Paris Court sets aside partial award on tribunal constitution in OIC investment arbitration against Libya
In a 23 March 2021 decision, the Paris Court of Appeal (the Court) set aside a partial award on constitution of the arbitral tribunal in an investment dispute brought against Libya by a UAE-registered construction firm (DS Construction FZCO) under the Agreement for Promotion, Protection and Guarantee of Investments among Member States of the Organisation of Islamic Cooperation (the OIC Investment Agreement).
The Court held that in circumstances where the OIC Secretary General failed to appoint an arbitrator for a state respondent that had not done so, there was no legal basis for the Secretary General of the Permanent Court of Arbitration (PCA) to name an appointing authority for tribunal constitution. The Court reasoned that: (i) any arbitration in such circumstances would need to be purely ad hoc unless the parties agreed otherwise, and (ii) the most-favoured-nation clause (MFN clause) of the OIC Investment Agreement could not be used as a vehicle to import Libya’s consent to arbitration under the UNCITRAL Arbitration Rules (which include a potential role for the PCA in default appointments) from one of Libya’s bilateral investment treaties (BITs) with another state (here Austria).
The OIC Investment Agreement was signed in 1981 and has reportedly been ratified by 29 OIC Member States (the Member States). The agreement provides a legal framework to promote and offer protection to investments made by investors of Member States in the territory of other Member States. However, the OIC has never established its own organ to administer OIC Investment Agreement disputes and most Member States are party to other investment protection instruments (e.g., BITs, ICSID Convention).
The OIC Investment Agreement is not known to have given rise to an investor’s claim before 2011. While several investment cases have been brought under it since then, and respondent states have appointed arbitrators in some of them, it appears that in those known cases where the respondent Member State has failed to appoint an arbitrator, the OIC Secretary General has refrained from doing so in its place. Several investors have successfully pursued the route taken here by DS Construction, persuading the PCA to play such role under the UNCITRAL Rules by importing provisions from one of the respondent states other investment treaties through the MFN clause of the OIC Investment Agreement.
Background of the dispute
DS Construction initiated arbitration against Libya in 2016 pursuant to the OIC Investment Agreement concerning construction contracts affected by Libya’s civil war. After Libya refused to appoint a co-arbitrator, DS Construction requested the OIC Secretary General to appoint one on Libya’s behalf, without success. It then asked the PCA Secretary General to designate an appointing authority as per the 2010 UNCITRAL Rules.
Despite Libya’s objections that it had not consented to apply the UNCITRAL Rules to this dispute, the PCA Secretary General decided to act under the 1976 UNCITRAL Rules (which DS Construction accepted) and named Professor Pierre-Marie Dupuy as appointing authority. The latter nominated an arbitrator on behalf of Libya and the co-arbitrators appointed the third, presiding arbitrator.
The arbitral tribunal rejected Libya’s objections to the validity of its constitution in a partial award on 15 February 2018. Libya then seized the Paris Court of Appeal to set aside this partial award.
No consent to UNCITRAL Arbitration Rules and no extension of dispute resolution provision through MFN clause
The OIC Investment Agreement allows an investor to bring an investment claim either before national courts (Article 16 of the Agreement) or by resorting to ad hoc arbitration, the procedure for which is specified in its Article 17. If the parties are unable to constitute the arbitral tribunal, they may request the OIC Secretary General to act as the appointing authority.
In the Court’s view, the drafters and Member States of the OIC Investment Agreement intended to permit recourse only to the specific ad hoc arbitration procedure described in Article 17.2(b) pending the establishment of an OIC dispute settlement body. The Court agreed with Libya’s argument that, in the absence of any reference in Article 17 to the application of any set of established arbitration rules, such as the UNCITRAL Rules, and without the consent of the parties, the PCA Secretary General could not properly be vested with the mission of designating an appointing authority.
The Court found distinguishable two other cases where the PCA/UNCITRAL route for tribunal constitution had been pursued successfully (Al Warraq v Indonesia and Kontinental Conseil Ingenierie SARL v Gabon), as the states thereupon appointed arbitrators and agreed to the application of the UNCITRAL Rules.
The Court accepted DS Construction’s interpretation of Article 8 of the OIC Investment Agreement as a MFN clause and agreed that, in principle, a MFN clause might in certain instances be used to import a dispute resolution mechanism from another investment treaty.
However, in light of what the Court saw as the OIC Investment Agreement drafters’ objective to offer a “temporary” possibility of ad hoc arbitration pursuant to the mechanism specifically provided for in Article 17 pending the creation of a permanent dispute settlement organ, such MFN clause could not, given such context, serve to import arbitration under the UNCITRAL Rules from one of Libya’s BITs.
The Court rejects DS Construction’s other arguments
The Court rejected for lack of jurisdiction DS Construction’s request, in the alternative and assuming it was decided to set aside the partial award, that, as the supervisory court at the seat of arbitration, the Court of Appeal reappoint the same tribunal members itself, for purposes of “procedural economy.”
The Court ruled as inadmissible (for not having been raised before the arbitrators) DS Construction’s additional argument that Libya’s lack of cooperation in the arbitration, notably its refusal to appoint an arbitrator, constituted an abuse of process.
The impact of this decision on other pending or forthcoming claims under the OIC Investment Agreement is uncertain, especially as other cases are and may be seated elsewhere than in France (examples in which PCA aid figured in the tribunal constitution process include Omar Bin Sulaiman Abdul Aziz Al Rajhi v Oman and beIN Corporation v Saudi Arabia). This may be seen as possibly emboldening certain Member States to refuse to cooperate in constituting an arbitral tribunal in future claims under this Agreement.
Ironically, it was Libya that pointed out in submissions before the Court a potential procedural option that the investor had not pursued, namely, to have asked a French judge to act to help facilitate constitution of an arbitral tribunal after the OIC Secretary General failed to make a default appointment for the State.
Article 1505(4) of the French Code of Civil Procedure authorizes a supporting judicial authority role for the Paris Judicial Court in aid of arbitration in order to prevent “a denial of justice,” which may apply even to matters lacking a connection with France. DS Construction disagreed as to its potential applicability in the circumstances at hand. The Court of Appeal anyway saw Article 1505(4) as inapposite, since it could only have related to the jurisdiction of the Judicial Court to act in the first instance in aid of arbitration, not to the role of the Court of Appeal in considering a challenge to an arbitral award on jurisdiction.In all events, the Court’s decision shows the increasing attention being paid to the issue of the bounds of a state’s consent to arbitrate investor claims, here illustrated by the context of a very particular investment agreement.