Paris Court of Appeal annuls OIC award for irregular tribunal constitution via MFN procedure (Libya v DS Construction FZCO)

Published on 14 April 2021 on LexisNexis UK

“Article summary

Arbitration analysis: The Paris Court of Appeal annulled a partial award rendered under the Agreement on Promotion, Protection and Guarantee of Investments among Member States of the Organisation of the Islamic Conference (OIC Treaty) for irregular constitution of the tribunal. It did so on the ground that the tribunal was constituted under the UNCITRAL Arbitration Rules with the Permanent Court of Arbitration (PCA) acting as appointing authority, as provided under the Libya-Austria Treaty, the application of which had been triggered by claimant via the Most Favored Nation (MFN) clause of Article 8 of the OIC Treaty. The court held that the MFN did not allow to import any dispute resolution provisions from other treaties. This procedure was used by claimant to have the PCA designate an appointing authority to appoint an arbitrator on behalf of Libya, which had defaulted in the appointment, and in circumstances where the appointing authority under the OIC Treaty, namely the Secretary General of the OIC did not make the appointment when solicited. The court held that it was up to the claimant in such circumstances to solicit the juge d’appui to appoint an arbitrator on Libya’s behalf. The court further held that it did not have the power to re-appoint tribunal members upon annulling the partial award. The decision sheds light as to what can and cannot be done when faced with a deadlock in constituting tribunals.”

Paris Court of Appeal annuls OIC award for irregular tribunal constitution via MFN procedure – DS Construction FZCO v State of Libya OIC, Paris Court of Appeal

By Hamid Gharavi and Nada Sader

“What are the practical implications of this case?

This decision confirms that MFN clauses, unless worded expressly otherwise or where facts justify the same, do not allow the import of procedural provisions of other treaties. This is the second time the court has reached this conclusion in relation to a case under the OIC Treaty. The first occasion was in KCI v Gabonese Republic, Judgment of 25 June 2019, N° RG 17/06430 (not reported by LexisNexis® UK) where the court held that dispute resolution nor more advantageous procedural provisions (including umbrella clauses) could be imported. This time it has done so where MFN was used for purposes of constituting the tribunal. A claimant should thus think twice, unless facts specifics allow otherwise or the seat of the tribunal is located in a jurisdiction that may rule differently, before using the MFN clause of the OIC Treaty in such circumstances to overcome the inactivity of the appointing authority under the OIC Treaty, namely its General Secretary, based in Saudi Arabia. Some states, Libya in particular, during recent years, have thus defaulted in appointing an arbitrator to create a deadlock that could not be effectively resolved via the MFN clause. The claimants had been warned against temptations to have recourse to the MFN clause under these circumstances (see: “Cocorico! – French approach to the OIC Treaty gives cause to crow” by Hamid Gharavi). States too have in turn been warned that their strategy had limits. The Trasta Energy Ltd v The State of Libya 2019 (Trasta) case proves it. This is because claimant in such circumstances may resort to Article 1505.4 of the French Code of Civil Procedure (FCCP), which gives French courts universal jurisdiction to constitute tribunals so as to prevent a denial of justice, if a deadlock arises in relation to an existing arbitration clause. This is even if the arbitration bears no connection to France. In Trasta, where Libya had initially refused to appoint an arbitrator, the mere triggering of proceedings before the court and the scheduling of a hearing proved sufficient to drive Libya to agree to appoint a co-arbitrator just before the scheduled hearing.

What was the background?

The claimant appointed an arbitrator but Libya did not in the OIC arbitration. The claimant requested the Secretary General, as the appointing authority under the OIC Treaty, to appoint an arbitrator on behalf of Libya. Yet, the Secretary General of the OIC, did not respond. The PCA accepted DS Construction’s request, in application of the 1976 UNCITRAL Arbitration Rules, to designate an appointing authority who appointed an arbitrator on Libya’s behalf. The PCA was seized by the claimant as it was the appointing authority under the UNCITRAL Arbitration Rules, which were referenced in the Austria-Libya bilateral investment treaty (BIT), that claimant imported via the MFN clause contained at Article 8 of the OIC Treaty. Libya objected to the process. The two co-arbitrators then appointed in turn the President of the Tribunal. Paris was ultimately set as the seat of the arbitration and the UNCITRAL Arbitration Rules adapted by agreement of the parties without prejudice to Libya’s objection on the constitution of the tribunal. The procedure was bifurcated to rule on Libya’s objection. By its partial award 15 February 2018, the tribunal held that it was regularly constituted.

Libya initiated annulment proceedings against the tribunal’s partial award, arguing that the tribunal was improperly constituted via the PCA designating an appointing authority under the UNCITRAL Rules whereas the same did not govern under the OIC but was rather imported via the Austria-Libya BIT through the MFN clause of the OIC Treaty.

What did the court decide?

The court annulled the tribunal’s partial award pursuant to Article 1520(2) of the FCCP finding that it was regularly constituted.

It found that the arbitration clause contained in Article 17 of the OIC Treaty could not, alone, serve as a basis to have the PCA designate an appointing authority, as it does not provide for such recourse.

Nor could, the court held, Article 1509 of the FCCP, which gives arbitral tribunals the power to set out the arbitration procedure as it applies only to regularly constituted tribunals.

As to whether DS Construction could rely on the MFN clause contained at Article 8 of the OIC Treaty to import the UNCITRAL Arbitration Rules, the court found that whereas Article 8 of the OIC Treaty did constitute an MFN clause, and whereas it was possible, in some circumstances, to import through MFN clauses procedural provisions that would guarantee the resolution of disputes adapted to the object and purpose of the treaty, this was not the case of the OIC Treaty. The court found that both the context and the purpose of Article 17 were to put in place a specific procedure for the settlement of disputes and that there was no intention by the parties to allow the importation of other dispute resolution provisions than the ad hoc procedure set out therein for purposes of the constitution of the tribunal, as confirmed by the fact that a specific appointing authority was put in place by the OIC Treaty. The court further found that DS Construction should rather have, but did not, initiate adequate proceedings to eventually seize the juge d’appui to resolve the difficulty in the constitution of a tribunal.

The court finally found that it did not have the power, once it had annulled the award, to designate Paris as the seat of the arbitration, and to appoint the same tribunal members. It dismissed the claimant’s alternative request to this effect accordingly.

Case details

• Court: Paris Court of Appeal
• Judges: President Francois Ancel, Mrs Fabienne Schaller and Mrs Laure Alderbert
• Date of judgment: 23 March 2021.”