Note on the conviction of
Christine Lagarde by the Cour de Justice de la Rpublique in France[1]
On 19 December 2016, the Cour de
la Justice de la Rpublique (CJR) in France rendered its judgment convicting of
criminal negligence Christine Lagarde, current Director General of the
International Monetary Fund (IMF), former Minister of Finance in France and
former managing partner of the global law firm Baker McKenzie (and first woman
to occupy each of these posts). The Court exempted Ms. Lagarde from all the
sanctions provided under the French Penal Code.[2]
The CJR is a specialized court
instituted by the French Constitution[3]
to judge accusations of serious criminal conduct by members of the French
Government carried out in the exercise of their offical functions. It is comprised of 15 judges, three judges on the Cour de Cassation
(Frances highest civil and criminal court) and 12 Parliamentarians (six
appointed by the National Assembly and six by the Senate).[4] Since its inception, the CJR has registered about 1,000 complaints, but
prior to the case involving Ms. Lagarde only four matters had resulted in the
rendering of judgments and only three defendants had been convicted.[5] Convictions require a majory vote of the members of the Court.[6]
Immediately following upon the
announcement of Ms. Largardes conviction by the CJR, the Executive Council of
the IMF reaffirmed its full confidence in Ms. Lagardes capacity to continue
to perform effectively her functions within the Organization.[7]
For its part, the French Government issued a communiqu by the Minister of
Finance proclaiming that Ms. Lagarde is implementing successfully her mandate
within the IMF and the Government remains fully confident of her ability to carry
out her responsibilities.[8]
But some observers have
manifested much less largesse. For instance, one well regarded French
journalist has accused Ms. Lagarde of false navety.[9]
Ms.Lagarde had a right to appeal
the judgment of the CJR to the Cour de Cassation, but chose not to, stating
that while she was not satisfied with the judgment, it was time to turn the
page . . . and concentrate her attention on her mission at the head of the IMF.[10]
Below, the events and procedures
that culminated in Ms. Lagardes conviction are summarized.
Then, Ms. Lagardes defense as
it was understood and treated by the CJR is examined in detail.
Ms. Lagarde was prosecuted for
her management in 2007 and 2008 while she was Minister of Finance of the French
States interests in the arbitration proceedings organized to settle the
disputes which had been simmering since the mid-1990s between, on the one hand,
the liquidators of the companies of the flamboyant French businessman Bernard
Tapie[11]
and the liquidators of the personal estates of Mr. Tapie and of his wife and,
on the other hand, the administrators of the defeasance his former banker, the
Crdit Lyonnais, and of some of its subsidiaries.
Mr. Tapie accused the Bank of having
cheated his group in implemeting a mandate granted in 1992 to sell its
subsidiary that controlled Adidas, the German sporting goods company, as well
as of having in 1994 and 1995 illegally forced his companies and his wife and
himself into bankruptcy.
The liquidators of the Tapie
Group companies and of the spouses began the counter-attack in 1996. There
ensued a plethora of lawsuits that culminated in 2006 with two decisions of the
Cour de Cassation[12] that sent
the parties back before the Court of Appeal with findings on the law that each
side claimed were favorable to its interests.
Thus, in 2007, since the entity
that had taken over the compromised assets of the Crdit Lyonnais, the
Consortium de Ralisation (CDR), though it was a commercial company, was
controlled by a public entity, the tablissement Public de Financement et de
Restructuration (EPFR), which fell
under the aegis of the Ministry of Finance, it was incumbent upon Ms. Lagarde
to decide whether to approve the submission to arbitration. She did in fact
issue instructions to the Directors on EPFR Board appointed by the State not to
object to the submission to arbitration.
Then, after the Arbitration
Tribunal ruled on 7 July 2008 that the Crdit Lyonnais side was liable to pay
to the Tapie side some EUR 403 million, Ms. Lagardes Ministry was called upon
to decide whether to contest the award. Again, Ms. Lagarde instructed the
State-appointed Directors on the Board of EPFR to forego any such recourse.
Ms. Lagarde made these decisions
after having received the opinions of high-level civil servants as well as of
eminent professionals, which were divided; in particular, the Agence des
Participations de lEtat (APE), the role of which is to oversee the States
corporate investments, had sent several memoranda to Ms. Lagarde that
recommended against the submission to arbitration.
But, it was only in 2011,
following upon letters of several Parliamentarians and of the General
Prosecutor at the Court of Public Audits (Cour des Comptes) that criticized Ms.
Lagardes management of the case that the General Prosecutor at the Cour de
Cassation seized the Inquiries Commission of the CJR on counts of complicity in
fraud and embezzlement of public funds.
At first, the Inquiries
Commission qualified Ms. Lagarde as a witness to the commission of those
infractions. After a full inquiry including interrogations of Ms. Lagarde, it
indicted her on 17 December 2015, for the crime under article 432-16 of the
French Penal Code of negligence by a person vested with public authority from
which there resulted an embezzlement of public funds, and more particularly for
submitting the dispute to arbitration and later for not seeking to have set
aside the award of 7 July 2008.
Ms. Lagarde appealed against her
indictment to the Cour de Cassation arguing that the CJR could not judge her
under article 432-16 of the Penal Code unless and until the court of general
jurisdiction seized of the criminal case against several protagonists for
embezzlement of public funds under article 433-4 of the same Code had handed
down convictions. Ms. Lagarde also asked the Cour de Cassation to rule that the
prosecution had failed to prove before the Inquiries Commission that her
decisions had caused the embezzlement of public funds.
But, on 2 July 2016, the Cour de
Cassation dismissed the appeal.[13] First, the Court ruled that the
infractions alleged to have been committed by Ms. Lagarde under article 432-16 of
the Penal Code and those alleged to have been committed by other defendants
under article 433-4 of the same Code were distinct and autonomous and that
the proceedings before the CJR against Ms. Lagarde and those targeting other
protagonists before the criminal courts of general jurisdiction were independent.
The reasoning underlying these affirmations is detailed by the Reporting Judge
on the Cour de Cassation; for instance, it would be conceivable, and there is
case-law to support the proposition, to imagine an accused under article 432-16
being found not guilty of corruption even as the non public officials pursued
for embezzlement might be found guilty under
article 433-4.[14] Finally,
the Cour de Cassation ruled that it was not incumbent upon it to evaluate the
merits of the charges levied by the Commission and that it had no power other
than to verify that the qualification of the facts by the Commission justified
the jurisdiction of the CJR.
Before the CJR, Ms. Lagardes
lawyers raised a preliminary objection claiming that the CJR was not in a
position to determine whether an embezzlement of public funds had occurred, and
seeking to have the CJR suspend its hearing of the case pending the
determination on that point by the courts of general jurisdiction. But the CJR
rejected that motion and echoed the reasoning of the Cour de Cassation in its
rejection of Ms. Lagardes above-mentioned appeal against her indictment, while
adding that the proper administration of justice imposed that it render its
judgment within a reasonable time, an objective that could not be achieved if
it adjourned the proceedings before it pending the outcome of distinct
proceedings of random duration.
In its judgment of 19 December
2016, the CJR found Ms. Lagarde to be guilty under article 432-16 of the Penal
Code that provides (after inclusion by reference of article 432-15 of the Code)
that:
When the destruction, distraction or subtraction
by a third party of any deeds or securities or public or private funds, or
bills, coins or securities substituting therefor, or any other object that was
remitted to such party in connection with his/her functions or mission results
from the negligence of a person vested with public authority or assigned a
mission of public service, of a public accountant or public depositary, the
latter shall be sentenced to one year in prison and a EUR 15,000 fine.
Thus, the CJR qualified as an embezzlement of
public funds the attribution by the Arbitral Tribunal to the Tapie spouses of EUR
45 million as reparation for the moral prejudice alleged to have been caused to
them by the Crdit Lyonnais.
In addition to the sanctions provided by article
432-16 of the Criminal Code, Ms. Lagarde was subject to additional sanctions
under 432-17 of that Code, namely:
1. destitution of civil, civic and
family rights,
2. prohibition against exercising
any public function or any professional or social activity in the exercise of
which or in connection with which the infraction was committed, in particular,
the carrying on of any commercial or industrial profession, the direction,
administration, management or control on any account whatsoever, whether
directly or indirectly, for their own account or that of another party, of any
commercial or industrial enterprise or of any commercial company (which
prohibitions may be cumulated);
3. confiscation of amounts or
objects improperly obtained by the author of the infraction, except such
objects as might be restituted;
4. public notice or dissemination
of the decision rendered.
But the CJR exempted Ms. Lagarde
from any criminal sanction, and ordered that her conviction not be included in
her criminal record.
2. – The reasoning of the CJR
In its decision of 17 December
2015, the Inquiries Commission of the CJR had indicted Ms. Lagarde under
article 432-16 of the Penal Code for having, in the exercise of ministerial
functions:
- approved, against the advice of
numerous advisers, the submission to arbitration of the Tapie-CDR disputes
(2.1.),
- foregone the exercise of a
recourse against the Arbitral Award of 7 July 2008 despite having been informed
of a serious basis on which to have it voided (2.2.).
Before the CJR, Ms. Lagarde
admitted that she
had not acted in compliance with
any instructions which might have been given to her by higher authorities
within the State (President of the Republic and Prime Minister) but had made
the decision within her authority, as Minister of Finance, and she assumed full
responsibility therefor.
By way of introducing the
reasons for its decision, the CJR first recalled the principle of the
separation of powers, written into article 16 of the Declaration of Human
Rights and the Rights of Citizens and article 24 of the Constitution of October
4, 1958, providing that Parliament controls the Government, do not prevent
criminal actions against a member of the Government for breaches of the duties
of his/her office, such as, in the case at hand, behaviour that facilitated the
embezzlement of funds committed by a third party that caused harm to the
financial interests of the State.
Also, the cumulative imputation
of criminal liability and of political responsibility for the same conduct does
not violate the principle of equality before the law since they are of
different natures and have distinct objectives.
The CJR concluded that an
embezzlement had occurred on the basis of the following findings of fact:
several protagonists had insisted that the dispute not be submitted to arbitration,
the arbitration agreement had been surreptitiously modified to include a
provision specifically allowing the presentation of a claim for reparation of
moral harm suffered by the Tapie spouses, one of the arbitrators had connived
with Mr. Tapie as well as with one of his lawyers to favour the Tapie side, and
the amount of damages awarded by the Tribunal as compensation for the moral
harm allegedly suffered by the Tapie spouses was exorbitant.
2.1. – On the Decision to
Submit the Dispute to Arbitration
According to the original
Arbitration Agreement, the liquidators of the Tapie companies would limit the
total amount of all their claims to EUR 295 million plus interest at the legal
rate from 30 November 1994 and the Tapie spouses would limit all theirs to EUR
50 million. It was further agreed that the arbitrators would be designated in
the Arbitration Agreement, that they would render an award in law while
treating as res judicata the prior
judgments of the Court of Appeal of Paris and of the Cour de Cassation with
respect to the disputes between the Parties and that, subject to the recourses
provided in article 1484 of the Civil Code, the award would be final.
The day before the meeting of
the Board of Directors of CDR held on 2 October 2007, convened to discuss the
submission of the dispute to arbitration, Ms. Lagarde had received the opinion
of APE that advised against submitting the dispute to arbitration based on a
general disapproval of the arbitration of disputes involving the State as well
as because it considered that CDRs chances of success before the courts had
been increased by the 6 October 2006 judgment of the Cour de Cassation, which
had by the same token improved CDRs prospects of negotiating a favorable
settlement.
On 10 October 2007, despite APEs
recommendation, Ms. Lagarde issued an instruction to the States
representatives on the Board of EPFR not to object to the arbitration
procedure, provided that the Crdit Lyonnais would commit in writing that, in
the event of liability of CDR, it would pay the first EUR 12 million of any
such award.
On the same day, the Board of Directors of EPFR did not object to the
decision to submit the dispute to arbitration.
Then, Ms. Lagardes Chief of
Staff, Mr. Stphane Richard, accepted the liquidators requests for two
amendments to the original Agreement and did so, according to Ms. Lagarde,
without informing her. First, the claims of the liquidators of the Tapie
companies and of the Tapie spouses for material
damages would not exceed a total of EUR 295 million plus interest at the legal
rate from November 30,1994. Secondly, the liquidators of the Tapie spouses
would be entitled to present a claim for moral
damages of up to EUR 50 million.
Thereupon, the CJR concluded that
. . . in the light of the
failure of the previous attempts at mediation and the numerous pending legal
actions which it was appropriate to terminate because of their cost and given
the information then available to her . . .
Mrs. Lagarde was not guilty of
criminal negligence as proscribed by article 432-16 of the Criminal Code of
having been negligent in approving the submission of the Parties disputes to
arbitration.
2.2. – On
the Decision not to Contest the Award before the Courts
On 7 July 2008, the Tribunal
rendered its Award finding the Bank side liable to pay to the Tapie side some
80 percent of the amounts the latter had claimed.
Because the State was
responsible for the payment of the amount of the Award, the Ministry of Finance
solicited expert opinions as to the prospects of success of a petition to have
the Award voided, that being the only recourse available under the French laws
then applicable.
Divergent opinions were reported
with respect to the chances of success of such a recourse.
On 28 July 2008, Ms. Lagarde
instructed the representatives of the State within EPFR to oppose such a
recourse.
Then, the Board of Directors of
CDR approved a resolution renouncing any action to have the Award voided and
the Board of EPFR did not object to that decision.
The Award having thus become
final, Ms. Lagarde then issued the instructions necessary to have paid, after
all set-offs, EUR152 million on 2 September 2008, and another EUR 117 million
in March 2009, which payments were funded by loans of EPFR drawn on Crdit
Lyonnais.
But, on 17 February 2015, the
Court of Appeal of Paris ordered the retraction of the Award because it had
been obtained fraudulently in that one of the arbitrators had connived with
Mr. Tapie as well as with one of the latters lawyers in order to lead the
Arbitral Tribunal to approve the claims of the Tapie sides liquidators and
those of the Tapie spouses.
The CJR concluded that Ms.
Lagarde had acted negligently in deciding against a legal action to have the
Award voided.
The CJR emphasized that Ms.
Lagarde made her decision 19 days before the expiration of the appeal period,
even though she was a lawyer by profession, and despite her declarations that
(i) she had been particularly mindful to protect the States financial interests,
(ii) that she had been personally involved in the Ministrys management of the
case, and (iii) that she had felt consternation, astonishment because of the
contents of the Award, especially by the amount of the award for moral damages
to the liquidators of the Tapie spouses, some EUR 45 million, at the time not
subject to income taxes.
As Ms. Lagarde testified that
she had not been informed of the claim of the liquidators of the Tapie spouses
for moral damages of up to EUR 50 million, nor of the amendment to the
Arbitration Agreement allowing such a disposition in the Award and that she had
therefore never accepted the principle of such a result, the CJR ruled that a
request for explanations from her Cabinet, from APE and from the States representatives
within EPFR was called for in order to understand the process by which such a
shocking award came to pass.
If Ms. Lagarde had solicited
such opinions, she would without any doubt have discovered, as would later
the Court of Public Audits, that the
reparations for the alleged moral damages of the Tapie spouses had been
included within the scope of the arbitration by an amendment to the Arbitration
Agreement after it had been approved by the Boards of Directors of CDR on 2
October 2007 and of EPFR on 10 October 2007. According to the CJR, the
amendment of the Arbitration Agreement in such circumstances would have
justified the initiation of an action to have the Award voided on one of the
grounds provided in article 1484 of the Code of Civil Procedure that was then
in effect.[15]
Moreover, the CJR remarked that
the exercise of such a recourse would have enabled CDR better to negotiate with
liquidators of the Tapie spouses with respect to the compensation of their
moral damages, the more so in that those liquidators had on 24 July 2008,
offered to reduce their claims if the Bank side would renounce all recourses.
In addition, Ms. Lagarde had
claimed before the CJR that she had not read APEs memorandum of 16 July 2008
drawing her attention to the very grave consequences for the States finances
of the Award.
Indeed, Ms. Lagarde claimed
before the CJR that she had never examined the Award.
In anticipation of the 20 July
2008 meeting held in Ms. Lagardes office, only people in her entourage who were
likely to oppose an action to quash the Award were called to attend, whereas
those likely to favour the exercise of such an action were not invited,
including the representatives of APE and CDRs lawyers, one of whom was
admitted to practice before the Cour de Cassation and the Conseil dEtat, and
who had qualified the Award as an abridgment and approximation devoid of any
legal sense, and the other who had acted for many years on behalf of CDR.
Therefore, the CJR ruled that:
Altogether these elements reveal
negligence in the search for information which Ms. Lagarde should have carried
out before making her decisions . . .
This decision thus results not only from an unfortunate political choice
that would be beyond the scope of review of the CJR, but from negligence within
the meaning of article 432-16 of the Criminal Code.
The fraudulent appropriation by
the Tapie spouses of EUR 45 million was the culmination of a criminal
endeavour; Ms. Lagardes fault was not the only cause of the embezzlement, but
it suffices that it was one of the determining causes therefor. Ms. Lagardes
decision not to initiate a recourse to have the Award voided, the chances of
success of which were not negligible, caused the fraud to become unavoidable.
For these reasons, the CJR ruled
that Ms. Lagarde was guilty of negligence by a person vested with public
authority from which resulted an embezzlement of public funds by a third party
in an amount of EUR 45 million.
To evaluate what criminal
sanction was appropriate, the CJR took into account that Ms. Lagarde had
carried out her ministerial functions in a context of worldwide financial
crisis. The CJR also considered in her favour her personality and national and
international reputation. Finally, the harm to the state of public finances
ceased on 17 February 2015, when the judgment of the Court of Appeal of Paris
retracting the Arbitral Award became final.
On this basis, the CJR decided
that the conditions provided in article 132-59 of the Criminal Code[16]
were satisfied and it exempted Ms. Lagarde from all criminal sanctions and
ordered that her conviction be omitted from her criminal record.
3. - Conclusion
Crucial to the reasoning of the
CJR was that Ms. Lagarde had not been aware of the changes made to the
Arbitration Agreement on the signature of her Chief of Staff, Stphane Richard,
which amendments introduced the possibility of awarding the Tapie spouses up to
EUR 50 million for their alleged moral damages.
But, the CJR never heard Mr.
Richard on this point because he refused to testify before it invoking his
right not to incriminate himself as a defendant in the pending pursuits before
the criminal courts of general jurisdiction based on the allegations of fraud
in the obtaining of the Arbitration Award.[17]
It seems obvious that the
absence of Mr. Richards testimony reduced Ms. Lagardes exposure to criminal
liability. Without it, the CJR had
no reason to doubt Ms. Lagardes account that she was unaware of the
controversial amendment ot the Arbitration Agreement. Thus, the CJR dismissed
the charge against her of negligence in accepting the terms of the Arbitration
Agreement.
Furthermore, depending on what
evidence Mr. Richard might have provided as to Ms. Lagardes involvement in the
amendment of Agreement and her role more generally in the affair, her
negligence might have been coloured as complicity.
Additionally, the CJRs decided
not to apply any sanctions to Ms. Lagarde in part because the harm caused by
the embezzlement was considered to have ceased when the Court of Appeal of
Pariss retraction of the Award became final.[18]
But none of the funds paid to the Tapie side have actually been returned, and
it may reasonably be doubted whether full restitution will ever occur. Mr. Tapie and his wife are back in personal
bankruptcy and his companies are in receivership.[19] On 6 June 2017, the Tribunal de Commerce de Paris
accepted Mr. Tapies proposal that his companies be authorized to effect
restitution of the ill begotten gains by six yearly balloon payments of which
the first corresponding to five percent of the total amount due is payable in
one year.[20]
These observations beg the
question whether the CJR was favorably disposed toward Ms. Lagarde and whether
the CJR, by its very composition including 12 Parliamentarians among its 15
members, is less a criminal court than a forum of political judgment.
Finally, this case illustrates
how the French solution for prosecuting crimes allegedly committed by ministers
of a government in the exercise of their functions is not ideal.
Indeed, the recently appointed
Minister of Justice in France, Franois Bayrou, has included in his bill to be
presented to Parliament to moralize public life a provision to amend the
Constitution and abolish the CJR and subject ministers of the Government to the
jurisdiction of the Court of Appeal with respect to accusations of criminal acts
in connection with the exercise of their duties.[21]
[1] A compilation of news reports and
copies of the 14 judgments rendered in connection with the Tapie-Crdit
Lyonnais dispute, and of the Arbitration Agreement, the Arbitration Award and
various official reports about the case may be consulted at http://www.XXXXX.net/tapie-cdr.html.
In its December 2015 issue, the Newsletter of the Asia Pacific Regional
Arbitration Group published a Note on the
judgment of the Court of Appeal of Paris retracting the award in the Bernard Tapie v. Crdit Lyonnais
arbitration written
by the present author and it may be consulted at
http://www.XXXX.net/aprag12.15.html.
[2] The full text of the judgment in
French is posted at http://www.xxxxx.net/lagarde191216.pdf and an unofficial
English translation is accessible at http://www.xxxxx.net/lagtrad.pdf.
[6] Article 32 of the Organic Law n
93-1252 of 23 November 1993 with respect to the Cour de Justice de la
Rpublique.
[7] Michael Stothard and Shawn
Donnan, IMF stands by Christine Lagarde afternegligence verdict,
Financial Times, 20 December 2016, https://www.ft.com/content/aef2428c-c5f5-11e6-8f29-9445cac8966f.
http://www.liberation.fr/france/2016/12/19/christine-lagarde-reconnue-coupable-de-negligence-le-fmi-va-sereunir-bientot_1536282.
[11] Mr. Tapie is a self-made business
mogul whose notoriety soared when his French sports teams achieved international
triumphs in cycling and football, which popularity earned him the role of host
of a television show dedicated to the identification of promising
entrepreneurs, and in 1992 an invitation to join the Socialist Government as
Minister of Urban Affairs, and who at apex of his glory plunged into a sea of
criminal pursuits that led to his imprisonment for six months in 1993, who then
fell into corporate and personal bankruptcy, and who after his release from
jail published a book about that experience, then launched a successful career
as a pop singer, and then as an acclaimed actor on television, in movies and in
the theater, and who has most recently bought two regional newspapers.
are posted
at
https://www.courdecassation.fr/jurisprudence_2/assemblee_pleniere_22/communique_9382.html#hautart.
[13] N 16-80133,
https://www.courdecassation.fr/jurisprudence_2/assemblee_pleniere_22/629_22_34899.html.
[14] Report of Ms. Durin-Kersenty,
Bulletin dinformation, Cour de Cassation, February 1, 2017, page 37, case n
10-85.505, 23 July 2010,
https://www.courdecassation.fr/jurisprudence_2/assemblee_pleniere_22/586_23_17125.html.
[15] In 2007, that is before the
reform of arbitration law implemented by Decree number 2011-48 of January
13, 2011, this article provided that:
Where in accordance with
the distinctions made in article 1482, the parties have renounced making any
appeals, or when they have not expressly reserved that faculty in their
arbitration agreement, an action to have voided the act qualified as an
arbitral award may nevertheless be brought despite any stipulation to the
contrary.
It is open only in the
following cases:
1 Where the arbirtator
has rendered an award without an arbitration agreement or one that is void or
expired;
2 Where the arbitral
tribunal has been improperly constituted or where the single arbitrator has
been improperly appointed;
3 Where the arbitrator
has rendered an award without respecting the mission of which he was seized;
4 Where the rights of
the defence have not been respected;
5 In all the cases of
nullity provided in article 1480;
6 Where the arbirator
has violated a rule of public policy.
[16] This article provides that:
The exemption from punishment may be granted
when it appears that the reclassification of the convicted person has been
accomplished, where the harm caused has been repaired and where the disorder
resulting from the infraction has disappeared.
The court that renders an exemption from
punishment may rule that its judgment will not be mentioned on the criminal
record of the convicted person.
The exemption from punishment does not apply to
the payment of costs of the legal action.
[17] Procs
Lagarde : l'ex-directeur de cabinet Stphane Richard ne vient pas tmoigner, lefigaro.fr, AFP, AP, Reuters Agences, 14 December
2016, http://www.lefigaro.fr/actualite-france/2016/12/14/01016-20161214ARTFIG00114-proces-lagarde-l-ex-directeur-de-cabinet-stephane-richard-ne-vient-pas-temoigner.php.
[19] Crdit lyonnais : Tapie
dfinitivement condamn rembourser 404 millions d'euros, Le Parisien, 18 May
2017, http://www.leparisien.fr/faits-divers/arbitrage-tapie-devra-t-il-rembourser-404-meur-la-cour-de-cassation-se-prononce-ce-jeudi-18-05-2017-6959388.php.
[20]
http://www.XXXXXX.net/tdcp060617.pdf.