Introduction
Facts
Paris Court of Appeal
Court of Cassation
Comment
On 23 March 2022, the Court of Cassation upheld the Paris Court of Appeal's decision to set aside the award in Belokon v Kyrgyz Republic (the Belokon award) based on charges of money laundering.(1) The decision affirmed the French courts' oversight over arbitral awards and endorsed a de novo review to determine whether there was a violation of international public policy under article 1520(5) of the Code of Civil Procedure.
The Belokon award arose from Mr Valeriy Belokon's investment treaty claims against the Kyrgyz Republic in relation to his investment in Manas Bank. Belokon bought Manas Bank through a tender process in 2007. Manas Bank was later placed under receivership in 2010. Successive sequestration orders followed until the bank was declared insolvent in 2015.(2) While Manas Bank was still sequestered, Belokon initiated ad hoc proceedings in 2011 under the Kyrgyz Republic-Latvia bilateral investment treaty (BIT).
The Kyrgyz Republic's defence centred on its allegations that Belokon had used Manas Bank to launder money.(3) The arbitral tribunal rejected this claim for lack of evidence(4) and awarded Belokon $15 million and costs in its award of 24 October 2014.(5)
In 2015, the Kyrgyz Republic renewed its money laundering claims against Belokon and applied to set aside the Belokon award on this basis under article 1520(5) of the Code of Civil Procedure.
In its decision, the Paris Court of Appeal declared that the fight against money laundering was a matter of international public policy in view of the 2003 United Nations Convention against Corruption (the Merida Convention). However, it was not concerned with whether Belokon was guilty of money laundering or whether the arbitral tribunal had correctly decided the merits. Rather, under article 1520(5), the Court's jurisdiction was limited to determining whether the recognition or enforcement of the Belokon award would hinder the fight against money laundering and therefore be contrary to international public policy. To this end, it was entitled to review the entire case. It also declared that its review was not limited to the evidence that had been presented to the arbitral tribunal, nor was it bound by the tribunal's findings as to whether Manas Bank or Belokon had been involved in money laundering.(6)
Proceeding on this basis, the Court found that there were "serious, clear and consistent indications" of money laundering. It followed that enforcing the Belokon award would allow Belokon to benefit from his illegal activities and would "manifestly, concretely and effectively" violate international public policy.(7) It therefore set aside the award.
Belokon appealed the decision to the Court of Cassation. He argued that the Paris Court of Appeal had overstepped the limits of a review under article 1520(5) because it had re-examined the merits of the case. To Belokon, there was also no basis for the Paris Court of Appeal's finding that the enforcement of the Belokon award would have given him the benefit of alleged money laundering operations, because the Court had not determined that the compensation awarded to him was derived from such operations, or that he had intentionally committed any of the acts of money laundering targeted by the Merida Convention.(8)
The Court of Cassation dismissed these arguments. It agreed with the Paris Court of Appeal that enforcing the Belokon award would be contrary to international public policy and held that it had therefore been correctly set aside.(9) The Court of Cassation also upheld the Paris Court of Appeal's position that review under article 1520(5) was not limited to the evidence before the arbitral tribunal, nor was the appellate court bound by the tribunal's findings.
Although written in a characteristically concise style, the Court of Cassation's decision clarified several points relating to a French court's review of an arbitral award under article 1520(5) of the Code of Civil Procedure.
First, the decision confirmed that the prohibition against money laundering forms part of the French concept of international public policy based on the Merida Convention. Moreover, an award may be set aside under article 1520(5) not only where it may give effect to an unlawful agreement, but also where its enforcement would allow a party to benefit from unlawful acts, here money laundering. In either circumstance, recognition and enforcement of the arbitral award would be contrary to international public policy.
Second, a prior criminal conviction was unnecessary for the Court to reach a conclusion that public policy would be violated. It sufficed that there were "serious, precise and consistent" indications of money laundering.(10) In Belokon, this was shown by:
- the singular relationship between Belokon and the former president of the Kyrgyz Republic;
- suspicious circumstances relating to Belokon's acquisition of Manas Bank; and
- the nature and circumstances of Manas Bank's transactions.
Third, the French courts are not bound by the evidence or findings of the arbitral tribunal. A de novo review may be undertaken to determine whether enforcing an award would contravene international public policy. This confirms the Paris Court of Appeal's recent application of article 1520(5) and contrasts with the "minimalist approach" the Court had adopted in SA Thalès Air Défense v GIE Euromissiles 18 years ago.(11)
In Thalès, the Paris Court of Appeal considered the argument that enforcing an award would breach EU competition law. The point had not been argued before the arbitral tribunal. The Court refused to assess the parties' arguments on this issue since its review of the award was limited only to manifest violations of international public policy. To the Thalès Court, determining whether the contractual arrangements were illegal under EU law would entail a closer look at the facts and law. This was tantamount to a review of the merits and therefore beyond the scope of its powers.(12)
The Paris Court of Appeal moved away from Thalès in subsequent decisions, such as Sté Gulf Leaders for Management and Services Holding Company (Gulf Leaders) v SA Crédit Foncier de France (CFF)(13) and Société MK Group v Onix.(14)
Gulf Leaders v CFF involved an award relating to a loan agreement which Gulf Leaders claimed had been procured by corruption, while MK Group v Onix related to a claim of document falsification and fraudulent acquisition of government permits. In both cases, the Paris Court of Appeal examined legal and factual elements de novo to determine whether enforcement of the awards would violate international public policy.(15)
The Paris Court of Appeal seemed to take a step back from this approach in Securiport v Benin. Securiport concerned a claim that the government contract that was the subject of the dispute had been procured by bribery.(16) While the Court opined that it could examine Benin's claim of corruption, the review was limited by the principle that it could not review the merits of the award.(17) Consequently, the Court focused on the facts established in the award.(18) Moreover, while the Court found that the failure to put the contract to tender was a significant indicator of corruption, it did not give much weight to this circumstance, because the Court considered itself bound by the tribunal's finding that Benin's public procurement laws did not apply.(19) This is a more limited review than that applied by the Court in Belokon, Gulf Leaders and MK Group. The Court of Cassation's decision upholding de novo review dispels any lingering doubts that the Securiport decision may have engendered about the appropriate level of review under article 1520(5).
The review is not unlimited, and is not an appeal on the merits. The Court of Cassation noted that while the Paris Court of Appeal had examined the evidence anew, it had not re-examined the merits of the Belokon award itself – that is, whether Belokon was actually guilty of money laundering (it being sufficient that there were indications that Belokon had bought and operated Manas Bank for this purpose) or whether the tribunal had been right to find that the Kyrgyz Republic had violated the BIT.(20) De novo examination was limited to determining whether enforcing the Belokon award would contravene international public policy.(21)
This may appear to be an artificial distinction where, as in Belokon, the court decides to completely re-evaluate the evidence or revisit previously decided issues with little regard for the tribunal's prior findings. However, while the method of a review under article 1520(5) may appear similar to an appeal on the surface, its standards and objective differ. In an appeal, the goal is to determine whether the award was correctly decided against the applicable law. The aim of a review under article 1520(5) is limited to determining whether the award complies with international public policy. This objective informs the review process and restricts it. Under this approach, errors in findings of fact or law become relevant to the extent that these may reveal a violation of public policy.
Finally, in Belokon, the Paris Court of Appeal applied the standard of "manifest, concrete and effective" breach of international public policy, but the Court of Cassation avoided using this language. To the Court of Cassation, article 1520(5) requires the French courts to ensure that recognition or enforcement of an award would be compatible with international public policy.(22) On its face, the Court of Cassation's decision could be interpreted to mean that any violation of public policy would appear to be sufficient to set aside an award or to refuse recognition or enforcement.(23) It remains to be seen whether this indicates a move away from the more stringent standard articulated by the Court of Appeal.
Overall, the Court of Cassation's decision appears to signal stricter control over arbitral awards in the area of public policy, and a potentially less stringent threshold for set-aside applications under article 1520(5).
For further information on this topic please contact April Lacson at Freshfields Bruckhaus Deringer LLP by telephone (+31 20 485 7000) or email ([email protected]). The Freshfields Bruckhaus Deringer LLP website can be accessed at www.freshfields.com.
Endnotes
(1) Court of Cassation, Appeal No 17-17.981, decision of 23 March 2022.
(2) Paris Court of Appeal, 15/01650, decision of 21 February 2017.
(3) Belokon award, 24 October 2014, para 50.
(4) Id, paras 151, 162-163, 168-170. Notably, the tribunal noted that Belokon's treaty claim would have been rejected had the Kyrgyz Republic presented substantial evidence of money laundering (para 158).
(5) Id, paras 335(C) to 335(E).
(6) Paris Court of Appeal, 15/01650, decision of 21 February 2017. The Kyrgyz Republic asked to submit new evidence to the Court to bolster its money laundering claims. The Court declined the request. It opined that while it had the power to accept new evidence, this was subject to the principles of contradiction, equality of arms and due process. The new evidence from the Kyrgyz Republic came from unidentified sources. It also appeared that Belokon had not been allowed to inspect these documents. Fairness and equality of arms therefore required that the new material be excluded from the proceedings.
(7) Paris Court of Appeal, 15/01650, decision of 21 February 2017.
(8) Court of Cassation, Appeal No 17-17.981, decision of 23 March 2022, paras 5 and 13. Belokon also argued that the Paris Court of Appeal had failed to provide reasons for its decision and that it had failed to ask the parties to comment on its observation that services provided by Manas Bank to certain individuals amounted to abuse of corporate assets. The Court of Cassation also rejected these arguments (paras 13 and 14).
(10) Otherwise known as the "red flags" approach, although the term itself was not used in either the Paris Court of Appeal or the Court of Cassation decisions.
(11) Some commentators criticised Thalès and pressed for a balanced approach to the review of awards. See, for example, C Seraglini, "Le contrôle de la sentence au regard de l'ordre public international par le juge étatique : mythes et réalités" (21 March 2009) Gazette du Palais No. 80, para 36. In this article, Seraglini argued that the judge should conduct an in-depth review of an award if prima facie there appears to be a material and serious breach of public order if it is enforced.
(12) See E Gaillard, "Extent of Court Review of Public Policy", New York Law Journal, Vol 237 No. 65 (5 April 2007).
(13) Paris Court of Appeal, 12/17681, decision of 4 March 2014.
(14) Paris Court of Appeal, 15/21703, decision of 16 January 2018. The Court also carried out an in-depth review of the arbitral award in Sté Alstom Transport SA v Sté Alexander Brothers Ltd. However, the Court of Cassation found that the Paris Court of Appeal's decision setting aside the award was based on a misreading of the evidence before it. Consequently, the Court of Cassation remanded the case to the Versailles Court of Appeal. Court of Cassation, Judgement No. 558 F-D, Appeal No. F19-19.769, 29 September 2021.
(15) An in-depth review does not necessarily lead to the set aside of an award. In Gulf Leaders, the Paris Court of Appeal found there was no evidence of corruption and upheld the award. In MK Group, the Paris Court of Appeal opined that there had been no falsification of documents. However, it still set aside the award, finding that the investor had defrauded the Laotian government by using different versions of a memorandum of understanding to obtain a permit to develop minefields in Laos.
(16) Paris Court of Appeal, 19/04177, decision of 27 October 2020.
(20) Court of Cassation, Appeal No 17-17.981, decision of 23 March 2022, para 8.