Paris Court of Appeal, No. 15/17442 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, Pole 1 - Chamber 1, 16 May 2017, No. 15/17442

THE DEMOCRATIC REPUBLIC OF CONGO (DRC) vs. CUSTOMS AND TAX CONSULTANCY LLC (CTC LLC)

On 5 June 2008, the Democratic Republic of Congo (hereafter DRC) concluded a contract with Customs and Tax Consultancy LLC, an American company (State of Delaware) (hereafter CTC LLC), to reorganise the Customs and Excise Office (hereafter OFIDA) in order to improve the efficiency of the collection of customs revenues of Congolese State. This agreement provided that disputes would be submitted to arbitration under the supervision of the International Chamber of Commerce (ICC) by a arbitral tribunal sitting in Paris.

A dispute has arisen between the parties, and CTC LLC, on 31 May 2013, filed a request for arbitration with the Court of the ICC seeking a declaration that the contract was terminated to the detriment of the DRC and that the latter be ordered to pay USD 184,978,547 in respect of the unpaid invoices, USD 3,750,000 as compensation for the demobilisation and repatriation of its staff, in addition to interest for late payment, as well as damages for lost earnings and loss of opportunity to renew the contract.

By an award rendered in Paris on 22 July 2015, the arbitral tribunal composed of Mr. Hanotiau and Ms. Kessedjian, arbitrators, and Mr. Fadlallah, President:

noted that the termination of the contract is because of the conduct of DRC,
condemned DRC to pay the sum of USD 91,696,347 in respect of ﬁxed and variable remuneration and the balance of the immobilisation indemnity, with monthly interest of 1.5% on each invoice from five days after its presentation, as well as the sum of USD 3,750,000 in respect of the staff demobilisation and repatriation indemnity with interest at a monthly rate of 1.5% from 15 January 2010,
rejected the request for capitalisation of interest,
deferred CTC LLC’s claims for damages to a later award,
rejected the DRC’s counterclaims for the purpose of cancelling the contract, restitution of sums paid, acknowledgement of CTC LLC’s non-performance of its obligations and reduction of default interest.

By an addendum dated 19 November 2015, the arbitral tribunal, rectifying a calculation error, awarded CTC LLC an additional amount of USD 853,751.

On 14 August 2015, the DRC filed an action for annulment against the award (case RG No. 15/17442).

By submissions filed on 28 February 2017, DRC requested the court to declare the total annulment of the award and the addendum, to dismiss CTC LLC of its claims and to order it to pay the sum of 100,000 euros pursuant to Article 700 of the Code of Civil Procedure. It raised the violation of international public order resulting from the absence of a call for competition prior to the conclusion of the contract.

By submissions filed on 6 March 2017, CTC LLC requested the court to dismiss the DRC’s claims, to partially set aside the award in so far as it refused to order the capitalisation of interest, and to order the opposing party to pay him the sum of 100,000 euros pursuant to Article 700 of the Code of Civil Procedure.

On 25 November 2015, CTC LLC filed an action for annulment of the award as amended by the addendum (file RG n° 15/23790).

By submissions filed on 6 March 2017 CTC LLC requested the court to set aside the award only in so far as it rejected its request for capitalisation of interest, to declare the DRC’s action for incidental annulment inadmissible and, in any event, unfounded, and to order the opposing party to pay it the sum of 100,000 euros in application of Article 700 of the Code of Civil Procedure. CTC LLC invokes, firstly, that the arbitrators disregard their mission in that they failed to give reasons for their refusal to grant the request for capitalisation of interest and did not take into account the parties’ agreement on this point (Article 1520-3 of the Code of Civil Procedure), and secondly, the violation of due process (in French Principe de la contradiction) in that the arbitral tribunal did not submit to the debate the grounds that led it to reject this claim (Article 1520-4).

By submissions filed on 28 February 2017, the DRC requested the court to dismiss CTC LLC’s claims in their entirety, to allow its incidental appeal for total annulment of the award for violation of international public policy, and to order the opposing party to pay it the sum of 100,000 euros pursuant to Article 700 of the Code of Civil Procedure.

UPON WHICH:

On the junction:

Considering that it is in the interest of the proper administration of justice to joinder the cases registered under RG 15/17442 and 15/23790;

On incidental appeals:

Considering that the main actions brought by the two parties and joined by the present judgment deprive the incidental actions of their subject-matter;

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

The DRC argues that it follows from the Convention against Corruption, adopted on 31 October 2003 by the General Assembly of the United Nations and ratiﬁed by most States, that with regard to public procurement, respect for the principles of publicity, objectivity in the decision-making process and fair competition is a matter of transnational public order as part of the prevention of corruption. The DRC mentions that the disputed contract was granted without a tender procedure, without competitive bidding and without prior publicity, in contradiction with the provisions of this Convention, and in disregard of the provisions of Congolese law. According to DRC, this is enough to characterise the violation of international public order, independently of the allegation of acts of corruption. Moreover, this contract with a company oﬀ-shore set up for the occasion and without any reference to customs matters, which is of an unconscionable nature and includes exorbitant financial conditions demonstrates a misappropriation of public funds at the benefit of private interests.

Considering that it is common knowledge that in 2003, OFIDA initiated a customs modernisation programme under the supervision of the International Monetary Fund. It is also well-known that in 2005, OFIDA concluded a contract with a Dutch company for the veriﬁcation of goods imported into the DRC and in 2006, with a South African company, a contract for the supply of computerised telecommunications and electronic surveillance equipment. Progress was nevertheless judged insuﬀicient by the World Customs Organisation. The DRC then approached the British company Crown Agents, a specialist in the organisation of customs services, which had proved its worth in Angola and Mozambique. The offer of the company was, however, refused by the Congolese authorities on 16 October 2007, as its price was deemed too high. Mr. Y, a Lebanese resident of Congo and director of a Congolese bank, then contacted consultants who had worked for Crown Agents and set up with two of them a company registered in the state of Delaware, CTC LLC, in order to submit to the DRC an oﬀer on “the immediate and sustainable increase of customs revenue, the establishment of a modern and efficient customs administration and the establishment of regulations that would favour commercial activity, promote investment and safeguard the interests of the state and the population”. The draft technical assistance agreement was signed on 5 June 2008 by the representative of CTC LLC and, for the DRC, by the three Ministers of Budget, Portfolio and Finance. On 29 August 2008, the contract was presented to the Council of Ministers and on 30 August 2008, a press conference was held, with the Government Spokesperson welcoming the fact that the initial payment, as well as subsequent remuneration and fees, would be payable only in the event of an increase in customs revenue. The performance of the contract started in July 2008 and that on 30 November 2008, 56 of the 63 experts and consultants provided for in the contract were deployed. However, in January 2009, CTC LLC, having received only USD 2,500,000 out of the USD 7,500,000 it estimated to be due for the consultants' mobilisation and installation costs, requested the payment of the balance. No payment was made and CTC LLC terminated the contract on 15 January 2010 (Award, paras. 57-71). Then, it initiated arbitration proceedings on 31 May 2013;

Considering that the DRC, ordered to pay various sums to CTC LLC, maintains that the award which gives force to a contract entered into without invitation to tender, in violation of the rules of the Merida Convention, as well as Congolese law, and having for eﬀect a misappropriation of public funds at the benefit of private interests, violates international public order;

Considering that the ground is articulated with regard, on one hand, to a domestic mandatory law ﬁxing public procurement rules and, on the other hand, to an anti-corruption objective expressed by an international convention;

Considering, in the first place, that by virtue of the principle of good faith in the performance of conventions, a State cannot invoke before the annulment judge, in order to release itself from its contractual commitments, the violation of its own legislation;

Considering, secondly, that international public order within the meaning of Article 1520-5 of the Code of Civil Procedure means the French conception of international public order, i.e. the rules and values of which the French legal system cannot disregard, even in situations of an international nature; that this is the case for the objective of combating corruption;

Considering that the United Nations Convention against Corruption done at Merida on 31 October 2003, which entered into force on 14 December 2005 and was signed by 178 States, expresses an international consensus that one of the main means of preventing corruption is the establishment of public procurement systems based on the publicity of invitations to tender, competitive bidding and defining objective and pre-determined criteria for the selection of tenderers;

However, that the review exercised by the annulment judge for the defence of international public order is only concerned with examining whether the execution of the measures taken by the arbitral tribunal manifestly, eﬀectively and concretely clashes with the principles and values included in international public order. In a hypothesis such as that of the present case, annulment would be incurred only if it were shown by serious, precise and concordant evidence that the award would have for eﬀect to give force to a contract obtained through corruption.

Considering that, while failure to comply with the rules on transparency in the award of public contracts is a particularly significant indicator of such offences, it cannot be sanctioned in itself, irrespective of whether the objective of anti-corruption is currently being achieved;

Considering that, in the present case, the DRC did not allege before the arbitrators that the disputed contract was vitiated by corruption; nor does it do so before this Court;

Considering that if it maintains that the contract would embezzle public funds and if the Merida Convention invites States Parties to criminalise such acts, defined as intentional misappropriation ‘committed by a public official for his own benefit or for the benefit of other persons or entities, of any property, public or private funds or securities or any other thing of value which was entrusted to him by reason of his duties’ (Article 17). The claimant does not specify in any way which public official would be involved and which property or securities would have been given to him and which he would have misused. On the one hand, the facts that the co-contractor was a company incorporated for the occasion and registered in Delaware - but whose know-how came from the experienced consultants it had hired are unsuitable to characterise the alleged offence. On the other hand, the fact that the contract was marked confidential - although in reality it was in fact the subject of a press conference after it had been awarded - is not relevant, Finally, the fact that the price would be exorbitant in relation to the DRC’s resources is inappropriate to characterise the alleged offence, as the annulment judge is not the censor of possible management errors committed by a State;

Considering that it follows from the foregoing that the ground alleging violation of international public order must be dismissed and the DRC’s application for the total annulment of the award and its addendum rejected;

On the ground for partial annulment based on the fact that arbitrators did not comply with their mission (Article 1520-3 of the Code of Civil Procedure) and the violation of due process (in French Principe de la contradiction) (Article 1520-4 of the Code of Civil Procedure):

CTC LLC argues, firstly, that by failing to give reasons for their refusal to grant its request for capitalisation of interest, even though the obligation to give reasons arises from the ICC arbitration rules and by not taking into account the agreement of the parties on this point, the arbitrators failed to fulfil their mission. Secondly, CTC LLC argues that by failing to submit to the debate the arguments which led them to reject this request, the arbitrators violated due process (in French Principe de la contradiction).

Considering that the request for compound interest was formulated by CTC LLC in the following terms: ‘all interest shall in addition be capitalised monthly as provided for in the Contract and in any event in accordance with the terms and conditions that the Tribunal considers applicable’;

Considering that CTC LLC does not claim before the Court that the monthly capitalisation was provided for in the Contract; that the arbitrators, who were not seized of any legal argument in support of the claim for compound interest, and who were fully free to decide on this question, could not be criticised for not having given special reasons for their decision of rejection, nor invited the parties, who, contrary to what is alleged, did not agree on this point, to submit observations;

Whereas both grounds will be dismissed and the application for partial annulment rejected;

On Article 700 of the Code of Civil Procedure:

Considering that the DRC, which succumbs to the bulk of its claims, will be ordered to pay the costs and to pay CTC LLC the sum of EUR 50,000 pursuant to Article 700 of the Code of Civil Procedure;

FOR THESE REASONS:

Orders the joining of the files registered under RG 15/17442 and 15/23790.

Notes that incidental appeals are not applicable.

Rejects the action for total annulment and the action for partial annulment of the award rendered in Paris on July 22, 2015, as amended by an addendum of November 19, 2015.

Orders the Democratic Republic of Congo to pay the costs and the sum of EUR 50,000 to Customs and Tax Consultancy LLC pursuant to Article 700 of the Code of Civil Procedure.