French firm asked to pay Taiwan damages in Lafayette frigate deal

May 4, 2010, 1:01 GMT

Taipei - Taiwan on Monday welcomed a an international court's ruling that a French company must pay a million-dollar commission to Taipei in the Lafayette frigate deal.

'This case affects our national interests and the Taiwan military's reputation,' the Defence Ministry said in a statement released Monday night.

'Based on the arbitration of the International Chamber of Commerce (ICC), we will continue to hire lawyers and pursue legal procedure to make Thales defence group comply with the arbitration of the ICC.'

The Paris-based ICC, which resolves cross-border business disputes through its International Court of Arbitration, made the ruling Monday on the Lafayette case and immediately notified Taiwan's Defence Ministry.

Thales confirmed late Monday that it was informed of the ruling but would not comment.

The ruling said that when Taiwan signed the contract with Thomson- CSF, an article in the pact forbade using brokers or paying commission, the Defence Ministry was told.

Because Thomson-CSF violated the contract by paying commission to the Taiwan broker, Thomson-CSF, now called Thales, must pay Taiwan a 591-million-US-dollar 'violation fee' - plus interests, legal fees, arbitration fees and other expenses.

The Taiwan Navy signed the contract on August 31, 1991, to buy six Lafayette frigates from Thomson-CSF for 2.8 billion US dollars, to boost its defence against China.

According to press reports, Thomson-CSF paid 400 million US dollars to Andrew Wang, a Europe-based Taiwan broker, and 100 million US dollars to Chinese officials to prevent them from blocking the deal.

China sees Taiwan as its breakaway province and bars other countries from selling arms to Taiwan.

On August 22, 2001, the Taiwan Navy applied for arbitration from ICC, charging Thomson-CSF with violating the purchase contract, so it must pay damages to Taipei, because Thomson-CSF had inflated the price for the Lafayette to cover the commission.

The Lafayette scandal has rocked political and defence circles of both France and Taiwan, as some former politicians and military officers were accused of taking kickbacks.

On December 8, 1993, Yin Ching-feng, head of the Navy's Arms Acquisition Office, disappeared, and later his body was found floating in the sea near Taipei.

Many Taiwanese suspect that naval officers or brokers had Yin slain to prevent him from reporting the kickback scandal to authorities, but police have yet to catch a killer.