Introduction
Facts
Decision
Comment
On 28 September 2021, the Paris Court of Appeal denied Libya's application to set aside the decision of the International Chamber of Commerce (ICC) on jurisdiction in Nurol v Libya on grounds of alleged corruption. The judgment follows previous rulings from the Court, such as those in Webcor v Gabon,(1) Sorelec v Libya(2) and Cengiz v Libya(3) (for further details, see "Paris Court of Appeal reaffirms "red flags" approach to corruption allegations in set aside proceedings"), which also dealt with set aside applications based on corruption charges. The decision clarifies that corruption allegations are matters for the merits and cannot oust a tribunal of jurisdiction. Neither are they grounds to deny enforcement of a jurisdictional award for violation of international public policy.(4)
The ICC award arose from three state contracts that Nurol had with Libya's African Engineering Projects Company and the Organization for Development of Administrative Centers to construct roads and school buildings. In 2011, Nurol was forced to stop construction due to violence and insurgent attacks on its work sites relating to the Arab Spring. Nurol was unable to resume construction and launched two treaty claims at the ICC against Libya under the Turkey-Libya Bilateral Investment Treaty 2009 (BIT).
Once the cases were consolidated, Libya objected to the tribunal's jurisdiction on the basis that the construction contracts had been obtained through corruption. The ICC tribunal bifurcated the proceedings and issued a partial award on 22 November 2018 upholding its jurisdiction with respect to nearly all of Nurol's claims.(5)
Libya applied to the Court to set aside the ICC award pursuant to articles 1520(1) and (5) of the Code of Civil Procedure.
Article 1520(1) allows a French court to set aside an award if a tribunal wrongly upheld or declined jurisdiction. Libya's position was that since the contracts had been obtained by bribery and corruption, Nurol did not qualify for treaty protection and the ICC tribunal should have declined jurisdiction.(6)
Article 1520(5) allows a French court to set aside an award if enforcing it would contradict international public policy. Libya argued that since there was "serious, specific and corroborative evidence of corruption" relating to the contracts, enforcing the award would "undermine the objective of combating corruption".(7)
The Court rejected both arguments.
The Court stated that while a judge has the power to review "all the elements of law or fact" in assessing the tribunal's award under article 1520(1), they cannot replace the arbitrator in deciding the lawfulness of the investment contract, which is a matter for the merits.(8)
A state's offer to arbitrate in a BIT is autonomous and independent of the validity of the contract giving rise to an investment; a tribunal is clothed with jurisdiction the moment an investor accepts this offer. Thus, unless the alleged corruption affects the very jurisdiction of the tribunal, it cannot be a basis to set aside a jurisdictional decision.(9)
According to the Court, Libya's corruption allegations could not justify setting aside the ICC award under article 1520(5) either. Judicial review here is limited to determining whether the enforcement of an award would violate the French concept of international public policy.(10) The Court said that enforcing the decision in Nurol v Libya would not violate public policy. Since it dealt only with jurisdiction, enforcing it only gave effect to the parties' agreement to have their dispute adjudicated through arbitration. The decision would not give effect to corruption, given its limited scope.(11)
Libya's other arguments for the decision to be set aside were also dismissed.(12)
The decision of the Court is instructive for a number of reasons.
It confirms that, like other arbitration agreements, agreements to arbitrate arising from the acceptance of a state's offer to arbitrate in a BIT are autonomous and independent of the validity or legality of the investments, contracts or transactions that give rise to the dispute.
Also of note is the determination that corruption allegations are a matter for the merits, taking the issue out of the remit of judicial review in relation to jurisdiction. This tends to strengthen still further the principle of competence-competence in France.
It also provides clear guidance to French courts as to how corruption claims should be treated. This is a helpful development in view of the inconsistent approach taken by investment tribunals that have, inter alia, treated corruption claims as matters of jurisdiction, merits or admissibility.
A number of tribunals, for instance, have found that treaty provisions requiring that an investment be "made in accordance with" the host state's laws are jurisdictional in nature. Grave or serious violations of law relating to the establishment of an investment, such as corrupting officials to acquire an investment, will oust a tribunal of jurisdiction.(13) Corruption relating to the performance or operation of an investment, on the other hand, is a matter for the merits.(14) Not all tribunals agree with this approach.(15)
In Al Warraq v Indonesia, the tribunal considered that it had jurisdiction over the dispute since it was undisputed that an investment was made. While the Organisation of the Islamic Conference (OIC) Agreement contained a "legality" requirement, it did not provide that illegality would oust the tribunal of jurisdiction.(16) Instead, the corruption and money laundering charges rendered Al Warraq's claims inadmissible based on the doctrine of unclean hands.(17)
Still, other tribunals relegate corruption claims to the merits on the basis of judicial economy.(18) This approach is the least analytical of all. While it may be beneficial to the administration of the case to consider a corruption claim at the merits stage where the parties would have full opportunity to present evidence, whether a corruption claim is jurisdictional or not is a question of law, not economy.(19)
The Court's decision cuts through this confusion by going back to basics. It considered that jurisdiction is an issue of consent. On that basis, it skipped the BIT's "legality requirement" in article 1 and looked at article 8, the provision relating directly to Libya's offer to arbitrate.(20)
Article 8 provides that the state's offer to arbitrate extends to all "disputes arising between one Contracting Party and an investor of the other Contracting Party concerning an investment of the latter". The offer is broad and does not prohibit arbitrating disputes relating to investments tainted by corruption or other illegality. Nurol accepted this offer when it notified its request for arbitration. Libya's corruption claims did not relate to either the state's offer to arbitrate or Nurol's acceptance since they concerned corruption allegations after the investment contracts had been executed. The tribunal therefore had jurisdiction.(21) As such, the corruption claims were for the tribunal to decide on the merits.(22)
The decision in Nurol v Libya is to be distinguished from the recent rulings by the Court in Webcor v Gabon,(23) Sorelec v Libya(24) and Cengiz v Libya(25). These three cases involved applications to set aside final awards on the merits under article 1520(5) of the Civil Procedure Code. In deciding these cases, the Court established a "red-flag" approach to assessing allegations of corruption. In contrast, a red-flag review was unnecessary in Nurol v Libya since it was obvious that enforcing a purely jurisdictional decision would not violate public policy, and would only uphold the parties' agreement to arbitrate.
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.
Camille Faure and Gaspard Fievet, interns, assisted in the preparation of this article.
Endnotes
(1) Paris Court of Appeal, 18/18708, decision of 25 May 2021.
(2) Paris Court of Appeal 18/02568, decision of 17 November 2020.
(3) Paris Court of Appeal, 18/27648, decision of 25 May 2021.
(4) Paris Court of Appeal, 19/19834, decision of 28 September 2021.
(5) The ICC tribunal upheld Libya's objections that it had no jurisdiction as to certain claims that arose before the BIT came into force. See Paris Court of Appeal, 19/19834, decision of 28 September 2021, paragraphs 16 and 92.
(6) Paris Court of Appeal, 19/19834, decision of 28 September 2021, paragraphs 41-45.
(7) Paris Court of Appeal, 19/19834, decision of 28 September 2021, paragraphs 97-99.
(8) Paris Court of Appeal, 19/19834, decision of 28 September 2021, paragraphs 52-64.
(9) Paris Court of Appeal, 19/19834, decision of 28 September 2021, paragraphs 57, 63.
(10) Paris Court of Appeal, 19/19834, decision of 28 September 2021, paragraph 101.
(11) Paris Court of Appeal, 19/19834, decision of 28 September 2021, paragraphs 103-104.
(12) This includes allegations that the BIT did not enter into force (Paris Court of Appeal, 28 September 2021, 19/19834, paragraphs 23-40); the investments were not protected investments under the BIT (Paris Court of Appeal, 28 September 2021, 19/19834, paragraphs 65-84); the ICC tribunal had wrongly upheld jurisdiction over claims predating the entry into force of the BIT (Paris Court of Appeal, 28 September 2021, 19/19834, paragraphs 85-96); and the ICC tribunal did not comply with its mandate by failing to ignore indications of corruption in relation to assessing the scope of the arbitration agreement (Paris Court of Appeal, 19/19834, decision of 28 September 2021, paragraphs 109-116).
(13) Metal-tech v Uzbekistan, ICSID Case No. ARB/10/3, Award, 4 October 2013, paragraphs 164-165, 185; Glencore v Colombia, ICSID Case No. ARB/16/6, Award, 27 August 2019, paragraphs 665-666; Hamester GmbH & Co KG v Ghana, ICSID Case No. ARB/07/24, Award, 18 June 2010, paragraphs 123-124; Fraport v Philippines (II), ICSID Case No. ARB/11/12, Award, 10 December 2014, paragraphs 328-329. The last two awards concerned other forms of illegality (ie, fraud and violation of a domestic law), but the analysis is the same.
(14) Kim v Uzbekistan, ICSID Case No. ARB/13/6, Decision on Jurisdiction, 8 March 2017, paragraphs 373-377.
(15) In fact, Zachary Douglas criticises it. A provision that an investment is "made in accordance with law" or similar language only requires that the investment be one that is recognised and acquired in the manner set out under the law of the host state. Thus, if the law of the host state requires a written agreement for the sale of land or delivery of share certificates before ownership is transferred, then the investor must be able to show that they complied with these requirements. It does not define the scope of the state's consent to arbitrate. As such, it is not a basis to review an investment's compliance with all of the host state's law for jurisdictional purposes.
There is also little merit for treating corruption claims differently based on when they were committed. Bribing a government official is an abhorrent act regardless of whether it is done to acquire an investment or to continue operating it. The "essence of illegality" is therefore the same so that the temporal distinction fails to justify the difference in results. Z, Douglas, "The Plea of Illegality in Investment Arbitration," ICSID Review, Vol 29 No 1 (2014), pp 155-186, 172-175.
(16) Al Warraq v Indonesia, United Nations Commission On International Trade Law (UNCITRAL), Award on Respondent's Preliminary Objections to Jurisdiction and Admissibility of the Claims, 21 June 2012, paragraphs 97-98.
(17) Al Warraq v Indonesia, UNCITRAL, Final Award, 15 December 2014, paragraphs 645-646; See also Littop v Ukraine, paragraphs 486-491, 536. In Littop, the tribunal stated that corruption will render an investor's claim inadmissible since treaty protections cannot apply to investments that are contrary to international public policy or the rule of law.
(18) Phoenix Action Ltd v Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009, para 104; Infinito Gold v Costa Rica, ICSID Case No. ARB/14/5, Decision on Jurisdiction, 4 December 2017, paragraphs 138-140.
(19) Z, Douglas, "The Plea of Illegality in Investment Arbitration," ICSID Review, Volume 29 No. 1 (2014), pp 155-186, p 171.
(20) Paris Court of Appeal, 19/19834, decision of 28 September 2021, paragraphs 59-60.
(21) Paris Court of Appeal, 19/19834, decision of 28 September 2021, paragraphs 59-60
(22) Paris Court of Appeal, 19/19834, decision of 28 September 2021, paragraph 63.
(23) Paris Court of Appeal, 18/18708, decision of 25 May 2021.
(24) Paris Court of Appeal 18/02568, decision of 17 November 2020.
(25) Paris Court of Appeal, 18/27648, decision of 25 May 2021.