Lexology | 7 May 2018
The Organisation of Islamic Cooperation Agreement on Promotion, Protection and Guarantee of Investments among Member States
30 years since its entry into force
As the Organisation of Islamic Cooperation ("OIC") Agreement on promotion, protection and guarantee of investments among Member States ("OIC Agreement") reaches its 30 years anniversary since its entry into force in 1988, we examine this relatively unknown instrument which provides investment protection and can be of use to investors in the Muslim World in particular where an investor is unable to benefit from treaty protection under a Bilateral Investment Treaty ("BIT").
Whilst there is a plethora of literature on BIT protection, relatively little is known on how the OIC Agreement can assist investors.
The OIC is the second largest intergovernmental organisation (after the United Nations); it consists of 57 member States across 4 continents. Founded in 1969, the OIC was created to inter alia enhance and consolidate the links between the 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.
The official languages of the OIC are Arabic, English, and French.
The OIC Agreement: a dormant Treaty no more
Signed by 33 Member States and ratified by 27 countries across Africa, the Middle East and Asia including all GCC countries bar Bahrain, the OIC Agreement is the oldest and second largest International Investment Protection Agreement (the largest being the Energy Charter Treaty ("ECT")).
Although the OIC Agreement is 10 years older than the ECT, it received very little attention from investors until it was used for the first time in the ad hoc (UNCITRAL) arbitration initiated by Hesham Talaat M. Al-Warraq (Saudi Investor) against Indonesia in 2012 ("Al Warraq case"). This relatively recent "discovery" of the investment protection and arbitration offering under the OIC Agreement paved the way for investors willing to initiate proceedings against the host State of their investment but unable to benefit from treaty protection under a BIT.
Although it remains unclear how many arbitrations have proceeded under the OIC Agreement following the Al Warraq case, at least three cases have been reported on which were successfully initiated against the following signatories:
- Gabon: ad-hoc arbitration (under the UNCITRAL Rules) initiated by Kontinental Conseil Ingenierie SARL (Tunisia) against Gabon for claims arising out of alleged discontinuation of government funding for the construction of 5,000 residential units in Gabon’s capital, in alleged violation of the government’s contractual obligations ("Kontinental v. Gabon");
- Iraq: ICSID arbitration initiated by the Jordanian companies Itisaluna Iraq LLC and Munir Sukhtian International Investment LLC and a pair of UAE-registered entities, VTEL Holdings Ltd. and VTEL Middle East and Africa Limited against the Republic of Iraq ("Itisaluna v. Iraq"); and
- Libya: ad-hoc arbitration (under the UNCITRAL Rules) initiated by UAE-incorporated D.S. Construction FZCO against Libya, alleging losses related to construction projects ("DS Construction v. Libya).
Investment Protection - what is covered?
"Investor" is defined in Article 1 paragraph 6 of the OIC Agreement which reads:
"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.[…] (emphasis added)"
The definition of "investor" under the OIC Agreement is very broad; it does not provide for specific requirements as to nationality for legal entities but only provides that they must be established in conformity with the laws of any Member State.
Investment" is defined in Article 1 paragraph 5 of the OIC Agreement which reads:
"The employment of capital in one of the permissible fields in the territories of a contracting party with a view to achieving a profitable return, or the transfer of capital to a contracting party for the same purpose, in accordance with this Agreement."
The broad definition of "Investment" provided in the OIC Agreement was interpreted in the Al Warraq case as covering both direct and indirect investments. The Tribunal, further, held that "the definitions given to "capital" and "investment" in modern international investment treaties refer broadly – as is the case with Article 1 of the OIC Agreement – to "all assets"" As such, the definition would arguably be extended to a wide range of economic transactions.
The object and purpose of the OIC Agreement is investment, promotion and protection by conferring a broad range of rights on investors. As such, the OIC Agreement contains typical investment protection provisions including guarantees of adequate protection and security, incentives, freedom of movement of personnel, most-favoured-nation protection rights, protection against expropriation, free transfer and disposition of capital, compensation for the violation of rights, and national treatment.
From an investment protection perspective, the most interesting provision of the OIC Agreement is Article 14 which contains a Most-Favoured Nation Clause ("MFN Clause"); it reads:
"The investor shall be accorded a treatment not less than that accorded by the host state to its national investors or others regarding the compensation of damage that may befall the physical assets of investment due to hostilities of international nature committed by any international body or due to civil disturbances or violent acts of general nature. (emphasis added)"
When asked to consider the MFN Clause in the Al Warraq case, the Tribunal first noted that such clauses had been applied to matters of dispute-settlement as well as substantive treaty guarantees. The Tribunal took the view that the MFN clause applied to import other clauses from other investment treaties the country had entered into including BITs as long as the OIC Agreement and the BIT the investor attempts to rely upon deal with the same subject matter. As the OIC Agreement’s purpose is the promotion and protection of investment and, as such, is aligned to the purpose of the BIT, the Tribunal ruled in the claimant’s favour and accepted the import of the fair and equitable treatment clause from the UK-Indonesia BIT in application of the MFN Clause. Therefore, a Saudi investor was able to take advantage of a BIT entered into between Indonesia and the UK by virtue of the OIC Agreement!
Given the ever growing investments coming from the GCC countries in particular into other Middle Eastern countries, Africa and Asia, investors in the region should be aware of the existence of the OIC Agreement as part of their investment protection arsenal.