Claimant, an Italian company, bought shares in the capital of a company that had been distributing its products for a number of years, wholly owned by Defendant, a French company. The price consisted of three instalments of a set amount and percentages of the company's profits over a three-year period. Claimant paid only the first instalment. An analysis of the company's financial statement for the first of the three years revealed a loss rather than the profit initially forecast. Claimant accuses the seller of fraud and breach of warranties and asks for the stock purchase agreement to be cancelled or, failing this, for the purchase price to be reduced to reflect the lower value of the company's shares. Defendant counterclaims for payment of the two outstanding instalments and for an audit to be carried out to determine the variable portion of the purchase price. The sole arbitrator finds no reason to cancel the agreement on the ground of fraudulent misrepresentation (dol) in the course of contracting, nor to award Claimant damages for breach of a contractual warranty. He further considers whether Claimant can be awarded damages on the basis of extracontractual liability (extract below). Dismissing this argument too, he finds that the purchase price is due in full.

• Applicable law

• Scope of arbitration clause

• Relationship between contractual and extracontractual claims

• Contractual or extracontractual nature of the duty of disclosure

'This leaves the question whether [Claimant], even in the absence of the prerequisites of an action for rescission, may claim damages - possibly also in the form of a reduction of the purchase price - for a merely negligent misrepresentation as a form of extracontractual liability in tort. The Agreement deals with a French company and practically all negotiations took place in France. Also the issue of an eventual tort action has therefore to be adjudicated under French law.

1. Defendant objects that the Arbitrator is not competent to adjudicate extracontractual causes of action. This plea was raised in time, because argued before the signature of the Terms of Reference in defendant's brief of 27 April 1994. Leaving apart the fact that defendant itself raises collateral causes of action (abusive refusal to pay and infringement of [Defendant]'s commercial reputation) which can only be established under the same concept of extracontractual responsibility, the exception proves to be unfounded.

French substantive law does not provide that tort claims are necessarily beyond the scope of arbitration. Whether a claim in tort is arbitrable, is merely a question of the wording and interpretation of the arbitration clause at issue in the case at hand. This is also confirmed by the conference paper of Reymond, CFDIP 1988-89 p. 97, 102 . . ., which defendant quotes for its assertion. If the arbitration clause is not too narrowly phrased, it will therefore also encompass wrongful behaviour which does not constitute breach of contract but is nevertheless connected with the contractual relationship. The arbitration clause in art. 9 of the parties' Agreement is practically equivalent to the wording of the ICC model clause which refers to "all disputes arising in connection with" the individual contract. The model clause has been recognized also by the French courts to cover cases of delictual liability within a contractual setting, cf. Craig/Park/Paulsson, International Chamber of Commerce Arbitration, Second Edition 1990, p. 85 with reference to certain French decisions; cf. also Redfern/Hunter, International Commercial Arbitration, Second Edition 1991, p. 137.

In the present case, the Arbitrator holds, the alleged extracontractual breach is based, as defendant itself rightly underlines, upon the same set of facts as the contractual cause of action. This delict is therefore so closely connected with the contract that it clearly is "a dispute in connection with" the parties' Agreement and falls therefore within the reach of the arbitration clause.

2. The question whether and to what extent French law permits the "cumul" of causes of action in contract and in tort, has been discussed at great length in the present proceedings. This still controversial issue is, however, not relevant for the decision in this case. Here, the issue at stake is not the simultaneous application or mixture of contract and liability in tort but the question whether an alternative claim in tort for reduction of the purchase price and/or damages may be based on negligent conduct. None of the decisions and no opinion of legal writers, as quoted and amply documented by defendant, appears to hinder a plaintiff to plead, according to his choice, either the one or the other cause of action. Neither could the Arbitrator find an authority for defendant's assertion that alternative claims in one single complaint are not permitted at the outset.

3. However, the Arbitrator is not satisfied that a French court, in the setting of this case and the facts established by evidence, would give plaintiff [Claimant] a right for recovery for a negligent breach of duty under the broad general provision of art. 1382 C. civ.

In the present case, an action for a negligent breach of a precontractual duty cannot be brought under art. 1382 C. civ. Traditionally, French law considered a lack of information only within the concept of "vice de consentement". The buyer was given a remedy - annulation of the contract alone or eventually with a collateral recovery for excess damage - only if the prerequisites of art. 1109 C. civ. (error, fraud or violence) were met. The material presented by both parties shows that there is a noticeable tendency in the courts' decisions and more still in legal teaching to recognize duties of disclosure within the ambit of contractual negotiations and to award damages under the general provision of extracontractual liability in art. 1382 C. civ. even in cases of a mere negligent breach of duty, cf. the extensive analysis of J. Ghestin, Traité de droit civil, Second Edition 1988, p. 507 seq. . . .

However, the Arbitrator is not persuaded that a French judge, upon the facts of this case, would allow a recovery of damages to claimant . . .

The duty of disclosure which, if negligently breached, would lead to a recovery of damages in tort, is not any different from the duty to inform which in case of intentional disregard would lead to a rescission of the contract for "dol" under art. 1116 C. civ. "Faute" and "dol" are only two particular subjective conditions under which the duty of disclosure may be breached, cf. M. Fabre-Magnan, De l'obligation d'information dans les contrats, 1992, p. 301 para 377 . . . If there is objectively no duty to inform, it can therefore be breached neither intentionally nor negligently.

As already stated by the Arbitrator in the context of claimant's request for rescission, [Claimant] has not shown that defendant had breached a duty to update the sales figures. Neither did the failure to "re-budget" the following fiscal year of 1991 amount to a breach of a duty of disclosure which, if it had been omitted knowingly, would have led to a rescission of the contract for fraudulent misrepresentation.

The same is true for the description of the . . . litigation and the amount to be held in reserve for a potential award in opponent's favour and also for the . . . controversy as to which the negotiators did not have the slightest idea. Even if a duty had been breached in either case no damage was caused to claimant because the . . . case was settled at [Defendant]'s expense and the . . . lawsuit was rightly dismissed by the court of second - and probably also last - instance.

This leaves the . . . case. While it is true that the . . . reserve on the books was objectively below the standard of French compensation in such cases, and there may conceivably have been a duty for the negotiators to disclose the discrepancy, the arbitrator finds that . . . did not know and had no reason to assume that the figure earmarked in the accounts as reserve for a mere routine case of termination of employment could have been wrong. They were therefore under no "obligation de s'informer pour informer" which, in the second step of legal analysis, could have been negligently breached. cf. J. Ghestin ibid. p. 539 para. 492.'