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PCA Imports UNCITRAL Arbitration Rules Through MFN Clause to Designate an Appointing Authority in Arbitration Under Different Rules

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On 27 March 2017, according to various reports, the Secretary-General of the Permanent Court of Arbitration (the “PCA”) designated Professor Pierre-Marie Dupuy as appointing authority in D.S. Construction FZCO v. Libya, an arbitration commenced pursuant to the Agreement on Promotion, Protection and Guarantee of Investments amongst the Member States of the Organization of the Islamic Conference (the “OIC Agreement”). Significantly, the PCA appears to have imported the 1976 Arbitration Rules of the United Nations Commission on International Trade Law (the “UNCITRAL Rules”) through the OIC Agreement’s most-favored-nation (“MFN”) clause. The PCA thus overcame the deadlock caused by the refusal of the Secretary-General of the OIC to act as appointing authority under the OIC Agreement.

The PCA’s decision, which is still confidential, could have significant consequences for investors of the 27 parties to the OIC Agreement.

Dispute settlement under the OIC Agreement

The OIC Agreement protects investments by “investors,” including legal persons established in accordance with the laws of a contracting party (Art. 1(6)(b)). It includes protections similar to those normally found under investment treaties, such as “adequate protection and security” (Art. 2) and protections against illegal expropriation (Art 10(2)(a)). The MFN clause in Article 8(1) requires the host State to provide the investor with “treatment no less favourable than the treatment accorded to investors belonging to another State not party to this Agreement.”

The OIC Agreement provides for dispute settlement through conciliation or arbitration “[u]ntil an Organ for the settlement of disputes arising under the Agreement is established” (Art. 17(1)). The OIC has not yet established that contemplated organ. Article 17(2) of the OIC Agreement provides for ad hoc arbitration by a three-member tribunal, one appointed by each party and an “umpire” appointed by the two arbitrators. The respondent “must” appoint an arbitrator within 60 days of the request of arbitration (Art. 17(2)(b)). If the respondent does not, “either party may request the Secretary General [of the OIC] to complete the composition of the tribunal” (Art. 17(2)(b)).

There is no express provision in the OIC Agreement for arbitration under the UNCITRAL Rules. However, the parties may agree to use these rules (or their 2010 revision) in OIC Agreement arbitrations, as occurred in Hesham T.M. Al-Warraq v. Indonesia and as appears to have occurred in the confidential arbitrations Kontinental Conseil Ingénierie v. Gabonese Republic and Ali Alyafei v. Hashemite Kingdom of Jordan.

The arbitration

The claimant in D.S. Construction FZCO v. Libya is an UAE-incorporated company. The UAE and Libya are both parties to the OIC Agreement. The outbreak of civil war in Libya in 2011 affected construction projects in which the claimant was involved. According to press reports, the claimant argues that Libya’s actions or omissions after the start of the civil war amounted to indirect expropriation and to losses estimated at US$ 525 million.

The claimant appointed Stanimir Alexandrov as arbitrator. Libya refused to appoint an arbitrator within the 60-day period prescribed under Article 17(2)(b) of the OIC Agreement. The claimant appears to have requested the Secretary-General of the OIC to appoint the second arbitrator. According to press reports, the Secretary-General of the OIC did not appoint an arbitrator and did not explain the reasons for its refusal. The Secretary-General of the OIC has, reportedly, refused to exercise this role in at least three arbitrations started against Egypt.

The claimant appears to have requested the PCA to designate an appointing authority pursuant to the UNCITRAL Rules. Article 7(2)(b) of the UNCITRAL Rules provides that the Secretary-General of the PCA shall designate the appointing authority if the previously designated appointing authority refuses to act or fails to appoint the arbitrator within 30 days after receiving a request. The claimant pointed to Austrian investors’ right to start proceedings under the UNCITRAL Rules under Article 11(2)(c)(iii) of the Austria-Libya Bilateral Investment Treaty as an example of more favorable treatment under the OIC Agreement’s MFN clause.

The PCA agreed with the claimant, over Libya’s objections. After his designation as the appointing authority, Prof. Dupuy appointed former ICSID Deputy Secretary-General Nassib Ziadé as arbitrator. Messrs. Alexandrov and Ziadé then appointed the former judge of the International Court of Justice, Bruno Simma, as tribunal chairman.


The PCA’s decision may have significant implications for proceedings under the OIC Agreement and under international investment agreements (“IIAs”) more generally. Investors faced with an uncooperative host State and appointing authority will welcome the possibility to request an alternative arbitral institution either to designate appointing authorities or to appoint arbitrators. Investors may well direct requests such as these to the PCA in the future, as IIAs commonly provide both for MFN treatment and for arbitration under the UNCITRAL Rules.

The PCA appears to have accepted that an investor that starts proceedings under one set of arbitration rules may invoke another set of arbitration rules that it finds more favorable. Until the full details of the PCA’s decision are made public, its full implications will not be known. For instance, arbitration users will wish to assess whether the claimant opted to incorporate the UNCITRAL Rules entirely to the proceedings, or only to “cherry-pick” Article 7(2)(b), which allows the designation of a substitute appointing authority. Other questions may arise in different scenarios, such as where the original appointing authority issues reasons for declining to appoint, or where, even absent such reasons, the jurisdictional premises of an arbitration proceeding are absent.


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