Appeal by Carte Blanche International, Ltd., respondent-appellant, cross-appellee, from a judgment of the United States District Court for the Southern District of New York, Peter K. Leisure, Judge, confirming an award rendered, in an arbitration conducted under the Arbitration Rules of the International Chamber of Commerce Court of Arbitration, in favor of petitioner-appellee, cross-appellant Carte Blanche (Singapore) Pte., Ltd. Carte Blanche (Singapore) Pte., Ltd. cross-appeals to restore an interest award that was reduced by the district court. Affirmed.
Meskill, Miner and Mahoney Circuit Judges.
Carte Blanche International, Ltd. ("CBI") appeals from a judgment entered in the United States District Court for the Southern District of New York, Peter K. Leisure, Judge, confirming an award rendered, in an arbitration conducted under the Arbitration Rules (the "Rules") of the International Chamber of Commerce ("ICC") Court of Arbitration (the "Court"), in favor of appellee Carte Blanche (Singapore) Pte., Ltd. ("CBS"). CBS cross-appeals to restore the interest award made by the arbitrators, which the district court reduced.
We affirm the judgment of the district court.
CBS is a corporation organized and existing under the laws of Singapore and having its principal place of business in. Singapore. CBI is a corporation organized and existing under the laws of the State of Delaware and having its principal place of business in the State of New York.
In August, 1980, CBS and CBI entered into an agreement by which CBI enfranchised CBS to market and service Carte Blanche credit cards in Malaysia, Singapore and Brunei (the "Franchise Agreement"). In June, 1981, however, CBI decided to discontinue its international franchise business as soon as possible. CBS chose to continue as a franchisee, but was the sole international franchisee of CBI after 1981.
Disputes between the parties arose in the fall of 1984. CBS contends that commencing at least by then, CBI denied CBS benefits of the Carte Blanche system which it was required to provide under the Franchise Agreement. Specifically, CBS claims denial of access to (1) the 14-digit encoding system for Carte Blanche cards, (2) credit authorization terminal systems, and (3) prompt and regular issuance of warning bulletins to merchants with respect to lost, stolen and cancelled Carte Blanche cards, even though these services continued to be provided by CBI to its other (domestic) franchisees.
In December, 1984, there was disagreement concerning changes in the ownership of CBS. In September, 1983, the shareholders of CBS, members of the Tan family of Singapore, had transferred their shares in CBS to a family holding company, Global Equities Pte., Ltd. ("Global"). In December, 1984, fifty percent of the shares of Global were transferred to the MBf Holdings Berhad Group of Companies ("MBf"), a publicly listed owner of a group of diversified companies that included Malaysia's largest finance company. CBI claimed that these transfers violated several provisions of the Franchise Agreement, including Section 7.10, which provides in pertinent part that:
[The Franchise Agreement] may not be assigned by either party. . . . The license and rights granted hereunder shall not be transferable, or the subject of a further license or sublicense by Franchisee; any attempted assignment of the Agreement or the license and rights granted thereunder in violation hereof shall be null and void and shall constitute a material breach and an event of default.
CBI also claimed a breach of Section 7.11(b) of the Franchise Agreement, which provides in pertinent part that:
If [CBS] desires or is required to sell its business, CBI or a related affiliate of CBI shall have first option and right of first refusal to acquire [CBS'] stock or assets, name and proprietary rights and goodwill
It is hereby understood and agreed that any transfer of shares within the family of companies belonging to the Global Insurance Co. SDN BHD group, shall not be construed as a sale of the business . . . but shall nonetheless require the prior written consent of CBI, which consent shall not unreasonably be withheld.
CBI placed CBS on formal notice of default under the Franchise Agreement. CBS contended that such transfers did not breach the Franchise Agreement, or were at most technical violations, because they were only transfers of shares, not assignments of interests.
In October, 1985, CBI and CBS filed demands for arbitration with the ICC pursuant to paragraph 7.09 of the Franchise Agreement, which provides in pertinent part:
All disputes between CBI and [CBS], except any dispute as to any unsettled charges on any cardmember charges, arising in connection with the present Agreement shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by arbitrators appointed in accordance with said Rules. The arbitration panel shall apply the law stipulated in paragraph 7.12 hereunder. CBI and [CBS] shall each appoint one arbitrator and the two arbitrators so nominated shall designate a third arbitrator acceptable to both parties, failing which the ICC Court shall designate the third arbitrator. The arbitral award shall be final and binding on the parties in accordance with said Rules and shall be entitled to recognition and enforcement by virtue of comity, treaty, convention, or other applicable law. Judgment may be had on the arbitral award in any domestic or foreign court of competent jurisdiction.
CBS claimed that CBI had engaged in a reduction of essential services, as hereinabove described, and had also failed to implement the Franchise Agreement's renewal clause (as of March 1, 1985). CBS sought injunctive relief requiring CBI to honor the Franchise Agreement, and a declaration that it had been renewed after the expiration of its initial term.
CBI claimed that the ownership transfers hereinabove described constituted events of default, that CBS had disseminated unauthorized and false advertising and had failed to make timely payment of fees owed to CBI under the Franchise Agreement, and that the Franchise Agreement had expired. CBI sought declarations that CBS was in default and that the Franchise Agreement had expired, an injunction against CBS' continuing as a CBI franchisee, and "damages in an amount to be ascertained at a later date."
In May, 1986, CBS filed an amended demand for arbitration seeking, as an alternative to the injunctive relief previously demanded, damages for the loss of the value of its Carte Blanche franchise in the amount of $4,945,000 for the value of stock, $697,000 for reimbursement of certain loans taken by CBS to fund its franchise operations, and loss of earnings on the foregoing amounts estimated to be in excess of $1,000,000.
The ICC confirmed the appointments of William Piel, Esq., Professor Hans Smit, and Theodore Sorenson, Esq. as arbitrators for the arbitration to take place in New York City. On February 18, 1987, a majority of the panel consisting of Mr. Piel and Professor Smit found for CBS in an interim award from which Mr. Sorenson dissented. The majority concluded, in response to specific questions constituting part of the "Terms of Reference" adopted pursuant to Article 13 of the Rules for the conduct of the arbitration,*fn1 that CBI had wrongfully failed to provide CBS with system benefits required by the Franchise Agreement since at least the fall of 1984; that the ownership transfers described hereinabove either did not constitute breaches or were immaterial, or alternatively that any objection thereto was waived or was immaterial because CBI's consent to the transfers could not reasonably have been withheld; that CBS' use of the Carte Blanche name in connection with a travel business and, in advertising, in conjunction with the MBf name did not constitute a material breach of the Franchise Agreement; that other claims by CBI of improper or unauthorized advertising were not supported by credible evidence; that the Franchise Agreement remained in effect and had not expired; and ultimately, that:
Damages should therefore be awarded to CBS for the value of a promised business opportunity destroyed or gravely impaired, together with mandatory directions to both parties, as part of the award to be entered, designed to effect, with minimum further harm to either party, the winding down of the franchise operation, the maximum feasible realization of CBS's accounts receivable, the settlement of inter-area voucher clearances, and the full return to CBI of the licensed intangible property. . . .
The majority addressed the seventh issue stated in the Terms of Reference, relating to damages, as follows:
7. Has CBS established a claim for damages, and, if so, in what amount?
CBS has established a claim for damages.
A decision by this Tribunal as to the amount to be included in the Final Award which will be entered will be deferred until we have given the parties an opportunity to consult and, if possible, to come to agreement on the amount to be awarded.
After CBS and CBI consulted unavailingly in response to the quoted invitation, CBS expressed its view, at a subsequent meeting between the parties and the arbitrators, that: "we will have to ask leave to file an amended damages pleading to deal with the problems of consequential damages. A present estimate is that we are likely to suffer consequential damages in an amount not less than $3.5 million." Mr. Piel, the chairman of the arbitration panel, expressed the tentative view that an amended pleading might not be necessary for CBS to pursue its claim for consequential damages.
CBI's counsel objected generally to any claim for or award of "unlimited damages," adding that "I think we have to have some understanding, some notice of what the claim here is," and also contended that injunctive relief involving a continuation of the Franchise Agreement, rather than damages, should be awarded. With specific reference to the proposed amendment of the pleadings, CBI's counsel stated: "Nobody is interested obviously in incurring needless expense*fn2 but we have important rights to protect here and perhaps the most productive approach would be for the arbitrators to consider that issue and come back to us on it." No formal amendment of the pleadings thereafter occurred.
Nine days of further hearings were subsequently conducted on the issue of an appropriate remedy. On January 25, 1988, the arbitrators issued a final award of damages and costs to ...