Paris, 1st Division, 1st Chamber, 14 October, n°13/03410
On 14 October 2014, the Paris Court of Appeal ruled an application to set aside an award for violation of international public policy due to allegations of corruption.
In this case, between 1984 and 1987, the Republic of Congo had concluded several public works contracts and contracts for the supply of materials with the French company “Commission Import Export” (From now on “Commisinpex”). In 1992, the Republic of Congo defaulted on payments, causing the parties to conclude an agreement providing installment payments which contained an arbitration agreement.
The Republic of Congo breached the 1992 agreement and was ordered to pay to Commisinpex part of the outstanding amounts in a first award rendered on 3 December 2000, in an arbitration proceeding conducted under the aegis of the ICC.
The parties then concluded a new debt payment agreement in 2003. In April 2009, Republic of Congo defaulted on payments again, and was ordered to pay Commisinpex by an ICC award rendered in Paris on 21 January 2013.
Thereafter, the Republic of Congo challenged the award before the Paris Court of Appeal on the basis of Article 1520 5° of the French Civil Procedure Code for violation of international public policy, arguing that the award gave effect to an embezzlement of public funds because:
- Since the 1992 agreement covered all of the Congolese debt (i.e., 22 billion FCFA) and was supposed to be final and global, the fact that the 2003 agreement added an of 26 billion FCFA for a total amount of 48 billion FCFA could only “have an illegal cause which can only be explained by a general climate of corruption” from which Commisinpex allegedly benefited;
- The Arbitral Tribunal admitted the existence of an outstanding debt amounting to 48 billion FCFA without evidence ;
- The Arbitral Tribunal recognized the binding character of the 2003 agreement, in spite of the fact its signatories did not have the power to sign it.
The Paris Court of Appeal rejected this challenge on the following grounds:
Regarding the first argument of corruption: Faced with allegations of corruption of such a nature as to set an award aside, the judge must search all elements necessary to determine whether the award is illegal and whether its enforcement would violate international public policy in a concrete and effective way.
In this case, the Court of Appeal not only held that the facts did not reveal any indication of a fraudulent cause, but also that a sovereign State could not free itself “from its contractual obligations […] by merely alleging a general climate of corruption within its administration, without indicating any suspects nor that the eventual beneficiaries have been prosecuted for these facts”.
Consequently, it was not evidenced that the recognition and enforcement of the award would result in a concrete and effective violation of international public policy.
Regarding the two last arguments, i.e., non-existence of the debt and absence of power of the signatories, the Court of Appeal quickly rejected those arguments on the ground that they implied to “revise the merits of the award, which is not within the judge’s powers when deciding a challenge”.
With this ruling, the Paris Court of Appeal confirms the position it adopted in its decision of 23 September 2014 (commented here), regarding the conditions for the admissibility of challenges made for violation of international public policy in application of article 1520 5° of the Civil Procedure Code: whereas previous decisions required the violation of international public policy to be “flagrant, effective and concrete” for the award to be annulled; the Court of Appeal confirms with this ruling that the condition of a flagrant violation is no longer required. An “effective and concrete” violation of the international public policy therefore suffices to set aside an award.
At the same time, the Paris Court of Appeal also reminds that evidence is essential in arbitration proceedings: indeed, if domestic and foreign State courts alike (see our comment here: Honeywell International Middle East Ltd v. Meydan Group LLC, EWHC 1344), confirm on a regular basis that arbitrators have the power to sanction corruption, they require evidence of the alleged corruption, simple allegations or reference to a general climate are not sufficient.
Faced with the difficulty to prove corruption, the Court of Appeal seems to propose elements which could be sufficient to prove corruption: the identification of the possible perpetrators and the demonstration that the beneficiaries have been prosecuted for those facts.
The decision is available here.