Paris Court of Appeals Annuls Unanimous €403 Million Award Rendered in Favor of French Businessman Bernard Tapie
February 17, 2015
On February 17, 2015, the Paris Court of Appeals annulled a 2008 arbitral award of €403 million in damages to French businessman and former minister Bernard Tapie.
This is the latest development in the long-running and highly publicized judicial saga known in France as the “Tapie affair,” in which Cleary Gottlieb represents the interests of the French State.
The main dispute stems from the conditions under which Crédit Lyonnais performed its contractual obligations to sell Tapie’s majority stake in Adidas in 1993. Tapie alleged that the bank engaged in insider dealing by selling part of the stake to itself via shell companies and by concealing the existence of a separate option to resell the stake later for a much higher price. After many years of litigation between Tapie and the CDR (the State-owned defeasance structure in charge of managing Crédit Lyonnais’s troubled assets), all disputes between the parties were submitted to arbitration.
The arbitral tribunal consisted of Pierre Estoup, a former president of the Versailles Court of Appeals, Jean-Denis Bredin, a prominent lawyer and member of the French Academy, and Pierre Mazeaud, a former president of the Constitutional Council. In 2008, the arbitrators found the CDR liable and awarded Tapie €403 million of public money in damages, including €45 million for mental anguish.
After François Hollande’s election in 2012, a criminal investigation was launched into the arbitration. Six individuals have been indicted for conspiracy to commit fraud, including Bernard Tapie, his lead counsel in the arbitration Maurice Lantourne, arbitrator Pierre Estoup, and high ranking officials in charge of the entities involved in the arbitration. Current IMF Managing Director Christine Lagarde, who was then Finance Minister, is also being investigated for “negligence.” The investigative magistrates are exploring whether the arbitration was a sham meant to conceal a pre-existing agreement concluded between Tapie and officials affiliated with then-president Nicolas Sarkozy.
In parallel to the criminal investigation, the CDR commenced civil proceedings to recover the amounts paid to Bernard Tapie, including a petition for revision, an exceptional legal remedy that is rarely attempted and even more rarely granted.
In a highly anticipated decision, the Paris Court of Appeals rejected all of Bernard Tapie’s arguments. It found that the Court of Appeals is the proper forum to hear the petition for revision, that the petition is not time-barred and is admissible, and vacated the arbitral award, which it found had been fraudulently rendered in favor of Tapie. The Court found that Estoup, the arbitrator appointed by Tapie, had concealed “old, close and repeated links” with Tapie and his lead counsel. It held that this arbitrator “disregarded his duty of impartiality, which is the essence of the arbitral function, exercised a stranglehold on the arbitral procedure, presented the dispute in a one-sided way and deliberately and systematically oriented the deliberations of the arbitral tribunal in favor of the interests of the party he wished to favor.” The Court also held that Estoup relied on his position as a former high magistrate and “eclipsed” the other two arbitrators, who were pushed to defer to Estoup out of “convenience, blind trust, prejudice, or even incompetence.”
The decision will be followed by a separate ruling on the merits, which is expected in the fall of 2015.
This is the latest development in the long-running and highly publicized judicial saga known in France as the “Tapie affair,” in which Cleary Gottlieb represents the interests of the French State.
The main dispute stems from the conditions under which Crédit Lyonnais performed its contractual obligations to sell Tapie’s majority stake in Adidas in 1993. Tapie alleged that the bank engaged in insider dealing by selling part of the stake to itself via shell companies and by concealing the existence of a separate option to resell the stake later for a much higher price. After many years of litigation between Tapie and the CDR (the State-owned defeasance structure in charge of managing Crédit Lyonnais’s troubled assets), all disputes between the parties were submitted to arbitration.
The arbitral tribunal consisted of Pierre Estoup, a former president of the Versailles Court of Appeals, Jean-Denis Bredin, a prominent lawyer and member of the French Academy, and Pierre Mazeaud, a former president of the Constitutional Council. In 2008, the arbitrators found the CDR liable and awarded Tapie €403 million of public money in damages, including €45 million for mental anguish.
After François Hollande’s election in 2012, a criminal investigation was launched into the arbitration. Six individuals have been indicted for conspiracy to commit fraud, including Bernard Tapie, his lead counsel in the arbitration Maurice Lantourne, arbitrator Pierre Estoup, and high ranking officials in charge of the entities involved in the arbitration. Current IMF Managing Director Christine Lagarde, who was then Finance Minister, is also being investigated for “negligence.” The investigative magistrates are exploring whether the arbitration was a sham meant to conceal a pre-existing agreement concluded between Tapie and officials affiliated with then-president Nicolas Sarkozy.
In parallel to the criminal investigation, the CDR commenced civil proceedings to recover the amounts paid to Bernard Tapie, including a petition for revision, an exceptional legal remedy that is rarely attempted and even more rarely granted.
In a highly anticipated decision, the Paris Court of Appeals rejected all of Bernard Tapie’s arguments. It found that the Court of Appeals is the proper forum to hear the petition for revision, that the petition is not time-barred and is admissible, and vacated the arbitral award, which it found had been fraudulently rendered in favor of Tapie. The Court found that Estoup, the arbitrator appointed by Tapie, had concealed “old, close and repeated links” with Tapie and his lead counsel. It held that this arbitrator “disregarded his duty of impartiality, which is the essence of the arbitral function, exercised a stranglehold on the arbitral procedure, presented the dispute in a one-sided way and deliberately and systematically oriented the deliberations of the arbitral tribunal in favor of the interests of the party he wished to favor.” The Court also held that Estoup relied on his position as a former high magistrate and “eclipsed” the other two arbitrators, who were pushed to defer to Estoup out of “convenience, blind trust, prejudice, or even incompetence.”
The decision will be followed by a separate ruling on the merits, which is expected in the fall of 2015.