United Arab Emirates: Investment Treaty Arbitration

Last Updated: 29 April 2019
Article by STA Law Firm
Most Read Contributor in United Arab Emirates, July 2019

The foreign direct investment (FDI) is skyrocketing with the globalizing world and hundreds of millions worth cross-border investments are initiated across the world every day. This article intends to discuss the legal protection for these foreign investments. National laws of some states intend to protect foreign investments as it can help to develop the local economy but the primary problem is the process of arbitration for recovering losses. With the establishment of the International Centre for Settlement of Investment Disputes (ICSID) arbitration, the companies and international business lawyers can address this issue efficiently. For example, Company X starts the business in the USA and over time decides to expand overseas. Accordingly, they decide to start an operation in a completely new jurisdiction with its own laws and regulations. Their investments are poured into this new company and their operation was very successful. Nevertheless, the usual problem for Company X will be getting into a dispute with another company in the same territory. Hence, if the company X has a dispute with company Y, there will be an arbitration Tribunal conducted in order to solve the dispute. However, if company X got into a dispute with a government agency or government entity, the matter cannot be referred to an arbitration Centre as there is no arbitration agreement or direct contract between that country government and the company X. To address this issue, Investment Treaty arbitration was implemented by international lawmakers.

In a commercial arbitration, there should be a dispute and an agreement to initiate the Tribunal under an international arbitration Centre. In contrast, investment Treaty arbitration has the foundation of an international investment Treaty signed by multi-nations or a bilateral Treaty signed between two agreed countries to protect foreign investments. Historically, there are many bilateral treaties (BIT) signed between two states within customized treaties to protect their special interests. These treaties are basically intended to provide protection to foreign investments. Specifically, these treaties aim to establish a strong procedure for recovery of financial values and properties, protect assets of the foreigners, to establish most favored nation treatment policy, and national treatment protection for the foreign investments. The reluctance of the investors on investing in a foreign nation has reduced significantly, with the addition of a double layer of protection from international law.

World Bank led the implementation of a multilateral Treaty to succeed their core objective of promoting international investments. Unlike the international arbitration institutions, the establishment of the ICSID Centre was carefully designed to separate political influence from the procedural laws, for the reason of the many nations, which will be a participant to the disputes. Also, the scope of work of the ICSID extent to state-state disputes as well. The involvement of the monetary value in these disputes are very high and therefore it was essential to establish perfectly designed procedural laws to address these disputes. Similarly, the enforcement mechanism of an award was the second stage, since countries might play the role of defense. Simply put, the procedures must be designed more carefully since states have the full power over the executive, parliamentary, and judiciary institutions to prevent the execution of an award within their own territory. On the other hand, the difference between the two parties is that the reputation of the states are very high and they value their diplomatic relationship with the involved nation. Therefore, the Tribunal must defend the interest of the states involved, to the best of its efforts. So to protect the reputation of the parties, the ICSID has designed to form a special arbitral Tribunal or committee to consider each matter with special care. Later, an experienced ICSID team will provide guidance and assistance to settle the matter amicably. There are hundreds of pending cases involving different states, which might not have been addressed if not for this Convention. Some of the interesting pending disputes include a leading electronic company's dispute against a leading gulf nation. This case involved an electric power generation project registered in 2017. This example elaborates the high level of cases that are involved with the ICSID Tribunal.

The governing body of the arbitration institution is the Administrative Council. It is composed of a representative from each state who has ratified the Treaty. Their preliminary powers include decision-making rights in relation to the budget, implementation of rules and regulations for the institution, and appointment of top-level administrative positions. This counsel gathers every year for discussions and each member holds one vote with regard to the decision-making process.

The seat of the office is the Principle of the International Bank for Reconstruction and Development (IBRD). If a party requires the seat to be moved to another place, they may do it by applying to the administrative council. The four main pillars of the center include the panel of arbitrators, administrative counsel, secretariat office, and a panel of consolidators. The administrative counsel formed by members from each contracting country.

The jurisdiction of the Centre extends to any disputes in relation to foreign investment between a contracting state and a national of another state. The state, in this regard, is not only limited to the state government but also considers any subdivision or agency under the relevant government. Chapter 3 Article 25 of the regulation stipulates on this and legal experts appreciate this careful drafting of the concerned article since participating nations has all the powers to find a solution and escape from the awards. Similarly, the states are also empowered to question the link between the jurisdiction of the matters or prove that there is no link between different government-owned agencies and entities within the government itself. For example, if a taxi company invests their money in a different state and if that state's municipality imposed a high tax or a different set of regulations for only this taxi company, this can be considered as the breach of investment protection under the international law and the same may be submitted to the Tribunal. Any government agencies or government entity involved in this regard will be considered as the state for this matter.

The ICSID Convention provides a format to conduct arbitration procedures. All the disputes under this Tribunal must follow the procedural steps mentioned under Chapter 4 and 7 of the Convention. The details of some of the procedures are mentioned in the cross-reference chapters to provide clear guidance and regulations. Followings are the number of procedural steps under the ICSID Convention to conduct an arbitration Tribunal:

  1. Parties requesting for arbitration from the Tribunal.
  2. Registration and review of the request for arbitration.
  3. Establishment of fundamentals like the number of arbitrators and their appointment method.
  4. Beginning of the proceedings.
  5. The first session starts followed by the written and oral procedure.
  6. Deliberations.
  7. Interim decisions (if any)
  8. Awards.
  9. Enforcement of the award.

Article 42(1) of the Convention provides the parties with a broader discretion to decide the laws applicable to the dispute. Flexibility in procedural rules is a fundamental nature of international arbitration. Usually, the parties to the process select the seat, applicable laws, procedural laws, arbitrators, and many more in a general arbitration Tribunal. Following that, the ICSID Convention also has implemented a broad article under 42(1) of the Convention, to select an applicable law as well as exclude some provisions of the same. Thus, the Convention effectively provides the parties with the complete authority to design their own arbitral Tribunal. However, selecting the national law is a difficult task for the parties as it is a selection between host state law and investor's state law. According to the ICSID Convention, if the parties had failed to mention the applicable law in the agreement, the state's (party to the arbitration) law shall be applied to the Tribunal. This will include the country's dispute resolution along with international laws.

One of the fundamental reason to establish international arbitration is to reduce fees and time. However, the purpose of establishing ICSID arbitration was to protect foreign investments. The nations or big investors participating in these Tribunals may not hesitate to pay a fee to solve their million dollar problems. Chapter 3 Regulation 14 of the institutional law provides guidance in relation to the direct cost of the individual proceedings. Which stipulates that the parties must bear the cost of the participants, like the arbitrators, to the process. Each day's fees including eight hours of working plus any additional hours of work must be paid accordingly. The amount is determined by the secretary, with the approval of the chairman. This is to keep a check and balance, with regard to, the payments received by the participants. The secretary is also vested with the duty to make an estimation of the Tribunal's expenses for a period of three to six months and present the same to the parties for an advance payment. Another important duty is vested with the Secretary-General, which is the maintenance of a list of contracting states. Under Regulation 20, the office has to keep all the updates related to this matter, including the states in which the Convention has entered into force, list of excluded territories, regulations related to enforcement of the award, etc.

The enforcement of an arbitral award from the ICSID arbitration can be enforced using the ICSID Convention (1965). As discussed, this Treaty has been founded to encourage enforcement of the foreign arbitral awards. However, there are instances where the judgments are proceeded through a correction process, especially concerning the correction of the facts or the law. The parties can request for a revision process if new facts concerning the case are found and which parties had no knowledge of when the final award was granted. However, the Tribunal requires such an application to be made within 3 months from the discovery of such facts.

The practical implementation of Tribunal's awards in a state is secured through Article 54 of the ICSID provisions. By agreeing to this provision, parties have agreed that they will recognize and enforce the Tribunal's awards as if it is a final judgment of the concerned state courts. The importance of ratification of this clause is because the enforcement must be done by the local state entity. They will have no option but to enforce the complete award since the award must be considered similar to local judgment. This gives the investors the utmost trust about the system of arbitration under this institution. They can rely on this institution for the safety of their investment, as well as, the enforcement of a judgment against a state.

Under the ICSID Convention, there is no system of appeals, however, a revision or similar process may be granted under limited circumstances. Under article 52(1) of the Convention, the parties have the right to apply for revision, annulment, or interpretation of a given award under the following circumstances:

  • That the Tribunal was not constituted properly.
  • The Tribunal has manifestly exceeded its powers.
  • That there was corruption on the part of a member of the Tribunal.
  • That there has been a serious departure from a fundamental procedure.
  • That the award has failed to state the reasons on which it is based.

These are the valid reasons a losing party can apply for a revision or any other similar procedure. These points are almost similar to Article 5 of the New York Convention for the enforcement of an award. First reason under the ICSID Convention primarily questions the Tribunal's constitution. For example, the governing law of the Tribunal must be according to the agreed governing law. A Tribunal or arbitrators must not exceed its powers. For example, if the Tribunal was constituted to address the investment dispute between a state and investors, that Tribunal only possesses the power to resolve the concerned dispute. Thirdly, if an arbitrator gets involved in the act bribery or has acted in a way that favors one country or party, then the Tribunal's award can be questioned using article 52 (1) of the Convention. Finally, the arbitrators have the duty to inform the parties about the reason for the award. It is mandatory unless otherwise agreed by the parties. Therefore, these objections are very fundamental and within the boundary of international arbitration principles on the objection of an award. On the other hand, it is carefully designed, thus, not providing much room for the participant state to delay the enforcement of an award. For example, if there was an appeal system, the country states might have always used that and appeal the dispute in order to drag the matter for several months or years, and the investors' investment in the market will be dead by the time final enforcement enforced. Therefore, considering the nature of disputes and the background, the Convention has limited the objection to only the fundamental level.

The usual method of dispute resolution for the disputes between states to state is the International Court of Justice. The Convention has supported this method, by referring the disputes to the International Court of Justice if they cannot be settled under this system. This only applies with regard to state-to-state disputes and the parties may choose an alternative method if they wish to do so. Overall, the Treaty and arbitration Centre protect the interests of investors with a procedure, as well as, an enforcement mechanism. The Treaty and the Tribunal encourage foreign direct investments and help the global economy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions