This edition of Middle East exchange focuses on two interesting legal developments in relation to dispute resolution in the Middle East. One relates to the enforcement of rights by an investor against an Islamic host state and the other revisits questions over the enforcement of international arbitral awards with a UK/EU connection in Saudi Arabia.
- OIC investment treaty – investor protection in the Islamic world
One of the key considerations when looking at overseas investment, particularly in the emerging markets, is the protection that the foreign investor will have from state expropriation of the investor's assets and from other interference in the investment. Structuring investments to take advantage of a Bilateral Investment Treaty (BIT) is the primary way of claiming investment protection. Please see our Middle East exchange from March 2011 which covers investor protection using BITs (please click here to request a soft copy).
In a recent arbitral ruling in Singapore, a Saudi investor successfully argued that the state of Indonesia had a case to answer under a little known treaty – the investment treaty of the Organisation of Islamic Cooperation.
What is the OIC?
The Organisation of Islamic Cooperation was formerly known as the Organisation of Islamic Conference. It was established in 1969 and aims (amongst other things) to enhance and consolidate the links between the Islamic member states and to strengthen intra-Islamic economic and trade cooperation, in order to achieve economic integration, leading to the establishment of an Islamic Common Market. It is currently the second largest intergovernmental organisation, after the UN, with 57 member states.
The agreement for the protection, promotion and guarantee of investments among member states of the OIC was signed in Baghdad in 1981. 27 member states have ratified the agreement, including the UAE, Saudi Arabia, Oman, Libya, Pakistan and Syria.
Article 17-1 of the agreement states that "until an organ for the settlement of disputes is established, disputes that may arise shall be entitled through conciliation or arbitration ….". There follows detailed procedures for the bringing of claims through conciliation and to arbitration.
In other respects, the agreement sets out provisions which are commonly found in BITs.
Relevant case and commentary
In the recent case, a UNCITRAL tribunal with its seat in Singapore had to rule on whether the OIC agreement permitted arbitration proceedings to be taken by an investor against the host state. The tribunal held that it did. In the case, the investor
was a Saudi national who was claiming against the state of Indonesia in relation to the nationalisation of a bank in which he held capital. It is believed that this is the first time an arbitration under the OIC agreement has reached a jurisdictional ruling.
The revival of this agreement between Muslim states is worth considering for GCC investors in relation to investments in the wider Middle East (outside of the GCC) or the Far East.
- Choosing arbitrators on the grounds of religion and gender – do questions still remain?
In July 2011, the UK Supreme Court in the case of Jivraj v Hashwani ended a legal debate on whether it was lawful to agree that an arbitrator, nominated by contracting parties in the event of a dispute, must be chosen on the basis of religion or gender. An earlier Court of Appeal judgment in the same case had ruled that to do so was a breach of UK anti-discrimination legislation. However, in recent days, the unsuccessful party, Mr Hashwani, has indicated an intention to appeal the Supreme Court decision to the European Court of Justice. He may be entitled to do so because the UK legislation is derived from an EU treaty.
The Supreme Court ruled that an arbitrator was not employed within the scope of the relevant UK anti-discrimination legislation and that he was, instead, an independent provider of services. As such, it was not a breach of the law to provide for qualifications to an arbitrator's appointment on the grounds of religion or gender. Please see our Arbitration e-bulletin from July 2011.
Before the Supreme Court gave its ruling, the issue gave rise to widespread concern in relation to arbitration agreements, including arbitrations to be conducted under institutional proceedings where it was possible for the parties to be selective on the basis of nationality. The scope of application was also wide, affecting arbitrations with a seat in the UK (or EU) or, potentially, the selection of UK (or EU) nationals as arbitrator regardless of the seat.
Regionally, the Jivraj case was of particular interest to companies with commercial arrangements connected to Saudi Arabia. Enforcement of foreign arbitral awards is challenging in Saudi Arabia, despite the fact that Saudi Arabia is a party to the New York Convention. This is because (amongst other factors) the Saudi Board of Grievances may reject enforcement on the grounds of public policy. Public policy considerations have been known to include the religion and gender of the arbitrator. Under the new Saudi Arbitration Law, it remains the case that an arbitration with a seat in Saudi Arabia must have a male Muslim arbitrator – see our recent Middle East exchange newsletter from July 2012 (please click here to request a copy). Expressly choosing an arbitrator who is a male Muslim, even where there is a foreign seat, may be important where an award may need to be enforced in Saudi Arabia.
If the case is taken to the European Court of Justice, international arbitration with a UK or EU seat for contracts with a strong Saudi connection may no longer be a real option, again.
- UAE marketing of foreign funds regulations come into force
As mentioned in our recent investment funds e-bulletin, the Emirates Securities & Commodities Authority (ESCA) issued Resolution No. 37 of 2012 on Investment Funds on 22 July 2012, following a period of consultation.
The Resolution was published in the Official Gazette on 26 August and therefore is now in force.