Paris Court of Appeal issues reminder of procedural fraud definition

The case relates to a dispute between two European energy suppliers, which led to an award issued by an arbitral tribunal. The company that lost the arbitration then lodged an appeal with the Paris Court of Appeal to annul the award.

This annulment proceeding calls for the Paris Court of Appeal to re-examine the scope of procedural law within international public policy and the limits of annulment review under French arbitration law.

The two energy companies entered into an electricity supply contract in 2014. A dispute arose over unpaid invoices and was submitted to arbitration under German Arbitration Institute (DIS) rules. The tribunal, seated in Paris, issued an award ordering payment. 

However, the party who lost the arbitration sought the Paris Court of Appeal to set aside the award. The supplier argued that the award had been obtained through procedural fraud, alleging that the successful party deceived the arbitral tribunal by producing false invoices and fabricated witness statements. It argued that the award would give effect to an illicit contract and breach international public policy. 

The respondent’s response was pragmatic and sector-specific, arguing that electricity trading invoicing practices do not always correspond mechanically to physical delivery patterns. More importantly, it said the authenticity and significance of the invoices and statements had already been debated before the arbitral tribunal, which previously found no grounds for misconduct and had accepted the claim. 

In its decision, the Paris Court of Appeal examined two recurring issues in annulment proceedings. Firstly, what qualifies as procedural fraud for the purposes of French international public policy; and, secondly, how firmly the court draws the line between control of the award and a disguised request for a fresh decision on the merits. 

The court stated that procedural fraud falls within the scope of international public policy. However, it emphasised that the threshold is demanding. If it was to determine that the tribunal’s decision was obtained through deception, it said this would require proof of forged evidence, dishonest witness testimony or the deliberate concealment of decisive documents. 

Applying that standard, the court rejected the application on the grounds that the allegedly fabricated invoices and the supporting statements were not hidden from the tribunal, that they were fully discussed in arbitration proceedings and that the tribunal examined their probative value and addressed the allegation that they did not correspond to real transactions. 

In the court’s view, the argument by the aggrieved energy supplier was not that the tribunal had been deceived by hidden or falsified material, but that there were in fact no electricity sales at all. It then concluded that this was a merits argument, which stemmed back to the economic reality of the transactions, not to the integrity of the arbitral process. It was thus outside the scope of review of the court.

It determined that once the tribunal had considered the evidence and formed a reasoned view on such a matter, the Court of Appeal could not revisit that assessment under the label of procedural fraud. It ruled that the tribunal was not deceived and its decision was rendered on disputed facts.  

The court also addressed a second angle advanced at appeal that even beyond procedural fraud, the award allegedly violated international public policy because it would give effect to an illicit contract. 

However, the French court also drew a strict boundary, determining that French domestic public order and international public policy are distinct; that rules governing the liceity of the formation of a contract belong, in principle, to domestic public order; and that they do not automatically rise to the level of international public policy unless a specific, clearly identified international principle is at stake. 

In this case, the court reasoned that the appeal did not identify any of these principles and remained anchored in the alleged absence of underlying transactions – a matter of merits, which had also already been examined by the tribunal. 

The court concluded that the appeal sought to establish a new determination on the substance of the dispute under the guise of public policy control but reiterated that this was not the function of annulment proceedings. 

This decision provides a useful illustration of the discipline of French annulment review and there are four main takeaways.

Firstly, it highlights that procedural fraud is strictly defined and requires deception of the tribunal. The focus must be on the integrity of the arbitral process and of the parties’ consent to arbitrate, not on whether the tribunal assessed the facts correctly. 

The case also highlights that there must be no rebranding of merits arguments.
Once evidence relating to an issue that belongs to the merits of the case has been debated and assessed a party cannot relabel its disagreement as fraud or public policy in order to obtain a second review. 

For practitioners, the message is straightforward. Allegations of fictitious contracts or artificial invoicing must be framed and proved before the arbitral tribunal. Once the tribunal has engaged with those issues, annulment proceedings in Paris will not serve as a second forum to revisit them unless clear evidence of deception affecting the decision-making process is presented at appeal.