'D. The simulated commission agreement is unenforceable as it violates international public policy considerations

1. The Sole Arbitrator has directed the Parties to address the issue of a possible violation of public policy considerations which may lie in the simulated 5% commission agreement, in its purpose to generate balance payments and the wider ramifications of such agreement.

2. [Claimant] is of the opinion that no public policy issue arises. In particular, [Claimant] refers to a series of Swiss Federal Tribunal decisions taken with respect to investment broker remuneration paid out of the commission of the investment bank without the investor client knowing that his or her broker will be remunerated from these commission payments. [Claimant] submits that the Federal Tribunal has held that no violation of Swiss bonos mores can be seen in those cases.

3. [Respondent] claims that these cases are to be factually distinguished from the case at hand and are therefore not governing. [Respondent] submits that the 5% commission agreement was designed to fraud [X] and to enrich [Respondent] by deceiving [X], which constitutes a violation of Article 20(1) of the Swiss Code of Obligations which declares null and void agreements contrary to bonos mores. It thus violates Swiss public policy considerations.

4. The Sole Arbitrator firstly considers that he is not bound by a specific Swiss notion of public policy in the present case. While it is true that the Parties subjected their contractual relationship to Swiss law, the matter between [West Asian] Claimants and [an East European] Respondent is purely international with no other specific relation to the Swiss legal order. The place of the arbitration is in France. Therefore, the yardstick of public policy against which the Parties' relationship must be measured is clearly an international or universal one.

5. Relevant Swiss authorities in this respect are mainly concerned with the public policy standard as a ground for annulment of arbitral awards rendered in Switzerland (Article 190(2) Swiss Private International Law Act - PILA). ... In the case at hand, however, the Sole Arbitrator is confronted with the question whether the Parties' deal as expressed in their contractual relationship violates basic standards of morality in international business relations. The place of arbitration not being Switzerland, questions of annulment of the award for "Swiss" public policy considerations do not arise. Swiss legal authorities contributing to the discussion under the angle of Article 190(2) are therefore of only limited importance.

6. To make his public policy assessment, the Sole Arbitrator has nevertheless considered [Claimant]'s claim that the reverse payment scheme as set up by the Parties has been somehow "cleared" by the Swiss Federal Tribunal as it has not been censured by application of Article 20 of the Swiss Code of Obligations. However, not only is the fact pattern of the case decided by the Swiss Federal Tribunal in its decision of March 22, 2006 (4C.432/2005, BGE/ATF 132 III 460, S. 461 seq.) to be distinguished from the case at hand. In addition, commentators note that the '"kick-back" scheme examined has the potential of a criminal offence if it is carried out without the client knowing about it.

7. The Swiss Federal Tribunal has examined the situation of "kick-back" payments made by an investment bank to an independent investment broker out of the commissions earned over the deposits made by the investor. The Swiss Federal Tribunal has considered that the investment broker has to turn over to the investor such "kick-backs" in accordance with the applicable provisions of a contractual mandate (Art. 400 Swiss Code of Obligations), unless the investment broker's client (the investor) has waived such right or has agreed to the broker's entitlement to such sums.

8. [Claimant] argues that said decision shows that the only consequence of a kick-back payment received without the agreement of the client is the obligation to turn it over to the client. No public policy violation has been considered, let alone accepted.

9. However, the present case is of a different nature: It is not [the project owner], but [X] that benefits (indirectly over [Respondent]) from [Claimant]'s brokerage/agency services performed. [The project owner] pays the contract price to [Respondent]/[X] out of which [Claimant] receives its commission. In the fact pattern of the Swiss Federal Tribunal decision, if [Claimant] acted for and in the interest of [the project owner] under a contractual mandate it would be of importance to know whether [the project owner] is aware of such commission payment. The fact pattern of the case at hand is different. [Claimant] acts for and in the interest of [Respondent] and ultimately for [X]. The fact that [Respondent] pays a higher commission to [Claimant] than what [X] is aware of only concerns the internal relationship between [X] and [Respondent]: in comparison to the triangular relationship which forms the basis of the Swiss Federal Tribunal decision (investment bank/investor/investment broker), [X] and [Respondent] form a single "camp" vis-à-vis [Claimant], the agent, and [the project owner]. In addition, [Claimant] does not act under a contractual mandate for [the project owner], but under an agency contract for [Respondent] (and, indirectly, for [X]). Under the specific internal relationship between [X] and [Respondent], [X] ultimately bears [Claimant]'s commission. The issue of the present case arises out of the fact that [Respondent] and [Claimant] colluded to overstate such payments through the simulated commission agreement. The fact pattern of the case at hand therefore has neither objectively nor subjectively ([the project owner]'s knowledge is irrelevant) any similarities to the kick-back payment scheme decided by the Swiss Federal Tribunal.

10. With respect to the argument that the Swiss Federal Tribunal has not found the "kick-back" scheme in violation of the standard of Article 20 of the Swiss Code of Obligations (violation of bonos mores), it may in addition be noted that the Swiss Federal Tribunal did not look at the relationship between the investment bank and the investment broker and did not decide whether the broker is entitled to such kick-back payments under its relationship with the investment bank, but only whether the client had a right that these are to be turned over to him under the applicable statutes for the contractual mandate, irrespective of their potentially illicit nature (even bribes received would have to be turned over under the aspect of a contractual mandate). In the case at hand, the corresponding question would be whether [Respondent] would be entitled vis-à-vis [X] to any such payments received under the balance payment system. Apart from the fact that [X] did not even know that such payments were made, the Sole Arbitrator is obviously not entitled to make any determination in this respect.

11. It should also be noted that Swiss commentators of the Federal Tribunal decision have noted that the fact that the investment broker retains kick-back payments obtained without the knowledge of his client has the potential of a criminal offence under Article 138 of the Swiss Criminal Code (StGB) (cf. Rolf Kuhn, "Retrozessionszahlungen an externe Vermögensverwalter - eine Standortbestimmung", AJP 2006, 1051, 1053 seq.).

12. Therefore, the issue whether the reverse or balance payment scheme put in place by the Parties in the case at hand violates public policy has not been disposed with by the Swiss Federal Tribunal under Swiss public policy considerations.

13. The Sole Arbitrator has found ... that [Claimant] and [Respondent] have entered into a simulated commission agreement of 5% in order to obtain the corresponding payments from [X], while the real Agency Contract only provides for a staggered 4%/3% commission. The simulated commission agreement had been entered into for the sole purpose to make [X] pay certain amounts ultimately destined to [Respondent] which [X] would not have accepted to pay had it been aware of the final beneficiary and the ultimate purpose of these amounts. The simulated commission agreement therefore was clearly entered into as a tool and a vehicle to deceive [X].

14. International commercial relations must meet certain standards of basic morality in order to be able to claim enforcement of the obligations contracted for. The Sole Arbitrator is aware that he is not confronted with issues such as bribery, money laundering, deviation of embargo provisions, violation of competition laws or similar acts for which international treaty instruments would be governing. Nevertheless, the Sole Arbitrator is of the conviction that an international agency agreement which is entered into for the sole purposes to deceive a third party, and thus violates such third party's contractual rights in a manner which is "particularly offensive" (cf. ICC Award 6248 of 1990, Arnaldez/Derains/Hascher, Collection of ICC Arbitral Awards 1991-1995; p. 239, 243), cannot crave for enforcement with the help of the arbitral system, irrespective whether and under which legal system such act is or would be considered as a criminal offence and without the Sole Arbitrator having to determine the specific legal ramifications of such act in general or for [X]. In the Sole Arbitrator's conviction, it would not be compatible with fundamental values of international commerce, necessary to allow business being conducted in a loyal surrounding, to lend a helping hand to such agreements.

15. In making his assessment, the Sole Arbitrator is also not bound by any specific considerations of public policy under French law, being the law applicable to any possible annulment procedures of the award. The standard to be applied by the Sole Arbitrator is not the speculative possibility of annulment of an award enforcing the Parties' incriminated commission agreement. It is not for the Sole Arbitrator to second-guess a French court's decision under French international public policy considerations of an issue for which the Parties have genuinely called upon him to decide as a matter covered by their arbitration agreement.

16. Therefore, the Sole Arbitrator holds that the Parties' 5% commission agreement is unenforceable for violation of international public policy standards.'