Antoine Abou Lahoud and Leila Bounafeh-Abou Lahoud v. Democratic Republic of the Congo

Case summary

At a glance

Parties: Antoine Abou Lahoud and Leila Bounafeh-Abou Lahoud (Lebanon) v. Democratic Republic of the Congo
Case no.: ICSID Case No. ARB/10/4
Forum and rules: ICSID Convention arbitration; annulment under Article 52 of the ICSID Convention
Treaty: DRC Investment Code (Loi n°004/2002 of 21 February 2002, "NCI"), Article 38 dispute-settlement clause
Tribunal: Prof. William Park (President), Karim Hafez, Marie-Andrée Ngwe
ad hoc Committee: Prof. Azzedine Kettani (President), Prof. Kaj Hobér, Prof. Rolf Knieper
Sector: Electrical works; timber processing and export
Outcome: The DRC was held liable for breach of fair and equitable treatment (Art. 25 NCI) and for unlawful indirect expropriation (Art. 26 NCI), and was ordered to pay damages (7 February 2014). Its application for annulment was rejected in full (29 March 2016).
Amount: Claimed: USD 763,978 for material losses, USD 841,022 for lost margins, USD 17,645,000 for loss of business value, and USD 3 million for moral damage. Awarded: USD 1,728,194, with simple interest at LIBOR+2 (reset every six months) from 19 May 2005. Costs: the DRC bears 75% of the arbitration costs and 50% of the claimants' legal costs. Annulment: the DRC bears all of the Committee's and ICSID's costs, plus EUR 9,203.72 and USD 217,606.84 of the claimants' legal costs.

The dispute

The claimants, two Lebanese nationals, owned IMPOREX, a Kinshasa company working in electrical works, timber, and vehicles and spare parts. Since 1998 IMPOREX had rented premises from the Litho Moboti group (GLM). The State had requisitioned GLM's assets in 1997, and the Office des Biens Mal Acquis (OBMA) had recovered them for the State in 2004. Even so, a court judgment and the land registrar transferred title to the plot to a member of the Litho Moboti family, who sold it to Mr Ghassan Dakhlallah. OBMA then withdrew its action to annul that sale. On 16 February 2005 a Kinshasa court ordered IMPOREX's eviction, enforceable immediately, and police carried it out on 19 May 2005; IMPOREX's goods were thrown into the street, damaged, removed or stolen. The claimants alleged breach of fair and equitable treatment and expropriation without compensation under Articles 25 and 26 of the NCI. The DRC objected that there was no investment under the NCI or the ICSID Convention and that the activities were unlawful. On the merits it argued that the case was a private lease dispute settled by independent courts.

Key holdings

Jurisdiction upheld in part. The electrical site-works business and the timber sawing/strip ("frises") business are investments under the NCI and the ICSID Convention. Investors need no prior approval (agrément) to rely on the Code's general guarantees, including ICSID arbitration. The vehicles and parquet businesses were not proven, and simple buy-for-resale trading falls outside the NCI, so claims for these were dismissed for lack of jurisdiction. Award ¶ 664(i); ¶¶ 581–604
Breach of fair and equitable treatment (Art. 25 NCI). Several acts and omissions attributable to the State, taken together, defeated the claimants' legitimate expectations. These were: the registrar's negligent registrations, OBMA's unexplained withdrawal of its annulment action, a hasty court procedure that disregarded the State's title, an eviction without prior formal notice, and the inaction of the Minister of Justice. No denial of justice was claimed, and local remedies had not been exhausted. Award ¶¶ 445–488
Indirect expropriation (Art. 26 NCI). The eviction judgment and the abrupt police enforcement were decisions of a "local authority". They deprived the claimants of the use and economic benefit of their business, which ceased operating in 2009. There was no public purpose and no compensation was paid. Award ¶¶ 495–516
Damages assessed at market value under Article 26 NCI, with substantial reductions to the expert's figures. The Tribunal awarded USD 1,728,194 in total, of which the timber-strip business accounts for USD 1,555,685, the electrical business USD 33,826, and fixed assets USD 51,218. Moral damage was refused because the case lacked the exceptional character required. The claimants had met any duty to mitigate. The DRC's counterclaim was rejected. Award ¶¶ 555–639, 664(iii)
Costs. Claimants' counsel had agreed a flat fee of USD 267,000 plus a 15% success fee, so they cannot recover fees based on hours worked. Because of the DRC's dilatory conduct and its failure to pay advances, it bears 75% of the arbitration costs and 50% of the claimants' legal costs. Award ¶¶ 651–663
Stay of enforcement. A stay does not require "exceptional" circumstances. Given doubts about whether the DRC would pay voluntarily (in light of the Miminco case), the stay was maintained only on condition that the DRC post an unconditional bank guarantee within 30 days. Decision on Stay ¶¶ 47–70
Annulment rejected. The argument that only IMPOREX, and not its shareholders, had standing was new and could not be raised at the annulment stage. The Tribunal did not exceed its powers or fail to state reasons on the Salini criteria, on Article 8 NCI, on fair and equitable treatment, on expropriation, or on damages. Applying the law wrongly is not the same as failing to apply it. Decision on Annulment ¶¶ 138–241