Paris Court of Appeal, No. 19/09729 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, Fifth Pole, Sixteenth Chamber, 30 June 2020, No. 19/09729

M. E C D vs. AXON ENTERPRISE, INC.

I ' FACTS AND PROCEDURE

Mr. C D introduces himself as the manager of SMP TECHNOLOGIES, a company under French law specializing in electrical installation work.
The AXON ENTERPRISE Inc. (hereinafter “AXON”) is a company governed by H law, formerly known as “TASER INTERNATIONAL”, which manufactures and markets electric pulse pistols, a fourth category weapon, under the brand name “Taser”, principally intended for law enforcement agencies.
TASER INTERNATIONAL (now ‘AXON’) awarded SMP TECHNOLOGIES an initial contract dated 4 and 5 February 2005 for the exclusive distribution of Taser products for France, then by a second contract dated 1 and 15 September 2010 the exclusive distribution of Taser products in nine African countries (Algeria, Morocco, Gabon, Togo, Niger, […], Mali, Cameroon, Guinea-Conakry).
On 1 and 2 September 2010, a professional services contract was also concluded between the company TASER INTERNATIONAL and “E C D, SMP technologies” in his capacity as “Consultant”. Under the terms of this contract, “the Consultant will be remunerated on the basis of commissions for the development of new businesses/accounts in France for the period commencing in January 2010 and ending on 31 December 2011, at the rate of 8 per cent (8%) on all sales made and invoiced by the Company to accounts acquired and serviced in France”. Article 9 contains an arbitration clause referring to the rules of the International Chamber of Commerce in Paris and designating Paris as the seat of arbitration.
Considering that AXON owed him commissions under this contract, Mr. C D referred the matter to the International Court of Arbitration of the International Chamber of Commerce of Paris on 5 April 2016 on the basis of Article 9 of the contract, seeking an order that this company pay him the sum of 884,574 euros in commissions, 93,118 euros for legal fees and 93,118 euros for legal expenses, and that it also be ordered to pay the entire cost of the procedure.
In response, AXON requested the rejection of Mr. C D’s claims, 20,000 euros in damages for abusive proceedings, 64,202 euros for legal fees and the payment by Mr. C D of the entire cost of the proceedings.
On 27 December 2018, after having rendered a first partial award on 13 September 2017, to confirm its jurisdiction, the Arbitral Tribunal of the International Chamber of Commerce rejected Mr. C D’s claims and ordered him to pay to AXON the sum of US$17,000 for costs and fees of the Arbitral Tribunal and outstanding administrative expenses, as well as the sum of 38,534.20 euros for “reasonable costs incurred by AXON in its defense”.
This award was the subject of an exequatur order on 8 March 2019 by the President of the Paris Trial Court.
The arbitral award and the enforcement order were served on Mr. C D in accordance with a bailiff’s writ of 2 April 2019.
On 2 May 2019, Mr. C D brought an action for annulment before the court against the arbitral award of 27 December 2018 and the exequatur order of 8 March 2019.
By an order dated 19 November 2019, the Pre-Trial Judge dismissed Mr. C D’s application for a stay of the provisional enforcement of the arbitral award of 27 December 2018 and the enforcement order of 8 March 2019.
When questioned about recourse to proceedings without a hearing pursuant to Article 8 of Order No. 2020-304 of 25 March 2020, on 12 May 2020, the two parties expressly agreed that the case should be tried under the procedure without a hearing.
The parties were notified on 29 May 2020 that the decision would be delivered, in accordance with the timetable set out in the procedural protocol applicable before the International Commercial Chamber, on 30 June 2020 by the above-mentioned judges.

II ' CLAIMS OF THE PARTIES

According to the last submissions communicated electronically on 29 April 2020, Mr. C D asks the Court to kindly:

Annul the arbitral award rendered by the International Court of Arbitration of the International Chamber of Commerce of PARIS dated 27 December 2018;
Annul the order on request for enforcement issued on 8 March 2019 by the President of the PARIS Trial Court;
Refer the parties back to the International Court of Arbitration of the International Chamber of Commerce of PARIS otherwise composed;
Order AXON to pay Mr. E C D the sum of 30000 € under Article 700 of the Code of Civil Procedure;
Dismiss AXON from all its claims.

According to its latest submissions communicated electronically on 7 May 2020, AXON asks the court, under the terms of article 1520, 3° and 5° of the Code of Civil Procedure, to:

Dismiss Mr. ECD from all his claims;
Dismiss the action for annulment brought by Mr. C D against the arbitral award rendered on 27 December 2018 by the International Court of Arbitration of the International Chamber of Commerce (ICC) of Paris;
Order Mr. E C D to pay AXON the sum of 20,000 euros as damages for abusive proceedings;
Order Mr. E C D to pay to AXON the sum of 30,000 euros pursuant to Article 700 of the Code of Civil Procedure.

III ' GROUNDS OF THE PARTIES

Mr. C D considers firstly that the arbitral tribunal ruled without complying with the mission entrusted to it by violating its obligation to state reasons. He argues that there is indeed a contradiction in reasons between the partial award of 13 September 2017, which recognizes him as a party to the professional services contract, and the final award of 27 December 2018, which recognizes that only SMP Technologies is creditor of the 8% commission. He added that this contradiction is also apparent in the reasons for the award. He recalled that the contradiction in the reasons is equivalent to an absence of reason. He added that the reasons for the decisions stem from procedural public policy and that the annulment judge may annul an award for lack of reasons in the event of a contradiction between its reasons and its operative part, as long as this contradiction is apparent from the award.
Mr. C D also considers that the arbitrator’s disregard of his mission is also apparent from the fact that the arbitral tribunal refrained from applying the rules of the International Bar Association relating to the taking of evidence in international arbitration, in particular Article 9.5, which it had nevertheless declared applicable, by not drawing any consequences from the refusal by AXON to disclose the actual amount of sales made in France in 2010 and 2011, while considering that the claimant was not entitled to claim payment of any commissions from AXON.
Mr. C D then argued that the award is contrary to international public policy because:

the arbitral tribunal failed to recognize fraud during the arbitral proceedings. He argues that the production of false documents is a violation of international public policy of procedure and that in the context of the communication of documents during the arbitration proceedings, a falsified email was produced by AXON, which should have led the arbitral tribunal to dismiss this document, which it did not do;
it failed to observe the principle of good faith in the execution of agreements. He claims that AXON acted in bad faith by producing a falsified copy of the 27 July 2010 email and, after months of proceedings and requests for quarterly statements certified by an auditor, by producing a table made by an internal employee of the company, making no effort to objectify the figures thus produced;
of the significant imbalance existing between the parties. He claims that the provisions of the Commercial Code have been recognized in France as being of economic public policy, and that it follows from the structure of the contract that Mr. C D was the weak party, this imbalance being reflected in the arbitration clause over which he had no control;
of the deprivation of the right of access to the judge. Mr. C D maintains that as the weaker party to the contract for professional services, the arbitration procedure was imposed onto him by means of the arbitration clause, of which the costs are disproportionate to those of the proceedings before the state courts, from which his opponents led him to derogate.

In response, AXON argued that the contradiction in reasons between the partial award of 13 September 2017 and the final award of 27 December 2018 and within the same award alleged by Mr. C D, which has not been established, is a criticism of the award on the merits, which is beyond the control of the annulment judge. It maintains in this respect that the contradiction in the grounds does not constitute a lack of reasoning.
AXON adds that the mission of the arbitral tribunal is delimited by the arbitration agreement, the Terms of Reference and the claims of the parties. It considers that in the present case Mr. C D does not specify how the arbitral tribunal would not have complied with its mission as it results from the arbitration clause stipulated in article 9 of the contract for professional services, the Terms of Reference signed by both parties, or the claims of the parties.
Regarding the complaint alleging non-application of the rules of evidence issued by the IBA, AXON points out that under the terms of Procedural Order No. 5 of 14 December 2017, the arbitral tribunal decided that it “will be guided” by the said rules but never declared that it would apply them. It adds that the arbitral tribunal admitted that it had given a “satisfactory reason” within the meaning of Article 9.5 of the said rules and recalls that the content of the statement of reasons for the award is beyond the power of the annulment judge.
With regard to the ground for annulment alleging breach of international public policy, AXON considers that the recognition and enforcement of the award of 27 December 2018, which dismissed Mr. C D’s claims for payment of commissions and ordered him to reimburse part of his lawyer’s fees and part of the cost of the arbitration proceedings, does not infringe any of the essential principles of French law.
Accordingly, it points out that the violation must be “flagrant, effective and concrete” and considers that the complaints lodged by Mr. C D on that basis are inoperative.
In particular, it argues that the fraud alleged by Mr. C D is not characterized, whereas the email sent on 27 July 2010 by Mr. C D to Mr. X, President of Taser International, was not falsified, it being specified that the arbitral tribunal considered in the final award that neither of the parties had adduced evidence that the emails produced at the hearing by the other party would constitute falsified documents and dismissed both parties' respective requests for the rejection of documents. AXON further argued that the arbitral award did not rely on this email to dismiss Mr. C D’s claims.
AXON adds that the alleged breach of the principle of good faith in the enforcement of agreements based on the aforementioned e-mail, that is not falsified, does not constitute a breach of international public policy which is assessed only with regard to the recognition and enforcement of an award within the meaning of Article 1520-5 of the Code of Civil Procedure.
Lastly, it states that the complaint based on the significant imbalance between the parties in the drafting and execution of the professional services contract of September 2010 cannot be a basis for an action for annulment in the context of the application of Article 1520-5 of the Code of Civil Procedure, and that the alleged deprivation of the right of access to the court is not disregarded by the execution of the award ordering him to partially reimburse the opposing lawyer’s fees, and points out that this is an international contract in which the arbitration clause is customary and that it has furthermore established the seat of the arbitration tribunal in France and not in Arizona, which is in favor of the French distributor.

IV - REASONS FOR THE DECISION

On the ground for annulment based on the arbitral tribunal’s disregard of its mission (Article 1520-3 of the Code of Civil Procedure);

Pursuant to Article 1509 of the Code of Civil Procedure, “the arbitration agreement may, directly or by reference to arbitration rules or rules of procedure, regulate the procedure to be followed in the arbitral proceedings / In the silence of the arbitration agreement, the arbitral tribunal shall regulate the procedure as far as necessary, either directly or by reference to arbitration rules or rules of procedure”.
In this case, the arbitration agreement inserted in the contract for professional services stipulates that “Any controversy or claim arising out of or relating to this agreement (' ) shall be submitted to arbitration in accordance with the rules of the International Chamber of Commerce (' )”.
The Rules of Arbitration of the International Chamber of Commerce (2012) are thus applicable to the arbitral proceedings and its Article 31 provides that the “award shall state the reasons on which it is based”.
Accordingly, the requirement to give reasons for the award was included in the arbitrator’s mission, so that if such reasons are lacking, the award is liable to be set aside on the basis of Article 1520-3 of the Code of Civil Procedure, it being specified that the judge’s review of the setting aside is limited to the existence and not the relevance of the reasons for the award.

On the grievance of the arbitrator’s lack of knowledge of the mission due to a contradiction in the reasons:

In the present case, it should be noted that Mr. C D does not claim that the arbitrator did not fulfil his mission as defined by the subject-matter of the dispute as determined by the parties' claims, but more precisely that the award is vitiated by a contradiction in reasons, which, in his view, amounts to a lack of grounds for setting aside the award.
However, the claim that the arbitral award is vitiated by a contradiction in the grounds, which cannot be equated with an absence of grounds, necessarily constitutes a criticism of the award on the merits, which is beyond the power of the court setting aside the award, except in cases, defined by Article 1520 of the Code of Civil Procedure, of violation of international public policy.
In this context, it should be noted that the arbitral tribunal did indeed give reasons for its decision under paragraphs 177 et seq. by holding that, while Mr. C D could be considered a party to the contract for professional services, justifying his being able to rely on the arbitration clause and thus the jurisdiction of the arbitral tribunal to rule on his claims, this tribunal, after expressly questioning the “creditor of the 8% commission” (cf. paragraph 188), nevertheless considered, in the light of a statement of reasons resulting from paragraphs 189 to 208, that only SMP Technologies was the creditor of the commissions which Mr. C D requested to be paid to him.
Thus, the existence of this statement of reasons makes it possible to dismiss the complaint.

On the grievance that the arbitrator was unfamiliar with the mission due to his failure to comply with the applicable rules of procedure:

If the arbitral tribunal’s disregard of the procedure applicable before it, chosen by the parties, is likely to expose its award to annulment, such disregard must still be established.
In the present case, it appears from the award that the arbitral tribunal, which had to rule, inter alia, on a request by Mr. C D to compel AXON to produce statements of sales made in 2010 and 2011, decided to draw inspiration from the rules of the International Bar Association, the parties, consulted on this point, having raised no objection, as can be seen from paragraph 32 of the award, which recalls that this decision was taken by Procedural Order No. 5 of 14 December 2017 and that it concerns the requests for production of documents “of the Claimant and the Respondent in the context of this arbitration respectively”.
It also appears from the award that by Order No. 6 of 28 February 2018, the arbitral tribunal ordered AXON to provide Mr. C D with “a quarterly statement of the products sold in France and of those delivered in France, indicating the date of the order by the customer and the date of invoicing by Taser International, certified by an auditor or a statutory auditor”.
It is not disputed that, although statements were produced, these documents were not “certified by an auditor or statutory auditor” as stated in the procedural order, so that Mr. C D asked the arbitral tribunal to apply the rule of unfavorable presumption in Article 9.5 of the IBA Rules (“adverse presumption”) according to which “If a party, without satisfactory reason, fails to produce a document for which another party has made a request for production, and to which it has not objected within the time limit, or fails to produce a document, the production of which has been ordered by the arbitral tribunal, the latter may infer that such document is contrary to the interests of that party”.
Mr. C D argued to the arbitrator that because AXON had failed to meet its obligation, the calculation of the amounts due should be based on “projections”.
However, far from not applying the procedure he had agreed on with the parties, it should be noted that the arbitral tribunal assessed its application to the case.
The arbitral tribunal considered that the fact that the documents produced had not been certified by an auditor was not such as to justify the consequence sought by Mr. C D, since AXON had justified “its inability to provide documents certified by its auditor”.
Thus, in paragraph 216 of its award, the arbitral tribunal stated that it “results from the legal consultation produced during the proceedings by the defendant (consultation with the law firm H SNELL & WILMER, defendant Exhibit n°42) that American regulations prohibit auditors from providing expert services to companies they control in the course of proceedings (Article 2-01(c)(4) of the SEC regulations). The defendant therefore justifies that it was unable to have its quarterly sales statements certified by its statutory auditor, it being specified that the request for the provision of quarterly statements certified by “a statutory auditor” necessarily refers to the statutory auditor of the controlled company (in this case AXON) and not to any accounting firm”.
In light of the foregoing, the arbitral tribunal assessed the execution by one party of the injunction it had been given to disclose documents in the light of the documents finally produced by that party, and it is not for the judge deciding on the annulment to question this decision under the cover of a complaint alleging ignorance of his mission, so that the ground for annulment will be rejected.

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

Pursuant to Article 1520-5 of the Code of Civil Procedure, an action for annulment shall be brought if the recognition or enforcement of the award is contrary to international public policy.
The court’s control must relate not to the arbitrator’s assessment of the rights of the parties but to the solution given to the dispute by the arbitral tribunal, the award being set aside if its recognition or enforcement violates the French concept of international public policy, which, within the meaning of the aforementioned Article 1520-5, is understood to mean all the rules and values which the French legal system cannot disregard, even in situations of an international nature.

On the breach of international public policy due to the alleged fraud:

Mr. C D maintains that the award should be set aside since AXON produced, during the proceedings, “a falsified email” (email dated 27 July 2010) and the arbitral tribunal rejected his request to dismiss this document.
It should be recalled that while procedural fraud can indeed be sanctioned in terms of international public policy, it presupposes, in particular, that false documents were produced, false testimony was taken or documents relevant to the resolution of the dispute were fraudulently concealed from the arbitrators, so that the arbitrators' decision was altered.
In the present case, it appears from the documents filed that during the arbitration proceedings, a debate arose between the parties on the authenticity of the disputed email of 27 July 2010, with each party accusing the other of producing a falsified version of that email.
The arbitral tribunal, in paragraph 154 of its award, considered that “neither of the parties adduced evidence that the emails produced by the other party during the proceedings would constitute falsified documents” and therefore dismissed the parties' respective requests to reject these documents.
Since the allegedly falsified nature of these documents had been the subject of an adversarial debate during the arbitration proceedings, the court’s decision was not altered by fraud but proceeds from an assessment of the accuracy and scope of the documents submitted to it, an assessment which is not for the court to review.
The grievance will therefore be rejected.

On the violation of international public policy on account of the disregard of the principle of good faith in the execution of the conventions:

Even supposing that an award which gives effect to a contract performed in breach of the principle of good faith may constitute a breach of international public policy, which is not at all well-founded, it should be pointed out that in the present case, the complaint relied upon relates not so much to the principle of failure to comply with the principle of good faith in the performance of a contract as to the procedural attitude alleged against AXON by the applicant on account of the alleged production of a falsified document and the late production of documents, which was judged incomplete.
However, as indicated above, proof of the production of a forged document has not been established and no disloyalty on the part of AXON has been found in the production of its documents, the relevance of which could be assessed by the court in deciding on the applications addressed to it.
This grievance will therefore be rejected.

On the violation of international public policy due to the existence of a significant imbalance between the parties:

The significant imbalance in the commercial relationship, of which it has in no way been established that it may be contrary to international public policy and which, according to Mr. C D, results from the general scheme of the contract, cannot in any event be characterized solely by reference to the content of the arbitration clause, whereas such an imbalance can be characterized only by reference to the content of the arbitration clause, even if it presupposes a concrete and complete assessment of the contract which Mr. C D has in no way made.
This grievance will therefore be rejected.

On the violation of international public policy by reason of the deprivation of access to a judge:

By this grievance, Mr. C D challenges, under the guise of a breach of international public policy, the validity of the arbitration clause and hence the validity of the arbitrator’s jurisdiction, an objection which he had not raised before the arbitral tribunal or expressly formulated and articulated in the context of the present action for annulment.
In addition, it should be noted that the arbitral proceedings were initiated by Mr. C D in 2016 and that a partial award on jurisdiction was made by the arbitral tribunal on 13 September 2017, which on this point was in favor of Mr. C D who argued that the arbitral tribunal was competent to rule on his claims and thus on the validity of the arbitration clause.
In the present state of these elements, the grievance will be rejected.
Since all the grounds put forward in support of the annulment of the award, and consequently of the order for enforcement, are rejected, Mr. C D’s applications should be dismissed.

On the counterclaim of AXON;

The exercise of a legal action constitutes in principle a right and only degenerates into an abuse which may give rise to damages in the event of fault likely to engage the civil liability of its author.
In the present case, AXON’s claim in this respect will be dismissed, since it has failed to adduce evidence of any fault or blameworthy negligence on the part of Mr. C D, who may legitimately have misunderstood the scope of his rights, and to establish the existence of damage other than that suffered as a result of the costs incurred in his defense.

On costs and expenses;

Mr. C D, the losing party, should be ordered to pay the costs.
In addition, he should be ordered to pay AXON, which had to incur irrecoverable costs in order to assert its rights, compensation under Article 700 of the Code of Civil Procedure which it is equitable to set at the sum of 30,000 euros.

V- FOR THESE REASONS

For these reasons, the court:

1-Rejects the action for annulment brought by Mr. ECD;

2 - Dismisses AXON ENTERPRISE Inc.’s application filed under abusive procedure;

3 - Orders Mr. ECD to pay AXON ENTERPRISE Inc. the sum of 30,000 euros under Article 700 of the Code of Civil Procedure;

4- Orders Mr. E C D to pay the costs.