Case study

CREDIT PARIS is a prominent French bank, having its seat in Paris. On 3 March 2017, CREDIT

PARIS has entered into a complex loan agreement with a DIFC company, MORHEALTH, to build

a world-class medical facility to attract patients from West Africa looking for first-class medical

treatment. Of course, this loan agreement was backed by a guarantee signed by

MORHEALTH's mother DIFC company, HOLDINGLOUIS. The guarantee has been signed by

HOLDINGLOUIS and CREDIT PARIS on 3 March 2017. This latter agreement has also been

signed by MORHEALTH. Both agreements included an arbitration clause mentioning a three

arbitrators' tribunal and a seat in DIFC.

After having started to perform its obligations under the contract, MORHEALTH has ceased in

January 2018 to reimburse the loan as it should have done under the loan agreement. CREDIT

PARIS triggered the arbitration clause. CREDIT PARIS's statement of claims contends that

French Law should be applicable as the law of the bank which performs the fundamental

obligation. According to CREDIT PARIS, under French law, MORHEALTH is clearly in breach of

contract. The statement of claims also seeks to obtain the reimbursement of the loan in full,

but nothing more, as the bank does not want to jeopardize its reputation in DIFC. In its

statement of defense, MORHEALTH contends that the loan agreement is void. MORHEALTH

contends that under UAE/DIFC law, which should be applicable to the substance as the law of

the country where the borrower has its seat, the loan was subject to the completion of the

administrative process to obtain the authorization to build a medical facility in the DIFC, which

was finally denied in December 2017. The arbitral tribunal was comprised of three arbitrators:

Mr Lon, chosen by CREDIT PARIS; Mr Grohil, chosen by MORHEALTH, and the presiding

arbitrator chosen by the two other arbitrators, Mr Litt. The award has been rendered very

rapidly, in September 2018, by the majority of the tribunal and signed by Mr Lon and Mr Litt.

The tribunal has ruled that: the loan agreement is valid under English law; MORHEALTH has

to repay its debt in full immediately according to the terms of the loan agreement;

MORHEALTH also has to pay a certain amount to compensate for moral damages caused to

the bank.

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As MORHEALTH appears clearly unable to abide by the award, CREDIT PARIS has decided to

activate the guarantee. HOLDINGLOUIS having refused to perform its obligation under the

guarantee agreement, CREDIT PARIS has decided to launch another arbitration proceedings,

this time against HOLDINGLOUIS. MORHEALTH has chosen M. Lon as Claimant's appointed

arbitrator. CREDIT PARIS's statement of defense asserts that HOLDINGLOUIS has to perform

its obligation under the guarantee agreement and, thus, to assume MORHEALTH's debt.

HOLDINGLOUIS' statement of defense contends that the loan agreement was void in the first

place. It also underlines that under French law, the guarantee agreement has to contain a

handwritten provision repeating the amount the guarantor pledges to reimburse to the

Obligee (CREDIT PARIS). There is no handwritten mention within the guarantee agreement. In

its statement of claims, the bank contends that this provision (on handwritten mentions in

guarantee agreements) is contained in the French Consumer Code and is an overriding

mandatory provision only applicable when the guarantor has its domicile on French territory.

You are also aware that HOLDINGLOUIS has sued CREDIT PARIS in DIFC courts to have the

guarantee agreement annulled.

Acting as the French bank's counsel in the DIFC you have to:

1) Identify any possible ground for annulment or refusal of enforcement of the award

rendered by the first arbitral tribunal;

2) Identify any ground to challenge the constitution of the second arbitral tribunal;

3) Assume that the first award has been annulled (this does not mean that it is the

expected outcome of the answer to question 1) and identify the consequences of this

annulment on the proceedings which oppose CREDIT PARIS and HOLDINGLOUIS;

4) Explain the legal reasoning put forward by CREDIT PARIS in its statement of claims to

exclude the application of the provisions of the French Consumer Code which could

be damaging to its case and try to rebuke any arguments to the contrary. (5 points)

5) Explain to CREDIT PARIS what stance to adopt as to the proceedings before DIFC

courts introduced by HOLDINGLOUIS to have the guarantee agreement annulled;