Paris Court of Appeal highlights the growing importance of compliance with anti-corruption rules in arbitration

Stéphane de Navacelle 
​​​​​​​Navacelle Law, Paris
sdenavacelle@navacellelaw.com

Princessa Fouda
Navacelle Law, Paris
pfouda@navacellelaw.com

Martin Méric
Navacelle Law, Paris

On 17 November 2020, the Paris Court of Appeal (Cour d’appel de Paris) set aside two awards[1] rendered in a dispute between the French private company Sorelec and the State of Libya. It relied on previous decisions of the French courts[2] and held that corruption is a violation of ‘international public policy’.[3]

As part of the arbitration proceedings related to contracts entered into by Sorelec and the State of Libya for the construction of schools and housing units, the arbitral tribunal rendered a partial award on 20 December 2017, in which it validated and recognised the settlement agreement entered into by the parties.

Since the State of Libya failed to perform its obligations under the Settlement Agreement within the required time, the Arbitral Tribunal issued a final award on 10 April 2018, ordering it to pay millions of euros to Sorelec. In response, the State of Libya initiated an action before the French courts to set aside both awards, claiming that the settlement agreement was obtained by means of corruption and thus violated international public policy under Article 1520 (5) of the French Code of Civil Procedure.

According to the court, the prohibition of corruption of public officials is one of the principles of the French legal system. Therefore, and pursuant to article 1520 of the French Civil Procedure Code which provides that ‘recourse for setting aside is valid only if: … the recognition or enforcement of the award is contrary to international public policy’. Corruption is a ground for setting aside awards.

In addition, the Paris Court of Appeal reiterated its long-standing case law[4] whereby ‘the French concept of international public policy implies that the State judge is entitled to assess the ground for the violation of international public policy even though it was not raised before the Arbitral Tribunal’.

As reaffirmed by the Court, the State judge’s scrutiny has a specific and separate purpose from that of the arbitral tribunal.[5] It is up to the judge to assess whether ‘the recognition or enforcement of the award manifestly, effectively and concretely violates international public policy’.

The Court once again adopted the definition of corruption as provided under article 16 of the United Nations Convention against Corruption, 2003, which it had earlier endorsed in the Alstom v. Alexander Brothers decision of 28 May 2019[6] and Sécuriport decision of 27 October 2020[7]. The Court also referred to the definition provided by article 1 of the OECD Convention on Combating Bribery of 1997. This demonstrates the clear willingness of French Courts to harmonise with the worldwide approach to corruption in arbitration.

Consistent with its previous rulings, the Paris Court of Appeal applied in this instance the so-called ‘red flags’ test. According to this method, the courts admitted corruption by relying on circumstantial evidence provided that it is serious, precise and consistent, without requiring direct evidence.[8] In its decision, the Court applied this circumstantial evidence methodology, stating that the different circumstantial evidence submitted by the State of Libya were sufficiently ‘serious, precise and consistent’. Relying, inter alia, on the general context of corruption in Libya, it concluded that the settlement agreement had concealed a corrupt scheme. The Paris Court of Appeal noted a set of red flags such as the Libyan political situation and its unclear government structure, the abnormal government procedure followed for concluding the protocol, the lack of precision or the brevity of the duration of the negotiations regarding the protocol, and conditions of the protocol exclusively in favour of one party.

The decision adopted by the Court is in line with recent case law, which reinforces the importance of compliance with anti-corruption rules in arbitration.[9] Corruption issues should therefore be carefully considered as a major risk by those involved in arbitration proceedings and should thoroughly be taken into consideration by arbitrators who are increasingly seeing their awards set aside if it gives effect to corruption-tainted contracts.

The fight against corruption and in favour of business ethics is henceforth becoming an essential issue in arbitration.​​​​