Paris Court of Appeal, No. 16/11182

Paris Court of Appeal, First Chamber, 10 April 2018, No.16/11182

Judicial Chronology:

Award, 29 January 2016

Paris Tribunal of Grande Instance, 30 March 2016

Federal Tribunal of Lausanne, 3 November 2016

Paris Court of Appel, 28 May 2019, No. 16/11182

ALSTOM TRANSPORT SA

Vs.

ALEXANDER BROTHERS LTD

The French company ALSTOM Transport SA and the English company ALSTOM Network U.K Ltd. (ALSTOM Companies) have concluded three consultancy contracts with ALEXANDER BROTHERS LTD (ALEXANDER BROTHERS), a company incorporated under the law of the administrative region of Hong Kong (People’s Republic of China), to assist them in the submission of tenders for the supply of railway equipment in China. The first two contracts, dated 26 August and 22 December 2004, related to tenders from the Ministry of Transport for the supply of heavy freight electric locomotives and high-speed passenger railcars. The third, concluded on 2 December 2009, involved a call for tenders by the Shanghai Shengton Holding Group for the supply of rolling stock for the extension of the Shanghai metro.

ALSTOM Transport SA was awarded these three contracts. It paid the initial terms of contracts 1 and 2 in February 2006 and November 2008 but did not pay the balance and did not make any payments under contract No. 3.

On 20 December 2013, ALEXANDER BROTHERS filed a request for arbitration with the International Chamber of Commerce under the arbitration clauses stipulated in the three contracts, which provided for arbitration in Geneva with the application of Swiss law to the merits of the dispute. ALEXANDER BROTHERS claimed the balance of its invoices, i.e., EUR 2,975,480 in principal, plus interest, as well as EUR 1,500,000 in damages for the prejudice caused by the improper conduct and ongoing audits of ALSTOM and EUR 1,000,000 in punitive damages.

In an award rendered on 29 January 2016, the arbitral tribunal, composed of Messrs… and Schimmel, arbitrators, and Mr. X, chairman, ordered the two companies ALSTOM to pay ALEXANDER BROTHERS the principal sum of 932.800 euros under Contract No. 1 and of 624.440 under Contract No. 2, in addition to interest, arbitration costs and attorneys' fees of the opposing party, and dismissed the remaining claims.

ALSTOM companies brought an action for annulment of the award before the Federal Court of Lausanne, which was dismissed on 3 November 2016.

On 18 May 2016, they appealed against the order of the President of the Paris Tribunal of Grande Instance of 30 March 2016, which conferred enforcement (in French Exequatur) to the award.

By submissions notified on 23 November 2017, they requested the court to overturn the company’s order and to order the opposing party to pay the sum of 30,000 euros in application of article 700 of the Code of Civil Procedure. They invoke the violation of international public order and the failure to comply with due process (in French Principe de la contradiction).

By submissions filed on 12 December 2017, ALEXANDER BROTHERS requested confirmation of the enforcement order (in French Ordonnance d’exequatur), the dismissal of the claims of the ALSTOM companies and their condemnation in solidum to pay a compensation of 10,000 euros for abusive proceedings, in addition to 30,000 euros in application of article 700 of the Code of Civil Procedure.

UPON WHICH:

On the ground based on the violation of international public order (Article 1520-5 of the Code of Civil Procedure):

ALSTOM states that since 2001, it has implemented an ethics and compliance policy - which it has not had the courage to strengthen subsequently - which aims, in particular, to prevent the risks of corruption. To this end, it has introduced in the consultancy contracts provisions that make all payments subject to the regular production of detailed reports on the due diligence of the consultant, the retention by the consultant of the elements materializing his/her activities, and to the production of invoices accompanied by documents justifying the nature and reality of the services rendered. ALSTOM maintains that according to the international standards expressed, in particular, by the OECD Convention of 17 December 1997 on Combating Bribery of Foreign Public Officials in International Business Transactions, by the 2010 World Bank Group Integrity Report, or by the rules to combat corruption issued by the ICC in 2011, the implementation of a compliance program is one of the essential principles of international public policy in the fight against corruption. ALSTOM infers that the sole circumstance that ALEXANDER BROTHERS has provided insufficient evidence to demonstrate the reality of the services rendered establishes that the award requiring payment of compensation violates international public policy, regardless of whether it is proven or even alleged that corruption was actually committed by the consultant. ALSTOM further argues that it is subject to criminal prosecution for bribery in the U.S. and the U.K. and that by paying a consultant compensation without supporting documentation, it is subject to sanctions. It adds that the fact that it paid the first installments of contracts No. 1 and No. 2 cannot be considered as a modification of the contractual provisions relating to the provision of supporting documents, since such a modification would be illegal and contrary to international public policy.

Whereas the award considers the following facts to be established:

  • Contractual relations were established between the parties as from 2003 by a contact between the managers of ALSTOM Transport and Mrs. Y …, director of ALEXANDER BROTHERS and former employee of ALSTOM Group in China (award, § 180),

  • ALEXANDER BROTHERS was chosen, at the end of an audit procedure described in paragraphs 186 to 189 of the award, because ALSTOM considered “that it was close to the decision-makers and that it was aware of the decision-making process within the Chinese Ministry of Railways” (award, § 181),

  • The consultancy contract No. 1 of 26 August 2004 (heavy freight locomotives) fixed a remuneration representing 1% of the total amount of the contract, i.e. 3.731.200.00 euros, the contract No. 2 of 22 December 2004 (high-speed passenger trains) set a remuneration of 0.5% of the total contract amount, i.e., 3,122,000.00 and the contract No. 3 of 2 December 2009 (line 2 of the Shanghai metro) set a remuneration of 2% of the total contract amount, i.e., 672,000.00 euros,

  • It is not disputed that it was due to ABL’s efforts and services that the contracts were awarded to ALSTOM (award, § 191),

  • All three contracts provide for payment in four installments: the first on the date of entry into force of the contract and upon receipt of the advance payment by the customer, the second upon payment by the customer of 40% of the contract amount, the third when 70% of the market amount is paid and the fourth and last payment when the client fully pays the market price and discharges ALSTOM of all its contractual obligations (award, § 193),

  • In two payments made on 10 February 2006 and 17 November 2008, ALSTOM paid 55% of the amount under contract No. 1 and 80% of the amount under contract No. 2. It refused to pay the following invoices and did not settle anything under contract No. 3 (award, § 195 to 199),

  • All three contracts require ALEXANDER BROTHERS to provide evidence of its services. In Contracts Nos. 1 and 2 this obligation is provided for in the following terms:

“The CONSULTANT undertakes to regularly provide the COMPANY with detailed written reports on its activities in connection with the services it is to perform or the assistance it is to provide in accordance with Article 3 of this Contract. The Contractor shall keep a record of such activities and, if requested to do so by the COMPANY, shall provide physical evidence of its involvement and services performed for the COMPANY in connection with the Project. Compliance by the CONSULTANT with this commitment is essential in order for the COMPANY to be able to make the CONSULTANT’s payment of the CONSULTANT’s fees set out in Article 6 below when due.” (Contracts, Article 4.1 (d))

  • In this context, ALEXANDER BROTHERS has provided “a large number of letters and e-mails addressed to the representatives of Z, to which documents relating to the Projects are attached. In this correspondence, ALEXANDER BROTHERS made recommendations on the future course of action with respect to the various proposed bids and joint ventures, reported on meetings with representatives of potential customers or Chinese Ministry officials, and indicated that it would hold such meetings in the future. (award, § 202)

  • Under Contract No. 1, ALEXANDER BROTHERS produced, a memorandum of understanding to be signed between “highlight_pm” title=“PM”>Transport SA and CNR E Electrical Locomotives Co (hereinafter E), the future local partner of the Defendants, explaining that certain provisions of this memorandum of understanding were not acceptable to E and indicating that it would continue negotiations with E. It also produced a document entitled “Meeting Report for E E.L Ltd. on the import of technology and cooperation with foreign companies”, in which ALEXANDER BROTHERS indicated its views on suggestion of E to start the cooperation with a small order. Furthermore, ALEXANDER BROTHERS produced the evaluation of Ministry of Railways on the proposals submitted by Z, Siemens and Bombardier, and a letter addressed by Mr. A E … … … … … … at 7’oshiba, Siemens and ALSTOM in which it is explained that each company must appoint a person responsible for the quality of the locomotives who will be required to provide a weekly report. Finally, ALEXANDER BROTHERS produced a proposed work schedule from E, a summary of E’s opinion on the locomotive parts list, the detailed price list provided by ALSTOM and a document entitled ‘Outstanding Issues and Cost Reduction’ (award, § 203);

  • Under Contract No. 2, ALEXANDER BROTHERS also produces a document entitled “Siemens Transportation Systems Forum 2003”, a memorandum of understanding to be signed between “highlight_pm “title=“PM”>Transport SA and CNR Sifang Locomotives and Rolling Stock Co., a document containing ABL’s comments on the concerns raised by the Ministry of Railways during a so-called clarification meeting, a document entitled “Clarifications on unclear articles of the contract provisions”, a report on a meeting with Mr. A … and the minutes of a meeting between the general manager of Changchun Railla Vehicles and Z. “(award, § 204),

  • ALSTOM companies, “at no time did when ALEXANDER BORTHERS provided evidence relating to its services, request ALEXANDER BROTHERS to supplement them or to provide clarification as to how the underlying documents were obtained. For approximately five years, [the ALSTOM companies] have not requested further explanations or to supplement the evidence relating to the provision of services” (award, § 205 and 206),

  • On 26 November 2010, they announced that they were not currently in a position to proceed with new settlements, not because they would not have been satisfied with the supporting documents produced, but because an investigation was under way in the United Kingdom and payment would expose them to criminal sanctions (award §208),

  • The compliance stipulations of Contract No. 3 are more stringent than those of the two previous contracts.

They provide:

“Each invoice of the CONSULTANT for its services must be accompanied by written evidence (…). They will be in the form of reports, minutes of meetings, clear and legible correspondence, faxes or e-mails and/or in any appropriate written form. In each case, the source of written evidence of such services shall be clearly identifiable by letterhead, company stamp, signature or other means. Compliance by the CONSULTANT with the above requirements shall constitute a condition precedent before the COMPANY pays the remuneration of the CONSULTANT referred to in Article 6 below, when due. The CONSULTANT undertakes to provide the COMPANY at any other time when requested by the COMPANY, detailed and accurate written reports of its activities during the performance of its services.” (“Contract”, art. 4.1 (d)),

  • Regarding this contract, ALEXANDER BROTHERS “shall produce various e-mails containing information on the main technical aspects of the project, the position occupied by the various decision-makers at the local level, the expectations of the co-bidders and the deadline for submission of bids. No more detailed documents or documentation were attached to these e-mails.” (award, § 210),

  • In accordance with the sustainable development charter to which it had to subscribe in May 2012, ALEXANDER BROTHERS agreed to participate in two accounting audits carried out by ALSTOM in August 2012 and June 2013. The first “revealed several accounting errors and a deficiency in the internal accounting control of ALEXANDER BROTHER, including the fact that the supporting documentation is deemed insufficient, as most of the audited expenses are only supported by credit card receipts”. However, the audit report clearly states that no significant unusual transactions were identified and that “the major cash transactions could be matched”. “With respect to the second audit, during which the accounts for the fiscal years 2004 to 2009 were examined, the ALSTOM companies” did not produce any documents indicating the result of this audit. The main objective of this second audit was to examine the use made by [NA] of the commissions paid by [ALSTOM companies] from 2004 to 2009. Furthermore, [ALSTOM Companies] did not present as witness to attest to its result any of their auditors or any other person who participated in this second audit. Since [ALSTOM Companies] did not provide any documentation to support or prove the results of the second audit, the Arbitral Tribunal concluded that the results of the second audit did not raise any material issues for them. (award, § 238);

Whereas, on the basis of these elements, the arbitral tribunal has made the following reasoning;

Whereas, first, with respect to the allegation by ALSTOM companies that a payment could be construed by some state authorities as remuneration for corrupt practices, the arbitrators noted that ALEXANDER BROTHERS “was specifically appointed as a consultant because of its contacts with high-ranking members of the government and [ALSTOM companies] expected it to use those contacts to obtain the projects. While contracts of this kind are prohibited as such in some countries where it is believed that they are generally intended to conceal corrupt practices, other countries such as Switzerland avoid a general prohibition of such contracts but require evidence that the parties actually intended the agent or consultant to pay bribes or otherwise exert undue influence on public officials.” (award, § 258);

That the arbitral tribunal notes that this evidence weighs against ALSTOM companies; that in this case there is no evidence that the British Serious Fraud Office or any other state authority has investigated the contracts in question, or even the activities of ALSTOM Group in China (Award, § 265), the arbitrators add that the standard of evidence may be lowered in respect of the difficulty to establish such facts, there was no reason to deny ALSTOM the benefit of these facilities, since ABI did not seek to conceal its activities and participated to the two audits that would have enabled ALSTOM to find possible evidence of corruption; under these conditions, there was no need to reduce the burden of proof; moreover, the ALSTOM companies did not allege that ALEXANDER BROTHERS indeed paid bribes; they merely indicated that they did not understand how ALEXANDER BROTHERS came into possession of documents containing potentially confidential information, nor how it persuaded the municipality of Shanghai to award it the contract for the No. 2 subway line when its bid scored lower than that of its competitors; the arbitrators concluded that “it is not, however, alleged that there was any corruption or other criminal behaviour and even less conclusive evidence of illegal activity.” (Award, §§ 266-275);

Whereas, secondly, regarding AM’s allegation of breach of its contractual obligations, the arbitrators noted that the evidence of ABL’s performance of services have always been presented in the same form and detail and that ALSTOM companies contented with it and paid the amounts due without requiring additional evidence until they were exposed to criminal proceedings unrelated to ABL’s activities (Award, § 281-283); the arbitral tribunal stated that under Swiss law, “where the conduct of the parties in their dealings with each other is contrary to the terms of a contract concluded between them, such conduct is to be regarded as an implied subsequent modification of that contract” (award, § 305); the Z-companies did not merely fail to make any comment on the evidence of services under contracts No. 1 and No. 2, but made payments on the basis of such evidence (award, §306); consequently, the evidence provided by the consultant must be regarded as satisfying the requirements of contracts No. 1 and No. 2, so that the ALSTOM companies must be ordered to pay the balance; on the other hand, ALEXANDER BROTHERS could not presume that the common practices adopted in respect of the first two contracts also applied to the third contract, even though the latter was drawn up in much more demanding terms and, before its conclusion, it was requested to provide reports on its activity at the stage of preparation of the tender for the project in question (award, §308 and 309); the arbitrators note that the documents produced as evidence of services for the Shanghai Metro Line 2 project consist of a total of eight letters and five e-mails addressed by Ms. Y … to Z, that no other documents, minutes of meetings or actual activity reports were attached (award, § 310); the arbitral tribunal concluded that ALEXANDER BROTHERS did not fulfill its obligations under Contract No. 3 and that there was therefore no reason to grant its claim in this respect;

Whereas before the judge of the enforcement (in French Exequatur), ALSTOM accused the award for having decided that it had to pay the invoices issued in respect of the last due dates of contracts No. 1 and No. 2 on the grounds, on the one hand, that it did not prove corruption, and, on the other hand, that the fact that it paid the first invoices without any real requirement of justification for the services rendered amounted to a modification of the parties' agreement. According to ALSTOM, on the one hand, the breach of contractual provisions intended to prevent corruption would also characterize, by itself, the violation of international public policy, and on the other hand, the adoption by the parties of an implicit agreement derogating from the rules of prevention of corruption would be null and void and contrary to international public policy;

Whereas it is for the court, referred to under articles 1525 and 1520-5 of the Code of Civil Procedure, of the appeal against the order of enforcement of an award rendered abroad, to seek, in law and in fact, all elements enabling it to assess whether the recognition or enforcement of the award manifestly, effectively and concretely violates the French conception of international public policy; it is not bound, in this examination, either by the assessments made by the arbitral tribunal or by the substantive law chosen by the parties;

Whereas an arbitral award giving effect to a contract for trading in influence or bribes is a matter of international public policy and is not subject to enforcement; in this respect, the possible bad faith of the debtor party is irrelevant, as long as only the refusal of the French legal system to provide legal assistance in the execution of an illegal contract is at issue;

Whereas the purpose of the review of enforcement judge is not to verify that contractual stipulations - including the rules of compliance - have been correctly enforced, but only to ensure that the recognition and enforcement of the award does not have the effect of giving force to a contract of corruption;

Whereas the classification of a contract of this nature may result from a number of indications; are likely to be regarded as relevant in this respect:

  • The absence or insufficiency of documents - such as reports, technical studies, draft contracts or amendments, translations, correspondence, minutes of meetings, etc. - that are precise and conclusive and whose origin can be established with certainty,

  • The inadequacy of the consultant’s material and human resources with regard to the importance of the work claimed,

  • The disproportion between the consultant’s conspicuous work, as it results from the documents produced by him/her, and his/her remuneration,

  • The percentage remuneration,

  • The incomplete or insincere accounting by the consultant,

  • The inexplicable nature of the awarding of a contract to the consultant’s client, when its offer was rated lower than that of its competitors,

  • The fact that the country in question or certain sectors of activity in that country are notoriously corrupt and that the consultant’s client is accused of habitual corrupt practices;

Whereas the parties did not have the opportunity to explain these elements, it is advisable to reopen the debates to allow them to do so and to order the production by the ALSTOM companies of the relevant documents;

FOR THESE REASONS,

Repeal the closing order.

Orders the reopening of the debates.

Invites the parties to conclude before 19 June 2018 on the existence of a corruption contract.

Orders the companies ALSTOM Transport SA and ALSTOM Network UK Ltd to file at the registry of Chamber 1-1 of the Court Registry on 19 June 2018 and, after this deadline, a register of 1,000 euros per day of delay and per missing document:

  • The keys to the consultant contracts (exhibits R-27 and R-28 of the arbitration proceedings),

  • The written statements of Ms. Y …, Mr. B … and Mr. M ….

  • The full transcript of the hearings and debates before the arbitral tribunal

  • All the supporting documents for the services rendered by ABL

  • The first report drawn up following the audit of August 2012 and its annexes,

  • The second report drawn up following the audit of June 2013 and its annexes.

Reserves the possible liquidation of the penalty payment. Refers the file back to the pre-trial hearing of 21 June 2018.

Reserves the surplus of the claims and the costs.