Many investors are unaware of the existence of the Agreement for the Promotion, Protection and Guarantee of Investments among the Member States of the Organisation of the Islamic Conference (the “OIC Investment Agreement”) and its provisions regarding dispute settlement.
The Organization of the Islamic Conference (the “OIC”; Arabic: منظمة التعاون الإسلامي; French: Organisation de la coopération islamique) is the second-largest intergovernmental organization in the world after the United Nations, with 57 member States with a collective population of nearly 2 billion. It was established in 1969. Its aim is to promote and reinforce solidarity, economic and trade cooperation between member States, which include Muslim-majority countries.[2]
The OIC Investment Agreement has reportedly been signed by 36 OIC Member States and ratified by 29, including Burkina Faso, Cameroon, Egypt, Republic of Gabon, Gambia, Guinea, Republic of Indonesia, Iran, Iraq, Jordan, Kuwait, Lebanon, Libya, Mali, Morocco, Oman, Pakistan, Palestine, Qatar, Saudi Arabia, Senegal, Somalia, Sudan, Syria, Tajikistan, Tunisia, Turkey, Republic of Uganda and the United Arab Emirates. Thus, its investment protection provisions are applicable to these States.
Although the treaty was largely forgotten after being ratified, the OIC Investment Agreement is one of the largest multilateral investment treaties worldwide. It entered into force in February 1988. It overlaps with the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, as well as multiple bilateral treaties.
Although the OIC Investment Agreement entered into force in 1988, the first known OIC arbitration in the field of investment treaty arbitration was Hesham TM Al Warraq v Republic of Indonesia.[3] The arbitration was initiated by Mr. Hesham Al-Warraq, a Saudi national, against Indonesia in 2011, in relation to a dispute arising from the insolvency of an Indonesian bank, where allegations of expropriation, unfair and inequitable treatment and a failure of protection and security were made. While jurisdiction and treaty breaches were found, no damages were recovered.
Dispute Resolution Mechanism Under the OIC Investment Agreement
Investor-State Arbitration
Article 16 of the OIC Investment Agreement first provides for the right of investors to resort to national courts, allowing a final choice of either litigation or arbitration:
“The host state undertakes to allow the investor the right to resort to its national judicial system to complain against a measure adopted by its authorities against him, or to contest the extent of its conformity with the provisions of the regulations and laws in force in its territory, or to complain against the non-adoption by the host state of a certain measure which is in the interest of the investor, and which the state should have adopted, irrespective of whether the complaint is related, or otherwise, to the implementation of the provisions of the Agreement to the relationship between the investor and the host state.
Provided that if the investor chooses to raise the complaint before the national courts or before an arbitral tribunal then having done so before one of the two quarters he loses the right of recourse to the other.”
The OIC Investment Agreement further includes an ad hoc arbitration provision which operates “[u]ntil an Organ of the settlement of disputes arising under the Agreement is established” (Article 17 of the OIC Investment Agreement). As no Organ for the settlement of disputes had been established, ad hoc arbitrations to resolve disputes became possible.
Pursuant to Article 17, paragraph 1, of the OIC Investment Agreement, the parties to the dispute may agree to attempt to resolve their dispute through conciliation. If the parties to the dispute do not reach an agreement following conciliation, or if they do not agree on conciliation, they may initiate arbitration.
Article 17 paragraph 2 relates to arbitration and is drafted as follows:
“a) If the two parties to the dispute do not reach an agreement as a result of their resort to conciliation, or if the conciliator is unable to issue his report within the prescribed period, or if the two parties do not accept the solutions proposed therein, then each party has the right to resort to the Arbitration Tribunal for a final decision on the dispute.
b) The arbitration procedure begins with a notification by the party requesting the arbitration to the other party to the dispute, clearly explaining the nature of the dispute and the name of the arbitrator he has appointed. The other party must, within sixty days from the date on which such notification was given, inform the party requesting arbitration of the name of the arbitrator appointed by him. The two arbitrators are to choose, within sixty days from the date on which the last of them was appointed arbitrator, an umpire who shall have a casting vote in case of equality of votes. If the second party does not appoint an arbitrator, or if the two arbitrators do not agree on the appointment of an Umpire within the prescribed time, either party may request the Secretary General to complete the composition of the Arbitration Tribunal.
c) The Arbitration Tribunal shall hold its first meeting at the time and place specified by the Umpire. Thereafter the Tribunal will decide on the venue and time of its meetings as well as other matters pertaining to its functions.
d) The decisions of the Arbitration Tribunal shall be final and cannot be contested. They are binding on both parties who must respect and implement them. They shall have the force of judicial decisions. The contracting parties are under an obligation to implement them in their territory, no matter whether it be a party to the dispute or not and irrespective of whether the investor against whom the decision was passed is one of its nationals or residents or not, as if it were a final and enforceable decision of its national courts.”
In Hesham TM Al Warraq v Republic of Indonesia, the arbitration was initiated pursuant to Article 17, paragraph 2 of the OIC Investment Agreement. Mr. Hesham Al-Warraq argued, successfully, that by ratifying the OIC Investment Agreement, the Republic of Indonesia had made an offer to arbitrate to investors.[4]
To the contrary, the Republic of Indonesia claimed that Article 17 of the OIC Investment Agreement did not contain any offer to arbitrate and/or consent to arbitrate on the part of the State.[5]
The arbitral tribunal, thus, had to determine whether Article 17 of the OIC Investment Agreement contained the consent of a State Party to arbitrate disputes with a private individual.
It considered that the OIC Investment Agreement applied to investor-State arbitrations, as Article 17 of the OIC Investment Agreement contained a binding State consent to investor-State arbitration.[6] To come to this conclusion, the arbitral tribunal referred to Article 31 of the Vienna Convention on the Law of Treaties[7] and the principles of contemporaneity and evolutionary interpretation.[8]
Following Hesham TM Al Warraq v Republic of Indonesia, approximately ten investors have been initiated arbitration under the OIC Investment Agreement.[9]
The Appointment of the Arbitral Tribunal
Pursuant to Article 17(2)(b) of the OIC Investment Agreement, the party requesting arbitration has to notify the other party naming the arbitrator it has appointed. Within six days, the other party must inform the party requesting arbitration of the name of the arbitrator it has appointed. If the second party “does not appoint an arbitrator, or if the two arbitrators do not agree on the appointment of an Umpire within the prescribed time, either party may request the Secretary General to complete the composition of the Arbitration Tribunal”.[10]
Over the last few years, the trend seemed to have been for the OIC Secretary General not to play its role, notably for the constitution of the arbitral tribunal. It was reported that, at least for four cases, the OIC Secretary General failed to make appointments under the OIC Treaty.[11] Apparently, the OIC Secretary General simply did not respond to appointment requests.[12] For instance, in beIN Corporation v Saudi Arabia, beIn Corporation stated in its notice of dispute that the OIC Secretary General failed on multiple occasions to appoint arbitrators.[13]
Similarly, in Trasta Energy v Libya, it was reported that the OIC Secretary-General did not promptly step forward in appointing the arbitral tribunal.[14]
Another case against Libya, brought by an Emirati investor, also appears to have presented difficulties regarding the appointment of the arbitral tribunal: DS Construction FZCO v Libya.[15]
To overcome the OIC Secretary General’s failures, investors have instead reverted to the Secretary General of the Permanent Court of Arbitration (“PCA“) to constitute the arbitral tribunal. The PCA “did so on the rationale that the MFN clause in the OIC agreement allowed the claimant to reach into a different investment treaty – one which offers the UNCITRAL arbitration rules, and hence a foothold for the PCA to designate an appointing authority basing their request on the most favored nation clause of the OIC Investment Agreement”. [16]
Protections Under the OIC Investment Agreement
Pursuant to Article 1(6) of the OIC Investment Agreement, an investor must be a national of a contracting party investing its capital in the territory of another contracting party.
A natural person is “[a]ny individual enjoying the nationality of a contracting party according to the provisions of the nationality law in force therein.”[17]
A legal person is “[a]ny entity established in accordance with the laws in force in any contracting party and recognized by the law under which its legal personality is established.”[18]
Paragraph 5 of Article 1 of the OIC Investment Agreement defines an investment as follows:
“The employment of capital in one of the permissible fields in the territories of a contracting party with a view to achieving a profitable return, or the transfer of capital to a contracting party for the same purpose, in accordance with this Agreement.”[19]
Most-Favoured Nation Provision
Article 8 of the OIC Investment Agreement contains a most-favoured nation clause, which reads:
“The investors 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.”
The arbitral tribunal in Hesham TM Al Warraq v Republic of Indonesia considered that Article 8 could be used to import clauses from other bilateral investment treaties, if the clauses that the investor sought to import relied upon the same subject matter as the OIC Agreement articles.[20]
National Treatment Violation
Pursuant to Article 14 of the OIC Investment Agreement, “The investor shall be accorded a treatment not less than that accorded by the host state to its national investors or others regarding the compensation of damage that may befall the physical assets of investment due to hostilities of international nature committed by any international body or due to civil disturbances or violent acts of general nature.”
The OIC Investment Agreement also ensures protection for investors against expropriation (Article 10) and free transfer and disposition of capital (Article 11), which are common investment treaty protection provisions.
Due to the growing number of treaty-based arbitrations, the OIC Member States have worked on establishing a permanent dispute settlement organ.[21] An OIC Arbitration Centre was established in Istanbul, Turkey with the signing of a Host Country Agreement with Turkey in November 2019.
- Anne-Sophie Partaix, Aceris Law
[1] https://www.oic-oci.org/states/?lan=en (last accessed 9 September 2020).
[2] Charter of the Organisation of Islamic Cooperation (OIC), Preamble.
[3] Hesham TM Al Warraq v Republic of Indonesia, OIC, Award, 15 December 2014.
[4] This was a curious choice, given that a bilateral investment treaty between Saudi Arabia was Indonesia was also in place.
[5] Hesham TM Al Warraq v Republic of Indonesia, OIC, Award on Respondent’s Preliminary Objections to Jurisdiction and Admissibility of the Claims, 21 June 2012, para. 49.
[6] Hesham TM Al Warraq v Republic of Indonesia, OIC, Award on Respondent’s Preliminary Objections to Jurisdiction and Admissibility of the Claims, 21 June 2012, para 76.
[7] Article 31 of the Vienna Convention on Law of Treaties states: “1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.
- The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:
(a) Any agreement relating to the treaty which was made between all the parties in connexion with the conclusion of the treaty;
(b) Any instrument which was made by one or more parties in connexion with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.
- There shall be taken into account, together with the context:
(a) Any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;
(b) Any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation;
(c) Any relevant rules of international law applicable in the relations between the parties.
- A special meaning shall be given to a term if it is established that the parties so intended.”
[8] Hesham TM Al Warraq v Republic of Indonesia, OIC, Award on Respondent’s Preliminary Objections to Jurisdiction and Admissibility of the Claims, 21 June 2012, paras. 77-89.
[9] IA Investigation: “Four previously-confidential claims under OIC investment agreement are uncovered, as controversy continues over treaty’s use in arbitration”, dated 16 May 2019.
[10] The Agreement for the Promotion, Protection and Guarantee of Investments among the Member States of the Organisation of the Islamic Conference, Article 17.
[11] Trasta Energy v Libya; DS Construction FZCO v Libya; Omar Bin Sulaiman v Sultanate of Oman; Hesham Al Mehdar v. Arab Republic of Egypt.
[12] IA Investigation: “Four previously-confidential claims under OIC investment agreement are uncovered, as controversy continues over treaty’s use in arbitration”, dated 16 May 2019.
[13] BeIN Corporation v. Kingdom of Saudi Arabia, Notice of Arbitration dated 1 October 2018, para. 80.
[14] IA Investigation: “As another claim is filed against Libya under OIC investment agreement, government goes to court to try to block PCA-enabled arbitrations under treaty” dated 13 January 2019.
[15] IA Investigation: “Four previously-confidential claims under OIC investment agreement are uncovered, as controversy continues over treaty’s use in arbitration”, dated 16 May 2019.
[16] IA Investigation: “As another claim is filed against Libya under OIC investment agreement, government goes to court to try to block PCA-enabled arbitrations under treaty” dated 13 January 2019; see also IA Investigation: “An update on investor arbitration claims under the organization for Islamic cooperation investment treaty” dated 15 August 2018; see also Hamid Gharavi, “Cocorico! French approach to the OIC treaty gives cause to crow”, dated 21 February 2020.
[17] The Agreement for the Promotion, Protection and Guarantee of Investments among the Member States of the Organisation of the Islamic Conference, Article 1(6)(a).
[18] The Agreement for the Promotion, Protection and Guarantee of Investments among the Member States of the Organisation of the Islamic Conference, Article 1(6)(b).
[19] The Agreement for the Promotion, Protection and Guarantee of Investments among the Member States of the Organisation of the Islamic Conference, Article 1(5).
[20] Hesham TM Al Warraq v Republic of Indonesia, OIC, Award, 15 December 2014, para 381 – 390.
[21] IA Investigation: “Governments working to rein in use of OIC investment treaty’s investor-state arbitration offer” dated 3 April 2019.