Paris Court of Appeal, No. 09-10.069 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal - 1st Pole – 1st Chamber, 1 July 2010, No. 09-10.069

THALES (FORMERLY THOMSON)
vs. BRUNNER SOCIEDADE CIVIL DE ADMINISTRACAO LIMITADA, FRONTIER AG BERN

On 19 July 1990, Thomson (X), now Thalès SA (E), entered into an agreement with Frontier AG Bern (G), a company incorporated under Swiss law, called a ‘collaboration’ contract relating to the direct or indirect sale of frigate-type vessels to the Republic of China (Taiwan). As the sale of these vessels was effectively concluded on 31 August 1991 (the so-called “Bravo” contract), the Portuguese company Brunner (D), assignee of G’s rights, requested payment of a commission of FF 160,000,000 from Thomson, who refused to comply.

Pursuant to the arbitration clause inserted in Article 9 of the contract, Frontier AG and Brunner have submitted this dispute to arbitration. The Tribunal, composed under the aegis of the International Chamber of Commerce, of Mr. AH-AI, President, and Mr. B and Mr. F, arbitrators, rendered its award in Geneva on 31 July 1996.

The arbitrators considered that the agreed services had been performed and that their intended purpose was lawful. The arbitrators have:

declared the requests of Brunner inadmissible, as the assignment of the rights granted by Frontier AG cannot be enforceable against Thomson,
established the validity of the agreement of 19 July 1990,
ordered Thomson to pay Frontier AG USD 25,125,851.52 and FF 12,691,040 with interest at the legal rate set by French law from the date of receipt by Thomson of each of the payments made by the Republic of Taiwan,
shared the arbitration costs.

Thomson’s appeal against this award before the Swiss Federal Supreme Court was rejected by a decision dated 30 January 1997. However, following the investigation opened in France, about the claims of attempted swindling and fraud in the judgment (in French: fraude au jugement) and the order of dismissal for termination of the prosecution rendered by the investigating judge on 1 October 2008, the Federal Court, following an appeal for review lodged by Thomson, by a judgment of 6 October 2009, quashed the award, considering that the arbitrators had been misled as to the real beneficiaries of the commission.

In France, the award received an order of execution from the President of the Paris Tribunal de Grande Instance on 4 September 1996. It was notified to Thomson, bearing the execution clause on 4 December 1996.

Thomson appealed against the exequatur order.

In a judgment dated 10 September 1998, this Court invited the public prosecutor to receive communication of various documents in the investigation file.

By a later judgment dated 7 September 1999, it ordered the public prosecutor to be provided with the documents in the case file:

declared Thomson’s appeal admissible,
said that there was no reason to exclude from the proceedings the criminal exhibits numbered D-840, D-841 and D-842 submitted by Thomson,
suspended the decision on the appeal until the final decision on the prosecution set in motion following the complaint filed by Thomson as a civil party on the grounds of attempted fraud is rendered.

As a result of the above-mentioned order of dismissal, the proceedings were resumed upon the initiative of Frontier AG on 28 April 2009.

In its pleadings of 19 May 2010, Thales seeks the reversal of the order of exequatur of the award, the rejection of the opposing claims, and an order for Brunner and Frontier AG to pay the sum of EUR 100,000 in damages to compensate for the damage caused by the pursuit in France of the enforcement of aa award obtained by fraud and annulled in Switzerland, and an order for the defendants to pay EUR 50,000 pursuant to Article 700 of the Code of Civil Procedure.

Thales invokes, on the basis of Articles 1498 and 1502-5 of the Code of Civil Procedure, firstly, the procedural fraud which consisted in concealing from the arbitrators the true purpose of the mission entrusted to Frontier AG, and secondly, the unlawfulness of the cause of the agreement of 19 July 1990.

By submissions of 12 May 2010, which mention Frontier AG’s name alone in their headings, but which tend, in their operative part, to find in favour of both Frontier AG and Brunner, the two respondents requested the Court to declare the appeal inadmissible and, in any event, unfounded, to dismiss the documents which had not been properly communicated, to confirm the order made, to order Thales to pay them the sums of EUR 200,000 in damages for abusive proceedings and EUR 35,000 pursuant to Article 700 of the Code of Civil Procedure.

In substance, they argue that Thales does not provide any evidence to establish the basis for the appeal; that the Court can only examine the complaint of breach of international public policy in the light of the facts as assessed by the arbitrators; that the arbitrators examined the hypothesis of influence peddling and dismissed it after an in-depth investigation of both sides; that their assessment cannot be called into question without a review of the merits of the award; that the annulment by the Swiss Federal Supreme Court is irrelevant; finally that the alleged fraud against the award cannot result from the statements in the dismissal order issued by the investigating judge without having questioned Frontier AG or the witnesses heard by the arbitral tribunal.

In their pleadings of 1 June 2010, the respondents requested that the closure pronounced on 27 May 2010 be revoked and the case postponed to a subsequent hearing, or, alternatively, to exclude from the proceedings the conclusions notified by Company Thales on 15 April, 20 May and 27 May 2010, as well as the documents that were not communicated in due time.

By pleadings submitted on the same day, company Thales sought the rejection of these claims.

UPON WHICH:

On the conclusions regarding the proceedings:

Whereas this Court’s judgment of 7 September 1999 ordered a suspension of proceedings until a decision was handed down on the public action initiated by Thomson’s civil action within criminal proceedings for attempted fraud; whereas on 28 April 2009, Frontier AG notified Thomson of the dismissal order of 1 October 2008 and, on the same day, asked the Pre-Trial Judge to reinstate the case; whereas, following the resumption of proceedings, Thomson, now Thales, notified its initial submissions on 15 April 2010; that by letter dated 5 May 2010, the SCP of appellate lawyers LAGOURGUE et Y, formed on 25 January 2005 for both Frontier AG and Brunner, requested the postponement of the closure, scheduled for 6 May, relying on the complexity of the appellant’s conclusions and the difficulty of communicating with its two foreign clients, one Swiss, the other Portuguese; that this postponement was granted until 20 May and that closing was notified on 6 and 12 May 2010 by SCP LAGOURGUE and Y; that Thales re-concluded on 19 May and 27 May, the closing having been postponed until the latter date;

Whereas the respondents were able to make useful submissions on 6 and 12 May 2010 following their opponent’s submissions of 15 April 2010; whereas the submissions notified by Thales on 19 May 2010 merely reply to Frontier AG and Brunner’s submissions of 12 May by restating the requests made in the previous submissions and developing the grounds already raised therein; that there is therefore no reason to revoke the closure pronounced on 27 May, nor to set aside Thales' submissions of 15 April and 19 May from the proceedings; on the other hand, the submissions notified by Thales on the very day of the closure shall therefore be set aside as late;

Whereas the documents submitted on 23 May 1997, 5 May 1998, 20 May 1999 and 15 April 2010 are part of the proceedings; whereas any other documents submitted by Thales are disregarded;

On the admissibility of the appeal:

Whereas the ground for dismissal, based on the fact that company Thales did not provide any evidence to establish the grounds for an appeal against a decision granting the exequatur to an international award, was rejected by the Court’s judgment of 7 September 1999, which had the status of res judicata in this case; whereas, moreover, this ground for dismissal is in fact lacking;

On the means of annulment taken from the violation of international public policy (article 1502-5 of the Code of Civil Procedure):

Thales argues that, it follows from the findings of the dismissal order issued on 1 October 2008 that the arbitrators were misled by false testimony tending to support the theory whereby the commission claimed by the respondents corresponded to a service provided by Mr. J A to the authorities in China, whereas the sums were in fact intended to finance influence peddling in France. Thales argues that this fraud should be punished on the basis of a breach of procedural public policy.

Whereas it follows from article 1502-5 of the code of civil procedure that an appeal is open against the decision granting the enforcement of an arbitral award made abroad if the recognition or enforcement is contrary to international public policy;

Whereas procedural fraud committed in the context of an arbitration may be sanctioned with regard to the international public policy of procedure; whereas it presupposes that false documents have been produced, that false testimony has been taken or that documents relevant to the resolution of the dispute have been fraudulently concealed from the arbitrators, so that the arbitrators' decision has been taken by surprise;

Whereas it is for the exequatur judge to examine all of the circumstances likely to characterise the alleged fraud, without it being possible to usefully oppose the ground based on the prohibition of revision of the merits of the awards, since the dispute relates precisely to the alteration, as a result of one party’s manoeuvres, of the assessment of the facts made by the arbitrators;

Whereas in deciding that the agreement concluded on 19 July 1990 between Thomson and Frontier AG was lawful, the arbitral tribunal held that it was clear from the evidence it had received that the service in dispute concerned interventions with the authorities of the People’s Republic of China and was not intended to influence the Taiwanese or French authorities, so that it could not be qualified as corruption or influence peddling;

That the award states (§ 63) that ‘it is certain that under the French law governing the present case, an agreement remunerating influence peddling is null and void, by application of articles 1108 and 1113 of the French AL Code. As Thomson CSF rightly maintains, this nullity is not peculiar to French domestic law, it is also enshrined in international public policy at times referred to by the French courts (…)'; the arbitrators further state (§ 67) that ‘in the case in point, it is clear that the purpose of the agreement was not to influence the authorities of the purchasing country (…) nor to obtain a favour from the French authorities. The purpose of the contract was to obtain the removal of political objections from a third country (mainland China) which was not a party to the commercial transaction, whose public or private funds were not involved in the transaction and where, therefore, the possibility of corruption is infinitely more remote than in ordinary cases where persuasion must be obtained from authorities directly responsible for the transaction’;

Whereas the arbitrators recognise that no information on the subject matter of the contractual relations can be drawn from the terms of the agreement concluded on 19 July 1990 between Thomson and Frontier AG which stipulates : “We hereby confirm to you the terms and conditions under which we have agreed to collaborate in the direct sale to the Government of the Republic of China (Taiwan), or to anybody authorised to represent it, or indirectly through a third country on condition that the sale is related to the above-mentioned programme, in a single or several times, by Thomson CSF acting as prime contractor, of sixteen Frigates ready for use or delivered in kits, under the above-mentioned programme. You will keep us regularly informed of the conditions under which this matter will arise in its various operational, financial, technical and commercial aspects. At our request, you will assist us in the negotiations that we will have to conduct”;

Whereas, because of the allusive nature of these stipulations, the arbitrators based their convictions exclusively on the hearings which they held - especially those of Mr. H I and Mr. J A - as well as on those of executives of Thomson and ELF-B, and on a letter addressed to them by Mr. R S, President of ELF-B at the time of the facts; whereas they deduced from these elements that ‘Mr. R S., the President of ELF-B, was not in a position to give an opinion on the facts of the case’. A had, through the ELF, received a mission from Thomson CSF to intervene with the Chinese authorities, in view of the excellent relations he had with them, to ensure that the People’s Republic of China appeased its hostility for the sale of frigates to the Taiwanese government’ (§ 59);

Whereas Thomson claims that the arbitrators were misled as to the real nature of the service, as a result of the terms of the dismissal order issued on 1 October 2008 in a report on the grounds of attempted fraud and abuse of company assets in connection with the sale of frigates to Taiwan;

Whereas it is appropriate to refer to the facts set out in this order since it has been duly produced in the present proceedings and since the respondents, who have been given the opportunity to argue the case, have not shown, or even alleged, that its statements are erroneous;

Whereas the order dismissing the case, which, with regard to the fraudulent nature of the judgment, found that the public action had been discontinued because of H I’s death, retains the following factual elements:

The real purpose of the contract was to change the position of the French authorities who had refused to authorise the operation so as not to offend the People’s Republic of China;
To this end, Thomson had decided to claim the services of H I, which at the time held a privileged relationship with ELF B;
H I was remunerated in a non-transparent manner by means of fictitious salaries paid by the Swiss subsidiary of that group, in particular Mr. A and Mrs. P Q, who had stated on 27 April 1990 before senior executives of Thomson that she was in a position to obtain the support of the Minister of Foreign Affairs for the conclusion of the sale;
H I, which was looking for a company that could act as a trustee for the proposed transactions, sought a relationship with Edgard D; a trust agreement was thus concluded on 12 July 1990 between H I and Frontier AG represented by Mr. D, to which Mr. D was entitled to give instructions directly;
A week later, on 19 July 1990, Mr. D, on behalf of Frontier AG, signed with Thomson the disputed agreement which provided for the payment of a 1% commission on the sale price of the ships;
The opposition of the Minister of Foreign Affairs was effectively lifted;
The absence of any actual performance in the People’s Republic of China is accredited by the fact that M. A was not the real beneficiary of the commission to be received by Frontier AG; indeed, on 4 July 1991, approximately one month before the signing of the so-called “Bravo” contract, H I and Brunner M - substituted for Frontier AG for tax reasons - concluded an agreement to split the 1% commission which Thomson had to pay to Frontier AG pursuant to the agreement of 19 July 1990: half was to be paid to an Irish company whose economic beneficiary was H I and the other half was to be credited to a bank account of Mrs. P Q;
It was H I who introduced Mr. A to Mr. D at the beginning of 1992, i.e. after the conclusion of the so-called ‘Bravo’ contract;
On 6 October 1992, i.e. more than one month after the initiation of the arbitration proceedings, Brunner M and a company YU HU XUAN, represented by Mr. A, signed, at the instigation of H I, a contract showing Mr. A as the beneficiary of the aforementioned 1% commission; on this basis, Mr. D was able to certify before the arbitrators that Mr. A was the beneficiary of the 1% commission, and H I even took the precaution of having the ELF B representative in China sign the contract as a witness; however, on 15 October 1996, D M received a letter from Mr. A and his shell company YU HU XUAN on letterhead authorising H I to change the addressees of the 1% commission;

Whereas it follows from all these elements that Mr. A’s performance was fictitious and that the commission claimed from Thomson was not intended to remunerate interventions with the authorities of the People’s Republic of China; whereas the tricks which misled the arbitrators as to the true cause of the payments claimed vitiate the basis of their reasoning, which was drawn from the reality and lawfulness of influences exercised on a third party to the contract of sale;

That the award, surprised by fraudulent manoeuvres, disregards international public policy; that the order of 4 September 1996 by which the President of the Tribunal de Grande Instance of Paris issued it enforceable in France must, therefore, be overturned;

On claims for damages:

Whereas Thomson, who claims that the continued performance of the award in France has caused damage estimated to be worth EUR 100,000, does not explain the substance of the alleged damage and does not produce any evidence in support of her claim, which is to be dismissed;

Whereas Frontier AG and Brunner, who are unsuccessful, will have their claim for damages for abuse of process dismissed;

That, for the same reason, they will be ordered to pay Thomson the sum of EUR 50,000 pursuant to Article 700 of the Code of Civil Procedure;

FOR THESE REASONS:

Dismisses the request by Frontier AG and Brunner for the closing order to be set aside and the submissions notified by Thales on 15 April and 19 May 2010 to be set aside.

Disregards the pleadings notified by company Thales on 27 May 2010.

Holds that the documents notified by Company Thales on 23 May 1997, 5 May 1998, 20 May 1999 and 15 April 2010 are acquired during the debates.

Excludes from the proceedings all other documents submitted by Thales.

Reverses the order of the President of the Paris Tribunal de Grande Instance of 4 September 1996 declaring enforceable in France the award issued between the parties in Geneva on 31 July 1996.

Dismisses all the claims made by Frontier AG and Brunner.

Dismisses Company Thales’ claim for damages.

Condemns company Frontier AG and Brunner to pay to Thales the sum of EUR 50,000 in application of article 700 of the code of procedure civil.

Orders the same parties to pay the costs and admits CPC W AA-AB pursuant to Article 699 of the French Commercial Code. civil procedure.