Reinsurance & Arbitration Focus

The Second Circuit Court of Appeals recently affirmed the confirmation of an arbitration award issued under a bilateral investment treaty between Libya and Cyprus. We previously described the underlying Southern District of New York opinion confirming the award in a prior post.

On appeal to the Second Circuit, Libya primarily argued that the district court erred by declining to independently review the arbitrability of the claims involved before confirming the final award. The Second Circuit disagreed with Libya’s contention that a de novo standard should have been applied to review the arbitral tribunal’s decision because Libya “clearly and unmistakably” agreed to submit questions of arbitrability to the arbitrator. Libya indisputably agreed to arbitrate such issues when it signed the bilateral investment treaty providing Cypriot investors with the option of resolving disputes under the arbitral rules of the International Chamber of Commerce (ICC).

In so holding, the court noted the consistent line of cases holding that “when one party is a signatory to a bilateral investment treaty containing a provision for arbitration, the treaty constitutes a standing offer to arbitrate disputes covered by the treaty, and a foreign investor’s written demand for arbitration completes the agreement in writing to submit the dispute to arbitration.” The bilateral investment treaty simply creates “a framework through which foreign investors can initiate arbitration against parties to the Treaty. Accordingly, all that is necessary to form an agreement to arbitrate is for one party to be a [bilateral investment treaty] signatory and the other to consent to arbitration of an investment dispute in accordance with the Treaty’s terms.”

Having determined that a valid arbitration agreement was formed upon submission of the claim to the arbitral tribunal of the ICC by the Cypriot investor, the court turned next to the question of arbitrability of the dispute. While courts presume that questions of arbitrability are for the court to decide, not the arbitrator, that presumption is overcome where the record “supplies clear and unmistakable evidence that the parties agreed to submit the issue to arbitration.” Such “clear and unmistakable” evidence of intent can be provided by the incorporation of rules that empower an arbitrator to decide issues of arbitrability. To determine whether such rules have been incorporated into the parties’ agreement, the courts look to both the text of the relevant bilateral investment treaty and the procedural rules adopted by the parties at the outset of the arbitration.

Here, the terms of the bilateral investment treaty authorized investors to submit a dispute to the ICC. ICC rules presumptively apply to disputes submitted to the ICC. Accordingly, by signing the bilateral investment treaty, “Libya clearly and unmistakably agreed to send questions of arbitrability” to the arbitrator. As a result, the district court was required to defer to the arbitrator’s determination of the arbitrability of the parties’ dispute. The Second Circuit therefore affirmed the district court’s decision declining de novo review and confirmation of the ICC tribunal’s arbitration award.

Olin Holdings Ltd. v. State of Libya, No. 22-825 (2d Cir. July 12, 2023).