On 13 September 2017, the French Supreme Court upheld two decisions of the Paris Court of Appeal which had refused to enforce an arbitral award handed down on the basis of a contract obtained through corruption.
In the case at hand, Indagro (a Swiss company) and Ancienne Maison Marcel Bauche (Bauche) (a French company) had concluded a contract for the purchase, by Bauche, of fertilizers in Russia. Based on the contract, the fertilizers were to be delivered in Africa on a ship chartered by Indagro. The parties had also agreed that Bauche would pay certain penalties to Indagro if the period for loading and unloading the goods was exceeded.
Following a delay in the loading/unloading operations, a dispute arose between the parties with respect to the payment of the penalties and Indagro initiated arbitral proceedings against Bauche.
the principle of res judicata obliged the French civil courts to follow the ruling reached by the criminal court
In the meantime, alleging that the employee who had negotiated the contract on its behalf had been corrupted by Indagro, Bauche initiated criminal investigations and requested the arbitral proceedings to be stayed pending the outcome of those criminal investigations. The sole arbitrator, however, made the stay of the arbitral proceedings conditional upon the deposit of a bank guarantee by Bauche. Bauche, however, was unable to provide the bank guarantee and was subsequently liquidated. The sole arbitrator then rendered two final awards in Indagro‘s favour. Those arbitral awards were then granted exequatur in France.
Bauche’s liquidator appealed the exequatur orders alleging that the recognition and enforcement of those two awards would be contrary to international public policy since it would give effect to an agreement obtained through corruption. This argument was later reinforced by the fact that the criminal investigations found Indagro guilty of having indeed corrupted Bauche’s employee.
The Paris Court of Appeal (and subsequently the Supreme Court) upheld the arguments raised by Bauche and overturned the exequatur orders.
In its decision of 13 September 2017, the Supreme Court confirmed the judgments of the Paris Court of Appeal and found, in particular, that the principle of res judicata obliged the French civil courts to follow the ruling reached by the criminal court. Since the criminal investigations concluded that the contract between Indagro and Bauche was made by fraud and corruption, enforcing an arbitral award which allowed Indagro to benefit from a vitiated contract violated French international public policy.
Editors’ Note: This post previously appeared on the International Litigation Blog, and is reproduced with permission and thanks.