Written by Hilary Barnes
Is France’s reputation as a centre for international arbitration at risk? The case in 
which the managing director of the IMF, Christine Lagarde, was questioned by French magistrates for two days at the end of May appears to have the makings of an international legal scandal (that appears may not implicate Ms Lagarde directly).
Ms Lagarde was questioned about the circumstances in which a conflict between a French businessman, Bernard Tapie and the state, was sent to arbitration took place. Ms Lagarde was minister of finance at the time.
A “Vast Organized Fraud”
On June 4 one of the three arbitrators in the case, M. Pierre Estoup, whose probity has never before been questioned, was charged, after being held in detention without charge for 48 hours (an old French custom) with “organised fraud” – a very serious offence implying, said six specialists in arbitration, including the president of the French Arbitration Association, in an open letter to Paris newspaper Le Figaro on 07 June 2013 “a vast fraud, in other words that the arbitrage was a fiction.”
Further from Le Figaro:
“….we wish to express our concern in face of the legal and media excitement (“emballement”) caused by this affair, which seriously affects the reputation of France for international arbitration, of which it is one of the leading centres in the world.
“A centre of international arbitration cannot continue to exist unless the legal security of the users is guaranteed. This implies that when the state is involved it does not go back on a commitment freely arrived at to go to arbitration.” (Author’s translation)
They cannot get much closer than that to saying that the magistrates are undermining the entire system of arbitration, French as well as international, that rests on rules issued and generally accepted almost everywhere by the International Bar Association (IBA).
So far, the public does not know what the real grounds for the charge of organised fraud against M Estoup are, but the supposition of the French media is that it is based on the fact that he was acquainted with some of Mr Tapie’s lawyers and was a friend of Mr Tapie himself.
A key piece of evidence appears to be that Mr Tapie in 1998, in dedicating for M Estoup a copy of a book that he had just published, praised M Estoup for his courage, assured him of his “infinite recognition” and thanked him “with all my affection.”
The six specialists point out, however, that the IBA does not require arbitrators to reveal all their connections with the person or persons involved by the arbitration unless the arbitrator has acted more than three times for the same lawyer or law office within the three years previous to the arbitration.
Besides, they add, in this case the arbitration was a unanimous verdict – and no one has, so far, called into question the probity of the other two arbitrators.
The six argue that there is no question that the arbitration procedure in this case was legal and appropriate.
Was Sarkozy Involved?
What makes the case special is that it has a political aspect, several in fact. One of these, as an editorialist in Le Figaro wrote, is that at the top of the chain of command by which the decision to go to arbitration was taken was the former president of the France, Nicolas Sarkozy (who, incidentally, is said to have met and talked to Mr Tapie on several occasions at about the time that the decision to go to arbitration took place).
What all those who are so excited by this case have in mind, said the writer in Le Figaro, is the possibility that Mr Sarkozy can be placed in a situation where it would be impossible for him to stand in the 2017 presidential election; this would be the case if he were found guilty of an offence and debarred from politics for a few years, and probably if he had only been charged with an offence, although it had not yet come to court.
The police have been questioning senior members of Mr Sarkozy’s presidential staff to see what role the president may have played in the drama.
The case originated when President Francois Mitterand was president of France. He invited Mr Tapie to join one of his socialist governments, which meant that Mr Tapie had to sell his business interests. He put this in the hands of his bank, the state-owned Credit Lyonnaise (now Credit Agricole, in which the state has a minority stake), which sold the interests through a series of complex transactions to itself and
pocketed the money.
Mr Tapie sued the bank in the normal courts and won, and won on appeal as well. The state wished to go on appealing, and it was because the appeal procedure looked as if it would be long and expensive that Ms Lagarde agreed to the arbitration procedure (with which, as a business lawyer by profession, she was familiar).
The arbitrators, in the view of the critics, added insult to injury by increasing the award to Mr Tapie, taking it to €403m. The decision to make the arbitration subject to a police investigation followed on a plea by some socialist members of the National Assembly for an investigation.
Entirely Political?
Ms Lagarde has always said that the affair is entirely political. The magistrates did not prefer charges after her questioning in May, but she was designated “assisted witness”, which seems to mean roughly that there is not enough evidence to bring any charges, although she may possibly be implicated in some way.
