Paris Court of Appeal, No. 20/09273

Paris Court of Appeal, First Pole, Fifth Chamber, 4 November 2020, No. 20/09273

CHANTIER NAVAL COUACH

Vs.

SEDES HOLDING AS,

SEDES YACHTING LTD,

SEDES MARINE MALTA LTD,

The President of the Paris Bar Association (in his capacity as receiver)

The company CHANTIER NAVAL COUACH (“Couach”), whose head office has been based in Gujan- Mestras in the Gironde region since 1897, is a French company specializing in the construction of yachts, mega yachts and ships for military use.

Mr. Y X is a Turkish businessman who holds, directly and indirectly, a majority of the capital of Sedes Holding AS under Turkish law, Sedes Marine Malta Ltd under Maltese law, and Sedes Yachting Ltd under Delaware law.

The dispute between the parties arose in 2010 from the termination of a yacht construction contract concluded in 2009 for the price of 8,250,000 euros. A deposit of 400,000 euros was made by Sedes Holding on 4 September 2009. In November 2010, COUACH filed a lawsuit against Sedes Holding for damages for breach of contract, which resulted in Sedes Holding being ordered to pay 4,400,000 euros in damages at first instance (decision of the Toulon Commercial Court on 10 May 2012), then in appeal (decision of the Aix Court of Appeal of 17 July 2014), before this decision was overturned on 23 September 2015 on the issue of material jurisdiction, the Court of Cassation ordered the case to be referred to the Lyon Court of Appeal which, in a decision of 8 February 2018, referred COUACH to better appeal before the arbitral tribunal of the International Chamber of Commerce.

On 15 May 2018, COUACH referred the case to an arbitration tribunal under the aegis of the International Chamber of Commerce in Paris.

Under the terms of an arbitral award of 8 June 2020 registered under ICC No. 23632/DDA (C-23679/DDA), the arbitral tribunal has:

  • acknowledged the recognition by Sedes Holding and Mr. X of the jurisdiction of the tribunal over them with respect to claims and counterclaims in this arbitration and accepted it,

  • declared that it is competent to hear all claims against or by all defendants,

  • declared inadmissible exhibits C-32 and C-66 of D, along with paragraph 36 of D’s statement of claim, and paragraphs 114, 118 and 436 of its reply,

  • rejected the applicant’s requests in their entirety,

  • declared that the funds held in escrow by the President of the Paris Bar Association in the amount of €250,000 must be released to Sedes Holding,

  • declared that the contractual relationship between the parties (consisting of the first purchase order and the construction contract signed on 28 October 2009 between D and Sedes Malta) is terminated,

  • declared that D owes Sedes Holding the repayment of the “refundable deposit” of 400,000 euros,

  • declared that the Claimant owes the Defendants USD 220,850 in reimbursement of the amounts paid by the Defendants in respect of the arbitrators' fees and expenses, and the ICC administrative expenses,

  • declared that the Claimant owes the Defendants the reimbursement of the reasonable costs incurred by the Defendants in their defense in this arbitration amounting to 408,528.09 euros and GBP 2,080.85,

all other requests and arguments are rejected.

An amending award of 7 September 2020 states that the operative part of the award “declares that the funds held in escrow by the President of the Paris Bar Association in the amount of 250,000 euros must be released to Sedes Holding” is replaced by the following paragraph:

  • “declares that all funds held in escrow by the President of the Paris Bar Association must be released to Sedes Holding”.

Pursuant to a declaration dated 6 July 2020, COUACH filed an appeal before the Paris Court of Appeal to set aside the arbitral award rendered on 8 June 2020.

On 17 July 2020, COUACH served a writ on Sedes Holding As, Sedes Marine Malta Ltd, Yachting Ltd, Y X and the President of the Paris Bar Association, as receivers in accordance with the Receivership Agreement dated 17 May 2018, before the First President of the Paris Court of Appeal to halt the enforcement of the arbitral award, pursuant to Article 1526 of the Code of Civil Procedure.

In its submissions referred to by the clerk’s office on 30 September 2020 and supported orally at the hearing, COUACH S.A.S. requested to:

Having regard to Articles 677, 1520, 1526 of the Code of Civil Procedure,

Having regard to Article L.111-3 of the Code of Civil Enforcement Proceedings,

Having regard to Article L.213-6 of the Judicial Organization Code,

Having regard to the Turkish Law of 20 May 1982 on the conditions for obtaining exequatur in Turkey,

In view of the case law,

Having regard to the arbitral award rendered on 8 June 2020,

Having regard to the action for annulment brought on 6 July 2020,

Having regard to the escrow agreement signed on 17 May 2018,

Given the regulatory context and restrictions related to the health crisis,

Having regard to the certificate of the auditing firm Deloitte,

On admissibility,

  • declare the claims of COUACH perfectly admissible, notwithstanding the terms of the escrow agreement and the enforcement measures already undertaken by the defendants,

  • reject the defendants’ dismissal, submissions and claims,

Mainly,

  • declare and rule that the enforcement of the arbitral award of 8 June 2020 is likely to seriously prejudice the rights of the COUACH CNC,

  • note the obvious absence of a guarantee of restitution by the creditor of the sums which would be paid in the event of enforcement of the award,

  • consequently, order the stay of execution of the said arbitral award and of any award or addendum supplementing it,

  • dismiss the defendants' claims, aims and submissions,

In the alternative,

  • accordingly adjust the immediate enforcement of the ICC arbitral award rendered on 8 June 2020 as follows:
  • on the amount of 4,424,240.11 euros already in escrow

  • order the extension of the escrow agreement dated 17 May 2018, under which D CNC paid the sum of 4,424,240.11 euros, until a new decision is rendered on the merits of the dispute, following the action for annulment filed on 6 July 2020, or until an amicable agreement is reached between the parties,

  • or, failing this, order the substitution of the receivership opened with the President of the Paris Bar Association by the constitution of a judicial receivership with the Caisse des Dépôts for an amount of 4,424,240.11 euros,

  • on the amount corresponding to the arbitration costs and the refundable deposit
  • order the constitution of a judicial receivership with the Caisse des Dépôts for the following sums:

USD 220,850 for the fees and expenses of the Arbitral Tribunal and the ICC administrative expenses,

7,166.45 euros and GPB 2,080.85 for hearing costs,

401,361.64 in legal fees for Sedes and Mr. X,

400,000 corresponding to a deposit qualified as a “refundable deposit” by the arbitrators,

  • dismiss the defendants' application to order D to pay all the costs and the sum of EUR 30 000 under Article 700 of the Code of Civil Procedure,

  • in any event, dismiss the defendants from any contrary claims, ends or submissions,

  • order the defendant companies to pay the company COUACH the sum of EUR 15 000 under Article 700 of the Code of Civil Procedure and to pay all the costs,

  • in any event, declare the order to be made to the President of the Paris Bar Association, in his capacity as receiver, to be joint and enforceable.

In their pleadings referred to by the clerk’s office on 30 September 2020 and supported orally at the hearing, Mr. Y X, Sedes Holding AS, a company governed by Turkish law, Sedes Marine Malta Ltd, a company governed by Maltese law, Sedes Yachting Ltd, a company governed by Delaware law (United States), request to:

Having regard to Articles 1526 and 700 of the Code of Civil Procedure,

Having regard to the arbitral award of 8 June 2020,

Having regard to the escrow agreement of 17 May 2018,

On the inadmissibility of certain applications of D,

  • declare inadmissible D’s request to stop the execution of the arbitral award insofar as it relates to the funds sequestered with the President of the Paris Bar Association,

  • declare inadmissible D’s subsidiary application to “order the extension of the escrow agreement dated 17 May 2018 under which D CNC paid the sum of 4,424,240.11 euros until a new decision that determines the merits of the dispute is rendered, following the action for annulment filed on 6 July 2020 or until an amicable agreement is reached between the parties, or, failing this, order the substitution of the sequestration opened with the President of the Paris Bar Association by the constitution of a judicial sequestration with the Caisse des Dépôts for an amount of 4,424,240.11 euros”,

  • declare inadmissible D’s subsidiary request to “order the constitution of a judicial sequestration with the Caisse des Dépôts for the following sums: USD 220,850 for the fees and costs of the arbitral tribunal and the ICC administrative costs, 7,166.45 euros and GBP 2,080.85 for the costs of the hearing, 401,361.64 euros for the legal fees of Sedes and Mr. X”,

On the merits,

  • disallow D from all its requests,

In any case,

  • disallow D from any contrary claims, purposes or submissions,

  • order D to pay the defendants the sum of 30,000 euros under Article 700 of the Code of Civil Procedure,

  • order D to pay all the costs.

The President of the Paris Bar, in his capacity as receiver, did not appear nor was he represented.

GROUNDS

Article 1526 of the Code of Civil Procedure provides that “an action for annulment lodged against the award and an appeal against the order granting exequatur shall not have suspensive effect.

However, the first president ruling in summary proceedings or, as soon as the matter is referred to him, the Pre-Trial Judge may halt or adjust the enforcement of the award if such enforcement is likely to seriously prejudice the rights of one of the parties”.

The benefit of stopping or modifying the enforcement of the award - which cannot depend on the seriousness of the action for annulment - is subject to an in concreto assessment of the serious prejudice to rights that the enforcement of the award is likely to generate, so that this risk must be sufficiently characterized on the day the court rules.

In support of its application for a stay of enforcement of the award, COUACH submits that the enforcement of the award is likely to jeopardize the continuity of B’s operations, since the immediate payment of the sentences threatens the financial stability and continuity of the company, which does not have sufficient cash flow and which, because of the difficulty of recovery in Turkey, where the defendants are established, would be unable to obtain the return of the sums thus released should it succeed in its action for annulment.

The defendants raise the inadmissibility of COUACH’s claims concerning the funds sequestered with the President of the Paris Bar Association and point out that they have had attachments made which have resulted in the seizure of claims covering the entire amount of the sums due under the terms of the award, that the judgment or adjustment of the award subsequent to these attachments can no longer call into question.

On the merits, they dispute that the enforcement of the award could jeopardize the continued existence of COUACH, since the sum of 4,400,000 euros in escrow has been removed from the company’s assets for several years, that the shareholders of COUACH have sequestered the sum of 606,390.95 euros in a dedicated bank account opened in Carsam’s books, with respect to the costs incurred during the arbitration and that COUACH was ordered to pay, and that the only sum of 400,000 euros remaining to be released is to be put into perspective with the turnover of COUACH and the current orders of the Société Nationale des Sauveteurs en Mer from which COUACH benefits.

The defendants argue that, in reality, there is only the issue of the risk of non-refund in the event of success of the appeal for review, which can only lead to an adjustment of the award, and that in this respect, COUACH does not show that the restitution of the sums received in execution of the award is seriously compromised, since the simple fact that a debtor has no assets in France cannot characterize a risk of non-restitution, especially since they have appeared at all hearings that have taken place in the course of this dispute and have always enforced the court decisions pronounced against them.

The execution of the arbitral award concerns:

  • the release of the funds held in escrow with the President of the Paris Bar Association in the amount of approximately 4,400,000 euros for the benefit of Sedes Holding,

  • the condemnation of COUACH to reimburse the defendants for the costs of the proceedings and the costs of counsel incurred by them during the arbitration for a total amount equivalent to 605,945.07 euros (i.e. 220,850 US dollars, 408,528.09 euros and 2,080.85 British pounds, converted and totaled in euros),

  • the condemnation of the company COUACH to reimburse the company Sedes Holding for the deposit of 400,000 euros.

On the release of the funds held in escrow with the President of the Paris Bar Association:

It is established that during the state proceedings,

  • Sedes Holding, pursuant to an order from the First President of the Aix en Provence Court of Appeal, deposited before the Caisse des Dépôts et Consignations, on 12 December 2012, the sum of 4,400,000 euros to which it was condemned by virtue of a judgment of the Commercial Court of Toulon, which it has appealed,

  • the Caisse des Dépôts et Consignations has released the sum deposited in favor of COUACH in execution of the confirmatory judgment of the Aix en Provence Court of Appeal,

  • the Court of Cassation having upheld Sedes Holding’s appeal against this ruling, and the referring court having referred COUACH to an arbitral tribunal, Sedes Holding should have recovered the sum of 4,400,000 euros,

  • COUACH argued that execution of the Lyon Court of Appeal’s ruling would immediately and irreparably compromise its survival,

  • the parties ultimately entered into a Receivership Agreement on 17 May 2018 pursuant to which it was agreed that the sums due by COUACH in execution of the Lyon Court of Appeal’s ruling of 8 February 2018 would be sequestered by COUACH in the hands of the President of the Paris Bar Association for the purpose of the arbitration proceedings,

  • that the company COUACH has deposited the sum of 4,424,240.11 euros on behalf of the company Sedes Holding in the hands of the receiver.

Article 5 of the escrow agreement states that:

“The sequestered funds and the interests generated by them shall be released by the receiver upon receipt of a joint request from the parties, a memorandum of understanding, an arbitral award ruling on the merits or a new enforceable court decision ruling on the merits.

The funds shall be released, distributed and sent by the receiver to the parties in accordance with the terms of these acts or decisions.

If one of the aforementioned conditions for release is not met within the shortest possible deadline (i) a period of 28 months from the signature of this agreement and (ii) a period of 24 months from the signature of the terms of reference in the context of the arbitration initiated by COUACH on 15 May 2018, the sequestered funds and the interests generated by them will be fully released to Sedes Holding and the escrow will be fully discharged from his assignment.

Likewise, if, despite the fulfilment of one of the above-mentioned release conditions, funds remain in escrow at the end of the above-mentioned deadline, these funds and the interests generated by them will be released in full to Sedes Holding and the escrow will be fully discharged”.

It turns out that the arbitral award of 8 June 2020 has expressly pronounced itself on the fate of the conventional sequestration - in response to a counterclaim by Sedes and Mr. Y X - by ordering the release of the sums sequestered in favor of Sedes Holding. Consequently, the application for a stay or adjustment of the enforcement of the said award made pursuant to Article 1526 of the Code of Civil Procedure necessarily relates to the question of the release of the sequestered funds, notwithstanding the conventional nature of the sequestration. In addition, Sedes and M. Y X cannot validly argue that the parties did not intend to make the sequestration dependent on the award from which it would be disconnected, by taking advantage of the inclusion of a deadline (the term of which is 17 September 2020) in the agreement (Article 5 in fine), since this deadline does not mean that the funds had to be released to Sedes Holding on that date, but only that if any funds remained on that date, they would revert to Sedes Holding once the arbitral award had been executed.

Consequently, the plea alleging the inadmissibility of the application on that ground will be rejected.

On the merits of the case, it is clear from the reminder of the above-mentioned state proceedings that the sum of 4,400,000 was initially paid by Sedes and Mr. Y X in execution of the then enforceable decisions, deposited at the Caisse des Dépôts et Consignations before being cancelled in favor of COUACH, that this amount that has since been sequestered by the latter on 17 May 2018 originally came from the assets of Sedes and Mr. Y X, and not from those of COUACH, and is no longer backed by any enforceable decision.

As a result, the release of the funds sequestered in favor of Sedes Holding, in that it does not generate any outflow of funds from the assets of COUACH, on the one hand, and, on the other hand, concerns sums that could not be returned even if the action for annulment is successful, since the subsequent decision would not revive the sentences under which these sums were allocated to COUACH, is not likely to seriously prejudice the rights of COUACH.

The application for a stay or adjustment of the enforcement of the arbitral award on this ground will therefore not be granted.

On the order to pay the arbitration costs, in the amount of 605,945.07 euros, and the refundable deposit of 400,000 euros:

It is not disputed that the defendants had precautionary attachments converted into attachments on the bank accounts of the company COUACH on 20 July 2020, which allowed the seizure of a claim for a total amount of 287,655.30 euros, and an attachment on 31 July 2020 in the hands of the Société Nationale des Sauveteurs en Mer with which COUACH entered into a 10-year contract in October 2019 for the construction of 70 ships for several million euros.

If the attachment results in the immediate allocation in favor of the distrainor of the seized debt available in the hands of the garnishee, up to the amount of the sums for which it is carried out, payment is deferred in the event of a dispute before the enforcement judge.

In the present case, it appears from the documents in the file that COUACH brought two proceedings before the enforcement judge within the deadline set, contesting the attachments made by the defendants (the conversion of the precautionary attachments into attachments on the one hand, and the attachment in the hands of SNSM on the other hand), so that payment by the garnishee is deferred. In addition, a letter from the Société Nationale des Sauveteurs en Mer dated 3 August 2020 states that it “does not, to date, hold any financial obligation for which payment is due to COUACH”, from which it can be deduced that the enforcement measure has not yet produced its effects and is therefore not completed.

Consequently, the present court remains competent to stop the course of these enforcement measures and more generally to hear the application for a stay of enforcement of the award up to the amount in dispute.

On the merits, it appears from the accounting documents produced by COUACH that even though an amount of 600,390.95 euros was sequestered in a Carsam bank account in the summer of 2020 and that only the “refundable deposit” of 400,000 euros remained to be disbursed, COUACH’s very precarious economic situation does not allow it to divest itself of such sums. Thus, the analysis of the accounting firm DB3C notes that the financial years from 2012 to 2019 are all largely loss-making and that the company does not generate sufficient profitability to balance its accounts; that the company’s gross operating surplus (with the exception of the financial years 2016 and 2017) and the cash flow from operations are systematically negative, reflecting the company’s inability to meet its structural costs; that as a result, COUACH is not in a position to face an attachment of one million euros without jeopardizing the continuity of its business.

Furthermore, there is a strong risk of non-restitution, should COUACH’s appeal be successful, which is taken into account in assessing the serious prejudice to rights that the enforcement of the award is likely to generate, particularly in view of the amount of the sum in question. Indeed, the defendants do not own any property in France or even within the European Union, and COUACH indicated, without being denied, that Sedes Marine Malta has no real economic activity and lives only through transfers made by the Turkish holding company. Furthermore, there is no convention on mutual legal assistance between France and Turkey and the fact that both countries are parties to the Hague Convention of 15 November 1965 on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, to the Hague Convention of 18 March 1970 on the Obtaining of Evidence Abroad in Civil or Commercial Matters or to the Europe Agreement of 27 January 1977 on the Transmission of Applications for Legal Aid applicable with Turkey does not in practice guarantee the restitution of the sums paid by COUACH in enforcement of the award. Finally, it should be noted that the extremely tense diplomatic relations between France and Turkey at present are not such as to favor the enforcement of a decision in favor of a French entity on Turkish territory.

In the light of all these factors, the enforcement of the award, relating to the payment of arbitration costs of 605,945.07 euros and the refundable deposit of 400,000 euros, is likely to seriously prejudice the rights of COUACH within the meaning of Article 1526 of the Code of Civil Procedure.

Consequently, the request for a stay of execution of the arbitral award of 8 June 2020 will be granted on grounds other than that relating to the release of the sequestered funds.

On the other requests:

The costs of the proceedings should be left to the company COUACH.

In view of the meaning of this order, there is no need to apply Article 700 of the Code of Civil Procedure.

FOR THESE REASONS:

Declare admissible the request for a stay or adjustment of the enforcement of the arbitral award of 8 June 2020 made by COUACH,

Reject the request for a stay/arrangement of enforcement of the award on the grounds of the release of the funds sequestered with the President of the Paris Bar Association,

Order a stay of execution of the arbitral award on the other grounds, namely the arbitration and procedural costs and the refundable deposit,

Let the costs be borne by the company COUACH,

Say there is no need to apply Article 700 of the Code of Civil Procedure.

ORDER issued by Mrs. Carole CHEGARAY, Counsellor, assisted by Mrs. Cécilie MARTEL, Clerk, present at the time of delivery to the Court Registry, the parties having been notified in advance under the conditions provided for in the second paragraph of Article 450 of the Code of Civil Procedure.

The Clerk, The Counsellor