Tribunal dismisses all claims by U.S. mining investor against Oman

Adel A. Hamadi Al Tamimi v. Sultanate of Oman, ICSID Case No. ARB/11/33

A tribunal at the International Centre for Settlement of Investment Disputes (ICSID) dismissed all claims against Oman, in an award dated November 3, 2015. The claimant was

Adel A. Hamadi Al Tamimi, a U.S. investor with controlling majority shareholdings in two mining companies operating in the Persian Gulf region. In 2006, he had concluded lease agreements with an Omani state-owned mining company for the quarrying of limestone in the municipality of Mahda in Oman.

The investor’s claims for expropriation, breach of minimum standard of treatment and breach of national treatment arose out of Oman’s alleged harassment and interference in the operation of his mining companies, which culminated in the termination of the relevant lease agreements by the state-owned company as well as the confiscation of the mining facilities by the Royal Oman Police. The dispute fell under the Oman–United States Free Trade Agreement (FTA), which entered into force in January 2009. The claimant sought compensation of around US$560 million.

Background

Al Tamimi made his investment in 2006 through two lease agreements for the quarrying of limestone signed between each of his companies, Emrock and SFOH, and the Omani state-owned enterprise Oman Mining Company LLC (OMCO). Only Emrock was duly registered in Oman. Subsequently, the Omani Ministries of Finance and Environment issued to Al Tamimi the initial permits. Both ministries reminded him to respect the limits of the quarrying area and to limit his activity to the exploitation of limestone products. Al Tamimi thus started to operate in the Jebel Wasa mountain range in September 2007.

Quickly however the relationship between Al Tamimi, OMCO and the ministries deteriorated. The Ministry of Environment issued a number of complaints, warnings and fines against Emrock, SFOH and OMCO, notably because of the Al Tamimi’s alleged takings of material from the Jebel Wasa area, operation of machinery without the necessary permits, failure to obtain permits for housing, and uprooting of trees. The claimant did not take into account any of these complaints.

The situation culminated in OMCO’s decision to terminate the agreement with Emrock, and to declare the agreement with SFOH to be null because of the initial failure to register the company in Oman. A July 2008 letter notified Al Tamimi of these decisions, and a second letter followed in February 2009 confirming the termination of the lease. As the claimant did still not stop to operate, the ministries and OMCO issued further warnings, and ultimately the Royal Oman Police arrested Al Tamimi at the request of the Ministry of Environment for the alleged unauthorized operation.

Jurisdiction ratione temporis: only Emrock–OMCO agreement was covered by the FTA

The tribunal engaged in a long discussion as to its jurisdiction ratione temporis given that the Oman–United States FTA entered into force only on January 1, 2009, whereas the two lease agreements had already been concluded in 2006. The FTA does not apply to investments made before its entry into force. The question therefore was whether the lease agreements still were valid after January 1, 2009.

In relation to the Emrock–OMCO agreement, the tribunal analyzed the two letters of termination of the lease. It did not consider the first termination notice by OMCO in July 2008 to be effective. Indeed, the tribunal found that even after July 2008 OMCO continued to communicate with Emrock and the Omani government about the lease. Furthermore, the tribunal considered that the subsequent termination notice of February 2009 superseded the earlier notice. As such, the tribunal considered that the Emrock–OMCO lease was still in force until February 2009 and thus fell under the Oman–United States FTA.

With respect to the SFOH–OMCO agreement, however, the tribunal declined its jurisdiction. It held that OMCO’s declaration was effective as of July 2008, and OMCO was entitled to treat the lease agreement as null and void because of SFOH’s failure to register and obtain business licenses in Oman.

Expropriation claim dismissed

Al Tamimi listed a series of actions taken by Oman that led to the complete loss of his investment, thus alleging a type of creeping indirect expropriation. The central element of the expropriation claim was the termination of the two lease agreements, which initially gave the investor the right to operate in Jebel Wasa. However, this right finally ceased to exist in February 2009, as the tribunal already decided in its jurisdictional analysis. Al Tamimi argued that the termination of the lease agreements was unlawful.

The tribunal did not engage in a discussion about the unlawfulness of the termination, since this question would fall under private contract law rather than public international law. In other words, the claimant’s investment was lost not as the result of sovereign expropriation, but as the result of a contractual dispute with a party that was acting in a private commercial capacity. Furthermore, the tribunal held that any action after the termination of the lease agreement could not have interfered with Al Tamimi’s rights, because any property rights ceased to exist with the termination of the lease. Thus, the tribunal dismissed the expropriation claim.

Minimum standard of treatment: content and alleged breach

The Oman–United States FTA specifically refers to customary international law for the content of the minimum standard of treatment. Therefore, the tribunal briefly analyzed previous cases that discussed the content of the standard, mainly in the NAFTA context (such as SD Meyers v. Canada and International Thunderbird v. Mexico). The tribunal reiterated that the minimum standard of treatment under customary international law imposes a relatively high threshold for breach. In the tribunal’s view, in order to establish a breach of the minimum standard of treatment under the Oman–United States FTA, “the Claimant must show that Oman has acted with a gross or flagrant disregard for the basic principles of fairness, consistency, even-handedness, due process, or natural justice expected by and of all States under customary international law” (para. 390). The tribunal underlined that this would not be the case for every minor misapplication of a state’s laws or regulations. That is particularly so, in a context such as the Oman–United States FTA, “where the impugned conduct concerns the good-faith application or enforcement of a State’s laws or regulations relating to the protection of its environment” (para. 390).

Al Tamimi also argued that Oman violated the requirement of proportionality through the termination of the lease agreements as well as through the measure taken by the police. The tribunal rejected this argument and held that the minimum standard of treatment under customary international law does not include a standalone requirement of proportionality of any state conduct that would in fact entail a general obligation of proportionality.

Given the high threshold for breach of the standard, the tribunal dismissed all of Al Tamimi’s allegations concerning unfair conduct and lack of transparency by the Omani ministries. It underlined that, even if there might have been some inconsistency in the way the ministries handled the permits, this would not amount to “manifest arbitrariness” or a “complete lack of transparency and candor” (para. 384).

Furthermore, the tribunal rejected Al Tamimi’s argument as regards the measures taken in order to force him to cease the operation in Jebel Wasa, notably his arrest. According to the tribunal, the actions taken were in full compliance with national law and a consequence of his unlawful presence at the quarry after the termination of the lease agreement. It therefore dismissed the claim for violation of the minimum standard of treatment.

No breach of national treatment after termination of the lease agreement

Al Tamini’s last claim was for an alleged breach by Oman of the national treatment standard enshrined in the Oman–United States FTA. The tribunal reiterated that any action taken by Oman after the termination of the lease agreement could not constitute a breach of his rights under this treaty, since his investment ceased to exist upon termination of the agreement. The tribunal noted that in any event his claim for breach of national treatment would fail due to the lack of reliable evidence. Al Tamini based his evidence merely on a discussion about other quarries in the area that he had with the operator of a neighboring quarry.

All claims dismissed; Al Tamimi ordered to reimburse 75 per cent of Oman’s costs

In view of the above considerations, the tribunal rejected all Al Tamimi’s claims, and ordered him to bear his own costs and to reimburse 75 per cent of the sum of Oman’s arbitration costs, legal fees and other expenses.

Notes: The tribunal is composed of David A. R. Williams (President appointed by the parties, New Zealand national), Charles N. Brower (claimant’s appointee, U.S. national), and Christopher Thomas (respondent’s appointee, Canadian national). The award of November 3, 2015 is available at http://www.italaw.com/sites/default/files/case-documents/italaw4450.pdf.

Stefanie Schacherer is a Ph.D. candidate and a Teaching and Research Assistant at the Faculty of Law of the University of Geneva.