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Award infringed principle of equality among creditors
Practical Law UK Legal Update Case Report 0-386-5155 (Approx. 3 pages)
Award infringed principle of equality among creditors
| Published on 29 Jun 2009 • France, International |
Bree Farrugia (Solicitor Advocate), Herbert Smith LLP
In Liquidators of La Société Viva Chemical (Europe) NV v La Société Allied Petrochemical Trading and Distribution, Case no. 07/2805, the Paris Court of Appeal refused to enforce an award which had been procured in the absence of any real dispute between the parties, holding that it had been obtained fraudulently.
Facts
The parties' dispute concerned the ownership of 1218 tonnes of oil. A Singaporean company transferred 3,400 tonnes of oil to a Belgian company (Viva) which failed to pay the purchase price. Viva nevertheless on-sold the oil. The purchaser (APTD) paid for 1218 tonnes, and sold the remainder back to Viva at a higher price. Viva then purported, as APTD's agent, to sell the 1218 tonnes to a third party. In the meantime, the initial Singaporean seller seized the 3,400 tonnes of oil which was stored at Le Havre.
APTD commenced arbitration proceedings against Viva, seeking an award determining that it owned the 1218 tonnes of oil that it had paid for. The arbitrator granted APTD the determination it sought. Shortly thereafter, the board of directors of Viva resolved that the company was insolvent, and ceased all payments to creditors. Liquidators were appointed.
For reasons that are not set out in the judgment, in June 2007 APTD agreed with the liquidators and the Singaporean seller (among others) that the liquidator would sell the oil and, within 4 months, determine whether APTD in fact owned the disputed oil. In spite of this agreement, APTD sought and obtained orders for the enforcement of the arbitral award.
The liquidators challenged the enforcement order on the basis that the award violated international public policy as it infringed the principles of equality among creditors.
Decision
The Court of Appeal of Paris determined that, in the circumstances, the award should not be recognised or enforced. After noting that Viva and APTD were aware that the ownership of the oil was disputed by a third party, the court observed that:
- Before the arbitration proceedings were commenced, the parties amended their arbitration agreement to allow them to appoint one arbitrator instead of three. The sole arbitrator was appointed by agreement.
- The arbitrator was appointed on 23 May 2007, and handed down his award the following day. In those circumstances, no proper investigation could have been conducted by the arbitrator.
- The award was handed down shortly before the appointment of liquidators.
- Other than making the determination sought by APTD, the award required that Viva pay APTD a sum of money corresponding to the difference between the price for which APTD bought the oil from Viva, and the higher price for which APTD subsequently re-sold part of the oil to Viva.
The court concluded that the parties did not in fact have any real dispute between them, and considered that the arbitration clause was amended, and the arbitrator appointed, only to validate by the arbitration an agreement between APTD and Viva as to the ownership of the 1218 tonnes of oil. The manifest object of the award was to present the future liquidators of Viva with a determination that APTD owned the oil.
The court concluded that the award was obtained by fraud and therefore that it was contrary to international public policy. In the circumstances, the Court of Appeal refused to enforce the award.