B-144311, JUN. 5, 1964

B-144311, JUN. 5, 1964

TO THE SECRETARY OF DEFENSE:

REFERENCE IS MADE TO A LETTER DATED MAY 7, 1964, I/6591/64, FROM THE ACTING ASSISTANT SECRETARY, INTERNATIONAL SECURITY AFFAIRS, REQUESTING OUR CONSIDERATION OF AN ADMINISTRATIVELY PROPOSED COURSE OF ACTION IN CONNECTION WITH A REQUEST MADE BY THE LAW FIRM OF SURREY, KARASIK, GOULD, AND GREENE, WASHINGTON, D.C., REPRESENTING LA CELLULOSE D-AQUITAINE, A FRENCH CORPORATION WHICH ALLEGEDLY SUFFERED A SUBSTANTIAL CURRENCY EXCHANGE LOSS IN CONNECTION WITH REIMBURSEMENTS MADE FOR COSTS OF PERFORMING A CONTRACT WITH THE REPUBLIC OF FRANCE, IDENTIFIED AS CONVENTION NO. 18-C-00.

IN A DECISION OF JANUARY 30, 1962, B-144311, THERE WAS CONSIDERED BY THIS OFFICE A CLAIM MADE ON BEHALF OF LA CELLULOSE D-AQUITAINE FOR RECOVERY OF APPROXIMATELY $285,000 FOR LOSSES ALLEGEDLY SUFFERED BY THAT COMPANY, BASED UPON ASSOCIATION OF THE FRENCH CONTRACT (CONVENTION NO. 18-C-00) WITH A CONTRACT ENTERED INTO BETWEEN THE UNITED STATES AND THE REPUBLIC OF FRANCE (DEPARTMENT OF THE ARMY CONTRACT NO. DA-91-516-EUC-573) UNDER WHICH THE UNITED STATES HAD AGREED IN CONSIDERATION OF MUTUAL DEFENSE REQUIREMENTS TO PAY THE COST, NOT TO EXCEED $1,780,500, OF PRODUCTION EQUIPMENT TO BE INSTALLED AT A PROPOSED PULP AND PAPER MILL OF THE FRENCH FIRM IN SOUTHERN FRANCE SO THAT THE MILL WOULD BE CAPABLE OF PRODUCING NITRATE PULP FOR DEFENSE PURPOSES, IN ADDITION TO THE ORDINARY PRODUCTION OF PULP AND PAPER.

IT WAS ALLEGED THAT THE FRENCH FIRM SUFFERED THE LOSS INVOLVED AS THE RESULT OF CHANGES IN THE RATES OF EXCHANGE BETWEEN AMERICAN DOLLARS AND FRENCH FRANCS FROM THE DATES ON WHICH THE FRENCH FIRM MADE PAYMENTS IN DOLLARS FOR EQUIPMENT AND THE DATES ON WHICH REIMBURSEMENTS WERE MADE TO THE COMPANY BY THE REPUBLIC OF FRANCE. HOWEVER, SINCE THE UNITED STATES HAD PAID OUT THE MAXIMUM SUM OBLIGATED UNDER THE ARMY CONTRACT, IT WAS DETERMINED THAT THE UNITED STATES HAD NOT, AS CONTENDED, OBTAINED A WINDFALL OUT OF THE TRANSACTIONS REFERRED TO AND THAT, IN ANY EVENT, THE UNITED STATES IS NOT LIABLE TO THE FRENCH COMPANY BECAUSE THERE WAS NO PRIVITY OF CONTRACT BETWEEN THE FRENCH COMPANY AND THE UNITED STATES.

THE LETTER OF MAY 7, 1964, SETS FORTH THAT THE ARMY CONTRACT WAS MADE SUBJECT TO THE TERMS AND CONDITIONS OF THE UNITED STATES REPUBLIC OF FRANCE OFFSHORE PROCUREMENT MEMORANDUM OF UNDERSTANDING OF JUNE 12, 1953, INCLUDING A "NO PROFITS" CLAUSE WHICH PROVIDED IN ESSENCE THAT NO PROFIT OF ANY NATURE, INCLUDING NET GAINS RESULTING FROM FLUCTUATIONS IN EXCHANGE RATES, WOULD BE MADE BY THE FRENCH GOVERNMENT AND THAT IN THE COMPUTATION OF PROFITS OPS CONTRACTS WOULD BE TAKEN "COLLECTIVELY.' IT IS ALSO SET FORTH THAT UNDER ONE OF THE PROVISIONS OF AMENDMENT NO. 3 TO THE CONTRACT BETWEEN THE FRENCH GOVERNMENT AND LA CELLULOSE D-AQUITAINE IT WAS AGREED THAT THE COMPANY WOULD BE PAID IN FRANCS ONLY AND THAT REIMBURSEMENTS WOULD BE MADE FOR ITS DOLLAR EXPENDITURES BY AN AMOUNT CALCULATED ON THE BASIS OF CONVERSION RATES PREVAILING ON THE DAYS ON WHICH LA CELLULOSE D- AQUITAINE EXPENDED THE DOLLARS.

IT IS REPORTED THAT LA CELLULOSE D-AQUITAINE PURCHASED A CONSIDERABLE AMOUNT OF EQUIPMENT IN THE UNITED STATES AND OTHER AREAS REQUIRING FOREIGN EXCHANGE IN DOLLARS AND THAT THE EXPENDITURES FOR SUCH EQUIPMENT TOTALED THE SUM OF $1,401,975. MOST OF THESE EXPENDITURES WERE MADE WHEN THE FRANC-DOLLAR EXCHANGE RATES WERE 350 TO 1 AND 420 TO 1, AND THE FOREIGN EXCHANGE USED BY LA CELLULOSE D AQUITAINE CAME FOR THE MOST PART FROM DOLLARS PROVIDED AS PAID-IN CAPITAL BY ONE OF THE PRINCIPAL INVESTORS, A WHOLLY-OWNED SUBSIDIARY OF PARSONS AND WHITTEMORE, INCORPORATED, AN AMERICAN CORPORATION.

REIMBURSEMENT FOR A MINOR PORTION OF THOSE EXPENDITURES WAS MADE AT THE FRANC-DOLLAR EXCHANGE RATE OF 494 TO 1, BUT REIMBURSEMENT FOR THE MAJOR PORTION OF THE EXPENDITURE WAS MADE ON THE BASIS OF EXCHANGE RATES OF 350 TO 1 AND 420 TO 1, WITH THE FRENCH GOVERNMENT APPARENTLY RETAINING THE DIFFERENCE BETWEEN THE SUMS PAID AND THE SUMS WHICH WOULD HAVE BEEN PAYABLE AT THE HIGHER RATE OF 494 TO 1, EFFECTIVE ON DATES REIMBURSEMENTS WERE MADE, EXCEPT FOR THE PAYMENT PROVISIONS OF AMENDMENT NO. 3 TO THE CONTRACT WITH LA CELLULOSE D-AQUITAINE. THERE IS A REPORTED DIFFERENCE OF 160,598,808 FRANCS INVOLVED IN THE TRANSACTIONS AND THE COMPANY CONTENDS THAT IT SIGNED AMENDMENT NO. 3 ONLY UPON THE INSISTENCE OF SERVICE DES POUDRES, THE FRENCH PROCURING AGENCY, IN ORDER TO OBTAIN PAYMENTS DUE UNDER THE CONTRACT.

THE PARTIES INTERESTED IN THE CLAIM ARE REPORTED TO HAVE HAD EXTENSIVE DISCUSSIONS WITH REPRESENTATIVES OF THE REPUBLIC OF FRANCE WHO, YOUR DEPARTMENT HAS BEEN ADVISED, HAVE INDICATED AN INFORMALLY EXPRESSED WILLINGNESS BY THE FRENCH GOVERNMENT TO CONSIDER REIMBURSEMENT TO LA CELLULOSE D-AQUITAINE OF THE CLAIMED DIFFERENCE IF THE UNITED STATES WILL INDICATE THAT IT WILL NOT ASSERT A "NO PROFITS" CLAIM WITH RESPECT TO SUCH AMOUNT. THE COMPANY'S ATTORNEYS HAVE REQUESTED THAT THE DEPARTMENT OF DEFENSE INDICATE TO THE FRENCH GOVERNMENT THAT THE DEPARTMENT WRITE A LETTER TO THE ATTORNEYS TO THE EFFECT THAT, IF THE FRENCH GOVERNMENT DOES IN FACT PAY LA CELLULOSE D AQUITAINE THE CLAIMED DIFFERENCE, THE UNITED STATES WILL NOT CLAIM SUCH EXCHANGE PROFIT.

THE DEPARTMENT PROPOSES TO GIVE THE REQUESTED ASSURANCE TO THE FIRM OF SURREY, KARASIK, GOULD AND GREENE, ON THE BASIS THAT THE EQUITIES APPEAR CLEARLY TO FAVOR AN ADDITIONAL PAYMENT TO LA CELLULOSE D AQUITAINE BY THE FRENCH GOVERNMENT. THE DEPARTMENT ALSO CONSIDERS THAT THE UNITED STATES WOULD HAVE HAD NO REASON TO TAKE EXCEPTION TO SETTLEMENTS MADE AT CURRENTLY EXISTING FOREIGN EXCHANGE RATES IF AMENDMENT NO. 3 TO THE CONTRACT BETWEEN THE REPUBLIC OF FRANCE AND LA CELLULOSE D-AQUITAINE HAD NOT PROVIDED FOR REIMBURSEMENT TO BE MADE AT THE CONVERSION RATES "IN EFFECT ON THE DAYS OF THE DOLLAR PURCHASES.'

INFORMATION HAS BEEN FURNISHED INDICATING THAT THERE IS VERY LITTLE POSSIBILITY THAT THE UNITED STATES WILL EVER RECOUP FROM THE REPUBLIC OF FRANCE ANY AMOUNTS UNDER THE "NO PROFITS, PROVISION OF THE JUNE 12, 1953, MEMORANDUM OF UNDERSTANDING BETWEEN THE TWO GOVERNMENTS. THE REPUBLIC OF FRANCE IS STATED AS HAVING REPORTED A LOSS OF $10,499,011 ON ONE GROUP OF CONTRACTS. ALSO, THE REPUBLIC OF FRANCE IS STATED AS HAVING REPORTED A LOSS OF AN ADDITIONAL $88,817,769 ON ANOTHER GROUP OF CONTRACTS. A LONG OUTSTANDING DISAGREEMENT IS REPORTED ON WHETHER THE LATTER CONTRACTS SHOULD BE TREATED INDIVIDUALLY OR COLLECTIVELY IN DETERMINING THE LIABILITY, IF ANY, OF THE REPUBLIC OF FRANCE TO THE UNITED STATES UNDER THE "NO PROFITS" PROVISION.

THE OPINION IS EXPRESSED IN THE LETTER OF MAY 7, 1964, THAT THE REQUESTED RELINQUISHMENT OF A THEORETICAL "NO PROFITS" CLAIM IN RELATION TO THE CONTRACT BETWEEN THE REPUBLIC OF FRANCE AND LA CELLULOSE D-AQUITAINE WOULD BE OF NO PRACTICAL CONSEQUENCE TO THE UNITED STATES. HOWEVER, THE LETTER STATES THAT IT WOULD BE UNDERSTOOD THAT THE DECISION MADE IN THIS INSTANCE IS RESTRICTED TO THE PARTICULAR FACTS OF THIS CASE AND COULD IN NO WAY BE CONSTRUED AS A PRECEDENT OR AS MODIFYING THE BASIC UNITED STATES' POSITION IN THE LONG DORMANT "NO PROFITS" NEGOTIATIONS.

IT HAS BEEN SUGGESTED THAT IS IS QUITE POSSIBLE THAT THE FRENCH GOVERNMENT'S POSITION IS THAT A "NO PROFITS" CLAIM VESTED IN THE UNITED STATES WHEN REIMBURSEMENT PAYMENTS WERE MADE TO LA CELLULOSE D AQUITAINE CONTRACT BETWEEN THAT COMPANY AND THE REPUBLIC OF FRANCE. HOWEVER, ANY ADDITIONAL PAYMENT TO LA CELLULOSE D-AQUITAINE, BASED UPON A DETERMINATION THAT THIS FIRM WAS UNDERPAID IN THE FIRST INSTANCE AND THAT IT WOULD BE INEQUITABLE TO RETAIN THE AMOUNT INVOLVED NOTWITHSTANDING THE TERMS AND CONDITIONS OF AMENDMENT NO. 3, WOULD NOT GIVE RISE TO A CLAIM BY THE UNITED STATES AGAINST THE REPUBLIC OF FRANCE.

ACCORDINGLY, AND IN VIEW OF THE INDICATED PROBABILITY THAT ANY EXCHANGE PROFIT MADE IN THIS CASE WOULD NOT AFFECT THE OVERALL "NO PROFITS" POSITION OF THE TWO GOVERNMENTS, WE WOULD NOT OBJECT TO RELINQUISHING A THEORETICAL "NO PROFITS" CLAIM IN RELATION TO THE CONTRACT BETWEEN LA CELLULOSE D-AQUITAINE AND THE REPUBLIC OF FRANCE AS OF NO PRACTICAL CONSEQUENCE TO THE UNITED STATES.

OUR ONLY CONCERN RESPECTING THE ACTION PROPOSED IS WHETHER IT WOULD BE APPROPRIATE FOR THE UNITED STATES TO APPEAR TO BE RENDERING ANY ASSISTANCE IN THE PROSECUTION OF THE FRENCH FIRM'S CLAIM AGAINST THE REPUBLIC OF FRANCE WITHOUT THE APPROVAL OR CONSENT OF THAT GOVERNMENT. THIS MATTER HAS BEEN DISCUSSED INFORMALLY WITH A REPRESENTATIVE OF YOUR DEPARTMENT AND IT APPEARS TO BE THE DEPARTMENTAL VIEW THAT THE FURNISHING OF THE REQUESTED STATEMENT TO THE ATTORNEYS FOR THE FRENCH COMPANY WOULD NOT IN ANY MANNER AFFECT ADVERSELY THE CONTRACTUAL RELATIONSHIPS BETWEEN THE REPUBLIC OF FRANCE AND THIS COUNTRY. ALSO, IT WAS INDICATED THAT THE FURNISHING OF THE STATEMENT TO THE ATTORNEYS WOULD BE PREFERABLE TO THE MAKING OF ANY DIRECT CONTRACT WITH THE FRENCH REPRESENTATIVES SINCE THIS MIGHT BE TAKEN TO MEAN THAT THE UNITED STATES WAS INTERESTED IN OBTAINING FAVORABLE CONSIDERATION OF THE CLAIM OF THE FRENCH COMPANY.

IN THE CIRCUMSTANCES, YOU ARE ADVISED THAT OUR OFFICE IS NOT REQUIRED TO OBJECT TO THE ADMINISTRATIVELY PROPOSED COURSE OF ACTION IN THIS CASE. REQUESTED, WE ARE RETURNING EXHIBIT A, INCLUDED AMONG THE ENCLOSURES OF THE LETTER DATED MAY 7, 1964.