National Gas v. Egypt

The items upon which the Parties failed to agree at the first session were addressed by the Tribunal in Procedural Order No. 1 dated 12 March 2012, which provided in relevant part (by reference to the first session’s agenda items) that:

1.3. The items on which the Tribunal was required to decide were as follows:

(1) Schedule for Submission of Pleadings (Paragraph 13 of the Minutes of the First Session);

(2) Document Production (Paragraph 14); and

(3) Hearings (Paragraph 16).

[...]

2.1. Having heard the respective positions of the Parties and deliberated, the Tribunal decides as follows:

(Items 1 & 3) Schedule for Submission of Pleadings and Hearings

2.1.1. The schedule for written submissions shall be as follows:

- The Claimant shall file a Memorial on Jurisdiction and the Merits by no later than 31 May 2012. The Claimant shall limit its submissions on the merits to issues of liability, with issues of quantum to be addressed (if relevant) in a subsequent phase of the proceedings;

- The Respondent shall file a Memorial containing all its Objections to Jurisdiction and Request for Bifurcation as soon as possible thereafter but in any event no later than 11 September 2012;

- The Claimant shall file its Response to the Respondent’s Request for Bifurcation as soon as possible thereafter but in any event no later than 18 September 2012.

2.1.2. The Tribunal shall hold an in-person hearing on bifurcation and related procedures and time-table in Paris beginning at 14.30 hours on 20 September 2012.

(Item 2) Document Production

2.1.3. These issues will be re-addressed at the hearing in Paris on 20 September 2012 in further consultation with the Parties, with the Tribunal making no order for the time being regarding any document production but retaining in full all its powers to do so.

By letter of the Centre dated 14 March 2012, the Tribunal confirmed that:

[...] the Respondent shall file a Memorial containing all its Objections to Jurisdiction and Request for Bifurcation as soon as possible after the fding of the Claimant ’s Memorial on Jurisdiction and the Merits but in any event no later than 11 September 2012. The Respondent is not expected to include submissions on the merits in this Memorial.

On 6 April 2012, the Tribunal issued Procedural Order No. 2, in which the following decisions were recorded:

(i) The Tribunal decides, for the time being, not to confirm the Parties’ joint proposal for bifurcation, albeit subject to different conditions. That joint proposal, if maintained by both Parties, shall be reviewed at the Paris meeting in further consultation with the Parties;

(ii) The Tribunal decides to maintain unchanged the timetable for the Claimant ’s Memorial on the Merits and the Respondent ’s Jurisdiction Memorial, as established in Procedural Order No. 1;

(iii) The Tribunal decides that, on 18 September 2012, the Claimant may but is not required to submit a brief, initial written response to the Respondent ’s Jurisdiction Memorial, limited to the issue of bifurcation and/or future procedural timetable; and

(iv) The agenda for the Paris meeting shall be limited to deciding only procedural matters (including bifurcation) and shall not include any issue of substance, whether relating to merits or jurisdiction.

12. Given the several decisions above, in addition to limiting expressly the Paris meeting’s agenda as indicated above for the purpose of clarifying Paragraphs 2.1.2 & 2.1.3 of Procedural Order No. 1, the Tribunal amends Paragraph 2.1.1 to provide as follows:

"2.1.1. The schedule for written submissions shall be as follows:

The Claimant shall file a Memorial on Jurisdiction and the Merits by no later than 31 May 2012. The Claimant shall limit its submissions on the merits to issues of liability, with issues of quantum to be addressed (if relevant) in a subsequent phase of the proceedings;

The Respondent shall file a Memorial containing all its Objections to Jurisdiction and Request for Bifurcation as soon as possible thereafter but in any event no later than 11 September 2012;

The Claimant may (but shall not be required) file a brief, initial written response to the Respondent’s Jurisdiction Memorial, limited to the issue of bifurcation and/or future procedural timetable on 18 September 2012."

The procedural meeting was held on 20 September 2012 at the World Bank’s offices in Paris, France.⁸ In addition to the Tribunal and its Secretary, the following were present at the meeting:

For the Claimant: Dr. Khaled El Shalakany, Shalakany Law Office; Mr. Adam Khaled El Shalakany, Shalakany Law Office; Ms. Sara Ezzat, Shalakany Law Office; Mr. Sherif Morsy, Shalakany Law Office; and Mr. Reda Ginena, National Gas; and

For the Respondent: Mr. Mahmoud Mohamed Abdel Wahab Elkhrashy, Counselor, Egyptian State Lawsuits Authority, Foreign Disputes Department (ESLA); Mr. Mohamed Mahmoud Khalaf Nasr, Counselor, ESLA; Mr. Louis-Christophe Delanoy, Bredin Prat; Mr. Raëd Fathallah, Bredin Prat; Mr. Suhaib Al-Ali, Bredin Prat; and Ms. Liliane Djahangir, Bredin Prat.

At this meeting, the Tribunal also established the following two-track procedural timetable following consultation with the Parties:

2.1. The Respondent shall file a Counter-Memorial on the Merits (limited to issues of liability) as well as all its Objections to Jurisdiction and its Request for Bifurcation of the proceeding into jurisdiction and merits phases by 10 December 2012.

2.2. Should the Respondent file Objections to Jurisdiction and a Request for Bifurcation, the Claimant shall reply to the Request for Bifurcation by 31 January 2013.

2.3. The Tribunal shall hold a hearing on the issue of bifurcation with the Parties by telephone on 11 February 2013 at 4:00 pm CET; the Tribunal shall render its decision on the Respondent ’s Request for Bifurcation then or shortly thereafter.

2.4. If the Tribunal decides to bifurcate ("Track 1"), the schedule shall be as follows:

2.4.1. The Claimant shall file a Counter-Memorial on Jurisdiction by 18 March 2013;

2.4.2. The Respondent shall file a Reply on Jurisdiction by 29 April 2013; and

2.4.3. The Claimant shall file a Rejoinder on Jurisdiction by 27 May 2013; and

2.4.4. The Tribunal shall hold an organisational pre-hearing conference by telephone at a date to be determined; and

2.4.5. The Hearing on Jurisdiction shall be held in Paris either on 27 June or 3 July 2013.

2.5. If the Tribunal decides not to bifurcate and to join the objections to jurisdiction to the merits ("Track 2"), the schedule shall be as follows:

2.5.1. The Claimant shall make its requests for production of documents (if any) in the form of a Redfern Schedule by 31 January 2012 [sic: 2013];

2.5.2. The Respondent shall produce the requested documentation or, if not, state its objections to any request for production by 11 March 2013;

2.5.3. The Claimant shall respond to these objections by 25 March 2013;

2.5.4. The Tribunal shall make its best efforts to rule on these objections shortly thereafter;

2.5.5. The Claimant shall file a Reply on the Merits (limited to issues of liability) and Counter-Memorial on Jurisdiction by 27 May 2013;

2.5.6. The Respondent shall file a Rejoinder on the Merits (limited to issues of liability) and Reply on Jurisdiction by 19 August 2013;

2.5.7. The Claimant shall file a Rejoinder on Jurisdiction by 19 September 2013;

2.5.8. The Tribunal shall hold an organisational pre-hearing conference by telephone at a date to be determined; and

2.5.9. The Hearing on Jurisdiction and the Merits (limited to issues of liability) shall be held in Paris from 14 to 18 October 2013.⁹

The Tribunal hereby confirms that the date set for the filing of the Claimant’s document production requests was 31 January 2013 (See audio recording of the Procedural Meeting, 2nd audio file, 14’ to 16’10"). However, in light of the circumstances and in particular the limited impact of the requested extension on the procedural time-table as a whole, the Tribunal hereby extends the deadline for the Claimant to file its document production requests to 21 February 2013, pursuant to article 26(2) of the ICSID Arbitration Rules and paragraph 6 of the Minutes of the First Session. Similarly, the deadline for the Respondent to produce the requested documentation or, if not, state its objections to any request for production is extended to 1 April 2013. The deadline for the Claimant to respond to these objections is extended to 15 April 2013.

On 11 February 2013, the Tribunal held a meeting on the Respondent’s Request for Bifurcation by telephone. In addition to the Members of the Tribunal and its Secretary, the following took part in this meeting:

For the Claimant: Dr. Khaled El Shalakany, Shalakany Law Office; Mr. Adam Khaled El Shalakany, Shalakany Law Office; Ms. Marie-Louise Morcos, Shalakany Law Office; Ms. Sara Ezzat, Shalakany Law Office; Mr. Sherif Morsy, Shalakany Law Office; and Mr. Khaled Sherif, Shalakany Law Office.

For the Respondent: Mr. Mahmoud Mohamed Abdel Wahab Elkhrashy, Counselor, Egyptian State Lawsuits Authority, Foreign Disputes Department (ESLA); Mr. Mohamed Mahmoud Khalaf Nasr, Counselor, ESLA; Mr. Amr Arafa, Counselor, ESLA; Ms. Fatma Khalifa, Counselor, ESLA; Ms. Reem Hendy, Counselor, ESLA; Mr. Louis-Christophe Delanoy, Bredin Prat; Mr. Raëd Fathallah, Bredin Prat; Mr. Suhaib Al-Ali, Bredin Prat; and Ms. Liliane Djahangir, Bredin Prat.

(1) "Nationality/Control": The Respondent submits that the Tribunal lacks jurisdiction ratione personae under Article 25(2)(b) of the ICSID Convention and Article 10(4) of the Treaty: see paragraphs 9(i) and 154 to 217 of the Respondent’s Counter-Memorial (pp 5 & 42-63);

(2) "Timing of the Measures and of the Dispute": The Respondent submits that the Tribunal lacks jurisdiction ratione temporis under the Treaty: see paragraphs 9(iii) and 218-226 of the Respondent’s Counter-Memorial (pp 5 & 63-65);

(3) "Exhaustion of Local Remedies": The Respondent submits that the Tribunal lacks jurisdiction ratione materiae under Article 26 of the ICSID Convention and Article 10(3) of the Treaty or alternatively that the Claimant ’s claims are inadmissible: see paragraphs 9(ii)(i) and 227-237 of the Respondent’s Counter-Memorial (pp 5 & 65-67); and

(4) "Umbrella Clause and Sovereign Powers": The Respondent submits that the Tribunal lacks jurisdiction because the Respondent has not undertaken any commitment to the Claimant under the Treaty ’s umbrella clause and further, in any event, the contractual breaches alleged by the Claimant do not involve the exercise of the Respondent’s sovereign powers: see paragraphs 9(ii)(ii) and 238 to 257 of the Respondent’s Counter-Memorial (pp 5 & 67-74).¹⁰

By letter of 28 February 2013, the Respondent informed the Tribunal that while it appreciated "the Tribunal’s suggestion of applying the 'loser pays' principle to the instant proceedings [...]", it was "also mindful that the parallel schedule would undermine the other underlying principles of a bifurcation such as saving time and efficiency". The Respondent thus suggested not to proceed simultaneously with "Track 1" and "Track 2" and to amend "Track 2" by postponing by two months the deadline for the filing of the Respondent’s Rejoinder on the Merits and Reply on Jurisdiction and the Claimant’s Rejoinder on Jurisdiction, and holding the hearing three weeks after the filing of the Claimant’s Rejoinder.

On 27 March 2013, the Tribunal issued Procedural Order No. 4,¹⁴ which fixed the following amended time-table:

A. The Amended Schedule for "Track 1" shall now be as follows:

(i) The Claimant to file its Counter-Memorial on Jurisdiction (on bifurcated jurisdictional issues) by 2 April 2013 (instead of 18 March 2013);

(ii) The Respondent to file its Reply on Jurisdiction (on bifurcated jurisdictional issues) by 14 May 2013 (instead of 29 April 2013);

(iii) The Claimant to file its Rejoinder on Jurisdiction (on bifurcated jurisdictional issues) by 12 June 2013 (instead of 27May 2013); and

(iv) The one-day Jurisdictional Hearing in Paris (on bifurcated jurisdictional issues) is maintained for 27 June 2013.

B. The Amended Schedule for "Track 2" is now as follows:

(i) The Claimant to file its Reply on the Merits (limited to issues of liability, not quantum) and its Counter-Memorial on Jurisdiction (on non-bifur cated jurisdictional issues) by 1 September 2013 (instead of 27 May 2013);

(ii) The Respondent to file its Rejoinder on the Merits (limited to issues of liability, not quantum) and its Reply on Jurisdiction (on non-bifur cated jurisdictional issues) by 8 November 2013 (instead of 19 August 2013);

(iii) The Claimant to file its Rejoinder on Jurisdiction (on non-bifur cated jurisdictional issues) by 10 January 2014 (instead of 19 September 2013); and

(iv) An oral hearing on Jurisdiction (on non-bifur cated jurisdictional issues) and the Merits (limited to issues of liability, not quantum) shall be held at dates still to be fixed by the Tribunal from January/February 2014 onwards, depending on the availability of the Tribunal and of the Parties.

On 27 June 2013, the Tribunal held an oral hearing on the two bifurcated jurisdictional issues at the World Bank’s offices, 66 avenue d’Iéna, Paris 75116, France. In addition to the Tribunal and its Secretary (with the assistants to Mr. Fortier¹⁵ and Professor Stem¹⁶), the following were present at this hearing:

For the Claimant: Dr. Khaled El Shalakany, Shalakany Law Office; Mr. Adam Khaled El Shalakany, Shalakany Law Office; and Mr. Sherif Morsy, Shalakany Law Office.

For the Respondent: Mr. Mahmoud Mohamed Abdel Wahab Elkhrashy, Counselor, Egyptian State Lawsuits Authority, Foreign Disputes Department (ESLA); Ms. Fatma Khalifa, Counselor, ESLA; Ms. Reem Hendy, Counselor, ESLA; Mr. Louis-Christophe Delanoy, Bredin Prat; Mr. Raëd Fadlallah, Bredin Prat; Ms. Liliane Djahangir, Bredin Prat; and Ms. Alia El Sadda, Bredin Prat.

In the current circumstances and considering that the Tribunal is still deliberating and actively determining the bifurcated jurisdictional issues, the Tribunal hereby issues this order suspending these arbitration proceedings until such determination or further procedural order.

The Tribunal will of course revert to the Parties in due course to inform them as to when it completes its determination of the bifurcated jurisdictional issues.

(i) DECLARE that the Tribunal has no jurisdiction over the Claimant ’s claims;

(ii) DISMISS by way of an award on jurisdiction all claims brought by the Claimant against the Respondent; and

(iii) ORDER the Claimant to pay all of the costs and expenses (with interest) of this arbitration, including the fees and expenses of the Tribunal, the fees and expenses of any experts appointed by the Tribunal or Respondent, and the fees and expenses of Respondent ’s legal representation in respect of this arbitration.²⁰

Article 10(3) of the Treaty provides:

In the event that it becomes difficult to reach a satisfactory resolution through local courts, each Contracting State agrees to the submission of the dispute which arises between it and an investor from the other Contracting State to the International Centre for Settlement of Investment Disputes (referred to hereinafter as the "Centre ") to be settled through conciliation or arbitration by virtue of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States which was presented in Washington on 18 March 1965 to be signed (referred to hereinafter as the "Convention "), with respect to the following [...].²²

In case of the existence of a juridical person that has been registered or established in accordance with the law in force in a region [territory] ["iqlim" in Arabic, meaning a province or like territory] following a Contracting State ["tabai" in Arabic, meaning linked to or subject to a Contracting State], and an investor from the other Contracting State owns the majority of the shares of that juridical person before the dispute arises, then such a juridical person shall, for the purposes of the Convention, be treated as an investor of the other Contracting State, in accordance with Article 25(2)(B) of the Convention.²³

Article 25 of the ICSID Convention provides (in the English version) as follows:

(1) The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally.

(2) "National of another Contracting State " means:

(a) any natural person who had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration as well as on the date on which the request was registered pursuant to paragraph (3) of Article 28 or paragraph (3) of Article 36, but does not include any person who on either date also had the nationality of the Contracting State party to the dispute; and

(b) any juridical person which had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration and any juridical person which had the nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of this Convention.

(3) Consent by a constituent subdivision or agency of a Contracting State shall require the approval of that State unless that State notifies the Centre that no such approval is required.

(4) Any Contracting State may, at the time of ratification, acceptance or approval of this Convention or at any time thereafter, notify the Centre of the class or classes of disputes which it would or would not consider submitting to the jurisdiction of the Centre. The Secretary- General shall forthwith transmit such notification to all Contracting States. Such notification shall not constitute the consent required by paragraph (1).

In 1994, according to the Respondent, the tribunal in Vacuum Salt expressed this requirement as follows:

[T]he parties’ agreement to treat Claimant as a foreign national ‘because of foreign control’ does not ipso jure confer jurisdiction. The reference in Article 25(2)(b) to foreign control’ necessarily sets an objective Convention limit beyond which ICSID jurisdiction cannot exist and parties therefore lack power to invoke same no matter how devoutly they may have desired to do so.²⁸

Professor Emmanuel Gaillard expressed scholarly approval of this award:

La solution retenue par le Tribunal arbitral dans I ’affaire Vacuum Salt doit être approuvée. A tort ou à raison, les rédacteurs de la Convention de Washington ont estimé que, pour justifier le recours à cette forme supranationale d’arbitrage qui puise sa source dans une convention internationale, le consentement des parties n ’était pas une condition suffisante. Les tribunaux arbitraux constitués sous l’égide du Centre ne pouvaient que respecter cette volonté [...].²⁹

In 2008, according to the Respondent, the tribunal in TSA Spectrum adopted the same approach to Article 25(2)(b):

The ratio legis of this exception is the wording "because of foreign control". Foreign control is thus the objective factor on which turns the applicability of this provision [...] The provisions of the BIT cannot provide ICSID jurisdiction unless the conditions of Article 25(2)(b) of the ICSID Convention are satisfied.³⁰

Professor Gaillard similarly approved this decision:

[I]l résulte du texte même de la convention de Washington que c ’est le critère du contrôle qu ’il y a lieu de mettre en œuvre. Ce contrôle doit donc être réellement exercé par des ressortissants étrangers et il ne suffirait pas de démontrer que la société de droit local est détenue par une société constituée dans un autre Etat contractant pour bénéficier de ce texte, si cette société est elle-même contrôlée par des ressortissants de l’Etat d’accueil. [...] On ne peut donc qu ’approuver le Tribunal ayant statué dans l’affaire TSA d’avoir décliné sa compétence pour connaître d’une demande formée contre l’Argentine par une société de droit local formellement contrôlée par une société néerlandaise mais indirectement et ultimement contrôlée par un ressortissant argentin.³¹

The Respondent also cites Schreuer’s Commentary on the ICSID Convention, which confirms that the words "because of foreign control" indicate a causal connection between control and the agreement and suggest that "control" is an objective requirement that cannot be replaced by an agreement between the disputing parties.³² The Respondent cites further scholarly writings to similar effect: it is unnecessary to list them here, being recited in the Respondent’s Reply of 14 May 2013, at paragraphs 10ff.

The Respondent also submits that it is acceptable to pierce the corporate veil of the local company’s direct shareholder to locate this company’s controller: this is what the tribunal decided in TSA Spectrum,³⁹ declining jurisdiction because the local company was controlled not by its direct shareholder, but by an Argentinean national. This is also what the tribunal decided in SOABI, retaining jurisdiction.⁴⁰ In any event, the tribunal must locate the controller, i.e. it must find the person who is in a position freely to decide how the company should conduct its business and then to retain or decline jurisdiction on the basis of the nationality of that controller. There is no reason to pierce the corporate veil when it can confer jurisdiction upon ICSID but to refuse to do so when it can lead to the opposite result.

The Claimant also refers to the subsequent decision in Rompetrol where ICSID jurisdiction was based on the Netherlands-Romania BIT.⁴² Similarly to the present case, according to the Claimant, there was there a two-level foreign ownership structure, whereby 84.6% of Rompetrol S.A. shares were held by a Dutch company (TRG N.V.) which was in turn owned 100% by a Swiss company (Rompetrol) which in turn was held 100% by two nationals of Romania. The tribunal rejected Romania’s jurisdictional objections, again applying the principle of the parties’ consent for determining the nationality of the claimant.

In Autopista, the ICSID tribunal decided that it had jurisdiction over the parties’ dispute.⁵³ In its reasons, according to the Claimant, this tribunal carefully analysed the two requirements of Article 25(2)(b) of the ICSID Convention. Albeit somewhat lengthy, given the critical significance which the Claimant attaches to such reasoning (as does, later, this Tribunal below), it is appropriate to set out verbatim much of that reasoning here in its full context, as follows (where the tribunal refers to these two requirements also as "prongs"):

94. Article 25(1) of the ICSID Convention requires the Parties’ consent to submit a dispute to ICSID Jurisdiction. No proceedings can take place under the Centre ’s auspices unless the parties to the dispute have given their consent in writing. More specifically, the system of the Convention is premised on two levels of consent. At the first level, one finds the consent expressed by the Contracting States which agreed to be bound by the Convention. At the second level, one finds the consent given by the host State and the investor by means of an agreement to ICSID arbitration [citation here omitted].

95. According to ICSID Tribunals and the commentaries on the ICSID Convention, great weight must be placed on the fact that the parties consented to ICSID’s jurisdiction, consent often being described as the cornerstone of the jurisdiction of the Centre [citation and quote here omitted].

96. However essential, consent in and of itself is not sufficient to ensure access to the Centre. Indeed, Article 25 of the ICSID Convention provides for additional objective requirements which must be met in addition to consent. These objective requirements of the following:

• The dispute between the parties must be a "legal dispute

• The dispute must arise directly out of an "investment" ; and,

• In the event that the investor is a corporation registered under the laws of the host State, the parties must agree to treat the locally incorporated company, because of "foreign control", as a "national" of another Contracting State for the purposes of the Convention.

97. The Convention does not contain any definition of these objective requirements. The drafters of the Convention deliberately chose not to define the terms "legal dispute", "investment", "nationality" and "foreign control". In reliance on the consensual nature of the Convention, they preferred giving the parties the greatest latitude to define these terms themselves, provided that the criteria agreed upon by the parties are reasonable and not totally inconsistent with the purposes of the Convention.

[...]

99. As a result, to determine whether these objective requirements are met in a given case, one needs to refer to the parties’ own understanding or definition. As long as the criteria chosen by the parties to define these requirements are reasonable, i.e. as long as the requirements are not deprived of their objective significance, there is no reason to discard the parties’ choice.

[...]

102. Article 25(2)(b) creates an exception to the rule that a national cannot initiate ICSID proceedings against its own State. This exception is justified by the fact that host states may require foreign investors to operate by way of a locally incorporated company, without intending to prevent such investor from acceding to ICSID arbitration.

103. Article 25(2)(b) (secondprong) defines "national of another Contracting State " as any juridical person which had the nationality of the Contracting State party to the dispute, and which because of foreign control, the parties have agreed should be treated as a national of another contracting state for the purposes of this Convention.

104. Hence, locally incorporated companies may agree to ICSID arbitration subject to two requirements:

• The parties have agreed to treat the said company as a national of another Contracting State for the purposes of this Convention; and

• The said company is subject to foreign control.

[...]

105. The Convention does not require any specific form for the agreement to treat a juridical person incorporated in the host state as a national of another Contracting State because of foreign control.

106. Further, Article 25(2)(b) does not define nationality. As reflected in the Travaux préparatoires, the drafters intentionally gave up inserting into the ICSID Convention a definition of nationality [citation here omitted].

107. According to international law and practice, there are different possible criteria to determine a juridical person ’s nationality. The most widely used is the place of incorporation or registered office. Alternatively the place of the central administration or effective seat may also be taken into consideration [citations and quotations from SOABI and Amco here omitted].

[...]

109. However, as stated by Aron Broches, the purpose of Article 25(2)(b) being to indicate "the outer limits within which disputes may be submitted to conciliation or arbitration under the auspices of the Centre", the parties should be given "the widest possible latitude " to agree on the meaning of nationality. Any definition of nationality based on "a reasonable criterion " should be accepted [citation to Dr. Broches’ Hague lectures here omitted].

[...]

110. Like the other objective requirements of Article 25 of the ICSID Convention, foreign control is not defined. Article 25(2)(b) does not specify the nature, direct, indirect, ultimate or effective [sic: effect], of the foreign control.

111. In different decisions on jurisdiction, arbitral tribunals have discussed how far a tribunal should go in searching for foreign control. In Amco the tribunal considered that it should go one step behind the nationality of the host State; in SOABI the tribunal searched for real control and went one step further to second-tier control, i.e. to the majority shareholders of the company holding the share of the locally incorporated entity.

112. According to Venezuela [i.e. the respondent], foreign control in the meaning of Article 25(2)(b) means effective control. However, this interpretation lacks convincing support. Indeed, the term "effective control" is not found in the ICSID Convention. In addition, there is no indication in the Travaux préparatoires and in the commentaries on Article 25(2)(b) that "effective control" should be viewed as a threshold that has to be reached before the parties may agree to treat a local corporation as a foreign national in the meaning of Article 25(2)(b).

113. The review of the Travaux préparatoires shows that, given the criticism drawn by attempts to define foreign control, the drafters considered that the enterprise of defining foreign control (like nationality, investment or legal dispute) was impracticable. Moreover definitions of these terms will be difficult to apply in practice and would often lead to protracted investigation of the ownership of shares, nominees, trusts, voting arrangements, etc. Hence, the drafters decided to give the parties wide discretion to determine under what circumstances a company could be treated as a national of another Contracting State because of foreign control. The concept of foreign control being flexible and broad, different criteria may be taken into consideration, such as shareholding, voting rights, etc. [citation to Dr. Broches’ Hague lectures here omitted].

114. Given the autonomy granted to the parties by the ICSID Convention, an Arbitral Tribunal may not adopt a more restrictive definition of foreign control, unless the parties have exercised their discretion in a way inconsistent with the purposes of the convention [citations here omitted; emphasis added].

115. Some commentators even consider that an Arbitral Tribunal should be less stringent in assessing the level of control and the reasonableness of the criterion or criteria chosen by the parties when there is an express agreement in this respect [citations here omitted].

116. On the basis of the foregoing developments, it is the task of the Tribunal to determine whether the parties have exercised their autonomy within the limits of the ICSID Convention, i.e. whether they have defined foreign control on the basis of reasonable criteria. For this purpose, the Tribunal has to review the concrete circumstances of the case without being limited by formalities. However, as long as the definition of foreign control chosen by the parties is reasonable and the purposes of the Convention have not been abused (for example in cases of fraud or misrepresentation), the Arbitral Tribunal must enforce the parties’ choice, [emphasis added]

Accordingly, the Claimant submits that the provisions of the Treaty between Egypt and the UAE, with their agreement to grant protection to Egyptian companies whose majority shares are owned by UAE companies, is reasonable and should be given effect, thus granting jurisdiction to the Tribunal under the express, clear and comprehensive wording of the Treaty and the prevailing jurisprudence of ICSID arbitration tribunals. Under that jurisprudence, a classical approach in determining nationality for the purposes of protection (based on the place of incorporation) is preferred, thus enhancing predictability in international investment; and moreover Article 25(2)(b) of the ICSID Convention is intended to expand jurisdiction and not to restrict it unreasonably - all of which supports the Claimant’s case on jurisdiction ratione personae. In addition to Autopista and other legal materials, the Claimant also cites the Decision on Jurisdiction in Wena in support of that general proposition.⁵⁴

Consent always is the essential condition precedent to arbitration and, indeed, to any form of consensual adjudication. As was decided by the International Court of Justice in Bosnia-Herzegovina v Yugoslavia,⁵⁶ there must be an "‘unequivocal indication’ of a ‘voluntary and indisputable’ acceptance" of consent; and, as was also decided by a NAFTA arbitration tribunal, in the case Fireman’s Fund v. Mexico,⁵⁷ a claimant "is not entitled to the benefit of the doubt with respect to the existence and scope of an arbitration agreement".

Conversely, the Tribunal does not here apply a restrictive interpretation of consent in favour of the Respondent. As was decided in Amco, the consent of a sovereign to investment arbitration should not be construed restrictively as being a limitation of its sovereignty. The tribunal there decided:

[...] [L]ike any other conventions, a convention to arbitrate is not to be construed restrictively, nor, as a matter of fact, broadly or liberally. It is to be construed in a way which leads to find out and to respect the common will of the parties: such a method of interpretation is but the application of the fundamental principle pacta sunt servanda, a principle common, indeed, to all systems of internal law and international law.

Moreover - and this is again a general principle of law - any convention, including conventions to arbitrate, should be construed in good faith, that is to say by taking into account the consequences of their commitments the parties may be considered as having reasonably and legitimately envisaged.⁵⁹

As to limitations by reference to the nature of the dispute, Article 25(1) of the ICSID Convention extends jurisdiction only to legal disputes "arising directly out of an investment". The recurring controversies before ICSID tribunals as to the meaning of "investment" demonstrate that consent as to the existence of an investment in another instrument may not suffice. As stated by Schreuer: "[...] if a BIT’s definition of investment goes beyond the requirements of the ICSID Convention there will be no jurisdiction".⁶¹ The Tribunal also notes the unresolved consequences, amongst arbitrators, legal practitioners and scholars, of the Decision on the Application for Annulment of 16 April 2009 made by the Ad Hoc Committee in MHS',⁶² including the Dissenting Opinion of Judge Mohammed Shahabuddeen.⁶³ Fortunately, these difficulties do not require the decision of the Tribunal in this arbitration; and, for present purposes, their resolution can be set aside.

The Claimant is 90% owned by the UAE company CTIP Oil and Gas International Limited ("CTIP") and, under Article 10(4) of the BIT is to be treated as a national of the UAE for the purposes of the Convention. [Article 10(4) is here quoted]. Since CTIP acquired 90% of the shares in the Claimant in 2006, the Claimant shall, for the purposes of the Convention, be treated as an investor of the UAE in accordance with Clause (b) of Article 25(2) of the Convention.⁶⁴

In Vacuum Salt, the tribunal (Robert Jennings, Charles Brower and Kamal Hossain), decided upon jurisdiction as follows:

36. [...] [T]he parties’ agreement to treat Claimant as a foreign national "because of foreign control" does not ipso jure confer jurisdiction. The reference in Article 25(2)(b) to "foreign control" necessarily sets an objective Convention limit beyond which ICSID jurisdiction cannot exist and parties therefore lack power to invoke same no matter how devoutly they may have desired to do so [citations omitted]. In addressing the present claim of jurisdiction grounded on the second clause of Article 25(2)(b) it is the task of the Tribunal thus to determine whether or not the Convention limit has been exceeded.

37. [...] As the consent of the parties is in broad principle the "cornerstone of the jurisdiction of the Centre " [citation omitted], it is accorded considerable respect and is not lightly to be found to have been ineffective. Thus the acknowledged authority on the Convention states in specific regard to Article 25 (2)(b) that "any stipulation... based on a reasonable criterion should be accepted" and that jurisdiction should be declined "only if... to do so would permit parties to use the Convention for purposes for which it was clearly not intended" [citation to Broches omitted]. In like vein it has been stated that the agreement of the parties "on a foreign nationality based on foreign control would raise a strong presumption that there was adequate foreign control on which to predicate a foreign nationality. " [citation to Amerasinghe omitted] Then it is "only... where such foreign control cannot be postulated on the facts on the basis of the application of any reasonable criterion that a tribunal... would not [accept jurisdiction], because in such a case the parties would purport to use the Convention for purposes it was not intended. " [citation to Amerasinghe omitted]

38. Nevertheless the words "because of foreign control" have to be given some meaning and effect. These words are clearly intended to qualify an agreement to arbitrate and the parties are not at liberty to agree to treat any company of the host State as a foreign national: They may only do so "because of foreign control. " The Tribunal concludes that the existence of consent to an arbitration clause [...] in circumstances such that jurisdiction could be premised only on the second clause of Article 25 (2)(b) raises a rebuttable presumption that the "foreign control" criterion of the second clause of Article 25(2)(b) has been satisfied on the date of consent.⁶⁵

In Autopista, as recited more fully above, the tribunal (Gabrielle Kaufmann-Kohler, Karl-Heinz Böckstiegel and Bernardo Cremades), approached the jurisdictional issue as follows:

103. Article 25(2)(b) (second prong) defines "national of another Contracting State " as any juridical person which had the nationality of the Contracting State party to the dispute, and which because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of the Convention.

104. Hence, locally incorporated companies may agree to ICSID arbitration subject to two requirements:

• The parties have agreed to treat the said company as a national of another Contracting State for the purposes of this Convention; and

• The said company is subject to foreign control.⁶⁶

The Tribunal notes here this same formulation of two separate "requirements".

118. Accordingly, the Tribunal finds that Mr. Ihr Burimi, a dual national of Italy and Albania, is the majority shareholder of Eagle Games [an Albanian company] and therefore the relevant party for determining whether Eagle Games can be treated as a national of a Contracting State other than the State party to the dispute because it is under "foreign control. "

119. While Claimants did not make this argument in its written submissions, the conclusion that Mr. Ihr Burimi - a dual national of Italy and Albania - is the majority shareholder of Eagle Games raises an important question about whether a dual national may rely on his "foreign" nationality - that is, the nationality other than the nationality of the Contracting State party to the dispute -for the purposes of establishing "foreign control" over a company bringing a claim before ICSID.

120. The ICSID Convention makes it very clear that a dual national may not invoke one of his two nationalities to establish jurisdiction over a claim brought in his own name under Article 25(2)(a), [citation here omitted] Indeed, it is for this very reason that Mr. Ihr Burimi was required to withdraw as a Requesting Party from the Request for Arbitration dated June 16, 2011.

121. While neither the ICSID Convention nor relevant precedents address the potential for a dual national invoking one of his two nationalities to establish jurisdiction over a claim brought in the name of a juridical person under the second clause of Article 25(2)(b), it strikes the Tribunal as anomalous that the principle against use of dual nationality in [Article] 25(2)(a) would not transfer to the potential use of dual nationality in [Article] 25(2)(b). Otherwise, any dual national who is a national of the Contracting State to a dispute could circumvent the bar on claims in Article 25(2)(a) by establishing a company in that state and asserting foreign control of that company by virtue of his second (foreign) nationality. Accordingly, the Tribunal finds that for the purposes of considering whether Eagle Games could be treated as a national of another Contracting State (i.e., Italy) because of "foreign control, " Mr. Ihr Burimi cannot invoke his Italian nationality to establish "foreign control" of Eagle Games.⁷⁹

19. In 2006, the shareholders of National Gas were Mr. Mohamed Magdy Hussien Rasikh, holding 30000 of the shares [5%], Mr. Reda Ahmed Ginena, Egyptian holding 30000 of the shares [5%] and CTIP Oil & Gas International Limited, free zone Jebel Ali - United Arab Emirates (hereinafter referred to as "CTIP UAE"), holding 540000 of the shares [90%].

20. CTIP UAE was incorporated on 2004 [sic] under the Off-shore Companies Regulations of Jebel Ali free zone of 2003.

21. Since 2006, our shareholders have not changed. CTIP UAE still owns 90% of the Shares in National Gas.⁸⁴

Article 61(2) of the ICSID Convention and Rule 47(l)(j) of the Arbitration Rules govern the issue of costs in these proceedings, i.e. both (i) the expenses incurred by the Parties and (ii) the fees and expenses of the Tribunal and the charges of the Centre. Given the wording of these provisions, ICSID tribunals exercise a large measure of discretion on deciding how and by which party such costs shall be paid.

In this case, it is clear that the Claimant is the unsuccessful party and the Respondent is the successful party. The first jurisdictional issue raised by the Respondent, being a threshold issue, means that the Claimant’s claim cannot move to the merits. Accordingly, applying the 'loser pays principle’, the Tribunal considers that the Claimant should bear in full, without any recourse to the Respondent, the fees and expenses of the Tribunal and the charges of the Centre, namely those costs identified under (ii) above.

(i) To uphold the jurisdictional objection ratione personae made by the Respondent;

(ii) Not to determine, one way or the other, the jurisdictional objection ratione temporis made by the Respondent;

(iii) To declare that both the Centre (ICSID) and the Tribunal have no jurisdiction over the Claimant’s claim in this arbitration by virtue of Articles 25(1) and 25(2)(b) of the ICSID Convention;

(iv) That the Claimant shall bear all the costs of these proceedings comprising the fees and expenses of the Members of the Tribunal and the expenses and charges of the Secretariat, the exact amount of which shall be subsequently notified by the Centre; and

(v) That each Party shall bear its own expenses.