The End of the French Alstom vs ABL Saga Regarding the Control of Allegations of Corruption in International Arbitration

Executive Summary: This year, the Alstom vs ABL Saga has finally come to an end with the decision of the Versailles Court of Appeal[1], issued on referral after the French Supreme Court, which clarifies the role of the Exequatur judge when an arbitral award is challenged for violation of international public policy. These clarifications are welcome at a time when the arbitration community has to balance the allegations of corruption, high standards of compliance to fight against corruption and efficiency of arbitration proceedings.

In this decision, the Versailles Court of Appeal pointed out that the French exequatur judge must make a strict assessment of the indicators of corruption, and that, while providing a thorough examination of the arbitral award’s conformity with international public policy, the refusal of exequatur could only be justified by “serious, precise and concordant indicators” of corruption.

The decision also has the merit of clarifying the role and importance of companies’ internal codes of ethics when corruption risks are alleged for breach: The Court shall only assess the conformity of the award’s enforcement with the French conception of international public policy in the light of the applicable international norms, laws and regulations, and not in the light of the internal compliance rules that a company has unilaterally set for itself in application of these regulations.

A. A look back at the facts of the case: between alleged corruption risks and binding force of contractual obligations

In this case, the French company Alstom Transport SA and the English company Alstom Network UK Ltd (hereafter both referred to as “Alstom“) concluded two consultancy contracts in 2004 and a third one in 2009 with the Hong Kong company Alexander Brothers Ltd (hereafter “ABL“) to assist them in bidding for the supply of railway equipment in China.

Alstom was successfully awarded all three markets which were the object of the consultancy contracts. However, after paying the first installments of the first and the second contracts in February 2006 and November 2008, Alstom refused to pay the outstanding balance and the commissions due under the third contract because of suspicion of corruption from ABL in the award of the granted markets.

ABL submitted a request for arbitration in front of the International Chamber of Commerce and Alstom was condemned to pay to ABL the commissions due under the first two consultancy contracts as well as the attorney and proceeding fees, by an arbitration award issued in Geneva on 29 January 2016. The arbitral tribunal indeed ruled that Alstom did not provide sufficient proof of their allegations of corruption, and that mere suspicions could not release them from their contractual obligations. Further, the Swiss Federal Tribunal rejected Alstom ‘s appeal to set aside the arbitral award and confirmed the latter on 3 November 2016.

In parallel, the enforcement of the arbitral award (the “exequatur”) was granted at ABL’s request in the United Kingdom and in France by order of the Tribunal de Grande Instance of Paris on 30 March 2016. Alstom appealed against this exequatur order, arguing that the award that condemned them to pay these commission was in breach of the ethical and compliance rules to prevent corrupt practices in international business stipulated in the consultancy contracts and violated international public policy, regardless of whether corruption had been proven. A series of court rulings began in France, leading judges and practitioners to question the role and the implication of the exequatur judge when corruption or mere risk of corruption were alleged to challenge the exequatur of an award.

The Paris Court of Appeal[2] first approved Alstom’s arguments in May 2019 and acknowledged the existence of serious, precise and concordant indicators that the sums paid by Alstom to ABL financed and remunerated the bribery of public officials. The exequatur order was therefore overturned by the Paris Court of Appeal for contravening French public policy, even if the refusal of exequatur was actually benefiting the party invoking its own wrongdoing.

Then, the Cour de Cassation, France’s highest court which only rules on the correct application of the law and not on the appreciation of the facts, quashed the decision rendered by the Court of Appeal as it considered that the evidence submitted was distorted due to a misreading of the arbitral transcript[3]. The case was consequently referred to the Versailles Court of Appeal, which rendered its keenly awaited decision on 29 March 2023.

B. Decision of the Versailles Court of Appeal: Details of the deep verifications made by the exequatur judge

The Versailles Court of Appeal meticulously studied all the parties’ arguments and confirmed the exequatur order of the arbitral award in a very detailed decision.

Firstly, the Versailles Court of Appeal studied and verified the existence of a body of precise, serious and concordant indicators of corruption for each of the eight pieces of evidence raised by Alstom.

• On the alleged insufficiency of evidence of services provided by ABL

The Court found that the evidence of services provided under the consultancy contracts no. 1 and 2 was sufficient to demonstrate the reality of the services provided by ABL for Alstom and noted that Alstom never complained about it and even proceeded with the first payments to its consultant until the arbitration proceedings.

However, re Contract no. 3, the Court noted the lack of evidence of services provided by ABL and agreed that the commissions claimed by ABL were not justified. However, it unequivocally ruled that these elements only characterized a breach of contract and were not sufficient to demonstrate an indicator of corruption.

• On ABL’s knowledge of sensitive or confidential documents and information relating to invitations to tender, constituting an alleged indication of corruption

The Court found that the material of the case was insufficient to establish precise, serious, and concordant evidence of corruption, insofar as (i) ABL had indicated the origin of the confidential information and documents, except for an evaluation report, and (ii) the audits carried out by Alstom had not revealed any suspicious payments or unexplained or excessive expense.

• On the payments in 2006 and 2009 of a total amount of 280,589.20 euros from ABL to Sitico International Trading Co (“Sitico”), an importing agent on behalf of Alstom Transport’s Chinese state-owned customer

Alstom claimed that these payments were made without their knowledge and were discovered in 2013 during an audit, whereas ABL explained that these payments were made as part of a contract concluded with Sitico without connection with the arbitral dispute. The Court agreed with ABL’s position and considered that the Alstom companies were not justified considering the disputed payments as an indicator of corruption insofar as they were perfectly aware of the collaboration between Sitico and ABL.

• On the award of a market to Alstom despite the lower rating of their technical bid

The Versailles Court of Appeal examined the evidence in detail and found that there was no evidence that ABL had used corrupt methods to convince the bidder.

• On the irregularities and deficiencies in ABL’s accounting records, preventing the verification of financial flows

The Court concluded that, based of the audits performed by Alstom, the testimony of ABL’s CPA and ABL’s CAC report, ABL’s financial accounts did not contain any irregularies or deficiencies constituting an indication of corruption.

• On ABL’s lack of material and human resources compared to the importance of the assignments claimed

The Court considers that the evidence in the case file does not demonstrate the lack of material and human resources denounced by Alstom, and consequently rejected any indicator of corruption on this ground.

• On the disproportion between ABL’s demonstrable diligence and the remuneration claimed under the consultancy contracts

The Versailles Court of Appeal rejected this alleged indicator of corruption on the grounds that the percentages of commission, in relation to the very high contract value and the length of the contract, were in line with international standards.

• On the background of corruption in China raised by Alstom

Alstom claimed that corruption in China, as well as the heavy sentences against public officials during the period of the award and the performance of the contracts, constituted contextual elements that should be taken into consideration when examining the body of corruption indicators.

In this regard, the Versailles Court of Appeal pointed out that the Chinese government had been conducting an anti-corruption campaign since 2013, and that it had not been established that a conviction for corruption or any other breach of probity had been handed down against ABL or any of its members. The Court added that the condemnation of public officials in China with no connection to ABL was not sufficient to constitute a serious and precise indication of corruption.

Thus, the Versailles Court of Appeal ruled, contrary to the Paris Court of Appeal, that none of the eight indicators raised by the ALSTOM companies could be qualified as serious, precise and concordant indicators of corruption. It is very interesting to note that the Court individually assessed each indicator and did not draw the consequences of these indicators altogether.

Secondly, the Versailles Court of Appeal refused to overturn the exequatur order on the ground that the enforcement of the award would violate the rules on the prevention of corruption and would therefore be contrary to the French concept of international public policy.

In addition, Alstom argued that the arbitrators’ decision to not rely on the application of the Ethic and Compliance Policy of the Alstom Group on the sole basis of contractual reasoning, is contrary to the objective of fighting corruption. The Court stated that the conformity of the award’s enforcement with the French conception of international public policy must be examined only in the light of the applicable international norms, laws and regulations, and not in the light of the internal compliance rules that a company has unilaterally set for itself in application of these texts.

Further, the Court pointed out that it has not been required to hear an appeal on the merits against the arbitral award and to therefore assess the reasoning of the arbitrators, but only whether the enforcement of the award complies with the French concept of international public policy.

The Court therefore concluded that Alstom’s claim should be rejected, since no precise, serious and concordant indicators of corruption likely to lead to a material violation of international public policy were identified by the judges.

Lastly, the Court dismissed Alstom’s last arguments that the arbitral award violated the contradictory principle and confirmed the exequatur of the arbitral sentence, in line with the position of the UK and Switzerland.

[1] Cour d’appel de Versailles 21/06191, 14 March 2023

[2] CA Paris, pôle 1, ch. 1, 28 mai 2019, n° 16/11182, Alstom Transport SA c/Sté Alexander Brothers Ltd : JurisData n° 2019-025321.

[3] Cass. 1re civ., 29 sept. 2021, n° 19-19.769

This summary is provided for informational purposes only and is not intended to constitute legal advice nor does it create an attorney-client relationship with Rimon, P.C. or its affiliates. Prior results referred to in these materials do not guarantee or suggest a similar result in other matters.

Stephanie De Giovanni is an accomplished international and litigation attorney with over 20 years of experience practicing commercial law and complex commercial litigation. Ms. De Giovanni has a background in international distribution law and spent her early career focused on commercial agency and the setting-up of distribution networks. For the duration of her legal career, she has dealt with termination issues and the disputes arising therefrom. Read more here.

Elia El Kouh is an Associate in Rimon’s Paris office. Ms. El Kouh focuses on international law, commercial law, litigation, and compliance. She has prior experience in law firms in Paris and Morroco advising clients on matters relating to commercial law, criminal business law, economic law, contract law, litigation, and arbitration. Read more here.