{"id":4850,"date":"2017-12-21T08:30:37","date_gmt":"2017-12-21T14:30:37","guid":{"rendered":"https:\/\/www.iisd.org\/itn\/?p=4850"},"modified":"2024-08-09T18:28:15","modified_gmt":"2024-08-09T16:28:15","slug":"claims-brought-by-company-controlled-egyptian-billionaire-against-algeria-held-inadmissible-orascom-tmt-investments-people-democratic-republic-algeria-icsid-case-arb-12-35-mintewab-abebe","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2017\/12\/21\/claims-brought-by-company-controlled-egyptian-billionaire-against-algeria-held-inadmissible-orascom-tmt-investments-people-democratic-republic-algeria-icsid-case-arb-12-35-mintewab-abebe\/","title":{"rendered":"Claims brought by a company controlled by an Egyptian billionaire against Algeria are held inadmissible"},"content":{"rendered":"

Orascom TMT Investments S.\u00e0 r.l. v. People’s Democratic Republic of Algeria, ICSID<\/span> Case No. ARB\/12\/35<\/h2>\n

On May 31, 2017 a tribunal at the International Centre for Settlement of Investment Disputes (ICSID) held that the claims by Orascom TMT Investments S.\u00e0 r.l. (Orascom) against Algeria are inadmissible and declined to exercise jurisdiction.<\/p>\n

Background<\/h3>\n

In 2001 the Egyptian company Orascom Telecom Holdings (OTH) was awarded a public tender to develop a mobile telecom network for Algeria. It started its operation through its Algerian subsidiary, OTA. Orascom acquired OTH and Wind, an Italian telecoms company, in the same transaction in 2005.<\/p>\n

Orascom alleged that, starting from 2008, due to a political vendetta against its controlling shareholder\u2014the Egyptian businessman Naguib Sawiris\u2014Algeria took several measures against OTA, including massive tax reassessments, dividend payment restrictions, freezing of bank accounts and a customs blockade. According to Orascom, these harassments forced it to sell OTA in 2011.<\/p>\n

In 2010 OTH notified a dispute under the Egypt\u2013Algeria bilateral investment treaty (BIT<\/span>), and in 2012 it initiated arbitration at a Permanent Court of Arbitration (PCA<\/span>) tribunal under the rules of the United Nations Commission on International Trade Law (UNCITRAL<\/span>). In less than a week, another subsidiary, Weather Investments, gave notice under the Italy\u2013Algeria BIT. Later in 2012, Orascom initiated ICISD arbitration under the BIT between the Belgo-Luxembourg Economic Union (BLEU) and Algeria (the BIT). OTH and Algeria reached a settlement agreement and the PCA recorded the settlement in a consent award in 2015.<\/p>\n

Tribunal affirms that Orascom\u2019s si\u00e8ge social was in Luxembourg<\/h3>\n

The BIT definition of investor requires a company to be constituted under the laws of one of the contracting states and have its si\u00e8ge social<\/em> there. The disputed issue was what \u201csi\u00e8ge social<\/em>\u201d meant. Algeria argued that Orascom\u2019s nationality must be determined by reference to Luxembourg\u2019s domestic law, which points to the \u201creal seat\u201d\u2014the company\u2019s place of effective management. Therefore, for Algeria, the real seat is Egypt, where Naguib Sawiris is based. In turn, Orascom submitted that the term embodies an autonomous notion of nationality and means statutory or registered office\u2014Luxembourg.<\/p>\n

The tribunal decided that the grammatical and syntactic structure of the BIT and the context in which the term was employed show that \u201csi\u00e8ge social<\/em>\u201d is a treaty-specific requirement. This is in line with the recent Tenaris and Talta v. Venezuela<\/a> <\/em>award. <\/em>However, it departed from the reasoning of the Tenaris<\/em> tribunal as well as the Capital Financial Holdings Luxembourg v. Cameroon<\/a><\/em> tribunal, both dealing with BITs concluded by Luxembourg. The Tenaris<\/em> tribunal found the term to mean \u201ceffective seat,\u201d and the Capital Financial Holdings <\/em>tribunal, \u201cactual headquarters.\u201d The Orascom <\/em>tribunal analyzed the BIT texts in Arabic, Dutch and French, and concluded that all of them establish that it means \u201cregistered office.\u201d<\/p>\n

Algeria invoked the principle of effet utile <\/em>and argued that interpreting si\u00e8ge social <\/em>as registered office would render the term superfluous. In the tribunal\u2019s opinion, however, corporate nationality is defined by reference to the place of incorporation, which leads to a single test with two elements: constitution in accordance with local law and registered office. Applying the test, the tribunal found that Orascom\u2019s si\u00e8ge social <\/em>was in Luxembourg and that it therefore qualified as an investor under the BIT. The tribunal found that its decision would have been the same even if nationality were to be established by reference to Luxembourg law, as argued by Algeria.<\/p>\n

Indirect shareholding constitutes an investment<\/h3>\n

Algeria objected to the tribunal\u2019s jurisdiction, arguing that Orascom made no investment within the meaning of the BIT and the ICSID Convention<\/span>. According to the respondent, Orascom\u2019s mere holding of indirect shares in OTA does not qualify as an investment in the economy and on the territory of the country. It argued that the investment was indirect and remote.<\/p>\n

The tribunal established that the term \u201cinvestment\u201d has the same definitional elements in both the ICSID Convention and the BIT: a contribution or allocation of resources, duration and risk. It found that Orascom made transactions exceeding EUR 1.5 billion in acquiring indirect interest in OTA, and concluded that such indirect shareholding constitutes an investment under the BIT and the ICSID Convention. Furthermore, it held that the ICSID Convention and the BIT protect both minority and indirect shareholdings and do not require active involvement.<\/p>\n

In conclusion, the tribunal also rejected Algeria\u2019s argument that the main purpose of the Orascom\u2019s investment in OTA was to acquire the Italian telecom company, Wind, and not to invest in Algeria. The tribunal held that Orascom\u2019s motivations were irrelevant when assessing the existence of the investment, and that what mattered was the existence of a contribution of resources, which Orascom fulfilled.<\/p>\n

Settlement agreement ended the dispute, and Orascom had no independent loss<\/h3>\n

Algeria argued that the claims were inadmissible due to the settlement reached between OTH and Algeria, which ended the dispute under the UNCITRAL arbitration. Orascom contended that both that arbitration and the settlement agreement were irrelevant to the tribunal\u2019s jurisdiction.<\/p>\n

The tribunal concluded that the existence of several BITs should not be a leeway for multiple claimants in a vertical ownership chain to bring multiple claims for the same injury. It established that the group of companies to which Orascom belongs was organized under a vertical chain controlled by the same shareholder, and that the measures complained of and damages claimed were identical to those in the UNCITRAL arbitration. It also considered that the agreement put an end to the dispute arising from the alleged measures by Algeria. Accordingly, it held that, to the extent OTH would have been restored through the UNCITRAL arbitration, all the companies in the chain\u2014including Orascom\u2014were made whole, unless Orascom could prove that it suffered an independent loss. The tribunal found that the settlement agreement in the UNCITRAL case stands in lieu of any forthcoming award under that arbitration, whether the settlement was beneficial or not.<\/p>\n

Orascom contended that part of the damages it claimed was independent of OTH\u2019s loss. The tribunal analyzed the different heads of damages requested by Orascom, and found that these damages concern the same economic harm OTH claimed in the UNCITRAL arbitration. Furthermore, it found that for damages such as consequential damages, an investor as experienced as Sawiris must have factored in these losses in the sale of its investment. It also dismissed the claim for moral damages given that Orascom is a mere holding company with no reputation to protect.<\/p>\n

Finally, the tribunal emphasized that disputes would never be settled amicably if different entities in a vertical chain could bring claims over a dispute already settled by one of the entities. According to the tribunal, this would defeat the purpose of investment treaty provisions encouraging the amicable settlement of disputes.<\/p>\n

Right to arbitrate was sold with the investment<\/h3>\n

The tribunal agreed with Algeria that, by failing to carve out its right to arbitrate from the scope of the sale of its investments, Orascom waived its right to bring arbitration: the price paid by the buyer included the right to sue for losses.<\/p>\n

Pursuit of multiple claims by several entities constituted abuse of rights<\/h3>\n

For the tribunal, the pursuit of multiple claims against the host state based on the same harm by several entities in Orascom\u2019s vertical chain of companies constituted an abuse of right. According to the tribunal, this contradicts the purpose of investment treaties, which is \u201cto promote the economic development of the host state and to protect the investments made by foreigners that are expected to contribute to such development.\u201d It also risks multiple recoveries, conflicting decisions and wasted resources on proceedings (para. 543).<\/p>\n

The tribunal also noted that jurisprudence has evolved over the past 15 years since the widely criticized decisions of CME <\/em>and Lauder<\/em> against the Czech Republic. Both proceedings concerned claims related to the same facts and harm, and resulted in contradictory awards.<\/p>\n

Costs and annulment proceedings<\/h3>\n

Orascom was ordered to pay the entire cost of proceedings and half of Algeria\u2019s legal fees and other expenses. At Orascom\u2019s request, an annulment committee was constituted on October 26, 2017.<\/p>\n

Notes:<\/em> The tribunal was composed of Gabrielle Kaufmann-Kohler (President appointed by the parties upon the co-arbitrators\u2019 proposal, Swiss national), Albert Jan van den Berg (claimant\u2019s appointee, Dutch national) and Brigitte Stern (Algeria\u2019s appointee, French national). The award is available in English at https:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw8973.pdf<\/a> and in French at https:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw8977.pdf<\/a>.<\/p>\n

Mintewab Abebe<\/strong> is a New York University\u00a0School of Law\u00a0International Finance and Development Fellow\u00a0with IISD<\/span>\u2019s Investment for Sustainable Development Program.<\/p>\n