Office of the judge seized of an application to set aside an international arbitral award: obligation of the setting aside judge to verify whether the arbitral award is in conformity with the international public (ruling 17-17.981)

23/03/2022

Ruling No. 338 FS-P+B

Dismissal

Public hearing of 23 March 2022

Dismissal

Mr CHAUVIN, President

Ruling No. 338 FS-P+B

Appeal No W 17-17.981

FRENCH REPUBLIC

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ON BEHALF OF THE FRENCH PEOPLE

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RULING OF FIRST CIVIL CHAMBER OF THE COUR DE CASSATION (COURT OF CASSATION) OF 23 MARCH 2022

Mr [B] [K], domiciled at [Address 3] (Latvia), filed the appeal No. W 17-17.981 against the ruling delivered on 21 February 2017 by the cour d'appel de Paris (Paris Court of Appeal, Section 1, Chamber 1), in the case against the Republic of Kyrgyzstan, domiciled at [Address 1]), acting as a result of proceedings initiated by the Center of Court Representation, respondent before the Cour de cassation (Court of cassation).

In support of its appeal, the appellant rely on the grounds of quashing attached to this ruling.

The case file has been sent to the Prosecutor-General.

Concerning the report by Mr Hascher, judge, the observations of SARL Ortscheidt, lawyers representing Mr [K], of SCP Piwnica and Molinié, lawyers representing the Republic of Kyrgyzstan, and Mr Poirret’s advisory opinion, advocate-general, after discussions in the public hearing of 8 March 2022 in which Mr Chauvin, President, Mr Hascher, reporting judge, Mr Vigneau, elder judge, Messrs Avel, Bruyère, judges, Mr Vitse, Ms Kloda, Ms Champ, Ms Robin-Raschel, judge referees, Mr Poirret, first advocate-general, and Ms Vignes, Chamber Registrar, first civil chamber of the Cour de cassation (Court of cassation), composed, pursuant to Article R. 431-5 of the Judicial Code, of the above-mentioned President and judges, after deliberation thereof in accordance with law, has issued this ruling.

Facts and procedure

  1. According to the ruling under appeal (Paris, 21 February  2017), in 2007, following a call for tenders, Mr [K], a Latvian citizen, acquired the Kyrgyz bank Insan Bank, which became Manas Bank. Following a change of regime in the Republic of Kyrgyzstan in April 2010, Manas Bank was placed under provisional administration and then receivership until its insolvency was decreed in July 2015.
  2. Mr [K] then initiated ad hoc arbitration proceedings in [Address 2] on the basis of the Agreement for the Promotion and Protection of Investments between the Republic of Latvia and the Republic of Kyrgyzstan (TBI) and the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL).
  3. The Republic of Kyrgyzstan initiated an action for annulment of the arbitral ruling of 24 October 2014, which ordered it to pay the sum of $15,020,000 to Mr [K] and ordered the latter to transfer to the former his shares in Manas Bank.
  4. Following the order that overturned the ruling and dismissed his claim for damages, Mr [K] filed an appeal, which was quashed and set aside under Article 1009-1 of the Civil Procedure Code by order of 12 July 2018 and reinstated by order of 21 January 2021.

Reviewing pleas

On the first plea

Statement of plea

  1. Mr [K] appeals against the order that overturned the ruling, whereas:

"(1) the court hearing the annulment is the court ruling on its inclusion in or exclusion from the French legal order and not the court hearing the case for which the parties have signed an arbitration agreement, such that it cannot proceed with a new investigation on the merits of the case; that, in ruling as it did, the court must "examine whether the recognition or enforcement of the ruling is likely to hinder the objective of combating money laundering by making part of the proceeds of such activities available, as defined by the provisions of the United Nations Convention against Corruption", that said search "is not confined to the evidence produced before the arbitrators nor bound by their findings, assessments and qualifications", that the relationship between Mr [K] and Mr [X] [U], the President of the Republic’s son, "may be described as inappropriate insofar as the real estate services provided by Manas Bank to Mr [X] are analysed as misuse of corporate assets", that "the tender was conducted under irregular conditions", that "the probity of the external auditor of Manas Bank was questionable and the regularity of its controls on the bank was also questionable", that "in a state with weak supervision structures, Manas Bank carried on the activities of a Latvian bank with little concern for due diligence in anti-money laundering matters", that "the volume and structure of transactions carried out by a bank that was insolvent when taken over by Mr [K] at the end of summer 2017, appear incompatible with the state of the Kyrgyz economy; such a staggering success, in such a short time, in such a poor country, cannot be explained by orthodox banking practices" and that "it follows from the above serious, specific and consistent indications that Insan Bank was taken over by Mr [K] in order to benefit, in a State where his privileged relations with the holder of economic power guaranteed him the lack of effective supervision of his activities, from the money-laundering practices that had not been able to flourish in the less favourable environment of Latvia", such that "the recognition or enforcement of the ruling, which would have the effect of enabling Mr [K] to benefit from the proceeds of criminal activities, clearly, effectively and genuinely violates international public policy", the Court of Appeal, which also found that the arbitral tribunal had rejected the allegation of money-laundering on which the defence of the Republic of Kyrgyzstan was based "entirely" for lack of evidence, thus made a new investigation on the merits of the case in violation of Article 1520.5 of the Civil Procedure Code;

(2) that the court hearing the annulment is the court ruling on its inclusion in or exclusion from the French legal order and not the court hearing the matter for which the parties have signed an arbitration agreement, such that it cannot proceed with a new investigation on the merits of the case; That, by inferring the existence of "serious, specific and consistent" evidence whereby Insan Bank was taken over by Mr [K] in order to carry on money-laundering practices in a State where his privileged relations with the holder of economic power guaranteed the absence of effective control over his activities," by deciding that the recognition or enforcement of the ruling "would enable Mr [K] to benefit from proceeds from criminal activities", of official transcripts of witness statements before the arbitral tribunal and of expert reports submitted to the arbitrators, the Court of Appeal, which thus made a new investigation on the merits of the case and reviewed the ruling, violated section 1520.5 of the Civil Procedure Code;

(3) that, as regards the violation of international public policy, only the recognition or enforcement of the ruling is examined by the court hearing the annulment regarding the compatibility of the solution with said public order; that, by ruling as it did without finding that the value of Manas Bank, as determined by the arbitral tribunal to set the amount of compensation awarded to Mr [K], was the result of money-laundering operations in which the latter allegedly participated directly or indirectly, failing which the recognition or enforcement of the ruling does not have the effect of enabling him to benefit from the proceeds of money-laundering activities, the Court of Appeal has not legally justified its decision under section 1520.5 of the Civil Procedure Code."

Court’s response

  1. According to Article 1520(5) of the Civil Procedure Code, the court hearing the annulment must determine whether the recognition or enforcement of the ruling is consistent with international public policy.
  2. The Court of Appeal stated that the prohibition of money-laundering is one of the principles whose violation is not tolerated by the French legal order, even in an international context, and falls within the scope of international public order, namely the combating of money-laundering arising from criminal activities, which is the subject of an international consensus expressed in particular in the United Nations Convention against Corruption signed in Merida on 9 December 2003.
  3. It recalled that it was not for the Court to determine whether the decisions to place Manas Bank under provisional administration and then in receivership had been taken lawfully under Kyrgyz law or whether the actions of the Republic of Kyrgyzstan constituted violations of the obligation of fair and equitable treatment under the TBI, but rather to determine whether the recognition or enforcement of the ruling was likely to hinder the objective of combating money-laundering by making part of the proceeds from such activities available, as defined by the United Nations Convention against Corruption.
  4. It rightly held that such an enquiry, carried out in the defence of international public order, was neither limited to the evidence produced before the arbitrators nor bound by their findings, assessments and qualifications, its sole function in that regard being to ensure that the evidence produced respected the adversarial principle and the principle of equality of arms.
  5. Having successively analysed the relations between Mr [K] and the President of the Republic of Kyrgyzstan from 2005 to 2010, the conditions for the acquisition of Manas Bank and the controls on the bank, the relationship of Manas Bank with the Baltic International Bank, whose capital was held by Mr [K], as well as the volume and structure of the operations carried out by Manas Bank, the Court of Appeal, which did not carry out a further investigation or review of the substance of the ruling, but rather a different assessment of the facts with regard exclusively to the compatibility of the recognition or enforcement of the ruling with international public policy, held that there were serious, specific and consistent indications that Insan Bank had been taken over by Mr [K] in order to develop money-laundering practices, in a State where his privileged relations with the holder of economic power guaranteed the absence of effective supervision of his activities, that had not been able to flourish in Latvia's less favourable environment.
  6. Without being obliged to carry out an enquiry that its findings rendered ineffective, it rightly concluded that recognition or enforcement of the ruling, which would have the effect of enabling Mr [K] to benefit from proceeds from criminal activities evidently violated international public policy and should therefore be annulled.
  7. The plea is therefore unfounded.

On the second plea

  1. Mr [K] makes the same appeal against the ruling, where:

"(1) that, by ruling as it did, after establishing, on the one hand, that according to section 23 (1) of the United Nations Convention against Corruption, money-laundering is to be understood as “the following acts when committed intentionally: the conversion or (transfer) of property, knowing that such property is the proceeds of crime, for the purpose of concealing or disguising the illicit origin of the property or of helping any person who is involved in the commission of the predicate offence to evade the legal consequences of his or her action ; the concealment or disguise of the true nature, source, location, disposition, movement or ownership of or rights with respect to property, knowing that such property is the proceeds of crime; [...] the acquisition, possession or use of property, knowing, at the time of receipt, that such property is the proceeds of crime; participation in, association with or conspiracy to commit, attempts to commit and aiding, abetting, facilitating and counselling the commission of any of the offences established in accordance with this article. ", that it is also responsible for "investigating whether the recognition or enforcement of the ruling is likely to hinder the objective of combating money-laundering by enabling a party to benefit from proceeds from such activities, as defined by the abovementioned provisions of the United Nations Convention against Corruption" and, finally, that there are "serious, specific and consistent indications that Insan Bank has been taken over by Mr [K] in order to benefit, in a State where his privileged relations with the holder of economic power guaranteed him the lack of effective control of his activities, from money-laundering practices that had not been able to flourish in the less favourable environment of Latvia", to imply that the recognition or enforcement of the ruling would have the effect of enabling Mr [K] to benefit from proceeds from criminal activities, the Court of Appeal, which did not state that Mr [K] intentionally committed one of the acts of money-laundering referred to in the United Nations Convention against Corruption signed in Merida on 9 December 2003, did not legally justify its decision under Article 1520.5 of the Civil Procedure Code;

(2) that, by ruling as it did, on the grounds of inappropriate relations between Mr [K] and Mr [X], the services and facilities provided by Manas Bank to the latter being regarded as misuse of corporate assets, the fact that the tender for the acquisition of Insan Bank took place under irregular conditions, the fact that the external auditor of Manas Bank was questionable in terms of its probity and the reality of its controls on the bank, the fact that "Manas Bank carried on, in a state with weak supervision structures, the activities of a Latvian bank with little regard for anti-money laundering rules" and the fact that "the volume and the structure" of "transactions carried out by a bank that was insolvent when taken over by Mr [K] at the end of summer 2007 appeared to be incompatible with the Kyrgyz State of Economy" and "that such a staggering success in such a short time in such a poor country cannot be explained by orthodox banking practices", i.e. findings that could not establish that Mr [K] allegedly participated intentionally in acts of money-laundering as referred to in the United Nations Convention against Corruption, the Court of Appeal, which ruled on ineffective grounds, did not legally justify its decision under Article 1520.5 of the Civil Procedure Code;

(3) that the judge who decides to raise a plea ex officio must respect the principle of contradiction by inviting the parties to submit their observations; that by automatically raising the plea alleging that "the real estate services provided by Manas Bank to Mr [X] are considered misuse of corporate assets", without first inviting the parties to submit their observations on this plea, the Court of Appeal disregarded the principle of contradiction in violation of article 16 of the Civil Procedure Code;

(4) that the court must specify the legal basis for its decision; that by stating that the relationship between Mr [K] and Mr [X] may be described as inappropriate "insofar as the real estate services provided by Manas Bank to Mr [X] are considered misuse of corporate assets", without specifying the rule of law applied, the Court of Appeal violated Article 12 of the Civil Procedure Code;

(5) that the court cannot deliver a ruling by simple assertion; that, by asserting, in the light of the close relationship between Baltic International Bank and Manas Bank and the fine awarded by the Board of the Latvian Capital Markets Commission to Baltic International Bank and its President, for "repeated violation of the Law on the Prevention of Money-Laundering of Proceeds from Criminal Activities", that "it appears, therefore, that Manas Bank was carrying on, in a state with weak supervision structures, the activities of a Latvian bank which was not concerned with requirements on anti-money laundering vigilance", in violation of Article 455 of the Civil Procedure Code;

(6) that the court cannot deliver a ruling by simple assertion; that by asserting, in view of the volume of transactions carried out by Manas Bank in two and a half years, that "such a staggering success in such a short time, in such a poor country, cannot be explained by orthodox banking practices", it violated Article 455 of the Civil Procedure Code."

Court’s response

  1. It is without disregarding the adversarial principle and without ruling by simple assertion that the Court of Appeal held that the recognition or enforcement of the ruling, which would have the effect of enabling Mr [K] to benefit from proceeds from criminal activities had evidently violated international public policy and should be annulled under Article 1520(5) of the Civil Procedure Code.
  2. Thus, it justified its decision in accordance with law.

ON THESE GROUNDS, the Court:

DISMISSES the appeal;

Orders Mr [K] to pay the costs;

Pursuant to Article 700 of the Civil Procedure Code, dismisses the claim filed by Mr [K] and orders him to pay the sum of EUR 3,000 to the Republic of Kirghizstan;

Thus decided by first civil chamber of the Cour de cassation (Court of cassation) and pronounced by the President at a public hearing on the twenty-third day of the month of March of the year two thousand and twenty-two.

President : Mr Chauvin
Reporting Judge : Mr Hascher
First Advocate-general : Mr Poirret
Lawyer(s) : SARL Ortscheidt - SCP Piwnica and Molinié 

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