ICSID tribunal dismisses MFN clause in WTO GATS as a means of importing Senegal’s consent to arbitration from third party BIT

Menzies Middle East and Africa S.A. and Aviation Handling Services International Ltd. v.
 Republic of Senegal, ICSID Case No. ARB/15/21

In an award rendered on August 5, 2016, an International Centre for Settlement of Investment Disputes (ICSID) tribunal declined jurisdiction to hear an application for arbitration against Senegal. In particular, the tribunal accepted Senegal’s objection to jurisdiction, while rejecting the invocation of the most-favoured-nation (MFN) clause in the General Agreement on Trade in Services (GATS) of the World Trade Organization (WTO) to import consent by Senegal to international arbitration.

Background and claims

The claim was filed on April 17, 2015 by Menzies Middle East and Africa S.A. (Menzies), a company registered in Luxembourg, and Aviation Handling Services International Limited (AHSI), a company registered in the British Virgin Islands.

In November 2003 the claimants acquired AHS SA, a company under Senegalese law created for the conduct of ground handling activities at airports in Senegal.

According to the claimants, Mamadou Pouye and the brothers Ibrahim and Karim Aboukhalil, were the economic beneficiaries of the two companies that controlled AHS SA. Senegal argued instead that the economic beneficiary was in fact Karim Wade, son of the former President of Senegal and former Senegalese Minister of Air Transport.

AHS SA carried out its activities until 2013, when the Court for the Suppression of Illicit Enrichment (CREI, in its French acronym) opened an investigation against Wade, Pouye and the Aboukhalil brothers for illicit enrichment and collusion in illicit enrichment. As part of these proceedings, AHS SA was placed by CREI under temporary administration as a precautionary measure.

In March 2015 Wade was found guilty of illicit enrichment, and Pouye and the Aboukhalil brothers were found guilty of collusion in illicit enrichment. On order of CREI, their assets were confiscated, including their shares in AHS SA. The decision was confirmed by the Supreme Court of Senegal in August 2015.

In their claim to the ICSID tribunal, the claimants alleged that the placement of AHS SA under administration and the disastrous management that followed were not only illegal under Senegalese law, in particular the investment code, but also constituted indirect expropriation and a discriminatory measure under general international law and Senegal’s bilateral investment treaties (BITs) with the Netherlands and with the United Kingdom. They also alleged that the decision of the Supreme Court was arbitrary. Menzies and AHSI demanded total damages of €41,633,169.

Senegal, in rejecting the allegations, raised three objections to jurisdiction: absence of consent to arbitration (lack of jurisdiction ratione voluntatis); the non-existence of an investment made in Senegal (lack of jurisdiction ratione materiae); and the Senegalese nationality of the claimants (lack of jurisdiction ratione personae).

Analysis of jurisdiction ratione voluntatis by the tribunal

The question raised by the first objection was whether the state had given its consent to arbitration. To do this, the arbitrators considered the rules invoked:

(a) Article II(1) of the GATS, which provides that “each Member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favourable than that it accords to like services and service suppliers of any other country” (from the English version of the GATS).

(b) Article 12.2 of the investment code of Senegal, which provides that “disputes between a foreign natural or legal person and the Republic of Senegal […] shall be settled in accordance with the arbitration procedure […] arising […] from agreements and treaties on the protection of investments made between the Republic of Senegal and the State of which the investor is a national.”

(c) The dispute settlement provisions contained in the Senegal–Netherlands BIT (article 10) and the Senegal–United Kingdom BIT (article 8).

The tribunal firstly considered the case of Menzies (A), before addressing that of AHSI (B).

1. The case of Menzies

The claimants argued that the GATS MFN clause made it possible to import the consent to arbitration that Senegal had given in the two BITs. Senegal argued, among other things, on the contrary, that the claimants could not invoke the GATS because private individuals cannot invoke WTO agreements.

The tribunal refused to find for the claimants, believing that their argument was based on a “complex and very equivocal mechanism” (para. 131). It invoked three main elements in support of its decision.

1. The GATS does not provide consent to arbitration

According to the tribunal, “there is no consent to arbitration in any form whatsoever in article II of the GATS” (para. 139). Considering that this article refers neither to arbitration nor even to dispute settlement, the tribunal concluded that it could not extract from it the express, clear and unambiguous consent of Senegal to arbitration for nationals of Luxembourg such as Menzies, as required by general international law and investment arbitration.

2. The MFN clause in article II of the GATS is not applicable to investment arbitration

According to the claimants, as the GATS MFN clause is applicable “to measures […] that affect trade in services” (para. 115), this would include “offers of consent to arbitration” (para. 117). From this, offers of arbitration contained in the two BITs would be more favourable “treatment” within the meaning of the GATS, to the benefit of services similar to Menzies.

The tribunal was not convinced that article II of the GATS was applicable to investment arbitration. Based on discussions during the GATS negotiations, the tribunal concluded that member states had not given their “informed and unequivocal consent to application of the arbitration clauses contained in BITs” (para. 149). This conclusion was confirmed, said the tribunal, by the subsequent practice of states, which preferred to grant access to international arbitration to service providers in BITs and not through the GATS.

The tribunal also decided that even if it had been shown that article II of the GATS was applicable to investment arbitration, this did not constitute consent to arbitration or the extension of an offer of arbitration. The consequences of a contrary interpretation would be “considerable,” according to the tribunal (para. 145).

3. The claimants invoked BITs made by Senegal with third states for arbitration

According to the claimants, Menzies was entitled to invoke the MFN clause in the GATS to claim access to international arbitration, on the basis of two third-party BITs (Senegal–Netherlands and Senegal–United Kingdom). Indeed, Menzies asked the tribunal to consider the GATS as the “basic treaty” in implementation of the MFN clause, to import the more favourable treatment granted in these two BITs; this more favourable treatment here being the offer of arbitration.

The tribunal dismissed these arguments and refused to “‘compose’ consent by ‘the gluing together’ of disparate parts subsequent to […] an analysis of the ‘interplay’ between the MFN clause and the offers of arbitration addressed to investors from third States” (para. 135).

2. The case of AHSI

With regard to AHSI, the tribunal upheld the position of Senegal, according to which article 12 of the investment code did not constitute an independent offer of consent to arbitration or a unilateral grant of jurisdiction. It also noted, as affirmed by the respondent, that AHSI, registered in the British Virgin Islands, did not benefit from the protection of the Senegal–United Kingdom BIT. Therefore, AHSI could not invoke the offer of arbitration.

Having accepted Senegal’s first objection to jurisdiction, the tribunal decided that it was not necessary to examine the other objections, and it declined jurisdiction to hear the case.

Based on the “costs follow the event” principle, the tribunal decided that the claimants were to bear all the costs of the arbitration and also the costs for legal counsel incurred by Senegal.

Notes: The tribunal was composed of Bernard Hanotiau (President appointed by the parties, Belgian national), Hamid Gharavi (claimants’ appointee, Franco-Iranian national), and Pierre Mayer (respondent’s appointee, French national). The award is available in French only at http://www.italaw.com/sites/default/files/case-documents/italaw7483.pdf. Quotes in this summary were translated from French, unless otherwise indicated.

Suzy H. Nikièma is an International Law Advisor of IISD’s Investment for Sustainable Development Program, based in Burkina Faso.