Medici Alert📣 #Fraud and #Annulment proceedings – Fraud by a private operator towards a public entity affecting only their contractual relationship: is the international public policy of direction concerned? No, the Court of Appeal of Paris ruled in its decision of 21 January 2025 (Case No. 23/05511).

ℹ️ Context: In arbitration, a party that fails to raise an irregularity in a timely manner during the arbitration process is deemed to have waived the right to invoke it (Article 1466 of the French Civil Procedure Code) – unless it pertains to the international public policy of direction (IPP).

đź’ˇ Question: The Court had to determine whether the alleged fraudulent actions of a private operator towards a public entity fell under the IPP of direction. The alleged actions involved purported deception by the private operator about its actual experience, issuing false invoices, and making questionable payments. However, the public entity, which had chosen not to participate in the arbitration, only raised the issue of fraud before the sole arbitrator, Bassam Mirza, after the debates had concluded and were not reopened. The public entity argued that it could raise the issue before the annulment judge on the grounds that it fell under the IPP of direction.

âś… Solution: The Court of Appeal rejected these arguments. It decided that the alleged fraud did not fall under the IPP of direction, as the alleged fraudulent actions "only affected the contractual relationship" in question, even if they could constitute violations of local law, given that:

(i) no corruption of public officials was alleged,

(ii) no public assets were involved – the alleged embezzlement concerned the public entity’s own assets "in the administration of its private interests" and not "in the context of fulfilling its general interest missions," and

(iii) the embezzlement involved a private operator and not a public agent.

Thus, the Court found that the public entity, having failed to invoke the fraud during the arbitration hearings without legitimate reason, while being aware of it, could no longer rely on it during the annulment proceedings and thus these grounds were declared inadmissible.

➡️ Impact: The Court of Appeal of Paris demonstrates a desire to limit the scope of the IPP of direction by excluding purely contractual fraud, even when committed against a public entity. Practitioners should therefore ensure they clearly distinguish the fraud related to the law and corruption from fraud that is "purely" contractual. However, will this boundary always remain so clear?