Image of Paris as place of arbitration restored by Court of Appeals' 'Affaire Tapie' ruling, experts say

The court ruled that a €403 million (£297 million) award against Consortium de Réalisation, a French state-owned company, was invalid. It was "tainted with fraud", the Court found, due to the role played by one arbitrator, Pierre Estoup, who systematically directed the reflection of the tribunal in favour of the interests of the party that he intended to promote by collusion with the latter and his counsel, a Global Arbitration Review said,

The 'Affaire Tapie' began in 1992, when Bernard Tapie joined the French government and was instructed to sell off some of his businesses and assets, including sporting goods company Adidas, according to a report in the International Business Times.

The bank Crédit Lyonnais was asked to manage the sale of assets. However, it bought Adidas itself, then sold it one year later for double the price, International Business Times said.

Tapie accused the bank of fraud, and of undervaluing Adidas. In the course of the long court case that followed, Crédit Lyonnais ceased to exist, and Tapie's opponent became the French state itself in the form of Consortium de Réalisation, the report said.

In October 2007, Christine Lagarde, then French minister of finance, asked the Consortium de Réalisation to settle the Tapie case quickly through the use of a private arbitration tribunal. A private arbitration tribunal was set up to finally settle the case, and in July of the following year, Tapie was awarded €403 million. The arbitration panel comprised three figures: Pierre Mazeaud, the former president of the Constitutional Council of France; Jean-Denis Bredin, a business lawyer; and Pierre Estoup, a judge, Global Arbitration Review said.

Christine Lagarde has since been placed under formal investigation, accused of negligence for failing to challenge the award, Radio France International reports.

In 2013, the Consortium de Réalisation brought a 'recourse of judicial review' before the Paris Court of Appeals, on the basis of fraudulent arbitration proceedings, and it is this review that led to the retraction of the award, on the basis of fraud, said arbitration law expert Michael Bode of Pinsent Masons, the law firm behind Out-Law.com.

The court did so despite concerns that the recourse of judicial review may not fall under its jurisdiction, which only covers domestic awards. Tapie's lawyers had argued that the arbitration was international, as it dealt with a German company and the transaction was governed by German law, and so could not be heard by the Court of Appeals. However, the court held "in quite strong terms" that the arbitration was domestic, as it was settling a series of French court proceedings, regarding relations between a French bank and its French customers, Bode said.

"The latest Paris Court of Appeals’ decision is to be welcomed," he said. "In condemning the behaviour of Mr Estoup, the Court of Appeals showed that French courts will not tolerate fraud in arbitration proceedings, the essence of which are independence and impartiality."

The court will now decide the merits of the dispute in proceedings scheduled for this autumn.

The impact of the original award on Paris' reputation is worrying, arbitration lawyers told Global Arbitration Review.

The publication quotes Thomas Clay, an arbitrator and vice president of the University of Versailles Saint-Quentin: "The Tapie award weakened Paris as a place for arbitration. Everyone could see that the case was not a normal arbitration and that the award had not been rendered under normal conditions. This dispute should never have been brought to arbitration. The Court of Appeal decision is a victory for Paris as the home of arbitration, and for arbitration in general."

Arbitration expert Peter Rosher of Pinsent Masons said: "I share the view that the whole affair has tainted Paris’ premier reputation as a place of arbitration. This whole affair has been the subject of fierce media attention and controversy, more often than not based on misconceptions about arbitration and this has negatively affected perceptions of Paris arbitration."

Tapie's counsel, Jean-Georges Betto, intends to appeal the judgement at the Cour de Cassation, France's supreme court, Global Arbitration Review said.