Paris Court of Appeal, No. 13/03410

Paris Court of Appeal, First Pole, First Chamber, 14 October 2014, No.13/03410

REPUBLIC OF A

Vs.

S.A. COMMISSIONS IMPORT EXPORT

Between 1984 and 1987, the REPUBLIC OF A (A) concluded with the company COMMISSION IMPORT EXPORT (B) several contracts for public works and the supply of materials.

On 14 October 1992, in the absence of a settlement by A, the parties signed a memorandum of understanding which provided for a payment by instalments through the issue of promissory notes and included an arbitration clause. An arbitration award no. 9899 of 3 December 2000 ordered A to pay part of these promissory notes. The appeal against this award was dismissed by the Court of Appeal on 23 May 2002.

On 23 August 2003 the parties concluded a new agreement to settle the debts of A for a total amount of 48 billion FCFA.

In April 2009, due to default in payment, B initiated arbitration proceedings pursuant to the arbitration clause stipulated in the 2003 protocol. While the proceedings were closed, it was placed in judicial liquidation by a judgment of the Brazzaville Commercial Court of 30 October 2012.

Before the arbitrators, the parties disagreed, in substance, as to whether the 1992 Protocol dealt with all or only part of A’s debt and, consequently, as to whether or not there was a cause in the 2003 Protocol recognising to B a greater claim than that resulting from the 1992 Protocol.

By an award rendered in Paris on 21 January 2013, the arbitral tribunal constituted, under the aegis of the International Chamber of Commerce, of Mr. X and Mrs. Malinvaud, arbitrators, and Mr. Derains, President:

— recognised itself competent to hear B’s claims relating to the effects of the judicial liquidation judgment on the arbitral proceedings,

— said that the requirements of international public policy would not permit the liquidation of B to have any effect in the arbitral proceedings, and therefore found that the liquidators were not qualified to represent B,

— dismissed B’s claim for reimbursement of the costs incurred in the arbitration by the liquidation proceedings and declared itself incompetent to hear B’s other claims relating to its judicial liquidation,

— dismissed the exception of res judicata by the award of 3 December 2000,

— noted the validity of the 2003 Protocol and its binding nature for the Parties,

— found that the amounts owed by A under Article 1 of the 2003 Protocol were those awarded by the award of 3 December 2000, and deducted them from the award it was rendering,

— ordered A to pay B, under Articles 2 and 3 of the 2003 Protocol, the sum of 222,749,598 euros, plus interest at the rate of 10% per annum, as from 31 December 2003 with capitalisation,

— ruled on the costs of the proceedings.

On 20 February 2013, A lodged an appeal against this award.

On 17 June and then on 10 September 2014, it served its pleadings seeking the annulment of the decision and an order for B to pay the sum of 40,000 euros pursuant to Article 700 of the Code of Civil Procedure. It argues that the award violates international public policy by confirming a misappropriation of public funds, that the arbitral tribunal disregarded the principle of contradiction by not submitting the ex officio ground of estoppel for discussion by the parties, that the tribunal was not competent to rule on the effects of the judicial liquidation and that if it were, it could not give a decision without putting the liquidation bodies in a position to explain themselves, thus violating the principle of contradiction, and lastly, that the arbitrators exceeded their mission by pronouncing an award in euros and not in the currency chosen by the parties.

By pleadings served on 1 September 2014, B asks the court to dismiss the appeal and order A to pay the sum of EUR 250,000 pursuant to Article 700 of the Code of Civil Procedure.

On 15 September 2014, it filed pleadings seeking to have the writings served by its opponent on 10 September, the day before the closure, set aside from the proceedings.

Mr. I, Mr. L and Mr. Y, in their quality of president and members of the liquidator of B, did not participate.

UPON WHICH:

On the procedural pleadings:

Whereas the pleadings filed by the A on the day before the closure contain no new requests or new grounds, they should not be excluded from the debates;

On the ground for annulment based on the violation of international public policy (Article 1520-5 of the Code of Civil Procedure):

A argues that the award upholds a misappropriation of public funds by making three arguments. Firstly, it argues that the 1992 Protocol covered the entire Congolese debt owed to B and was global and innovative in nature, so that the 2003 Protocol, which adds to the 22 billion CFAF recognised by the 1992 Protocol an additional 26 billion, can only have an illicit cause and can only be explained by a general climate of corruption from which B profited. The appellant relies on certificates from high Congolese authorities as well as on the fact that the 2003 Protocol is based exclusively on a letter of 7 October 1992 ‘discovered’ in the summer of 2003, which allegedly endorsed the decision, taken at meetings held in September 1992 of which no trace has been kept, to split the Congolese debt towards B between a part covered by the Protocol of 14 October 1992 and another part whose payment was to be made through the attribution of companies to be privatised. A considers that this document, which has allegedly disappeared and reappeared under suspicious conditions, and which contains several anomalies, is a false document. The appellant argues, secondly, that the arbitral tribunal admitted the existence of a claim of 48 billion FCFA in the absence of evidence. Finally, it argues that the arbitral tribunal recognised the binding nature of the 2003 Protocol despite the lack of authority of the signatories.

Whereas the ‘Memorandum of Understanding for negotiations between the State of A and B SA’ was signed on 23 August 2003 in Brazzaville by Mr. C, Minister Delegate, Secretary General of the Presidency of the Republic, and by Mr. Z, Secretary of State, Secretary General of the Security Council ‘acting on delegation of the President of the Republic, His Excellency, Mr. M N O and having authority for this purpose’, the signatures being stamped with the stamp of the Presidency of the Republic of A;

That it results from the provisions of this Protocol that B financed, by means of foreign currency, works and supplies for the benefit of the State of A which remained unpaid; that the State of A recognizes that at the end of the meetings of 7 and 23 September 1992, the various administrations concerned recognized the validity of the debt, which was fixed at the amount, ratified by the Presidency of the Republic, of 48 billion FCFA ; that B took note of this acknowledgement of debt by letters of 7 October and 24 November 1992; finally, that the State of A acknowledges that this debt whose value in FRF on 30 September 1992 was 960 million and which was divided as follows ‘in accordance with the agreement concluded at the end of the two meetings of 7 and 23 September 1992 and confirmed by letter of company B of 7 October 1992:

— a first part is fixed at 440,000,000 FRF, i.e. the equivalent of 22 billion FCFA, subject of the Memorandum of Understanding No. 566 of 14 October 1992,

— a second part is set at FRF 520,000,000, the equivalent of 26 billion CFA francs’;

Whereas the arbitral tribunal considered that the cause of the debt was stated in the recognition and that it was therefore incumbent on A to demonstrate that the actual cause was not the one stated in the act; that the tribunal held in its majority, that neither the “unusual” circumstances of the disappearance and reappearance of the letter of 7 October 1992, nor the inconsistencies in its content or the fact that it had never been mentioned before the 2003 Protocol were sufficient to demonstrate the non-existence or unlawfulness of the cause mentioned in the 2003 Protocol, namely that A’s debt to B, as at 30 September 1992, amounted to FCFA 48 billion; that the majority of the arbitrators considered that A did not prove that the reality and the amount of the debt resulted from several documents - in particular a detailed calculation sheet issued in 1991 by the Congolese redemption fund - and that they were corroborated by an expert report by Ernst &Young of 25 September 2001, issued on an order from the president of the Brazzaville commercial court; that the arbitrators added that A could not, in order to be released from its commitments, simply allege in general terms the existence of a climate of corruption, especially since in this case the corruption should have concerned a very large number of people over a long period of time and the potential beneficiaries had not been worried;

Whereas when it is claimed that an award gives effect to a contract obtained by corruption, it is for the annulment judge, seized of an appeal based on Article 1520 5° of the Code of Civil Procedure, to seek in law and in fact all the elements enabling him to rule on the alleged unlawfulness of the convention and to assess whether the recognition or enforcement of the award effectively and concretely violates international public policy;

Whereas it results from the detailed calculation sheet established in 1991 by the Congolese Redemption Fund that the amount of A’s debt to COMMISINPLEX was then approximately 48 billion FCFA; whereas the October 1992 Protocol provided for a rescheduling of A’s debt, the principal amount of which was then set at 22 billion FCFA for all the markets listed in its annex; that it is common ground that A has not made any settlement in execution of this agreement; that, therefore, and regardless of the apocryphal nature of the letter of 7 October 1992, the fact that the parties, during the negotiations in 2003, went back on the discount granted in 1992 does not in itself appear to indicate a fraudulent cause, whereas, moreover, the interest rate, which was 10.5% per annum in the 1992 agreement, was reduced to 10% in the 2003 agreement and B was expected to waive the interest due;

And whereas it cannot be accepted, without undermining the binding force of the contracts on which international trade is based, that a State should free itself from the contractual commitments subscribed to by its apparent representatives by merely alleging a general climate of corruption within its administration, without any indication of the persons likely to be involved and without the possible beneficiaries having been prosecuted;

That it is not shown that the award gives effect to a convention obtained through corruption;

Whereas, for the rest, the ground of appeal, in so far as it criticises the alleged insufficiency of the evidence retained by the arbitrators or the assessment made by them of the authority of the signatories to the 2003 Protocol, invites the court to a revision of the merits of the award which is not permitted to the annulment judge;

That the ground of infringement of international public policy must therefore be dismissed;

On the ground for annulment based on the lack of jurisdiction of the arbitral tribunal (article 1520-1 of the code of civil procedure):

A argued that the arbitrators were not competent to rule on the effects of B’s judicial liquidation, considering that itself had not availed itself of it.

Whereas if the principles of discontinuance of individual proceedings, relinquishment of the debtor’s rights and interruption of proceedings in the event of bankruptcy are of international public policy and apply even in cases where the arbitration taking place in France is not subject to French law, it is nevertheless for the arbitrator to verify, before applying these principles, that the judicial decision opening the insolvency proceedings and appointing a representative does not itself disregard the requirements of international public policy;

That this is the case when the arbitral tribunal is informed of one party’s judicial liquidation, regardless if the other party does not avail itself of this circumstance;

That in deciding that the judicial liquidation of B, pronounced, following an accelerated procedure, by a judgment of the Brazzaville Commercial Court of 30 October 2012, as a result of the default in payments characterised by a social debt dating from 1981 and a lack of liquid assets resulting from A’s own refusal to execute the arbitral award of 3 December 2000, was contrary to the principle of good faith, so that the liquidation judgment had to be regarded as ineffective in the arbitral proceedings and the liquidators had no capacity to represent B, the arbitral tribunal did not disregard its jurisdiction;

That the ground must be set aside;

On the ground for annulment based on the disregard of the principle of contradiction (article 1520-4 of the code of civil procedure):

A argues, in the first place, that the arbitral tribunal could not rule on the effects of the liquidation without inviting the liquidators to explain them.

The appellant maintains, secondly, that in order to decide that the 2003 Protocol was binding, although its signatories did not have the power to make such commitments on its behalf, the arbitral tribunal based itself on the ground raised ex officio and not subject to the adversarial debate of estoppel, whereas the opposing party had availed itself of the theory of appearance.

On the ground taken in its first branch:

Whereas the ground of appeal, not having been presented to the arbitrators, is inadmissible before the annulment court;

On the ground taken in its second branch:

Whereas the principle of contradiction implies that the parties must have been able to make known their claims in fact and in law and to discuss those of their adversary in such a way that nothing which served as a basis for the arbitrators' decision has escaped their contradictory debate; whereas it does not, however, imply that the parties should be invited to discuss the reasons for the award before it is pronounced;

Whereas, in order to conclude that the authority of the signatories to the 2003 Protocol and the binding nature of that agreement were real, the arbitral tribunal relied on a body of evidence from which it inferred that Mr. Longobé and Mr. Z were indeed empowered to bind the Republic of A (Award §§ 236-253);

That it was only superfluously and, moreover, by reiterating an argument put forward by B (§ 271) that the arbitrators referred to estoppel;

That the ground taken in its second branch is therefore unfounded;

On the ground of annulment based on the arbitrators' disregard of their mission (Article 1520-3 of the Code of Civil Procedure):

A argues that by making a sentence in euros, when the claims were made in various currencies, the arbitral tribunal failed to fulfil its mandate.

Whereas the 2003 Protocol distinguished between, on the one hand, amounts in French francs, pounds sterling and dollars which were covered by the 1992 Protocol and, on the other hand, a claim expressed exclusively in French francs; whereas the sentence pronounced relates only to this second part; whereas, since the Tribunal calculated this sum in French francs, it had the task of converting it into euros, in accordance, moreover, with B.’s preliminary request;

That the ground can only be ruled out;

Whereas it follows from all the foregoing that the appeal must be dismissed;

On Article 700 of the Code of Civil Procedure:

Whereas A, who is not successful, cannot benefit from these provisions; that it will be condemned on this basis to pay B the sum of 100,000 euros;

FOR THESE REASONS:

Dismisses the request to set aside from the debates the pleadings notified on 10 September 2014 by the REPUBLIC OF A.

Dismisses the action for annulment of the award rendered between the parties on 21 January 2013.

Orders the REPUBLIC OF A to pay the costs.

Condemns the REPUBLIC OF A to pay the company COMMISSIONS IMPORT EXPORT SA the sum of 100,000 euros in application of article 700 of the code of civil procedure.