Paris Court of Appeal, No. 19/09580

Paris Court of Appeal, Fifth Pole, Sixteenth Chamber, 15 September 2020, No. 19/09580

SHARMEL FRANCE

Vs.

MIRATO SPA

I- FACTS AND PROCEDURE

1- The company Sharmel, a company under French law whose activity is the manufacture and resale of cosmetics products, has entered into two contracts with Mirato, a company under Italian law with similar activities, on 1 October 2010, under which the company Sharmel has agreed to import and distribute Mirato’s Italian cosmetics brands INTESA and MALIZIA in Iran.

2- Following the termination by the company Mirato of these contracts, the company Sharmel filed a request with the Court of Arbitration of the International Chamber of Commerce (ICC) on 26 September 2016, seeking an order for Mirato to compensate it, with the amount of 7,941,003.22 euros, for the loss it believes it has suffered as a result of contractual breaches imputed to the latter.

3- Through a judgment dated 15 May 2017, the commercial court of Romans-sur-Isère ordered the company Sharmel to go into receivership and appointed Maître. B X as judicial representative.

4- On 3 July 2017, the Terms of Reference appointing the arbitrator were signed by the parties and the sole arbitrator.

5- On 5 July 2017, Mirato declared its claim to the judicial representative for an amount of 248,548.88 euros in respect of unpaid invoices and late payment interest. This claim was contested by the judicial representative.

6- On 7 August 2017, Sharmel filed its statement of claim with the arbitrator.

7- The company Mirato filed its statement of defense containing a counterclaim on 29 September 2017.

8- On 23 July 2018, the bankruptcy judge, noting the existence of ongoing arbitration proceedings, referred the company Mirato to have its claim definitively determined at the end of the arbitration proceedings in progress.

9- By an award rendered in Geneva (Switzerland) on 17 September 2018, the arbitral tribunal dismissed the company Sharmel’s claim for compensation and ordered it to pay the company Mirato the sum of € 248,548.88, plus reimbursement of arbitration costs of USD 73,450 and legal fees and expenses of € 116,337.80 and CHF 2,260.

10- On 15 November 2018, the commercial court of Romans-Sur-Isere adopted the recovery plan for the company Sharmel by way of continuation, appointing Maître. X as court appointed official for the execution of the plan, the latter being maintained in his capacity as judicial representative until a final decision is made on the liabilities.

11- By order of 18 March 2019, the president of the Paris Trial Court granted exequatur to the award of 17 September 2018, which was appealed by the company Sharmel by declaration dated 2 May 2019.

12- The award was suspended from provisional enforcement by order of 3 October 2019.

II- CLAIMS OF THE PARTIES

13- As per its latest submissions communicated electronically on 3 March 2020, the company Sharmel requests the Court, under the terms of article L 622-22 of the Commercial Code and on the basis of international public policy, to:

  • NOTE that its judicial representative has not been called upon to intervene in the arbitration;

  • STATE AND JUDGE, as a consequence, that the conditions under which the arbitration procedure was initiated are contrary to the obligations required by the provisions of the Commercial Code related to collective procedures, recognized as being of international public policy;

  • NOTE that the criticized award condemns it to pay the company Mirato a certain number of significant sums, rather than fixing the claim to be included in the liabilities of the debtor’s procedure.

  • DECLARE AND JUDGE, by way of consequence, that the nature of this award is contrary to the rules laid down by the provisions of the Commercial Code relating to collective proceedings, recognized as being of international public policy.

  • DECLARE AND JUDGE that the award rendered by the Arbitral Court is contrary to French international public policy, and in particular to the provisions applicable to collective proceedings (principle of equality of prior creditors, suspension of individual lawsuits while the representative is being sued).

  • STATE that the appeal lodged against the exequatur decision is regular and legitimate.

  • STATE and JUDGE that the order issued on 18 March 2019 by the president of the Paris Trial Court, conferring the exequatur to the arbitral award rendered by the International Court of Arbitration on 17 September 2018, contains provisions contrary to the law or public policy.

  • CENSURE it, nullify it and thus dismiss the request for exequatur.

  • CONDEMN the company Mirato to pay each of the parties, the company Sharmel and Maître B X, the sum of € 5,000.00 pursuant to article 700 of the Code of Civil Procedure, and also condemn it to the entire costs of the concerned instances (Court of appeal and first president of the Court of appeal).

14- As per its latest submissions communicated electronically on 10 February 2020, the company Mirato requests the court, under the terms of articles 1456, 1464, 145, 1520 and 1525 of the Code of Civil Procedure, to:

  • E F G, STATE AND JUDGE inadmissible the requests of Sharmel for the annulment of the arbitral award or for the nullity of the exequatur order for violation of the law and the Commercial Code;

  • STATE AND JUDGE that article L. 622-22 of the French Commercial Code is inapplicable, since the constitution of the arbitral tribunal and the company Mirato’s counterclaim were made after the judgment of the company Sharmel’s receivership;

  • STATE AND JUDGE inadmissible the appellant’s claims in application of the estoppel rule;

  • DISMISS the company Sharmel France and Maître X from the entirety of their claims, ends and submissions,

IN CONSEQUENCE:

  • CONFIRM the order of exequatur issued on 18 March 2019 of the international arbitral award rendered in Geneva on 17 September 2018 under the auspices of the International Court of Arbitration of the International Chamber of Commerce;

  • CONDEMN jointly and severally the company Sharmel and Maître X, in his capacity as court appointed official for the execution of the recovery plan by continuation of the company Sharmel, to pay the sum of € 10,000 on the basis of article 700 of the Code of Civil Procedure;

  • CONDEMN jointly and severally the company Sharmel and Maître X, in his capacity as court appointed official for the execution of the recovery plan by continuation of the company Sharmel, to pay all costs, including distraction in favor of Maître C D, pursuant to article 699 of the Code of Civil Procedure.

15- According to his last submissions of voluntary intervention and summary on the merits communicated by electronic means on 26 December 2019, Maître B X requests the Court, in accordance with articles 554 of the Code of Civil Procedure and L. 622-22 of the Commercial Code, to:

  • Acknowledge his voluntary intervention,

  • State it admissible;

  • On the merits of the case, acknowledge, in his capacity as judicial representative in the receivership of the company Sharmel maintained in his functions until the final determination of the liabilities and as court appointed official for the execution of the plan of the company Sharmel, that he refers to the wisdom of the Court on the admissibility and the merits of the appeal.

  • Rule on the costs as in the case of collective proceedings.

16- The closing order was issued on 10 March 2020.

III- PLEAS OF THE PARTIES

17- The company Sharmel explains that the proceedings before the arbitral tribunal are flawed due to the absence of the judicial representative in the arbitral proceedings, in violation of the provisions of article L. 622-22 of the French Commercial Code, which subordinate the resumption of the current proceedings to the indictment of the judicial representative by the pursuing creditor. It argues that the company Mirato’s ground that this article is not applicable in this case, as no arbitral proceedings were pending at the time of the opening of the collective proceedings, is inadmissible by application of the principle of estoppel, as the company Mirato had argued the contrary in the context of the procedure for verification of claims before the bankruptcy judge before which it had invoked the lack of jurisdiction of that court to rule on the grounds of the arbitral proceedings in progress.

18- It considers that it was up to the company Mirato, at the time when it considered it legitimate to request the arbitrator to establish the existence of a claim against the company Sharmel, to call into question the judicial representative of the company Sharmel, in order to allow it to make all useful observations in the name of the body of creditors and to render the decision to intervene enforceable against the latter.

19- The company Sharmel further argues that the award, by ordering it to pay certain sums to the company Mirato rather than fixing the latter’s claim to its liabilities, also contravenes internal and international public policy due to the violation of the principles of equality of creditors and the suspension of proceedings, according to which, as of the opening of collective proceedings, individual lawsuits against the debtor are suspended and can only be resumed in order to recognize the claim and fix its amount.

20- In response to the objection of inadmissibility raised by the company Mirato, the company Sharmel, states that it does not request the annulment of the arbitral award, but censorship of the exequatur order on the grounds that it contains provisions contrary to law or public order. It specifies that the suspension of individual lawsuits as well as the principle of equality of creditors prior to collective proceedings are principles of French and international internal public policy, inserted in the French Commercial Code so that the arbitral body could only aim at determining the claim and not at condemning the debtor, and that since these principles have not been respected by the arbitral tribunal, the exequatur order is subject to censorship.

21- It thus considers that insofar as it has been shown that the recognition and enforcement of the award rendered by the Arbitral Court is contrary to French international public policy, and in particular to the provisions applicable to collective proceedings (principle of equality of prior creditors, suspension of individual lawsuits while the agent is being challenged), the order issued on 18 March 2019 by the President of the Paris Trial Court conferring exequatur to the arbitral award rendered by the International Court of Arbitration on 17 September 2018 must be censured.

22- In response, the company Mirato invokes E F G the inadmissibility of the company Sharmel’s request to set aside the arbitral award rendered in Geneva on 17 September 2018, on the grounds that a request to set aside an arbitral award rendered abroad is inadmissible pursuant to articles 1520 and 1525 of the Code of Civil Procedure. It added that the company Sharmel can only request the annulment of the exequatur order for reasons of international public policy, pursuant to article 1520, 5° of the Code of Civil Procedure, and not for the reason of conflict with the provisions of the Commercial Code, the law or public policy.

23- It further argues that article L. 622-22 of the French Commercial Code is not applicable in this case, on the grounds, firstly, that the constitution of the arbitral tribunal and the company Mirato’s counterclaim are subsequent to the judgment pronouncing the company Sharmel’s receivership, so that the arbitration proceedings were not in progress on the day these events occurred and, secondly, that the company Mirato’s counterclaim was not filed before the arbitral tribunal, that these provisions apply only when the debtor in the collective proceedings is a defendant in the current proceedings, which was not the case for the company Sharmel in the arbitration proceedings before the company Mirato notified its counterclaim.

24- It emphasizes that pursuant to article 1464 of the Code of Civil Procedure, the parties are not obliged to apply the procedural formalism of the French rules and that in this case there was no obligation under the Terms of Reference and the Swiss Private International Law Act to summon Maître X, a bailiff, who intervened in the case ‘at the request of the arbitrator and through the intermediary of the lawyer of the company Sharmel (Me Rajot) - to certify twice (certificates of 12 and 26 June 2017) that only Mr. Y (director of the company Sharmel) would represent the company Sharmel in the arbitration proceedings.

25- It adds that, according to settled case law, the violation of international public policy must be a manifest, effective and concrete violation of the principles of international public policy relating to insolvency proceedings and that the absence of the judicial representative in the arbitration proceedings and the presence in the operative paragraph of the award of a note ordering or condemning a debtor in collective proceedings do not constitute violations of international public policy likely to lead to the reversal of an order of exequatur or the annulment of an arbitral award.

26- Maitre X argued that he was entitled to voluntarily intervene in the proceedings in his dual capacity as judicial representative and court appointed official of the company Sharmel pursuant to article 554 of the Code of Civil Procedure. He defers to the court on the merits of the claims of Sharmel, while arguing that article L. 622-22 of the Commercial Code was violated because of the absence of his challenge in the arbitration proceedings, from which he claims to have been excluded, as well as from the exequatur procedure, and the fact that the award, although pronounced after the opening of the collective proceedings, condemns the company Sharmel for acts prior to the opening of its receivership.

27- The Court refers, for a more detailed presentation of the facts and claims of the parties, to the decision undertaken and the aforementioned writings, by application of the provisions of article 455 of the Code of Civil Procedure.

IV- REASONS FOR THE DECISION

On the voluntary intervention of Me X ex officio;

28-The voluntary intervention of Me X ex officio, which is not disputed, is admissible.

On the motion to dismiss raised by the company Mirato;

29-The conditions for admissibility of an action should not be confused with its merits.

30- In the present case, it should be noted that the company Sharmel does not seek the annulment of the award rendered on 17 September 2018 abroad, but rather the annulment of the order having conferred the exequatur to this award with regard to article L. 622-22 of the French Commercial Code but also with regard to “international public policy”, so that this request is admissible before the Court of appeal, without prejudice to the court’s duty to assess its merits.

31-The motion to dismiss will consequently be dismissed.

On the violation of international public policy of the award subject to exequatur;

On the inadmissibility of the ground based on the inapplicability of article L. 622-22 of the Commercial Code:

32- The company Sharmel cannot consider that the company Mirato is inadmissible to raise a plea alleging the inapplicability of article L. 622-22 of the French Commercial Code on the grounds that during the proceedings before the bankruptcy judge to support the incompetence of this judge to rule on its claim, the latter, contrary to what it argued before the court, maintained the thesis according to which an arbitration proceeding was in progress.

33- Indeed, on the one hand, the proceedings referred to in article L. 62222 of the French Commercial Code are those in progress on the day the receivership proceedings were opened and do not cover any proceedings in progress after that date.

34- On the other hand, it is common ground that the company Mirato could not do otherwise than inform the bankruptcy judge, whose hearing was held on 16 May 2018, of the arbitration proceedings in progress, which began on 3 July 2017.

35- This ground will therefore be dismissed.

On the merits:

36- The provisions of article L. 622-22 of the French Commercial Code are not intended to govern the disputed situation since the arbitration proceedings were not in progress on the day the company Sharmel’s insolvency proceedings were initiated by a judgment of 15 May 2017, the arbitrator’s Terms of Reference having been accepted only on 3 July 2017.

37- However, it should be noted that the principle of the suspension of individual lawsuits, which is both a matter of internal and international public policy, prohibits, after the opening of the collective proceedings, the referral to the arbitral tribunal by a creditor whose claim originated prior to the opening judgment, without first submitting to the procedure for the verification of claims and, in any event, that the decision rendered may lead to the pronouncement of a judgment, only the determination of the claim being allowed.

38- In this case, it should be noted that the arbitration procedure was initiated by the company Sharmel and that, considering itself to be a creditor in counterclaims against the latter, the company Mirato declared its claim on 5 July 2017 after the opening of the receivership procedure for an amount of 248. 548.88 in respect of a balance of unpaid delivery invoices on 2015 sales contracts and November 2010 distribution contracts for the use of the INTESA and MALIZIA brands, together with interest for late payment, and then filed a brief before the arbitrator on 29 September 2017 containing a counterclaim.

39- By order of 23 July 2018, the bankruptcy judge, noting the existence of an arbitration procedure in progress relating to the alleged claim outside his jurisdiction, invited " the company Mirato to refer the matter to the registrar of the court for the purpose of completing the statement of claims by mentioning its claim definitively determined at the end of the current proceedings".

40- It is common ground that, in its award rendered on 17 September 2018, the arbitral tribunal dismissed the company Sharmel’s claims and also ordered it to pay various sums to the company Mirato.

41- In so doing, the order granting the exequatur of such an arbitral award, which condemns a company placed in receivership to pay certain sums to one of the creditors prior to the opening of the proceedings, in disregard of the principle of equality of creditors and of suspension of individual lawsuits, cannot be granted exequatur without disregarding international public policy.

42- It is therefore appropriate, for this reason alone, to overturn the disputed exequatur order.

On costs and expenses;

43- The company Mirato, the losing party, should be ordered to pay the costs of the present proceedings.

44- Equity requires that article 700 of the Code of Civil Procedure not be applied against the company Mirato, so that the claims made under this article will be dismissed.

FOR THESE REASONS:

The court,

1- Declares admissible the voluntary intervention of Me X ex officio;

2- Sets aside the order rendered on 18 March 2019 by the delegate of the president of the Paris Trial Court having conferred exequatur to the arbitral award rendered under the aegis of the International Chamber of Commerce on 17 September 2018 (Case n°22299/DA);

3- Dismisses the request for exequatur;

4- Dismisses the requests made pursuant to article 700 of the Code of Civil Procedure.

4- Condemns the company Mirato to the expenses of the present instance.