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08 November 2018
Consistent with France's reputation as a pro-arbitration jurisdiction, the French civil courts' review of arbitral awards on grounds of public policy is traditionally limited in terms of both standard and content. The provisions of the Code of Civil Procedure on the annulment and enforcement of awards refer to 'international public policy' – a narrow concept that encompasses the values and principles that France cannot ignore in an international context, rather than every domestic public policy rule. Moreover, according to the Court of Cassation, a violation of international public policy must be "flagrant, actual and concrete".(1)
However, in recent years, the scope of the courts' review of arbitral awards on public policy grounds has been tested in certain Paris Court of Appeal decisions which reviewed the underlying evidence rather than the arbitral tribunal's own determinations in the relevant award. One example is the 10 April 2018 decision in Alstom Transport SA v Alexander Brothers Ltd.(2)
Between 2004 and 2009 French company Alstom Transport SA and English company Alstom Network UK Ltd (collectively, Alstom) entered into three contracts with Alexander Brothers Ltd (ABL), a consulting company incorporated in Hong Kong.
ABL was to assist Alstom in preparing tenders for a contract to provide railway equipment to the Chinese government. ABL was chosen not only for its knowledge of the market, but also for its valuable contacts, including public decision-makers. Given the sensitive nature of such a contract, particularly with respect to corruption, all three contracts provided that ABL had to provide Alstom with written evidence of its activities in order to claim payment, which was to be made in four instalments.
Alstom's tenders all succeeded eventually. However, when ABL sent evidence of its work, Alstom paid only some instalments and argued that ABL had failed to provide sufficient evidence of its activities, exposing Alstom to penalties by several anti-corruption authorities if it made the remaining payments.
ABL brought International Chamber of Commerce arbitration proceedings against Alstom in Geneva. While the arbitral tribunal accepted Alstom's argument that the evidence provided by ABL was insufficient in light of contractual requirements, it held that, by paying instalments under two of the contracts without requesting additional evidence, Alstom had tacitly consented to an amendment of those contracts' evidentiary requirements. Moreover, the tribunal rejected Alstom's corruption allegation, ordering Alstom to pay the amounts outstanding under two of the contracts, plus other costs.
Alstom subsequently sought to annul the award, but its application was dismissed by the Federal Court in Lausanne. Concurrently, the Paris Court of First Instance enforced the award in France. Alstom appealed this decision before the Paris Court of Appeal on a number of grounds, including that enforcement would be contrary to public policy. Specifically, Alstom argued that:
The Paris Court of Appeal stated as a matter of principle that it:
The court then affirmed the principle that an arbitral award enforcing an agreement to trade influence or procure a bribe infringes the French conception of international public policy and therefore cannot be recognised or enforced in France.
Such a contract would be characterised by a body of evidence, such as:
The court went on to determine that the parties had not had the opportunity to address these elements and should proceed to do so in the enforcement proceedings. Accordingly, it ordered Alstom to produce the relevant evidence to this end.
While the Paris Court of Appeal's decision affirmed the principle that enforcement should be refused only in the event of a manifest violation of international public policy, its approach on the corruption allegation could conceivably signal a modification of the standard of review. A strict application of the requirement that the violation be 'flagrant' (as the Court of Cassation put it) should arguably have led to the enforcement of the award, since on its face there was no obvious violation of public policy. Instead, the court considered the consultancy activities at the heart of the dispute to raise sufficient suspicions of corruption to warrant further investigation before a decision could be rendered on the award's enforcement. Thus, the decision to investigate all of the factual and legal elements necessary to determine whether a manifest violation of public policy would occur demonstrates that the Paris Court of Appeal now scrutinises awards more intensively.
A separate question is whether such factual and legal investigations constitute a de novo review of an arbitral tribunal's decision on the merits of the case, which is prohibited under French law. In principle, a court should not seek to rehear the case, but should focus on the award in its assessment of the grounds to challenge it or resist its enforcement. The Alstom tribunal had already considered and dismissed the corruption allegation, finding that there was no evidence of unlawful activity. As it invited the parties to reargue this point and submit evidence in the enforcement proceedings, it is entirely possible that the Court of Appeal may reach a different decision from the arbitral tribunal, taking into account the several red flags arising out of the contractual arrangements between the parties.
However, the Paris Court of Appeal's re-examination of a case is limited to the single issue of corruption; therefore, it does not amount to a full de novo review of the award, which would have involved re-examining the entire record and reaching new determinations on the merits of the case. Further, whereas the arbitral tribunal's analysis on corruption was made within the framework of Swiss law, the court purports to revisit the issue of corruption in a different context – namely, the question of whether the enforcement of the award would offend international public policy as interpreted under French law. Thus, although its factual investigations may overlap with those previously conducted by the tribunal, the legal analyses and their purpose differ. In this light, the Court of Appeal's approach remains compatible with the general prohibition on the de novo review of the merits of a case by the courts.
To put Alstom and other decisions into context, it is important to recall that they involved allegations of corruption or money laundering – issues that are subject to ever-increasing scrutiny and legislation across the globe. The Paris Court of Appeal's approach may appear intrusive, but the court cannot be criticised for refusing to turn a blind eye to corruption or money-laundering allegations. The enforcement of corrupt or illegal contracts through arbitration carries the risk of bringing arbitration as a dispute resolution mechanism into disrepute. Moreover, challenges to international arbitral awards by the French courts are still rarely successful.
That said, the Paris Court of Appeal's statement regarding its power to undertake its own factual and legal investigations was not explicitly restricted to the context of corruption and could be extended to any potential violation of international public policy. Unless the Court of Cassation expresses a different opinion, it cannot be excluded that the Paris Court of Appeal could exert this power in relation to issues other than corruption or money laundering, such as alleged violations of EU law. Parties should therefore prepare to see allegations of a violation of the rules of public policy more vigorously tested at the challenge or enforcement stage.
For further information on this topic please contact Gisèle Stephens-Chu or Maxence Rivoire at Freshfields Bruckhaus Deringer by telephone (+33 1 44 56 44 56) or email (firstname.lastname@example.org or email@example.com). The Freshfields Bruckhaus Deringer LLP website can be accessed at www.freshfields.com.
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