Review of Awards: Court of Cassation (Chamber 1), 9 October 2024, No. 23-14.368, Etrak v. Libya
THE AUTHOR:
Jad El Hage, Legal Counsel at the Center of Mediation and Arbitration of Paris (CMAP), and PhD Candidate and Teaching Fellow at Paris Dauphine University
- English
- French
The Etrak v. Libya case concerns several construction projects in Libya, which entailed the conclusion of public works contracts between Libyan entities and the Turkish company Etrak Insaat Taahhüt Ve Ticaret Anonim Sirketi (hereinafter “Etrak” or “Investor”) in the 1980s. In 1991, the investor decided to suspend the performance of the contracts due to unpaid invoices by the State. A settlement agreement – modifying the conditions of compliance with a decision by Libyan courts ordering the Libyan State to pay the invoices in addition to damages – was signed on 9 December 2013 between the parties. This settlement agreement offered a temporary glimmer of hope, later dissipated by its annulment by Libyan courts (See North Tripoli First Instance Court, 2 May 2019). The non-performance of the settlement agreement led the investor to resort to arbitration under the Libya – Turkey Bilateral Investment Treaty (2009) (hereinafter “BIT”) (On the entry into force of this BIT, see: Judgment of the Paris Court of Appeal (Department 5 – Chamber 16) 19/19834 of 28 September 2021). The seat of arbitration was chosen as Geneva, Switzerland. On 22 July 2019, the arbitral tribunal issued a Final Award in which it upheld its jurisdiction and ordered Libya to pay more than USD 21 million in damages to the investor. This award was challenged for annulment, but the Swiss Federal Tribunal rejected this challenge in its Judgment 4A_461/2019 of 2 November 2020. On 10 April 2021, the Higher Regional Court of Munich rejected the request for recognition and enforcement of the arbitral award in Order 34 Sch 3/20. The investor then applied for enforcement in France, and the president of the Paris Judicial Court issued an order granting the enforcement of the arbitral award in France. The State of Libya appealed this decision before the Paris Court of Appeal, which upheld the order for enforcement in its Judgment 21/06118 of 14 March 2023. However, the French Court of Cassation overturned this decision with a Judgment 23-14.368 of 9 October 2024, which is the subject of this commentary. This annulment impacted the request for enforcement of the North Tripoli First Instance Court’s judgment of 2 May 2019, which had annulled the settlement.
The issue before the French enforcement judge was, in particular, whether the arbitral tribunal had jurisdiction to resolve the dispute. The interaction between ratione materiae and ratione temporis jurisdiction is of particular interest in this analysis. The other components of an arbitral tribunal’s jurisdiction in investment arbitration will not be addressed, as they are not contested in the challenge against the award in question. Other grounds, such as public policy, will also not be discussed.
On the merits, the Paris Court of Appeal considered that the arbitral tribunal had jurisdiction by addressing, first, ratione materiae jurisdiction, qualifying the “claims to money” arising from the settlement agreement as an investment, and then addressing ratione temporis jurisdiction, qualifying the dispute arising from the non-performance of the settlement agreement as new, notably because it definitively ended the original dispute (we refer to a new dispute as one that falls under the ratione temporis jurisdiction of the arbitral tribunal). However, the Court of Cassation questioned this jurisdiction. Let us examine the details.
To recall, Article 1(2) of the BIT defines “investment” as: “The term “investment”, in conformity with the hosting Contracting party’s laws and regulations, shall include every kind of asset in particular, but not exclusively : […] (b) returns reinvested, claims to money or any other rights having financial value related to an investment, […].”
Article 10 of the BIT concerning its temporal scope provides: “The present Agreement shall apply to investments in the territory of a Contracting Party made in accordance with its laws and regulations by investors of the other Contracting Party before or after the entry into force of this Agreement. However, this Agreement shall not apply to disputes that have arisen before its entry into force.” (Readers may recall that in the Oschadbank v. Russia case, the Court of Cassation excluded from the scope of the review of awards the issue of the timing of the investment’s realization, as it pertains to the merits). The dispute resolution clause, which forms the basis for arbitration, is found in Article 8 of this treaty and Article 8(4)(a) limits the BIT scope to “only the disputes arising directly out of investment activities […]”.
To address the general issue of the arbitral tribunal’s jurisdiction, two questions must be answered:
- Whether the claim arising from the settlement agreement constitutes an investment (ratione materiae jurisdiction), and,
- Whether the dispute submitted to the arbitral tribunal arose after the entry into force of the treaty (ratione temporis jurisdiction).
The Paris Court of Appeal already dealt with these two issues in the Üstay v. Libya case (Judgment of the Paris Court of Appeal (Department 5 – Chamber 16) 21/01507 of 23 January 2024, see commentary: Sophie Lemaire, Revue de l’arbitrage 2024, n° 2, p. 646). Also, it is worth recalling that the ICSID arbitral tribunal, in the CMC v. Mozambique case, had the opportunity to decide in its award of 24 October 2019 that financial claims arising from a settlement agreement constituted an investment within the meaning of the applicable BIT in this case (CMC v. Mozambique, Award, 24 October 2019, para. 175).
Regarding ratione materiae jurisdiction, the Court of Cassation emphasized that for the settlement claim (by “settlement claim”, we refer to the claims to money arising from the settlement agreement) to qualify as an investment under Article 1(2)(b) of the BIT, it must be linked to an investment activity (by “investment activity”, we refer to the investment operation to which the claims to money must be linked in order to be qualified as an investment within the meaning of Article 1(2)(b) of the BIT). In the case at hand, since the settlement claim did not stem from the 1980 investment, the Court of Cassation held that the settlement claims did not relate to an investment activity and thus did not constitute an investment under the treaty.
Regarding ratione temporis jurisdiction, the practical importance of this issue is that the investor could not rely on the non-performance of the public works contracts, as this dispute arose before the treaty entered into force. The only hope for the investor was to qualify the claims arising from the settlement agreement as an investment, in other words, to argue that the dispute related to the non-performance of the settlement agreement was a new and autonomous dispute, arising after the entry into force of the treaty and related to an investment under the treaty.
After pointing out the findings of the Court of Appeal, which held that the claim arising from the settlement agreement, considered in isolation, did not constitute an investment under the treaty, the Court of Cassation triggered the following question: Is there a link between the investment (settlement claim) and the investment activity (1980 contracts), and what are the implications of this link regarding the tribunal’s ratione materiae and ratione temporis jurisdiction?
According to the Court of Cassation, if such a link exists, the settlement claim constitutes an investment (ratione materiae jurisdiction). However, the dispute did not arise after the entry into force of the treaty because it was linked to a dispute predating the treaty concerning the non-performance of the public contracts (ratione temporis jurisdiction). On the other hand, if no such link exists, the settlement claim is not an investment, and the question of ratione temporis jurisdiction need not be addressed.
The Court of Cassation’s reasoning results in the link between the investment and the investment activity influencing ratione temporis jurisdiction, even though this link is only relevant for ratione materiae jurisdiction. A condition in the BIT has seen its scope extended beyond its original intention in the treaty text. Therefore, the link between the settlement agreement and the 1980 investment activity implies a link between the dispute arising from the settlement agreement and the previous dispute arising from the 1980 contracts, which excludes the arbitral tribunal’s ratione temporis jurisdiction.
To determine the date of the dispute in question and assess its novelty, the Court of Cassation referred to the Court of Appeal’s finding that the claims arising from the 1980 contracts and those from the settlement agreement were different. There is no incompatibility between the difference in the cause of action of the claims (i.e., the dispute is different) and the common economic source of the claims, which is the 1980 investment activity. Two things can be different yet connected: the content and legal source of the claims may differ, even though their economic origin is the same.
The settlement agreement is inherently a resolution of a prior dispute; therefore, we are in a situation where a new condition is added to the treaty: the dispute resolved by the settlement agreement must arise after the entry into force of the treaty (The Court of Cassation has previously ruled against adding a condition to the treaty that is not provided for in its terms: García Armas and García Gruber v. Venezuela, Judgment of the French Court of Cassation (First Civil Chamber) 20-16.714, 1 December 2021). The fact that the dispute regarding the non-performance of the settlement agreement arose after the treaty’s entry into force is not enough. It is important to recall that Article 10 of the BIT only requires that disputes arise after its entry into force, excluding those that arose before. Thus, the key criterion is the date on which the dispute was crystallized, and only an identity between the disputes arising from the non-performance of the original contracts and the non-performance of the settlement agreement would exclude ratione temporis jurisdiction, not a mere relationship between these disputes.
In its reasoning, the Court of Cassation criticizes the Court of Appeal’s findings for allegedly being self-contradictory. On the one hand, the Court of Appeal, in order to uphold ratione temporis jurisdiction, stated that the dispute was autonomous with respect to the 1980 contracts. On the other hand, the Court of Appeal also recognized that this settlement-related dispute was connected to the 1980 contracts, in order to uphold ratione materiae jurisdiction. However, the connection between the disputes is an economic link, not a legal one. As the Court of Appeal explained, the legal dispute related to the settlement agreement is new: concessions, damages, etc. The economic link exists between the disputes, but it is not relevant for ratione temporis jurisdiction. The economic link between the investment operations (settlement claim and 1980 contracts) is relevant for ratione materiae jurisdiction (to qualify as a protected investment) as required by the BIT, but not for determining whether the dispute is new. Thus, the Court of Appeal addresses each issue separately, whereas the Court of Cassation gives significant weight to the link between the disputes without distinguishing, depending on the issue to be resolved (ratione materiae or ratione temporis jurisdiction), the subject of the link (disputes or economic operations) and the types of links (legal or economic). Therefore, the existence of an economic link between the settlement claims and the 1980 contracts (ratione materiae jurisdiction) does not exclude the absence of a legal link between the disputes arising from the non-performance of the settlement agreement and those arising from the non-performance of the 1980 contracts (ratione temporis jurisdiction). The dispute at stake can therefore arise “directly out of investment activities” and this link is not indirect. Whereas, for the Court of Cassation, the autonomy of the disputes related to the non-performance of the initial contracts and the non-performance of the settlement agreement excludes the possibility that the settlement claims are related to the initial contracts, and therefore excludes their qualification as investments.
Does the intention of the drafters of the BIT to link “claims to money” (and its dispute) to an investment activity mean that they wish to link, in principle and under all circumstances, disputes arising out of that investment activity and those arising out of the non-performance of the claims? Isn’t the BIT’s purpose to link the “claims to money” to an investment activity primarily a means of excluding purely commercial disputes from the material scope of the treaty? Do the drafters of the BIT intend to link the conditions of ratione materiae jurisdiction to those of ratione temporis jurisdiction?
This is not the first time that the different aspects of jurisdiction are assessed in light of one another, which has not escaped doctrinal criticism (See Garcia v. Venezuela: Sophie Lemaire and Malik Laazouzi, “Chronique de jurisprudence arbitrale en droit des investissements”, Revue de l’arbitrage 2019, n° 2, p. 576).
The Court of Cassation seems unwilling to accept that a relationship between the settlement claim and the initial investment activity can coexist with a lack of identity between the dispute arising from the non-performance of the settlement claim and the dispute arising from the non-performance of the initial contract. As explained above, the nature of the relationship is different: for one, it is a matter of an economic relationship between the settlement claim and the investment activity, and for the other, it is one of a legal or procedural relationship between the dispute arising from the claim and the dispute arising from the initial contract. According to the Court of Cassation, pursuant to Article 8(4)(a) of the BIT, which requires that disputes arise directly from an investment activity, the fact that the disputes are not linked excludes the tribunal’s ratione materiae jurisdiction because the link between the settlement claim and the initial contracts is severed. Thus, there is also an influence of the link between the disputes (relevant for ratione temporis jurisdiction) on the link between the economic operations (relevant for ratione materiae jurisdiction).
Ratione materiae jurisdiction (definition of investment) and ratione temporis jurisdiction (dispute arising after the treaty’s entry into force) are different issues. The settlement claim and the initial activity can be linked (thus, this claim is an investment) while triggering a new dispute, unless a new condition is added to the treaty, stating that the new dispute must arise from an investment resulting from an investment activity that did not generate a pre-existing dispute before the entry into force of the treaty.
The real issue is determining what constitutes a new dispute in the context of a settlement agreement. As the Court of Appeal observed, the settlement agreement can give rise to new legal issues independent of those arising from the initial contract, despite the normal link between the settlement claim and the initial activity. The Court of Cassation could have chosen other criteria to assess the novelty of the dispute, for example, as Libya argued, the persistence (or lack thereof) of the unresolved initial dispute. But the Court preferred to assess ratione temporis jurisdiction in light of the conditions of ratione materiae jurisdiction, and vice versa.
The correlation between the link between the settlement claim and the initial contract, on the one hand, and the link between the old and new disputes, on the other hand, is established by this decision. However, this correlation does not seem self-evident.
Finally, this decision highlights the particularities of jurisdictional issues in investment arbitration compared to commercial arbitration and the fluctuating reactions of the post-award judge.
In light of this decision, the Court of Appeal, in a different formation, to which the case was remanded is invited by the Court of Cassation to determine whether there is a link between the settlement claims and the 1980 investment activity and, if so, to draw the consequences on the issue of ratione temporis jurisdiction. We shall see how the lower court addresses this.
ABOUT THE AUTHORS
Jad El Hage is an attorney at the Beirut Bar and a legal counsel at the Center of Mediation and Arbitration of Paris (CMAP). He specializes in international commercial arbitration and investment treaty arbitration, conducts research in the field (PhD Candidate), and lectures at universities. Jad El Hage is frequently invited to speak at conferences on international arbitration, and he actively participates in treaty negotiations at the United Nations. He has worked with leading international law firms, representing both states and private entities in arbitration proceedings under the rules of various arbitration institutions. He is fully fluent in Arabic, French and English and is a graduate of Saint Joseph University of Beirut, Paris II Panthéon Assas University and Paris Dauphine University.
*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.
