Paris Court of Appeal, No. 18/01360

Paris Court of Appeal, Pôle 1 - Chamber 1, 15 September 2020, No. 18/01360

SUBWAY INTERNATIONAL BV Vs. M.B X

On 30 January 2013, Mr B X entered into two franchise agreements with the Dutch company Subway International BV (hereinafter SIBV) for the operation of SIBV restaurant in Toulouse (France). This agreement required the application of Dutch law, the resolution of disputes by arbitration organised under the UNCITRAL Rules in New York and under the aegis of the International Centre for Dispute Resolution (ICDR), using the English language.
Citing non-payment of royalties, SIBV notified Mr. X of the termination of the contract on 30 April 2015 and initiated arbitration proceedings under the ICDR on 24 October 2015. By an award rendered on 18 April 2017 (final decision second correction) under jurisdiction of the ICDR in the State of Connecticut (USA), Mr. Y L, De Z, sole arbitrator, found the violations of M. X to his obligations, ordered the termination of the franchise agreements, ordered the franchisee to pay the franchisor the sum of 79,031.75 euros, consisting of fees in the amount of 50,968.01 euros and advertising expenses of 28,063.74 euros, in addition to the administrative costs and fees of the ICDR and the remuneration of the arbitrator, as well as to reimburse the franchisor for the costs, fees and remuneration already incurred, ordered the return of the advertising material and prohibited any use of the identification elements of the SIBV trademark.
This award was declared enforceable by an order of the President of the Paris Tribunal de Grande Instance of 20 November 2017, against which Mr. X appealed on 8 January 2018.
In his pleadings notified on 5 December 2018, Mr. X asked the court to reject SIBV’s applications, to annul the arbitral award of 18 April 2017, to set aside the order of enforcement of 20 November 2017, to order SIBV to pay him the sum of 5,000 euros under Article 700 of the Code of Civil Procedure and to pay the costs with distraction.
In its submissions notified on 5 September 2018, SIBV asked the court, as a preliminary matter, to dismiss the application for SIBV stay of proceedings, to declare M. X inadmissible to plead that the arbitral tribunal lacked jurisdiction because it had not raised it before the latter in due time under the conditions of Article 1466 of the Code of Civil Procedure, in the alternative, to rule that the arbitral tribunal was competent, in all circumstances, to find that due process (in French: principe de contradiction) and the rights of the defence, as well as public order had been respected, to uphold the exequatur order of 12 September 2016, to dismiss Mr. X’s claims. X’s applications, order the latter to pay him the sum of EUR 5,000 under Article 700 of the Code of Civil Procedure, in addition to the costs with distraction.
The proceedings were closed on 21 November 2019. The case, which had been set for the oral hearing on 21 January 2020, was postponed to the hearing on 11 June 2020 at the request of the parties due to the lawyers' strike.
Following the health crisis resulting from the Covid-19 pandemic, the parties consented to the proceedings being held without SIBV pleading hearing pursuant to Article 8 of Order No. 2020- 304 of 25 March 2020.
A notified new pleadings and new documents by RPVA on 8 June 2020, Mr. X filed pleadings with the court the following day requesting that these pleadings and documents be set aside from the proceedings. On 11 June 2020, SIBV’s counsel indicated that it was “withdrawing” its new pleadings and exhibits 23 to 29.

REASONS

On the application to reject the stay of proceedings

There is no need to rule on an application for SIBV stay of proceedings which is not submitted by Mr X, contrary to A’s contention.

On the pleadings of SIBV and exhibits 23 to 29 notified on 8 June 2020

These submissions and documents were notified on 8 June 2020 following the closing order of 21 November 2019 and the consent of the parties to the proceedings being held without SIBV hearing pursuant to Ordinance n°2020-304 of 25 March 2020.
In its RPVA message of 11 June 2020, counsel for SIBV informed the court that “we withdraw our pleadings no. 2 and ask you not to take into consideration additional exhibits no. 23 to 29. We have already made this change when we filed the pleadings file with the registry”.
SIBVA should be informed that it has waived its right to rely on its conclusions no. 2 and exhibits no. 23 to 29 notified on 8 June 2020.

On the admissibility of the application for setting aside the award made by Mr. X

In the case of an arbitral award made abroad, the action is directed not against the award itself but against the order for its enforcement.
The application to set aside the arbitral award contained in Mr. X’s final submissions is therefore inadmissible.
In accordance with the provisions of Article 1525 of the Code of Civil Procedure, the appeal lodged on 8 January 2018 by Mr. X against the exequatur order of the President of the Tribunal de Grande Instance de Paris of 20 November 2017 is admissible.

On Mr. X’s appeal against the exequatur order

According to the last paragraph of Article 1525 of the Code of Civil Procedure, “the court of appeal may refuse recognition or exequatur of the arbitral award only in the cases provided for in Article 1520.
In application of this text, Mr. X raises three pleas.

On the first plea alleging lack of jurisdiction of the arbitral tribunal (article 1520-1 of the Code of Civil Procedure)

Mr. X invokes the action of the Minister of the Economy and Finance, brought on the basis of Article L. 442- 6 III of the Commercial Code, before the Commercial Court of Paris, seeking in particular to obtain the nullity of the clauses relating to the applicable law and the competent courts in the event of SIBV dispute. He claims that his voluntary intervention in these proceedings was declared admissible by judgment delivered on 28 May 2019. He adds that if the Commercial Court of Paris declares the arbitration clause null and void, then the arbitral award will have been made by an arbitrator incompetent so that SIBV will have no claim against it.
He claims that the clauses of the contract relating to arbitration and the jurisdiction of SIBV foreign judge, the applicable law and the language of the arbitration to settle SIBV possible dispute, contribute to the disproportion between the rights and obligations of the parties and violate international public order.
SIBV contended that Mr. X, who had not raised this plea before the arbitrator, was not entitled to invoke it for the first time before the court. On the merits, it argued that, contrary to what the appellant claimed, under the principle of competence-competence derived from Article 1448 of the Code of Civil Procedure, only the arbitral tribunal could rule on its own jurisdiction. Firstly, according to Article 1466 of the Code of Civil Procedure: “A party who, knowingly and without legitimate reason, fails to invoke an irregularity before the arbitral tribunal in good time shall be deemed to have waived the right to invoke it”.
However, a party’s failure to raise an irregularity must be assessed in the light of its conduct during the arbitration proceedings. In the present case, Mr. X did not take any part in the arbitration proceedings. It cannot be inferred from his failure that he waived his right to invoke the lack of jurisdiction of the arbitral tribunal. The plea is therefore admissible.
Secondly, according to article 1448 of the Code of Civil Procedure, ‘Where a dispute under an arbitration agreement is brought before a court of the State, the court shall decline jurisdiction unless the arbitral tribunal has not yet been seized and the arbitration agreement is manifestly null and void or manifestly inapplicable’.
It is established that the arbitral tribunal was constituted on 19 January 2016, the date of appointment of the arbitrator, and that the Commercial Court of Paris was seized on 16 and 28 November 2016 by the Minister of the Economy and Finance.
Consequently, as the arbitral tribunal rules by priority on its own jurisdiction, the question of the validity of the arbitration clause and, consequently, that of the arbitrator’s jurisdiction, can only be examined a posteriori when the Court of Appeal reviews the order of enforcement of the award on the basis of Article 1520-1 of the Code of Civil Procedure.
In this context, the annulment judge reviews the decision of the arbitral tribunal on its jurisdiction, whether it has declared itself competent or not, by looking for all elements of law or fact in order to assess the scope of the arbitration agreement.
The franchise agreements concluded between SIBV and Mr. X dated 28 September 2011 and 13 September 2013 contain in their Article 10, (b) an arbitration clause according to which “(b) Unless otherwise provided in this Agreement, any dispute arising out of this Agreement shall be submitted exclusively to arbitration organized in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL) and under the auspices of the International Centre for Dispute Resolution […]”.
It is not challenged by Mr. X that the dispute decided by the arbitral award which has been granted exequatur arose out of the franchise agreements of 28 September 2011 and 13 September 2013.
Lastly, the significant disproportion in the commercial relationship, which, according to Mr. X, results from the general scheme of the franchise agreement, has no effect on the validity of the arbitration clause because of its autonomy from the contract which contains it.
The plea cannot therefore be upheld.

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

Mr. X maintains that the arbitration proceedings were initiated before the existence of a dispute, which should have led the arbitrator to reject the claim, that no evidence of the receipt of e-mails and letters sent during the proceedings is given and that the arbitral award does not specify the date of receipt of the evidence by the arbitrator, nor the date of receipt of their communication to Mr. X.
However, due process (in French: principe de contradiction) only requires that the parties should have been able to make known their claims in fact and in law and to discuss those of their opponent so that nothing which served as SIBV basis for the arbitrators' decision escaped their contradictory debate.
On the one hand, SIBV served formal notice on Mr. X as early as 17 March 2015, without the latter having regularised his situation, so that SIBV notified him as early as 30 April 2015 of the termination of the contracts.
A having filed its arbitration claim with the ICDR on 24 October 2015, Mr. X cannot argue that there was no dispute to be decided under the franchise agreements at that date.
Furthermore, according to the award, Mr. X received all of the pleadings of the arbitration proceedings “by e-mail”, “via UPS” or “via Federal Express”. As SIBV rightly points out, Mr. X informed the ICDR by letter dated 19 January 2017 of his change of address in order to ensure that he was fully informed of the procedural elements.
The plea is therefore unfounded.

On the last plea based on the fact that the arbitral tribunal ruled without complying with the mission entrusted to it and on the exceeding of the time limit for proceedings (Article 1520-3 of the Code of Civil Procedure)

Mr. X maintains that, according to Procedural Schedule No. 2, the final decision should have been issued on 14 April 2017 and not on 18 April 2017.
But according to Article 38 of the Rules of the United Nations Commission on International Trade Law, applicable to the arbitral proceedings in question :”

1. Within 30 days of receipt of the award, a party may, with notice to the other parties, request the arbitral tribunal to correct in the text of the award any errors in computation, any clerical or typographical errors, or any errors or omissions of a similar nature. If the arbitral tribunal considers the request to be justified, it shall make the correction within forty-five days following receipt of the request.
2. The Arbitral Tribunal can, within thirty days of the communication of the award, make such corrections on its own initiative.”

As a result, the corrected award of 18 April 2017 was made in accordance with the provisions of the Arbitration Rules applicable to the proceedings.
The plea is unfounded.

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

The costs will be borne with the benefit of Article 699 of the Code of Civil Procedure by Mr. X, who is defeated in all his claims, and equity does not require that Article 700 of the Code of Civil Procedure be applied in favour of any of the parties.

FOR THESE REASONS,

No need to rule on an application for a stay of proceedings,

Records that Subway International B.V. waives its right to rely on its conclusions no. 2 and exhibits no. 23 to 29 notified on 8 June 2020,

Declares inadmissible Mr. X’s application to set aside the arbitral award rendered on April 18, 2017 (final decision second correction) under the auspices of the ICDR in the State of Connecticut (USA),

Declares admissible the appeal lodged on 8 January 2018 by Mr. X against the order of the President of the Paris Tribunal de Grande Instance of 20 November 2017 conferring exequatur on this award,

Confirms the order of the President of the Tribunal de Grande Instance de Paris of 20 November 2017 declaring enforceable the award rendered on 18 April 2017 (final decision second correction) in the dispute between Subway International B.V. and Mr. B X,

Rejects applications under Article 700 of the Code of Civil Procedure,

Orders Mr B X to pay the costs which may be recovered in accordance with the provisions of Article 699 of the Code of Civil Procedure.