LUC ET LUC LTD v SOCIETE LAZULI

2020 SCJ 6
Record No. 116369

IN THE SUPREME COURT OF MAURITIUS

In the matter of:

Luc et Luc Ltd

Appellant

v/s

Société Lazuli

Respondent

In the presence of:

Lakaz Chamarel Ltd

Co-respondent

JUDGMENT

The respondent applied to the Judge in Chambers for an order to appoint an arbitrator.
The application was made pursuant to Article 1005 of the Code de Procédure Civile in order to
determine a dispute between the appellant and the respondent.

On 9 March 2018, the learned Judge granted the application and appointed Mr Maxime
Sauzier, senior counsel, as arbitrator for the determination of the dispute between the parties.
The appellant is now appealing against the decision of the Judge in Chambers

Background facts

The appellant (Luc et Luc Ltd), the respondent (“Lazuli”) and the co-respondent (“the
company”) are parties to a Sale Subscription and Shareholders Agreement signed on 1 April
2011 (“the SSSA”).
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The company owns leasehold and freehold property in Chamarel on which it operates a
hotel complex. Respondent is the sole shareholder of the company, the directors of which are
Mr Jean Marc Lagesse and his wife, Mrs Virginie Lagesse. The SSSA contained the following
agreement between the parties for appellant to invest a sum of 80,000,000 rupees into the
company:

“The parties have agreed that the INVESTOR shall invest a total of EIGHTY
MILLION MAURITIUS RUPEES (Rs 80,000,000.) in the Company for the
development proposed in the information memorandum annexed hereto as
ANNEX C, partly by purchasing 70 ordinary shares of the Company from LAZULI
for THIRTY MILLION RUPEES (Rs 30,000,000.), partly by subscribing for 48
ordinary shares in the Company for an amount of TWENTY MILLION RUPEES
(Rs 20,000,000.) and partly for 300 redeemable preference shares in the
Company for THIRTY MILLION RUPEES (Rs 30,000,000.).”

It was also agreed that the respondent was going to adopt a constitution as set out in an
annexure to the SSSA.

The respondent appointed Mr and Mrs Lagesse as its nominees on the board of
directors of the company whilst the appellant appointed Mr Luc Raffard as its nominee.

The SSSA contains detailed provisions governing such issues as the capital of the
company, the transfer, issue and redemption of shares, the management of the Company; the
appointment of executive directors and the meeting of the Board of Directors. The SSSA also
includes a Confidentiality Clause and provides for Key Management Issues at its Annex A;

Clause 8.1 of the SSSA provides for the amicable settlement of any dispute and Clause
8.2 provides for the following arbitration clause:

“8.2 Arbitration
The Parties hereby agree that all disputes arising between the Parties in
connection with the validity, interpretation, execution or termination of the
Agreement which cannot be resolved amicably shall be conclusively resolved by
one arbitrator in accordance with the arbitration laws of Mauritius. The arbitrator
shall be appointed by mutual agreement of the Parties and if the Parties fail to
agree on the choice of the arbitrator within fifteen days following notification to all
Parties of the request to go to arbitration, the said arbitrator shall be appointed by
a judge of the supreme court, sitting at chambers. The costs of the arbitration
will be borne by the losing party. The place of arbitration shall be the Republic of
Mauritius. The language of arbitration shall be English.”
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The validity of the arbitration clause has not been questioned by the appellant. It is also
not in dispute that both parties and especially their respective nominees on the Board of
Directors were no longer on good terms.

The respondent, in a letter dated 14 November 2016, invited the appellant to settle some
contentious issues involving the parties and the company by way of an amicable settlement.
The respondent caused a second letter to be sent to the appellant on 1 December 2016
addressed to the Director of Luc et Luc Ltd. After pointing out to the appellant that it was
refusing to part ways amicably, the respondent suggested the names of 4 potential arbitrators,
“one of whom to be appointed for the purposes of the present dispute”. It was specified in the
letter that should the appellant fail to respond to the letter within 15 days, the respondent would
have no other alternative than to initiate proceedings before the Judge in Chambers for the
appointment of an arbitrator. The respondent proceeded with its application before the Judge in
Chambers on 11 January 2017.

After considering the affidavits and submissions of both parties the learned Judge
reached the following conclusion:

“…it is amply clear that there are serious concerns and disagreements between
the applicant and the respondent as regards the management of the co-
respondent and other key management issues. Therefore, ex facie the evidence
on record, I am of the opinion that a dispute has indeed arisen between the
parties triggering the arbitration Clause 8.2 of the SSSA”.

The learned Judge then proceeded to appoint the arbitrator for the determination of the
dispute between the parties.

The reasons for challenging the judgment are set out in the 2 grounds of appeal which
read as follows:

“1. The Learned Judge was wrong to have held that he was of the opinion that
a dispute had indeed arisen between the shareholders triggering the arbitration
Clause 8.2 of the Sale Subscription and Shareholders Agreement (SSSA) when
he ought to have found that no arbitrable dispute under the said agreement was
disclosed in the notice dated 14 November 2016 that had been sent by
Respondent purportedly to trigger an arbitration under the SSSA.
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2. The Learned Judge was wrong, in law, to have taken into account the
purported issues raised in affidavits raised by both parties in order to determine
whether these amounted to triggering Clause 8.2 of the SSSA, the moreso that
these went above and beyond what was set out in the notice sent by
Respondent.”

The two grounds of appeal were argued together. Learned Counsel for the appellant
submitted that it was incumbent upon the Judge to ascertain whether there was any arbitrable
dispute which fell within the dispute resolution clause of the SSSA. Counsel argued that the
learned Judge adopted the wrong approach as in the light of the evidence the only conclusion
which the learned Judge could and should have reached is that the First Notice, dated 14
November 2016, does not contain any arbitrable dispute involving the parties to the agreement
(“SSSA”). It was submitted that the learned Judge failed to consider the proper remit of the
Arbitration Clause (Clause 8). The only parties to the agreement were Société Lazuli, Lacaz
Chamarel Ltd and Luc et Luc Ltd. The directors of Lazuli as well as the directors of the
appellant were not parties to the agreement. But all the complaints listed in the First Notice are
levelled out, and geared towards Mr Luc Raffard, who is not a party to the SSSA. The acts and
doings of Luc Raffard as a director, which are sought to be impugned in the First Notice, cannot
and should not be imparted to the appellant, which is a separate and distinct legal entity.

It was submitted that none of the disputes set out in the notice concern the appellant,
Luc et Luc Ltd. The disputes set out in the First Notice relate to the alleged misbehaviour and
misconduct of Luc Raffard as a director of the company. There were allegations that Mr Luc
Joseph Raffard was disrupting the good running of the company’s operations and all the
grievances are directed against Mr Raffard. The disputes relate to the ‘administrateur’ Raffard
as director of the company and they do not relate to the ‘actionnaire’ and they do not relate to
Luc et Luc Ltd. Counsel went on to submit that the Notice therefore failed to fall within the
purview of Clauses 8.1 and 8.2 inasmuch as it did not raise any dispute between Luc et Luc Ltd
and Société Lazuli, who were the parties to the SSSA, but instead targeted Mr Luc Raffard who
is not a party to the agreement.

Such a submission is untenable in view of the tenor of the evidence which was
elaborately analysed by the learned Judge and which indicated that Mr Luc Raffard was from
the outset and throughout acting to all intents and purposes for and on behalf of the appellant,
Luc et Luc Ltd. Luc et Luc Ltd had from the outset appointed Mr Raffard as its sole nominee on
the Board of Directors of the company following negotiations which he had conducted with
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Lazuli represented by Mr and Mrs Lagesse. Mr Raffard caused Luc et Luc Ltd to be
incorporated for the purpose of joining the company as an investor on the terms and conditions
set out in the SSSA. Luc Raffard participated in the board meetings of the company and raised
issues concerning the interests of Luc et Luc Ltd in his capacity as the representative of Luc et
Luc Ltd. The correspondence between the parties, in relation to the problems which arose
concerning the management and running of the company prior to the letter of 14 November
2016 further indicates that Mr Raffard had been throughout acting as representative of Luc et
Luc Ltd. This is illustrated by the letter dated 20 October 2016 addressed to Mr and Mrs
Lagesse as directors of Lacaz Chamarel, in which the legal adviser of Luc et Luc Ltd
emphatically indicates that her services have been retained by Mr and Mrs Raffard.
“répresentant Luc et Luc Ltd relatif à son investissement dans la société” and by Mr Luc Raffard
in his capacity as director of the company.

In any event, the appellant itself avers in its affidavit in reply to the application for the
appointment of the arbitrator “that the dispute between the applicant and the Respondent, the
two shareholders of the Co-Respondent, is of such nature that no cohabitation is anymore
possible between the parties”. Although the appellant was opposing the application for the
appointment of an arbitrator, appellant did not contest the fact that the dispute was between the
appellant and respondent as parties which are 2 sole shareholders of the company and that it
was not anymore possible for those 2 parties, i.e, Lazuli and Luc et Luc Ltd, to continue as
shareholders of the company.

There was indeed ample evidence before the learned Judge for him to conclude that the
acts and doings of Mr Luc Raffard were attributable to Luc et Luc Ltd which was the party on
whose behalf he had always been acting in all his dealings in respect of the company.

We accordingly find no merit in the submission that there was no arbitrable dispute
which involve Luc et Luc Ltd and Lazuli as parties to the SSSA.

It was further submitted under grounds 1 and 2 that the learned Judge ought not to have
considered matters which are not in the First Notice dated 14 November 2016. Counsel argued
that the concerns of the appellant, which are set out in its affidavits and which form the basis of
its winding up petition, cannot form the basis of an arbitral dispute since these matters had not
been raised in the Notice of the respondent.
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Counsel submitted therefore that the matters set out in the affidavits are either not
arbitrable disputes and, even if they could be arbitrable matters, are not matters which have
been raised in the First Notice. Counsel argued that neither the respondent nor the learned
Judge were able to point to any provision of the SSSA which had been breached in respect of
any of the matters set out in the First Notice of the respondent. Counsel submitted that the
learned Judge was therefore plainly wrong in drawing upon the concerns set out in the affidavits
in order to find that an arbitrable dispute has been declared.

It is common ground that it was incumbent upon the Judge to ascertain whether there
was an arbitrable dispute which had arisen, as contemplated by the contractual agreement,
which would entitle a party to the contract to obtain the appointment of an arbitrator in order to
have the dispute settled by way of arbitration.

In State Trading Corporation v The Unitech International Ltd [2000 SCJ 18]. The
learned Judge reiterated the principle that:

“… in a situation like in the present case where the respondent disagrees that
there is any dispute at all to be arbitrated, it is for the Judge to find out ex facie
the evidence on record, whether there is such a dispute or not.”

The above decision was confirmed on appeal in The Unitech International Ltd v The
State Trading Corporation [2001 SCJ 56] where the Court held that:

“It was for the Judge in Chambers to ascertain under article 1005 whether a
dispute existed or not before proceeding further, the more so as the appellant
denied there was any dispute relating to the contract entered by it with the
respondent.”

Counsel submitted that the learned Judge failed to ascertain whether there were matters
raised in the First Notice which were in respect of the (i) validity (ii) interpretation (iii) execution
or (iv) termination of the agreement as contemplated by the Arbitration Clause. The learned
Judge further erred in finding that a winding up petition filed by appellant contained potentially
arbitrable disputes, thereby wrongly pre-empting and/or usurping the role of the Judge in
Bankruptcy.
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The Arbitration Clause (supra) provides that “all disputes arising between the parties in
connection with the validity, interpretation, execution or termination of the Agreement” which are
not resolved amicably shall be conclusively resolved by an arbitrator.

The First Notice is an elaborate document which explicitly sets out a number of
conflictual issues which had arisen between the parties in relation to the running of the company
culminating to a point where it was subsequently acknowledged by the appellant “that no co-
habitation was anymore possible between the parties”.

The events prior to the Notice dated 14 November 2016 indicate the nature of the
disputes which had arisen between the parties concerning ‘the execution’ of the agreement. In
a letter dated 20 October 2016 the legal adviser, mandated by Luc et Luc Ltd and Luc Raffard
as director of the company, raises a number of detailed issues questioning the implementation
of the agreement following the investment made by appellant and concerns with regard to the
failure to execute the project in accordance with the Information Memorandum, the financial
management of the company, the failure to pay dividends and the refusal to communicate
information concerning the expenses and the financial management of the company.

The following excerpts illustrate the strongly contentious issues raised by the appellant
Luc et Luc Ltd, in its letter dated 20 October 2016, which would eventually lead to the reaction
of the respondent as set out in its letter of 14 November 2016:

“Il est porté à votre connaissance que Luc et Luc Ltd a investi dans la Société sur
la base de l’Information memorandum présenté en 2011 avec un projet de
développement défini et échelonné sur une période de 7 ans. Les fonds ainsi
injectés dans la Société devaient être utilisés à cette fin. Or, force est de
constater qu’au cours des années qui se sont écoulées, les investissements
faits, entamés et/ou envisagés pour l’avenir ne reflètent pas l’implémentation du
projet de développement initial. Mes clients sont d’avis que certainement
d’autres investissements auraient été plus utile à réaliser dans l’immédiat pour
rentabiliser l’activité.”

“En vertu des derniers bilans présentés, il en ressort que la situation financière
de la Société n’est pas brillante et les décisions prisent par vous, à l’insu de mes
clients, ne sont pas justifiées en les circonstances et sont contraires au contenu
de l’Information Memorandum, du pacte d’associés et peuvent constituer une
violation des devoirs et obligations des administrateurs en vertu du Companies
Act 2001. Il n’a pas été proposé un plan de paiement des dividendes cumulatifs
impayés à ce jour … ….”
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“De plus, en vertu des termes du pacte d’associés, un tel prêt pour les motifs tels
que la construction de bureau, de maison etc représente un eloignement nette
du projet de développement et constitue donc un «Key Management Issue» sous
la clause 4.5 du Pacte d’Associés. Par conséquent, une telle decision
nécessiterait une approbation de 75% des directeurs.”

“De plus, mes clients attendent toujours une réponse à ce jour sur le paiement
de leurs dividendes dans l’intérêt de toutes les parties concernées puisque vous
avez indiqué devoir prendre d’autres conseils.”

The letter concludes by stating to Mr and Mrs Lagesse, as directors of the company, that
“Il est donc essentiel que vous repondiez sur le contenu de cette lettre ou qu’une réunion des
associés soit organisée dans les meilleurs délais pendant leur séjour à Maurice.”

The above evidence does not only bring to light the contentious issues which had arisen
between the parties relating to the execution of the agreement but also places in context the
reply to the complaints of the appellant sent by Mr and Mrs Lagesse on behalf of the respondent
on 14 November 2016 and which is referred to as the First Notice by the respondent.

The reaction of Mr and Mrs Lagesse, expressly stated to be in their capacity as a party
to the SSSA, further confirm the emergence of disputes between the parties in respect of the
“exécution” of the SSSA.

We need to open a parenthesis here to mention some of the material provisions of the
SSSA which would indicate that the disputes between the appellant and the respondent have
arisen in relation to the implementation of some of the contractual obligations of the parties
under the SSSA.

The parties had agreed that Luc et Luc Ltd shall invest a total of 80,000,000 rupees in
the company (Lacaz Chamarel) for the development of the hotel complex in conformity with the
Information Memorandum (Annex C). Luc et Luc Ltd for that purpose purchased 70 Ordinary
Shares from Lazuli for 30,000,000 rupees, subscribed 48 ordinary shares in the company for
20,000,000 rupees and subscribed 300 redeemable preference shares in the company for
30,000,000 rupees.

Clause 2.2 provides that the said “redeemable Preference Shares” shall, inter alia:
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(i) be redeemable at the option of the holders being exercisable as from 7th year of
issue; (the shares were issued in 2011)
(ii) have the right to a fixed preferential cumulative dividend at the rate of 8% out of the
profits of the company resolved to be distributed in respect of that year.

Clause 4.1 provides that the Board of directors shall consist of 3 directors. Lazuli shall
hold at least 50% of the ordinary shares and shall have 2 directors. So long as Luc et Luc Ltd
shall have 45% of the ordinary shares, it shall have the right to appoint 1 director.

Clause 4.3.5 provides that the company shall send to the directors the minutes of the
meetings of the Board within 7 days of the holding of such meetings.

Clause 4.5 provides that all decisions relating to Key Management Issues as listed in
Annex A shall be approved by a majority of 75% of the directors. Those Key Management
Issues which require the approval of the shareholders of the company under the Companies Act
shall be approved by special resolution.

Clause 5.3 provides that the Agreement “shall remain valid and binding” so long as both
Lazuli and Luc et Luc Ltd shall hold shares.

Clause 6.2 further provides that there cannot be any modification, amendment or waiver
of any provision of the agreement without the written agreement of the parties.

Clause 9 governs confidentiality and the conditions for disclosure of information.

Annex A lists a number of Key Management Issues which include such issues as
‘material alteration or change in the business of the company, ‘Alteration of the dividend policy’,
‘material alteration or change in the company’s business plan as described in the Information
Memorandum’, dissolution or winding up of the company, alteration or change in the rights,
preferences or privileges of the shares.

It is abundantly plain from an analysis of the letter of 14 November 2016, referred to as

the First Notice by the respondent, that it gives rise to a number of contentious issues between
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the appellant and respondent in relation to the ‘exécution’, and also potentially the termination,
of the SSSA.

The letter of 14 November 2016 indeed highlights a number of issues with regard to the
disputes which had arisen at that juncture between the appellant and respondent in respect of
‘la gestion de Lakaz Chamarel’ and the ‘exécution’ of the agreement.

It starts by pointing out that the letter sent by the appellant’s legal adviser has prompted
Mr and Mrs Lagesse to retain the services of a lawyer in order to put an end to ‘une situation
devenue intenable’. It is expressly spelt out that Mr and Mrs Lagesse were writing the letter “en
tant que représentants de société Lazuli actionnaire majoritaire de Lakaz Chamarel et signataire
du Sale Subscription and Shareholders Agreement du 1 Avril 2011 (“Pacte d’Actionnaires”).

The letter makes it clear that it was through Luc et Luc Ltd that an investment of 80
million rupees has been made in order to execute the business plan set out in the Information
Memorandum. The letter or Notice then put up a series of allegations against Raffard, who is
the representative of Luc et Luc Ltd, describing how the ‘attitude odieuse’ has disrupted ‘les
relations professionelles avec ceux dont la mission est d’encadrer la société, sapant ainsi les
efforts pour réaliser le “business plan” “dans une conjuncture économique deja difficile et
imprévisible”. The letter lists a number of allegations of disruptive conduct by Mr Raffard, the
representative of Luc et Luc Ltd, referring inter-alia, to an obsession for Luc et Luc Ltd to
accede to 49% of the shareholdings and to undue interference at various levels in the
management of the company and with the decision-making process of the Board of directors.
The letter ends by pointing out the following:

“Votre comportement constitue une entrave à la bonne morale de la société et

une entorse au Pacte d’Actionnaires. Le 16 Août 2016 nous vous avons fait une
offre de rachat après que vous ayez indiqué que Luc et Luc Ltd était vendeur.
Nous retirons cette offre”.

The letter then goes on to express a clear intention to proceed with arbitration in
compliance with clause 8.1 and 8.2 of the SSSA.

“Conformément à l’article 8.1 du Pacte d’Actionnaires nous avons mandaté Me

Hervé Duval, SC pour négocier au nom de la Societé Lazuli une séparation à
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l’amiable. Nous vous demandons d’accorder un mandat similaire à votre

avocate.

Si d’ici 15 jours aucune solution n’est trouvée on vous fera parvenir 3 noms
d’arbitre potentiel afin d’enclencher la procédure prévue par l’article 8.2 du Pacte
d’Actionnaires.”

The letter is signed by both Mr and Mrs Lagesse for and on behalf of Société Lazuli
pointing out the following:“Etant donné que l’informalité qui a caractérisé nos échanges jusqu’ici
n’a pas aidé à résoudre nos différents, veuillez prendre note que nous insisterons désormais
sur la stricte application des règles de la bonne gouvernance au sein de la société”.

It emerges quite strongly from the tenor of the letter, and the context in which it was
written following the appellant’s letter of 20 October 2016, that there were several controversial,
and potentially disputable, issues which had arisen with regard to the ‘exécution’ by the parties
of their contractual obligations under SSSA or ‘Pacte d’Actionnaires’ and which may also involve
the ‘termination’ of the agreement.

These would include but are not limited to the execution of the contractual obligations by
virtue of the business plan described in the Information Memorandum (Annex C to the SSSA)
and key management issues such as the alteration or change in the share capital of the
company, undue interference with its administration and decision-making process. There are
also substantial questions with regard to the profitability of the company, the payment of
dividends and access to information.

There are also issues potentially relating to ‘termination’ of the agreement since there is
a withdrawal of the ‘offre de rachat’ proposed by Luc et Luc Ltd and instead Lazuli Ltd had
mandated its lawyer to negotiate ‘une séparation à l’amiable’, requesting Luc et Luc Ltd to
provide a similar mandate to its lawyer. It is also significant to note in that connection that one
of the key management issues listed in the SSSA is the “dissolution or winding up of the
company” which is the recourse contemplated by way of a Court action by the appellant.

It is thus abundantly clear from the letter dated 14 November 2016 that the learned
Judge was in presence of an arbitrable dispute “arising between the parties in connection with
… the execution or termination of the Agreement” and that the respondent had been proceeding
in compliance with the procedure laid down under Clause 8.1 and Clause 8.2 of the SSSA. The
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failure by the appellant to respond to the respondent’s call for an amicable settlement
constituted failure to resolve the disputes amicably, which led to the respondent’s application for
arbitration pursuant to Clause 8.2.

It was accordingly perfectly legitimate and justifiable for the learned Judge in the
circumstances to reach the conclusion that “it is amply clear there are serious concerns and
disagreements between the applicant and the respondent as regards the management of the
co-respondent and other key management issues” and “that a dispute has indeed arisen
between the parties triggering the arbitration Clause 8.2 of the SSSA”.

We accordingly see no reason to interfere with the conclusive finding of the learned
Judge which is amply borne out by the evidence. This should be enough to dispose of both
grounds of appeal.

We only need to add that there are 2 additional elements which emanate from the
appellant itself and which further confirm the existence of an arbitrable dispute between the
parties. In both its reply to Lazuli Ltd, by way of a letter dated 5 January 2017 as well as in its
stand before the learned Judge, the appellant raised a number of concerns and disputes which
had arisen between the parties in relation to the execution of the agreement which would indeed
support the respondent’s contention that there was an arbitrable dispute between the parties as
contemplated by Clause 8 of the SSSA. These would include the following:

(i) the company is not profitable and it has not permitted the distribution of preferential
dividends to preferential shareholders as foreseen;
(ii) the respondent has unilaterally renounced to implement a business plan which
could have made the company profitable and this constitutes a key management
issue under the SSSA requiring a vote of 75%, its approval was not sought and
such renouncement was done by the representative of the applicant;
(iii) the respondent has voluntarily and in bad faith concealed information and made
decisions without the appellant’s knowledge and consent – a loan was contracted
from the Mauritius Commercial Bank without the knowledge of the appellant;
(iv) the appellant’s queries about the dismissal or resignation of managers,
communication of the employment contracts of Mr. and Mrs. Lagesse and the
amount of their salaries have so far remained unanswered and this is in breach of
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the statutory provisions provided for in the Companies Act in relation to the rights
of directors;
(v) decisions of the board meeting have not been submitted for approval; and
(vi) the absence of Mr and Mrs. Lagesse has resulted in the poor maintenance and
management of the company and its activities.

For the given reasons, we consider that there is no merit in this appeal which is
dismissed with costs.

A. Caunhye
Senior Puisne Judge

K.D. Gunesh-Balaghee
Judge
8 January 2020

Judgment delivered by Hon. A. Caunhye, Senior Puisne Judge

For Appellant : Mr Attorney S. Mardemootoo

Mr D. Basset, SC, together with
Mr K. Namdarkhan, of Counsel

For Respondent : Ms Attorney K. Mardemootoo

Mr H. Duval, SC, together with Ms Y. Munbauhal, of Counsel,
And Mr K. Arian, of Counsel