REUTERS | Mike Hutchings

A new approach to investment protection? Recent developments in Africa

Investor-state dispute resolution (ISDS) has been the subject of intense global scrutiny in recent years. In Europe, the EU Commission has been driving forward a proposal for the creation of a multilateral investment court system to replace ad hoc arbitration in existing bilateral and multilateral treaties. In July of this year, the UN Commission on International Trade Law (UNCITRAL) agreed that a working group should consider the issue of multilateral reform of ISDS including the EU’s suggestion of a multilateral investment court. However, whilst ISDS in the context of the Transatlantic Trade and Investment Partnership (TTIP), the Comprehensive Economic and Trade Agreement (CETA) and, more recently, the North America Free Trade Association (NAFTA) has grabbed the headlines, other states and blocs are forging their own paths for reform. Whilst there has been a domestication of remedies in some instances, a number of novel changes in approach to investment protection and ISDS have been adopted in treaties signed by countries in Africa.

African states began signing bilateral investment treaties (BITs) in the 1960s. There has been a steady flow since then. Indeed, African states and regional economic communities have signed 972 international investment agreements (IIAs). A great majority contain ad hoc arbitration provisions under which investors can enforce investment protections. According to the United Nations Conference on Trade And Development (UNCTAD), 92 (11.2%) of the 817 investment claims instituted worldwide have been instituted against African countries. Of the 58 concluded claims:

  • In 13 (23.6%) the investor succeeded.
  • In 19 (20.7%) the state successfully defended the claim.
  • In two the state was found liable but no damages were awarded to the investor.
  • 16 were settled.
  • Seven were discontinued.

This leaves one, about which there is no information about the outcome.

These statistics do not suggest that African states are disproportionately affected by investment claims. However, the threat of such claims may still have an effect on regulatory development. This is particularly significant for countries where the regulatory structure is minimal or outdated.

This perception that the threat of international investment claims instigates regulatory chill or influences developments in government policy has undoubtedly influenced the future of ISDS in some African states. In 2009, the South African government concluded that its BITs were drafted in such a way as to impinge on its policy and law making, including by inhibiting progress of its post-Apartheid socio-economic transformation agenda. In response, South Africa declined to renew 12 BITs with EU member states in 2010 and let a further EU BIT expire in 2012. Alongside this targeted policy of non-renewal of BITs, South Africa developed its domestic legislation on investment in the form of the South African Protection of Investment Act No. 22 of 2015. The purpose is to protect investment “in a manner which balances the public interest and the rights and obligations of investors”, and affirm South Africa’s “sovereign right to regulate investments in the public interest”. The Act confirms that foreign investors in South Africa are entitled to the same treatment as that afforded to South African investors in like circumstances (with a number of exceptions in section 8 on national treatment). Disputes may be resolved by way of mediation, but if this is unsuccessful, investors are forced to litigate in domestic fora within South Africa.

More recently, South Africa was reportedly instrumental in procuring the amendments made to Annex 1 (Cooperation on Investment) of the South African Development Community (SADC) Finance and Investment Protocol. The preamble to the amendment agreement notes that some of the existing provisions “fail to adequately balance investor protection and development policy space for host States”. Not only did the amendments limit the scope of protection to investors from SADC states and remove the guarantee of fair and equitable treatment, the international arbitration provisions were replaced with an obligation to resolve disputes through the domestic courts of the host state.

This is undoubtedly a significant statement by a bloc of 15 African states. However, it should not be understood as being indicative of a general rejection of ISDS on the continent. The SADC Annex itself expressly preserves the rights of SADC states to enter into BITs with third states and the SADC Model BIT concluded in 2012 includes ISDS provisions. That said, it also contains a “special note” indicating that “the Drafting Committee was of the view that the preferred option is not to include investor-State dispute settlement…” with the text providing comprehensive guidance in the event that a state does decide to negotiate and include ISDS.

South Africa’s view notwithstanding, BITs continue to be entered into across the continent. African states have signed 25 BITs with countries from Europe, Eurasia, the Middle East, Asia, North America and South America since the beginning of 2015. A number of the most recent BITs are also intra-Africa, with Morocco, Ethiopia, Nigeria, Mauritius, Sao Tome, Rwanda and Ivory Coast all having concluded BITs with other African countries in the same period. A few of Africa’s recent BITs resemble the old generation treaties. For example, the Rwanda-Morocco BIT and the Nigeria-UAE BIT contain very short dispute resolution provisions. However, a number of these BITs contain safeguards and additional provisions which could be said to address the suggestion of imbalance between the investor and host state interests. These developments affect both in terms of the circumstances in which the protections are afforded and the mechanism of ISDS.

Many of these recent BITs include detailed dispute resolution provisions, which are distinctly different from standard short form articles found in the bulk of the BITs negotiated in the global surge in the mid-1990s. Interesting features include:

  • An increased focus on amicable dispute resolution and other conditions precedent to arbitration. Many contain a notice period and an obligation on the host state and investor to settle disputes by consultations and negotiations in good faith (for example, Article 10(1) of the Rwanda-Turkey BIT). Canada has signed a number of BITs with African states in recent years, including with Burkina-Faso, Cameroon, Benin, Ivory Coast, Guinea, Mali, Nigeria and Senegal. Consistent with Canada’s Model Foreign Investment Protection Agreement (FIPA) 2004, these BITs each contain a detailed article laying out the conditions precedent to submission of a claim to arbitration. These include the submission of a detailed written notice of intent and an obligation on the disputing parties to hold consultations and attempt to settle amicably before a claim can be submitted to arbitration. Failure to comply with the conditions precedent expressly nullifies the consent to the submission of a claim to arbitration.
  • Provisions relating to both the qualifications and independence of arbitrators. For example, Article 14 of the Singapore-Nigeria BIT requires that arbitrators are both independent and shall have experience or expertise in public international law or international investment law. Some BITs include an additional requirement of expertise or experience in financial services law or practice in certain circumstances (for example, Article 24(2) of the Canada–Burkina Faso BIT).
  • Specific provisions on public access, transparency and third party intervention. These include an express requirement that all documents submitted to or issued by the tribunal are publicly available, unless the disputing parties otherwise agree, subject only to the redaction of confidential information (for example, Article 32 of the Canada–Burkina Faso BIT and Article 15(13) of the Japan-Kenya BIT)). Some of these new treaties expressly envisage a role for amicus curiae “with a significant interest in the arbitration” subject to the tribunal’s discretion and certain safeguards (for example, Article 33 of the Canada-Burkina Faso BIT).
  • A role for the other contracting state. This role manifests itself either in the resolution of disputes involving one of its investors, or in the longer-term interpretation of the treaty. Article 30 of the Canada-Burkina Faso BIT obliges the investor to put its own state on notice of its intent to submit a claim to arbitration. The non-disputing state may then request copies of the evidence, pleadings and written arguments of the disputing parties, has a right to attend hearings and, upon written notice to the disputing parties, may make submissions to the tribunal on the interpretation of the treaty. The Japan-Kenya BIT contains a similar provision.
  • Express provisions for the consolidation of claims which raise common questions of law or fact. For example, Article 19 of the Singapore-Nigeria BIT. Consolidation could reduce the financial burden on a state of responding to claims by multiple investors in separate proceedings, although it would not lessen the burden if the same state action was alleged to have breached more than one BIT.
  • Restrictions on remedies. A tribunal may be expressly prohibited from ordering punitive damages or requiring a contracting party to reverse a measure or decision (for example, Article 10(7) of the Rwanda-Turkey BIT).
  • Comments on a proposed decision or award. Article 18(4) of the Singapore-Nigeria BIT imposes a period for the parties to submit written comments on the proposed decision or award on liability and an obligation on the tribunal to consider those comments.

These developments in the dispute resolution provisions within many African BITs should not be seen in isolation. Changes to the dispute resolution provisions are merely one aspect of developments to BITs which aim to better balance the interests of different stakeholders. Such provisions, for example, recognise the importance of sustainable investment and impose an obligation on states to encourage investors to comply with internationally recognised corporate social responsibility standards. Many of Africa’s new BITs include non-derogation provisions relating to standards of health, safety or environment, preventing a so-called “race to the bottom” (for example, Article 10 of the Nigeria-Singapore BIT). Others, such as the Canada-Burkina Faso BIT, impose direct obligations on investors and even include considerable carve-outs from the protection granted in relation to certain sectors (for example, telecommunications, the rights or preferences provided to socially or economically disadvantaged minorities, and investment in services provided that the measures imposed by the state conform with the General Agreement on Trade in Services (GATS)). This more nuanced approach to treaty drafting may go some way to addressing the suggestion that the threat of claims inhibits regulatory development, although it does of course rely on the capacity of each state to negotiate adequate provisions.

The backlash against investment treaties and ISDS often focusses on BITs that were signed in a different time and context, when emphasis was placed on assuring investors that their investments would be protected in a way designed to attract foreign direct investment (FDI). The more recent development of investment agreements in Africa – still a continent which is much in need of FDI – suggests that investment protection and ISDS might evolve to better suit the needs of all stakeholders. These changes are not necessarily driven by the African states which have entered into the investment agreements (in the case of the multiple BITs signed with Canada, it is the Canadian Model BIT which has clearly influenced the final draft of the treaty). However, more generally, the proliferation of arguably more balanced BITs suggests that, whilst criticism of investment arbitration abounds, it would seem that the baby has not yet been thrown out with the bathwater.

Herbert Smith Freehills Hannah Ambrose Vanessa Naish

Leave a Reply

Your email address will not be published. Required fields are marked *

Share this post on: