France Wrestles With Legal Issues Ahead Of Mistral Decision

By Pierre Tran
October 5, 2014

France is expected to decide within the coming month whether to deliver a Mistral-class helicopter carrier to Russia, and the letter of the law looms large with officials examining the sale contract as they weigh the government’s options, legal and defense specialists said.

Key to those determinations is whether the force majeure clause allows France to suspend and cancel the controversial contract, which calls for a hand over of the warship at the end of October or early November.

But one thing has become clear: President François Hollande’s Sept. 6 statement on the eve of the NATO summit was widely misinterpreted as suspending the contract.

Hollande carefully avoided saying it was suspended, as that would have “called into question the contract,” Jean-Pierre Maulny, deputy director of think tank Institut des Relations Internationales et Stratégique. “It was a sensitive statement” aimed at keeping the contract intact and avoiding a claim for financial penalty, he said.

“It’s not in suspension,” a legal expert said. “The statement was pure politics.”

Defense Minister Jean-Yves Le Drian corrected the record, saying on Sept. 9 at the Summer Defense University that there was no suspension and a decision would be made “at the end of October,” daily Le Parisian reported.

Foreign Minister Laurent Fabius also said there was no suspension, and that delivering the Vladivostok the first of two Mistral-class carriers purchased by Russia hung on two conditions: The ceasefire in Ukraine be observed, and Kiev and Moscow reach a political settlement.

In Eastern Ukraine, at least 12 people were killed including three civilians as government forces and pro-Russian rebels fought in the region, The Associated Press reported on Sept. 29.

The civilians fell victim to shelling as the two sides fought for the government-held airport at Donetsk.

At Saint-Nazaire, work continues on the second Mistral ship the Sevastapol and Russian sailors continue to be trained on the Vladivostok, an industry executive said.

The deal with Russia is worth 1.2 billion (US $1.5 billion) and covers two helicopter carriers.

Even if the first ship were delivered, there is doubt the second would be handed over next year.

The force majeur clause in the sale contract is seen as a key factor in the search for options.

“Force majeure literally means ‘greater force,’ ” reads the opening to the International Chamber of Commerce (ICC) note published in 2003.

That greater force covers external reasons for canceling a delivery, with “war (whether declared or not), armed conflict or the serious threat of same…” leading the factors listed in the ICC note.

“Compliance with any law or governmental order…” is also listed.

If France decides against delivery, prime contractor DCNS could evoke force majeure on the grounds the interministerial commission for arms export had refused to grant the export license.

After 180 days — generally the suspension period — DCNS could cancel and would have to repay Russia for the ship. The two sides would then go to a tribunal to decide how the payment would be made.

A second legal expert said international contracts are often written under Swiss law, as neither side wanted the dispute to be judged in the other party’s legal system.

Coface, the export credit guarantee agency, would cover part of the repayment, but the government would essentially cover the cost for DCNS. The shipbuilder is 65 percent state-owned.

“France would have to repay the full amount to Russia,” the second expert said.

Russia lacks grounds to claim financial damages, the first expert said. There has been no breach of contract as the ship has been built on time and met specifications, the expert said.

Once bought back, France could hold onto or resell the ship if it could find a buyer.

The legal angle has attracted growing interest.

Rosoboronexport, the Russian state-owned arms export agency, has denied media reports it has asked lawyers to prepare a possible lawsuit against DCNS, Russian news agency Interfax-AVN reported on Oct. 2.

Force majeure fails to back up a suspension and cancellation of the Mistral contract, French lawyer Lilyane Anstett wrote in business daily Les Echos on Sept. 9.

Meanwhile, leasing out a bought-back vessel has been considered, as the Defense Ministry seeks solutions and looked at the British inflight tankers as an example, a defense specialist said.

In the case, the Airbus-led AirTanker consortium is supplying 14 A330M multirole tanker transport aircraft for use by the Royal Air Force in a deal spanning 27 years.

AirTanker has secured holiday organizer Thomas Cook as its first commercial customer for one of the jets, which will be leased for long-haul passenger flights in 2015.

The Mistral delivery decision will be made by Hollande, said Etienne de Durand, director of security studies at think-tank Institut des Relations Internationale.

“He’s probably hanging on to the very last minute to decide. What’s sure is France’s lack of clarity managed to annoy both sides, the NATO allies and the Russians,” he said.

“The decision that should have been made is suspension. In any case, it would have been better to make a decision and stick to it rather than to stay silent on the issue.

The government-backed Euronaval defense and maritime exhibition and conference will open on Oct. 27 in Le Bourget, France. By that point, the clock will be ticking loudly for a decision.

Andrew Chuter in London contributed to this report.