In State of Libya v. Nurol Insaat Ve Ticaret Anonim Sirketi, the International Commercial Chamber of the Paris Court of Appeal was called upon to rule on the lack of jurisdiction of an arbitral tribunal due to the alleged corruption practices that tainted the contracts constituting the investment that was the subject of the dispute.
Between 2006 and 2009, the Turkish company Nurol Insaat Ve Ticaret Anonim Sirketi (“Nurol“) entered into several agreements and amendments of these agreements with African Engineering Projects Company (“AEPC“), incorporated under the law of Libya, and the Libyan entity Organization for Development of Administrative Centers (“ODAC“) for the repair and maintenance of a coastal road in the north-west of Libya, and the construction of buildings at Tripoli University.
In 2011, following the events of the “Arab Spring“, the construction sites were attacked and damaged before being evacuated for security reasons, leading to a halt in the works. In 2013, Nurol, AEPC and ODAC agreed to resume work and extend the duration of the contracts. AEPC and ODAC also undertook to pay Nurol 50% of the outstanding invoices. Yet AEPC and ODAC failed to comply with the payments, and Nurol refused to resume work. As a result, AEPC terminated the contracts. On 17 June 2016, Nurol filed a request of arbitration against AEPC to the International Court of Arbitration of the International Chamber of Commerce (“ICC“). On 11 July 2016, Nurol initiated a second arbitration proceeding against ODAC. These proceedings were initiated on the basis of Article 8 of the Libya-Turkey Bilateral Investment Treaty concluded on 25 November 2009 providing for a dispute settlement pursuant to the ICC Arbitration Rules. On 6 January 2017, the proceedings were consolidated.
On 22 November 2018, the arbitral tribunal rendered a partial award in which it held that the Libya-Turkey BIT entered into force on 22 April 2011, that Nurol’s assets constituted investments at the date of the alleged breaches of the Treaty, that the respondents did not demonstrate that the claimant’s investments were not protected by public international law, or that the arbitral tribunal lacked jurisdiction due to the unlawful conduct of the claimant, that it had jurisdiction over the dispute but lacked jurisdiction ratione temporis over some of the claims, and finally that the claims over which it retained its jurisdiction were matters of merits and would be addressed in the award on the merits.
On 14 January 2019, the Libyan State filed an application to set aside this partial award before the Paris Court of Appeal. It argued, among others, that the arbitral tribunal wrongfully upheld its jurisdiction because of the lack of entry into force of the Libya-Turkey BIT, its lack of jurisdiction ratione materiae not only because this investment would be tainted by corruption but also because there would be no investment made under the BIT, and finally its lack of jurisdiction ratione temporis. In the alternative, it alleged that the recognition and enforcement of the award would be contrary to international public policy and, in the further alternative, that the arbitral tribunal would have failed to comply with the mandate conferred upon it.
Decision by the Court of Appeal
Concerning the lack of jurisdiction of the arbitral tribunal regarding the non-entry into force of the BIT, which was argued by the Libyan State on the grounds that Turkey had not validly notified Libya of the end of the ratification process, the Court of Appeal rejected this argument. To do so, it considered that the “Foreign Committee” of the Libyan State had notified the ratification of the Treaty to Turkey on 23 August 2010, that on 14 April 2011, Turkey had ratified it and had notified this ratification to Libya on 22 April 2011. Relying on Article 12(1) of the BIT, it found that the mere notification for the entry into force of the BIT was valid, without the need that any other formality be fulfilled, including the sending of the notification to a specified entity or address. In this case, the Libyan State alleged that this notification of the ratification of the BIT should have been made to the Libyan National Transitional Council and not to the Foreign Committee. However, this requirement was not stipulated by the Treaty. Thus, it points out that the ratification did indeed occur on 22 April 2011. It also notes that as Libya had already validly ratified the BIT and notified its ratification to Turkey on 23 August 2010, the validity of Turkey’s decision to ratify the BIT and notify its ratification did not rely on Libya’s will, but on Turkey’s autonomous choice. It concludes on this point with regard to recent French arbitral case law relating to Turkey and Libya, stating that:
“the implementation of the BIT has been admitted in several arbitrations opposing Turkish companies and the State of Libya, in particular in an award dated of 7 November 2018 filed before the Paris Court of Appeal, which dismissed an application for setting aside by a judgment dated of 25 May 2021, in the context of which the State of Libya did not challenge the entry into force of the BIT before the Court“.
In the light of all these considerations, the Court of Appeal dismissed this ground of annulment sustained by the Libyan State.
Concerning the lack of jurisdiction of the arbitral tribunal regarding the alleged corruption tainting the disputed investment, the Libyan State argued that Nurol had committed repeated acts of corruption, for which there were serious, specific and corroborative evidences in Libya in relation to the contracts it had entered into, and that this corruption had effects on the jurisdiction of the arbitral tribunal. It pretended the following:
“an investment tainted of corruption does not comply with Libyan law and, therefore, it cannot benefit from the protection of the BIT under Article 1(2) of the BIT, and that such an investment is contrary to international public order“.
After having noted the following:
“the judge setting aside the award cannot rule in place of the arbitrator on a dispute relating to the legality of the investment or to the contract embodying this investment, which is a plea on the merits and not on the assessment of the Arbitral Tribunal’s jurisdiction“,
the Court ruled that:
“the standing offer of arbitration is autonomous and independent from the validity of the transaction giving rise to or supporting the investment, so that the acceptance of arbitration resulting from the notification of the request for arbitration is sufficient to justify the jurisdiction of the Arbitral Tribunal to rule on the legality of the investment and on the claim for compensation“.
It stated that, in accordance with the common will of the parties, the arbitral tribunal must first rule on its own jurisdiction, and it did so, and that “regarding the merits of the case, since the arbitral tribunal has decided that it has jurisdiction, it must rule on the merits of the alleged practices of corruption”. We can observe that before dismissing this ground for setting aside, the Court of Appeal stressed that it was neither argued nor proved that the alleged corruption practices were likely to affect the jurisdiction of the arbitral tribunal.
Concerning the lack of jurisdiction of the arbitral tribunal due the inexistence of an investment pursuant to the provisions of the BIT and to customary international law, the Libyan State claimed that the contracts concluded with AEPC and ODAC were not investments under the BIT and under Libyan law, but also that these investments did not fulfil the economic criterion required by the notion of investment under customary public international law, and that they therefore could not benefit from the protection conferred by the BIT. However, the annulment judge emphasized that the terms of the BIT did not subordinate its application to the definition of investment under Libyan law, but that it merely subordinated it to the legality of the investment under the laws of the host state. It also denied the arguments based on international law, stating that the BIT did not contain any requirement for an investment such as the investment criteria set out in the ICSID case law, after having underlined the following:
“the State of Libya does not justify that Contracts A do not fulfil the economic criterion of investment, even if applicable, as these contracts relate to construction and renovation projects, justifying the deployment of significant assets, equipment and personnel, as well as expertise and know-how to fulfil the criteria of contribution, duration and risk, even if applicable“.
Therefore, it concluded that the contracts entered into by Nurol constituted investments pursuant to the provisions of the BIT.
As to the lack of jurisdiction ratione temporis of the arbitral tribunal, the Libyan State argued that Article 10 of the BIT only protected investments made before the entry into force of the treaty for disputes arising after its entry into force, and that the disputes invoked by Nurol arose before the said entry into force. The Paris Court of Appeal equally denied this argument, finding not only that it was clear from the wording of this article that it was applicable “to investments made before or after the entry into force of the BIT and that it is applicable only to disputes arising after the entry into force of the BIT”, but also that it was on the basis of the provisions of Article 10 of the BIT that the arbitral tribunal found that it lacked jurisdiction ratione temporis over several claims. It specified that the claims for which it found that it had jurisdiction were all related to disputes that arose after the entry into force of the BIT, even if for some of them it was necessary “to take into account facts that occurred prior to the entry into force of the BIT, in order to take into account the context of the disputes”. As a result, it also dismissed the grounds for setting aside based on the lack of jurisdiction ratione temporis of the arbitral tribunal.
The alternative and even more alternative grounds of annulment were also rejected by the International Commercial Chamber of the Paris Court of Appeal, which dismissed the application for setting aside the arbitral award brought by the Libyan State.
If some commentators may have been worried about a growing trend of setting aside international arbitral awards, particularly on the basis of violation of the international public order (Art. 1520, 5° of the French Code of Civil Procedure), and in particular in connection with issues of corruption, the present decision will certainly temper these concerns. Indeed, the Paris Court of Appeal has clarified the scope of the action for setting aside arbitral awards by considering that a partial award on jurisdiction cannot be set aside on the grounds that the arbitration proceedings involve agreements that may be tainted by corruption, as these considerations relate to the merits of the dispute that must be submitted to the arbitral tribunal.
In so doing, the International Commercial Chamber of the Paris Court of Appeal reasserted a principle it established in a previous decision rendered on 25 May this year relating to an action to set aside an award filed by the Libyan State against another investment award rendered in a dispute between it and the Turkish company Cengiz:
“the standing offer of arbitration is autonomous and independent from the validity of the transaction giving rise to or supporting the investment, so that the acceptance of arbitration resulting from the notification of the request for arbitration is sufficient to justify the jurisdiction of the Arbitral Tribunal to rule on the legality of the investment and the claim for compensation“.
In its decision dated 28 September 2021, the Court of Arbitration reproduced the same ruling, consolidating its case law on this issue. Henceforth, the situation is clear: a partial award on jurisdiction cannot be set aside on the grounds that the arbitral tribunal lacks jurisdiction because the investment protected by the BIT containing the arbitration agreement is allegedly tainted by corruption practices, unless they relate to the jurisdiction of the arbitral tribunal itself. Indeed, the issues relating to the existence of corruption practices are matters of the merits of the dispute that must be decided by the arbitral tribunal.
 Salini Costruttori et Italstrade c/ Maroc (Decision on jurisdiction), 23 July. 2001, ARB/00/4 ; Bayindir c/ Pakistan (Decision on jurisdiction), 14 nov. 2005, ARB/03/29; Fedax c/ Venezuela (Decision on jurisdiction), 11 July. 1997, ARB/96/3.