Category: Legal news

The Paris Court of appeal granted the Malaysian government’s application to stay the enforcement of the USD 14.92 billion award granted earlier this year in favor of the heirs of the Sultan of Sulu and North Borneo, while the heirs attached assets of the Malaysia’s state energy company in Luxembourg.

In a recent newsletter, Alerion partner Jacques Bouyssou, counsel Marie-Hélène Bartoli Vallet and associate Juan Diego Niño-Vargas commented this multi-billion award.

Now, in addition to its unique historical background and the considerable amounts at stake, this matter evolves interestingly at the stage of the recognition and enforcement of the sole arbitrator’s decisions before the Paris Court of Appeal.

Brief background of the case

In 1878, Muhammad Jamalul Alam, Sultan of Sulu and North Borneo, entered into an agreement with German and British merchants, by which the Sultan received annual rental payments in exchange for the exploitation of natural resources of the north coast of the island of Borneo, at the time a Spanish territory under his control, today in the Malaysian State of Sabah.

The merchants’ rights were transferred in 1963 to the Malaysian State, which became responsible for the payments, but stopped paying the annual rental in 2013.

In 2017, the Sultan’s heirs launched an ad-hoc arbitration and obtained from Spanish Courts the appointment of Dr. Gonzalo Stampa as sole arbitrator. Dr. Stampa issued a Preliminary Award confirming its jurisdiction, determining Madrid as the seat of arbitration and the international principles as lex causae.

Malaysia challenged the appointment of Dr. Stampa before the Superior Court of Justice of Madrid which, on 29 June 2021, annulled Dr. Stampa’s appointment.

However, the Sultan’s heirs obtained from the Judiciary Tribunal of Paris an Enforcement Order of the Preliminary Award and Dr. Stampa then relocated the seat of arbitration from Madrid to Paris on 29 October 2021.

In parallel, Malaysia lodged an appeal against the Enforcement Order before the Paris Court of Appeal and obtained an order suspending its effects on 16 December 2021.

On 28 February 2022, after four years of proceedings, the sole arbitrator delivered a Final Award in favor of the heirs of the Sultan, allocating them USD 14.92 billion in damages for Malaysia’s breach of the agreement.

Request to set aside the Final Award and stay its enforcement

Malaysia applied before the Paris Court of Appeal to set aside the Final Award and to stay its enforcement. A judge was assigned to the case to issue a preliminary ruling on the request to stay enforcement.

Under French law, international arbitration awards are enforceable even when a request to set aside the  award is pending. Under Article 1526 of the French Code of civil proceedings, a party may however obtain a stay of the enforcement if it proves that the “enforcement could severely prejudice/damage [its] rights”.

Malaysia alleged that the enforcement of the Final Award could severely prejudice its rights on two grounds.

Firstly, Malaysia alleged that the Final Award could infringe its sovereignty since it provides that Malaysia is not the owner of the territories subject to the 1878 Agreement, but merely the tenant. Malaysia argued that its sovereignty over these territories was recognized by the international community and that the permanent sovereignty of a State over its natural resources is a component of its territorial sovereignty.

Secondly, Malaysia alleged that the procedural context under which the Final Award was rendered would be prejudicial, referring to Dr. Stampa’s decision to relocate the seat from Madrid to Paris after the annulment of his appointment by Spanish Courts and to the fact that he rendered the Final Award after the Paris Court of Appeal decided to suspend the Enforcement Order of the Preliminary Award.

The Paris judge first dismissed these allegations regarding the procedural background, considering that they would be assessed by the Court when ruling on the merits of the application to set aside the Final Award, but that they did not characterize any prejudice to Malaysia’s rights resulting from the enforcement of the Final Award.

Then, however, the Paris judge accepted Malaysia’s main argument based on the potential infringement of its sovereignty. He pointed out that even if Dr. Stampa held that the award did not affect Malaysia’s sovereignty, the Paris judge was not precluded from considering the merits of Malaysia’s allegations regarding the potential consequences of an immediate enforcement of the Final Award on its sovereignty.

The judge noted that the Final Award allocated damages to the Sultan’s heirs that were equivalent to the value of the exploitation of natural resources of the disputed territories which were under Malaysia sovereignty. On this basis, he decided that such indemnity was a financial equivalent to a restitution of the territories, and that the enforcement of such indemnity cannot not be considered as the mere enforcement of a commercial contract.

Additionally, the judge highlighted the geopolitical context of the matter. He noted that Malaysia had stopped paying the annual rental after a Filipino armed rebel group launched an attack against the Malaysian State of Sabah. He also pointed out that the Sultan’s heirs had themselves submitted to the sole arbitrator that a restitution of the territories could provoke uprisings, civil war, unrest, or other disturbances in the region.

The judge concluded that the enforcement of the award could seriously prejudice Malaysia’s rights.

In its decision dated 12 July 2022, the judge of the Paris Court of appeal stayed the enforcement of the Final Award.

Attachment of Petronas assets in Luxembourg

In parallel, the Sultan’s heirs started the enforcement of the Final Award in Luxembourg. Both the Preliminary Award and the Final Award were recognized by local courts.

On 11 July 2022, a day before the Paris Court of Appeal ordered the stay of the enforcement of the Final Award in France, assets of Malysia’s state energy company, Petronas, were attached in Luxembourg.

The Sultan’s heirs had bailiffs in Luxembourg serve two seizure notices (saisies-arrêts) by local courts to two subsidiaries of Petronas, Petronas Azerbaijan (Shah Deniz) and Petronas South Caucasus.

The attached subsidiaries formerly managed the State entity’s operations in Azerbaijan. The specialized press reports that the relevant assets amount to over USD 2 billion.

However, Petronas published a statement indicating it had “previously divested its entire assets in the Republic of Azerbaijan and the proceeds from the exercise have been duly repatriated” and is, in any case, preparing its legal position to challenge the attachments.

Conclusion

This historic case will continue evolving and will be subject of study due to its geopolitical implications and to the unprecedented decisions of the sole arbitrator and State courts.

There are high expectations for the decision of the Paris Court of Appeal on the request to set aside the award and for the outcome of the enforcement proceedings that the Sultan’s heirs could launch around the world.

Jacques Bouyssou, Partner, Marie-Hélène Bartoli Vallet, Counsel and Juan Diego Niño-Vargas, Associate

Whereas the tax regime of “inpatriates” is known and implemented in multiple companies, it is less so in sport clubs, which does not mean that it is ignored, far from it.

A tax exemption that everyone can benefit from…

The “inpatriates” tax regime is a mechanism providing for a tax exemption of additional remuneration paid to employees / players recruited abroad. In certain cases, this additional remuneration may be fixed at 30% of the remuneration before taxes.

Thus, everyone can benefit from such a mechanism insofar as it allows French companies and sports clubs to reduce their payroll costs. This is implemented during the negotiation of the employee or player’s remuneration (on a net basis after taxes) while maintaining said employee or player’s salary level.

This mechanism also allows the beneficiary to exceed the 30% tax exemption, particularly when working abroad (for example when the club qualifies for European competitions) up to a 50% exemption of the total net remuneration.

In addition, it is combined with a partial exemption of certain foreign patrimonial income, such as dividends or capital gains on the sale of company rights.

Lastly, a real estate wealth tax (“impôt sur la fortune immobilière” – IFI) exemption is also applicable for 5 years on real estate assets held outside France.

… Provided that the conditions are met

In order for the conditions to be met and the exemption to apply, the employee/player must have spent more than 5 full calendar years (and not 5 seasons) abroad before moving or returning to France.

It is recommended to include the “inpatriates” bonus in the employment contract prior to the move to France, and to ensure that it corresponds to an additional remuneration compared to the one received by players recruited in France with the same profile.

The exemption can be applied until the end of the 8^th year following the move to France, which however supposes that the player does not change club.

A mechanism designed to attract foreign talent to France

What is understandable for employees of French companies is also understandable for sportsmen and women; the international competition in which clubs from all over the world take part has prompted the legislator to create incentive mechanisms aimed at competing and attracting the best talent.

This is the very essence of the legal text, which gives French clubs some weapons to try and make themselves heard on the transfer market, even if equivalent mechanisms exist in other European countries; Paul Pogba will thus be a potential beneficiary of the Italian “inpatriate” tax regime when he signs his contract with Juventus after six seasons spent at Manchester United.

An attractive tax mechanism to compensate for the high level of French social security contributions

The level of social security contributions in France being known as one of the highest in the world, this small advantage can sometimes make the difference in arduous discussions between clubs and agents during the Mercato (transfer period), by acting as a counterbalance to these high social contributions with a tax system more in line with the standards of neighbouring countries.

Thus, while the marginal tax rate in France can be as high as 49% (adding to the tax itself the exceptional contribution on high incomes, which can reach 4%), this rate can drop to around 35% when the “inpatriate” exemption is applied.

Thus, everyone can benefit from such a mechanism insofar as it allows French companies and sports clubs to reduce their payroll costs. This is implemented during the negotiation of the employee or player’s remuneration (on a net basis after taxes) while maintaining said employee or player’s salary level.

Jacques Perotto, Partner, and Julien Lebel, Counsel.

Keep it in mind #1: Working time in days: don’t forget the annual interview!

Each year, employees who are subject to a working time scheme set up in days (“forfait jours”) must benefit from an interview aimed at discussing their workload, the balance between their personal and professional life, their remuneration and the organization of working time within the company.

This interview must be separate from the performance review and must be documented.

In the absence of such an interview, the “forfait jours” may be deemed void, allowing the employee to request the payment of overtime and/or damages.

Case law: Validity of the “Macron” damages scale

In 2017, the French government set up a scale of indemnification for dismissals deemed without cause, with ceilings for damages. 

Some Labor and Appeal Courts dismissed the application of this scale, based on the interpretation of European and international rules.

The French Supreme Court ruled on this matter in two recent decisions: the scale is validated and may not be quashed by judges.

French Supreme Court – 11^th May 2022, n°21-14.490 and 21-15.247

Social database: environment indicators

Companies with more than 50 employees shall implement a social database with various indicators regarding finance and HR topics. Such database shall now be completed by indicators related to the environmental impact of the company’s activity. These indicators may be agreed through a company-wide collective bargaining agreement. If not, a recent decree sets the items to be integrated, which includes: waste management in the company, assessment of the environmental impact of the company, energy and water consummation and emission of greenhouse gas.

Decree 2022-678 of April 26^th 2022

Article: Deliveroo France found guilty of undeclared work

The Paris Criminal Court convicted the platform Deliveroo and three of its former managers of “undeclared work”.

Jacques Perotto and Quentin Kéraval present their analysis of the decision.

Case law focus: working time

(i) The French Supreme Court is aligned on EU case law, and ruled that an employee who exceeded the maximum working time is automatically eligible to damages without having to prove the existence of a prejudice.

The French Supreme court thus created a new exception to the principle established in 2016, according to which the existence and extend of prejudice must be demonstrated by the plaintiff.

French Supreme Court – 26^th January 2022, n°20-21.636

(ii) A Company which does not justify having taken the necessary measures to ensure that the workload of an employee subject to working time scheme set up in days (“forfait jours”) remains reasonable fails in its obligation of safety. The plaintiff employee is thus entitled to damages for the resulting prejudice.

French Supreme Court – 2^nd March 2022, n°20-16.683

Case law: intentionality of moral harassment

Moral harassment is both a civil and criminal offense. However, there is a major difference between both qualifications:

• According to employment law, moral harassment is qualified independently of the author’s intention as long as the behavior meets the legal definition.

• On the contrary, for moral harassment to be qualified as a criminal offence, it is mandatory to prove the author’s intention to harass the employee.

The French supreme court recently confirmed this principle and ruled that to be criminally liable, the employer must be “aware of the degradation of working conditions“.

French Supreme Court – 22^nd February 2022, n°21-82.266

Jacques Perotto, Partner, Maxime Hermes, Anne-Sophie Houbart, Eloïse Ramos, Associates.

US Supreme Court, 13 June 2022, ZF Automotive US Inc et al v Luxshare Ltd

There has been much debate in recent years about whether 28 United States Code Section 1782 (“Section 1782”), which allows US district courts to order testimony or the production of evidence “for use in a proceeding in a foreign or international tribunal” could extend to international arbitration proceedings.

US Courts rendered conflicting decisions, resulting in divergent case law and legal insecurity.

On 13 June 2022, the US Supreme Court handed down a widely anticipated decision, ruling unanimously that “only governmental or intergovernmental adjudicative body constitutes a foreign or international tribunal” under Section 1782, which excludes arbitral tribunals.

Section 1782 of the United States Code

Section 1782 grants a federal court the power to enjoin a person residing or located within its jurisdiction “to give his testimony or statement or to produce documents or other thing for use in a proceeding in a foreign or international tribunal.”

The US Section 1782 discovery process is a powerful tool. It allows a party in a foreign proceeding to seek discovery in the United States to compel production of documents and information from the opposite party if the latter has a presence in the United States.

Section 1782 sets out the three following conditions:

• the application must be against an entity which resides or is found in the district of the court;
• the evidence sought will be used before a “foreign or international tribunal”; and
• the application comes from “a foreign or international tribunal” or “any interested person.”

A party who would try to resist a discovery request would face sanctions, ranging from adverse inferences (the court could consider the alleged facts as established) to contempt of court.

In Intel Corp v. Advances Micro Devices (2004), the Supreme Court ruled that Section 1782 authorises, but does not require, a federal district court to provide discovery assistance to foreign or international tribunals. In addition, the Supreme Court held that:

• the proceedings for which discovery is sought must be within reasonable contemplation, but do not need to be pending; and
• the scope of discovery is not limited by the rules restraining the gathering of evidence in the foreign jurisdiction; the application may therefore circumvent such foreign provisions.

Situation in France

A French statute was enacted on 16 July 1980, modifying a statute dated 26 July 1968 (“the Blocking Statute”), to channel foreign discovery requests (inter alia) by obliging foreign authorities to use judicial cooperation channels. It does not however prevent the transmission of data to foreign judicial authorities in case of litigation. It is commonly acknowledged that the Blocking Statute does not protect French companies against extensive discovery requests.

The European General Data Protection Regulation (“GDPR”) may also provide some basis to resist abusive requests, but its efficiency in the context of a US discovery remains to be ascertained.

The parties concerned are therefore to rely on US law to avoid unduly intrusive or burdensome claims (see notably in the Intel Corp case) and more generally, to resist “fishing expeditions” which instrumentalize disputes for the sole purpose of obtaining information.

Application of Section 1782 to Arbitration Proceedings?

The Intel Corp v. Advances Micro Devices case did not involve any arbitration proceedings, but the definition of “foreign or international tribunal” referred to by the Court was broad and could include arbitral panels.

The US district Courts split on the issue of whether the term “foreign or international tribunal” included arbitral tribunals and was thus applicable to foreign litigants in international arbitration.

On 13 June 2022, the US Supreme Court put an end to this debate, holding that Section 1782 is not applicable to foreign litigants in international arbitration.

The Court stated that the term “tribunal” should not be interpreted in its broadest sense which may include arbitral tribunals, but in its more formal sense, namely: “an adjudicator administering justice,” “on behalf of one or more nation-states.”

Regarding the terms “foreign” and “international”, the Court said that they refer to “the judicial or quasi-judicial body of a ‘foreign’ country, or an ‘international’ state-to-state commission or similar adjudicator body established by two or more nations”.

An arbitral panel is a “nongovernmental adjudicator to which parties consent, whether in a contract or a treaty.” Therefore, it does not fall within the above definition, neither in private commercial arbitration nor in investment arbitration.

Conclusion

The Supreme Court’s decision deprives arbitration practitioners of a powerful tool for obtaining evidence from parties located in the United States.

However, other mechanisms are available in international arbitration, with the possibility of drawing adverse inferences from a party’s reluctance to produce documents while ordered to do so, or before foreign courts, although they are often less spectacular than US discovery.  This decision may also be viewed as restoring equality of arms in the access to evidence in arbitration, as it prevents a party with a presence in the United States from being disadvantaged compared to another party which would not be present in the United States and therefore, would not be subject to Section 1782.

Jacques Bouyssou, Partner, Marie-Hélène Bartoli Vallet, Counsel and Constance Benoist, Associate.

After the social law chamber of the French supreme court (Cass. soc., 4 March 2020, n°19-13.316) recharacterized the service provision contracts of “UBER drivers” as employment contracts, the Paris Criminal Court sentenced Deliveroo France to pay a 375,000 euro fine for the offence of undeclared work, as well as some of its former directors to suspended prison sentences.

The company was accused of having “not declared a large number of jobs by intentionally failing to make pre-employment declarations and to issue pay slips, in this case, by using thousands of workers under a supposedly independent status via commercial contracts, while these workers were placed in a permanent legal subordinate relationship to the company (…)“.

The reasoning of the criminal court is in two steps:

Firstly, it denied Deliveroo the application of the presumption of self-employed status instituted by the legislation for the benefit of “electronic contact platforms”.

Such platforms are defined by the General Tax Code (Article 242 bis) as companies that “put people at a distance in contact with each other, by electronic means, in order to sell a good, provide a service or exchange or share a good or a service”.

For this presumption to apply, the criminal judge considers that it is necessary for the platform’s activity to be limited solely to putting people in contact with each other, with the latter (i) selling goods or services themselves and (ii) conducting the related transaction between themselves.

In the Deliveroo case, the company’s articles of association provided for “the delivery, directly or indirectly through third party service providers, of any product related to its corporate purpose, in particular any food product, ready-made meals, drinks, without manufacture by the Company”.

In fact, the Court considered that the Company did not limit itself to putting the restaurant owner and the consumer in contact with each other, as it is supposed to do under the terms of Article 242 bis of the CGI, in order to benefit from the presumption; it noted that:

• The restaurant owner and the consumer never came into direct contact;
• The orders were placed directly from the Deliveroo application;
• Deliveroo France, through its delivery drivers, took charge of the order and delivered it to the consumer.

The Court concluded that Deliveroo France was “a service platform” whose activity went far beyond simply “putting people in touch with each other” and which, consequently, could not benefit from the said presumption.

In a second step, the court carried out a classic assessment of the criteria of employment in order to characterise the existence of a subordinate relationship:

• Training provided by Deliveroo: in order to assess their skills, the “rider candidates” were required to undergo theoretical and practical training before starting their service, formalised by a precise analysis grid provided and supervised by Deliveroo France;
• The company’s involvement in the organisation of the riders’ work: the delivery processes were clearly defined by Deliveroo France, with no room for manoeuvre for the rider, who could not decide how to carry out his activity;
• Imposed dress code: the wearing of a branded outfit was made compulsory;
• Absence management: delivery personnel were subject to a system of compulsory connections with prior validation, preventing them from freely choosing the days, times and place of work;
• Invoicing: this was centralised within Deliveroo for all of its delivery drivers, just like the employer who draws up the pay slips for his employees;
• Monitoring of the activity of the riders: the geolocation system gave Deliveroo a real power of control over the activity of the riders, with refusals to take the job having an impact on the possibility of signing up for certain time slots, for example;
• Pricing: impossible for the riders to freely negotiate their prices, as these were decided unilaterally by Deliveroo;
• Exercise of disciplinary power: absenteeism sanctioned by withholding of fees or downgrading in the shifts; or even termination of the commercial relationship.

In practice, delivery riders who made a large number of deliveries and had low absenteeism were favoured in terms of their ranking, to the detriment of the others (indirectly punished for their low attendance), by a priority on the choice of days and time slots worked (weekends being the most lucrative and therefore the most prized).

On the basis of this “bundle of evidence”, the Paris Criminal Court considered, in order to characterise the offence of undeclared work, that (i) the delivery riders should be considered as employees and that (ii) it was intentionally that Deliveroo France had disregarded its obligations to declare and to draw up payslips.

Where do we go from here?

Two conclusions can be drawn:

(i) Litigation related to the reclassification of a contract for the provision of services as a contract of employment can take place in three stages:

• In the criminal sphere via the recognition of a situation of undeclared work. 

Once the criminal offence has been established:

• URSSAF litigation before the judicial court: the recognition of a legal subordination link results in the reinstatement of all the sums paid in the scope of social security contributions.
• Then, labour court action to obtain severance pay, compensation for notice, compensation for unfair dismissal, back pay for the last three years (in particular non-compliance with the minimum collective agreement, overtime, additional pay for Sunday work) and claims for damages (non-compliance with maximum daily and weekly working hours, non-compliance with break/rest times, prejudice linked to retirement, lack of training, etc.).

(ii) This decision could clearly jeopardise this type of business model, apparently widely shared by Deliveroo’s competitors…

Jacques Perotto, Partner and Quentin Kéraval and Eloïse Ramos, Associates.

Cass. Civ. 1^st, 23 mars 2022, n° 17-17.981

Paris, 5 April 2022, n° 20/03242

In a long-awaited decision dated 23 March 2022 rendered in the Belokon case, the French Cour de cassation (French Supreme Civil Court) confirmed that the conformity of arbitral awards with French international public policy could be subject to a “maximalist review” by the annulment judge.

This reversal of the same Court’s previous case law confirmed the latest rulings of the Paris Court of Appeal, while modifying the test for a breach that could result in the setting aside of the award. This will undoubtedly be commented on extensively.

Then, in a decision dated 5 April 2022, Gabonese Republic v. Société Groupement Santullo Sericom Gabon, the Paris Court of Appeal set aside an award on the ground that its recognition or enforcement would violate French international public policy, using the same test as the Cour de cassation in Belokon. 

The Belokon case: background

In 2007, a Latvian citizen, Mr. Belokon, acquired a Kyrgyz bank, Manas Bank. The National Bank of Kyrgystan later placed the bank under temporary administration, then sequestration, which finally led to the bank being declared insolvent. Mr. Belokon initiated arbitration proceedings based on the Latvia-Kyrgyztan bilateral investment treaty (BIT). The Kyrgyz Republic’s defence was essentially based on the allegation that Mr. Belokon’s investment in Manas Bank was aimed at setting up money laundering and/or tax evasion schemes.

In an award dated 24 October 2014, the arbitral tribunal recalled the importance of the fight against money laundering. However, it also noted that the fundamental principles of due process and burden of proof should not be disregarded when dealing with such allegations. The arbitral tribunal found that the respondent had failed to bring sufficient evidence to support its allegations and awarded Mr. Belokon USD 33 million as compensation for the violation of the fair and equitable treatment standard provided for in the BIT.

The Kyrgyz Republic initiated proceedings to set aside the award before the Paris Court of Appeal. By a decision dated 21 February 2017, the Paris Court of Appeal examined both in fact and in law the parties’ positions, ruled that there was “serious, precise, and concurring evidence” of money laundering practices and set aside the award. According to the Court, the recognition or enforcement of the award would otherwise result in Mr. Belokon benefiting from the proceeds of criminal activities, which was a “manifest, actual and concrete” violation of international public policy.

Mr. Belokon appealed against this decision, claiming that the Court was not allowed to reinvestigate the merits of the case. This led the Cour de cassation to (finally!) rule on the scope of the review of the award by the annulment judge when international public policy is at stake.

The “maximalist” review of the conformity of the award with international public policy

As a reminder, for many years, French case law was understood as favouring a “light” standard of review to determine potential violations of international public policy by arbitral awards, since the Paris Court of Appeal decision in SA Thales Air Defence v. GIE Euromissile (Paris, 18 Nov. 2004)and the Cour de cassation ruling inSté SNF v. Sté Cytec Industries BV (Cass., Civ. 1^st, 4 June 2008). To lead to sanction, the violation had to be “flagrant, actual and concrete”. The same approach was applied even when the award was challenged based on allegations of corruption, such as in the Schneider case (Cass., Civ. 1^st, 12 February 2014; contra: Paris, 30 September 1993, Westman).

Since 2014, the Paris Court of Appeal has taken a different approach in favour of a fuller scrutiny of arbitral awards, first when internationally recognized criminal offenses such as bribery and money laundering were alleged (Sté Gulf Leaders for Management and Services Holding Company v. SA Crédit Foncier de France, 4 March 2014; Congo v. SA Commissions Import Export, 14 October 2014, Alstom v. Alexander Brothers, 28 May 2019), then also when other violations of French international public policy were at stake (MK Group, 16 January 2018). In all these cases, the Paris Court of Appeal carried out a review of the law and facts (including new evidence) to determine whether the recognition or enforcement of the award violated French international public policy in an “actual and concrete” manner, while the requirement that the breach be “manifest” or “flagrant” was not always reaffirmed.  

However, in a recent decision, the Aix-en-Provence Court of Appeal applied the minimalist approach (Aix-en-Provence, 17 June 2021). A decision by the Cour de cassation was therefore awaited by arbitration practitioners in France.

In its Belokon decision, the Cour de cassation endorsed the Paris Court’s approach, and approved it for having:

• Referred to an “international consensus” as reflected in the UN Anti-Corruption Convention of 9 December 2003 (the “Merida Convention”) instead of French criminal law, to support its finding that the prohibition of money laundering belongs to the French international public policy;

• Fully investigated the allegation that the recognition or enforcement of the award would violate international public policy by impeding the fight against money laundering, without however assessing the merits of the award on all other aspects such as its compliance with Kyrgyz law or the obligation of fair and equitable treatment provided for in the BIT (which would fall outside the scope of the annulment judge’s mission);

• Decided that such investigation was neither limited to the evidence produced before the arbitrators, nor bound by the arbitrator’s findings, provided that due process (principe de la contradiction) and equality of arms were complied with;

• Relied on several “serious, precise, and concurring” indicators that money laundering had occurred, applying what commentators described as a “red flags” method; and

• In light of the above, decided that the recognition or enforcement of the award would violate French international public policy, “in a characterized manner” according to the Cour de cassation which therefore departed from the previous standard requiring a “flagrant [or manifest], actual and concrete” breach.

Then, in the abovementioned decision in Santullo dated 5 April 2022, the Paris Court of Appeal set aside an award on the ground that it gave effect to contracts obtained by corruption and therefore, violated French international public policy “in a characterised manner.”  

These decisions mark the end of a long period of doubt as to the extent of the control of the compliance of arbitral awards with international public policy, at least in the case of alleged money laundering, corruption or similar internationally recognized offences.

Jacques Bouyssou, Partner, Marie-Hélène Bartoli-Vallet, Counsel, Constance Benoist, Adrien Boyer and Juan Diego Niño-Vargas, Associates.

Beau ciel, vrai ciel, regarde-moi qui change! – Paul Valéry

Report after report, the Intergovernmental Panel on Climate Change (IPCC) stresses that the climate is changing around the world and faster than expected. The extent of human responsibility is becoming clearer.  

The magnitude of the damage has led to a strong mobilization throughout the world.  Faced with the global nature of a phenomenon that defies borders, faced with the appearance in the courts of subjects deprived of legal personality (nature, future generations) or faced with the difficulty of apprehending causality, the law is called upon to reinvent itself. These difficulties do not stop plaintiffs: the multiplication of climate litigation is a major phenomenon in the legal sphere¹.

Before the courts of the signatory states of the Paris Agreement², plaintiffs can now rely on the normative framework it provides by setting an objective and emphasizing the role of non-state actors. National judges must draw on the arsenal offered by their law to render decisions whose scope goes beyond the territorial space of their State: decisions rendered here are commented on there.

The French judge, who has one of the most sophisticated intellectual constructs in the world, has the means to provide innovative responses to the challenges it faces. Climate litigation represents a laboratory for judges and lawyers.

1. The major climate trials and their influence in the world

2015 appears to be a pivotal year: while public opinion around the world was becoming aware of the seriousness of the consequences of global warming, and states were adopting the Paris Agreement, a court in The Hague handed down a decision that was widely commented on beyond Dutch borders. In the Urgenda case, the judge recognized the existence of a duty of care obliging the Dutch state to act more effectively against climate change. On appeal, the court³ added to this obligation articles 2 and 8 of the European Convention on Human Rights.

Elsewhere in the world, in South Africa⁴, Australia⁵ or Colombia⁶, states have been attacked for inaction or projects have been subject to requests for cancellation for not taking sufficient account of the climate.

One of the most remarkable features of climate litigation is the mobilization of youth and the focus on future generations, who in legal terms cannot be a subject of law. The Juliana case is a very symbolic illustration of this : a young American woman brought an action in the District Court of Oregon to denounce the failure of the United States government to reduce CO2 emissions. The case was based on rights enshrined in the U.S. Constitution (the right to life, liberty and property) and appealed to the Public Trust doctrine (certain resources cannot be privately appropriated and should be protected by the state). A similar reasoning allowed young Colombians denouncing the deforestation of the Amazon to have their right to a healthy environment, health and water recognized⁷.

Everywhere, human rights are invoked in climate matters. The Inter-American Court of Human Rights has recognized the fundamental right to a healthy environment and the impacts of climate change on human rights⁸.

2. French responses

a) The legal tools

At the international level, the European Convention on Human Rights offers means. Used successfully in the Urgenda case in the Netherlands, articles 2 and 8 can also be invoked before the French courts.  

As a result of international cooperation, the Paris Agreement now sets a target that can be used as a measure to determine the effectiveness of climate action. It provides a basis for legal action, especially since the European Union court⁹ recognizes the binding nature of national contributions under the Paris Agreement.

At the domestic level, the French Constitution has included the Charter of the Environment since 2005.

The legislator regularly completes the legal arsenal: creation of a chapter devoted to compensation for ecological damage in the civil code (law of August 8, 2016), inclusion of the ecological emergency and the goal of carbon neutrality in 2050 in the energy code (law of November 9, 2019)¹⁰, creation of specialized environmental courts and a judicial convention of public interest in environmental matters (law of December 24, 2020) or translation of part of the 146 proposals of the Citizens’ Convention for the Climate (law “Climate and Resilience” of August 22, 2021).

b) Emblematic cases

The State and transnational companies are called to account for their policies and activities.

In 2021, the administrative justice system handed down three decisions that outline the contours of the State’s responsibility in climate matters by subjecting French climate policy to judicial review and by recognizing the legitimacy of acting on climate matters.

The matter was referred to it by the municipality of Grande-Synthe, located on the coast and directly exposed to the consequences of global warming. In a decision dated July 1, 2021, the Council of State enjoined the Government to take additional measures by March 31, 2022 to achieve the objective of reducing greenhouse gas emissions by 40% by 2030.

In the so-called air quality case, the Council of State, considering that the measures taken to improve air quality were not sufficient, has, by a decision of August 4, 2021, condemned the State to pay a penalty of 10 million euros for the first half of the year 2021 to several organizations and associations involved in the fight against air pollution. It will evaluate the actions of the Government for the second semester of the year 2021 and may fix new penalties.

Finally, the case known as the “Affair of the Century”, supported by a strong citizen mobilization (petition signed by 2 million people), is based on the existence of a general principle of obligation for France to act on climate issues. The Paris Administrative Court was seized for wrongful failure to act on the basis of the IPCC report, the Paris Agreement, the Grenelle Acts 1 and 2, Article 1 of the Constitution and Articles 2 and 8 of the European Convention on Human Rights. In its decision of February 3, 2021, it recognized the fault of the State.

Companies are targeted both for the damage they cause and for failing to meet their reporting obligations.

For example, Total is being sued to assess the compatibility of its due diligence plan with the Paris Agreement or for failing to adequately assess the threats to human rights and the environment posed by an oil project in Uganda and Tanzania. The inadequacy of impact assessments with respect to foreseeable environmental effects is used to attack projects that may have adverse climate consequences.

The Council of State defined the judge’s new control in climate matters as a “trajectory control“.

Young legal concepts, the duty of care or the trajectory control are notions that the State as well as companies must now take into consideration to assess the climate impact of their activities.

3. Judging differently : the challenges to be met

Global warming and the resulting damage, often very far from the place of emission, escape any notion of borders. The judge is confronted with a global phenomenon which invites him to leave the national sphere and to appropriate the international norm.

The case of Lliuya against RWE is representative of this specificity of climate litigation. RWE being one of the biggest emitters of greenhouse gases, it is a Peruvian, Mr. Lliuya, who asks for compensation before a German jurisdiction for the melting of the glaciers in the Andes and the resulting threats for the city of Huaraz.

In France, the Constitutional Council, relying on the preamble of the Charter of the Environment, consecrated the constitutional value of environmental protection in a decision of January 31, 2020. This decision deals with a situation outside the national territory: the Constitutional Council was seized of the impact on human health and the environment of products prohibited in the European Union to countries authorizing their use.

Climate litigation questions the traditional concept of liability in many respects: admissibility comes up against the difficulty of determining the event giving rise to the damage, and the causal link comes up against the difficulty of attributing damage to a specific perpetrator.

To overcome the difficulties of establishing causality, the plaintiffs can rely on science and the work on the responsibility of greenhouse gas emissions.  The American researcher Richard Heede¹¹, for example, has drawn up a list of the main perpetrators of the acceleration of global warming, which makes it possible to determine, for each of them, a share of responsibility. In France, the Climate Action Network identifies the responsibilities of major companies.

Such works identify potential responsibilities very far away from the place where the damage is suffered.

Moreover, one of the most challenging questions may be how to protect things or natural entities that do not have rights. According to the distinction inherited from Roman law between persons and things, nature, a thing deprived of rights, is at the disposal of man, a subject of law. It can therefore neither initiate an action nor receive reparation.

The question of the legal personality of rivers or trees that do not belong to anyone, but the nature, should be one of the interesting debates of the century in the legal community.

Jacques Bouyssou, Vice Chair of the IBA Litigation committee, Partner and Head of Alerion’s Litigation, arbitration and white-collar crime department. 

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¹ Subject of study for the ClimaLex research group in France or the Environmental and Natural Resources Law & Policy Program at Stanford

² Paris Climate Agreement of 12 December 2015

³ Netherlands v. Urgenda Foundation, Court of Appeal of The Hague, Oct. 9, 2018

⁴ Earthlife Africa Johannesburg case, North Gauteng High Court, March 8, 2017

⁵ TAFE, New South Wales, Gloucester Resources Limited v Minister for Panning, February 8, 2019

⁶ Corte Constitucional Bogota Comuicado, Expediente D108664 Sentencia C035/16, _ February 2016

⁷ Andrea Lozano Barragan y otros v. Presidencia de la Republica y otros, Corte Suprema de Colombia, April 7, 2018

⁸ Opinion consultativa Corte Interamnericana de derechos humanos OC-23/17, Nov. 15, 2017

⁹ Trib. EU, order May 8, 2019, aff. T-330/18 : OJEU, n° C285, August 13, 2018

¹⁰ Article L. 100-1 A of the Energy Code: “a law determines the objectives and sets the priorities for action of the national energy policy to respond to the ecological and climate emergency.”

¹¹ Heede, Richard (2014) “Tracing anthropogenic carbon dioxide and methane emissions to fossil fuel and cement producers, 1854-2010”; Climatic Change (2014) 122:229-241

Our Environment law team explains the changes caused by the note published on December 20, 2021 by the Ministry of Ecological Transition. 

If you have any questions regarding the new procedures of ICPE or environmental law, please feel free to contact Philippe Mathurin or Fahima Gasmi.

This short video is an introduction to the key principles of foreign investments screening in France, when such investments are made in critical sectors. 

If you have any questions regarding foreign investments in France, please feel free to contact Frédéric Saffroy or Alice Bastien. 

As of April 1, 2022 (1), the French Strategic Intelligence and Economic Security Service (“SISSE”) will assist French companies receiving discovery demands or requests from foreign authorities to disclose sensitive and strategic information, strengthening the 1968 French Blocking Statute (the “Blocking Statute”) (2).

The SISSE – as a centralized department – will assist French companies to identify sensitive economic, commercial, industrial, financial, or technical information and will specify whether the information may be transmitted.

The targeted companies must inform the SISSE about any request from foreign public authorities or from any person acting on their behalf.
French companies will have to submit a file to the SISSE (using secure means), including an organizational chart identifying the natural or legal persons controlling the company, a description of its activities, a list of its main French and foreign competitors and the reasons for the applicant’s demand (3).

The SISSE will issue an opinion, together with relevant French authorities (department of Justice, department of Foreign Affairs, Anti-corruption Agency, Financial Markets Authority, etc.), within one month, on the applicability of the Blocking Statute’s provisions.

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The French Blocking Statute: a shield against extraterritorial foreign laws

The Blocking Statute prohibits the disclosure of sensitive economic, commercial, industrial, financial, or technical information by French natural and legal persons to foreign authorities or its use in foreign judicial or administrative proceedings (5), issued outside the framework of international mutual legal assistance schemes (6). A breach of those prohibitions is punishable by up to six months’ imprisonment and a EUR 18,000 fine (7).

French courts have only enforced this prohibition once, resulting in a EUR 10,000 fine (8). As a result, foreign authorities – mainly American courts – consider that the statute is not a valid reason to not comply with discovery or pre-discovery requirements (9).

The SISSE, created in 2016 and attached to the Directorate General for Enterprise (department of Economy), oversees France’s economic security policy. It coordinates the protection from foreign threats of technologies and companies. The SISSE works closely with other ministries, services (including intelligence agencies) and independent authorities to unify the national response.

Faced with increasing demands, mainly from the US (such as Alstom (2014), Société Générale (2018) or Airbus (2020) cases), French companies were asking for a real “weaponization” of the legislation – beyond the role attributed to the Anti-corruption Agency by the Sapin II Statute – to protect themselves from extraterritorial procedures such as e-discovery, Cloud Act and other subpoenas. It remains to be seen how this regulation will be considered by foreign authorities.

For any additional information, please contact the Compliance and Regulatory team.

Frédéric Saffroy, Partner & Alice Bastien, Associate.

(1) Decree n° 2022-207 of February 18, 2022.

(2) Statute n° 68-678 of July 26, 1968, modified by the Statute n°80-538 of July 16, 1980.

(3) Order of March 7, 2022, published in the French Official Gazette.

(4) Article 1 of the Blocking Statute.

(5) Article 1 bis of the Blocking Statute.

(6) For example, the Hague Convention of March 18, 1970, on the Taking of Evidence Abroad in Civil or Commercial Matters.

(7) Article 3 of the Blocking Statute.

(8) Criminal chamber, Cour de cassation, n° 07-83.227, December 12, 2007, in the “Executive Life” case.

(9) Société Nationale Industrielle Aérospatiale v. U.S. District Court for the Southern District of Iowa, 482 U.S. 522 (1987).