THE FINAL DECISION IN THE VIDATEL CASE: THE APPLICATION OF THE PRINCIPLE OF EQUALITY IN THE CONSTITUTION OF THE ARBITRAL TRIBUNAL

In Vidatel v. PT Ventures, Mercury and Geni case (Cass. Civ. 1ère, 9 November 2022, No 21-17203), the French Supreme Court upheld the 2021 decision of the Paris Court of Appeal (26 January 2021, n°19/10666), rejecting Vidatel Ltd’s (Vidatel) request to set aside the 2019 ICC award rendered in favour of PT Ventures SGPS (PTV).  This case provides interesting further guidance on how the French courts may approach the principle of equality and how it can interact with the parties’ arbitration agreement.

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THE FRENCH SUPREME COURT UPHOLDS SET ASIDE OF AWARD DUE TO EVIDENCE OF MONEY LAUNDERING

In Belokon v. Kyrgyzstan (Cass. Civ. 1ère, 23 March 2022, No. 17-17.981), the French Supreme Court upheld the 2017 decision of the Paris Court of Appeal to set aside a $15 billion UNCITRAL award rendered in favour of Latvian investor Valeri Belokon (Belokon) in a dispute with the Republic of Kyrgyzstan (the Award). According to the Supreme Court, the Court of Appeal had not exceeded its powers by determining, based on its own analysis of the case, that enforcement of the Award in the French legal order would allow Belokon to benefit from the proceeds of money laundering contrary to French principles of international public policy.

This much-awaited decision confirms that when considering a challenge to a French seated award on the grounds of international public policy – at least with respect to allegations of corruption and money laundering – French judges have full authority to review the implications that enforcing the award would have on the French legal order. According to the Supreme Court, this necessarily includes full fact finding powers which are not limited by the evidence presented to the arbitral tribunal or its interpretation of the facts.

Background

The dispute arose from a series of measures taken by Kyrgyzstan in regards to Belokon’s investment in a local bank (the Bank) which was placed into administration and eventually declared insolvent by Kyrgyz authorities. Belokon subsequently initiated ad hoc UNCITRAL arbitration proceedings alleging breaches by Kyrgyzstan of the 2008 Latvia-Kyrgyzstan bilateral investment treaty (the BIT). The tribunal issued an award in Belokon’s favour in 2014 dismissing Kyrgyzstan’s claims that the Bank was engaged in money laundering practices.

As the seat of the arbitration was Paris, Kyrgyzstan applied for and successfully obtained set aside of the Award by the Paris Court of Appeal. As discussed in previous blog posts, article 1520 5° of the French Code of Civil Procedure (CPC) allows a party to seek annulment of an award where its recognition or execution would be contrary to French principles of international public policy (see previous post here).

The Court of Appeal found there to be strong evidence that Belokon acquired his interest in the Bank by corrupt means and in order to facilitate money laundering in the absence of effective government oversight. As a result, the Court of Appeal set aside the Award as its recognition in France would have allowed Belokon to benefit from his unlawful activities in circumstances which are contrary to the fight against money laundering, recognised by the Court of Appeal as a principle of international public policy.

Belokon subsequently appealed the decision to the Supreme Court on the grounds that the Court of Appeal had allegedly exceeded its powers under article 1520 5° by re-examining the merits of the Award de novo and substituting its own factual analysis.

Decision

The Supreme Court’s decision confirms that the prohibition and fight against money laundering is the subject of broad international consensus as recognised by the 2003 United Nations Convention against Corruption and is therefore included in the core principles which form part of France’s international public policy.

The Court went on to recognise that the role of the Court of Appeal was not to review Belokon’s underlying claim under the BIT or the allegations of money laundering under Kyrgyz law, but to determine the effect that recognising the Award would have on the French legal order. To this end, it was not bound by the evidence which had been put before the tribunal or its findings of fact, and was therefore entitled to find as it did that there was “serious, specific and consistent” evidence of money laundering practices in this case.

In circumstances where the Court of Appeal had found that recognising the Award would allow Belokon to benefit from suspected illegal activities, and would therefore result in a serious violation (“violation caractérisée“) of international public policy, the French Supreme Court upheld the set aside decision.

Comment

The non-interventionist and pro-arbitration stance of French courts has historically been such that the scope of the Court of Appeal and Supreme Court’s review of awards was extremely limited in the context of set aside proceedings. In recent years, however, the Court of Appeal had begun adopting a so-called “maximalist” approach to the review of certain international public policy violations, culminating in its controversial decision in Belokon.

By upholding the Court of Appeal’s decision on all counts, the Supreme Court has now confirmed the trend which has seen a broadening of the scope of French courts’ review in annulment proceedings based on allegations that enforcement of an award would give effect to illicit practices such as money laundering. However, it remains unclear if this trend is limited to allegations of corruption and similar criminal conduct, or whether it may apply to other serious or manifest breaches of international public policy.

Importantly, the decision of the Supreme Court states clearly that the Court of Appeal’s review of the facts underlying the allegation of breach of international public policy was not a substantive review of the findings of the tribunal but only a review of the conformity of the award with principles of international public policy.

The balance which the Court of Appeal and Supreme Court seek to strike is delicate and will no doubt give rise to further controversy, but the Belokon decision gives welcome clarity that where serious breaches of international public policy are at stake – at least with respect to matters of corruption and money laundering – French judges will not shy away from addressing difficult issues, including, where necessary, by carrying out a detailed factual review of the allegations of breach.

For more information, please contact Laurence Franc-Menget, Partner, Emily Fox, Of Counsel, or your usual Herbert Smith Freehills contact.

The authors would like to thank Louis Austin for his assistance with this article.

Laurence Franc-Menget
Laurence Franc-Menget
Partner
+33 1 53 57 73 70
Emily Fox
Emily Fox
Of Counsel
+33 1 53 57 72 48

 

HERBERT SMITH FREEHILLS LAUNCHES THE 3RD EDITION OF ITS GUIDE TO DISPUTE RESOLUTION IN AFRICA

We are delighted to present an updated version of our Guide to Dispute Resolution in Africa. This unique Guide presents the latest perspectives on dispute resolution procedures and trends in all of Africa’s 54 jurisdictions.

Drawing on the extensive knowledge of our Africa practice lawyers as well as experienced local counsel in each of the jurisdictions, the Guide answers some of the key questions asked by those facing disputes in Africa and by potential investors interested in the continent’s legal systems. With the expected increase in investment across an array of sectors and across the continent, the scope for formal dispute resolution in Africa has significantly increased and will likely continue to do so.

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FRENCH SUPREME COURT CLARIFIES THE SCOPE OF THE WAIVER RULE CONTAINED IN ARTICLE 1466 CCP, PAVING THE WAY FOR PARTIES TO PRESENT NEW ARGUMENTS AND EVIDENCE WHEN CHALLENGING A TRIBUNAL’S JURISDICTION BEFORE THE ANNULMENT JUDGE

On 2 December 2020, the French Cour de Cassation (Cass Civ. 1, No. 19-15.396) overturned a decision by the Paris Court of Appeal that had dismissed an application to set aside an arbitral award on the basis that the applicant has waived its right to raise, when contesting the arbitral tribunal’s jurisdiction before the French judges, new arguments that were not previously relied on before the arbitrators.

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NAVIGATING THE LOW OIL PRICE ENVIRONMENT PODCAST: HOW INVESTMENT TREATIES CAN PROTECT FOREIGN INVESTMENTS AGAINST STATE ACTION

Oil prices have recently reached historic lows and oil companies are faced with a number of potential legal issues as the prices impact their trading and operational agreements. In this podcast series, our energy disputes lawyers consider some of the key issues triggered by the current low oil price environment.

Even investments into relatively stable ‎jurisdictions may be affected by changes in the political and financial landscape. No investor can completely insulate their investment from such changes, but access to an investment treaty can be critical: Andrew Cannon, Laurence Franc-Menget and Hannah Ambrose discuss how investment treaties can protect foreign investments against state action in the second episode in the series.

The episode can be listened to here.

For more information, please contact Andrew Cannon, Partner, Laurence Franc-Menget, Partner, Hannah Ambrose, Senior Associate, or your usual Herbert Smith Freehills contact.

Andrew Cannon
Andrew Cannon
Partner
+44 20 7466 2852

Laurence Franc-Menget
Laurence Franc-Menget
Partner
+33 1 53 57 73 70

Hannah Ambrose
Hannah Ambrose
Senior Associate
+44 20 7466 7585

FRENCH COURT OF APPEAL UPHOLDS AWARD THAT WAS DENIED ENFORCEMENT IN ENGLAND

In Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait) [CA Paris, 23 June 2020, n°17/22943], the Paris Court of Appeal refused to set aside an arbitral award handed down by an ICC Tribunal seated in Paris, although the same award had been denied enforcement and recognition in England on the basis that the award was made against a non-party (our post on the English decision can be accessed here). The French court expressly rejected the argument that it was bound by the English decision.

This case is another illustration of the differences in approach between French and English courts with respect to (i) the identification of the law governing the arbitration clause and (ii) the extension of arbitration agreements to third parties.

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HERBERT SMITH FREEHILLS PROMOTES THREE ARBITRATION SPECIALISTS TO ITS GLOBAL PARTNERSHIP

Herbert Smith Freehills has promoted seven disputes lawyers to its partnership, out of a total of 22 worldwide. The promotions in the disputes practice, which take effect on 1 May, 2019, span right across the firm’s global network including: London, Paris, Dubai, Singapore, Hong Kong, and Sydney.

Of these new partners, three are arbitration specialists, reflecting the strength and importance of this ever growing practice area to the firm.

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OHADA ARBITRATION REFORM – PUBLICATION OF THE NEW UNIFORM ACT ON ARBITRATION AND THE REVISED CCJA ARBITRATION RULES

Almost 18 years after the Uniform Act on OHADA arbitration law was adopted and the Common Court of Justice and Arbitration created (the CCJA), the OHADA Council of Ministers has adopted three new, very important, texts for arbitration and dispute resolution within the OHADA area: a largely modified Uniform Act on arbitration law, revised CCJA Arbitration Rules, and a new Uniform Act on mediation. These new texts aim at strengthening and promoting alternative dispute resolution mechanisms in the OHADA area.

The arbitration reform aims to promote arbitration within the OHADA area, offering expedient, effective, and transparent arbitral proceedings and easily enforceable awards. The reform is also aimed at making the CCJA more attractive as a centre for arbitration by bringing its modus operandi closer to the international standards of other centres for arbitration, in order to position OHADA as a serious competitor on the African continent, including as a suitable venue in many respects for arbitration within the OHADA area.

The new Uniform Act on arbitration, the revised CCJA Arbitration Rules, and the Uniform Act on mediation were published in the OHADA Official Journal the 15 December 2017 and will entry into force on 15 March 2018. This blog piece addresses the first two texts.

For a French language version of this blog post, please click here.

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Environmental and Human Rights issues in Africa have international implications – know what rights and remedies apply

In the first of our regular Africa themed webinars, on Thursday 5 October 2017, 1.00 – 2.00pm BST, we will consider the international implications of environmental and human rights issues in Africa, including:

  • The extraterritorial impacts of a local crisis: international treaty claims and the growing trend of class actions
  • To stay or to go: the risks of exit vs. remaining in-country following a crisis
  • The importance of investment structuring to maximise protection
  • Relying on treaty rights in Africa if things go wrong
  • Preventing and managing crises in Africa

Speakers

John Ogilvie, Partner, Dispute Resolution, London

Andrew Cannon, Partner, International Arbitration, Paris

Laurence Franc-Menget, Of Counsel, International Arbitration, Paris

To register for the webinar, please contact Prudence Heidemans. Continue reading