Paper presented at the AfAA 3rd Annual International Arbitration Conference, 3rd - 5th November 2022.  

I. What is meant by the Africanisation of the Dispute Settlement Clause?

Africanisation is explainable from two angles: reflecting on the international investment agreements’ background and illustrating the implications of africanisation.

Historically, the principal toolkit for protecting developed countries’ foreign investments was to make international investment agreements. Accordingly, developed countries offered drafts of IIAs, mainly in the form of BITs, to developing countries who, while reluctant at the outset to sign, concluded these IIAs.

African countries host foreign direct investment (‘FDI’) more than they export elsewhere, outside Africa. They mulled over signing IIAs as a guaranteed factor for increasing the inward FDI, so they competed to sign BITs with the developed countries. In the 1990s, due to an eagerness for a good impression from international donors, developing countries noticeably started signing BITs with each other and sustained by utterly political motives for the BITs spree. Unaware of the developed-developing structure of its typical BIT, African countries, mostly, I am afraid, started replicating these models. The quintessential developed-developing model contained loose scope of protection for foreign investments and zero liability for foreign investors. For instance, some BITs incorporated unfettered transfer-of-fund clauses.

Moving to define the Africanisation of ISDS, Africanisation entices African countries to agree on a shared vision for settling investment disputes. It implies having a modus operandi for concluding international investment agreements rather than copying drafts designed for a North-South partnership. Otherwise, it is simply synonyms with the Latin-Americanisation of ISDS, where Latin-American countries unify their position vis-à-vis the principles of investment protection, which investment tribunals examine through the lens of dispute settlement clauses. For instance, most Latin-American countries did not agree to incorporate the national treatment principle, a pivotal component of the first-ever US model BIT in the early 1980s. Since they fabricated the Calvo doctrine, Latin American countries joined the community of international investment law as a rule-maker rather than a rule-taker. While what fits Latin-American countries would not necessarily work for African countries, American countries share many circumstances with African countries that should motivate the latter to learn and cooperate with the former.

II. Why is it intrinsic to africanise the investor-State disputes?

The African Union performed a Study on drafting a Pan African Investment Code (“PAIC”) to improve the continent’s investment climate.[1] The Study found, inter alia, that IIAs aim to protect investors whilst raising the potential legal responsibility of the host State.[2] African countries are members of over 881 IIAs,[3] and they appeared in approximately 25% of the cases before ICSID.[4] The Gordian Knot magnifies in countries with dozens of BITs while lacking a modus operandi. Civil society activists expressed concerns about the imbalance of ISDS between indebted States against well-funded investors.[5]   

Host developing countries realised the cost of being hyper-active in concluding BITs after facing investment claims. For instance, South Africa reviewed its IIAs programme, admitted the ineptness of its negotiators and lack of knowledge about international investment law, and pursued a comprehensive reform of its foreign investment programme. This was not limited to African countries. The US changed its vision vis-à-vis IIAs after being hit with investment claims. Investor-State claims contest the host State’s compliance with its commitments under the respective BITs. Therefore, it is unsurprising to downward the ratio of FDI inward to the individual respondent State, as potential investors become speculative about its commitment to its international obligations.

A UNCITRAL Report in 2018 found that each disputing party endure approximately 8 million USD before investment tribunals, which the representatives of, for instance, Angola, Burkina Faso, and Kenya, to the UN in Vienna, underpinned in respect to the pending discussions on the ISDS reform, in addition to the culminated damages on the taxpayers. Recently, third-party funding gradually existed as an expectable method for financially aiding disputing parties, likely to exceed the number of cases before investment tribunals and under the AfCFTA Investment Protocol.

III. How to Africanise the investor-State dispute settlement clause?

During the UNCITRAL Working Group on the Reform of the investor-State dispute settlement regime, the African countries expressed their concern vis-à-vis the backlashes of investment arbitration. Equally, the AfCFTA Secretariat participated in the meetings of the UNCITRAL Working Group; hence, underpinned during the 2021 Africa Forum that: ‘(…) the work of UNCITRAL would be instrumental while the AfCFTA was developing the Protocols on Investment and Digital Trade.’ 

Specifically, the member States of the African Union are participants in these meetings. The pitfalls of ISDS are non-contested, but the purported reforms are. Either developed or developing countries have concerns vis-à-vis accepting the European Union’s proposal of the multilateral investment court (“MIC”). For instance, South Africa contested whether the potential MIC would squash the backlashes of ISDS. At the same time, it proposed classical reform proposals to the pending investment arbitration regime, while Algeria stressed fostering a code of conduct for adjudicators of investor-State disputes.

Most of the participant countries in the UNCITRAL Working Group approached the MIC and investment arbitration as alternatives that do not fit together. However, the 1980 Unified Arab Investment Agreement (“Arab Investment Agreement”) had a different vantage point. The Arab Investment Agreement provided the Arab Investment Court as the principal mechanism for resolving investor-State disputes, while investment arbitration worked perfectly as an alternative mechanism. Arab countries triggered both mechanisms alternatively.

Developing countries refuted the Havana Charter in the 1940s to organise international investment and trade under a sole aegis. Then, during the 1990s, they objected to extending the scope of the WTO agenda to incorporate investment and trade. In parallel, they failed the OECD multilateral investment agreement in the mid-1990s. Concisely, they were against the multilateralisation of investment agreements. Incorporating the MFN clause under BITs led unexpectedly to the multilaterlisation of investment protection where the investor import any favourable clause from the BITs concluded by the host State.

Furthermore, the incorporation of the MFN clause within the dispute settlement clause entailed foreign investors a favourable settlement mechanism, which was understood to apply to BITs until recently. However, the arbitral tribunal in Al-Warraqi vs Indonesia, a dispute under the OIC Investment Agreement, a plurilateral investment agreement between Islamic countries, interpreted the MFN to extend to BITs concluded by Indonesia. Hence, member States of the African Union should be mindful of whether they opt to extend the MFN clause to the dispute settlement clause. In addition, many economic blocs are considering replacing intra-BITs with plurilateral investment agreements. Thus, deciding on the scope of MFN is one of the facet issues to be addressed under the AfCFTA. For example, a group of North African countries are members of the Arab Investment Agreement and the OIC Investment Agreement; these two economic blocs are considering replacing the intra-Arab BITs with a plurilateral investment agreement and mutatis mutandis the intra-Islamic BITs. An indefinite MFN clause might be understood as importing favourable treatment from other plurilateral investment agreements, which might extend to settling investment disputes.

Then, the entrenching amicable dispute settlement mechanisms would minimise appearing before international investment courts and tribunals. Therefore, the adjudicators shall consider whether each disputing party acted in bona fida before amicable mechanisms when deciding the damage and costs of proceedings.

While the COVID aftermath harnessed processing investment arbitration via online procedures, it worked out nicely. Hence, holding virtual hearings and circulating submissions via online platforms is likely to drastically decrease the cost of defending investment disputes before international courts and tribunals.

In the same vein, UNCTAD qualified the fork-in-the Road clause as a presumed intrinsic compart of the South-South investment agreements. Therefore, the incorporation of it in the AfCFTA Investment Protocol would decrease frivolous claims and reduce the taxpayers’ incurred burden from disputes.[6]

Third-Party funding gradually exists as a foreseen source for financing disputes. Therefore, it is advisable to consider a failure to disclose it as a reason for annulment. Furthermore, investors shall make submission of insurance, as some respondent States failed to collect awarded counterclaims or expenses from investors. For instance, Under the 2021 Canada Model BIT: a tribunal may order security for costs “if there are reasonable grounds to believe that there is a risk the disputing party may not be able to honour a potential costs award against it.” In so doing, the tribunal “may take into account evidence of third party funding,” and the claimant is obliged to disclose the existence of a third-party funding arrangement and the funder’s name and address.

IV. Conclusion

The significant issue here is not to exhaust our resources debating the lexicon of the investment protocol but instead stick to the lexicon and embracing it in the individual BITs that member countries conclude with third countries. Some African countries have model BITs, while they have not negotiate their BITs according thereto. Therefore, they shall have a modus operandi for concluding IIAs, which implies an expectation of its implications. Certainly, africanisation shall not be limited to the investor-State dispute settlement, as the latter is connected with the principles of investment protection.

Hence, africanisation, broadly, rather than in the context of dispute settlement, implies making international investment agreements without imitating an authentically tailored approach for developed countries. Africanisation underpins the regulatory power of host States while maintaining authentic incentives for African investors in a balanced regime, where the African countries are fully aware of the implications of the stimuli, and committed to complying with, this investment-friendly process.

__________________________________

*Counsellor, Egyptian State Lawsuits Authority

[1] United Nation Commission for Africa (2016), Investment Policies and Bilateral Investment Treaties in Africa: Implications for Regional Integration, (Economic Commission for Africa, Addis Ababa 206) X: XI.

[2] Ibid.

[3] Makane Moise Mbengue & Stefanie Schacherer, The “Africanisation” of International Investment Law: The Pan-African Investment Code and the Reform of the International Investment Regime, 18 J. WORLD INV. & TRADE 414, 414 (2017) 416.

[4] ICSID, The ICSID Caseload – Statistics (Issue 2018-1), 11.

[5]Dr. Markus Burianski andDr. Federico Parise Kuhnle, Arbitration in Africa: Managing risk in a growing market, 11 SEP 2017, available onhttps://www.whitecase.com/publications/insight/africa-focus-2017-arbitration-africa (accessed on 8 Sep 2022)

[6] UNCTAD (2005), South-South Cooperation in International Investment Agreements, 31, 42.