International Arbitration and the Settlement of Inter-Arab Investment Disputes

I hereby publish the Abstract and the Introduction of my paper presented to the BCDR-AAA Conference in Manamah, Bahrain, in April 2015 on the following topic: “International Arbitration and the Settlement of Inter-Arab Investment Disputes”.

The full text will be published in a specialized journal.

ABSTRACT

The Arab Spring revolutions constituted a sounding event, which affected all the aspects of life, including trade and investment. Yet, the old regimes were official part of networks of universal, regional and bilateral conventions, relating to the liberalization of trade. They were likewise linked to networks of people and legal entities involved in trade, which became subject to public doubts, since people generally suspected these links of being based on nepotism, favoritism and corruption. This created a public atmosphere claiming the revision or the dismantlement of this mechanism. The difficulties of the situation led some new decision-makers to seek the satisfaction of the public opinion by revising certain old commitments, while they were also seeking the satisfaction of investors. Nevertheless, certain investors quickly resorted to the judicial and arbitral mechanisms stated in their agreements and contracts, while others preferred to be patient and live with the new situation since they are confident that the earthquake will not negatively affect the basis of their long term relationships with the host countries.

This paper aims at focusing on the way the arbitrators and arbitral institutions interacted with claims brought by a number of Arab investors against Arab host countries. This analysis of a number of cases initiated or continued in this context shows that the procedural choices of the investors allowed them to shed light on certain conventions which were unknown or ignored by the practitioners, and that a number of investors preferred to resort to the classic large arbitral institutions specialized in investment disputes, mainly ICSID, while the CRCICA played a very distinguished role in this area. Other choices consist of resorting to ad hoc arbitration (example of the Al-Kharafy vs Libya or of the Hesham Talaat Al-Warraq vs Indonesia cases).

The arbitral awards show that unlike judicial institutions such as the Arab Investment Court, the arbitrators highlighted the extensive perception of their jurisdiction and allocated generous indemnifications to the investors. This trend shall strengthen the confidence of the investors community in the effectiveness of arbitration as a tool for the protection of their rights, whereas it may create new climate of tergiversation for new governments, even if I don’t believe this would have any concrete impact on the international trend consisting of inserting arbitral clauses in contracts or conventions relating to investment, in a quasi-systematic fashion.

INTRODUCTION

In the twentieth century, we agreed to arbitrate. Now, it’s time to arbitrate!

1.   The history of investment law in the Arab world may extend from three to five centuries. Yet, historians like Charles-André Julien spoke about the concession agreements made between the Tunisian government in the XIXth century about the extraction or manufacture of certain strategic goods, such as salt, leather, coral. One can mention the Tabarkaconcessions, granted in the XIXth century by the Bey, Ruler of Tunisia([1]), and an English company([2]). We can also mention the investment agreement concluded between the Beyand an Italian company for the establishment of a tramway services in Tunisia.

2.    One of the oldest and main texts is the 1912 Bey Decree relating to mining concessions, and the Bey decree of 19 March 1936 on arbitral procedures in disputes relating to public services concessions granted by the central government and local authorities. This text provided that disputes relating to concessions may be solved by recourse to arbitration where the arbitral agreement is approved and ratified by a central authority([3]).

3.   In Algeria, in 1942, the French colonizer promulgated a Code on oil and gas investments. In 1962-63, the Evian agreements with France provided for the protection of French investments in Algeria after the end of the French colonization([4]). “The smell of oil was always present with arbitration”, said Ahmed Mahiou([5]), especially in this period. Most of the relationships between Algeria and other Arab countries are based on or linked to oil and gas. The gas pipeline which crosses Tunisia was subject to a specific convention, containing an arbitral clause. It has to be recalled here that from the Algerian side, sonatrach, a state-owned company, is entrusted with all activities related to oil and gas. Legally speaking, the arbitral agreement concerns sonatrach more than the Algerian government.

4.   Since the first vague of independence of Arab countries in the middle of the twentieth century, many arbitration agreements were concluded between Arab states. In parallel to the signature of universal and bilateral conventions, so many conventions were signed between the Arab states. The Arab League helped those countries find a consentient framework for the strengthening of the political relationships. Further, new sub-regional groups were built on the idea of stronger ties between countries from the same region: Maghreb countries, Gulf countries… here again, new conventions are ratified, with provisions relating to arbitration in commercial and investment matters. The pattern of arbitral agreements is wider and more and more complicated.

5.   Political events were accompanied by the signature of agreements mentioning arbitration. Some clauses are very short and lack most of the elementary details. I can mention here the Convention on the Promotion of Investments concluded between Libya and Tunisia in June 6th, 1973.

6.   The first arbitration conducted under the 1981 Islamic Convention is not concluded yet, but a first award was rendered. It is the award on jurisdiction dated 21 June 2012, made by a panel chaired by a Spanish (supposed not to be Muslim) arbitrator. It is the first case under this Convention which was completely unknown. More surprising is the fact that three (3) other arbitrations are conducted right now under this Convention([6])!

Less politics, more business and money

7.   In 2011, a Tunisian arbitration law specialist, Walid Ben Hamida, predicted that the change of the political regime pursuant to the 14 January 2011 Revolution may lead to certain investment disputes: first, there was a risk that the new political powers may challenge the old conventions concluded by the old regime with foreign investors and appraise certain investors accused of having dealings with the former authorities, and second, the risk that certain investors sue the Tunisian authorities for the losses caused by certain violent actions and thefts which targeted their investments([7]). None of these two predictions happened in reality. The only investment case brought against Tunisia after this Revolution was made by an oil company in regard to a normal taxation measure, linked to the end of the activities of the foreign investors and not to the revolution([8]).

8.   The Arab spring consists of a series of uprisings which affected most of the Arab countries, in the Maghreb then in the Mashrek. The aspirations of people went beyond what exists and what is possible. People claim everything and accuse everyone who is in power or around the power of everything, and the media cause great confusion by giving the floor to anybody, especially to incompetent people. Foreign investments suffered due to the legal and political instability([9]), and “the public discourse about the usefulness and legitimacy of investor-State dispute settlement continues to gain momentum”([10]). At least 12 new investment ICSID arbitration claims were registered against Egypt, and 6 new cases were registered in 2013([11]). Almost 30 investment claims are pending against Egypt([12]), with almost the half are non-ICSID ones.

9.   The impact of this movement on the region was over-estimated on one level and underestimated on another. The changes in the region did not occur in the same direction predicted by certain analysts in the early 2011. Whatever, arbitration was not banned or abandoned in the region, and new arbitral agreements were and are concluded continuously.

10.              During the first decades of the XXth century, the nature of the arbitration movement has evolved: In the previous decades, arbitration agreements were signed, and in this era, investors and host states are arbitrating. Of course, all these arbitrations are initiated by the companies, upon advice of their counsels and lawyers. The movement started very slowly but unlike the partial success of the first cases, and inspired of the success of ICSID, more inventive cases were brought, and new kinds of claims were introduced. The host states learned from their own experiences and failures. Certain of them experienced investment arbitrations under the ICSID Convention and could learn too much from these experiences. Yet, the inter-Arab arbitrations swiftly met the international standards, whereas the doctrine is still underlying the anachronism of state court decisions in most countries. The suspicion of political interference is not completely excluded.

11.             Historically, we can affirm that Inter-Arab investment arbitration started in the XXth century([13]). One of the first cases was the Tanmiah vs. Tunisia case, where the Saudi investor, Adel Saleh Al-Maddah, acting as the legal representative of Tanmiah Management and Marketing Consultancy brought an arbitral claim against Tunisia and the Committee for the Organization of the Mediterranean Games 2001 (COJM), arguing that COJM and the state official authorities breached the contract by virtue of which he was granted the right to organize the games including the audio-visual transmission and the advertising rights for the 2001 Mediterranean Games, against the payment of USD 4.5 million([14]). The arbitral tribunal dismissed the requests of the claimed who chose to bring his case before the Arab Investment Court. Contrary to the opinion of several authors, the Court itself is not an arbitral tribunal, neither an arbitral institution. It is an interstate court, established in 1985, and became operational in 2003 when the Tanmiah case was brought. Certain of its members were appointed after this first case was registered([15]).

12.             Pursuant to the rejection of the claim of Tnamiah before the Arab Investment Court in 2004, there was an attempt to modify the 1980 Amman Convention in order to allow a losing party to file an application for the review of the decision, nevertheless, this attempt failed. The Court is preserved as an interstate court with a one shot procedure. Nevertheless, it is not an arbitral tool, whereas nothing in its rules precludes it from ruling on a case which was settled by arbitration. Its second role according to Article 11 of the Annex of the 1980 Convention is to provide help and assistance for a party who got an arbitral award under the same Convention and who could not enforce the award during three months.

([1]) The Bey was the Ruler of Tunisia. Since 1574, the Ruler of Tunisian Iyala(Department) was appointed by the Ottoman Sultan, but since the middle of the XIXth century, he became autonomous.

([2]) Charles-André Julien : « Histoire de l’Afrique du Nord », translated into Arabic by Mohamed Mzali and Hammouda Bin Slama, STD eds, Tunis 1983, vol. II.

([3]) For concessions granted by the central authority, a report has to be made by the General Secretary of the Government (Secrétaire général du Gouvernement Tunisien) after hearing the opinion of the head of the concerned administration. For those concluded by local authorities, a report shall be drafted by the Director of Interior Affairs (Directeur de l’intérieur), and there shall be a special deliberation of the Council of the local authority. In both cases, the approval has to be given by the Council of Ministers (Conseil des Ministres) and of the “Chefs de Service”. Arbitration is allowed only for “difficulties” concerning the interpretation and the performance of concession agreements. The procedure and the remedies were governed by the provisions of Book III of the French Code of Civil Procedure (articles 1003 et seq.) Articles 1, 2 and 3 of the Bey Decree of March 19, 1936, on the arbitral procedure for the difficulties relating to the concessions of public services, published in the Tunisian Official Gazette (J.O.T.), March 27, 1936. 375.

([4]) In 26 June 1963, Algeria and France concluded in Paris an arbitration agreement based on the “Declaration of Principles on the Cooperation for the Promotion of the Under-Ground wealth of the Sahara”, signed in Evian 1962. See, Chrisitian Vignier: “L’accord franco-algérien du 26 juin 1963 en matière d’arbitrage pétrolier pour le respect des droits acquis au Sahara », in Annuaire français de droit international, 1964, Volume 10, pp. 383-395. The 1963 Agreement was replaced by a new agreement concluded on 29 July 1965. See, Ahmed Ouerfelli: “International arbitration in domestic and comparative law”, Latrach eds, Tunis 2006, pp. 48-49.

([5]) Ahmed Mahiou: “En Algérie, l’arbitrage porte avec lui l’odeur du pétrole et ce lien qui résulte des circonstances historiques, n’est pas fait pour faciliter son acclimatation dans un Etat qui vient d’accéder à l’indépendance et entend engager une action exemplaire pour donner un contenu fort à une jeune souveraineté susceptible d’être bridée de tout coté », in ICC Conference, Algiers, Revue Mutations, No. 44, 2nd semester 2003, p. 12 ; Mohamed Bedjaoui : « L’évolution des concepts et de la pratique Algérienne en matière d’arbitrage international », in Actes du séminaire sur l’arbitrage commercial. CNC 1993, p. 16 ; Hocine Frida : « L’influence de l’accueil de la sentence arbitrale par le juge algérien sur l’efficacité de l’arbitrage commercial international », PhD dissertation, the Tizi-Ouzou University, Algeria, 2012, p. 14 ; Ahmed Mahiou : « Quelques remarques sur les positions de l’Algérie en matière d’arbitrage international », in Mélanges offerts au Doyen Sadok Belaid, CPU eds, Tunis 2004, p. 530.

([6]) The first case is the Hisham Talaat Al-Warraq vs Indonesia. The first decision was the partial award on Jurisdiction of 21 June 2012, http://www.italaw.com/sites/default/files/case-documents/italaw3174_0.pdf. Final Award dated december 15th, 2014, http://www.italaw.com/sites/default/files/case-documents/italaw4164.pdf . See, Walid Ben Hamida : « The First Arbitral Award Made under the 1981 OIC Convention On Investments”, World Journal of Arbitration, July 22, Issue 27, p. 67.

([7]) Walid Ben Hamida : « L’arbitrage et le nouveau contexte politique en Tunisie », Session de Formation à la Négociation d’Accords Internationaux d’Investissement pour la Tunisie, ASA Bulletin, Volume 29, No. 4 ; – وليد بن حميدة: “التحكيم والإطار السياسي الجديد في تونس”، مجلة التحكيم العالمية (لبنان)، العدد 13، سنة 2012.

([8]) Lundin Tunisia BV (Netherlands) vs Tunisia, ICSID Case No. ARB/12/30, and case No. ARB13/15.

([9]) Silke N. Kumpf, note on the Al-Kharafi vs Libya arbitral Award, World Journal of Arbitration, Issue 22, April 2014, p. 424-428.

([10]) “Recent Developments In Investor-State Dispute Settlement (ISDS)”, UNCTAD IIA Issues Note, No. 1, April 2014, http://unctad.org/en/publicationslibrary/webdiaepcb2014d3_en.pdf , p. 1.

([11]) “Recent Developments In Investor-State Dispute Settlement (ISDS)”, supra note (6), p. 2.

([12]) Adel Amer: “International arbitration claims against Egypt”, http://moheet.com/details_article/2014/02/27/2017713  

([13]) It is worth to mention certain cases of commercial arbitrations between local merchants and other Arab investors. See, for example, the Ali Tantouch vs. H.Lassoued and BMS case, the Tunis Court of Appeal, 12 January 1999, case No. 31-32, in Revue de la Jurisprudence et de la Législation, May 1999, p .292 et seq. in this case, the ad hoc arbitral tribunal, composed of Tunisian arbitrators, granted indemnification to the Libyan partner in the company (BMS) pursuant to misconduct of the Tunisian director. The Tunis Court of Appeal denied the setting aside claim, which was considered by the doctrine as a sign of a strong will to protect Libyan investments in Tunisia.

([14]) Tanmiah v Tunisia, The Arab Investment Court Decision (Summary), Case No. 1/1 Q, IIC 238 (2006), October 12th, 2006, Arab League. See, “OECD Investment Policy Reviews OECD Investment Policy Reviews: Tunisia 2012”, OED eds., p. 112.

([15]) See the Dissenting opinion of Judge Faez Huusein Al-Mebidhin, annexed to the decision, Case No. 1/1 Q, IIC 238 (2006), 12th October 2006, supra note (13).

Ahmed Ouerfelli

Attorney at Law- Former Judge, former Legal Adviser to the President of the Republic of Tunisia