French Supreme Court finds that tribunal acted within Terms of Reference

In Cass. Civ. 1, n° 14-12.077, 18 March 2015, Semapa Investimento E Gestao SGPS v CRH PLC, the French Supreme Court considered an appeal from a Paris Court of Appeal decision dismissing an application to set aside an ICC arbitral award.

The French Supreme Court (Cour de cassation) has dismissed an appeal against a Paris Court of Appeal decision refusing to set aside an ICC arbitral award rendered under a shareholders' agreement. In the underlying proceedings, the claimant had argued that the tribunal had acted ultra petita, failed to respect principles of due process, and violated international public policy.

The Supreme Court upheld the Court of Appeal decision in its entirety, finding that the tribunal had acted within the authority granted by the Terms of Reference and had not violated due process. Further, the Court of Appeal had not misinterpreted the claimant’s submissions and had been entitled to conclude that recognition and enforcement of the award would not be contrary to public policy.

The Supreme Court's decision does not break new ground. However, it is an important reaffirmation of the principle that, in circumstances where a tribunal has respected the authority granted to it by the Terms of Reference, and asked the parties to express their views on the relevant issues, an award will not normally be open to attack in the French courts on the grounds of violation of due process. (Cass. Civ. 1, n° 14-12.077, 18 March 2015, Semapa Investimento E Gestao SGPS v CRH PLC.) 

Background

In respect of international arbitral awards, the French Code of Civil Procedure (CPC) provides, inter alia, that an award may be set aside where:

• The tribunal ruled without complying with the mandate conferred upon it (Article 1520 3°).
• Due process was not respected (Article 1520 4°).
• The recognition or enforcement of the award would be contrary to international public policy (Article 1520 5°).

In addition, Article 4 of the CPC, which establishes that the subject matter of a dispute is determined by the parties' respective claims, as defined by the document initiating proceedings and the defence submissions, may be breached or violated where a judge misinterprets a party's submissions.

Facts

In 2004, Semapa Investimento E Gestao SGPS (Semapa), a Portuguese company, sold 45.15% of the shares, and 49% of the voting rights, in SECIL, an indirect subsidiary, to Irish company CRH PLC (CRH).

The parties entered into a shareholders agreement in June of the same year. The agreement was governed by Portuguese law and provided for different remedies according to whether a breach was "serious" (substantiels) or "non-serious" (non-substantiels). In the event of a "serious" breach, the non-defaulting party had a call option allowing it to purchase the defaulting party's shares at a 10% discount, with the price to be fixed through an independent valuation procedure. An annex to the agreement set out an exhaustive list of "serious" breaches. If the breach was "non-serious", the non-defaulting party had a put option allowing it to sell its shares to the other party.

Semapa accused CRH of serious breaches of the agreement and, in October 2009, gave notice that it was instituting the procedure for valuing CRH's shareholding. After valuations by investment banks nominated by each of the parties, a final valuation was eventually fixed by a third investment bank in accordance with the agreement's terms. CRH in turn accused Semapa of breaching its obligations and, in November 2009, instituted International Chamber of Commerce (ICC) arbitration proceedings under the agreement.

In an award issued in Paris in July 2011, an ICC arbitral tribunal declared that Semapa had a valid call option under the agreement. However, it also found that both shareholders had committed serious breaches of the agreement and therefore refused to apply the contractually-agreed 10% reduction in the purchase price, instead fixing the price at EUR 574,280,000. The award ordered CRH to bear 60% of the costs of the arbitration and to reimburse 50% of Semapa's fees.

Semapa sought to have the award set aside before the Paris Court of Appeal under paragraphs 3°, 4° and 5° of Article 1520 of the CPC.

The Paris Court of Appeal proceedings

The Paris Court of Appeal found in favour of CRH, dismissing SEMAPA's attempt to have the award set aside.

First, Semapa had argued that, in modifying the price of the call option fixed by the independent valuation mentioned above, and not applying the 10% reduction stipulated under the agreement, the tribunal had failed to comply with the mandate conferred on it (Article 1520 3°). The Court of Appeal rejected this submission. In circumstances where both parties were found to be in default, the Terms of Reference expressly granted the tribunal the right "to define the proper criteria" for resolving the conflict between their respective remedies under the agreement. The parties had made submissions on both the existence of such a conflict and the proper means of resolving it, and the tribunal had determined, in accordance with Portuguese law, the impact of the parties' respective breaches on their remedies. As such, it had complied with its mandate.

The Court of Appeal also rejected the submission that the tribunal had not respected due process (Article 1520 4°), since it had not invited the parties to discuss the denial of the 10% reduction in the purchase price. The tribunal had asked the parties to make submissions on the consequences of a finding that they had both committed breaches (whether serious or non-serious), and had requested that they consider "all the possible scenarios". In response, Semapa had referred to a "potential adjustment of the 10% reduction", according to the relative gravity, number and significance of the parties' breaches of the agreement. Accordingly, the tribunal had been entitled to adjust the amount of the remedy available to the party that enjoyed the call option. The Court added that the submission amounted to an impermissible attempt to obtain a merits review of the award, and should be rejected on that ground too.

Finally, Semapa accused CRH's lawyers of breaching their ethical and professional obligations by using confidential information, obtained while representing the Chairman of Semapa's board in another matter, in the arbitration. Semapa contended that this breached the principle of equality of arms, meaning that the recognition and enforcement of the award would be contrary to international public policy (Article 1520 5°). This submission was also rejected. Semapa had simply complained of the fact that its Chairman had been presented in a negative light, without specifying the confidential information to which CRH's counsel had allegedly had access. As a result, even if it were assumed that CRH's counsel had breached their ethical obligations, Semapa had not demonstrated how the information had influenced the tribunal's award or how its rights of defence had been infringed.

Semapa lodged an appeal to the French Supreme Court (Cour de cassation) on broadly similar grounds, arguing that the Court of Appeal's findings that the tribunal had complied with its mandate and respected due process were untenable. Further, it argued that, in rejecting the argument that the award infringed the principle of equality of arms, the Court of Appeal had misinterpreted Semapa's submissions, breaching Article 4 of the CPC.

 Decision

The Supreme Court upheld the Court of Appeal’s decision in its entirety. It recalled that, in the event of breaches by both parties, the Terms of Reference granted the tribunal the power to determine how to resolve any conflict between their remedies under the agreement and the fact that the tribunal had raised the issue with the parties, expressly asking them to consider "all the possible scenarios". Accordingly, the tribunal had complied with its mandate and had not violated due process.

Similarly, the Supreme Court confirmed that the Court of Appeal was not required to follow the parties "in the detail of their submissions". As such, it had not misinterpreted Semapa's submissions and had been entitled to conclude that the recognition and enforcement of the award would not be contrary to public policy.

Comment

The Supreme Court's decision does not break new ground. However, it is an important reaffirmation of the principle that, in circumstances where a tribunal has respected the authority granted to it by the Terms of Reference, and asked the parties to express their views on the relevant issues, an award will not normally be open to attack in the French courts on the grounds of due process.

A version of this article has previously been published by  PLC.

For further information, please contact Laurence Franc-Menget, Of Counsel, Peter Archer, Associate or your usual Herbert Smith Freehills contact.