A Tale of Two Arbitration Cities No. 1 - Paris

Paris Court of Appeal, 9 January 2024 (RG n° 21/14563)

Context

This judgement arose from a dispute between an Indian company, Sew infrastructure Ltd (“Sew”) and the Ethiopian Roads Authority (“ERA”), a public Ethiopian entity in charge of the development and maintenance of roads.

ERA signed a contract with Sew for the purposes of constructing a new road (the “Contract”). The Contract provided for the issuance of advance payment guarantees as well as performance guarantees. ERA terminated the Contract and called on the bank guarantees following a dispute concerning alleged delays in the Contract’s performance.

Sew initiated arbitral proceedings, following which an arbitral award as well as an additional award were rendered, the second following a request for correction, predominantly in favour of ERA. This led Sew to file for annulment of the awards before the Paris Court of Appeal.

The setting aside proceedings

Sew relied on all grounds of Article 1520 of the French Code of Civil Procedure, namely:

(1°) the arbitral tribunal having wrongly upheld or declined jurisdiction;

(2°) the arbitral tribunal being improperly constituted;

(3°) the arbitral tribunal having ruled without complying with the mandate conferred upon it;

(4°) violation of due process and finally; and

(5°) the recognition or enforcement of the award being contrary to international public policy.

We will focus on the last ground.

Sew argued that the enforcement of the awards would lead to the allocation of the amounts of the bank guarantees to ERA who would (according to Sew) proceed to finance human rights violations since it had close operational, economic and political ties with the Ethiopian government, which was (again according to Sew) responsible for such violations (Judgment, ¶146). ERA, in defence, stated that these allegations were defamatory, since the links between ERA and the Ethiopian government were unproven and hypothetical (Judgment, ¶147).

Judgment of the Court

The Paris Court of Appeal first recalled the importance of human rights as well as international humanitarian law principles.

These include both European instruments, namely the 1950 European Convention for the Protection of Human Rights and Fundamental Freedoms, and international instruments such as the 1966 International Covenant on Civil and Political Rights and the 1949 Geneva Convention (IV) on Civilians (Judgment, ¶148).

The Court reaffirmed that principles such as the fight against human rights violations cannot be ignored by the French legal system, even in an international setting and therefore belong to the French conception of international public policy referred to in Article 1520 5° of the French Code of Civil Procedure (Judgment, ¶¶148-149).

Then, the Court recalled the role of the annulment judge when assessing a potential violation of international public policy. In this regard, the Court’s mission is to assess the conformity of the recognition or enforcement award with such public policy when the dispute is presented before him/her. The analysis is thus present-oriented rather than future-looking. Accordingly, the judge may not take into account future hypothetical circumstances pertaining to the unproven use of the sums allocated to one party by the challenged award (Judgment, ¶¶150-151).

The Court then emphasised that the hypothetical future use of funds by the prevailing party falls outside of the scope of the Court’s review, given that it is not linked to there cognition or enforcement of the award per se (Judgment, ¶152).

In that regard, the Court noted that nothing in the case pointed to an illicit obtention of the bank guaranteesat stake, nor that such guarantees have allowed either party to depart from the human rights principles referred to above.

Consequently, the Court could not find that the recognition or execution of the award is contrary to the French conception of international public policy (Judgment, ¶¶154-155).

The Court of Appeal, therefore,dismissed the request for annulment of the award.

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