Despite increasing levels of investment between countries in the Middle East and North Africa (MENA) and difficulties for intra-MENA investors in certain countries following the Arab Spring, regional investment protection treaties have received little attention. This is surprising considering that intra-MENA bilateral investment treaties (BITs) represent only a fraction of the more than 500 BITs in force in MENA states.
This update considers two multilateral investment treaties (MITs) relevant to the MENA region which may provide protection to investors in the absence of applicable BITs: the Agreement on Promotion, Protection and Guarantee of Investments among Member States of the Organisation of the Islamic Conference (the 'OIC Agreement') and the Unified Agreement for the Investment of Arab Capital in the Arab States (the 'Arab Investment Agreement'). Both date back to the 1980s, but only recently caught the attention of investors.
The Organisation of Islamic Cooperation was established in 1969 and is currently the second largest intergovernmental organisation, after the United Nations, with 57 member states. The OIC Agreement was signed in June 1981 and entered into force on September 23 1986. It has been signed by 33 (and ratified by 27) of the 57 member states of the Organisation of Islamic Cooperation.(1)
Who can benefit?
To benefit from the protections of the OIC Agreement, a foreign investor must be a qualifying investor and have a qualifying investment, as defined by the OIC Agreement.
The term 'investor' is defined broadly as the "Government of any contracting party or natural corporate person, who is a national of a contracting party and who owns the capital and invests it in the territory of another contracting party".(2) This includes:
- any national of a contracting party according to the nationality law in force therein; and
- any corporate entity that is established according to the laws in force in any member state and recognised by the law under which its legal personality is established.
Unlike most investment protection treaties, which cover only corporate entities and natural persons, the OIC Agreement also extends protection to governments of member states. Further, the OIC Agreement imposes no nationality requirements on owners of a corporate entity. Therefore, a subsidiary of a parent company of a non-contracting party will be protected, provided that it holds the nationality of a contracting party.
The term 'investment' is also broadly defined and covers any investment of capital in permissible investment fields of a member state with a view to achieving a profitable return.(3) The term 'capital' comprises everything that can be evaluated in monetary terms and includes all assets:
"whether these be movable, immovable, in cash, in kind, tangible as well as everything pertaining to these capitals and investments by way of rights or claims and shall include the net profits accruing from such assets and the undivided shares and intangible rights."(4)
The OIC Agreement contains many of the protections that are typically found in investment protection treaties, including:
- protection against unlawful (direct or indirect) expropriation without prompt, adequate and effective compensation;(5)
- most favoured nation treatment;(6)
- adequate protection and security for the invested capital;(7) and
- free transfer and movement of capital.(8)
A notable omission is a fair and equitable treatment provision to protect against arbitrary or discriminatory treatment of investors. However, the existence of a most favoured nation clause may allow parties to rely on other BITs or MITs entered into by the state in order to apply additional substantive (and possibly procedural) protections.
Access to international arbitration
Until the establishment of a dedicated organ to settle investor-state disputes, Article 17 of the OIC Agreement refers to both conciliation and arbitration with a member state. Faced with the question of whether Article 17 constitutes a binding arbitration agreement, the first decision rendered by an arbitral tribunal constituted under the OIC Agreement on June 21 2012 effectively concluded that Article 17 contains an offer by each member state to arbitrate disputes with investors of another member state, entitling the latter to accept an offer by commencing arbitration proceedings. The arbitration was brought against Indonesia by a Saudi businessman, Hesham Al-Warraq, seeking $25 million in respect of the nationalisation of his stake in PT Bank Century tbk, which underwent a controversial $700 million bail-out in 2008.
Under the OIC Agreement, tribunal decisions are final and binding. Member states must implement awards as if they were final and enforceable national court decisions. The OIC Agreement also contains a so-called 'fork in the road' provision, meaning that investors are prohibited from bringing simultaneous proceedings before an arbitral tribunal and national court.
Arab Investment Agreement
The Arab Investment Agreement was signed on November 26 1980 and entered into force on September 7 1981. Unlike the OIC Agreement, the Arab Investment Agreement established a specialised court, the Arab Investment Court. The court is open to states and investors.(9) The Arab Investment Agreement has been ratified by all member states of the League of Arab States, except Algeria and the Comoros.(10)
Who can benefit?
The scope of qualifying investors is defined more narrowly under the Arab Investment Agreement than under the OIC Agreement. Article 1.7 provides that an 'Arab investor' is "an Arab citizen who owns Arab capital which he invests in the territory of a State Party of which he is not a national". An 'Arab citizen' is defined as any natural person or legal entity bearing the nationality of a state party. However, unlike the OIC Agreement, legal entities must be fully owned (directly or indirectly) by Arab citizens in order to attract protection. Arab joint ventures, states and public entities are also protected investors.
With regard to protected investments, the Arab Investment Agreement hinges on two notions: Arab capital and the investment of Arab capital. 'Arab capital' is defined as assets owned by an Arab citizen and any material and immaterial rights which have a cash valuation, including bank deposits, financial investments, joint shares and revenues accruing from these assets. 'Investment of Arab capital' is defined as "the use of Arab capital in a field of economic development with a view to obtaining a return in the territory of a State Party or its transfer to this State for such purpose in accordance with the provisions of this Agreement".
The Arab Investment Agreement offers similar protections to those contained in the OIC Agreement, including:
- a guarantee of free movement of Arab capital and an obligation to protect investors, safeguard their investments and related revenues and rights and, to the extent possible, ensure the stability of the pertinent legal provisions (Article 2);
- national treatment and most favoured nation treatment (Article 6);
- protection against unlawful expropriation (Article 9); and
- the obligation to facilitate the entry, residence and departure of Arab investors and their family members and employees (Article 12).
As with the OIC Agreement, a notable omission is the absence of a fair and equitable treatment standard.
Access to international arbitration
Chapter VI of the Arab Investment Agreement outlines a complex and original system of investment dispute settlement, centring on the Arab Investment Court.
Pursuant to Article 25, disputes under the Arab Investment Agreement must be resolved by conciliation, arbitration or recourse to the Arab Investment Court. Where parties agree to arbitrate their disputes, an annex to the Arab Investment Agreement provides dedicated arbitration rules. Absent an agreement, parties may refer disputes to the Arab Investment Court. The jurisdiction of the Arab Investment Court is limited to disputes which relate to or arise from the application of the Arab Investment Agreement. The Arab Investment Agreement covers disputes both between member states and between investors and member states.(11)
Arab Investment Court judgments are final and cannot be appealed. They are enforceable in member states in the same manner as final enforceable judgments delivered by their national courts.(12) As under the OIC Agreement, the Arab Investment Agreement contains a fork in the road provision, according to which an Arab investor cannot successively or simultaneously submit proceedings before the Arab Investment Court and a national court.(13)
The first case brought under the Arab Investment Agreement was in 2003, when Saudi company Tanmiah brought a claim against Tunisia in relation to a dispute over the sponsorship of the Mediterranean Games held in Tunisia in September 2001. The Arab Investment Court confirmed its jurisdiction and rendered its first decision on October 12 2004, rejecting the investor's case on the merits. Several other cases have since been brought.
In 2013, pursuant to an agreement to arbitrate under the Arab Investment Agreement, an arbitral tribunal rendered an award in favour of Al-Kharafi & Sons Co (Kuwait), ordering Libya to pay damages in the amount of $930 million in connection with a dispute over a land leasing contract for a tourism project.(14) The Paris Court of Appeal upheld the award.(15)
A Qatari investor, Ali Alyafei, recently brought a claim before the International Centre for Settlement of Investment Disputes (ICSID) under the Arab Investment Agreement against Jordan. The investor is attempting to rely on the most favoured nation clause under the Arab Investment Agreement in order to apply an ICSID jurisdiction clause contained in the Italy-Jordan BIT. A tribunal has yet to be constituted.(16)
Arbitration under the OIC Agreement and the Arab Investment Agreement is still in its infancy, despite the fact that these agreements were entered into more than 30 years ago. Part of the reason for this stems from the slow development of the concerned institutions and an increasing willingness by sophisticated investors to structure their investments in order to take advantage of applicable, and generally more favourable, BITs. Nevertheless, the OIC Agreement and Arab Investment Agreement still play an important role in filling a gap in intra-MENA investment protection and should not be overlooked by investors.
For further information on this topic please contact Sami Tannous or Matei Purice at Freshfields Bruckhaus Deringer LLP by telephone (+971 4 5099 100) or email (email@example.com or firstname.lastname@example.org). The Freshfields Bruckhaus Deringer LLP website can be accessed at www.freshfields.com.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.