI filed a complaint for forgery against MFI and Control Union before the Public Prosecutor’s office of the Republic near the court of first instance of Gabès.

MFI contested the alleged breach of contract, arguing in particular in the written answers to the questions put by the arbitral tribunal and in its comments of the documents produced by LODI (exhibits LODI n°100 and 103 bis) that under Article 6.1 of the exclusive distribution contract, if the order of products is placed FOB, the inspection of the products in order to ensure that they correspond to the quantities and qualities agreed upon at the time of the order, shall be carried out at the port of loading and shall be conducted by an internationally renowned inspection company appointed by the distributor and paid by the supplier; that LODI’s Exhibit No. 75 proved that the analyses were to be carried out at the time of loading and at LODI’s expense, which LODI will not do for subsequent shipments, that there was no request for inspection by LODI for the 2,500 tons order. It also produced before the arbitral tribunal in exhibit no. 57 (its court exhibit no. 39) the email sent by LODI dated 26 January 2017, sending it a provisional analytical report carried out on a batch that arrived in early December in their warehouses indicating “This report proves that the levels of dioxin, PCBs and heavy metals comply with European regulation 277/2012 and the GMP+ specifications”.

LODI argued in its response of 9 April 2018 (its exhibit No. 104 bis) to the elements produced by MFI on 6 April 2018, that at the hearing before the arbitral tribunal, MFI had acknowledged that it did not make the analyses systematically for each load and that it had produced false certificates to LODI, explaining at this hearing, that it reported the values of the phytosanitary analyses validated by the Ministry of Agriculture of Tunisia in the certificates communicated to LODI.

However, in response to this note, MFI replied (exhibit LODI no. 105 bis) on the issue of the analyses that this challenge was not relevant and that the arbitral tribunal, after hearing the explanations of the parties, had come to the conclusion that the analyses were carried out but that the analysis reports raised questions of traceability in the event of a dispute with the final customer of LODI. It pointed out that there had been no dispute or refusal of goods by LODI’s customers, that the goods had been regularly imported and delivered to France under the GMP+ regulations, that the analyses concerned different parties, that it could not perform analyses for each order but that it had all the certificates and approvals required to export and sell its products.

In its last comments of 10 April 2018 (exhibit LODI no. 106), LODI contested MFI’s response, stating that MFI’s response did not prove that the analyses required by the specifications, which set out all the rules of good conduct to be respected in order to be accredited for the GMP+ (HACCP) designation, were respected by MFI, that, on the other hand, it had provided proof that essential analyses (dioxins, cadmium, PCBs) for public health were not carried out, that MFI, which now claimed that these analyses were performed but had never been able to provide evidence of them and had stated the contrary.

In view of all these elements, the arbitral tribunal states, with regard to the quality of the goods, that “the documents produced by the company LODI DISTRIBUTION do not establish with certainty that the quality defects invoked by the latter existed at the time of loading of the goods. In addition, there is no evidence that the levels of dioxin, PCBs and heavy metals did not comply with European standards. On the contrary, LODI DISTRIBUTION had these analyses carried out for at least one of the orders and confirmed that these values were in compliance with European regulations and the GMP+ specifications (exhibit MFI no. 57)”, and consequently judged that LODI had not suffered any prejudice in connection with the quality defect of the goods sold.

The arbitral tribunal also accepted in equity the resolution by MFI of the sale of the 2,500 metric tons of DCP, to the exclusive detriment of LODI, finding that LODI had substantially breached its obligation to pay because of its failure to comply with the terms of the invoice and purchase order, the goods having been destroyed.

Whereas, consequently, the arbitral award, which notes that the inspection carried out by LODI at the end of December 2016 showed that the goods delivered complied with European regulations and the GMP+ specifications, then states that the sale of the 2,500 metric tons of DCP in January/February 2017 is resolved, consequently ordering the reimbursement by MFI of the deposit paid by LODI, and that the goods were destroyed in Tunisia in 2018, which finally pronounces the termination of the exclusive distribution contract, so that it does not give effect to any sale which it would be established that it was made on products supplied by MFI, not complying with European or international rules invoked by LODI, does not offend in a manifest, effective and concrete manner the international public order.

Whereas It follows from the foregoing that the action for annulment is dismissed.

On costs and compensation under article 700 of the Code of Civil Procedure

The costs will be borne by LODI, who succumbs to its claims.

Equity requires that LODI be ordered to pay MFI an indemnity of 30,000 euros under article 700 of the Code of Civil Procedure.

FOR THESE REASONS

Dismisses LODI DISTRIBUTION’s action for annulment of the arbitral award rendered on 26 April 2018 in Paris by the arbitral tribunal composed of Messrs. A-I J and X de G-H, co-arbitrators and Mr. A B, chairman, ruling in amiable composition,

Condemns the company LODI DISTRIBUTION to pay the company MFI an indemnity of 30,000 euros pursuant to article 700 of the Code of Civil Procedure.