The Arab Spring and Investment Arbitration
Posted on 19 February 2013 by Carter-Ruck
Since the uprisings known as the “Arab Spring” gained momentum in 2011, arbitration lawyers and risk analysts have asked how these events will affect foreign investment in the Middle East and North Africa (“MENA”) region.
Many MENA states encourage foreign investment into their economies. Investors in the MENA region typically invest in tourism, energy, construction, electricity, shipping and telecommunications sectors.
Foreign investors need the legal conditions of the host state to be secure, stable and predictable so they can reap returns on their investment. They expect the host state to treat them fairly, without discrimination, and according to the rule of law. They also demand protection by the host state’s police and armed forces.
Many foreign investors now rely on Bilateral Investment Treaties (BITs) to guarantee those rights. A BIT is an agreement between two nation states. It protects the rights of private citizens from one contracting state who invest in the other contracting state.
The benefit of a BIT for the investor is that it provides a degree of protection recognised under various principles of international law. It also typically allows the investor to bring a claim directly against the host state by commencing an arbitration, instead of relying on the host state’s national courts. For the host state a BIT has the benefit of making it attractive to foreign investment.
All of the MENA states in the Arab Spring are committed to BITs. Egypt for example has over one hundred BITs currently in force; while Tunisia, Syria, Libya and Yemen are committed to around a hundred and fifty BITs collectively.
Foreign businesses in Arab Spring countries will have experienced business interruptions caused by demonstrations, riots, sanctions, or the breakdown of local infrastructure and transport. These events will have caused a loss of revenue for the foreign investor and in extreme cases the loss of their investment.
Commentators have suggested that these events will trigger a flood of foreign investors bringing arbitration claims to recover their losses. They have compared the Arab Spring with the Iranian Islamic Revolution of 1979, when Ayatollah Khomeini led a popular uprising to overthrow the Shah of Iran. This resulted in thousands of foreign investors bringing investment arbitration claims against Iran.
However one of the goals of the Iranian Revolution was to nationalise foreign investments, particularly in Iran’s oil. By contrast the Arab Spring has been focused mainly on regime change and political reform. Whether we will see a wave of investment claims depends on the specific facts surrounding each MENA country’s uprising and the attitude of its government to foreign investment.
Whether those claims would succeed depends on the rights available under the relevant BIT and the particular circumstances of the investment. The investor will have to demonstrate the state’s liability on the facts; and establishing what took place in the midst of a national uprising, and finding reliable evidence, will be a challenge. In its defence the host state may argue that it was unable to protect the investment due to circumstances beyond its control, namely major civil unrest or war. Such events are sometimes covered under force majeure clauses in commercial contracts, and therefore the parties will also have to consider any relevant commercial contracts between the host state and the investor.
Since the uprisings began in 2011 several arbitration claims have been registered against MENA states with the International Centre for Settlement of Investment Disputes, primarily involving Egypt. Some of these have been discontinued as the claims were settled. Meanwhile some new regimes have stressed their continued commitment to their BIT obligations; and investors may prefer to resolve matters amicably and build positive relations with new governments.
However as the events across the MENA region unfold, and new regimes decide on political, legal and economic reforms, it is certain that new legal issues for investors and potential disputes will continue to arise for the foreseeable future.