ICSID tribunal declines jurisdiction ratione voluntatis over claims brought against Iraq under the OIC Investment Agreement

Itisaluna Iraq LLC and others v. Republic of Iraq, ICSID Case No. ARB/17/10

On April 3, 2020, an ICSID tribunal declined jurisdiction over a claim brought under the Agreement on Promotion, Protection and Guarantee of Investments amongst the Member States of the Organization of Islamic Cooperation (OIC). The majority of the tribunal found that the investors had failed to comply with a pre-claim conciliation requirement, and that Iraq’s consent to ICSID arbitration under the OIC Agreement MFN clause could not be established.

Background and claims

Munir Sukhtian Investment LLC (MSI), a company incorporated in Jordan, entered into a national licence agreement with the Iraq National Communications & Media Commission in June 2016. MSI paid USD 20 million to acquire the licence and invested hundreds of millions in implementing the terms of the licence agreement.

MSI was granted rights under the licence agreement to install, construct, operate, manage, and provide a public telecommunications network in the country. MSI was also entitled to establish and operate international gateway services necessary to transmit telecommunications traffic. According to MSI, the General Secretariat of the Council of Ministers never allowed MSI to run its own international gateway as provided under the licence agreement, despite repeated pleas to various organs of the Iraqi state.

In March 2017, MSI, Itisaluna Iraq LLC (incorporated in Jordan), and VTEL Holdings Ltd. and VTEL Middle East and Africa Limited (both incorporated under the laws of Dubai), (collectively, “the investors”), filed for arbitration before ICSID. The investors claimed breaches of the OIC Investment Agreement and the Iraq–Japan BIT. Specifically, the investors alleged breaches of Article 3 of the Iraq–Japan BIT (national treatment obligations), and Articles 2, 4, 10, and 14 of the OIC Investment Agreement (security and promotion of investment, expropriation, and FET).

In April 2017, the case was registered before ICSID. The following October, Iraq sought to raise an objection ratione voluntatis and ratione temporis to the tribunal’s jurisdiction, arguing that there was no basis for concluding that Iraq did, in fact, consent to ICSID arbitration.

On October 27, 2017, the parties agreed that Iraq’s objections to jurisdiction ratione voluntatis and any other preliminary objections should be addressed in a separate preliminary phase. On June 29, 2018, the tribunal announced that the proceedings would be bifurcated.

Interpretation and application of the OIC Agreement

One of the first matters addressed by the tribunal was the lack of precedent provided by the parties that would contain any guidance with respect to interpretation and application of the OIC Agreement or its interaction with bilateral investment treaties through the invocation of its MFN clause; in the words of the tribunal, “the case [did] not fit into the mould of wider investment treaty jurisprudence” (para. 65).

Multilateral nature and character of the OIC Agreement must be respected

The tribunal noted that contrary to what the investors argued, the terms of the OIC Agreement could not be read in a manner that would “enlarge jurisdiction” under its dispute settlement provision by referencing a BIT between a contracting party (Iraq) and a non-contracting party (Japan). It further explained that when interpreting the application of the OIC Agreement, which is a multilateral treaty, caution should be exercised to respect the plain and ordinary meaning of the treaty in light of the practice of all its contracting parties and not only the bilateral treaty practice of one party to the agreement.

Thus, the tribunal concluded that in the present case, the interpretation of the OIC Agreement had to carry the same meaning for all its contracting parties. Consequently, “its meaning could not be shaped by the unrelated treaty practice of one Contracting Party only [i.e., Iraq]” (para. 153).

The tribunal held that for the purpose of interpreting the application of a multilateral agreement, the bilateral treaty practice of one party, i.e., Iraq, cannot be relied upon. The tribunal explained that “The OIC Agreement, interpreted in the present case, must carry the same meaning for all its Contracting Parties and therefore its meaning cannot be shaped by the unrelated treaty practice of one Contracting Party only” (para. 153).

The relationship between Article 16 and Article 17 of the OIC Agreement: OIC contemplates internationalized investor–state arbitration

The parties’ positions on whether Iraq had consented to international investment arbitration depended on interpretations of Articles 16 and 17 of the OIC, which refer to domestic arbitration and diplomatic dispute settlement, respectively. The claimants argued that Articles 16 and 17 of the OIC Agreement should be read together because, when read as such, Article 16 confirms that the OIC Agreement contemplates ISDS, which covers international arbitration. Iraq, in contrast, argued that Articles 16 and 17 address two distinct issues. However, the tribunal concluded that for application purposes and considering general rules of treaty interpretation, Article 16 could not be disconnected from Article 17 and “read in isolation” (para. 160). The tribunal added, “Article 16 has [ISDS] in contemplation” as a reference to the object and purpose of the treaty and the intent of the parties “to provide and develop a favourable climate for investments.” It further explained that the language used in Article 16 of the OIC Agreement supports the argument that “the OIC Agreement contemplated the possibility of internationalised investor–State arbitration.”

The interpretation of Article 17 of the OIC Agreement: A bespoke dispute settlement mechanism was envisaged by the contracting parties to the OIC Agreement but not established

The tribunal observed that Article 17 clearly intended a bespoke mechanism for the settlement of disputes arising under the agreement but concluded in line with Al-Warraq tribunal that there is no basis to resolve that the International Islamic Court of Justice, established by the Charter of the OIC, is the suitable organ pursuant to Article 17. It added that “no OIC Agreement dispute settlement organ is presently operational and available to address investor–State claims” (para. 171). From this conclusion, the tribunal turned to the issue of whether attempted conciliation was a precondition to access to arbitration and if the investors had, in fact, fulfilled this requirement.

OIC Agreement contains consent to investor ISDS but subject to pre-claim conciliation

The investors argued that conciliation was optional and not mandatory. Conversely, Iraq argued that pursuant to Article 17(2) pre-claim conciliation was a binding precondition. After reviewing both parties’ certified translations of Article 17(2), the majority of the tribunal found that in both readings “the conditional “if … then” language seemed to support a conclusion that resort to conciliation is a condition precedent to arbitration” and not a choice (para. 177).

The tribunal then went on to determine whether Article 17 of the OIC Agreement constituted consent to arbitration in general terms. In this regard, it found that the fact that Article 17 establishes consent to arbitration in general terms is precisely why this general consent to arbitration does not contain consent to ICSID arbitration.

The interpretation and application of Article 8 of the OIC Agreement: MFN clause can operate but not in this particular case due to public policy

The investors argued that Iraq’s consent to ICSID arbitration contained in Article 17(4)(a) of the Iraq–Japan BIT could be imported by operation of Article 8 of the OIC Agreement. The majority of the tribunal rejected this argument, noting that Article 8(2) of the OIC Agreement sets out express limitations on the application of the MFN clause. For instance, the MFN clause does not apply to the differential treatment given to investors of one contracting party to the OIC Agreement by another contracting party. The tribunal  further clarified that some of the investors were able to invoke the Iraq–Jordan BIT. Still, the investors collectively chose to rely on the Iraq–Japan BIT instead, putting themselves outside of the framework of Article 8 and the exception contemplated by Article 18 of the OIC Agreement. The tribunal, therefore, averred that the investors “were cherry picking from the Iraq–Japan BIT” as they sought to rely on its ICSID consent to arbitration provision but wanting to circumvent the time-based limitation in Article 17(6) of the BIT (para. 193).

The tribunal clarified that these arguments, although not put forward by the parties, were  relevant as they “shed light on the intent, effect and limitations of the MFN clause, and its public policy framework, on which the investors were seeking to rely” (para. 207). It further added that accepting the investors’ invocation of the Iraq–Japan BIT would put the claimants in a better position than Japanese investors investing in Iraq under the Iraq–Japan BIT.

Consequently, the tribunal considered that in such a case, a balance must be struck between preserving principles of investment treaty law and hindering overreaching and treaty shopping. The tribunal, referencing Maffezini v. Spain, noted that the application of MFN clauses should not override public policy considerations, as contracting parties might have envisioned specific requirements as essential conditions for their acceptance of an agreement. Examples of particular considerations are the exhaustion of local remedies, fork in the road, a particular arbitration forum, or a highly institutionalized system. These types of specific conditions seem to reflect the will of the sovereign parties and are, therefore, to be respected. As such, the tribunal further added that the OIC Agreement thus establishes a clearly defined framework, including an arbitration forum with bespoke characteristics that intentionally omits ICSID arbitration. Echoing reasoning in Maffezini, the tribunal, concluded that this choice was made “based on public policy considerations” (para. 218).

Costs

The tribunal ordered the investors to reimburse Iraq for legal fees and expenses incurred in the amount of USD 724,662,94 and the legal costs of the arbitration in the amount of USD 172,720.47.

The tribunal further decided that no interest shall be levied on the payment of the total amount of USD 897,383.41. This would apply within a period of three months from the date of the award. However, the tribunal imposed a pro-rata interest rate of 1.00% per year to be levied on any amount unpaid after three months from the date of the award until the date of payment.

Wolfang Peter’s dissenting opinion

In a partial dissent, included as a section of the final award, Peter reasoned that the tribunal had jurisdiction in the case because Article 17 provides for conciliation and arbitration as separate forms of dispute resolution which may be used either sequentially or alternatively and therefore lack of pre-claim conciliation does not hinder access to arbitration. He added by quoting the Al-Warraq tribunal that “no prior conciliation agreement is not an obstacle to an investor–state arbitration” (para. 234).

He also noted that the limitation on Article 8 of the OIC Agreement did not apply to the investors because they relied on the Iraq–Japan BIT, and Japan is not a contracting party of the OIC Agreement. He further observed that giving effect to the MFN clause included in Article 8 of the OIC Agreement is consistent with an active and direct interpretation and application of this clause. Peter concluded that the investors’ argument that Iraq’s consent to ICSID is contained in Article 17(4) of the BIT and imported into the OIC Agreement by virtue of the MFN clause should be held because, ultimately, “the MFN clause is invoked to substitute an efficient procedure for a defective one and an effective appointing authority for a dysfunctional one” (para. 242).

Notes: The tribunal was composed of Daniel Bethlehem (president appointed by agreement of the parties, British national), Wolfgang Peter (claimants’ appointee, Swiss national), Brigitte Stern (respondent’s appointee, French national). The award of April 3, 2020, is available at https://www.italaw.com/sites/default/files/case-documents/italaw11410.pdf

Maria Bisila Torao is an international lawyer based in London. She holds an LL.M. in investment treaty arbitration from Uppsala University, an LL.M. in international commercial arbitration from Stockholm University, and a bachelor’s degree in law from the University of Malaga.