French Highest Civil Court adopts a wide scrutiny of arbitral awards in matters involving corruption and money laundering
Jacques Bouyssou, Marie-Hélène Bartoli-Vallet, Constance Benoist, Adrien Boyer and Juan Diego Niño-Vargas
Cass. Civ. 1st, 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. 1st, 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. 1st, 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.