Paris Court of Appeal, No. 17/06430

Paris Court of Appeal, Pole 1 - First Chamber, 25 June 2019, No. 17/06430

SARL KONTINENTAL CONSEIL INGENIERIE
vs.
THE GABONESE REPUBLIC

The Gabonese Republic has granted Kontinental Conseil Ingenierie (KCI), a company incorporated under Tunisian law, a contract for the construction of 5,000 social housing units in Nkoltang province under a memorandum of understanding dated 22 August 2011. This was followed by the signing of a development agreement on 4 November 2011 between the Gabonese Republic and KCI, covering earthworks, networks and roads, and a construction agreement.

After having carried out part of the work and requested payment of certain invoices, the Ministry of Investment Promotion, Public Works, Transport, Housing and Tourism notified KCI on 20 September 2012 of the decision to interrupt the work.

On 6 March 2015, KCI initiated arbitration proceedings on the basis of the Agreement for the Promotion, Protection and Guarantee of Investments among the Member States of the Organisation of the Islamic Conference adopted in 1981 (the OIC Investment Agreement).

In an award issued on 23 December 2016 in Paris, under the supervision of the Permanent Court of Arbitration, the arbitral tribunal, composed of Mr. A B, Chairman, and Mr. C G E and Mr. Y Z, co-arbitrators:

  • declared that it had jurisdiction to hear the claims of KCI based on the Agreement, including its Article 8,
  • said that it had no jurisdiction to hear claims by KCI based on “umbrella” clauses contained in treaties other than the Agreement,
  • declared that the Gabonese Republic had failed in its obligation to provide fair and equitable treatment to KCI’s investment,
  • ordered the Gabonese Republic to compensate the loss of KCI in the amount of EUR 4,267,200 with interest.

Following a request made by KCI, the arbitral tribunal sent a letter to the parties on 4 April 2017, stating that there was no need for an additional award.

KCI filed an action for setting aside the arbitral award of 23 March 2017.

In its final submissions notified on 10 April 2019, KCI requested the court:

  • to declare admissible the ground based on the violation of due process (in French: Principe de contradiction),
  • to partially set aside the final award in section 6.3.3 of the award (paragraphs 172 to 188 and paragraph 189(b) ) and the ruling 313(b), since the tribunal wrongly declared that it did not have jurisdiction (Article 1520-1 of the Code of Civil Procedure),
  • to partially set aside the award for violation of due process (in French: Principe de contradiction) (Article 1520-4 of the Code of Civil Procedure):

in section 8.2.3 of the award relating to expropriation (paragraphs 223 to 232) and the ruling 313 (i) according to which the court stated that it had rejected all the other claims of the parties, including the one relating to expropriation,

in its paragraphs 275 and 277, according to which the termination of the agreements did not involve a breach of Gabon’s obligation to treat KCI’s investment in a fair and equitable manner, and that an agreement had been reached in this respect and, therefore, KCI could not be compensated on this basis,

  • to dismiss the claims of the Gabonese Republic,
  • order the latter to pay to KCI the sum of EUR 150 000 under Article 700 of the Code of Procedure, in addition to the costs.

In its final submissions notified on 18 April 2019, the Gabonese Republic requests the court to declare inadmissible the ground relating to the violation of due process (in French: Principe de contradiction), to dismiss the action for setting aside the award, and to order KCI to pay the sum of 100,000 euros under Article 700 of the Code of Civil Procedure, in addition to the costs.

UPON WHICH,

On the first ground for setting aside, based on the argument that the arbitral tribunal wrongly stated that it did not have jurisdiction (Article 1520-1 of the Code of Civil Procedure):

The claimant argues that the arbitral tribunal wrongly stated that it did not have jurisdiction to hear its claims relating to the Gabonese Republic’s failure to comply with the memorandum and the development and construction agreements. It claims that pursuant to the combined application of the most-favoured-nation clause contained in Article 8 of the OIC Agreement and the compliance clause, known as the “umbrella” clause, contained in treaties other than the OIC Agreement, the Gabonese Republic was required to comply internationally with any obligation relating to the investment of KCI, including the obligations referred to in the Draft agreement of 22 August 2011 and the development and construction agreements. It further stated that the jurisdiction clauses designating the Gabonese courts in these conventions were not likely, on the one hand, to affect the jurisdiction of the tribunal with regard to the alleged violations relating to the specific obligations of the Gabonese Republic resulting from the OIC Agreement and, on the other hand, to lead to the waiver of the jurisdiction of the arbitral tribunal under the provisions of the OIC Agreement.

The defendant in this action replies that KCI did not develop any relevant ground likely to challenge the decision of the arbitrators on their lack of jurisdiction with regard to the “umbrella clauses” contained in treaties other than the OIC Agreement.

The annulment judge reviews the decision of the arbitral tribunal on its jurisdiction, whether it declared itself to have jurisdiction or not, looking for all legal and factual elements allowing it to determine the existence and the scope of the arbitration agreement. This is not different when the arbitrators are seized on the basis of a treaty.

In the present case, the arbitration proceedings were initiated by the investor under Article 17 of the OIC Agreement which provides that:

“Until the establishment of a body for the settlement of disputes arising out of this Agreement, any disputes that may arise shall be settled by conciliation or arbitration in accordance with the following rules:

  1. 1.Conciliation
    [']
  2. Arbitration
    a) If the two parties to the dispute fail to reach an agreement through conciliation, or if the conciliator fails to submit his report within the specified time limit, or if the two parties do not agree on the suggested remedies, each party shall have the right to refer the dispute to the Arbitral Tribunal for decision.[…]”

Article 8 paragraph 1 of the OIC Agreement provides for the most-favoured-nation clause in these terms:
“The investments of any contracting party shall enjoy, within the context of economic activity in which they have employed their investments in the territories of another contracting party, a treatment not less favourable than the treatment accorded to investors belonging to another State not party to this Agreement, in the context of that activity and in respect of rights and privileges accorded to those investors.”

KCI argued that, pursuant to this clause, the following compliance clauses were applicable to the obligations accepted by the Gabonese Republic in the context of its claims based on the Service Development Agreement and the Construction Agreement:

  • Article 2.4 of the Bilateral Treaty concerning the reciprocal encouragement and protection of investments signed between the Gabonese Republic and the Benelux, according to which: “Each of the Contracting Parties shall fulfil any commitment made in relation to an investment made by investors of the other Contracting Party”,

  • Article 7.2 of the bilateral treaty between Germany and the Gabonese Republic, which provides that “Each Contracting Party shall comply with any other obligation it may have agreed upon, relating to investments by nationals or companies of the other Contracting Party in its territory”.

However, first and foremost, the most-favoured-nation clause, which extends to the treatment of nationals of a State party to a treaty the advantages granted to nationals of another protective treaty concluded with another State party, only concerns the substantial advantages contained in investment treaties, including national treatment, fair and equitable treatment and conditions of expropriation. This clause does not extend to the procedural advantages of dispute settlement provided for in investment protection treaties and especially to the extension of the delimitation of the jurisdiction of arbitrators.

Consequently, in the absence of a clause on the respect of the obligations set out in the OIC Agreement and of the extension by the most-favoured-nation clause of the procedural advantages contained in other treaties, the arbitral tribunal did not have to rule on the existence of one or more contractual violations resulting from the development and construction agreements but only on the violation of the international obligations resulting from the OIC Agreement.

Secondly, the legal consequences drawn from the combination of the most-favoured-nation clause included in the OIC Agreement and the compliance clause included in treaties other than the OIC Agreement cannot be considered as being within the intention of the Contracting Parties to this Agreement. By a broad interpretation rightly considered “artificial” by the arbitral tribunal, it would no longer be necessary to include in investment treaties specific provisions allowing for the implementation of the international liability of the State in case of, for instance, violation of fair and equitable treatment or failure to provide full protection and security to the investor, since under the interpretation proposed by KCI, any violation of a contract would have the same effect without having to meet the strict conditions attached to the application of international standards of treatment.

The ground must therefore be dismissed.

On the second ground for setting aside, based on a violation of due process (in French: Principe de contradiction) (Article 1520-4 of the Code of Civil Procedure):

KCI claims that the arbitrator violated due process (in French: Principe de contradiction) by finding on his own initiative, without having submitted this ground to an adversarial debate, the existence of an agreement between the parties concerning the termination of the development and construction agreements.

The Gabonese Republic claims that this claim was not raised in due time before the arbitral tribunal and that it does not concern the award of 23 December 2016 but rather the letter of the arbitral tribunal of 4 April 2017 which, irrespective of the rejection of KCI’s request for omission to rule, focuses part of its developments on the issue of the termination of the agreements and the breach of the agreements reached by mutual agreement between the parties. On the merits, the Gabonese Republic states that the issue of termination was raised by the parties, both in their statements and during the hearings.

KCI does not challenge the arbitral tribunal’s letter sent to the parties on 4 April 2017 but only the award of 23 March 2016, which, according to it, would have raised ex officio a ground not discussed by the parties, which did not allow it to raise this claim in due time during the arbitration proceedings. The ground is therefore admissible.

Due process (in French: Principe de contradiction) only requires that the parties should be able to state their claims in fact and in law and comment those of the opposing party in such a way that anything which influenced the decision of arbitrators was subjected to adversarial debate. The arbitrators do not have to submit their reasoning in advance to an adversarial discussion between the parties.

According to the arbitral tribunal, “the parties presented the stay of proceedings […] in a highly contrasting manner. For KCI, it was a unilateral and unreasoned decision, imposed by the State [' ]. For the Gabonese Republic, it was a joint decision, which could not cause any prejudice to KCI” (Award §225).

Indeed, before the arbitrators, the Gabonese Republic, without using the term “termination”, argued that the development and construction agreements had been “terminated” by mutual agreement. Thus, in its rejoinder of 30 May 2016, it asserted that “It was therefore indeed a mutual termination that was at issue (p. 55 § 205)” or “a termination by mutual agreement” (p. 55 § 205), which the State has agreed to regard as common" (p. 56 §§ 209, 212 and 213). According to the transcript of 4 July 2016 (p. 34 lines 20 to 24), the Gabonese Republic’s counsel stated as follows: “It is therefore indeed a termination which the State considered to be common, with KCI’s initial decision to unilaterally terminate on 7 June 2012, when it declared that it intended to leave Gabon, without notice. Consequently, Gabon only ratified this choice at the meeting of 20 September 2012 and the responsibility for the breach cannot be attributed to it”.

The arbitral tribunal simply adopted this argument by substituting the word “breach” (in French: Rupture) for the word “termination” (in French: Résiliation).

Contrary to the claimant’s allegations, the arbitral tribunal merely qualified the alleged and discussed facts in legal terms, without raising any new ground of appeal, and drew the legal consequences therefrom in order to state the reasons for its decision.

This ground raised by the claimant, which alleges the failure to comply with due process (in French: Principe de contradiction), only aims to call into question before the annulment judge the assessment made by the arbitrators of the arguments and documents submitted to them.

Thus the arbitral tribunal did not disregard due process (in French: Principe de contradiction).

Consequently, the action for setting aside the award issued in Paris on December 23, 2016 should be dismissed.

On Article 700 of the Code of Civil Procedure:

The claimant cannot benefit from the provisions of article 700 of the code of civil procedure and will be condemned on this basis to pay the Gabonese Republic the sum of 50,000 euros.

FOR THESE GROUNDS:

Dismisses the action for setting aside the award set aside the award made between the parties on 23 December 2016.

Orders KONTINENTAL CONSEIL INGENIERIE to pay the costs and the payment to the Gabonese Republic of the sum of 50,000 euros pursuant to Article 700 of the Code of Civil Procedure.