Ann Summers US dispute concluded

Posted: June 27, 2008

Ann Summers could become one of those names US lawyers quote when discussing legal precedents following a recent California Supreme Court ruling which brings to an end a complicated legal battle regarding the powers of an arbitrator.

The British retailer entered into a franchise agreement three years ago with French citizen Celine Gueyffier, who planned to enter the US market with a franchise selling Ann Summers products. After a dispute, both sides claimed breach of contract and the matter went to arbitration.

“The arbitrator concluded our client had not received training and guidance promised by the franchisor, which prompted our client to end the relationship,” said Douglas J Rovens, a partner in Squire, Sanders & Dempsey LLP, the law firm representing Gueyffier. “The arbitrator also concluded that because these breaches of contract could not be remedied, our client was not bound by a contractual agreement to give the franchisor written notice and 60 days to solve the problem before Ann Summers could be held in breach.”

The arbitrator’s award was confirmed by Los Angeles Superior Court Judge George H. Wu, who now sits on the federal bench. The Court of Appeals Division Five reversed that decision in a published opinion, concluding the arbitrator had overstepped his role by changing a material term in the contract. The California Supreme Court, however, concluded unanimously that the arbitrator’s decision was well within his powers.

“The court concluded an arbitrator does not exceed his or her powers by applying equitable defences to excuse a party from performing a material condition – in this case, the condition that before the franchisor can be found in breach of the franchise agreement by the arbitrator, the franchisee must provide notice and opportunity to cure the breach. The court specifically held that the arbitrator was empowered to interpret and apply agreements made by the parties to the facts he found to exist, particularly the power to decide when particular clauses apply,” Rovens said.

“This is an issue of broad import because a finding that an arbitrator has exceeded his or her powers is a universal ground for vacating or refusing to enforce an arbitration award under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 9 U.S.C. sec. 201 et seq., the Federal Arbitration Act, 9 U.S.C. sec. 1 et seq., state arbitration laws and arbitration laws of many countries,” Rovens said. “The decision provides useful guidance to practitioners in terms of both how to draft an arbitration clause to restrict the scope of an arbitrator’s powers and how to resist after-the-fact claims that an arbitrator has exceeded his or her powers.”