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International Commercial Arbitration of Investment Litigation

04/09/2010

Dr. Zuhair al-Hassani

Professor of International Law

 

Introduction

The Research Hypothesis

1.     The relationship between international commercial arbitration and foreign investment rests on the definition of the international element in each of them.  International commercial arbitration requires the existence of an arbitral tribunal composed of members belonging to different nationalities, two of whom are selected by the parties to the conflict and the third is usually chosen by the two.  The international element exists when the tribunal takes place in a country other than the one where the investment was made, or if the parties agree to apply the rules of international commercial sales (Lex mercatoria), or even when the arbitral tribunal chooses legal rules other than the investment laws that are in force in the country where the investment was made (“host country”).  Often times, the rules of the country where the tribunal takes place are applied instead of the law of the host country law (Lex Loci), which is essentially substituting one national law for another.

As for foreign investment—which is the use of foreign capital to produce commodities and services in order to increase income and achieve economic development—Article (1/N) of the Iraqi Investment Law No. 13 of 2006 seeks to insure protection and achieve profits by resorting to international commercial arbitration for the following two reasons:  To promote integrity, transparency, and neutrality of the tribunal on the one hand, to accommodate  the lack of the foreign investor’s familiarity with the legal environment and economic policy of the host country.  Therefore, when developing countries seek to encourage foreign investment, they often find themselves compelled to allow for international commercial arbitration as it will encourage the foreign investor.  Such encouragement stems from incentives to invest due to financial advantages provided by the host countries economic environment, tax exemption for one example, while enjoying protection from arbitrary changes in the host country’s legal landscape that might affect his capital and profits.  These advantages and immunities are available to all foreign direct investment (“FDI”) which take the form of production and service projects, and/or come via indirect sources such as the purchase of stocks and bonds.

2.     Article (27/5) of Iraq Investment Law No. 13 (2006) provides for the possibility of arbitration in the context of commercial disputes that arise between the National Commission for Investments (or any other governmental entity on one hand), and those that are subject to the provisions of this law on the other, whenever the investment contract stipulates.  However, this paragraph does not specify whether such arbitration shall be according to Iraqi national law or according to the international commercial rules of arbitration.  I will explain this ambiguity as follows.

Article (27/4) clearly indicates that the parties to the investment dispute may, at the time of signing the contract, agree on a mechanism of solving disputes which includes international arbitration according to Iraqi law or any other internationally recognized entity.  The use of international arbitration requires the involvement of a special arbitration commission, courts of the international chamber of commerce, or other institutional structures like the International Center for the Resolution of the Investment Disputes (ICSID) created by the Washington Convention of 1965.  The use of international commercial arbitration is not considered to be in violation of the Iraqi Law of Civil and Commercial Procedures No. 69 because there is no contradiction between the two; Iraqi investment law exemplifies the flexibility that exists in Iraqi law.  None-the-less, the Iraqi legislature is about to enact a law of commercial arbitration for both national and international disputes to provide a legal environment conducive to foreign investments, and to address the fact that the law of civil commercial procedures has failed to remain totally cogent given the development that has taken place in this field.

 

The Problem:

If we accept that international arbitration is a special instrument to resolve disputes between two or more adversaries, governed by law or legal agreement defining the rights and obligations of the opponents, and with the result binding them accordingly, do we also accept the role of such arbitration in the context of investment disputes given the following issues regarding disputes that arise between a foreign investor and a host country:

A.   The foreign investor likely has a significant interest in the investment and continued work in the host country due to his expectation of the success of his project and the resulting profits.

B.    The host country is likewise interested in encouraging foreign investors and providing a suitable environment for investing, along with the continued success of the current investment project regardless of the resulting dispute. 

With these issues in mind, will the ruling on the dispute, on the basis of a winner and loser as occurs in arbitration, undermine the confidence that results from the contractual relationship governing the investment project?  The problem arising from arbitration is that the application of the law of contract on the basis of winner and loser will end the investment project and consequently cause the failure of the investment; with negative consequences that will impact both parties.  While resorting to reconciliation by applying the principles of fairness (ex acqua et bono), or allowing for mediation and conciliation, may lead to the continuation of the legal relationship with minimal losses incurred by both parties to the contract.  For this reason some international entities usually resort to proposals of mediation and conciliation, as opposed to arbitration, to reconcile the views of disputing parties. 

Nevertheless, arbitration remains an important means for resolving the conflict after the failure of direct or indirect negotiation.  In all cases, arbitration remains the ideal legal means to restore the economic balance in the investment project due to the drastic changes in the contracting terms that make the continuation of abiding by the contracting conditions by one of the parties exhaustive.  The potential to resort to arbitration encourages the parties to review the terms as a means of restoring the balance, and if reviewing becomes impossible, arbitration remains the last resort for restoring a balance.  For this reason,  perhaps force majeure—being the occurrence of an extraordinary and unpredictable event which is obviously something that investors fear most—is in the majority of cases the most important reason for resorting to the restoration of some form of economic balance through arbitration.

Investment arbitration is blamed for being one-sided arbitration (arbitration without privity) because the investor who escapes the bias of the host country judiciary confronts the host country with the bias of the international legal community asserting rights the investor claims were lost due to the behavior of the host country; the reverse—a host country confronting an investor in such manner—is rarely available.  The arbitrators determine the interpretation of the provisions of the contracts and agreements on promotion and protection of investment, with the result providing broad protection to the investor often at the expense of the public policy interests of the host country.  This protection is facilitated by expanding the interpretation of the protectionist provisions, such as the concept of expropriation of the property for the sake of public good, the concept of what is a protected investment, and the application of umbrella clauses—which turn ordinary contractual obligations to international treaty-based obligations.  In return, the country hosting the investment will defend in one of three ways:

A.   By challenging the jurisdiction

B.    By challenging the admissibility

C.   By challenging the subject matter

 

Arbitration (both through scholars and arbitration tribunals) has sought to find some kind of balance between the competing interests by promoting the acceptance of the jurisdiction based on the arbitration clause contained in the investment contract and/or Bilateral Investment Treaty (“BIT”), while taking precaution in the interpretation of its previsions, so that although there is generosity toward accepting the jurisdiction, there is also caution toward finding liability (Walid Ben Hamida.  La clause relative au respet des engagement dans les traits d’investisment.  In: Le contentieux arbitral international relative a l’investisment.  Paris. LGDJ, 2006. P. 104).

 

Chapter I

The Legal Foundation for Arbitration

Arbitration is a system of solving legal disputes before arbitrators who are chosen by the parties based on the parties’ prior agreement.  Arbitration differs from the adjudication in that the legal foundation for the Judge’s jurisdiction is the law - since he is authorized by the legislature to accept the jurisdiction and exercise the legal function in the dispute before him.  Meanwhile resorting to arbitration is not a submission to the power of the legislature per se, but is consensual and based on the expressed will of the disputing parties.  Given the importance of the foreign investments and their role in the growth of the economies of developing countries, host countries are well-served to reassure foreign investors that their investments are protected by forgoing legal jurisdiction and allowing for international commercial arbitration to be used to resolve investment disputes for the following reasons:

A.   The speed of the arbitration proceedings—knowing that the arbitral tribunal is better able to promptly and exclusively decide the dispute brought before it. 

B.    Determine the law that must be applied by choosing the legal rules that best fit the investment dispute.

C.   The assumed neutrality of arbitration due to the method by which the arbitrators are chosen.

D.   Arbitration resolutions are final and not appealable.

E.    The independence of the arbitration tribunal and institution from the allegiance to national interests that might be exercised by the national judiciary.

 

Therefore, although it must be authorized by the host country, the actual arbitration authority is consensual and based on the endorsement of both parties to resort to it to resolve the problem.  However, there are some formalities to invoke its legal base, which take the following forms:

The Arbitration Clause (clause compromisoire)

The arbitration clause is a provision (often part of the investment contract) which stipulates the right of each party to resort to arbitration with or without additional consent of the other.  Consent to arbitrate in this sense is represented by the will of each party to resort to arbitration based on what they expressly agreed to as evidenced by the Arbitration Clause (Mostefa Ttrafitani: La clause compromissoire these. Renne 1985 P12).

The origin of the Arbitration Clause goes back to the concession contracts concluded by the multinational corporations with developing countries to invest in its natural resources extraction, such as oil and minerals, in first half of the last century.  Those original concession contracts granted the companies the right to resort to arbitration in the event of damages and losses incurred by the companies due to changing circumstances and especially due to new laws—most often nationalization of foreign-owned infrastructure—enacted by the developing countries only after the company had made substantial capital outlays within the developing country.  A controversy arose in France about the validity of these arbitration clauses due to the fact that there is no mention of it the Code of Civil Procedures.  On July 31, 1925, the French legislature amended the code to allow for arbitration clauses in commercial matters; however, Law No. (354) of 1980 attached to the Code of Civil Procedure requires that the clause must be written into the contract, and must indicate the method of appointing the arbitrators, otherwise it shall be considered invalid.

Investment contracts contain the conditions permitted by the host country to be outside of the jurisdiction of the national judiciary.  This is necessary so that the use of arbitration does not lead to violations of national sovereignty or complicated issues of judicial immunity related to the actions of a sovereign country.  This is acceptable because investment disputes are related to matters of the commercial sector, practiced by the state as a special legal person.  Compare this to international arbitration that takes place between countries acting as sovereigns, and thus subject to general international law, and not special forms of private law.  Accordingly waiving of judicial immunity via the use of the arbitration clause or the arbitration agreement takes place only within the frame of commercial activity; (Hafidha Alsayed al-Hadad , A Summary of the General Theory of International Arbitration. Al-Halabi Publication, Beirut, 2007, P. 277; see also Article (46) of the Washington Convention of 1965 for the establishment of the International Center for the Settlement of Investment Disputes).

 

The Arbitral Tribunal specializes in resolving disputes that may arise from the contract that includes the arbitration clause. Only in this scope does arbitration become mandatory as it has the consent of both parties to the contract; meaning the two parties to the contract have expressly chosen mandatory arbitration to resolve disputes that may arise during the performance of the contract.

The mandatory character of this arbitration stems from both parties consenting to the arbitration clause.  This mandatory arbitration is similar to that included in treaties that choose international arbitration to resolve the disputes that arise between the parties to the treaty.

The Law of Civil and Commercial Procedures No. (83) of 1969 regulates the rules of arbitration as stipulated in Articles: 251- 276 which are subject to Iraqi law in terms of form (the rules of procedures).  It applies to all the disputes that take place in Iraq, whether purely national or containing a foreign element, where the arbitrators are Iraqis.  In terms of the subject, the Iraqi law is the one that has to be applied according to Article (25) of the Civil Law.

As for international commercial arbitration, it has been referred to in Investment Law No. (13) of 2006, where Article (27/4) stipulates that “if one of the parties of the dispute is subject to the provisions of this law, they may, at the time of signing the agreement, agree on a mechanism to resolve disputes including arbitration pursuant to the Iraqi law on any other internationally recognized entity.”   It is this provision that makes international arbitration mandatory whenever it is mentioned in the investment contract; all this, to encourage foreign investors by securing a good investment environment in Iraq.  What is worth noting here, is that international commercial arbitration pertains to foreign investors while the Iraqi investor is subject to the national arbitration and Iraqi law in regard to the form and content  The Iraqi is not entitled to seek international commercial arbitration because he is subject to national sovereignty - Article (14) of the Iraqi Civil Law requires the Iraqi to be tried before Iraqi courts even for the rights that originated outside of Iraq - while the foreign investor under an investment contract is not subject to Iraqi sovereignty.  In the case of Sayyagh v. Egypt, the Egyptian General Authority—the defendant— insisted that the plaintiff was an Egyptian national, and that the arbitral tribunal had no jurisdiction because an Egyptian citizen has no right to sue his government in such a forum.  But the Arbitral Court ruled in its judgment of June 6, 2009 that Sayyagh has lost his Egyptian nationality and acquired an Italian citizenship, and consequently satisfied the tribunal’s jurisdictional requirement.  The arbitration becomes international where a foreign nationality for one of the parties to the dispute exists according to legal standard and/or the foreign arbitral tribunal according to the geographical criterion.

The Arbitration Agreement (Compromise)

The arbitration agreement is a contract concluded between the parties of a dispute, and it calls for resorting to arbitration to resolve that existing dispute.  According to this contract, objections to the jurisdiction of the arbitral tribunal are waived.  It is a consensual contract (contract synallagmatique) that fulfills the elements of legal procedures in regards to competence, consent, location, and legitimacy.  The contract responds to the civil rights that both parties to a dispute enjoy, but is void if it contains rights required by public order but that individuals cannot enjoy.  An arbitration agreement is a binding contract that stipulates reciprocal commitments and rights - including no need to resort to national courts to resolve the disputes, but instead  resolving them through a tribunal accepted by both parties who have already expressed their commitment and desire to abide by its ruling.

Based on this, the arbitration agreement draws legitimacy from the consensual source and not directly from national laws.  It is not a system of compliance, but consensual; it is not mandatory but voluntary. This is also the case of arbitration agreements in investment disputes. It is similar to provisions in compliance contracts that used to be dictated by multinational corporations, when such arbitration was based on the arbitration clause and not on the arbitration agreement.

Whatever the case may be, arbitration in investment disputes is a system of consensus, not of submission, and not of mixed character (between the consensual and the juridical) because it is based on the agreement of both parties.  Whether through an arbitration clause or arbitration agreement there is no arbitration that can take place without an agreement between the parties.  It is a commitment that is executable in kind before the judicial system when the commitment is not fulfilled, and the arbitration clause is a contract to be performed, and not just a mere promise to litigate (as was the case with the French Court of Appeal since 1834, based on article 1006 of the old code of civil procedure that was amended by May 14, 1980 amendment).  Accordingly, this amendment in the form of Article 1442, deemed the arbitration clause to be an agreement whereby the parties to a contract commit themselves to submit disputes that may arise between them,   to arbitration just like an arbitration agreement would otherwise do (Mahmoud al-Tihyewi.  The Basis of Arbitration and the Conditions of its Validity.  Dar Al-Fikr al-Jami’ee, Alexandria. 2007, P. 76).

 

The foundation of the arbitration is the will that is expressed in the arbitration clause or in the arbitration agreement; and according to this will, the right to resort to a national judiciary is waived.  The judiciary seeks to achieve public interest, while the arbitration seeks to achieve private interest; and while the judiciary determines the law that must be applied or leave it to the discretion of the court in the case of silence according to the law, It is the parties of arbitration who chose the arbitration tribunal and the law that should be applied.  Of course they can, if of their own will, leave that decision to the tribunal they established.  Therefore, the arbitration ruling is not considered a judicial ruling.  The judge is required to rule according to the sources of legal foundation governed by legislation, the traditions, and principles of Islamic code; and upon the absence of rules in these sources, he rules according to justice and principles of natural law.  The judge cannot refrain from ruling based on the absence of a source of law. The arbitrator must instead abide by the law that was determined by the disputing parties and/or decide the issue according to their instructions.  He is compelled to abstain from his decision when there is no law or rule governing the dispute—although he may asks for the opinion of the disputing parties regarding whether to apply rules of justice and fairness.

The essence of what could be said about the international commercial arbitration is that it is the work of opponents, and not that of a judicial system imposed on them; while the judiciary is based on the power of law in spite of the will of the opponents. The judge rules in the name of the law while the arbitrator rules in the name of the parties who have expressed their will in the arbitration clause or in the arbitration agreement.

Bilateral and Multilateral Arbitration Treaties and Agreements

The word Accord or Treaty means the same thing in general international law; each one signifies an agreement between two entities governed by general International law, and as such entails certain international legal consequences.  As for constitutional law there is a difference.  A treaty is an agreement that needs ratification according to customary legal procedures in a certain country; whereas an executive agreement enters into force upon its signature and without the need for additional constitutional procedures that include the endorsement of the legislative authority to ratify it.

The current American Constitution distinguishes between a treaty that is subject to the approval of the two third majorities in the Senate and an executive agreement that goes into effect simply after being signed by the American President (or whoever he empowers).  Whereas the Iraqi constitution of 2005, Article 73/ second, does not distinguish between a treaty and an agreement, and both must be ratified by the Council of Representatives.

As far as investment disputes are concerned, treaties are signed to protect, promote and encourage investments in the countries who are parties to the treaty through two distinct mechanisms:

A.               Resolving disputes arising between the parties to the treaty by resorting to international arbitration that takes place between two or more entities subject to general international law.

B.                Resolving disputes arising between the host country (who is one party to the treaty) and the investor (who is a national of the other party to the treaty) who invests his money within the host country; but also from disputes arising from investment contracts that require resorting to international commercial arbitration between the host country and the foreign investor (Ahmad Abu al-Waf’a: Mandatory and Optional Arbitration.  Mansha’at al-Ma’arif Al exandria, Fifth Edition, 2001, P. 5). 

Thus, the foreign investor can have at least two types of guarantees:  the first under an investment treaty requiring arbitration between two countries to protect their own national investors; and the second based an investment contract requiring disputes between the host country and the foreign investor to be resolved through arbitration.  Treaties to encourage investment come in two types:

First: Bilateral Investment Treaties (BIT)

BITs take place between two countries, and are considered an indirect source of international commercial arbitration between the host countries and the foreign investors (recognizing that while treaties in the past were confined to protecting the investment only through arbitration between countries, current treaties give an investor an individual cause of action against the host country).   The host country’s reason for entering such a treaty is of course, to address the need for private investment to increase the economic development especially when publically-funded economic development programs have failed.  The arbitration clause in these treaties plays a dual role:

1.     Arbitration between treaty parties to resolve disputes arising from the interpretation and implementation of the treaties.  Treaty provisions will usually first direct the parties to negotiation to resolve the dispute amicably, and if that proves impossible and other diplomatic channels prove ineffective, each party to the treaty may resort to arbitration by inviting the other party to establish an arbitral tribunal to resolve the dispute through the applicable rules of international arbitration.

2.     Arbitration between the host countries and the foreign investor to resolve disputes that arise in regard to the implementation of the investment project and any host country action (or sometimes inaction).  Often the treaty will call for resolving the dispute amicably; and if that fails, provide the investor a mechanism to invite the host country to establish an arbitral tribunal to resolve the dispute according to the rules of international commercial arbitration.

In this manner, bilateral investment treaties provide a composite system to protect the foreign investment, first through mandatory arbitration between two countries, second between the host country and the investor.  This is in addition to other methods which might include investment contracts, and host country investment protection law.  These guaranties are reassuring and encourage the foreign investor to take the risk of the investment project under the protections cited above.

For the sake of facilitating recourse to arbitration, and in order to overcome the obstacles of establishing an arbitration tribunal between the host country and the foreign investor, the bilateral investment treaties traditionally authorize the use of international arbitration institutions, designed to facilitate investment arbitration.

Second: The Multilateral Investment Treaties (MIT)

MITs are concluded between numbers of countries either on the global level or on the regional level in order to protect and guarantee foreign investments.  Like BITs they also offer arbitration to which the countries resort to resolve the investment disputes.  First we call attention to the “Washington Convention” that was signed on March 18, 1965 and calls for the establishment of “International Centerto settle investment disputes through conciliation and arbitration (“ICSID”).  The ICSID Convention contains the basic bylaws of the center which specializes in resolving international disputes arising from foreign investment through an international arbitral tribunal (managed by ICSID), and also contains the procedures of initiating the action including reconciliation procedures that often precede arbitration.

The legal system created by the center is characterized by the optional choice of it as a forum for arbitration, so that resorting to it takes place only after the parties have agreed.  It is not mandatory until selected by the investor-claimant.  Jurisdiction is defined either on the basis of an arbitration clause or arbitration agreement.  The investment law in the host country can also refer disputes to this center provided that jurisdiction is satisfied based on the arbitration clause in the investment contract (e.g., Egyptian law number (8) of 1997 and Jordanian law number (16) of 1995).  Some countries may require the exhaustion of internal resolution methods before consenting to the jurisdiction of the center.  The decisions of the center are binding on the parties as per Article (35/1) of the Convention.  So far, Iraq is not a party to this convention, but it is about to become one.   The 1980 Convention to resolve disputes within the framework of Arab Economic Unity established the Arab Council for the Settlement of Investment Disputes between the Arab Countries that are members of the said Convention.  Arbitration under this Convention is characterized by being optional and takes place only based on condition or arbitration agreement, and it is similar to its counterpart in Washington.

The charter of the Arab Investment Tribunal for resolving the investment disputes of 1980 has been recently amended and Iraq is party to it.  The tribunal consists of nine members instead of five, with reserve members; and its charter is subject to the provisions of Unified Agreement for the Investment of Capital in the Arab Countries of 1980.

It should be noted that both contracts and investment treaties, (bilateral and multilateral) aim at the protection of the foreign investor through mandatory arbitration, and thus have taken a direction of establishing special law for investment in the following manner:

A.   Placing restrictions on the freedom of the state in directing the national economy by requiring the inclusion of settlement conditions in legislation according to “usus modernos,” to protect the foreign investor under the guise of achieving permanent development.

B.    Determining the responsibility of the state for the acts of its state-owned commercial companies in spite of the fact that the latter enjoys the status of a legal person under traditional law of corporate form and the principle of Alter ego.

C.   Determining the principle of national treatment and non-discrimination between the foreign investor and both national public and private sectors, especially regarding the right of investors to benefit from the advantages enjoyed by the two sectors in the national law, and to benefit from the facilities accorded to national companies to obtain raw materials, tax breaks etc. which hampers the protection of national products.  These conditions ultimately take effect,   though the principle of “direct effect,” in the domestic law in the form of non-conventional rules with international legal effect.

D.   The loss of the compensatory nature of the contracts and investment treaties and the trend toward commitments from one side resting on the host country of investment.  The foreign investors become not only equal but possesses rights that are unusual in the world of international trade, causing multinational corporations to acquire legal authority almost equal to that of smaller nations.

E.    The transfer of the contractual obligations of the host country to international obligations, contrary to the rules of the international public law, under so called “umbrella clause(s)” contained in investments treaties. 

All which leads to the creation of a new law of foreign investments (although currently just in a formative, or “soft law” stage). (Thomas Walde. Nouveau Horizons pour le Droit Internation des investessements.  Cours et travaux d’instutu des Hautes Etudes Iternations de Paris. Pedone et ss 2004. P. 71).

 

Chapter II

Arbitration Mechanism

Investment arbitration–like commercial arbitration–is subject to two types of legal rules: Formal procedural rules of forming a tribunal, proceedings, examining the evidence, and the issuance of the arbitration award; and substantive rules which define the rights and the obligations of the parties to the conflict.

 

Procedural Regulations

Generally speaking, there are two types of investment arbitration; ad hoc arbitration and institutional arbitration:

Ad Hoc Arbitration:  In this kind of arbitration the parties undertake the formation of arbitral tribunal from an odd number of members (usually three) with each party to the conflict appointing an arbitrator and then the two party-appointed arbitrators choose the president of the tribunal, provided that he is not of the nationality of either party to the conflict. If the party-appointed arbitrators  fail to agree on the appointment of the president, then a third party (often the secretary of the Permanent Court of Arbitration at the Hague, will make the appointment, again provided that the candidate is not of the nationality of either party.

The United Nations Commission of International Trade Law (UNCITRAL) codified rules of arbitration procedure to be used as a guide by international arbitration entities.  Some of these rules specify how to notify the parties to the conflict regarding when and where to submit their documents; how to determine the location of residence, work, and electronic mail; determine the method of third party intervention in the dispute and the possibility of granting jurisdiction to the arbitral tribunal to take preliminary precautionary measures to safeguard the rights of the parties to the conflict; as well as the appointment of a guardian to manage the funds in dispute.  The tribunal must define the subject of the dispute - in case it is not done by the parties - in order to be able to resolve it.  If it does not, the award will be vulnerable to nullification if it appears that the tribunal exceeded its jurisdiction. 

 

Institutional Arbitration:  This is conducted by arbitration centers that are established pursuant to multilateral international agreements, such as the International Center for the Settlement of Investment Disputes (“ICSID”) according to the Washington Convention of 1965.  In addition there are also the International Chambers of Commerce in Paris (ICC), Singapore, the Cairo Center for International Commercial Arbitration of 1979 (CRCICA), the London Court of International Arbitration(LCI A), and the Arbitration Institute in Stockholm (SCC).

Institutional arbitration is characterized by the following:

A.   Experts that can assist the disputing parties in the selection of the arbitrators.

B.    Clear rules of procedures which eliminates the need for another agreement on such procedures.

C.   Permanent location which helps to overcome the problem of determining location and the applicable law when it is not stipulated in arbitration agreement.

 

1.     ICSID:  It is one of the most important centers that deals with conflicts of private investors or host countries in a manner that provides protection for foreign investments especially in developing countries, due in part to the flexibility and transparency that the Washington  Convention guarantees.  ICSID’s success in reconciling the requirements of development plans with the right of foreign investors, has made the Center the most used resource to  encourage and guaranty to foreign investors a fair and predictable method to resolve the investment disputes.

 

However, the liberal manner with which the Center has defined protected investments may lead to confusion between legitimate investments and regular business transactions that should be outside the jurisdiction of the Center.  It has, for example, determined that a contract for supplies can  have economic value to the host state and therefore be considered a covered investment according to Article (25) of the Washington Convention (Salini v Jordan. Para. 49 2004 ICSID).

The jurisdiction of the Center is considered to be optional; but in order to have the option, the arbitration clause or agreement must specifically express the parties’ consent to refer disputes to  ICSID.   For example, Jordanian Investment Law No. (16) of 1995 stipulates: “If the dispute is not resolved through amicable means and within a period not exceeding six months, each party can resort to the judiciary or refer the dispute to the International Center for the Settlement of Investment Disputes to resolve it through conciliation or arbitration according to the agreement of settling the investment disputes between countries and nationals of another country.”  In this same way, it is possible for Iraq to proscribe the use of ICSID, by including an ICSID clause in its contracts and investment agreements pursuant to Article (27/4) of the Investment Law number (13) of 2006 (even in the period before it accedes to the Convention). 

To begin the process, a claimant must submit a claim to the ICSID Secretary General, and must  include adequate statements about the dispute the parties and their acceptance of referral to arbitration.  After the request is registered, a tribunal will be formed (usually consisting of three arbitrators) .  If the tribunal or the commission is not established within (90) days of the date of notification, the administrative head of ICSID will appoint the arbitrators.

The difference between reconciliation and arbitration appears in the function of each.  Conciliation is an amicable procedure to settle dispute (not legally binding).  This is manifested through the attempt of the conciliation commission to narrow the differences between the opponents by submitting recommendations for settling the differences.  The opponents possess vast freedom to defend their rights before the conciliation commission by all means including legal, economic, and political ones.  The task of the commission is concluded by submitting its final report containing recommendations to resolve the conflict.  Arbitration on the other hand, is done through existing procedures that are based on the implementation of the law, and the outcome is legally binding to both parties based on Article (53/1) of the Washington Convention of 1965. If the arbitral tribunal goes beyond the law, the award/decision will be subject to nullification to the extent it exceeded the jurisdiction of the tribunal (ultra petita).  The decision of the tribunal may be taken unanimously or more likely by the majority. The dissenting member has the right to incorporate his opinion in the decision

2.     The Regional Center for the Resolution of the Investment Disputes in Cairo: 

It is a regional center established according to the Agreement for the Settlement of the Investment Disputes concluded in the framework of the Council of Arab Economic Unity of 1980.  It undertakes the functions of conciliation and arbitration similar to ICSID, in order to encourage Arab investments in Arab countries.  Its jurisdiction is optional and based on inclusion of an arbitration clause or arbitration agreement between the Arab investor and the Arab country that hosts the investment.

In principle, the arbitration decision is final and not subject to appeal, and usually does not grant a multi-tier judicial system.  However, the decision can be fixed if it falls outside the jurisdiction defined by the arbitration clause or the arbitration agreement; or is contrary to public order as required by the Arab Agreement for the Settlement of Investment Disputes of 1980.

 

Fundamental Rules

These are rules that define the rights and obligations of the parties to the conflict according to host country national laws, the text of the investment contract and other sources such as customary international law and Investment treaties.  The foundation of these rules is the agreement by the parties, whether in treaty form, contract form, or otherwise.  The sum of all these sources is the substantive investment law.

First: The National Law.  In many cases the arbitration clause and the arbitration agreement require the adoption of the national law of the host country to be the applicable law.  This principle is based on the tradition of concession contracts that contain such provision, and is consistent with the rules of the private international law which states that the applicable law to international conflicts in which one party is under private law, is the law of the location where the contract was created or implemented.  This definition is usually stated in the applicable investment contract and/of investment law; yet, article (27/4) of Investment Law No. (13) of 2006 pays no attention to determining which law must be applied, but instead  states: “If one of the parties to a dispute is subject to the provisions of this law, they may, at the time of signing the agreement, agree on a mechanism to resolve disputes including arbitration pursuant to the Iraqi Law or any other internationally recognized entity.”  The Iraqi law indicates that the mechanism of arbitration should be implemented according to the Iraqi law, in other words, the arbitration should be carried out by an Iraqi arbitration commission; but the text does not refer to the law that must be applied in terms of the subject. 

Nonetheless, Article 25 of the civil code requires the application of the Iraqi law in terms of the subject in dispute that involves a foreign element when the location of the investment contract is in Iraq.

Paragraph 5 of Article 27 of the Investment Law No. (13) of 2006, on the other hand, entrusts the resolution of the conflict to arbitration without determining whether the arbitration will be Iraqi or international, leaving it up to the stipulations in the investment contract.

Second: The Law of the Court:  The choice of the situs of arbitration is important in terms of the composition of the tribunal, and in terms of the authority possessed by the tribunal to determine the applicable law in case the arbitration clause or the arbitration agreement is silent on a given topic.  In this context the tribunal chooses its own law or the law of the tribunal’s home; for example if the parties to the conflict choose the International Chamber of Commerce in Paris to establish the arbitral tribunal, the French law will be the chosen law to settle the dispute.  Article (28) of the Civil Iraqi Law provides that the law of the court will determine the rules of jurisdiction.

Third:  The General Principles of the Law.  Whether it is determined that the national law is the applicable law or the tribunal determines a different law applies, there are mandatory rules that cannot always be found in just one source, be it domestic law or otherwise (especially if the dispute has to do with the investment).  Arbitration clauses, arbitration agreements, and/or investment law all allow for applying the general principles of international law; but which principles and what exactly they dictate is an area of contention as follows:

1.     The General Principles of the Law Contained in Article (38/1/C) of the United Nations Charter:  This provision has aroused a dispute among law scholars when extended it to the provisions of the international tribunals where the prevailing trend is to identify these principles as the general principles of the international law.  It is a view that is not compatible with the principles of positive international law because the general principles in any legal system are based on a provision that clarifies its source and its meaning.  The text contained in this Article does not necessarily implicate general international law.  Instead, what is meant by it is that the general principle of the comparative law, because there is no legislative provision that specifies the reference of these principles so as to make it possible to attribute them to the general international law. (Zuhair al-Hassani. Sources of the general international law.  University of Karyounis p. 199).  On the other hand, general international law governs relations between the international legal persons only, and the investor is not necessarily an international legal entity. Disputes the arise between international entity and a private person are often subject to the domestic law—as was the case of Iranian oil before the International Court of Justice in 1952 where it was deemed to lack jurisdiction.  That decision was based on the earlier ruling on the Serbian debt issue, adjudicated by the Permanent International Court of Justice in 1929.

2.     The General Principles of Comparative Law:  It is considered appropriate interpretation where the arbitration court can choose the suitable rules for the investment conflict from among the best national laws that are related to these disputes.  This was what resulted from the arbitration of Abu Dhabi in 1951 when the arbitrator (Scot) chose the Swiss Law to resolve the dispute.

3.     The Rules of international Trade (Lex Mercatoria):  They are the general principles that govern in international commercial contracts and other disputes related to international trade and can be derived from the commercial international transactions.  These regulations do not render solutions that are compatible with the legal relations arising from the investment contracts.  However, some international conventions for the promotion and protection of investments  (BITs) provide for the application of the rules of international law to resolve the investment disputes between a state and a foreign investor; a position that we believe to be improper because the general international law is the law of international relations and not the law of international trade or investment, and there is no international law of contracts. (Dr. Zuhair al-Hassani.  Sources of the General International Law, Karyounis University, p. 199).

Fourth: The Law of the Contract (Lex Contractus).  Under this law, the will of the parties establishes a legal system independent of the existing obligations between the host country and the investor, based on the law of contract -  code of contractors, which was defended by Frodros and Borkan in 1959-1960 and criticized by Prospect in (Cours. LasHaye.  1991. pp. 181-182). 

Chapter III

International Commercial Arbitration in Iraqi Law

Iraqi law dealt with the arbitration rules in many disputes and especially in commercial disputes;  many establishments and companies turn to it so as to avoid the cost and uncertainty associated with judicial courts.

Article 251 of the Civil Code Procedures No. 83 of 1969 stipulates that it is possible to agree on arbitration in particular dispute and may also agree to arbitration in all the disputes arising out of the implementation of a specific contract.  If the two parties consent to arbitration, it would not be possible for them to bring their case to the judiciary except after the arbitration is exhusted (Article 253).

The Foundation of International Commercial Arbitration in Iraqi Law

Here we make distinction between the general rules of law on one hand, the particular law on the other, and the international consensual law on the third, as follows:

First: Law of Civil Proceedings. The Law of Civil Proceedings of 1969 did not address the provisions of the international commercial arbitration which makes this arbitration unspoken of and undetermined, because Article 16 of the Civil Law No. 40 of 1951 authorizes the implementation of rulings of foreign courts under a law issued in this regard.  This means that if Iraqis and foreigners in contractual relationships agree to resort to international commercial arbitration, and an award is issued by a foreign arbitration tribunal, the judgment can be implemented in Iraq, and it will be improper to refrain from implementation under the pretext that international commercial arbitration is not acknowledged in Iraqi law.

Article 25 of the civil law requires that the application of contractual obligations be covered by the law of the country where the parties to the contract reside—if they are from the same country.  If they are from different countries, the law of the country where the contract was concluded shall apply.  That is the case if the parties to the contract disagree or the circumstances indicate that another law should be applied.  Accordingly, resorting to commercial international arbitration is subject to the origin of the contract - which recognizes the principle of volition - and should be free from any restrictions. It is possible to stipulate in an investment contract, concluded between a state and a foreign investor, to resort to the commercial international arbitration in a dispute arising from the interpretation or the implementation of the said contract, without connecting it with special provision.  It is also possible to exclude the dispute from the Iraqi judicial system, from the Iraqi national arbitration, and to choose the law that will be applied. 

Second: Investment Law Number 13 of 2006.  Under article (27/4) of this law the parties to the conflict, subject to provisions of this law, may at the time of signing the agreement, agree upon the mechanism to resolve disputes including arbitration pursuant to the Iraqi law or any other internationally recognized entity.  With this provision, the legal system of the international commercial arbitration goes from general application to the specific in regards to investment disputes.  It is also possible to stipulate in the investment contract that mandatory arbitration based on the arbitration clause is binding to the governmental side in the investment contract upon which the jurisdiction of the arbitration tribunal is based.  Thus the legislation respects the expressed will of the parties and allows for the establishment and the organization of international commercial arbitration, side by side with the judiciary (Mamdouh Abdul Kareem, the Private International Law.  The Conflicting Laws, Dar al-Thakafa, Amman, 2005, P.165).

Third:  The International Agreements:  Iraq is linked to a number of regional conventions concluded in the framework of the Arab League concerning the encouragement and protection of the investment in general, and others concerning the resolution of disputes that are related to Arab investments in particular.  Under these agreements the member countries are obligated to resort to international commercial arbitration to resolve the investment disputes.  These agreements include the following: 

1.     The Unified Agreement for the Investment of Arab Money in the Arab Countries, signed in Amman in July 9, 1981.

2.     Riyadh Convention on Judicial Cooperation of April 6, 1983.

3.      The Arab Convention of Commercial Arbitration in Amman, April 14, 1987.

4.     The Basic System for the Settlement of Investment Disputes between the Arab Countries in 1974.

5.     The Convention of Settling the Investment Disputes in the Arab Countries in Cairo of December 6, 2002.

6.     The Convention of the Arab Establishment to Guarantee Investments of 1970.

Thus Arab investment disputes in Iraq are covered with one or more of the aforementioned conventions, all of which require the use of international commercial arbitration to resolve the investment disputes.

Fourth: Investments Contracts.  In addition to the principle of respecting the will of the parties, Article (27/4) has recognized the foreign investor’s right to stipulating in the investment contract international commercial arbitration as the method to resolve any later investment dispute.  This Article should remove any doubt about the adoption of this principle in the Iraqi Law to resolve these disputes since it stipulates that the parties to a dispute (that are subject to the provision of this law), may at the time of signing the agreement, agree on a mechanism to resolve disputes pursuant to the Iraqi law or any other internationally recognized entity.

 

Execution of Foreign Judgments in Iraq

We shall address here, first the concept of foreign rule; and second, the basis of the implementation of this rule in Iraq.

First: The Concept of Foreign Judgment

A judgment is considered foreign if it is issued by a foreign court according to geographical standard that was adopted by the English law and was stipulated in the first article of the Law of the Execution of Foreign Courts’ Judgments in Iraq No. 30 of 1928.  This Article, which stipulates that a foreign judgment is a judgment that is issued by a court established outside Iraqi borders,  was also the rule adopted by New York Convention of 1958.  Accordingly the ruling that is issued by a court established in Iraq is a national ruling even if the court is an international commercial arbitration tribunal that decides a dispute containing foreign elements.   Whereas the ruling is considered foreign according to the legal standard if the legal relation is based on a consequential foreign element, such as different nationality of the parties to the dispute, and not the identity and the location of the court. 

Thus a foreign judgment is subject to two conflicting considerations:

1.      The sovereignty of the nation that is governed by the principle of the regional laws where the foreign ruling cannot be treated as the national one.

2.     The need of international transactions to preserve the interests of individuals across national borders; a need that calls for promoting international trade including the protection of foreign investments through the acceptance of international commercial arbitration and the enforcement of foreign judgments issued in accordance with it.

Foreign judgments are distinguished by the following characteristics:

1.    The Conclusiveness of the Judged Issue (res judicata):  According to this principle the foreign judgment is final, without the need to include it into the legal national system.  It is tantamount to a legal reality in the national judiciary system and not subject to dispute again, as long as it was adjudicated according to proper procedures, and consequently must not be dismissed by any additional trials. The basis of this principle stems from the legal immunity to the foreign ruling.

2.    Acknowledging the Foreign Judgment:  Acceptance of a national judicial system by virtue of arbitration without commitment to its implementation.  This concept indicates the recognition of conclusiveness of Judgments, which in turn constitutes a condition for the recognition of the judgment.  This concept makes it possible to appeal a foreign judgment before the national judiciary without the need to implement the judgment.  The Riyadh Arab Convention for Judicial Cooperation between of April 6, 1983, in Articles 29-32, distinguished between the acknowledgment of the judgment as a legal reality and its required implementation.  Article 22 of the Agreement of Legal and Judicial Assistance between Iraq and Egypt of 1966 stipulates that rulings that are issued by courts from either country have the same power of persuasion before the courts of the other country.  This same principle is present Article 16 of the Iraqi-Russian agreement.

3.    Implementation of the Foreign Ruling (Execquatur): it is achieved with a request filed by the beneficiary before the national judiciary to grant a foreign award implementation assuming the presence of two fundamental conditions:  the presence of a documented ruling, and the absence of conflict with the public order. The judge has no choice but to accept the sentence or reject it, but he cannot amend or change it.  Article 6 of Law No. 30 of 1928 requires five conditions to be present in the foreign judgment for the purpose of issuing a decision to enforce it. The Iraqi court automatically considers the availability of these conditions without the need to ask the defendant to do it.  These conditions require the defendant to be notified by an acceptable and adequate method, that the foreign court has jurisdiction, that the ruling is related to a debt or certain amount of money or a civil compensation resulting from a punitive case, and that it is not in violation of public order and that it is enforceable in the first place.  Article (3/second) of Law No. 45 of 1980 requires that the law be applied to the foreign judgments that are enforceable in Iraq according to the law of the implementation of the foreign judgments while taking into account the provisions of international conventions that are in force in Iraq.  Finally, Article (6/E) of Law No. 30 of 1928 requires that the ruling has acquired implementation status in the foreign countries when asked for the issuance of a decision in regard to its implementation in Iraq.  That is to say that Iraqi law adopts the double implementation (double exequatur) standard.

 

Second: The Basis of the Implementation of Foreign Judgments in Iraq:  

The principle of the conclusiveness of the adjudicated issue is based on legal immunity of the foreign judgments, while its implementation is based on the principle of reciprocity so that the state implementing a foreign judgment is assumed to ask the concerned state to implement its judgment in return.  But the implementation of foreign judgment is not automatic; it must be carried out according to the national law of the state that enforced the judgment, or according to an international treaty requiring the implementation of this provision.  This must also be accomplished in respect of the principle of international juridical jurisdiction that prohibits the review of the dispute that was decided before a court in the country of implementation. 

The implementation of foreign judgments in Iraq is governed by the following laws:

1.    The Execution Law No. 45 of 1980.  Article number (3/second) of this law requires that the law be applied to foreign judgments that are enforceable according to the Implementation of Foreign Judgments No. 30 of 1928, taking into account the provisions of the international conventions in force in Iraq.  The expression “foreign judgments” applies to the arbitration awards of those courts, whether judicial or arbitral, and it is not possible to confine the jurisdiction to judicial judgments solely due to the absence of jurisdiction.

2.    The Law of Enforcement of Foreign Judgments in Iraq No. 30 of 1928: The first article of this law stipulates that a foreign judgment is any judgment issued by a court established outside Iraq without competence, that its judgment applies to all members without discrimination, and that it may implement this judgment in Iraq according to the Second Article of the law and based on Article (3/second) of the Law of Implementation, since the judgment of the foreign arbitration can be held as evidence before the Iraqi courts (Jaber Jad abdul Rahman.  “The Private International Law.” Volume 2, al-Tafayoth Press, Baghdad. 1947/1948, P. 779).

3.    The Investment Law No.  13 of 2006.  Article (27/4) of this law requires resorting to international commercial arbitration to resolve disputes that arise between the parties under the provisions of this law, as it requires, if necessary, the implementation of arbitration judgment, that is issued by arbitration courts that the parties to the disputes agreed to resort to, in Iraq.

 

The Conditions for the Execution of the International Arbitration Judgments in Iraq

It is governed by Iraqi law, and by the International Consensual Law, and dictates the following:

First: the Conditions of implementing the judgments of International Commercial Arbitration. 

The arbitration award is implemented by a decision issued by Iraqi court according to the Second Article of Law No. 30 of 1928.  Those who want use this provision have to bring an implementation request to the court of first instance, who will thus issue a ruling for implementation.  This refers to a competent court, located in the place of residence of the defendant or in the location where the funds to be seized are kept (the Third Article/ A& B).  The award whose implementation is sought must meet the following conditions:

1.    The defendant should have been notified of the litigation filed with the foreign court in ways that are reasonable and adequate.

2.    The foreign court must have jurisdiction to issue the judgment.

3.    The judgment should be related to a debt, certain amount of money, or a civil compensation only.

4.    The reason for the action should not be contrary to the public order.

5.    The foreign judgment should have acquired the right of implementation in foreign country (The Sixth Article).

Since the arbitration provisions include an amount of money, in compensation for damages resulting from the actions of the host country, this provision is covered by paragraph 1 above (see accordingly, Hassan Fuad Mun’im. “The Enforcement of Foreign Judgments in Iraq” The Legal Series, Baghdad, 2009. P.  89).  The foreign court jurisdiction is determined by the Seventh Article of Law No. 40 of 1928 in case the defendant usually resides in a foreign country or he was conducting business there when the case was brought before the tribunal and that he voluntarily attended the proceedings and accepted the judgment of the foreign court on his case.  The arbitral tribunal that deals with the investment disputes may have jurisdiction over one of the conditions stipulated in the aforementioned article seven.  Its judgment will be executable based on (Appeal/Iraq number 1658/2/1957 on 9.21. 1957).  The jurisdiction of the arbitral tribunal shall thus be determined according to the Iraqi Law based on the Sixth Article/B of the Iraqi law.  Therefore the Iraqi Court of First Instance is competent to review the foreign court jurisdiction or the competence of its jurisdiction 

6.                       Foreign courts covered by this law shall be designated by special regulations according to the principle of reciprocity and based on Article 11 thereof, based on special agreement with the country where the courts are located, or based on international agreements concluded by Iraq with other countries according to Article 3/Second of the Law of Implementation No. 45 of 1980.

The rules that have been so far issued according to Article 11 of Law No. 30 of 1928 are related to the British, Syrian, Lebanese, Egyptian, Italian, Indian, Canadian, Jamaican, Hong Kong, Maltese, Icelandic, Cypriots, and Jordanian courts.  Such conditions are contained in Article 5 of the New York Convention in regard to the recognition of foreign arbitral awards, and these conditions are also contained in Article 25 of the Riyadh Arab Convention for Judicial Cooperation.  Only one of these conditions is needed to suffice the Iraqi Court of First Instance who can, based on the request of the defendant, refuse to order the execution of arbitration award.

 

Second: Conditions of Implementing the Judgment of International Commercial Arbitration in the Consensual International Law According to the Following Conventions:

1.     The agreements concluded on the effectiveness of foreign judgments in Iraq in the framework of the Arab league aforementioned, are covered by Article 3/ second of the Law of Implementation, based on Article 11 of law Number 30 of 1928, which does not require the judgment of those courts to have special regulations in order to be enforceable. The awards of Iraqi arbitral tribunals need to be ratified by an Iraqi competent court in accordance with the provisions of Article 272 of the Code of Civil Procedure No. 83 of 1969.  This Article shall not apply to foreign arbitral awards that are subject to Article 3/second which requires a decision of implementation from the court of first instance, and not a resolution of ratification.   The Ministry of Justice issued its resolution number L/21/50 on February 22, 1962, which designated the Baghdad Court of First Instance as judicial reference to which requests for the implementation of Arab arbitration awards will be referred according to the Arab arbitration agreements and judicial cooperation and in light of Article (third/A) of Law No. 30 of 1928.  The Court of First Instance may not reconsider the arbitral award but has the right to issue a decision agreeing with or rejecting its implementation according to Article 30 of the Riyadh Treaty for Judicial Cooperation of 1983.

2.     Bilateral Agreements ( Including the Iraqi-Russian Friendship Treaty of 1972): Article 16 of this treaty stipulates that it does not have the authority to implement the judgments of the arbitrators issued in the country of the contracting party that asks the arbitrated case to be reconsidered. There are others like it such as: the Judicial Assistance Treaty between Iraq and Egypt of 1964, the Protocol to Encourage the Mobility of the Capital between Iraq and Kuwait that was signed on October 10, 1964 of which Article (7/4) requires that the judgments of the Arbitration Commission are binding on the contracting parties; as well as the Treaty on Judicial and legal Cooperation with Hungary of 1977.

3.     Geneva Protocol was signed on September 24, 1923, and ratified by Iraq on March, 2, 1926.  According to the protocol, Iraq recognizes the legitimacy of arbitration clauses in a commercial contract in which an international dispute arises between the two parties.  The decision of the arbitration is enforceable, even if the arbitration is conducted in a country other than the country of the parties to the conflict.  Iraq is also committed to ensuring the implementation of the judgment on the dispute by the competent Iraqi authorities and according to the Iraqi national law if the arbitration award is issued by an arbitral tribunal established in Iraq (Article 3).  Based on that, the awards of the arbitration are enforceable in Iraq.  This obligation applies to investment contracts concluded with the foreign investors who do not belong to the countries that have bilateral or multilateral agreements of investment protection and encouragement with Iraq- a fact that should be equally noted by the Iraqi judicial persons and foreign investors, because arbitration is not established on this basis and does not requires judicial intervention. Instead the legal basis lies in the arbitration clause or the arbitration agreement on the jurisdiction of arbitral tribunal, the conclusiveness of the judged issue, and the force of execution of the arbitration ruling.

 

Conclusion

Foreign Investment Requires the Reconciliation of two Different Interests; the first is to add value to the national economy of the state through the investment of foreign capital in it.  The second is to reward investors with profits regardless of the extent of the added value achieved by these investments for the host country.  These interests may sometimes converge and other times diverge.  At that point each side looks for the means to protect its own interest regardless of the other side’s interest, and here lies the source of conflict.  Nonetheless, investment disputes differ from the other trade disputes.  That is because foreign investments invest large amount of funds and for long period of time in pursuit of large amount of profits, which make them keen not to waste the available opportunity for other commercial relationships, and to seek a compromise to resolve the dispute amicably before resorting to arbitration as a legal means and as the last recourse to protect their interests.   Also the centers of international commercial arbitration aspire to provide amicable means to resolve the dispute before resorting to arbitration in order to enhance foreign investment that constitutes the main source for reviving the economies of the developing countries, and for the development of the world trade.   Foreign investors resort to international commercial arbitration for many reasons, the most important of which is that they lack confidence in the neutrality of the local judiciary, and the speed of arbitration proceedings in comparison with the judicial proceedings that take long time. The countries that host the foreign investment are compelled to accept the arbitration that has become one of the traditional conditions of contracting in the field of foreign investments.  The international commercial arbitration cannot be seen as violating the national sovereignty as long as the national judiciary does not provide legal protection for the foreign investments sought by the foreign investor through international commercial arbitration.  The concerned state has to choose a capable person to represent it and protect its national interest in the arbitral tribunal, and also to engage in developing its human resources in this field.

 

Second: The Formulation of the Investments Contracts.  The countries that host foreign investments should protect their national interests through elaborate formulation of the investment contracts and international agreements for investment by qualified legal staff.  They should avoid vague formulations that refer to the general principals of the law to determine the applicable law that will be subject to the discretion of arbitral tribunal.  Thus the investment contracts become legally binding as required by Article 33 of the rules of UNCITRAL and Article (21/1) of the Amman Convention for the Arab Commercial Arbitration of 1978. 

The most important principals that should govern the rules of negotiation and the investment contracts are:

1.     Not expanding on the definition of foreign investment as the ICSID program calls for, contrary to Article (25) of the Washington Convention so as not extend protection to all commercial activities.  This requires a distinction between trade and investment and the exclusion of general business transaction from investment law because these actions do not achieve additional value to the national economy.  Therefore, the definition of the investments require three elements:

A.   Additional value for the national economy.

B.    Risks are shared equally by the investment project alongside the investment country.

C.   A relatively long time it takes to implement the investment project.

(See Salini V. Moroco ICSID on July 23, 2001).

2.     The protection of investment is based on commitment to provide care and not an obligation to achieve a goal.  Therefore the host country is not responsible for the damages suffered by commercial foreign investments, especially those resulting from the mistakes of investors, and/or their lack of respect for contractual obligations.

3.     Avoidance of the expansion of protection through umbrella clauses, including the provisions for fair and equitable treatment to prevent the transfer of the contractual obligations in the investment contract to international obligations covered by international conventions not related to investment contracts.

4.     Work on ways to meet the requirements on internal audits to resolve disputes including the acceptance of complaints directed at the relevant administrative authorities to protect the rights of the host nation before resorting to arbitration.

5.     The distinction between confiscation, which is a legal action against the irregularities committed by foreign investors, especially in the use of bribery and corruption; and the expropriation for the sake of public interest and nationalization.  It is possible to stipulate that the host country will not resort to nationalization while retaining the right to resort to expropriation for public benefit with fair and fast compensation and without discrimination.  As for the confiscation, it is conducted based on a final court judgment, it is not related to the expropriation for public interest, and does not require compensation.

6.     Avoiding the stipulation to apply the rules of the general international law in resolving investment disputes, replacing it with a stipulation to apply the general principles of law.  Because the first apply to the relations between states, while the second apply to relations between states and foreign investors.  The application of the rules of international trade (lex mercatoria) should be avoided as well, as these rules are related to international sales and have no relationship to investment disputes. For this reason the arbitral tribunal, in determining the principals of general law, will resort to national law -of other than the country of investment-that will be chosen by the tribunal on the basis of being a “transnational law,” which is considered an international law of contracts.  This is just a presumption that does not exist in reality, as it is understood from the arbitration judgment against Abu Dhabi in 1951, the arbitration against Qatar in 1933, Aramco in 1958, Saffir in 1963, and Texaco Klazeatek against Libya in 1974 (Ahmad Abdul Kareem Salama, “The Law Applicable to the Subject of Arbitration.” The Egyptian Magazine of International Law, 2008. P. 77 and beyond)

Third: Iraqi law’s Recognition of the International Commercial Arbitration

Although there is no law in Iraq dealing with international commercial arbitration, and Iraq neither joined the Washington Convention, nor the New York Convention; nevertheless,  Iraqi law provides for resorting to international commercial arbitration and the implementation of foreign judgments in Iraq, including arbitration awards under the provisions of the Execution Law number 45 of 1980 and the Law of the Implementation of the Judgments of the Foreign Courts in Iraq number 30 of 1928, in addition to the Investment Law number 13 of 2006.

 

This is because Iraq’s Relationship with the International Commercial Arbitration is not new, but Goes back to the Early Twentieth Century, and According to the Following Developments:

1.     The Geneva Protocol on Arbitration of 1923:  This Protocol recognizes the legitimacy of arbitration clauses in contracts of international trade as well as the implementation of the arbitration judgments that are issued within the territories of the member countries in the Protocol. 

2.     Law number 30 of 1928:  Requires the recognition and the implementation of foreign judgments in Iraq according to the instructions issued on the basis of the principal of reciprocity.

3.     The Iraqi Law number 40 of 1951:  Article 16 of this law requires allowing the implementation of foreign judgments in Iraq under a law issued in this respect including Investment Law Number 13 of 2006.

4.     The Execution Law number 45 of 1980:  Article 3/Second of this law requires the execution of foreign judgments in Iraq in terms of Law number 30 of 1928.

5.     The Arab Multilateral Convention:  Particularly the Riyadh Convention for Judicial Cooperation of 1983 which requires the recognition and implementation of foreign judgments in Iraq by the member states.

6.     The Investment Law number 13 of 2006:  This law requires resorting to international commercial arbitration based on the arbitration clause in the investment contracts stipulated in Article 27/4, and the recognition and enforcement of the arbitration awards in terms appropriate for each of laws: number 30 of 1928 and number 45 of 1980.

7.     Iraq’s accession to the New York Convention of 1958 will mark the culmination of the opening of the Iraqi judicial system on commercial international arbitration provided that the instrument of accession will include the following:

A.   Declaration to apply the Convention on condition of reciprocity in regard to the recognition and implementation of foreign arbitration awards according to Article (1/3) of the New York Convention.

B.    Ensure the commercial aspect of the dispute in order to avoid the implementation of non-commercial judgments or others based on Article 1/3 of the Convention.

C.    Ensure that the Convention does not have retroactive effect.

As for joining the Washington Convention, the Instrument of Accession should include that certain disputes are not subject to the jurisdiction of the Center, including:

A.   Disputes that have no direct relationship to investment according to Article 25/1 of the Convention.

Disputes arising from international sales and supplies containing after-sales services according to Article 25/4 of the Convention.

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