The ‘Mixed’ Future of the EU’s Investment Law and Arbitration Policy

by Nikos Lavranos, Secretary General of EFILA*

The year 2016 must be considered a real “annus horribilis” for the EU’s investment law and arbitration policy. The following list is just an incomplete overview of the failures of the European Commission to deliver any positive results:

  • TTIP was not concluded within the presidency of the Obama Administration and seems to be put in the freezer by President-elect Trump;
  • Even after Wallonia has been appeased, CETA is still not certain of being actually ratified by all Member States and enter fully into force, since the Court of Justice of the EU (CJEU) is going to opine on the compatibility of the investment court system (ICS) with EU law;
  • AG Sharpston recently delivered her opinion on the EU-Singapore FTA, arguing that this FTA must be concluded as a “mixed” agreement, i.e., signed and ratified by all Member States and the EU. Consequently, also this FTA will most likely face similar difficulties as CETA, in particular since it still contains the ostracized “old school” ISDS provisions.
  • The European Commission intensified its efforts of destroying the intra-EU BITs by mounting infringement proceedings against 5 Member States and by prohibiting Romania to pay out the $ 250 million Micula award and thereby fulfilling its international.
  • Similarly, the European Commission continues to intervene in all intra-EU BITs and intra-ECT disputes, trying to prevent European investors to rely on the rights granted to them by these treaties, which are still valid and in force.

In short, after 7 years since the EU obtained exclusive competence for “foreign direct investments”, the EU’s investment policy is not only practically absent but has – more importantly – created legal uncertainty and cast doubt as to the investment climate and the rule of law within the EU. This is even more disappointing in light of the unprecedented financial and economic crisis, which has hit most of the EU Member States and continues to smoulder beneath the surface. Instead of attracting new foreign direct investments, which would create jobs, the European Commission has been financing anti-ISDS, anti-investment and anti-globalization groups to scare the general public and media about something that has been in place for more than 50 years.

Looking ahead, the year 2017 should be used for pause and reflection, and ultimately, change of the chosen path.

After the CETA-drama and the Opinion of the CJEU on the EU-Singapore FTA, which will most likely follow AG Sharpeston’s analysis, the European Commission should – for a start –

accept and embrace “mixity” as the new reality. This would be a very important move by the European Commission because it could allow her to stop fighting with the Member States about competences, thereby enabling it to spend her resources on more relevant issues.

As the CETA-drama has aptly demonstrated, involving the Member States – including their regional parliaments – is a necessity in order to create any sufficient level of support for FTAs. In other words, “mixity” is a tool for increasing democratic involvement and control by the Member States and their voters. In light of the rising populism in Europe – and in light of the upcoming elections in France, Germany and Netherlands which all will take place in 2017 – this point should not to be underestimated.

In this connection, it may be advisable if the European Commission would apply the motto “less is more”. Currently, the European Commission is negotiating more than a dozen FTAs ranging from China to Tunisia. Considering the efforts, time and resources necessary for negotiating and concluding just one FTA, a prioritization of all these FTA-negotiations is essential.

In the second place, the European Commission and the European Parliament should stop stirring up the hysteria again investors, investment protection and arbitration. Investment protection and arbitration have been important and necessary elements for the promotion and protection of European investments and investors investing abroad and thereby creating jobs in Europe as well as improving the economic development in the countries of their investment destinations. Moreover, investment treaties continue to have an important role as a tool for improving the rule of law situation in many countries in the world.

Therefore, in the third place, the discourse has to change towards how investment treaties can be used as a tool for improving the functioning, efficiency and transparency of state organs across the board, in particular with the aim of eradicating corruption. This would not only benefit foreign investors but – more importantly – domestic investors and the general public.

In sum, 2017 should be the year in which the demonization of investment treaties, investment protection and arbitration has to end. Instead of spreading myths and hysteria, all relevant stakeholders should calm down and return to a fact- and merit based discourse.

As in the past years, EFILA will continue to exactly do that.

Starting with our 3rd Annual Conference on 23 February in Vienna.

At the same time calling for submissions of papers for the European Investment Law and Arbitration Review.

By requesting blogpost submssions for the EFILAblog.

By submitting its views to the public consultation on the investment court system.

Finally, by hosting the next Annual Lecture, which will be delivered by a well-known arbitration expert, sometime in the fall of 2017.

With this hopeful outlook, I wish you all a very peaceful new year.

* Nikos Lavranos, Secretary General of EFILA, visiting professor Verona University, Fellow at the WTI.


Arbitration in Iran: With Focus on International Commercial Arbitration


Nasim Gheidi & Parham Zahedi, Gheidi & Associates*

Part one – Historical Background

Following the historic deal known as the Joint Comprehensive Plan of Action (JCPOA) between Iran and five permanent members of the Security Council plus Germany, Iran is again at the center of companies’ attention from all over the world. Iran, with vast area of land and extremely rich natural and human resources, undoubtedly stands as a major target for sustainable foreign investment. Despite being enthusiastic for doing business in Iran, companies may still remain baffled as to legal implications and consequences of their entering into the market, in particular, as to the efficiency of the dispute settlement system.

Investors have always preferred arbitration to national courts so that a fair and professional trial is ensured. The question, however, arises as to whether Iran’s legal system guarantees resorting to such internationally recognized and renowned method.

The Iranian legal system is based on Sharia, which is derived from the religious precepts of Islam, particularly the Quran and the Hadith, so that every code will be in compliance with Sharia. The perennial question as to emergence of each legal institution is whether it could be adopted by Sharia. As regards dispute settlement, arbitration is suggested by Quran in family disputes under Nesa Surah Verse 35 and by various Hadiths in business affairs.  Therefore, this is certainly a consensus between Islamic law experts that disputes can be referred to arbitration rather than to the courts.

Arbitration laws are adopted by Iranian legislative powers since the beginning of new legislation era as part of procedural law first and then as a separate law governing arbitration independently. After the Islamic revolution and further challenges and developments with regard to legislation, the Law on International Commercial Arbitration (“LICA”) enacted in 1997 and Civil Procedure Law (“CPL”), last modified in 2001, are the latest applicable laws governing international commercial disputes and local disputes respectively.

Chapter 7 of the CPL deals with arbitration. The provisions of this chapter is applicable only to arbitration where both parties to the dispute have Iranian nationality. In 1997, in order to harmonize and facilitate the provisions of the arbitration with international practice, the parliament passed the LICA, which is largely based on the UNCITRAL Model Law on “International Commercial Arbitration”. According to Art 1 (B) of LICA, “International arbitration is in the case where one of the parties, at the time of conclusion of the arbitration agreement, is not a national of Iran under the Iranian laws.” LICA applies to arbitration in international commercial relationships including, inter alia, sales of goods and services, transportation, insurance, financial matters, consulting, investment, technical cooperation, representation, factoring or similar activities as per Art 2 (1).

LICA recognizes the autonomy of the parties to organize the arbitral proceedings e.g. the right to appoint arbitrators, choose the applicable law, location and language of arbitration proceedings. Other features of LICA to be noted are competence of arbitral tribunal to rule on its jurisdiction, non-intervention of Iranian courts in the proceedings, severability of the arbitration clause, power of the arbitral tribunal to take provisional measures and above all recognition of institutional arbitration, allowing the parties to refer subject matter of their dispute to arbitration institutions.

The major (and the most active) arbitration institutions in Iran are Arbitration Center of Iran Chamber (“ACIC”) and Tehran Regional Arbitration Center (TRAC), which provide an immune and secure environment for conducting arbitration proceedings. As cited in their websites, ACIC was established in 3 February 2002 by virtue of a specific piece of law called “The Law on Articles of Association of ACIC” approved by the parliament of Iran. ACIC is organized as an affiliate to the Iran Chamber of Commerce but enjoys independent legal personality. ACIC is the first Iranian independent arbitration institution established for the purpose of settlement of both domestic and international disputes through arbitration or conciliation. Tehran Regional Arbitration Centre (TRAC) is an independent international organization under the auspice of the Asian-African Legal Consultative Organization (“AALCO”). TRAC has been established pursuant to the Agreement signed on 3 May 1997, between the Islamic Republic of Iran and ALLCO. TRAC enjoys the necessary privileges and immunities provided for an international organization. The TRAC Rules of Arbitration (the “Rules”) are essentially based on the UNCITRAL Rules of Arbitration.

In subsequent years to the enactment of LICA, in 2001, Iran ratified the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards (the “NY Convention”) to take a notable further step to be known as a suitable country for foreign investment. The accession to the NYC has paved the way for foreign investors to refer their disputes to international arbitration outside of Iran as foreign arbitral awards are recognized and can be enforced in the country as long as there is no ground for refusal in accordance with Article V of NY Convention.

The above-mentioned developments, including enactment of LICA based on UNICTRAL Model Law, accession to the NY Convention, establishment of international arbitration institutions and above all organizing and conducting training and commercial seminars for students, lawyers and businessmen have opened up novel convenient avenues for the development of international arbitration as one of the prerequisite for foreign investment promotion and protection in Iran.

In addition, Iran has signed more than 60 Bilateral Investment Treaties (52 of them are in force) with capital-exporting and neighboring countries to encourage and attract foreign investments. Under all these BITs, International arbitration is allowed in the event of investment disputes, which is a key protection and promotion for foreign investment.

However, despite all these valuable developments, Iran as a developing country is still struggling with some ambiguities in its legal system especially when it comes to recognition, enforcement or annulment of arbitral awards. Some conflicts exist between laws and practice and some improper judicial precedents are in place. The role of legal scholars and professionals in the country is to attune special attention to the challenges and obstacles so that a more favorable environment is provided for international arbitration and foreign investment in general.

In this first article of our upcoming series, we tried to give a historical introduction about arbitration in Iran. We will further discuss the potentials to be realized and developed as well as obstacles and barriers to be tackled. In the next article the focus will be laid on Principle 139 of Iranian Constitutional Law, which challenges arbitrability of the disputes where public or governmental properties are involved and the conflicts therewith arisen with BITs that Iran has made with other states. In the end, possible solutions will be presented for the purpose of foreign investor’s protection.