SPOTLIGHT #15: The Swiss Federal Tribunal and the MFN Clause in the OIC Agreement: An Endorsement of Procedural Flexibility
At Lead up, we are committed to providing our clients with the most innovative dispute resolution solutions to fit their specific industry contexts. To do that, we have to stay on top of the recent developments in our clients’ sectors, and analyse these developments in line with our clients’ needs. Every month, in “Lead up Spotlight”, we share with you – our colleagues, clients and prospective partners – our analysis on a recent development relating to dispute resolution in an industry that matters to us and to our clients.
This month’s Lead up Spotlight focuses on the importation of dispute resolution provisions from other treaties in arbitrations stemming from the OIC Agreement.
In a significant ruling dated 3 June 2025, the Swiss Federal Tribunal upheld a US$74 million arbitral award rendered in favour of 19 members of the Gargour family against Libya under the Organisation of Islamic Cooperation (“OIC”) Investment Agreement. The decision is notable – inter alia – for its endorsement of the use of a Most-Favoured-Nation (“MFN”) clause to resolve a procedural impasse in the constitution of the arbitral tribunal.
Background: The Dispute and the Procedural Deadlock
The dispute arose from the expropriation of assets belonging to the Gargour family following the 1969 coup d’état in Libya. After decades of unsuccessful litigation in Libyan courts, the claimants initiated arbitration in 2018 under the 1981 OIC Investment Agreement.
The OIC Agreement provides for arbitration but stipulates that, in the event of disagreement over the appointment of the tribunal president, the OIC Secretary General shall make the appointment. However, the Secretary General failed to respond to repeated requests. To break the deadlock, the claimants invoked the MFN clause in Article 8 of the OIC Agreement to import the UNCITRAL arbitration rules from the France–Libya BIT, which allow for the Permanent Court of Arbitration (“PCA”) to act as appointing authority.
The PCA appointed Andreas Reiner as appointing authority, who in turn appointed Samaa Haridi as tribunal president. Libya challenged the tribunal’s jurisdiction and later sought to annul the award before the Swiss Federal Tribunal.
The Swiss Court’s Reasoning: MFN as a Procedural Gateway
The Swiss Federal Tribunal rejected Libya’s challenge and upheld the award. In doing so, it made several important findings:
1. MFN Clauses Can Extend to Procedural Rights
The Court held that the MFN clause in the OIC Agreement was not limited to substantive protections but could also encompass procedural guarantees, including mechanisms for tribunal constitution. It reasoned that the clause entitled investors to treatment “no less favourable” than that accorded to investors from other States, which could include access to more effective dispute resolution procedures.
This interpretation aligns with the liberal approach to MFN clauses adopted in cases such as Maffezini v. Spain, where procedural rights were deemed importable. The Court distinguished this case from situations where public policy might preclude such importation, noting that here the MFN clause was used to fill a procedural gap, not to circumvent mandatory rules.
2. The OIC Agreement’s Silence Does Not Preclude Supplementation
The Court acknowledged that the OIC Agreement lacked a fallback mechanism in the event of inaction by the Secretary General. It found that the treaty’s silence should not render arbitration impossible, and that the use of the MFN clause to resolve the impasse was consistent with the treaty’s object and purpose.
3. Jurisdiction Was Properly Established
Libya argued that the OIC Agreement had not entered into force for Lebanon and Jordan at the time of the expropriations. The tribunal, and the Swiss Court, rejected this, holding that the dispute arose not from the expropriations themselves, but from Libya’s failure to provide compensation, a continuing breach that extended into the period when the treaty was in force.
Side Note: The French Position in DS Construction v. Libya
The Swiss decision stands in contrast to the 2021 ruling of the Paris Court of Appeal in DS Construction v. Libya, where the court annulled an award rendered under the OIC Agreement.
In that case, the arbitral tribunal had similarly relied on the MFN clause to import the UNCITRAL arbitration rules and enable the Permanent Court of Arbitration to appoint the tribunal president. However, the French court adopted a more restrictive interpretation, concluding that the MFN clause in the OIC Agreement did not extend to procedural rights and that the PCA lacked authority to intervene in the constitution of the tribunal.
Rather than endorsing MFN-based procedural supplementation, the French court pointed to an alternative solution grounded under French law: the claimants should have sought assistance from the juge d’appui, the French court designated to support arbitral proceedings in cases of deadlock.
This reflects France’s more formalistic and institutionally anchored approach to treaty interpretation, offering a different but viable route for resolving procedural impasses under the OIC framework.
Implications for OIC Arbitration and Beyond
The Swiss Federal Tribunal’s decision is a landmark ruling that affirms the viability of investor-State arbitration under the OIC Agreement, even in the absence of a functioning institutional framework. It also provides a judicial endorsement of MFN-based procedural importation, offering a pathway for investors to overcome institutional inertia and access arbitration where treaty mechanisms fail.
For investors and counsel, the ruling underscores the importance of seat selection and the availability of distinct procedural solutions. In arbitrations seated in Switzerland, MFN clauses may serve as a gateway to jurisdiction, while in arbitrations seated in France, recourse to the juge d’appui may offer a more institutionally grounded alternative.