(Bloomberg) -- Christine Lagarde put the spotlight on Orange SA Chief Executive Officer Stephane Richard, her chief of staff when she was France’s finance minister, on the second day of a trial over charges she failed to stop a massive government payout to businessman Bernard Tapie.
While she gave the green light to explore an arbitration with Tapie in 2007, Lagarde “relied” on Richard’s suggestions in a process begun months before she took office. Richard acted as a filter for the thousands of memos she received each year, she said Tuesday in Paris.
Richard “told me back then that all my predecessors had tried” and failed to bring the case to a close, “only the arbitration process hadn’t been tried,” the 60-year-old Lagarde, who is now managing director of the International Monetary Fund, told the Paris court. The goal was to resolve a lengthy dispute that had cost tens of millions of euros in legal fees.
The Lagarde trial stems from former state-owned bank Credit Lyonnais’s disagreement with Tapie over the 1993 sale of his Adidas AG. The dispute led to arbitration -- that Lagarde didn’t try to block -- and the award for Tapie -- that Lagarde didn’t try to overturn. For those reasons, the IMF chief was formally accused of negligence, a charge that carries a maximum penalty of one year in prison and a fine of 15,000 euros ($16,000).
“With hindsight, everyone seems to suggest I was letting myself be pushed around,” Lagarde said. But the Tapie case “was one of the many, many files that we had to deal with in a timely fashion. I had no reason at the time to be startled” or distrust the cabinet.
Orange and a representative for Richard both declined to comment. The 55-year-old is scheduled to appear at the Paris court Wednesday at 10:30 a.m. The trial is scheduled to last about a week.
Repeatedly denying the charges over two days of testimony, Lagarde said she went above and beyond what can be expected from a minister, including reading through recent case law before approving the arbitration procedure.
Quizzed about the role played by Nicolas Sarkozy, who had received Tapie’s support ahead of his election as French president in 2007, Lagarde said she received no instructions “one way or another.”
Earlier on Tuesday Lagarde told the court, which specializes in ministerial misconduct, she was “shocked, astounded” when she learned in mid-2008 the result of the arbitration meant Tapie would win an initial award of 285 million euros ($303 million) that included 45 million euros in damages, an “incommensurate” amount with any normal compensation.
Court President Martine Ract-Madoux said the damages award -- and Lagarde’s failure to try to overturn it -- is at the heart of the negligence case and the amount compares to 30,000 or 50,000 euros in compensation for parents when their child dies.
“The 45 million euros must have felt like a punch to the stomach, it must have made you react,” especially because Lagarde only learned after the ruling that the arbitration predicted the possibility of high damages, the judge told her. “Failing to seek to overturn the arbitration decision means accepting the 45 million euros.”
Lagarde said only one of the five lawyer opinions she received suggested there was an option to overturn the decision, and the lawyer who produced it had said days before that he was “skeptical” about the chances of a successful bid. The former finance chief said she felt a bid would be worth pursuing only if there were serious grounds.
“I did a cost-benefit analysis,” that included an offer from Tapie to lower their demands by 70 million euros, and decided not to try to overturn the decision, Lagarde said. “An appeal ran the risk of reopening as many as nine legal proceedings.”
Lagarde added that, at the time, she had no cause to question the independence of the arbitration panel. The Tapie payout was cut to zero by an appeals court last year after doubts were cast on the impartiality of one of the three arbitrators, Pierre Estoup.
At Monday’s hearing, Lagarde said she acted in the general interest and was “profoundly shocked” by the “shortcuts, the approximations” in the 2015 indictment, which was “an imaginary plot” written by someone who never met her.