Paris Court of Appeal, No. 12/17681 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, First Chamber, 4 March 2014, No. 12/17681

Upheld by: Court of Cassation, First Civil Chamber, 24 June 2015, No. 14-18.706

GULF LEADERS FOR MANAGEMENT AND SERVICES HOLDING COMPANY vs. S.A. CREDIT FONCIER DE FRANCE (CFF)

On July 10, 2008, a loan agreement for the sum of 157.500.000 USD was signed between CREDIT FONCIER DE FRANCE (CFF), a limited company under French law, and GULF LEADERS FOR MANAGEMENT AND SERVICES HOLDING COMPANY (GULF LEADERS), a company under Saudi law, for the partial financing of a hospital in Dammam, Saudi Arabia .

A dispute has arisen between the parties, and CFF filed a request for arbitration pursuant to the arbitration clause stipulated in the contract.

In an award rendered in Paris on 31 July 2012 under the supervision of the International Chamber of Commerce, the arbitral tribunal composed of Messrs. Molfessis and Lévy, arbitrators, and Mr. Hanotiau, President, ruling in application of French law:

declared the application for the nullity of the contract admissible but unfounded,
ordered GULF LEADERS to reimburse CFF the sum of USD 110 million in principal, in addition to interest, penalties and costs,
declared inadmissible the claim for damages for abusive resistance presented by the CFF,
dismissed GULF LEADERS’s counterclaims,
ordered the defendant to pay costs,
ordered provisional enforcement.

On 3 October 2012, GULF LEADERS filed an action for annulment against this award.

Pursuant to submissions filed on 22 October 2013, GULF LEADERS requested the annulment of the award and the condemnation of CFF to pay the sum of EUR 50,000 pursuant to Article 700 of the Code of Civil Procedure. GULF LEADERS raises that the award is in conflict with international public policy (Article 1520-5 of the Code of Civil Procedure).

According to the submissions friled on 13 November 2013, CFF resquested the court to declare the action for annulment inadmissible, insofar as it tends to the reviewof the award in its merits, and subsidiarily unfounded, and to order GULF LEADERS to pay the sum of 150.000 euros in application of Article 700 of the code of civil procedure.

UPON WHICH:

On the single ground alleging the violation of international public policy (article 1520-5 of the Code of Civil Procedure):

GULF LEADERS maintains that the award gives effect to a contract obtained by corruption. The evidence of this corruption appeared during the arbitral procedure but the arbitral tribunal refused to take them into account claiming that the corruption has not been proved and that CFF financed the corruption operation by invoicing an “underwriting” commission which corresponds to no counterpart.

Whereas by a contract dated 10 July 2008, CFF granted GULF LEADERS a loan of USD 157.500.000 for the design, construction and management of a hospital in Dammam (Saudi Arabia), of which GULF LEADERS was to finance the equivalent of USD 100 million out of its own funds. It was planned that the loan amounts would be paid in three installments. The first two installments of USD 60 million and USD 50 million have been made, although all the pre-conditions, in particular the constitution of guarantees and the contribution of equity capital to a bank account dedicated to the project, have not been fully met. CFF, in consideration of these failures, as well as of modifications to the project which had led GULF LEADERS to request an additional loan, refused the payment of the last installment, pronounced the termination and demanded the restitution of the sums paid;

Whereas before the arbitral tribunal, after being brought by CFF pursuant to the arbitration clause contained in the contract, GULF LEADERS invoked, on the basis of the 1996 OECD Convention and articles 445-1 and 445-2 of the French Penal Code, a ground alleging the unlawfulness of the cause of the contract of 10 July 2008, which was obtained by corruption. GULF LEADERS claimed that it was warned by a press article on the existence of a secret commission of USD 4.5 million paid by CFF to the Panamanian company Riveroca Associated Corp., whose manager, Mr. E X B was a relative of its CEO, Sheikh Faysal. GULF LEADERS argued that corruption was established by the fact that the intermediary’s contract was concealed from it, that there was no justification for any real performance corresponding to the commission received and that the CFF refused to comply with the request of the arbitral tribunal to produce an internal inspection report on the payment of this commission. GULF LEADERS added that the USD 4.5 million commission was charged to it by invoking an underwriting commission that did not correspond to any reality. GULF LEADERS inferred from all these circumstances that the loan contract was the “fruit and instrument of a corrupt pact”, that the contract was therefore null and void and that the indignity exception prevented any restitution;

Whereas, in order to rule that corruption was not materially established, the arbitral tribunal considered, in substance, first of all, that the intervention of Mr. X B was not in any way concealed given he was present alongside CFF’s representative during the meetings held with GULF LEADERS. Secondly, this intervention was justified by the expertise of the interested party in the matter of financing operations in Saudi Arabia, an expertise that was attested to by the Geneva bank Dresdner, which recommended Mr. X B to CFF. Thirdly, there was no conclusion to be drawn from the failure to produce the internal inspection report, as the Director of the General Inspection of the BPCE group declared under oath that if this report had a confidential aspect which prevented it from being used in the debates, it did not contain any element to support a suspicion of corruption. Finally, the arbitral tribunal found that the similarity between the commission paid to Riveroca and the amount invoiced as underwriting fees was not sufficient to establish that the amounts paid under the loan agreement were used to remunerate the intermediary, and that these fees were in line with banking practice insofar as the loan was designed to be syndicated between several lenders;

Whereas the arbitral tribunal consequently rejected the request for annulment of the loan contract, ruled that the termination by the CFF was justified and ordered the borrower to return the funds with interest and costs;

Whereas GULF LEADERS appealed against the decision, invoking the violation of international public policy;

Whereas, when it is claimed that an agreement gives effect to a contract obtained by corruption, it is up to the annulment judge, seized of an action for annulment based on article 1520-5 of the code of civil procedure, to find in law and in fact all the elements allowing to pronounce on the alleged illegality of the agreement and to assess whether the recognition or the enforcement of the award violates international public policy in an effective and concrete manner;

Whereas corruption in the conclusion of a private law contract implies that a gift or promise of an advantage is directly or indirectly granted to a person who, in the event of a professional or social activity, performs a managerial function or work for a physical or legal person, in order to obtain that it performs or refrains from performing an act of its activity or function, or facilitated by its activity or function, in violation of its contractual or professional obligations;

Whereas, in this case, it is common ground that CFF paid the Panamanian company Riveroca a commission of USD 4.5 million to be assisted by its manager Mr. X B in the conclusion of a loan contract with GULF LEADERS. The latter claims that the cause of the payment of the commission was not the expertise of Mr. X B but its proximity with the Sheikh Faycal.

Whereas, however, it is in no way alleged that Mr. X B held a management position or worked for GULF LEADERS, nor that Sheikh Faysal, a 95% shareholder and CEO of GULF LEADERS, received any commission or benefit either directly or indirectly;

It appears, therefore, that the distinctive elements of corruption are not demonstrated, nor even invoked, by GULF LEADERS;

Whereas, moreover, contrary to what GULF LEADERS maintains, on the one hand, the intermediary activity of M. X B was in no way occult since the interested party participated, alongside the managers of CFF, in the contractual negotiations with the representatives of GULF LEADERS. On the other hand, it appeared relevant that CFF, lacking contacts in the Middle East, enlisted the services of a specialist in this area who was advised by another bank. These circumstances are sufficient to establish that the elements invoked by GULF LEADERS are not serious presumptions, notwithstanding the CFF’s refusal to produce an internal inspection report. Finally, nothing shows that the underwriting fees do not correspond to a banking practice;

Whereas the grouns based on the fact that the award would give effect to a contract concluded by corruption is therefore lacking in fact and will be dismissed;

Whereas it follows from the foregoing that the appeal must be rejected;

Whereas GULF LEADERS, who succumbs, cannot benefit from the provisions of Article 700 of the Code of Civil Procedure. It will be ordered, on the basis of this ground, to pay the sum of 100.000 euros to the CFF.

FOR THESE REASONS:

Rejects the action for annulment of the award rendered on 31 July 2012 between the parties;

Orders GULF LEADERS FOR MANAGEMENT AND SERVICES HOLDING COMPANY to pay the costs that will be recovered in accordance with the provisions of Article 699 of the Code of Civil Procedure.

Orders GULF LEADERS FOR MANAGEMENT ANDSERVICES HOLDING COMPANY to pay to the company CREDIT FONCIER DE FRANCE the sum of 100,000 euros in application of article 700 of the Code of Civil Procedure.