In a judgment of 12 January 2022, the French Supreme Court for civil and criminal matters (Cour de cassation) ruled again that foreign judgments ordering the payment of disproportionate financial awards violate French public policy and will be denied enforcement on this ground.
Background
The case was concerned with a loan made by a Russian bank to two Russian spouses who were both domiciled in Russia. The purpose of the loan, it seems, was to purchase immovables in Russia. The lender sought repayment of the loan in Russian courts, and a court of St Petersburg eventually ordered the borrowers to repay. The contract provided for the payment of various interests, including an interest ranging from 30 to 50% in case of default.
The bank sought to enforce the Russian judgment in France, aiming at a home of the borrowers on the French Riviera
The spouses resisted enforcement of the judgment on the ground that the interest rate was contrary to French public policy.
First Judgment
The Paris Court of Appeal had initially declared enforceable the Russian judgment on the ground that the French rules prohibiting that interest rates go beyond a certain level (usury) were not internationally mandatory.
In a judgment of 17 October 2018, the Cour de cassation allowed an appeal against this decision by ruling that the court of appeal should have concretely assessed whether the interest rate applied by the foreign court might violate French public policy.
Second Judgment
The case was remanded to another chamber of the Paris court of appeal which denied enforcement to the Russian judgment. The court relied on the caselaw of the Cour de cassation which has ruled since 2010 that, while punitive damages are not, per se, contrary to French public policy, they can be if they are disproportionate.
The appeal of the bank to the Cour de cassation was dismissed. The French supreme court held that the court of appeal had rightly ruled that, while punitive damages are not, per se, a violation of French public policy, financial awards are contrary to public policy when the financial award was disproportionate considering 1) the harm suffered and 2) the contractual breach.
The court concluded that the application of the interest rate violated French public policy, as informed by the fundamental right to property.
Assessment
The judgment is merely a confirmation of a clear trend in the case law of the Cour de cassation to assess the proportionality of financial awards granted by foreign courts. Although the first judgment of the court was concerned with punitive damages, the scope of the rule is much broader, as confirmed by this judgment. The Paris court of appeal has also suggested (in another case) that it would apply it in the context of enforcement of arbitral awards.
The appeal had made an interesting, and to my knowledge, novel argument. It insisted that proportionality should also be assessed with respect to the wealth of the debtors. It is unknown whether the debtors were oligarchs with other properties throughout western Europe, but should it matter for the analysis? The argument is rejected, but only on the basis that it had not been made before the court of appeal.
Finally, an interesting aspect of the case is that it had so few connections with France. Decades ago, this would have been perceived as critical, under the doctrine of effet attenué de l’ordre public: situations created abroad should not be scrutinised as closely (read: not scrutinised at all) as situations to be created in France. But the Cour de cassation has not applied or referred to this doctrine in decades. The judgment does not even care to respond to the argument, which confirms that the doctrine has become obsolete under French law.
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In a judgment of 12 January 2022, the French Supreme Court for civil and criminal matters (Cour de cassation) ruled again that foreign judgments ordering the payment of disproportionate financial awards violate French public policy and will be denied enforcement on this ground.
Background
The bank sought to enforce the Russian judgment in France, aiming at a home of the borrowers on the French Riviera
The spouses resisted enforcement of the judgment on the ground that the interest rate was contrary to French public policy.
First Judgment
The Paris Court of Appeal had initially declared enforceable the Russian judgment on the ground that the French rules prohibiting that interest rates go beyond a certain level (usury) were not internationally mandatory.
In a judgment of 17 October 2018, the Cour de cassation allowed an appeal against this decision by ruling that the court of appeal should have concretely assessed whether the interest rate applied by the foreign court might violate French public policy.
Second Judgment
The case was remanded to another chamber of the Paris court of appeal which denied enforcement to the Russian judgment. The court relied on the caselaw of the Cour de cassation which has ruled since 2010 that, while punitive damages are not, per se, contrary to French public policy, they can be if they are disproportionate.
The appeal of the bank to the Cour de cassation was dismissed. The French supreme court held that the court of appeal had rightly ruled that, while punitive damages are not, per se, a violation of French public policy, financial awards are contrary to public policy when the financial award was disproportionate considering 1) the harm suffered and 2) the contractual breach.
The court concluded that the application of the interest rate violated French public policy, as informed by the fundamental right to property.
Assessment
The judgment is merely a confirmation of a clear trend in the case law of the Cour de cassation to assess the proportionality of financial awards granted by foreign courts. Although the first judgment of the court was concerned with punitive damages, the scope of the rule is much broader, as confirmed by this judgment. The Paris court of appeal has also suggested (in another case) that it would apply it in the context of enforcement of arbitral awards.
The appeal had made an interesting, and to my knowledge, novel argument. It insisted that proportionality should also be assessed with respect to the wealth of the debtors. It is unknown whether the debtors were oligarchs with other properties throughout western Europe, but should it matter for the analysis? The argument is rejected, but only on the basis that it had not been made before the court of appeal.
Finally, an interesting aspect of the case is that it had so few connections with France. Decades ago, this would have been perceived as critical, under the doctrine of effet attenué de l’ordre public: situations created abroad should not be scrutinised as closely (read: not scrutinised at all) as situations to be created in France. But the Cour de cassation has not applied or referred to this doctrine in decades. The judgment does not even care to respond to the argument, which confirms that the doctrine has become obsolete under French law.
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