African Arbitration Association BLOG

Resolving Disputes in the Gas Sector - Is Arbitration a Way to go? By Dapo Akinosun*

Sat, 23 Mar 2024 15:52:10 GMT

It is essential to note that the Nigerian gas sector is growing in a lot of relevant ways; in statute and in practice. It is foundational to the projected growth and significant in that it has placed Nigeria on a path of steady growth and international acclaim. The results of what is happening now may only be appreciated in years to come. The complexities in the gas sector can sometimes be overreaching. Globalization and trade has further opened up the world to new frontiers which affect not just the parties, but the economies of countries, the business standings of diverse stakeholders and in a broader concept, the quality of life of millions of people. Dispute, misunderstandings and conflicts in such circumstances are bound to happen and as such, the world evolved strategies to address those challenges[1].

The increasing need for timely, efficient and effective dispute resolution mechanism has allowed Arbitration, with its flexibility, confidentiality and cross border enforcement to evolve as a preferred choice for resolving gas disputes in the international community[2]. It is a common fixture in gas contracts and it is generally agreed by practitioners as more practical, considerate to facts, evidence and the circumstances especially with a view of ensuring that business partners still continue to transact with each other with the assurances that they will not be enemies after the resolution of their disputes[3].

The world of gas arbitration is exciting but also not static. International Arbitration has expanded in scope, allowing for continuous innovation and trends to emerge, shaping how disputes are resolved and impacting the interests of all stakeholders with interest in the next set of law students in institutions, the environment and benefits. Technology development and advancement has imprinted itself also on gas arbitration[4]. The element of neutrality has led to mass appreciation and adoption of international arbitration which has been used as a method of resolving disputes between states, individuals, and corporations in almost every international transaction involving commerce, investment. Arbitration can be national (domestic) or international, and in gas cases, arbitration can be triggered for price variations and interpretation of the entire contract[5].

In Nigeria, oil and gas deals have attracted significant interest being the lifeblood of the country’s economy. Conflicts, legislations and regulations have over the years laid the foundation for the evolution of what is currently applicable in the arbitration scene in Nigeria, and as a result of the global nature of gas deals and its intricacies, Nigeria has equally strived to catch up with applicable international standards by promoting arbitration as an integral dispute resolution method in gas transactions[6]. With the swift changing and complex nature of gas transactions, the volatility in the price exchange, there is a need for arbitration to meet up with the realities.

1. Technology's Transformative Touch:

It’s now almost cliché to say that technology is playing an increasingly important role in every human endeavor, but the extent that is achieved daily is what makes us all recognize the transformative touch of technology. The inculcation of technology by the International Chamber of Commerce in its arbitration proceedings have advanced the processes for fair, effective and efficient international arbitration. The essence of practicality is felt more in the variety of resources, including sample procedural language relating to technology tools and solutions bridging the language barrier, items to consider for virtual hearings and when choosing an online case management platform, and the report factoring in front loading the bulky documents necessary for trial[7].

Virtual hearings took a new direction after the COVID-19 pandemic, this unexpected development enabled hearings to be conducted digitally and remotely and sometimes in a hybrid session, with the parties choosing which is most suited for their unique circumstances or sometimes upon the recommendation of the arbitrator. In recent days, a lot of arbitration cases are held in different jurisdictions and countries, the urgency requirements often makes it more practical for emergency sessions to be held virtually thereby reducing travel time for parties and arbitrators, cost effective for clients and importantly speedy resolution of challenges facing transactions[8].

With improving computers are even likened to arbitrators in processing and communicating information, online reports, virtual hearings, e-filings of documents, and digital document management platforms have contributed significantly to the advancement of the use of technology in arbitration and the use of advanced software to enable arbitrators effectively analyze the volume of documents they receive. The idea of “Software as a fourth party” in the arbitration space has started catching up, with concerns reverberating about data privacy, security and if arbitrators will shirk their duties to software’s, it opens room for new reasons for conflict in the space, and the knowledge that such conflict will lead to growth[9]. The fact however is that, all these have enabled us evolve, learn some more and grow in leaps and bounds. Arbitration processes in gas disputes have particularly benefitted from the streamlining processes and enhancing efficiency.

Blockchain, smart contracts and other emerging technologies are equally anticipated to impact significantly the future of gas arbitrations. These platforms encourage efficient sharing of necessary and verifiable documents in the sector, and enforcement of agreements with specificity. Artificial intelligence (AI) especially generative AI are increasingly playing a role in contributing to timeously analyzing the complexities of gas documents. Though taken with a lot of caution considering that it is still evolving and developing, the prospects equally provide an opportunity for more to be developed, and also contribute to the advancement of gas arbitration[10].

2. Third-Party Funding: Leveling the Playing Field:

Third-party funding of gas arbitration is a point that has drawn varied reactions. The proper parties in a dispute have always been between those who have a claim or will be affected in some way by the judgment. Third party funders however have been the twist to an otherwise agelong process of law, where persons who do not have an interest in a matter, can provide funding for the litigation and benefit from any award that accrues subsequently or bear the loss.

Third party funding is described generally as where a financier who has no legal rights or interest in a dispute pays for the litigation and expenses to level the playing field for smaller entities who could otherwise not be able to financially afford the cost of litigation. Some of the proponents have argued that this is a leveler in providing access to justice especially when the opponents are well-funded. However, concerns about potential ethical implications and conflicts of interest that may arise when a third-party funds arbitration proceedings have been argued. The concern of such funding compromising the hallowed practice of only interested parties settling their matters and the integrity of the arbitration process, leading to frivolous or speculative claims being pursued solely for financial gains is disconcerting and may undermine the credibility of the arbitration process[11]. In Nigeria, the addition of third party funders in S. 61 of the Arbitration and Mediation Act of 2023 which provides that:

“The torts of maintenance and champerty, including being a common barrator, do not apply in relation to Third-Party Funding of arbitration and this section applies to arbitrations seated in Nigeria and to arbitration related proceedings in any court within Nigeria.”

This provision has raised similar concerns and fears, and the need to inform the tribunal of the presence of third party funders has continued to pose interesting questions. The implications however, that persons providing financial support for arbitration cases are allowed to do so without facing legal consequences or been viewed as interlopers in a case that doesn’t concern them. The reality however is that disputes carry costs, and despite best efforts to reduce the additional burden of arbitration, the cost of venues, the fees for the arbitrator and the price for representation are still too high for some clients. With the funders also getting a share of the arbitral award depending on the terms agreed upon on the contract, the motive might not be for settling the dispute amicably, but trying to win to gain the arbitral award[12].

While funding gas arbitration by third parties might be beneficial for resource allocation and access to justice, it needs to be guided effectively to avoid any ethical or procedural issues. To guarantee that third-party funding fulfils its intended purpose while upholding the values of fairness and equity, transparency, accountability, and measures to maintain the integrity and impartiality of the arbitration process are crucial.

3. Specialized Gas Arbitration Rules:

The confidence arbitration receives amongst other alternate dispute resolution methods is the assurances of the technical expertise, expedited procedures, confidentiality and the advantage of enforcement of arbitral awards globally. Arbitration often arises from agreements and price variations, as such versatility has been an integral factor of arbitration especially in gas agreements. Considering that global actors participate in the gas sector, the fear of bias, insufficient technical knowledge, and the need for equity has contributed in no small measure to the evolution of the various rules and procedures in different jurisdictions governing arbitration, and the choice of rules often depends on multiple factors such as the nature of the dispute, the preferences of the parties involved, and the jurisdiction where the arbitration takes place. Some of the diverse rules of arbitration[13].

With the level of specialization required to fully appreciate the complexities of gas deals, a lot of organizations have developed processes and procedures to ensure that the complexities are provided for, and the jurisprudential differences of the state are utilized. Some however like the International Chamber of Commerce (ICC) Rules are among the most widely used for international commercial arbitration. The ICC Rules arguably the oldest and most respected arbitral institutions globally, and its rules provide a comprehensive framework that is widely recognized and accepted by parties from diverse legal systems and cultural backgrounds. It provides a comprehensive framework for conducting arbitrations, covering aspects such as the appointment of arbitrators, conduct of proceedings, and enforcement of awards[14]. The United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules has also been relied upon for their flexibility in international transactions.[15]: These rules are frequently used in both international and domestic arbitrations. They provide a flexible framework that parties can adapt to suit their specific needs.

Other countries have equally developed their own dispute resolution rules for arbitrations within their jurisdictions, such as the American Arbitration Association (AAA) and International Centre for Dispute Resolution (ICDR) Rules, London Court of International Arbitration (LCIA) Rules, and the World Banks International Centre for Settlement of Investment Disputes (ICSID) Rules which were tailored for investment treaty arbitrations between states and foreign investors and are administered by the World Bank Group to provide a specialized framework for resolving investment disputes[16].

However, the choice of rules ultimately depends on the specific needs and preferences of the parties involved in the dispute, the unique challenges of the gas sector, specialized technical expertise to understand the complexities of gas projects, expedited procedures, confidentiality and technology inculcation.

In Nigeria, the advancements are slowly building roots[17]. There however remains a lot to be done especially in upskilling the man power necessary to arbitrate in international panels especially, and this can only be done through hands-on experience of our professionals in the field. The lack of trust in the Nigerian justice system, may also hinder the advancement of arbitration in Nigeria to global levels, and will require a lot of effort to build the trust necessary to ensure that the Nigerian Arbitration and Mediation Rules grow to global scales.

Conclusion:

In navigating the dynamic terrain of Nigerian gas arbitration, it is clear that the sector is undergoing growth, driven by new legislation, emerging trends and evolving practices. The Nigerian gas industry is integral to the country's economic growth and international reputation though it faces a multitude of challenges and opportunities in dispute resolution.

The economy is constantly changing due to trade and globalization, hence effective and efficient dispute resolution procedures are required. With its adaptability, privacy, and ability to be enforced internationally, arbitration has become the go-to option for multinational communities looking to settle conflicts involving gas. Because of its pragmatism and careful examination of the facts, evidence, and situations, it guarantees that business partners may resolve conflicts while maintaining their business relationships.

The emergence of technology has brought about a significant transformation in arbitration procedures, providing digital document management platforms, e-filings, and virtual hearings. Although these developments improve productivity and simplify procedures, they also bring with them new difficulties, especially in terms of data security and privacy.

The possibility of third-party funding to level the playing field for smaller firms and improve access to justice has come to light. But cautious monitoring and oversight are required due to worries about conflicts of interest and ethical ramifications.

A thorough framework for settling disputes in the gas industry is provided by specialised gas arbitration rules, such as those provided by the United Nations Commission on International Trade Law (UNCITRAL) and the International Chamber of Commerce (ICC). These regulations guarantee the impartiality, efficiency, and confidentiality of the resolution of gas disputes, together with the knowledge of arbitrators and accelerated processes.

The Nigerian gas arbitration has made progress, but there are still issues to be resolved, such as the need to upskill specialists, foster confidence in the legal system, and fix inadequate infrastructure. Nevertheless, Nigeria's gas industry is well-positioned for future expansion and global recognition provided that ongoing efforts are made to advance arbitration as the preferred means of resolving disputes and adjust to new developments.

In conclusion, there are opportunities as well as obstacles in the developing field of gas arbitration in Nigeria. Through the increase in local expertise, use of new technologies, more transparency, and adherence to the values of justice and equity, Nigeria has the potential to establish itself as a major force in the global gas market.

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[1] Luki, B., & Abubakar, N. (2016). Dispute Settlement in the Oil and Gas Industry: Why is International Arbitration Important?. Journal of Energy Technologies and Policy, 6, 30-38.

[2] Mark Baker, “The future of oil and gas arbitration: The Impact of ESG Policies on Oil and Gas Disputes”, <https://www.nortonrosefulbright.com/en/knowledge/publications/d4daa555/the-future-of-oil-and-gas-arbitration > Accessed on 20/02/2024

[3] Youssef & Partners, “The Role of Arbitration in Gas Agreements”, <https://youssef.law/insights/oil-gas-disputes/ > Accessed on 20/02/2024

[4] Luki, B., & Abubakar, N. (2016). Dispute Settlement in the Oil and Gas Industry: Why is International Arbitration Important?. Journal of Energy Technologies and Policy, 6, 30-38.

[5] Muhammad, Z. (2016). Effectiveness of Current International Arbitration Law and Practice for Commercial Contracting Parties, in Transnational Oil and Gas Industry. ERN: Economics of Contract: Theory (Topic). https://doi.org/10.2139/SSRN.2866420.

[6] Matthew Izuchukwu, “Arbitration In The Oil And Gas Industry In Nigeria: Prospects And Challenges”, <https://www.academia.edu/8955552/ARBITRATION_IN_THE_OIL_AND_GAS_INDUSTRY_IN_NIGERIA_PROSPECTS_AND_CHALLENGES > Accessed on 21/02/2024

[7] ICC Report on Arbitration and ADR “Leveraging Technology for Fair, Effective and Efficient International Arbitration Proceedings” <https://iccwbo.org/wp-content/uploads/sites/3/2022/02/icc-arbitration-and-adr-commission-report-on-leveraging-technology-for-fair-effective-and-efficient-international-arbitration-proceedings.pdf > Accessed on 21/02/2024

[8] Bjorn Arp and Edwin Nemesio, “The Impact of Covid on International Disputes”, <https://brill.com/edcollchap-oa/book/9789004514836/BP000009.xml > Accessed on 23/02/2024

[9] Wahab, M. S. A., & Katsh, E. (n.d.). Revolutionizing Technologies and the Use of Technology in International Arbitration. Arbitration in the Digital Age, 27–55. doi:10.1017/9781108283670.004

[10] Gargi Sahasrabudhe “Blockchain Arbitration and Technology”, <https://viamediationcentre.org/readnews/ODE1/Blockchain-technology-and-Arbitration > Accessed on 24/02/2024

[11] Victoria Shahon Shahani, “Third-Party Funding In International Arbitration” <https://scholarship.law.bu.edu/cgi/viewcontent.cgi?article=1217&context=shorter_works > Accessed on 24/02/2024

[12] Olasupo Shasore SAN, “Arbitration: Third Party Funding New Frontiers In Dispute Resolution In Nigeria”, <http://www.alp.company/sites/default/files/ARBITRATION%20-THIRD%20PARTY%20FUNDING%20%20..pdf > Accessed on 04/03/2024

[13] Dispute Settlement in the Oil and Gas Industry: Why is

International Arbitration Important?

Bayuasi Nammei Luki and Nusrat-Jahan Abubakar, “ Dispute Settlement in the Oil and Gas Industry: Why is

International Arbitration Important?”, Journal of Energy Technologies and Policy www.iiste.org

ISSN 2224-3232 (Paper) ISSN 2225-0573 (Online) Vol.6, No.4, 2016 <https://core.ac.uk/download/pdf/234668207.pdf > Accessed on 8/03/2024

[14] The International Chamber of Commerce, 2021 Arbitration Rules, <https://iccwbo.org/dispute-resolution/dispute-resolution-services/arbitration/rules-procedure/2021-arbitration-rules/ > Accessed on 08/03/2024

[15] The United Nations Commission on International Trade Law (UNCITRAL Arbitration Rules) <https://uncitral.un.org/en/texts/arbitration/contractualtexts/arbitration > Accessed on 08/03/2024

[16] ICSID Conventions Regulations and Rules, <https://icsid.worldbank.org/sites/default/files/ICSID%20Convention%20English.pdf > Accessed on 08/03/2024

[17] B. Bukar, ‘Mandatory and Other Forms of Arbitration Under Some Selected Oil and Gas And Investment Legislations in Nigeria” < http://www.ogel.org/journal-advance-publication-article-asp?key=224 “ Accessed 08|03|2024

Whether an arbitration agreement embedded in an agreement which is null and void is also a nullity? An analysis of: Jimbata (Pvt) Ltd v Zimbabwe Mining Development & Kamativi Tin Mines (Pvt) Ltd SC 2-23, a judgment handed down by the Supreme court of Zimbabwe on the 12th January 2023. By Davison Kanokanga*

Mon, 18 Sep 2023 08:27:39 GMT

Introduction

This is a short commentary on the judgment of the Supreme Court of Zimbabwe in Jimbata (Pvt) Ltd v Zimbabwe Mining Development & Kamativi Tin Mines (Pvt) Ltd SC 2-23 after it held that where an agreement has been found to be null and void, the whole agreement, including the arbitration clause, is a nullity.

Factual Matrix

The parties entered into a joint venture agreement (the agreement) for the purpose of processing the Kamativi tailings dump to extract lithium and other minerals. They agreed to incorporate a joint venture company (JVC) to implement the project. The agreement suffered a stillbirth as the parties failed to fulfil some conditions precedent to its performance. Chief among them was s13(1) of the Joint Ventures Act [Chapter 22:22]1 (the Act) which provides as follows: “Subject to subsection (2) and section 8(4), no contracting authority shall award a project or sign a joint venture agreement relating to a project unless the joint venture agreement has been approved by the Cabinet in accordance with this Act and any agreement required to be so approved that is purported to be concluded without such approval shall be a nullity.” The respondents sought and obtained in the High Court an order declaring the joint venture agreement (JV Agreement) between the parties a nullity. The appellant appealed to the Supreme Court against the order.

APPELLANT’S CASE

The Appellant contended that since the parties JV agreement had an arbitration clause, the court a quo should have deferred to the arbitration process and stayed the proceedings pending arbitration.2 Furthermore, the arbitration agreement within the JV agreement which the parties concluded was severable from the main agreement and was enforceable regardless of the fate of the main agreement.

RESPONDENT'S CASE

It was the Respondent's contention that firstly, the arbitration clause does not make it mandatory that the parties proceed to arbitration for purposes of dispute resolution. Secondly, the JV agreement was null and void for want of compliance with section 13(1) of the Act and therefore the question of referral to arbitration falls away.

THE JUDGMENT

The parties failed to seek and obtain the necessary Cabinet Approval as required by s 13(1) of the Act thus rendering the JV a nullity3. Article 8(1) of the Arbitration Act provides: “A court before which proceedings are brought in the matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.” The agreement has been found to be null and void ab initio. In other words, it never existed. The whole agreement, including the arbitration clause, is a nullity. There is nothing to sever or save.4

AN ANALYSIS OF THE SUPREME COURT JUDGMENT

What agreement is referred to in Article 8(1)?

Is it the primary or main contract concerning the commercial obligations of the parties or the secondary contract containing the parties obligation to resolve any disputes arising from their commercial relationship by arbitration? Commenting on Article 8(1) of the Arbitration Act, the court remarked that, the court a quo found that the agreement was null and void and therefore the question of referral to arbitration falls away.5 The words “unless it finds the agreement is null and void, inoperative or incapable of being performed” were interpreted by the Supreme Court as referring to the main contract which the court held to be null and void. By so doing, the Supreme Court erred. Article 8(1) of the Arbitration Act has nothing to do with the main contract. It relates to the arbitration agreement. What should be null and void, inoperative or incapable of being performed is the arbitration agreement and not the main contract. Thus, the agreement referred to in Article 8(1) of the Arbitration Act is not the main contract but the arbitration agreement. For instance, an arbitration agreement will be null and void if the parties never entered into it6or in cases in which the arbitration agreement is found to be void ab initio.7 One of the cornerstone principles of arbitration, is the severability8 of an arbitration agreement.9 The principles of separability10 and Kompetenz-Kompetenz are widely celebrated principles of arbitration as they render ‘arbitration efficacious and independent of the state.’11

Leading commentators have noted that:

The doctrine of separability requires that the arbitration agreement be treated as a separate contractual undertaking, that is, the agreement to arbitrate disputes arising out of a contract is distinct from the main contract, such that disputes as to the scope or even the existence of the main contract can be arbitrated.12

Does an arbitration agreement contained in a main contract which is null and void also become null and void?

Whilst accepting that an arbitration agreement is a separate and independent agreement from the terms of the underlying contract in which it may be included,13 the Supreme Court held that because the agreement (main contract) had been found to be null and void for want of compliance with s 13 (1) of the Act, the whole agreement, including the arbitration clause is a nullity.

By so doing, the court erred. Article 16(1) of the Model Law provides that:

“The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.”

It is clear from article 16(1) of the Arbitration Act that, in instances in which the main contract between the parties is considered to be null and void, an arbitration agreement is not affected because it is regarded as a stand-alone agreement between the parties regarding the resolution of any disputes between the parties.14 How the Arbitration Act should be interpreted is set out in s 2(3) of the Act which provides that:

“The material to which an arbitral tribunal or a court may refer in interpreting this Act includes the documents relating to the Model Law and originating from the United Nations Commission on International Trade Law ,or its working group for the preparation of the Model Law, that is to say the travaux préparatoires to the Model Law, and, in interpreting the Model Law, regard shall be had to its international origin and the desirability of achieving international uniformity in its interpretation and application.”

The illegality or invalidity of the underlying contract has no bearing on the arbitration clause itself.15 Where the main contract is not concluded (null) or does not come into effect after conclusion (void), it will not influence the effect of the arbitration clause agreed by the parties, as the arbitration clause is completely separate from the main contract.16

As one commentator put it:

An arbitration agreement between the parties is separable from the main contract. The arbitration agreement, as a rule is a procedural law contract. In contrast, the main contract is a substantive law contract. These two contracts are different from each other. Therefore, the fate of an arbitration agreement is not tied to the fate of main contract. At the same time, the fate of main contract does not depend on the fate of the arbitration agreement.17

CONCLUSION

The Supreme Court of Zimbabwe wrongly interpreted Article 8(1) of the Arbitration Act by construing the words, unless it finds that the agreement is null and void, inoperative or incapable of being performed, as referring to the main contract when they in fact refer to the arbitration agreement. The court’s understanding and interpretation of the doctrine of separability is inconsistent with its international interpretation and application, so is its understanding and interpretation of Article 8(1) of the Arbitration Act. Such errors in interpretation by the Supreme Court bring confusion in the practice of arbitration and undermine the development of Zimbabwe’s arbitration jurisprudence.

_______________________________________________

1 The Zimbabwe Investment and Development Agency Act [Chapter 14:37] on the 07th February 2020 repealed the Joint Ventures Act [Chapter 22:22], the Zimbabwe Investment Authority Act [Chapter 14:30] and the Special Economic Zones Act [Chapter 14:34].

2 K Böckstiegel, ‘The Role of Arbitration within Today’s Challenges to the World Community and to International Law’ (2006) 22 (1) Arbitration International 165 – 178.

3 SC 2-23 at p8.

4 SC 2-23 at p8.

5 SC 2/23 at p7.

6 D St John Sutton, J Gill & M Gearing, Russell on Arbitration (23 ed, Sweet & Maxwell, 2007) 7-46.

7 Sun Life Assurance Co of Canada v CX Reinsurance Co Ltd [2003] EWCA Civ 283.

8 Heyman & Another v Darwins Ltd [1942] 1 All ER 337 (HL).

9 SM Schwebel, L Sobota & R Manton, International Arbitration: Three Salient Problems (Cambridge University Press, 2020) 1 – 64.

10 JA Rosen, 'Arbitration Under Private International Law: The Doctrines of Separability and Competence de la Competence' (1993) 17 (3) Fordham International Law Journal 559 -666; A Mustafayeva, 'Doctrine of separability in International Commercial Arbitration' (2015) 1 Baku State University Law Review 93 – 98; S Camilleri, 'Sense and Separability' (2023) 72 (2) International & Comparative Law Quarterly 509 – 525.

11 P Landolt, 'The Inconvenience of Principle: Separability and Kompetenz-Kompetenz' (2013) 30 (5) Journal of International Arbitration 511, 512.

12 J Delaney & K Lewis, 'The Presumptive Approach to the Construction of Arbitration Agreements and the Principle of Separability - English Law Post Fiona Trust and Australia Law Contrasted' (2008) 31 (1) UNSWL Law Journal 341, 347.

13 ZETDC v Tendai Masawi t/a Masawi & Partners & Another HH 404-20.

14 Davison Kanokanga & Prince Kanokanga, UNCITRAL Model Law on International Commercial Arbitration: A Commentary on the Zimbabwean Arbitration Act [Chapter 7:15] (Juta &Co, 2022) p67.

15 National Agricultural Coop Mktg Federation India v Gains Trading Ltd 2007 (5) SCC 692.

16 Interpretation on Certain Issues Relating to the Application of the PRC Arbitration Law, Supreme People’s Court,23 August 2006: Jiangsu Materials Group Light Industry and Weaving Co v Hong Kong Top-Capital Holdings Ltd (Canada) Prince Development Ltd (the Yuyicase) Supreme People’s Court, 1998.

17 S Özmumcu, 'The Principle of Separability and Competence - Competence in Turkish Civil Procedure Code No. 6100' (2013) 45 (62) Annales 263, 266.

Sectoral Stocktaking Of African Disputes - Developments in the Energy Sector (Power, Oil & Gas) by Suzanne Rattray*

Tue, 13 Dec 2022 20:15:31 GMT

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

1. Introduction

Developments in the energy sector are fast-moving, particularly at this time of accelerated rates of change. I will start with a quick overview of available statistics on African energy disputes from the recent past, speak a bit about energy developments from the African union, and then focus on a few countries that should be of interest to African practitioners in general and the conference participants in particular.

2. Recent Published Statistics

Looking back over the past five years (2017 – date), available statistics from three African arbitral institutions indicate that disputes in the energy sector continue to arise but are not a dominant part of the caseload.

The Cairo Regional Centre for International Commercial Arbitration (CRCICA) reported each year a number of disputes in the energy sector (Oil &Gas and electricity).

2018 – 8%
2019 – 30%
2020 – 7%
2021 – 11% ( up to the end of Q3)

The Kigali International Arbitration Centre (KIAC) reported no cases in the energy sector since 2017, although 2 such cases had been reported previous to 2017.

The Nairobi Centre for International Arbitration (NCIA) reported energy disputes in only two of the five reporting years, with Oil&Gas and Electricity Transmission being the relevant sectors.

2017 – 67%
2022 – 9%

On the international front, regular statistics published by the International Chamber of Commerce (ICC) provided information on Africa-related disputes and energy disputes, but there was no breakdown available for African energy disputes. However, the trends in both these areas are worth sharing:

Year	No. of new Cases	No of cases with African Claimant or Respondent	No. of cases in energy sector
2017	810	208	155
2018	842	182	109
2019	869	188	140

Although the statistics cannot tell us specifically about African energy disputes, it is significant that energy is the second most frequent sector for all disputes registered with the ICC.

As to investor state disputes submitted to the International Centre for the Settlement of Investment Disputes (ICSID), around Africa, there have been energy cases involving Egypt, Senegal, The Gambia, Nigeria and Equatorial Guinea.

3.An African Union View - Energy projects in the pipeline

Energy is a foundational resource on which all social and economic development relies. The importance of the energy sector for Africa’s development has been articulated by the Energy Division of the African Union (AU)[1] which has big ambitions, with specific targeted interventions including:

Hydropower – 8 projects
Petroleum/Gas Pipeline – 3 projects
Power Interconnectors – 43 projects

The focus on power interconnectors come as no surprise with the integration mandate of the AU. It may be useful as arbitration practitioners to pause and think for a moment about energy security risks and the structuring of the bilateral and sometimes multilateral agreements necessary to ensure that the interconnectors provide the availability required - will we see disputes arising here?

The other initiatives which are the focus of the AU energy division are:

“Operationalisation and Implementation of the Africa Renewable Energy Initiative (AREI) adopted at the COP21 in Paris, December 2015;
Facilitation of Sustainable Energy for All (SE4ALL) Initiative Implementation adopted by the Conference of Energy Ministers of Africa (CEMA), in November 2012;
Facilitation and advocacy for the implementation of the Africa Bioenergy Policy Framework and Guidelines adopted by the CEMA in November 2012 and Heads of State and Government in January 2013;
Elaboration of a Continental Harmonized Regulatory Framework for the Energy Sector;
Implementation of the Africa-EU Energy Partnership launched at the Africa-EU Summit in Lisbon, Portugal in 2007;
Implementation of the Regional Geothermal Programme and Geothermal Risk Mitigation Facility;
Implementation of the Hydropower 2020 Initiative to promote the development of Africa’s hydropower potential; and
Facilitation and advocacy for the development of Grand Inga Hydropower project as one of AU Agenda 2063 flagship projects.”[2]

It is encouraging that renewables ( bio-energy, hydropower and geothermal) get specific mention. Energy transition, regrettably, has not been specifically articulated. I think it is safe to say that the oil and gas sector will continue to develop in Africa. However, the sustainability agenda is driving those economies with more fiscal space to do so to start to talk very specifically about transitions.

4. Some county-specific information

I thought I would first talk about countries that don’t usually make the headlines in our African arbitration conferences, not in the context of actual disputes, but as a way of thinking about where dispute resolution, or perhaps more importantly, dispute avoidance practitioners, might want to get more exposure to. I will then speak about the hot prospects and more familiar countries.

4.1 Equatorial Guinea

With a population of less than 2 Million, this OHADA member state on the west coast of Africa has been extracting oil for many years, and is now trying to position itself as a regional gas hub. In 2020, a program to drive investment in gas resulted in the signing of memorandums of understanding with 53 companies in 17 bids.

A project to prepare a Gas Master Plan was awarded in May 2020. In November 2020, a contract was awarded Italy’s Saipem to build a 70 km pipeline from the Alen field to the Punta Europa complex, which hosts a methanol and LNG complex. Marathon Oil and Chevron both feed gas to this complex from the Alba and Alen-Aseng fields. In 2022, Nigeria and Equatorial Guinea signed a MoU to see Nigerian gas transported to Punta Europa for processing.

In terms of potential disputes, the usual types of disputes we see in oil and gas sector internationally are gas-price review arbitrations from market shifts. In turbulent times, the triggering of request for price-review by either party can be anticipated. To the extent that parties fail to agree, specialist arbitrators in this space could be quite busy – and we need more African expertise here.

It was interesting to observe that Equatorial Guinea has had two ICSID cases[3] from the oil and gas sector under the Additional Facility Conciliation rules, one in which Equatorial Guinea was claimant.

In terms of renewables, there is not much happening in the county. Only 10% of the energy supply is from hydropower, although there is still untapped capacity. There has been no legislation enabling Independent Power Producers enacted yet.

4.2 Namibia

Staying on the Atlantic coast of Africa, but in the Southern Hemisphere, Namibia also has a small population of less than 3 Million people. Although the country is large, with an area of more than 800,000 sq.km, much of it is desert.

Namibia produces less than 40% of the energy it consumes, so it is at present an energy importer. The state utility is the generator as well as the sole buyer of electricity. It is therefore seeking additional power generation sources.

The oil and gas industry is still at a very early stage of development, with prospecting continuing onshore and offshore.

According to the Namibia’s Ministry of Industrialisation and Trade, “renewable energies, especially wind energy along the southern coast, have great potential in Namibia while solar radiation maps indicate that the country has proven solar resources and are particularly suited for solar energy projects such as concentrated solar power (CSP)”[4].

In order for independent power producers (IPP’s) to participate in the renewable sub-sector, in the Namibian market which operates under a single-buyer model, a Renewable Feed-in Tariff (REFIT) scheme has been formulated. Currently, there is a program to acquire 70MW of renewable energy (solar PV, wind and biomass) from 14 IPPs under 5MW generation licenses[5].

American interest in the solar potential of Namibia has seen the involvement of USAID in its Mega Solar initiative[6], “a commitment to large-scale solar development collaboration between Power Africa, the Governments of Botswana and Namibia, the African Development Bank, the African Union Development Agency (AUDA-NEPAD), the International Bank for Reconstruction and Development, and the International Finance Corporation”. This multi-phased procurement program envisions up to 5 gigawatts of renewable solar energy, to be sold regionally when inter-connections are available.

Perhaps the most exciting news out of Namibia in recent years has been the signing of the Belgium -Namibia MoU on green hydrogen during the COP26 in Glasgow. Namibia will produce hydrogen from solar energy which will be sold to Belgium to produce electricity, thereby reducing Belgium’s carbon footprint as no green-house gases (GHG’s) are produced from the combustion of hydrogen - only water vapour.

In terms of Namibia’s record of international energy disputes, neither the ICSID register nor the Permanent Court of Arbitration (PCA) register revealed any cases. However, looking at the active and enforceable BIT’s that Namibia has, which are mostly older generation types, many of the potential investors are coming from those (European) countries. The risk therefore remains of exposure to claims if and when the State considers it necessary to make regulatory changes.

4.3 Mozambique

When we look at the Indian Ocean side of the continent, Mozambique is the new hot market prospect for oil and gas. With an area of almost 800,000 sq km, it is similar in size to Namibia, but is has a population of more than 31 Million people.

Mozambique’s 2022 Economic Update (World Bank)[7] notes “growth is expected to accelerate in the medium term, averaging 5.7% between 2022 and 2024, as demand recovers further and the economy benefits from the start of LNG production in 2022 and anticipates the resumption of larger LNG projects”.

Mozambique holds 100 trillion cubic feet (Tcf) of proven gas reserves as of 2017, ranking 14th in the world and accounting for about 1% of the world's total natural gas reserves of 6,923 Tcf. (Nigeria is 9th place and Algeria is 11th. Egypt ranks 16th.[8])

The big news from Mozambique is in the northern sector and the Rovuma basin in particular, after significant discoveries in 2010. All the majors are in Mozambique now including ExxonMobil, Andarko, Eni, Total and Shell. The Total project is notable for the $20 billion Final Investment Decision for an LNG project taken in 2019[9].

The security situation in 2021 in the north of the Cabo Delagdo Province in Mozambique led Total Energies to withdraw all LNG project personnel from their Afungi site and to declare force majeure[10].

For now, we will have to wait and see how the relationship develops. It has been reported that ENI has shipped the first consignment of LNG from Mozambique to Europe in November 2022.

4.4 Tanzania

For arbitration practitioners in the energy sector, Tanzania has had some interesting cases. In the sphere of investors bringing claims in different fora arising out of the same transaction, we have two disputes brought by Symbion power against Tanzania from a transaction involving the acquisition of 120 MW natural gas-fired power plant in Ubungo, Dar es Salaam. First there was an ICC case in 2016, alleging contractual claims against the state-owned power company TANESCO, and then there was an ICSID dispute[11] registered in 2019 invoking theUnited Republic of Tanzania - United Kingdom BIT (1994). The ICSID case has now been discontinued. For African practitioners, it is really important to think about how one would address these “parallel claims”. The approach of applying abuse of process considerations, following the RSM v Grenada ICSID case[12], and the subsequent Orascom v Algeria[13] ICSID case may be gaining traction.

4.5 Ghana

With Ghana hosting the 2022 Africa Arbitration Association conference, it is only fitting to talk about energy disputes in Ghana. Two current disputes are worth following, one arising from a tax assessment and the other from a unitisation order.

The tax dispute is with Tullow. According to Tullow Ghana Limited (TGL)[14], in August 2018 it received a direct tax assessment from the Ghana Revenue Authority (GRA) for the financial years 2014 to 2016 which it considers breaches “TGL’s rights under its petroleum agreements, applicable Ghanaian law and double taxation treaties, and, in some cases, have arisen as the result of the errors in the GRA’s calculations”. Following a Notice of Dispute lodged by TGL with the Ministry of Energy (MoE), and a revised final tax audit report from MoE in September 2021, TGL filed a Request for Arbitration with the International Chamber of Commerce (ICC) in October 2021 disputing aspects of the tax assessment. The Parties have agreed a procedural timetable for the arbitration under which hearing will commence in October 2023.

The second Ghanaian dispute arose out of an order for the Unitisation of Eni and Springfield blocks[15] by the Minister of Energy. This has resulted in a notice of arbitration being filed at the Stockholm Chamber of Commerce by ENI and its joint venture partner Vitol Upstream Ghana Limited against Ghana and the Ghana National Petroleum Corporation (GNPC). The unitisation order was addressed to ENI and Springfield Exploration and Production Limited, as data analysis presented to the Minister by GNPC indicated an overlap in the resource fields in the contract areas awarded to the two companies. ENI is resisting the unitisation, and court processes have been brought by Springfield to enforce the Minister’s order. The matter has worked its way up to the Supreme Court, which has upheld lower courts decisions that ENI should place 30% of its revenue in an escrow account until the matter is finally determined.

In the arbitration, “ the Claimants are seeking, among other things:

a declaration that certain directives of the minister and steps taken to implement those orders are a breach of the Offshore Cape Three Points petroleum agreement;
an order that the respondents take no further action to unitise the Sankofa field and the Afina discovery; and
an order for damages arising from breach of the Offshore Cape Three Points petroleum agreement, Ghanaian law and international law, on a joint and several basis.”[16]

__________________________________

*Director, Rankin Engineering Consultants

[1]https://au.int/en/directorates/energy, accessed October 2022

[2] Ibid

[3] Hess Equatorial Guinea, Inc. and Tullow Equatorial Guinea Limited v. Republic of Equatorial Guinea (ICSID Case No. CONC(AF)/12/1) and Republic of Equatorial Guinea v. CMS Energy Corporation and others (ICSID Case No. CONC(AF)/12/2).

[4]https://mit.gov.na/energy-sector, accessed 3 October 2022.

[5] Ibid

[6]https://www.usaid.gov/powerafrica/mega-solar, accessed October 2022

[7]https://www.worldbank.org/en/country/mozambique/overview, accessed October 2022

[8]https://www.worldometers.info/gas/gas-reserves-by-country/, accessed October 2022

[9]https://mzlng.totalenergies.co.mz/en, accessed October 2022

[10] Ibid

[11] Richard N. Westbury, Paul D. Hinks and Symbion Power Tanzania Limited v. United Republic of Tanzania (ICSID Case No. ARB/19/17

[12] RSM Production Corporation and others v. Grenada (ICSID Case No. ARB/10/6)

[13] Orascom TMT Investments S.à r.l. v. People's Democratic Republic of Algeria (ICSID Case No. ARB/12/35)

[14] https://www.tullowoil.com/application/files/8216/4680/8084/Tullow_FY_Results_2021_FINAL.pdf

[15]https://thelawreviews.co.uk/title/the-oil-and-gas-law-review/ghana, accessed October 2022

[16] Ibid

AFCFTA: A Window Of Opportunity For Africanisation Of Dispute Resolution by Amr Arafa Hasaan*

Tue, 13 Dec 2022 09:44:51 GMT

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.

Africanisation of International Dispute Resolution: a Myth, a Fact, or a Movement by Francis Oleghe*

Tue, 13 Dec 2022 09:08:12 GMT

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

Introduction

Conflicts of interest between the developed and developing economies in international relations, be it commercial or otherwise, still exist as conflicting goals and divergent views.[1] Although these conflicts have resulted in some convoluted strategies and policies which are antithetical to international dispute resolution mechanisms, international arbitration remains the generally preferred means of resolving cross-border disputes.[2]

Not many people today may know that, in the 1960s, the newly independent African countries were among the countries at the forefront of canvassing a dispute resolution regime for international investment disputes. African countries were well-represented during the negotiation of the Convention for the Settlement of Investment Disputes between States and Nationals of other States in 1964,[3] and they subsequently enacted municipal laws dealing with international commercial arbitration and foreign investments.[4] These African countries and their counterparts in Latin America actively contributed to the present investor-State dispute settlement (ISDS) system. They successfully overturned the United Nations (UN) general consensual Resolution 1803(XVII) of 14 December 1962, ‘Permanent Sovereignty over Natural Resources’, which provided a balanced way to codify the principle of permanent sovereignty over natural resources.[5] To replace Resolution 1803(XVII), these developing countries secured a ‘big win’ when the United Nations General Assembly (UNGA) adopted Resolution 3281 (XXIX) containing the ‘Charter of Economic Rights and Duties of States’ on 12 December 1974, by 115 votes to 6, with 10 abstentions.[6]

The Charter of Economic Rights and Duties of States was first proposed by President Luis Echeverría of Mexico, at the third session of the United Nations Conference on Trade and Development (UNCTAD) held in Santiago, Chile, from 13 April to 21 May 1972.[7] The Charter aimed at strengthening the economic independence of developing countries and establishing and promoting international economic relations, taking into account the agreed differences in the development of developing countries and their specific needs.[8] The then capital-exporting countries viewed the new international economic order that evolved as inadequate to protect their nationals that were investing or may wish to invest in developing countries. This feeling resulted in negotiations that brought about the present BIT system, which has become a legal bother.[9] Old-generation BITs contain clauses that limit the host State’s right to approach the requisite adjudicatory body in the event of a dispute but grant the investor unfettered access to seek remedy from these bodies.[10]

What Does Africanisation Mean?

To Africanise means to make African or, in a broader sense, to succeed in making African interest and perspective influence a system. Africanisation of international dispute resolution, for me, therefore, implies that international dispute resolution should take Africa’s priorities and aspirations into consideration.[11] We should not view the Africanisation of international dispute resolution as we view Africanising educational curricula or local legislation. We must remember that an international dispute resolution system can only be international if founded on cooperation and compromise.[12] Having defined the concept of Africanisation, I will now examine it as a movement that has continuously influenced international dispute resolution.

A sure Movement

The Africanisation of international dispute resolution has always been a movement. This movement began with the contribution of African nations in establishing the ISDS system in the 1960s and has cascaded into the current contribution of the Pan-African Investment Code (PAIC) to international investment law. The PAIC aims to demolish the traditional investment perspectives enshrined in BITs.[13] Within this movement, some African countries, notably South Africa and Tanzania, have taken a radical position, changing the current ISDS narrative. Having been badly hit by excessive damage awards handed down by ISDS tribunals, many African countries are actively clamouring for reforms to the system.[14]

The PAIC is a model investment treaty that, unlike the traditional BITs, creates rights and obligations for both the State and the investor.[15] It was adopted by the African Union (AU) to emphasise its member states’ interest in ensuring sustainable development,[16] which the current legalistic approach to investor-State arbitration (ISA) seems unable to assure. Like the Norway Model BIT 2015,[17] the PAIC seeks to achieve an overall balance of the rights and obligations between the Member States and investors,[18] thereby bringing the African perspective, once again, to bear on the ISDS system and protecting the economies of capital-importing African nations. The instrument contains some key and specific provisions that focus on the African States in a typical Afro-centric manner and excludes fair and equitable treatment (FET) provision.[19]

On its part, the African Continental Free Trade Area (AfCFTA) agreement focuses on two broad issues: first, on the liberalisation of trade in goods and services and, second, on regulatory matters concerning investment, competition policy, and intellectual property.[20]The AfCFTA dispute settlement mechanism (DSM), which is modelled after the World Trade Organisation (WTO) Dispute Settlement Understanding (DSU), is only accessible to states, either as parties to the dispute or as third parties.[21] Thus, only States Parties have standing and the right of direct participation in its dispute resolution process. The DSM reflects African governments’ preference for state-to-state dispute settlement, from which an investor may benefit only through diplomatic protection,[22] as against the current ISDS system that has produced prohibitive damage awards in favour of foreign investors.[23] The DSM also signals African governments’ preference for a judicialised trade and investment dispute system that promotes certainty, predictability, and rule-based decisions, in contrast to what obtains under the current ISDS system.[24]

Article 20(1) of the AfCFTA agreement establishes the DSM. The Protocol on Rules and Procedures on Settlement of Disputes goes further to establish the Dispute Settlement Body (DSB) under article 5 of the protocol. The protocol on dispute settlement is one of the most outstanding AfCFTA Protocols. It espouses rules and procedures for the settlement of disputes within the AfCFTA. Unlike the rules and procedures of the majority of the African Regional Economic Communities, such as the Economic Community of West African States (ECOWAS), Community of Sahel-Saharan States (CEN-SAD), Intergovernmental Authority on Development (IGAD), Economic Community of Central African States (ECCAS), which were modelled after the Court of Justice of the European Union, the DSM was modelled after the DSU.[25] The AfCFTA agreement signals to the international investment community that Africa is open for business based on a single rule book for trade and investment.[26]

Steps to take to realise the Objectives of Africanisation

While there is already a movement that attempts to galvanise African interest, it is apposite to examine factors that could wane the flow of Africanisation of international dispute resolution and make suggestions. There has always been concern about African cities not being chosen as international arbitration venues and African arbitrators not having commensurate international appointments.[27] This concern does not negate the fact of a movement but a lack of strategy and development of an attractive arbitration environment and an arbitration-friendly legal system. Unless disputants see a marked difference between arbitration and litigation within a legal system, that country will hardly be a venue of choice.

Since the last decade, the judiciary of the most populous country in Africa, Nigeria, has been very supportive of arbitration and other ADR mechanisms, thereby laying a solid foundation that could turn Nigeria into a venue of choice if other variables are in place. The School of Oriental and African Studies (SOAS) Arbitration in Africa 2020 Survey reveals that parties are increasingly using top African arbitration institutions to resolve their disputes.[28] The Mauritius Chamber of Commerce and Industry (MCCI) Arbitration and Mediation Center (MARC), the alternative dispute resolution arm of the MCCI, has remained a high-profile centre for the resolution of international arbitration.[29]Since its inception in 2012, the Kigali International Arbitration Centre (KIAC) has administered 89 arbitration cases involving parties from the United States, Italy, South Africa, Kenya, South Korea, Turkey, Burundi, Nigeria, Pakistan, Senegal, Spain, Switzerland, Singapore, France, Zambia, Uganda, India, China, and the African Union.[30]

In addition, several African countries, including Uganda, Malawi, and Nigeria, on the one hand, are currently reviewing their laws in an attempt to modernise arbitration procedures.[31] Other countries, including South Africa and Tanzania, are reforming their laws to register their dissatisfaction with the current ISDS system and imprint the growing African philosophy on international dispute resolution.[32] South Africa and Tanzania have legislatively abolished ISA. South Africa has replaced ISA with two local remedies, namely, mediation under the auspices of its Department of Trade and Industry, and litigation or other forms of adjudication within South Africa.[33] Similarly, in Tanzania, the natural wealth and resources of the country can no longer be subject to proceedings in any foreign court or tribunal;[34] disputes on the extraction, exploitation, or acquisition and use of Tanzania’s natural wealth and resources must now be adjudicated by judicial bodies or other organs established in Tanzania; and the application of the laws of Tanzania shall be acknowledged and incorporated in all arrangements or agreements in that regard.[35]

Two key issues stem from the above observations. First, there is a need for African practitioners, institutions, and governments to develop a capacity and reputation for international dispute resolution.[36] We must abandon the ‘turn by turn’ mentality and cultivate institutional excellence and capability.[37] Anyone who visits the Regional Centre for International Commercial Arbitration, Lagos (RCICAL) today, for instance, will see the need for us Africans and our governments to step up our game if we must benefit from our contributions to the development of international dispute resolution. Singapore has twice demonstrated that a nation or continent can take its destiny into its hands. Silently working behind the curtain, Singapore transformed itself from a third-world country to a first-world against all prognoses.[38] Again, Singapore, without the world paying attention to what was going on there, has transformed itself into an international arbitration hub[39] and now hosting the signing of international conventions and regular international conferences and meetings on alternative dispute resolution (ADR). It is time for Africa and Africans to walk the talk.[40]

The second issue is that the African States must formulate and implement appropriate national arbitration policies. This is the surest way to benefit from the movement and cement the Africanisation of international dispute resolution. Africa generates enough international arbitration to make it an arbitration hub. But because of ineffective national arbitration policies and a lack of institutional facilities, most international arbitrations relating to African disputes are exported abroad,[41] with the International Chamber of Commerce (ICC) and the London Court of International Arbitration (LCIA) dominating international arbitration in Africa.[42] Thus, while we are laboring to promote ADR and making frantic efforts to bring the African perspective to bear on international law and international dispute resolution, the benefits go elsewhere. Karel Daele reports that, often, it is the African party that chooses the European arbitral centre, even if only for personal or logistical reasons.[43]

However, in recent times, stakeholders in African arbitration, notably, African governments and arbitration practitioners, have been clamouring for the arbitration of disputes emanating from Africa to be heard in Africa; the clamour itself has become a movement.[44] But this movement must be well supported lest it veers off course as most African endeavours in the past.[45] AfCFTA’s guiding principle of boosting intra-African trade must become our joint commitment to rewrite the deplorably low intra-African trade when compared to external African trade.[46] Boosting intra-African trade is tantamount to boosting international dispute resolution within Africa, which will further engender Africanisation. As a document, the AfCFTA agreement will not achieve much unless positive measures are put in place to actualise its goals.[47]

Conclusion

Impressively, Africa has continually demanded that its perspective on international dispute resolution should be taken into account. African scholars and governments have pushed for reforms that reflect Africa’s expectations. But all this is not enough. Africa must adopt strategies that would translate the African position into benefits for the continent. It is time to walk the talk. It is time to strengthen our arbitration institutions across Africa and develop policies that would act as a foundation and building blocks for an inviting, inevitable, and enduring arbitration culture.[48] It is time to follow in the footsteps of Singapore and encourage Mauritius and Rwanda not to relent in their efforts to become arbitration destinations in Africa. All other African countries should also follow suit.

Africa is not lacking in good initiatives and vocal assertions aimed at protecting its interests. What the continent lacks is the political will to sustain momentum and support its enviable initiatives.[49] The movement of Africanising international dispute resolution has been on since the 1960s. But it has not been a smooth sail for Africa, especially as the resultant BIT system from the early stages of the movement became an albatross to many unprepared African governments. This movement has now metamorphosed into seeking reform to the ISDS system, especially the BIT system, which has troubled virtually all capital-importing countries without regard to their development status. The PAIC presents a viable platform for this new movement as it encapsulates the priorities and aspirations of Africa. What is left is for African governments and the relevant AU organs to commit to implementing of the PAIC.[50]

_________________________________

*Member of Faculty, Nigerian Institute of Chartered Arbitrators

[1] See Amazu A. Asouzu, International Commercial Arbitration and African States: Practice, Participation and Institutional Development (Cambridge Press 2001) 1.

[2]Robert Wheal, Elizabeth Oger-Gross, Tolu Obamuroh and Opeyemi Longe, ‘Institutional Arbitration in Africa: Opportunities and Challenges’ (September 2020) <www.whitecase.com/insight-our-thinking/institutional-arbitration-africa-opportunities-and-challenges> accessed 10 October 2022.

[3] Paul-Jean Le Cannu, ‘Foundation and Innovation: The Participation of African States in the ICSID Dispute Resolution System’ (2018) 33(2) ICSID Rev 456.

[4] Asouzu (n 1).

[5] Asha Kaushal, ‘Revisiting History: How the Past Matters for the Present Backlash against the Foreign Investment Regime’ (2009) 50 Harv Intl LJ 491, 499-501.

[6] Audiovisual Library of International Law Historical Archives <https://legal.un.org/avl/ha/cerds/cerds.html#:~:text=The%20adoption%20of%20a%20Charter,April%20to%2021%20May%201972> accessed 12 August 2022.

[7] ibid.

[8] Charter of Economic Rights and Duties of States, pmbl.

[9] See Sanjeet Malik, ‘BIT of Legal Bother’ (Business Today, May 2012) <www.businesstoday.in/magazine/columns/india-planning-to-exclude-arbitration-clauses-from-bits/story/24684.html> accessed 17 March 2020

[10] Victor Oluwatomiwa Adenekan, ‘The Pan-African Investment Code and the Investment Protocol to the African Continental Free Trade Agreement: Are we Building the right House on a Weak Foundation?’ (2021) 5 <https://www.researchgate.net/publication/355465973_THE_PAN-AFRICAN_INVESTMENT_CODE_AND_THE_INVESTMENT_PROTOCOL_TO_THE_AFRICAN_CONTINENTAL_FREE_TRADE_AGREEMENT_ARE_WE_BUILDING_THE_RIGHT_HOUSE_ON_A_WEAK_FOUNDATION/link/617170c2750da711ac64ed64/download> accessed 12 October 2022 citing Nicolette Butler and Surya Subedi, 'The Future of International Investment Regulation: Towards a World Investment Organisation' (2017) 64 Netherlands International Law Review 43.

[11] See ibid 12-13.

[12] See Malcolm Langford, Daniel Behn and Ole Kristian Fauchald, ‘Backlash and State Strategies in International Investment Law’ (2017) 2. <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2704344> accessed 5 October 2022.

[13] Adenekan (n 10) 7.

[14] Magalie Masamba, ‘Government Regulatory Space in the Shadow of BITs: The Case of Tanzania’s Natural Resource Regulatory Reform’ (21 December 2017) IISD Investment Treaty News <https://www.iisd.org/itn/en/2017/12/21/governmentregulatory-space-in-the-shadow-of-bits-the-case-of-tanzanias-natural-resource-regulatory-reform-magalie-masamba/ > accessed 2 August 2021, where the author correctly states that African countries concluded BITs ‘aiming to attract foreign investors’ but are now confronted with what they did not expect.

[15] Adenekan (n 10) 7.

[16] ibid; Ignacio Torterola and Bethel Kassa, ‘Investor-State Disputes in Africa’ (7 August 2019) African L and Business <https://iclg.com/alb/9936-investor-state-disputes-in-africa> accessed 2 January 2021.

[17] Norway Model BIT 2015 (“Agreement between The Kingdom of Norway and …”).

[18] See Pan-African Investment Code, 2016, pmbl and art 2.

[19] See PAIC, arts 11(2) and 12(1) relating to its innovation respecting expropriation and compensation; see also Adenekan (n 10) 7

[20] Adenekan (n 10) 3.

[21] See Agreement Establishing the African Continental Free Trade Area, arts 20(1) and 1(w).

[22] See Gregory Shaffer, ‘What’s New in EU Trade Dispute Settlement? Judicialization, Public-Private Networks and the WTO Legal Order’ (2006) 13 J of European Public Policy 832.

[23] See, for example, the recent arbitration case of Process and Industrial Developments Limited v Ministry of Petroleum Resources of the Federal Republic ofNigeria (P&ID v Nigeria), Case No 1:18-cv-00594 (ad hoc arbitration), where the majority of the arbitral tribunal awarded US$6.6billion against the respondent State for an alleged investment of an estimated amount of US$40 million.

[24] See Adenekan (n 10) 14; see also James Thuo Gathii, 'Evaluating the Dispute Settlement Mechanism of the African Continental Free Trade Agreement' <https://www.afronomicslaw.org/2019/04/10/evaluating-the-dispute-settlement-mechanism-of-the-african-continental-free-trade-agreement> accessed 12 October 2022; see also The Law Suite, ‘Tasks before the AfCFTA Dispute Settlement Body’ (March 2022) <https://thelawsuite.legal/tasks-before-the-afcfta-dispute-settlement-body/> accessed 12 October 2022.

[25] James T. Gathii, ‘Evaluating the Dispute Settlement Mechanism of the African Continental Free trade Agreement, (Afronomics Law, April 2019) <www.afronomicslaw.org/2019/04/10/evaluatingthe-dispute-settlement-mechanism-of-the-african-continental-free-trade-agreement/> accessed 10October 2022; see also Karen J. Alter, ‘The Global Spread of European Style International Courts’ (2012) <http://scholarlycommons.law.northwestern.edu/cgi/viewcontent.cgi?article+1006&context+facultyworkingpapers> accessed 10 October 2022

[26] World Bank Group, ‘Making the Most of the African Continental Free Trade Area’ (June 2022) <www.worldbank.org/en/topic/trade/publication/free-trade-deal-boosts-africa-economic-development> accessed 10 October 2022

[27] Asouzu (n 1).

[28]Wheal, Oger-Gross, Obamuroh and Longe (n 2).

[29]ibid.

[30] ibid.

[31] Sandy Bhadara, ‘Africa Arbitration: Building Bridges’ (2021) <https://iclg.com/alb/16451-africa-arbitration-building-bridges> accessed 11 October 2022.

[32] See, for example, the Permanent Sovereignty Act, Act Supplement No 5 of 2017 in the Gazette of the United Republic of Tanzania No 27 Vol 98 dated 7 July 2017 and the Protection of Investment Act 2015 (South Africa); see also Adenekan (n 10) 12.

[33] Protection of Investment Act 2015 (South Africa), s 13.

[34] Permanent Sovereignty Act, s 11(1).

[35] ibid, s 11(2).

[36] Asouzu (n 1) 2

[37] See Adenekan (n 10) 6.

[38] See, generally, Lee Kuan Yew, From Third World to First – The Singapore Story: 1965-2000 (Harper Collins Publishers 2000).

[39] See Wheal, Oger-Gross, Obamuroh and Longe (n 2).

[40] See Nahanga Verter, ‘International Trade: Position of Africa in Global Merchandise Trade’ in Emerging Issues in Economics and Development Musa Ibrahim (Ed.) (Books on Demand, Germany, 2017), where the author posits that the actions taken by African countries do not reflect their ideologies and aspirations for an integrated African economy.

[41] See Andrew Mizner, ‘African Adversity in International Arbitration’ (2018) <https://iclg.com/alb/7968-african-adversity-in-international-arbitration> accessed 11 October 2022.

[42]Wheal, Oger-Gross, Obamuroh and Longe (n 2).

[43] Mizner (n 41).

[44] See Michael Ostrove, Ben Sanderson and Andrea Lapunzina, ‘Developments in African Arbitration’ (DLA Piper, May 2018) <https://globalarbitrationreview.com/review/the-middle-eastern-and-african-arbitration-review/2017/article/developments-in-african-arbitration> accessed 11 October 2022.

[45] See Regis Yann Simo, ‘Non-Exclusivity and an Ocean of Possibilities: The AfCFTA Jurisdictional Lex Specialis’ (2021) Transnational Dispute Management Journal <https://www.transnational-dispute-management.com/journal-advance-Publication-article.asp?key=1896> accessed 13 October 2022.

[46] See Adenekan, (n 10) 2.

[47] ibid 6.

[48] See ibid.

[49] See Olabisi D. Akinkugbe, ‘Dispute Settlement System under the African Continental Free Trade Area Agreement: A Preliminary Assessment’ (2020) 2) African J of Intl Comparative L 156-157.

[50] See Adenekan (n 10) 15.

Creating a Fertile Ground For The Advancement Of Different Forms Of Dispute Resolution – ADR Involving Experts by Andrew Maclay*

Mon, 12 Dec 2022 13:22:28 GMT

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

Introduction

My paper is a brief introduction to three dispute resolution alternatives to international arbitration. Although AFAA exists to promote international arbitration, I urge you to bear in mind these three alternatives, and to remember them when your client’s interests may be better served by using them than by international arbitration itself.

1. Expert determination

So, first of all, what is expert determination? It is the resolution of a dispute by an expert in the particular subject or industry in dispute. It is not suitable for a dispute involving complex issues of legal interpretation or the use of legal systems from different countries. However, it is ideally suited to technical disputes where the issues involved are really not legal ones and are ones that lawyers may find it hard to understand or to deal with succinctly.

So, three examples are Post M&A disputes, where the purchase price for an acquisition depends on the balance sheet of the company being acquired on the acquisition date; or a Valuation dispute; or Construction disputes. In the UK, the majority of expert determinations are undertaken by chartered accountants or chartered surveyors/members of the Royal Institution of Chartered Surveyors.

The benefits of the process, from the perspective of the client, include:

It relies on a knowledgeable expert, and saves the need to educate lawyers into all the issues involved. For example, if the issue in dispute is an accounting issue, these may be readily understood by the client’s accounts department, but less so by the legal team;
·It is generally a lot quicker than arbitration or litigation; and
·It is generally final. Whilst the legal framework may vary from country to country, in the UK an expert determination cannot be challenged, save in the case of fraud or manifest error by the expert.

Typical expert determination process

So, what is the typical expert determination process? One of the advantages of expert determination is that it remains a very flexible process, far less regimented than arbitration, and the expert can determine the process the parties must follow.

However, a typical process is:

·Written opening submissions from each party – these tend to be simultaneous. They may be prepared by an in-house team, or with the assistance of an external professional in the same industry as the expert, or with the assistance of lawyers;
·Written response submissions from each party – maybe 15 working days later;
·Then, a process of questions by the expert to each party or both parties – to improve the expert’s understanding of the issues in dispute, or to request disclosure of a key document, or to ask for the parties’ submissions on a particular issue or point of law. There may be one or more exchanges of questions;
·There is usually a provision for an Oral hearing – but in practice, these are rare – everything is normally done in writing;
·Consideration by the expert of all the submissions; and
·The issue of the determination by the expert. In the UK, this is typically without reasons or with very limited reasons – in order to save cost and to reduce the possibility of appeal. But in other jurisdictions, it may be more in the form of an international arbitration award, although shorter. Lawyers may or may not be involved in drafting the submissions from each side.

Typical areas of dispute in an accounting expert determination

As I am an accountant, I wanted to give a few examples of typical areas of dispute in an accounting dispute. These might include:

IFRS / GAAP / OHADA accounting policies disputes;
Valuation of assets and liabilities in a Completion Balance Sheet;
Recognition of tax liabilities;
Recognition of liabilities and contingent liabilities;
Estimation of future income; and
Discount rates.

So, just to show you how this is relevant to Africa, I have been involved in two expert determinations in Africa, both in relation to Post M&A disputes, the first in 16 African countries and the second in Tanzania.

The first was the sale by an oil major of its downstream assets in 16 African countries nearly ten years ago now. My accountancy firm was involved in negotiating the completion balance sheets for each country, first with accountants on the other side, which was represented by a Big Six accounting firm, and then with the expert determiner, who we selected who was from another Big Six accounting firm.

Examples of two of the issues we had to determine were:

The recoverability of receivables. The higher the amount of receivables, the more my client, the purchaser had to pay. We needed to review whether the provision against receivables at the balance sheet date was reasonable, taking account of all the evidence at the time, and particularly of whether the amount had actually ever been paid by the debtor.
The recognition of tax liabilities in the balance sheet. The higher the amount of tax liabilities, the less my client had to pay. Some African tax authorities had levied very large tax bills – which we said had to be taken into account in the balance sheet, whilst the seller said they should not be because in practice these tax demands were often negotiated away so the company only paid a small percentage of the original demand. The expert had to take a decision on what was a reasonable provision.

2. Court/Tribunal-appointed experts

The second type of alternative dispute resolution I wanted to highlight is not really an alternative to international arbitration – because it is provided for in all the Rules of the international arbitration bodies, such as the IBA Rules, and so will be known in theory – but it is rarely used in practice – and we may want to discuss why that is.

So what are the principal benefits and complaints about such an alternative to the party appointed expert?

The benefits:

A tribunal-appointed expert is likely to be more genuinely independent than a party-appointed expert;
They may be able to teach or advise the Tribunal in confidence;
They may advise the Tribunal on questions to ask the parties or the party-appointed experts; and
They may remove the tendency of party-appointed experts to adopt extreme positions. Whilst party-appointed experts are meant to be independent, they are inevitably part of the adversarial process – and some of my fellow quantum experts put forward extreme numbers in their first reports, only to reduce them as the hearing gets closer.

Complaints about Tribunal-appointed experts:

Counsel for the parties complain that they lose control of the expert witness and the arbitration process;
The Tribunal-appointed expert may effectively become a fourth member of the Tribunal, who the Tribunal feels obligated to follow; and
They may add cost to the process – particularly if the parties also have their own party-appointed experts.

The ICJ case of DR Congo v Uganda

However, I want to bring to your attention what I personally consider to be an effective use of Court appointed experts in Africa – by the International Court of Justice in the case of DR Congo v Uganda, in relation to the war between 1998 and 1993, on which judgment was given in February 2022.

The ICJ had made an award on liability, in favour of the DR Congo, in 2005, but by 2020 the parties had still not been able to agree on the monetary amount of any award, so the Court took back the quantum issue and appointed four Court-appointed experts on the subjects of:

The number of deaths and injuries;
The numbers of excess deaths;
The value of deaths and injuries and of property damage; and
The value of natural resources unlawfully exploited by Uganda.

The four experts prepared an initial report; both parties commented on that report; the four experts produced a supplementary report; and then the Court held a hearing and the experts were cross-examined. The entire process was completed in just over six months.

There are four comments I want to make on the process:

1. The Court relied on the experts’ detailed calculations. For example, the Court said “The Court is of the view that the methodological approach taken by the expert report is convincing overall. The Court notes that the methodology adopted by the expert appropriately differs slightly depending on the resource in question and on the respective degree of reliability of the data on which he bases his estimates. The expert report is also transparent about its own limitations.” [Judgment, para 277]

2. The Court did not accept all the conclusions of the experts without weighing them up. It also relied on all the other evidence on the Court file. For example, it said “one of the Court-appointed experts, [ ], did not analyse the prevailing practice of Congolese courts, as stipulated in the Court’s terms of reference” [Judgment, para 139] and “The Court does not consider that the expert has sufficiently substantiated the variable “evidentiary discount factors” he proposes to apply” [Judgment, para 248];

3. There were parallels with investment treaty arbitration. However, the calculation of quantum ultimately adopted by the Court was more broad-brush than is common in today’s international arbitration awards and were global sums for each head of loss; and

4. The process was relatively speedy.

The experts were appointed on 12 October 2021;
There were then two reports by each expert and comments by both parties;
The Oral hearing was held on 20 – 30 April 2021; and
The judgment was handed down on 9 February 2022.

3. Independent Panels of experts

Finally, I want to commend to you the use of what I have called Independent Panels of Experts. This is partly because I think these can be highly effective when there are large numbers of similar disputes to be resolved, and again when the legal issues involved are not particularly complicated or have already been resolved. But also because in the ICJ case between DR Congo and Uganda, considerably reference was made to the UNCC/United Nations Compensation Scheme, , and because the idea of a similar scheme has been put forward by some as a mechanism for reparations arising from the current invasion of Ukraine by Russia.

Such panels may be used primarily for compensating individuals who have suffered loss or damage. This is probably why an independent panel was not the appropriate mechanism in the ICJ case of DR Congo v Uganda or in the Eritrea-Ethiopia Claims Commission.

UNCC was set up following the first Gulf War, and dealt with millions of claims by individuals and hundreds of bigger claims by companies for losses arising out of the invasion of Kuwait by Iraq in the early 1990s.

So, briefly, typical mechanics might be:

Applicants submit claims in writing;
There is a secretariat which deals with administration with the applicants, and makes the payments;
Relevant experts (such as forensic accountants, loss adjusters, chartered surveyors or lawyers) prepare the claims for submission to the Panel (usually with a recommendation);
There is a 3 person Panel – comprising a leading lawyer, a forensic accountant and a chartered surveyor (in the case of UNCC). The Panel reviews all the evidence, and makes an award – which is then paid by the secretariat, subject to any review or appeals process and to the availability of funds to make the award.

Such Independent Panels may be used for mass claims – so, for example, in the case of UNCC, the Panel awarded a set amount for death and injury, with little evidence required and a higher amount where more evidence was provided.

The lawyers on the Panels can work with the Secretariat to determine the legal principles to be followed. For example, many of the precedents of UNCC have been followed in other similar situations of loss - and one of the experts in the ICJ case of DR Congo v Uganda recommended following the UNCC amounts for loss per life, appropriately adjusted for a later time period and different levels of income in the relevant countries.

A key issue is always likely to be how much evidence is required to substantiate a claim. But the Panels can set principles for this, based on how much evidence is available and how much is reasonable – for example, one would expect more evidence to support a claim for the destruction of a house in Ukraine today than one twenty years ago in DR Congo.

The respondent should normally have the opportunity to present a defence, in accordance with the rules of natural justice.

Finally, and very importantly in the case of Russia and Ukraine, there is the need for a fund which can pay successful awards to the applicant.

Conclusion

This is an introduction to three alternative forms of dispute resolution, each of which may be relevant for your clients in Africa in particular circumstances, and which should be considered in situations where international arbitration may not be the most appropriate or cost-effective form of dispute resolution.

_________________________

*Andrew Maclay

Creating A Fertile Ground For The Advancement Of Different Forms Of Dispute Resolution Mechanisms by Oluwaseun Oloruntimehin*

Mon, 12 Dec 2022 08:23:57 GMT

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

Conflicts and ineffective means of resolving them lead to wasted resources, social instability, reduced investment, underdevelopment, and in extreme cases, loss of life. Over the years, it has become evident that effective negotiation, joint problem-solving, intervention by neutrals, alternative dispute resolution (ADR) mechanisms and dispute management skills help parties with differing interests, values and cultures, assuage brewing tensions and foster a wide range of social, legal, commercial and political goals.

This paper presents a comparative analysis of major forms of dispute resolution mechanisms and highlights key thematic areas impacting ADR. It answers the question of where we are, with the status of ADR in Africa, why ADR mechanisms proffer effective resolutions to disputes and what needs to be done to propel the use of ADR.

Finally, the author will argue that the call to action for the African continent is to develop a pan-African ADR framework which accommodates the nuances of the diverse sub-regions in Africa but creates harmonized ADR standards which will ultimately foster ADR in Africa. Important recommendations such as enabling Africa as an attractive seat for ADR mechanisms, re-positioning ADR institutions, capacity building and the continued collaboration between the bench, bar, ADR practitioners and users, amongst others will be canvassed as viable options for advancing ADR.

Status Of ADR In Africa

The resolution of disputes outside of courts is not new; societies world-over have long used quasi-judicial and indigenous methods to resolve conflicts. These have since evolved to more formalized ADR mechanisms, to wit, arbitration, adjudication, conciliation, mediation, negotiation, early neutral evaluation, expert determination, amongst others. These ADR mechanisms are useful for conflict avoidance, conflict management and conflict resolution, they encourage party autonomy and increase access to justice when harnessed appropriately.

Within the African continent and amongst ADR practitioners, arbitration is the preferred ADR mechanism but there has been a rise in the use of mediation and dispute boards. Importantly, there are nearly 100 arbitration/ADR institutions in Africa. Historically, Africa-related international commercial disputes are arbitrated in London for English-speaking African parties or Paris for French-speaking African parties.

According to the 2020 SOAS University of London Survey in Africa[1], the top five arbitral centers in Africa are African Foundation of Southern Africa (AFSA), Cairo Regional Centre for International Commercial Arbitration (CRCICA) Kigali International Arbitration Centre (KIAC), Lagos Court of Arbitration (LCA) and Nairobi Centre for International Arbitration (NCIA). However, these institutions do not take up top positions on a global stage[2]. This disadvantaged perception is also seen in the position of African countries as favored seats for arbitration globally. The top five preferred seats globally are London, Singapore, Hong Kong, Paris and Geneva[3] while the top five seats in Africa to wit, South Africa, Nigeria, Egypt, Rwanda, Cote d’Ivoire[4] are not well-positioned/favored by global ADR users.

The ADR laws in Africa are also quite fragmented. International conventions such as the New York Convention 1986 which has been signed by 42 out of the 54 African countries[5], still remains the convention on private disputes/arbitration with the greatest number of African signatories. Its counterpart for mediation and settled agreement, the Singapore Convention on Mediation 2019, has only been signed by 10 African countries. The UNCITRAL Model Law on Arbitration has been signed by 11 African countries while the UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation 2018 (UNICTRAL Model Law on Mediation) has been signed by 16 African countries. Albeit this, ADR mechanisms are practiced throughout the continent in one form or the other, with different levels of regulation and development.

Interestingly, different sub-regions have treaties with dispute resolution mechanisms which are unfortunately only applicable to a certain bloc of countries. The Treaty on the Harmonization of Business Law in Africa[6] which established Organization for the Harmonization of Business Law in Africa (OHADA), the Uniform Acts on Arbitration and Mediation and Common Court of Justice and Arbitration Centre (CCJA) is applicable to only 17 West and Central African States.

There are 836 Bilateral Investment treaties from Africa with provisions on dispute settlement.[7] The Investment Agreement for Common Market for Eastern and Southern Africa (COMESA), Southern African Development Community (SADC) Organisation of Islamic Cooperation (OIC), East African Community (EAC) and Tripartite Free Trade Agreement (TFTA) contain dispute settlement mechanisms, but they are only applicable to Contracting States and not widespread throughout Africa. Taking a leaf from the extensive acceptance of the African Continental Free Trade Agreement (AfCFTA) and its Dispute Protocol, signed by 54 African countries, for the settlement of disputes between Contracting States, there is a need to develop a pan-African ADR framework for the settlement of private disputes between legal persons.

Africa is certainly a well-diverse continent with different legal systems ranging from common law to civil law, African customary law and Islamic law. Unfortunately, the status in this rich continent has been legal balkanization, judicial insecurity and political instability. It is author’s view that the goals of African countries should be to harmonize economic laws and legal practices, improve judicial systems, restore investor confidence, facilitate cross-border trade and investment, guarantee security and encourage a vibrant private sector so as to achieve economic growth, development and globalization.

The Significance Of ADR Mechanisms

In achieving these important economic goals and wide-spread development in Africa, diverse forms of dispute resolution should be harnessed and promoted. It is believed that the dispute and/or parties involved should inform the ADR mechanism utilized. It is therefore important to expound the diverse ADR mechanisms and highlight their nuances and uses.

Arbitration provides increased access to justice through a cost and time effective mechanism which is confidential and enforceable. Party autonomy seats at the bedrock of this mechanism as the consent of parties to the process is sacrosanct to its commencement. Importantly, it is a formalized process that culminates in an award on merits which can be enforced in multiple applicable jurisdictions using the benefits of the New York Convention on reciprocity of enforcement of awards. The grounds for challenging and refusing enforcement of the arbitral awards are also limited and arbitration is typically encouraged by local courts.

Conciliation facilitates communication and settlement which essentially leads to a non-binding conciliation agreement by neutrals. It is a favored mechanism in the AfCFTA Dispute Protocol and is to be used by the Dispute Settlement Body, Panels and Appellate Body. It is keenly related to mediation[8] but it is usually a more formal process where the conciliator can make a decision or proffer a solution outside of the settlement of parties.

Mediation also involves a settlement process which facilitates resolution of disputes through a mediator. However, a settlement agreement is achieved only with the consent and cooperation of the parties. Thankfully, with the introduction of Singapore Convention, settlement agreements are now enforceable in Contracting States.

Negotiation is usually the first ADR mechanism deplored when a dispute arises, as parties attempt by themselves to seek out the best solution for the dispute. It does not require a written consent of parties and it is an informal and flexible process which does not involve third party neutrals or administrative charges. It can be used in diverse types of disputes and by multiple parties.

Early Neutral Evaluation (ENE) is a non-binding assessment of the merits of a case by a neutral and this assessment is typically without prejudice and can be used as a basis for settlement negotiations leading to a Calderbank offer.[9] The neutral is usually appointed to answer legal, evidential, factual or technical questions. It is an important mechanism when the parties have reached an impasse on an issue, there is a great disparity between the position of parties, or they require confidentiality in achieving a common ground. It has been encouraged by the English courts[10], expressly provided in the English Civil Procedure Rules (CPR)[11] and offered in the Chancery Division, Commercial Court and the Technology and Construction Court[12]. The Stockholm Chamber of Commerce (SCC) Rules for Express Dispute Assessment also provide for the appointment of a neutral assessor to evaluate one or several issues.

These ADR mechanisms, amongst many others like adjudication and expert determination have over the years evolved and become very instrumental to the resolution of many disputes.

Key Recommendations

In recognizing the advantages of diverse ADR mechanisms, it becomes important to foster their reach in Africa by ensuring that African cities become attractive/favoured seats and the use of African ADR institutions is promoted. The key recommendations for promoting Africa as an attractive seat are as follows:

·Promote legal and political stability, judiciary support and enforcement of ADR outcomes as well as neutrality and impartiality of local legal systems.

·Develop harmonized laws and regulations which take cognizance of, and allow for, important concepts such as third-party funding, emergency or expedited ADR proceedings, interim measures, multi-party proceedings, express service or evaluation, remote hearings, electronic signatures, amongst others.

·Promote the use of ADR mechanisms for diverse types of disputes such as disputes with ESG elements, human rights disputes, family and estate disputes, smart contracts and technology disputes, crypto disputes and non-commercial disputes, amongst others.

·Encourage the use of, and provide rules for, other ADR mechanisms such as early neutral evaluation, adjudication and expert determination so it becomes mainstream.

·Establish sectoral workshops and legislations for specific industry disputes like technology, travel, communication, amongst others.

It is important to acknowledge that there are many ADR institutions in Africa. However, expanding the reach of these institutions so as to draw from a larger pool of potential users should be encouraged. Key recommendations to achieve this, include:

·Continued collaboration and resource sharing between ADR institutions.

·Proliferation of arbitration and mediation centers attached to courts.

·Establish walk-in ADR houses with increased accessibility to ADR users.

·Actively promote civic engagement, stakeholder sensitization and awareness campaigns on the existence, availability and advantages of the diverse ADR mechanisms. This can be done through signposting, behavioral nudges, public consultation and trust building using social media, print, broadcasting media and public assemblies. Focused education of the legal and business community on ADR.

·Support capacity building by ADR entities through grants to these institutions.

·Encourage third party funding, alternative financing options or access to funds so as to increase access to ADR mechanisms for users. These funding options for ADR mechanisms should be encouraged by legislative action and policies.

·Create outcome-related fees and costs structures for ADR mechanisms[13].

·Facilitate capacity building for ADR practitioners, judges and court personnel through funding for trainings, facilities and technology development.

·Widespread education on ADR mechanisms. Given that Africa has a significant youth population, the introduction of ADR mechanisms, their uses and advantages at an early stage of the educational system should be promoted.

·Drawing from the lessons of the COVID-19 period, the continued use of technology as an enabler for error-free, expeditious and effective ADR processes should be harnessed.

Ultimately, the coordination of the ADR rules and practices in Africa through a pan-African framework for the different ADR mechanisms will be a step in the right direction.

Call To Action

ADR is the means of settling a compliant out of court with the assistance of an impartial dispute resolution process. ADR can effectively bridge the gap between formal legal systems and traditional modes of African justice.

It is therefore recommended that a pan-African Treaty/Directive on ADR and Online Dispute Resolution (ODR) is developed and widely accepted in Africa for increased effectiveness. This treaty should be a horizontal legislative framework for ADR and ODR in Africa. It should provide for uniform adoption and minimum standards as seen in the European Union (EU) Directive 2013/11/EU on ADR[14] and EU Regulation No 524/2013 on ODR for Consumer Disputes[15] for EU countries as well as the ASEAN ADR Guidelines for Consumer Protection 2021[16] for ASEAN countries and OHADAC on Arbitration, Mediation and Conciliation for Caribbean countries[17].

The proposed Treaty should assess different approaches to ADR, the implementation in each member state and steps to establish and apply ADR mechanisms effectively. It should take into consideration international and African best practices in ADR. In order to achieve desired results, this Treaty should be available for contracting states to consult and review their existing ADR legislation to ensure it adequately implements agreed principles. The principles for the ADR framework should include National Policies, Access to Justice (website, online and offline, domestic and cross-border), Expertise, Independence and Impartiality, Transparency, Effectiveness, Fairness and Due Process, Legality, Efficiency, Party Autonomy and Enforcement. Guidance on the appropriate types of disputes, costs, language, ADR clause, forum selection, bias and neutrality should also be provided. This will present useful guidance for a harmonized legislative framework throughout Africa. These principles should also be binding quality requirements for ADR entities, the ADR procedures operated by them and – to a lesser degree – the substantive standards from which the outcome of the ADR procedure is derived.

Participation from different stakeholders, from ADR entities/institutions, national authorities, consumer centers, academia, representatives of Member States, amongst other key stakeholders, in consultations for the establishment of this ADR framework/Treaty will be important. A successful ADR framework should be fair, accessible, easy, affordable include a human element and be faster and much cheaper than courts to resolve disputes.

Importantly, robust and uniformed national ADR policies/legislations should be enacted. Then progress and implementation must be measured and monitored. Reform should be a continuum so as to align with best practices and the needs of stakeholders. An Africa-wide ADR Assembly should be established to promote ADR and ODR, this Assembly will monitor the progress of the Treaty and implement changes that incorporate African peculiarities based on diversity of culture and legal systems. There should also be a list of certified ADR institutions, akin to the over 430 ADR entities in the EU and EEA, on an ADR platform which is accessible to all. Any effective ADR system must have a flexible design structure that is rooted in satisfying the interests of the parties in dispute and professionally administers fair justice in a dynamic yet culturally appropriate manner.

The provision and access to grants for ADR institutions would also aid capacity building in the form of facilities, technology and well-trained personnel. Stakeholder tax incentives as introduced in Macau[18], amongst other stakeholder incentives will also encourage the use of ADR. The introduction of the use of ADR for class actions as recently discussed in South Korea[19] could also be a welcomed innovation for ADR. Essentially, it would be important to reduce ADR costs, streamline ADR processes, reduce the barrier to entry for practitioners and users, promote reciprocal enforcement of ADR outcomes (be it settlement agreements or arbitral awards), encourage third party funding or financing options and ultimately build an appetite for ADR.

Finally, to facilitate judiciary collaboration, special courts for ADR – related matters (challenges, enforcement, interim measures, neutral appointment) should be established and equipped with judges and court personnel that are knowledgeable in ADR. There should be continuous training of the judiciary in ADR practice and procedure so they can provide the needed support for the process and enforce ADR outcomes effectively. Essentially, ADR should be seen as complementary to the judicial process and not a threat. These imperatives are geared towards achieving the same goal of promoting increased access to justice and effective dispute resolution mechanisms which will prepare the right foundation for increased investment, trade and development.

Conclusion

It is important to create an appetite for ADR so as to develop a sustainable market for ADR within Africa for intra-Africa disputes and ultimately for international disputes. Viable routes to achieving this would signal the development of a pan-African ADR framework with a unified and harmonized approach to ADR as well as uniform adoption of minimum standards across Africa. This would create an integrated legal space conducive for a viable economic industry. The promotion of African cities as an attractive seat for ADR mechanisms and re-positioning of ADR institutions in Africa coupled with capacity building, judiciary collaboration, stakeholder sensitization and civic engagement would be pivotal to the advancement of ADR, especially on the African continent.

_______________________

*Oluwaseun Oloruntimehin is a dual-licensed lawyer in New York, USA and Nigeria, an arbitrator, negotiator, chartered secretary and governance professional qualified in the United Kingdom and Nigeria. She is a dispute resolution specialist with a bias for international commercial arbitration and a successful track record of strategically advising and representing clients across a wide range of industries, in high value and complex domestic and international disputes. She primarily sits as an arbitrator in adhoc and institutional arbitrations and is a member of the Panel of Neutrals for arbitral institutions including the LCA and CIArb-LCA MSME Scheme. She is a fellow of the CIArb and editor-in-chief for the LCA. She has written several papers and is a favored speaker at international conferences. As an approved faculty member and tutor of the CIArb, Oluwaseun also enjoys teaching international arbitration. As an advocate for justice, Oluwaseun is passionate about law, ADR, education and social change.

[1]https://eprints.soas.ac.uk/33162/1/2020%20Arbitration%20in%20Africa%20Survey%20Report%2030.06.2020.pdf (last accessed on 28 November 2022).

[2] The 2021 International Arbitration Survey by Queen Mary University indicates that the five most preferred arbitral institutions for African parties are the International Chamber of Commerce (ICC) - (79%), London Court of International Arbitration (LCIA) – (57%), Singapore International Arbitration Center (SIAC) – (39%), International Centre for Settlement of Investment Disputes (ICSID) – (21%) and Hong Kong International Arbitration Center (HKIAC)- (14%).https://arbitration.qmul.ac.uk/media/arbitration/docs/LON0320037-QMUL-International-Arbitration-Survey-2021_19_WEB.pdf (last accessed on 28 November 2022).

According to SIAC Report 2021, 2.7% of SIAC cases had African parties. The 2021 LCIA Report indicates that 6.6% of reported cases had African parties. According to ICC Report 2020, 7% of ICC cases had African parties. The ICSID Report 2021 evidences that 15% of the cases had Sub-Saharan Africa parties and 9% had North Africa and Middle East parties.

[3] According to the 2021 International Arbitration Survey by Queen Mary University, London is tied in first place with Singapore with 54% of practitioners indicating London and Singapore as their favored seat of arbitration. London is more favored for African practitioners as 69% rank London as their number one preferred seat. Hong Kong is the third preferred seat for arbitration, as 50% of practitioners indicated it as a preferred seat. While Paris is the fourth favored seat globally, it ranks very high amongst African practitioners with 67% indicating Paris as a favored seat. This is particularly true for practitioners/users in French-speaking African countries. Geneva is also a top ranked city for arbitration as 12% of practitioners and users indicate it as their preferred seat.

https://arbitration.qmul.ac.uk/media/arbitration/docs/LON0320037-QMUL-International-Arbitration-Survey-2021_19_WEB.pdf (last accessed on 28 November 2022).

[4] According to the 2020 SOAS Survey in Africa, the top five African countries that are used as a seat for arbitration are South Africa, Nigeria, Egypt, Rwanda and Cote d’Ivoire.

[5]https://iclg.com/alb/17761-african-arbitration-centres-on-the-rise (last accessed on 28 November 2022).

[6] This Treaty which was signed on October 17, 1993 in Port-Loius established the OHADA.

[7]https://www.whitecase.com/insight-our-thinking/arbitration-africa (last accessed on 28 November 2022).

[8] The Nigerian Arbitration and Conciliation (ACA) Bill refers to mediation as opposed to conciliation which is used in the extant ACA Act. The UNCITRAL Model Law on International Commercial Conciliation 2002 has also been replaced with the UNCITRAL Model Law on Mediation 2018.

[9] A Calderbank offer is a settlement offer made on a “without prejudice save as to costs” basis.

[10] ENE was strongly endorsed by the United Kingdom Court of Appeal in Lomax v Lomax [2019] EWHC 1467 where the court held that pursuant to the CPR, the court had the power to schedule an ENE hearing to help parties settle the case so courts can hear an early neutral evaluation. This upturned the earlier position in Halsey v Milton Keynes [2004] EWCA Civ 576 where the court held that ADR was not a compulsion and unwilling parties cannot be compelled to mediate.

[11] By Rule 3.1 (2) (m) of CPR in an appropriate case, the court may provide for an Early Neutral Evaluation hearing for the purposes of assisting parties to settle the case.

[12]https://www.ashurst.com/en/news-and-insights/legal-updates/quickguide---early-neutral-evaluation/ (last accessed on 28 November 2022).

[13] Hong Kong has enacted a new set of Arbitration (Outcome Related Fee Structures for Arbitration) Rules which is to come into operation on 16 December 2022. These Rules allow for the use of various outcome-related fee structures (ORFS) in arbitration proceedings. These include Conditional Fee Agreement, Damages Based Agreement and Hybrid Damages Based Agreement.https://www.lexology.com/library/detail.aspx?g=791c4da5-1645-4c6a-ae94-6df4e8a08825 (last accessed on 28 November 2022).

[14]https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:165:0063:0079:EN:PDF (last accessed on 28 November 2022).

[15]https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:165:0001:0012:EN:PDF (last accessed on 28 November 2022).

[16]http://aadcp2.org/the-asean-alternative-dispute-resolution-adr-guidelines-for-consumer-protection/ (last accessed on 28 November 2022).

[17] Other relevant regulations include the United Kingdom’s ADR for Consumer Disputes (Competent Authorities and Information) Regulations 2021 which is a new residual ADR Scheme for consumer disputes that appoints a principal authority to certify and monitor relevant ADR providers. The UNCTAD Manual on Consumer Protection, Customer Dispute Resolution and Redress and ECD Recommendation Consumer Dispute Resolution and Redress are also useful regulations.

[18] In 2021, Macau enacted a provision for tax reduction (50% tax reduction in stamp duty) for documents with an arbitration clause.

[19] The South Korean bill (the proposed Class Action Act) permits class action lawsuits in any area of law so there are now open discussions for permitting class action arbitrations in South Korea.

Is it permissible for a respondent to file a counterclaim or set-off in proceedings to enforce an arbitral award? By Azubike Okoye*

Sun, 04 Dec 2022 06:00:48 GMT

Abstract

The enforcement of an arbitral award is a streamlined procedure that is supposed to be completed in a short period of time. This is because all the parties' rights, obligations, claims, and defenses are deemed to have been evaluated and unequivocally resolved by the arbitral tribunal in a final award. Accordingly, the New York Convention clearly restricts the grounds on which the enforcement actions may be resisted or challenged by a losing party, and the requirements that a court must evaluate before an award is accepted, enforced, or refused by a losing party.

This article examines whether a losing party may attempt to contest the execution or confirmation of an arbitral award by bringing a counterclaim or a set-off against the awarding party. There has been a long dispute about why courts of enforcement should allow or dismiss a counterclaim or set-off in an enforcement process, and the reasons for doing so. It has been noticed, however, that the decision on whether or not to accept or refuse admissibility of a counterclaim or set-off in an enforcement of arbitral award proceeding varies on the jurisdiction in which the enforcement or confirmation of the award is sought.

Keywords: "arbitral", "award", “convention”, "counterclaim," “decision” "enforcement", “grounds”, "jurisdiction", "set-off”, and “summary.

1. Introduction

A proceeding to enforce or confirm an arbitral award is summary in nature[2]. The New York Convention on the recognition and enforcement of foreign arbitral awards 1958 "the NYC" permits only restrictive attack against an arbitral award within the confines of the NYC. The rationale for limiting the grounds to oppose enforcement proceedings is because enforcement or confirmation proceedings of an award is tantamount to a post-judgment proceeding that does not require trial or evidentiary hearing[3]. It is assumed to be brief in character as all the rights, obligations, claims, and defenses are deemed to have all been reviewed and resolved by the arbitral tribunal in a final award. Hence, seeking the confirmation or enforcement of the award is expected to be summarily decided. It is for the above reason that NYC specifically circumscribed the grounds[4] on which the enforcement proceedings may be opposed by a losing party or conditions the court would consider before the award is recognized, enforced, or refused.

It has, however, been observed that in enforcement proceedings, losing parties in seeking to oppose or challenge the proceedings present a counterclaim or a defense of set-off. Interestingly, different courts in the signatory states have reached different conclusions on whether a losing party to a convention award may set off or counterclaim against the enforcement of a Convention award.[5] From the various courts' decisions in the Contracting States, it appears that the decision to allow a counterclaim or set-off in enforcement proceedings varies with the jurisdiction where the award is sought to be enforced, or the nature of the counterclaim or set-off presented. In other words, the decision to consider the set-off or counterclaim by enforcement court primarily depends on the jurisdiction of the enforcement court and the procedural law of the state of enforcement.[6]

This memorandum will review certain decisions of contracting states where a set-off or counterclaim in the proceedings for enforcement or confirmation of a convention award were considered.

2. Admissibility of a counterclaim or set-off in enforcement proceedings of an arbitral award?

Under the NYC, a party who seeks to oppose or challenge enforcement of a convention award is expected by law to present its arguments within the ambit of Article 111 of the NYC. The grounds were exhaustively stated as follows: a) incapacity of the parties, or invalidity of the agreement; or (b) improper notice of the appointment of the Arbitrator or party was unable to present his case; or (c) the award contains decisions on matters beyond the scope of the submission to arbitration; or (d) irregularity in the composition of the arbitral tribunal; or (e) the award is not yet binding on the parties or has been set aside or suspended by a competent authority or (f) arbitrability of the dispute; or (g) it would be contrary to the public policy to enforce the award. So, whatever process a losing party must file in resisting the enforcement or confirmation of the award, it is expected to be made within any of the listed grounds.

However, it has been witnessed that responding parties to enforcement proceedings of an arbitral award have presented either a counterclaim or a set-off defense. Thus, it becomes relevant to review the decisions of various courts in some jurisdictions where counterclaim and set-off defense have been considered.

2.01 Counterclaim:

“[T]he Black's Law Dictionary defines a counterclaim as a claim for relief asserted against an opposing party after an original claim has been made; esp., a defendant's claim in opposition to or as a set-off against the plaintiff's claim.—Also termed counteraction; countersuit; cross-demand. In other words, a defendant does not "institute" an action when he asserts a counterclaim.”[7] By its very nature, a counterclaim is considered a separate and independent action and may continue or be granted even when the original claim is dismissed or granted. Therefore, it is typically submitted at the beginning of arbitral proceedings after the Claimant has submitted its original claim.[8]

In Fertilizer Corp. of India[9], the Southern District Court of Ohio, a U.S. court in considering a Petition for confirmation of an arbitral award, held that "a confirmation proceeding is not an original action; it is, rather, in the nature of a post-judgment enforcement proceeding. In such a proceeding, a counterclaim is clearly inappropriate." [10] In Selevision Saudi Company v. Bein Media Group LLC[11], the English court, in reviewing a similar contention on whether a counterclaim may be permitted in the enforcement of an arbitral award under the NYC, enunciated that "[e]nforcement proceedings are clearly intended to be, in the absence of a challenge by award debtor, highly summary and essentially quasi-administrative proceedings. Therefore, to permit counterclaims or other additional claims is likely to thwart or complicate enforcement." The court in denying the counterclaim reasoned that allowing the counterclaim "risks the practical inhibition on the enforcement of such award and it would transform the character of the proceedings which would then require full procedures for significantly contested claim including statements of case, disclosure, witness statements and probably expert evidence."[12] Similarly, in an old English decision of Margulies Bros Ltd v Dafnis Thomaides & Co (U.K.) Ltd.[13] Diplock J. pronounced that “[n]o authority has been cited to me in which the existence of a counterclaim has been held to be a good reason for refusing to allow an award to be enforced as a judgment. I do not think that the existence of a counterclaim is a good reason."

Conversely, in Federal Commerce & Navigation Co Ltd v Molena Alpha Inc.,[14] the English court held that “[i]t is not every crossclaim which can be deducted. It is only crossclaims that arise out of the same transaction or are closely connected with it. And it is only crossclaims which go directly to impeach the [Claimant's] demands, that are so closely connected with his demands that it would be materially unjust to allow him to enforce payment without taking into account the crossclaim".[15] Similarly, in Whyte and Mackay Ltd v. Blyth & Blyth Consulting Engineers Ltd[16], a Scottish commercial court was stretchy to allow a counterclaim in an enforcement of award proceeding involving declaration on the authenticity of an award.

In a South African case, Industrius D.O.O v IDS Industry Service and Plant Construction South Africa (Pty) Ltd[17], the High Court affirmed that initiating an unsuccessful counterclaim through action procedures before a court constitutes "proverbial flogging a dead horse" and cannot be used as an excuse to postpone the enforcement of the arbitral ruling[18]. The court found that a party's attempt to set off a proven debt under the arbitral award against an untested counterclaim in unconnected proceedings is likewise in violation of the statute and Model Law and that postponing the enforcement of an international arbitral award in either of the latter cases would be contrary to the spirit of the Model Law in South Africa[19]. The court determined that the Respondent failed to allege or prove any of the grounds outlined in section 18 of the South African arbitration law- International Arbitration Act to persuade the court to deny the application to have the arbitration judgement become an order of court.[20]

In my respectful view, counterclaim in Nigeria is classified as a pleading that requires to be proven through trial and evidence[21] and may not constitute a viable basis to resist a proceeding for an enforcement of an arbitral award. This is because enforcement proceeding of an arbitral award in Nigeria is considered summary in nature.

It follows from the above decisions that a Respondent seeking to oppose an enforcement or confirmation of an arbitral award may be given a fair opportunity to submit a counterclaim depending on the jurisdiction where the enforcement proceedings are pending.

2.02 Set-off:

Set-off is a “[m]ode of defense by which the defendant acknowledges the justice of the plaintiff’s demand but sets up a demand of his own against the plaintiff to counter-balance it either in whole or in part.”[22] Setting off a claim against a Claimant's right to money results in the reciprocal extinguishment of both claims, whether in whole or in part, and it is used to defend the entire or a percentage of a claim.[23]. The impact of the set-off is that the losing party acknowledges the validity of the decision but claims that the award should be reduced or that the reward is less than the set-off amount.[24]

However, it does appear that it is not in all cases during enforcement or confirmation of arbitral award that set-off is admissible or permissible. Again, like in counterclaim, it all depends on the jurisdiction of the court of enforcement save that in some circumstances, how the set-off arose is usually considered by the enforcement court.

In Germany, the Federal Court of Justice (BGH), Germany's highest court with statutory jurisdiction to resolve arbitration-related disputes, held[25] “[t]hat in enforcement proceedings in German courts relating to a domestic or foreign arbitral award, the losing party may request for a set-off if it did not arise from an arbitration agreement.”[26] The Berlin Higher Regional Court upheld the award and dismissed the set-off claim in that decision. The court ruled that the set-off was contrary to the enforcement proceedings and lacked jurisdiction. The Respondent then appealed to the Federal Court of Justice (BGH). The Federal Court of Justice held that substantive objections to arbitral award claims in the form of set-off are acceptable in enforcement actions. But, according to the court, the fundamental grounds for the objection must have developed after the arbitration hearings ended. "[T]he court added that the situation is different when the claim on which the set-off is sought falls within the scope of an arbitration agreement, in which case the arbitral tribunal, rather than a court has jurisdiction.”[27]

According to the above German case, it is remarkable and appears to be quite rational to note that for set-off to be considered, it must not have existed during the arbitration process; otherwise, it falls within the competence of an arbitral tribunal. Hence, the set-off is permissible if the debtor wants to set off a claim that occurred either after the arbitration proceedings were completed or outside the arbitration agreement. The decision clarifies that set-off, which is a type of substantive objection, can be admissible during enforcement. The only time this doesn't apply is if the objection itself is covered by an arbitration agreement. Then the arbitrators make the decisions and, not a court of law during enforcement of the award.[28]

Similarly, in Uganda Telecom Limited v. Hi-Tech Telecom Pty Ltd[29], a Federal Court of Australia in a proceeding seeking to enforce a Ugandan award rejected “Hi-Tech’s request to defer enforcement of the award pending determination of its claim for set-off, reasoning that there is no basis under the International Arbitration Act for refusing to enforce a foreign award or for delaying or deferring the enforcement of a foreign award because the party liable under the award has a set-off claim against the other party.” In R & C Electrical Engineers Ltd v. Shaylor Construction Ltd[30] the court held that "there was a contractual right of set-off against an award of a sum that was not yet due for payment."[31]

In contrast, the English court in Workspace Management v. YJL London Limited[32], held that set-off is admissible when the court found that the Claimant owed the Defendant £56,143.35 as a result of an Adjudicator's decision and that the Defendant owed the Claimant the same sum as a result of the Arbitrator's award involving the same parties, same contract. Therefore, relying on the principle of "equitable set-off," the court explained that it was a case of mutual set-off of debts. The court reasoned that, based on the above premise, “[i]t would be manifestly unjust to allow the Claimant to enforce payment without taking into account the set-off based on Adjudication Decision 3”. Therefore, the court held that the principles of equitable set-off applied in that case.

3. Conclusion

What emanates from the foregoing considerations is that a Respondent is generally not permitted to bring a counterclaim or set-off in order to oppose a claim to enforce an arbitral award except the court of enforcement allows it. This is because Article 111 of the NYC extensively lists the reasons for opposing or challenging an arbitral award. The rationale for restricting the grounds for enforcement of a convention award is because arbitral award enforcement proceedings is largely analogous to post-judgment actions that do not entail a trial or evidentiary hearing. Additionally, it is considered as having a short duration, as the arbitral tribunal is believed to have examined and resolved all the parties' rights, responsibilities, claims, and defenses in a final judgment.

The Contracting States seemed to have created exception as the decision on whether or not to admit a counterclaim or set-off in an enforcement proceeding is solely within the exclusive province of the court, which must take into consideration the procedural law of the Contracting State that sets out the requirements for either the admissibility or denial of the counterclaim or set-off in the enforcement proceeding.

In my considered opinion, courts in all Contracting States should exercise caution when deciding whether to accept or deny a counterclaim or set-off in enforcing a convention award if doing so may result in the reopening of proceedings, which invariably necessitates an evidentiary hearing or discovery requests. Otherwise, admitting counterclaim or set-off in all enforcement proceeding of a convention award will inevitably modify the brevity of the proceeding.

_______________________________

*Young ICCA Scholar. A Fellow of Chartered Institute of Arbitrators, U.K.; Prime Dispute U.K.; Arbitrators’ and Mediators’ Institute of New Zealand; and Malaysian Institute of Arbitrators. He earned his Master of Laws (LL.M.) degree in International Arbitration at the University of Miami, School of Law, Florida, United States of America.

[2] Imperial Ethiopian Gov't v. Baruch-Foster Corp., 535 F.2d 334, 335 (5th Cir. 1976).

[3] Fertilizer Corp. of India v. IDI Management, Inc., 517 F. Supp. 948 (S.D.Ohio 1981).

[4] Article 3 of the New York Convention on the recognition and enforcement of foreign arbitral awards 1958.

[5] A.J. van den Berg, “New York Convention of 1958- Annotated List of Topics (2013).”

[6] Mathias Scherer and Sam Moss, ‘Resisting Enforcement of a Foreign Arbitral Award under the New York Convention.” IPBA Journal No. 51, September 2008.

[7] In re Am. Home Mortg. Assets Trust 2007-5, 2019 Minn. App. Unpub. LEXIS 267 2019 WL 1431923.

[8] Id.

[9] 517 F. Supp. 948 at 949.

[10] Id. at 963

[11](2021) EWHC 2802 Comm. https://jusmundi.com/en/document/pdf/decision/en-selevision-saudi-company-v-bein-media-group-llc-judgment-of-the-high-court-of-justice-of-england-and-wales-2021-ewhc-2802-friday-22nd-october-2021.

[12] Id.

[13] [1958] 1 Lloyds Rep 250: Christopher Hill and Steve Abraham, Norton Rose, “Adjudication and Arbitration Set-Off” Lexology (2006).

[14] (1978) 1 QB 927

[15] Id.

[16] (2012) CSOH 79; 2012 G.W.D. 17-3433.

[17] (2020/15862) [2021] ZAGPJHC 350 (20 August 2021)

[18] Id.

[19] Andrew Fawcett, “South African court reaffirms stance on enforcement of arbitral awards.” 23 September 2021.

[20] (2020/15862) [2021] ZAGPJHC 350 (20 August 2021)

[21] Elder P.E. Biko & Anor. v. Sir. Uche Amaechi (2018) LPELR-45069 (CA)

[22] Bryan A. Garner, “Black’s Law Dictionary, 11th Edition, 2019.”

[23] Alexis Mourre, “The Set-off paradox in International Arbitration.” Arbitration International, Volume 24, Issue 3, 1 September 2008, Pages 387–404.

[24] Vladimir Pavic, “Counterclaim and Set-Off in International Commercial Arbitration.” Annals, International Edition pp. 101-116 (2006).

[25] 28 July 2005- Court of Appeal [Oberlandersgericht] Koblenz in Albert Jan van den Berg (ed) Yearbook Commercial Arbitration 2011- Vol. XXXI, (Kluwer Law International 2006) pp. 673-678.

[26] Stephan Wilske and Claudia Krapfl, Gleiss Lutz, “Federal Court of Justice on set-off in enforcement proceedings.” Germany International- 28 September 2010.

[27] Germany No. 138, Seller v. Buyer, Bundesgerichtshof, 30 Sept. 2010 in Albert Jan Van Den Berg (ed), Yearbook Commercial Arbitration 2011- Vol. XXXVI, Vol. 36, Kluwer Law Int’l; ICCA & Kluwer Law Int’l 2011 pp. 279-281.

[28] Stephan Wilske and Claudia Krapfl, Gleiss Lutz; “Set-off in enforcement proceedings possible if claims not subject to arbitration.” Thomson Reuters Practical Law.

[29] Australia No. 36 Federal Court of Australia, New South Wales District Registry, General Division, 22 February 2011 in Albert Jan van den Berg (ed) Yearbook Commercial Arbitration 2011- Vol. XXXVI, (Kluwer Law International 2011) pp. 252-255.

[30] (2012) EWHC 1254 TCC:

[31] Kenneth T. Salmon, “The International Journal of Arbitration, Mediation and Dispute Management.” (2012)

[32] (2009) EWHC 2017 (TCC): See also Georgia Corporation v. Gavino Supplies (UAE) Fze [2016] DIFC ARB 005.

Importance of properly drafted Arbitration Clauses in Commercial Agreements: Nigeria as a case study. By Azubike Okoye*

Sun, 04 Dec 2022 04:43:45 GMT

Abstract

Arbitration clauses constitute one of the salient dispute resolution clauses in legal agreements. One of the well-known essences of having such clauses in agreements —apart from amicable resolution of grievances—is to foster business relationships without the need of proceeding to the regular court system, thereby circumventing uncertainties as to time.

This article focuses on the importance of properly drafted arbitration clauses and how best to generally avoid early litigation costs arising from improperly drafted arbitration clauses. Various Nigerian court decisions emanating from contentions of refusing parties to arbitration were reviewed. The court decisions demonstrated how refusing parties sought to use improperly drafted arbitration clauses as a legal reason to avoid proceeding with arbitral proceedings or to set aside unfavourable arbitral awards under the guise that the clauses were ill-drafted.

The litmus test adopted by the courts in determining whether an arbitration clause was improperly drafted was to determine whether there is any intent shown by the parties to resort to arbitration in the first instance once a dispute is declared. In those decisions, once the court confirms an existence of such intent, the court always compels arbitration. Interestingly, some of the Nigerian courts relied on a plethora of U.S. court decisions to order parties to arbitrate. This study frowns at the position of the refusing parties in opting for court proceedings rather than resorting to arbitration as agreed.

Introduction

The success or otherwise of an effectual commencement of an arbitration proceeding largely depends on the arbitration clause or the agreement. If it was poorly drafted, it will create ambiguity on how the arbitration proceedings would be commenced, ranging from request for arbitration, the appointment of arbitrators, and the place of arbitration and exchange of pleadings for the parties. Conversely, if the clauses were well thought after and properly drafted, the parties to the dispute would have no difficulties setting the proceedings in motion.

Therefore, it is highly recommended that parties should take time to effectively negotiate arbitration clauses in their agreements precisely the same way other fundamental provisions in their contracts are negotiated. This is to avoid exposing the parties to early significant time and costs at the preliminary stage of disputes or to enforce an arbitral award.

Conceivably, once a dispute crystallises, the opportunity to discuss the logistics surrounding the arbitral process freezes and the parties are concerned with how best to protect their various rights and shift obligations in respect of the terms of the agreement. Parties are then confronted with the tussle over preliminary procedural issues like the appointment of Arbitrator (s), the seat of arbitration, and forum non-conveniens. This is because the seat of arbitration is of fundamental importance in arbitral proceedings since the Court of the seat of arbitration is the primary jurisdiction where the award is likely to be challenged by an aggrieved party. The concepts mentioned above are, amongst others, some of the basic background principles that guide the interpretation and enforcement of awards, and for that reason, the arbitration clauses are of paramount importance.

It will be inchoate to discuss or understand the importance of well-drafted arbitration clauses without reviewing vital considerations in drafting arbitration clauses. Therefore, this memorandum will examine the key considerations in drafting arbitration clauses and the importance of well-drafted Arbitration clauses with the relevant cases involving Nigerian parties or entities where arbitration clauses may have been adjudged as pathological but enforced by the Courts.

Basic Requirements of Arbitration Clauses in Nigeria

The principal law regulating domestic arbitral proceedings in Nigeria is the Arbitration and Conciliation Act.[1] ‘The Act”. It is a federal statute. It is substantially a mirror reflection of UNCITRAL[2] model law.

The Act recommends the prerequisites for a valid and enforceable arbitration clause. The various requirements as circumscribed under the Act for enforceable arbitration clauses are as follows: First, the arbitration agreement must be written[3]; verbal agreements are not binding. A standalone arbitration agreement or an arbitration clause in a contract can make up a written arbitration agreement. Second, arbitrability is required for the types of disputes involved.[4]. For example, parties cannot arbitrate tax disputes.[5]; and any allegation of fraud does not admit of settlement by arbitration. This is because these issues are a matter of public concern, and it is contrary to public policy to compromise such disputes.[6] Third, even though it is not a requirement of the Act, parties often stipulate that a specific action or steps must be taken before arbitration, like negotiation or mediation talks by typical corporate representatives of the parties. However, there is a split amongst Nigerian scholars on whether this is a condition precedent before further steps could be taken. Therefore, it is unclear whether the dispute resolution clause is only desired before the arbitration or essential to start the process. Fourth, it must show that parties are within their contractual legal capacity to arbitrate in the arbitration agreement. For example, an infant or a party less than 18 years does not have the legal capacity to contract. Furthermore, an unregistered entity cannot contract or corporate body in liquidation, or an insane person cannot contract, and for that reason, the parties cannot arbitrate.

Key considerations in drafting Arbitration Clauses

In drafting arbitration clauses, it is relevant to note that there is no universally applicable model or all-purpose arbitration clause. It is highly recommended that each arbitration clause must be circumspectly adapted to the contract's circumstances and the parties' needs. Regrettably, arbitration clauses are frequently neglected or one of the last contractual elements to be discussed; the clauses are sometimes included at the last minute, with the parties relying solely on form clauses or precedents by "copying and pasting." By practical experience, it is observed that failure to customize the arbitration clause to the unique contract's requirements, and by the desires of the parties, it can result in repercussions like a waste of significant time and resources on the procedure for the appointment of the arbitrators[7] and scope of dispute to be subject to arbitration.

Therefore, the wordings may, of course, directly or by implication limit what would otherwise be the clause's full scope or, conversely, extend it even further beyond the scope of parties’ expectations and what the parties intended.[8] In some salient situations, where there is a dispute, much to the consternation of the parties and lawyers, the parties' representatives would raise eyebrows that the parties never subjectively intended the contents of the arbitration clause or agreement.

The key considerations of well-drafted arbitration clauses in comparative analysis of the various reported Nigerian cases or cases involving Nigerian parties are discussed hereunder:

Operative words must be clear, "Shall" and not "May."

It is highly advised that in reducing in writing the parties’ intention to proceed to arbitration, the operative word to be used on what parties should do once a dispute arises is "shall" and not "may." This is to avoid contentious objections in seeking a court interpretation on whether it is mandatory to proceed to arbitration or not by using the word "may."

It has been observed that several refusing parties who do not wish to proceed to arbitration once a dispute is declared had contended before Courts that by the use of the word “may," it is discretionary and optional for parties to proceed to arbitration. The case of Travelport Global Distribution Systems B.V. v. Bellview Airlines Ltd[9] is very illustrative. In the distribution agreement signed between Travelport, a Dutch corporation, and Belview, a Nigerian company, parties agreed their dispute "[m]ay be submitted to arbitration in the United States under UNCITRAL Arbitration rules in force at the date of reference." However, when the dispute crystallised, Bellview filed a lawsuit at the Nigerian Federal High Court and contended that the arbitration clause was ineffective, and it was not mandatory since the word used was "may" and not “shall." Bellview concluded that the use of the permissive phrase "may" is discretionary, and on that ground, the arbitration agreement was invalid. The Court held that the mere fact that parties had arbitration clause in their agreement and also used the word “may” showed clear intent of the parties to arbitrate and therefore, compelled parties to arbitrate.

Similarly, in Sino-Afric Agriculture & Ind Company Ltd & Ors v. Ministry of Finance Incorporation & Anor.[10], parties agreed that any “[d]ispute, difference, or question, may be referred to arbitration by either party under the provision of the Arbitration and Conciliation Law (Cap. 19) Laws of the Federation 1990.” Thereafter, a dispute arose, and the Ministry initiated an action in Court and contended that the use of the word "may" in the agreement indicates that parties have the discretion to arbitrate or proceed to Court. Sino-Afric filed an application seeking a stay pending arbitration. The trial Court dismissed the Sino-Afric's application for stay and assumed jurisdiction. It held that because the word used was "may," proceeding to arbitration was optional. On appeal, the Nigerian Court of Appeal set aside the trial Court’s decision and relied on decisions of the U.S. Court[11] to interpret the word "may" as being mandatory. Hence, the application for stay of proceedings pending Arbitration was granted.

It has been recognized that by decided cases, the typical line of reasoning that the word “may” as used in the agreement is discretionary is no longer the trend in the context of arbitration provisions. Nevertheless, it is to be noted that despite the attitude of the Nigerian appellate Courts in this regard, recalcitrant parties still find such contentions as a basis to delay the commencement of arbitral proceedings under the guise that the operative word "may" is discretionary and not mandatory.

Appointing Authority must be defined and should be in existence

This is also an essential consideration for parties to ensure that appointing authority for Arbitrators is appropriately stated, and it was in existence when the agreement was made. In some situations, the name of the appointing authority may not be stated correctly. It could be misspelled, or nomenclature is different from what they are called. This was the same line of argument made in the Travelport[12] case. In that case, one of the contentions of Bellview was that since the appointing authority "United States Council of Arbitration" is a non-existent institution, the arbitration clause is inoperable and invalid. Hence, parties should ventilate their grievance in a regular Court. Interestingly, the U.S. Court, in jettisoning the Bellview’s line of argument, held that whether or not the appointing authority "United States Council of Arbitration" is a non-existent institution, the UNCITRAL rule agreed to by the parties prescribed on how the arbitrators should be appointed.

In Mr. Charles Mekwunye v. Mr. Christian Imoukhuede [13], the parties’ tenancy agreement stated that “[a]ny conflict and disagreement arising out of these presents shall be referred to a Sole Arbitrator that shall be appointed by the President of the Chartered Institute of Arbitrators, London, Nigerian Chapter.” Mr. Imoukhuede contended that the clause referred to a non-existent body by using the word "President" instead of “Chairman” and argued that the sole Arbitrator's appointment was invalid. The High Court of Lagos State affirmed the arbitral award as valid and subsisting. However, the award was set aside on appeal by the Nigerian Court of Appeal, Lagos, based on the Mr. Imoukhuede’s contention. On appeal to the Nigerian Supreme Court, the apex Court affirmed the decision of the trial Court reinstating the arbitral award and upturned the decision of the Court of Appeal. The Nigerian Supreme Court held that the difference between “Chairman and President” is a matter of title, and it is the person in charge of the Arbitral institution in Nigeria that the parties intended to designate as their appointing authority. Therefore, the Arbitrator's appointment was valid because despite the error in nomenclature "President or Chairman," there was nothing before the Court to suggest that the Respondent was misled or that he was in doubt as to who the appointing authority was.

Appointment procedure must be spelled out in the Arbitration Clause and adhered to strictly

This is typically necessary to avoid delays in Arbitrators' appointments and allow parties to exercise their right in choosing who should preside and determine their dispute as the cornerstone of arbitration remains consent. It is pertinent to state that if the Arbitrators are not appointed under the procedure or rule as agreed to by the parties, it may also constitute a valid legal basis for setting aside an award.[14]

In Celtel Nigeria BV V. Econet Wireless Limited & Ors [15], the parties agreed in their shareholders’ agreement that the Arbitrators to their dispute “[s]hall be appointed by the Chief Judge of the Federal High Court of Nigeria.” Relying on the above provision, the 1st Respondent wrote to the then Chief Judge of the Federal High Court (Ukeje, CJ) to appoint arbitrators. Ukeje, C.J., declined to make the appointment. The 1st Respondent then commenced an action at the High Court of Lagos State seeking a selection of Arbitrators. Before the Court could make the appointment, the 1st Respondent re-applied to the Chief Judge of the Federal High Court (Mustapha, C.J.), who had replaced Ukeje, C.J., in office to constitute an arbitral tribunal to determine the dispute. The new Chief Judge of the Federal High Court (Mustapha, C.J.) acceded to the request and appointed three arbitrators to arbitrate the dispute. Some of the Respondents at the arbitration, including the Appellant, objected to the mode of appointment of the arbitrators by Mustapha, C.J. The Arbitrators heard and dismissed the objections. The arbitral proceedings then proceeded to finality.

Thereafter, the Appellant commenced an action seeking for setting aside of the arbitral award which was predicated, amongst others, that the written refusal of Ukeje C.J., to appoint arbitrators under the Shareholders Agreement foreclosed re-application to Mustapha C.J., as the refusal by Ukeje, C.J., to make the appointment had exhausted the arbitration clause on the appointment of arbitrators. The trial Court dismissed the action. The Appellant further appealed to the Nigerian Court of Appeal. In dismissing the appeal, the Nigerian Court of Appeal held that the refusal of Ukeje, C.J., to appoint Arbitrators did not tie the hands of the successor-in-office, Mustapha C.J., to consider or review the new request for the appointment of Arbitrators because the application to the Chief Judge of the Federal High Court was to fulfill the contractual clause binding on the parties in which the role of the Chief Judge of the Federal High Court was to facilitate the process by appointing Arbitrators within the contractual arrangement of the parties.

From the above decision, it appears that institutional-based arbitration may be preferable to ad hoc-based arbitration. This is because the parties had wasted time and resources to ensure that the appointment of arbitrators was validly made, particularly where the former C.J. of the Federal High Court had refused to appoint Arbitrators despite parties' agreement in that regard.

The Forum or Place of Arbitration must be specified, and the place must be where parties intended

Sometimes, parties copy and paste arbitration clauses without altering the place of arbitration, and when a dispute ensues, parties would observe that they had agreed to arbitrate in a location/place different from where they would have ordinarily considered. This is majorly because of the costs involved in conducting the arbitration hearing abroad.[16] While in some circumstances, the entire contract containing the arbitration clause is made in unilateral form without allowing the other party to review and make amendments, i.e., take it or leave it the basis.[17]

In Sacoil (Nig) Ltd & Anor -v- Transnational Corporation of (Nig) Plc [18], a dispute arose between the parties’ Farm-Out and Participation Agreement ("F.O.P.A."). The agreement had an arbitration clause that specifically stated that "[t]he place of Arbitration shall be London, England.” However, when a dispute ensued, the Respondent commenced an action in Court and contended that the agreement, if enforced, would oust the jurisdiction of the Court in Nigeria since the parties by the agreement covenanted to have the place of arbitration in London. The Respondent claimed that the effect of the clause is that only the courts in London (as the seat of arbitration) would have jurisdiction over the commencement of arbitral proceedings and enforcement of an arbitral award. The trial Court upheld the contention of the Respondent. The Appellant appealed to the Nigerian Court of Appeal, and the appeal was allowed, and for that reason, a stay pending arbitration was granted. The Court of Appeal premised its decision in allowing the request on the ground that parties are bound to arbitrate and cannot use the fact that the arbitral proceedings are to be held in London as a basis to opt-out of the arbitration agreement.

Similarly, in Sonnar (Nig) Ltd & Anor vs. Partenreedri M.S. Nordwind (Owners of the Ship M) & Anor [19] The Plaintiffs, Sonnar Nig. Ltd. and Public Impex traders entered into an agreement[20] (which is evidenced by a bill of lading) with the Defendants [Partenreedric Norwind (the ship owners who are based in Germany and the issuer of the Bills of Lading) and, Bandridge Shipping Company (based in Liberia)] and Chaiyapon rice company based in Thailand. The bill of lading had an arbitration clause that specified that any dispute arising under the bill of lading shall be decided “where the ‘carrier’ has his principal place of business, and the law of such country shall apply except as provided elsewhere herein.” The carrier is the 1st Defendant, Partenreedric M. S. Norwind of Germany. A dispute arose for the non-delivery of 25,322 parboiled long grain rice bags. The Plaintiffs brought a suit at the regular Court claiming damages for the breach on April 23, 1980. The Defendants contended that the forum for litigation regarding the action was west Germany, not Nigeria. The trial Court (Federal High Court), after hearing evidence, granted a stay of proceedings pending arbitration. The Nigerian Court of Appeal affirmed the decision of the trial Court. Dissatisfied, the Appellant appealed to the Nigerian Supreme Court. The Supreme Court, on November 13, 1986, allowed the appeal and dismissed the application for stay of proceeding on the ground that if a stay is granted, the party would not have the opportunity to bring an action in the German Court since the cause of action would be statute-barred by limitation. Hence, the apex court ordered that the matter be heard and determined conclusively at the trial Court.

It is interesting to note that if the parties' arbitration clause were worded and appropriately negotiated by the parties in the above cases by stating in clear terms that the arbitral proceedings should be conducted in Nigeria, they would not have wasted in prosecuting the matter at the regular Courts. Therefore, the need to negotiate the arbitration clauses is highly recommended.

Importance of well-drafted Arbitration clauses

It will be readily observed that the importance of well-drafted Arbitration clauses has been aptly demonstrated in the various Nigerian case laws cited above. What reverberates in the cited Nigerian cases is the fact that Arbitration clauses should be properly negotiated, and this point cannot be overemphasized. Therefore, well-drafted Arbitration clauses will help to reduce the following risks:

i. Risk of Delay: It is without a doubt that once parties do not define their material terms in the Arbitration clauses, this will result in delays in kickstarting the process, particularly on the appointment of arbitrators, place of arbitration, and rule of conduct of arbitral proceedings. Hence, sometimes parties will resort to conducting preliminary meetings and deciding how best to proceed. Admittedly, this delays the process and wastes significant time that parties could have used in commencing and completing the arbitral process. Once the Arbitration clause is well drafted it would ensure a quick commencement and conclusion of the process.

ii. Risk of early Costs: It is clear from the various Nigerian cases considered in this memorandum that parties incurred early costs in seeking to interpret the legal effects of what the parties agreed and their intentions. Therefore, parties incur the initial expenses of engaging lawyers to make legal representations in Courts. Whereas, if the clauses were properly drafted, parties would proceed with the arbitral proceedings and reserve their high costs for conducting the proceedings and enforcing an award or defending the award as the case may be. Unarguably, the respective parties where the clauses are not adequately covered, exert considerable time and resources either to commence the arbitral proceedings or for enforcement of the award.

iii. Risk of Court interference: It will be recalled that one of the reasons that parties may have opted for arbitral proceedings is that their proceedings are private and confidential. However, this will be defeated when parties resort to Court to appoint their Arbitrators or resolve whether their arbitration clause is enforceable or not. Therefore, once the parties proceed in and out of the Court, they face the risk of the Court interfering in their supposedly private affairs and the processes filed in Court become public documents that members of the public may have access to such confidential documents. This should not have been the case if the parties Arbitration clauses are properly negotiated and well-drafted.

iv. Risk of litigation fatigue: A review of some cases disclosed that after parties had exerted their resources, time, and energy in determining whether their Arbitration clauses were enforceable or not, some ended up compromising their claims and whilst some also ended up being decided by the regular Court due to statute of limitation. An average trial court proceedings in Nigeria usually exceed two years or three. Eventually, the aggrieved party may challenge the trial court's decision as gleaned in some of the proceedings from the trial Court to the Court of Appeal and then to the Supreme Court. As a result of the protracted litigation, in some cases, parties experienced litigation fatigue, and on that premise, the parties compromised their dispute or the award on a lesser sum than what they would have made if the parties had negotiated and worded their arbitration clauses properly.

It is, however, a welcome development that the recurrent and common feature in all these cases is that despite the extensive contentions of the respective aggrieved parties, the Nigerian appellate Courts consistently maintained the stance that once parties have agreed to arbitrate in their agreements, they must be referred to arbitration despite the pathological clauses. The rationale is premised on the principle that parties cannot be permitted to resile from their agreements to arbitrate under the guise of a pathological clause.

Conclusion

Parties are encouraged to adopt a conservative approach by engaging lawyers specially skilled in the field of arbitration in drafting and negotiating their arbitration clauses in detail before signing arbitration clauses or agreements.

Therefore, defining clearly all the relevant terms in an arbitration clause like the scope of the dispute, place of arbitration, appointing authority, procedural law, and making arbitration mandatory where there is a dispute will undoubtedly help to clearly describe all the main aspects of a legal arbitration agreement in a way that parties intended. The above approach will minimize court intervention in resolving preliminary potential hazards with attendant costs and time and as a result put an end to an era of pathological clauses.

_____________________________

* Fellow of Chartered Institute of Arbitrators, Prime Dispute U.K., Arbitrators’ and Mediators’ Institute of New Zealand, and Malaysian Institute of Arbitrators. He earned his Master of Laws (LL.M.) degree in White & Case International Arbitration in University of Miami, School of Law, Florida, United States of America.

[1] Chapter 18, Laws of Federation of Nigeria 2004.

[2] United Nations Commission on International Trade Law

[3] Section 1 of the Act.

[4] Sections 48 (b) (i) & (ii) and 52 (2) (ii) of the Act provide that even when an award has been procured, and it becomes clear that an agreement on which the arbitral award was premised on arose from an invalid contract or the subject matter of the dispute is not capable of settlement or is contrary to public policy, such an award is bound to be set aside.

[5] The Nigerian Court of Appeal has held two decisions in Esso Petroleum and Production Nigeria Ltd & Anor. (S.N.E.P.C.O.) vs. N.N.P.C. unreported Appeal No. CA/A/507/2012; delivered on July 22, 2016, and Shell (Nig.) Exploration and Production Ltd & 3 others vs. Federal Inland Revenue Service unreported Appeal No. CA/A/208/2012; delivered on August 31, 2016, that tax disputes arising from a Production Sharing Contract (P.S.C.) are not arbitrable because the subject matter of the conflict is within the exclusive jurisdiction of the Federal High Court

[6] Kano State Urban Development Board V. Fanz Construction Ltd. (1990) 4 N.W.L.R. (PT.142) 1 at 32-33.

[7] Celtel Nigeria B.V. V. Econet Wireless Limited & Ors (CA/L/895/2012) [2014] N.G.C.A. 28.

[8] Heyman v. Darwins Ltd (1942) A.C. 356; (1942) 1 All E.R. 337

[9] Travelport Glob. Distribution Sys. B.V. v. Bellview Airlines Ltd., No. 12 CIV. 3483 DLC, 2012 WL 3925856, at *1 (S.D.N.Y. September 10, 2012)

[10] (2013) LPELR-22370 (CA).

[11] Conex Florida Corp. v. Astrium Ltd., 499 F. Supp. 2d 1287 (M.D Fla. 2007); Hirschenson v. Spaccio, 800 50. 2d 670 (Fla. 5th D.C.A. 2001); Moses H. Cone v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).

[12] Travelport Global Distribution Systems B.V., (S.D.N.Y. September 10, 2012).

[13] (2019) LPELR-48996 (SC), (2019) 13 NWLR (1690) 439 S.C.

[14] Section 52 (2) of the Arbitration and Conciliation Act

[15] (CA/L/895/2012)[2014] N.G.C.A. 28.

[16] Sacoil 281 (Nig) Ltd & Anor -v- Transnational Corporation of (Nig) Plc (2020) LPELR-49761(CA).

[17] Sonnar (Nig) Ltd & Anor vs. Partenreedri M.S. Nordwind (Onwers of the Ship M) & Anor (1987) LPELR-3494(SC).

[18] (2020) LPELR-49761(C.A.)

[19] (1987) LPELR-3494 (SC).

[20] The agreement was to ship 25,322 bags of parboiled long-grain rice from Thailand to Nigeria.

Case Comment: Bekimpilo Gumbo v The Gas Boys (Pvt) Ltd and The Honourable Mr David Whatman; HH 194/22 By Davison Kanokanga*

Sun, 04 Sep 2022 19:58:59 GMT

This is a short commentary on the below-named judgment by the Harare High Court, Zimbabwe, after it held that an arbitrator’s positive ruling on jurisdiction made as a preliminary question is an award that can be set aside in terms of Article 34 of the Model Law.

Case: Bekimpilo Gumbo v The Gas Boys (Pvt) Ltd and The Honourable Mr David Whatman; HH 194/22

THE FACTUAL MATRIX

In May 2019, the applicant and the first respondent signed a commercial agreement in which the first respondent leased haulage trucks to the applicant. The applicant failed to meet his part of the bargain resulting in a dispute between the parties, which was referred to arbitration in terms of the parties' agreement. The second respondent was appointed as the arbitrator. In response to the first respondent’s claim, the applicant, in his statement of defence, raised preliminary objections challenging the jurisdiction of the arbitrator on the basis that the agreement between the parties was unlawful. The alleged unlawfulness of the contract was that it was denominated in South African Rand in contravention of the laws of Zimbabwe. The first respondent countered by contending that there is no law in Zimbabwe that prohibits the denomination of contractual obligations in foreign currency or the receipt of payments in foreign currency.

The arbitrator directed the parties to file legal arguments. After considering the parties' submissions, the arbitrator ruled that the preliminary challenge must fail. As such, it is so ruled[1]

THE APPLICATION

Aggrieved by the arbitrator’s aforesaid award, the applicant filed a court application with the High court in terms of Article 34(2)(b)(ii) of the Model Law, which is an annexure to the Arbitration Act (Chapter 7:15)

Article 34(2) of the Model Law provides that:

(2) An arbitral award may be set aside by the High Court only if-

(b) the High Court finds, that—

(i)---or

(ii) the award is in conflict with the public policy of Zimbabwe

THE APPLICANT’S CASE

The applicant contended that the arbitrator had issued an award that is not only a contravention of statute but is also shocking, palpably iniquitous, and manifestly injurious to the public policy of Zimbabwe. He sought the setting aside of the award.

THE FIRST RESPONDENT’S CASE

The first respondent opposed the application. It raised a preliminary objection that the arbitrator had not issued an award as contemplated by the Arbitration Act (Chapter 7:15). Because the arbitrator’s decision does not constitute an arbitral award, the High court had no jurisdiction under article 34 of the Model Law.

THE JUDGMENT

The issue which loomed large in the preliminary objection was whether the second respondent sitting as an arbitrator made an arbitral award that would entitle the High court to review its decision[2]. In the present case, the applicant attached to his application as annexure F a document titled" Adjudication and Ruling in terms of Article 16(3) of the Model Law-Preliminary objection to Jurisdiction". That document purports to deal with the objection to the second respondent’s jurisdiction, which was raised by the respondent applicant in the arbitral proceedings. After discussing various issues, the second respondent, in the penultimate paragraph of the ruling, proceeded to state in unequivocal terms that:

Accordingly, the preliminary challenge must fail. As such, it is so ruled.[3]

As already indicated, the substance of the second respondent’s decision is that he ruled on the dispute as a preliminary question and made the determination that he had the jurisdiction to preside over the proceedings.[4]

The learned Judge also stated that therefore, my comprehension is that the existence of a dispute is central in establishing whether an award has been made in arbitral proceedings. If there is a dispute and the arbitrator makes a formal pronouncement on resolving that dispute, that decision constitutes an award.[5]

DISPOSITION

When all is said and done, it is apparent that the applicant seeks for the court to emasculate the arbitrator of his power and competence to rule on issues to do with his jurisdiction. Yet the arbitrator is within his powers to decide on his own jurisdiction. An arbitration agreement is not unlawful even where the remainder of the agreement may be declared unlawful. It is up to the arbitrator to decide those issues. The parties must go back to enable the second respondent to continue the proceedings.

Accordingly, it is ordered that the application be and is hereby dismissed.[6]

AN ANALYSIS OF THE JUDGMENT

Was Article 34 applicable in this matter?

The court stated that the substance of the second respondent’s decision is that he ruled on the dispute as a preliminary question and made the determination that he had the jurisdiction to preside over the proceedings[7].The arbitrator’s decision was made in terms of Article 16(3) of the Model Law, which provides as follows:

(1) The arbitral tribunal may rule on its jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause that forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised no later than the submission of the statement of defence. A party is not precluded from raising such a plea by the fact that he has appointed or participated in, the appointment of an arbitrator. A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. The arbitral tribunal may, in either case, admit a later plea if it considers the delay justified.

(3) The arbitral tribunal may rule on a plea referred to in paragraph (2) of this article either as a preliminary question or in an award on the merits. If the arbitral tribunal rules on such a plea as a preliminary question, any party may request, within thirty days after having received notice of that ruling, the High Court to decide the matter, which decision shall be subject to no appeal; while such a request is pending, the arbitral tribunal may continue the arbitral proceedings and make an award.

The court handed down its judgment on 25th March 2022. A month before, on the 24th February 2022, the Supreme Court of Zimbabwe had handed down judgment in a similar matter. It stated that the article distinguishes between a ruling and an award by pointing out that the arbitral tribunal can make the ruling on the preliminary question or make such a ruling in its award on the merits. It is, therefore, clear that the ruling is not an award as it can be made on the merits and that while the issue of the ruling is pending in the High Court, the Arbitrator can continue with the proceedings and make an award. A ruling on jurisdiction is, therefore, distinct and different from an award.[8]A reading of Articles 16(3), 31(7), 32(1), 33, and 34 establishes that rulings on the arbitral tribunal’s jurisdiction and the existence of arbitral agreements are not awards.[9]

The High Court being subordinate to the Supreme Court is bound by Supreme Court judgments. The judgment in question flies in the face of a Supreme Court judgment. To that extent, it is erroneous.

Even without the aforesaid Supreme court judgment, the court having correctly stated that the arbitrator had ruled on the dispute as a preliminary question and made the determination that he had jurisdiction to preside over the proceedings, should have seen that Article16(3) lays out a path to challenge such a ruling. Recourse against such a ruling is in terms of Article 16(3) and not article 34.

Article 16(3) also presents a question of whether, after a tribunal rules that it has jurisdiction, the party contesting the jurisdiction must immediately challenge that ruling under Article 16(3). Or whether it can wait until a final award is made and raise the argument when seeking to set aside or annul the award under article 34. The majority view is that a party must challenge the tribunal’s jurisdictional ruling within the thirty-day limit allowed under article 16(3), and that if it fails, it will be precluded from doing so in an annulment or setting-aside action under article 34.[10]

Commentators maintain that by laying out a path to challenge the arbitrator's positive jurisdictional ruling, Article 16(3) requires the challenge to be raised within the requisite time period. If one does not raise the challenge under Article 16(3), the ruling becomes binding[11]

Based on the aforesaid, the judgment in question can be criticized for:

(1) Contradicting a judgment of the Supreme Court of Zimbabwe when the High Court of Zimbabwe is subordinate to the Supreme Court of Zimbabwe.

(2) Confusing a ruling with an award. The Supreme Court stated that Article 16(3) consistently refers to the arbitrator’s decision on jurisdiction as a ruling, and in the end, distinguishes it from a decision made at the termination of the proceedings, which it refers to as an award.[12]

(3) Allowing the challenge proceedings under article 34 of the Model Law -when no such proceedings are maintainable against a positive jurisdictional ruling made as a preliminary question in terms of Article 16(3) of the Model Law.

(4) Ignoring the path to challenge an arbitrator’s positive jurisdictional ruling, which is set out in Article 16(3)

_______________________

*Partner, Kanokanga & Partners Law Firm. Harare, Zimbabwe.

[1] HH 194/22 at page 4

[2] HH 192/22 at page 3

[3] HH192/22 at page 4

[4] HH 192/22 at page 5

[5] HH 194/22 at page 4

[6] HH 194/22 at page 12

[7] HH 194/22 at page 5

[8] Riozim Limited and RM Enterprises(Pvt)Ltd v Maranatha Ferrochrome(Pvt)Ltd and Justice November Tafuma Mtshiya SC 30/22 at pages 9-10

[9] Ibid at page 13

[10] Michael Polkinghorne, Alvaro Peralta, Hazel Levent and Gwen Wackwitz-Competence of Arbitral Tribunal To Rule on Its Jurisdiction-Uncitral Model Law On International Commercial Arbitration-A Commentary-page 310 at para 4.3

[11] See Born, International Commercial Arbitration(Kluwer,2014)(n.61)p1105

[12] Riozim Limited supra at page 9

CASE: Riozim Limited, RM Enterprises (PVT) Ltd v Maranatha Ferrochrome (PVT) Ltd And Justice November Tafuma Mtshiya (RTD), SC 30-22 (24 February 2022) By: Davison Kanokanga*

Mon, 20 Jun 2022 15:48:02 GMT

Abstract

This is a short commentary on a judgment by the Supreme Court of Zimbabwe which held that reference to an award in Article 34 of the First Schedule to the Arbitration Act (Chapter 7:15) [hereinafter “Model Law”] is generic and does not only refer to the setting aside of final awards.[1] The decision raises a critical question: What awards can be set aside in terms of article 34 of the Model Law?

THE FACTUAL MATRIX

RM Enterprises (Pvt) Ltd. (the second appellant) is a wholly-owned subsidiary of Rio-Zim Ltd (the first appellant). On the 19th January 2010, the first appellant and Maranatha Ferrochrome (Pvt) Ltd (the first respondent) entered into a Shareholders Agreement (the “Agreement”). In terms of the agreement, the first appellant was to ensure that 40% of issued shares in the second appellant would be transferred without cost to the first respondent so that the shareholding between the parties would be, Rio-Zim 60% and Maranatha 40%.

On the 29th January 2017, the first respondent wrote to the first appellant informing it of its breach of clause 1.1 of the agreement as it had failed to transfer chrome claims as agreed between the parties. The first respondent gave the first appellant notice that it would refer the dispute to an arbitrator if the first appellant failed to fulfill its obligations within thirty (30) days, pursuant to clause 30 of the agreement.

The parties agreed to refer the dispute to arbitration before the second respondent. Before the Arbitrator, the first appellant raised preliminary points objecting to the second respondent’s jurisdiction, questioning the validity of the agreement and arguing that the first respondent’s claim had prescribed because the cause on which the first respondent sued arose in 2010 and as such 3 years had lapsed. The second respondent ruled that he had jurisdiction to preside over the dispute and that the first respondent’s cause of action had not prescribed.

THE APPLICATION

Aggrieved by the second respondent’s decision, the appellants applied to the High Court (the court a quo) for an order setting aside the second respondent’s interim award in terms of Article 34(2) (b)(ii) of the Model Law which provides as follows:

ARTICLE 34

Application for setting aside as exclusive recourse against arbitral award

….

(2) An arbitral award may be set aside by the High Court only if—

….

(b) the High Court finds, that—

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of Zimbabwe; or

(ii) the award is in conflict with the public policy of Zimbabwe.[2]

The first respondent opposed the application and raised two preliminary points to the effect that the appellants could not seek to set aside an interim award after a period of 30 days. It was argued that in terms of Article 16 (3), a party requesting the High Court to determine a matter of jurisdiction had thirty (30) days within which to apply for a determination of the arbitrator’s ruling. It was further submitted that the appellants had filed their application out of time. The court a quo upheld the preliminary points and dismissed the appellants’ application on that basis. It held that Article 34 was a procedure for the setting aside of a final award and not an interim award. It was further held that the award made by the second respondent was an interim award dismissing the first appellant’s Special Pleas and that such an award could not be set aside as it had not terminated the arbitral proceedings.

THE APPEAL

Aggrieved by the decision of the court a quo, the appellants appealed to the Supreme Court. The only issue for determination on appeal was whether or not the court a quo erred in dismissing the appellant’s application to set aside an arbitral award in terms of Article 34.

The appellants argued that the interim award made by the second respondent could be challenged on the basis of Article 34 as the interim award was final on the determination of the preliminary points raised by the appellants. The appellants also argued that they could not challenge the interim award in two applications, one under Article 16 on the point of jurisdiction and another under Article 34 on the point of prescription. They contended that the correct procedure was to bring one application under Article 34 to challenge both points and question whether or not the award was contrary to public policy.

Counsel for the first respondent argued that the wording of Article 34 does not extend to interim awards. He further argued that the appellants ought to have challenged the preliminary point under Article 16 (3) within thirty (30) days and that when they failed to do so, they sought to have a second bite of the cherry by employing the wrong procedure under Article 34.

THE JUDGMENT

WHETHER THE COURT A QUO ERRED IN DISMISSING THE APPELLANTS’ APPLICATION TO SET ASIDE AN ARBITRAL AWARD IN TERMS OF ARTICLE 34 OF THE MODEL LAW ON THE BASIS THAT THE APPLICATION HAD NOT BEEN PROPERLY PLACED BEFORE IT.

In determining this issue, the Supreme Court quite rightly referred to S 2 (3) of the Arbitration Act [Chapter 7:15] which provides that:

“The material to which an arbitral tribunal or a court may refer in interpreting this Act includes the documents relating to the Model law and originating from the United Nations Commission on International Trade Law, or its working group for the preparation of the Model Law, that is to say the travaux preparatoires to the Model Law, and, in interpreting the Model Law, regard shall be had to its international origin and to the desirability of achieving international uniformity in its interpretation and application.”

Vis-à-vis the issue of jurisdiction and the validity of the arbitration agreement, the Supreme Court correctly noted that Article 16 (3) of the Model Law provides that an arbitral tribunal may rule on its jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. The said Article 16 (3) refers to an arbitrator’s preliminary decision on jurisdiction as a ruling which it distinguished from a decision made at the termination of the proceedings which it refers to as an award. The arbitrator’s ruling is not an award.

The court correctly ruled that in challenging a ruling, the aggrieved party is entitled to approach the High Court in terms of Article 16 (3) within a period of thirty (30) days. Failure to do so within the stipulated time leaves the aggrieved party without any other recourse to the courts as Article 34 of the Model Law does not provide for the setting aside of the arbitrator’s ruling on jurisdiction. The Supreme Court’s finding on this point is in line with the internationally accepted overall interpretation adopted by other courts which have held that:

“If a party fails to appeal or decides not to appeal an award on jurisdiction, the award will be treated as final between the parties and the hearing on the merits will proceed on the basis (and not simply the assumption) that the tribunal has jurisdiction. Challenging such an award on jurisdictional grounds is thus excluded from the grounds which a party may invoke at the setting aside or enforcement stage if the party has chosen not to bring an appeal under Art 16(3) of the Model Law.”[3]

The Supreme Court correctly held that the application for setting aside of the arbitrator’s ruling on jurisdiction and the existence and validity of the arbitral agreement was a nullity. On the issue of prescription, the Supreme Court held that:

“the arbitrator’s finding on prescription can be classified as an interlocutory, interim or partial award. The court also held that the use of the word “award” in Article 34 is generic and accommodates all types of awards. The choice of the word” award” in Article 34 which is repeated in various parts of the article instead of the restrictive words” “final award” means the intention was to allow applications for the setting aside of other types of awards in terms of Article 34. The court a quo therefore erred when it held that only final awards can be set aside in terms of Article 34.”[4]

The Supreme Courtruled that the application for the setting aside of the arbitrator’s interlocutory award on prescription shall proceed to a hearing on the merits. It then remitted the case to the court a quo for it to hear and determine the application for the setting aside of the arbitrator’s interlocutory award on prescription on the merits.

CRITIQUE OF THE COURT’S FINDING ON AWARDS THAT CAN BE SET ASIDE IN TERMS OF ARTICLE 34 OF THE MODEL LAW

Section 2 (3) of the Arbitration Act [Chapter 7:15] provides that:

“The material to which an arbitral tribunal or a court may refer in interpreting this Act includes the documents relating to the Model Law and originating from the United Nations Commission on International Trade Law, or its working group for the preparation of the Model Law, that is to say the travaux preparatoires to the Model Law, and, in interpreting the Model Law, regard should be had to its international origin and to the desirability of achieving international uniformity in its interpretation and application.”

Whilst the Supreme Court was alive to the aforesaid, it did not in its judgment refer to the documents originating from the Working Group of the United Nations Commission on International Trade Law (“Working Group”). Had it done so, it would have noted that the Working Group was in agreement that it was desirable for the Model Law to define the term arbitral “award”, in particular for purposes of determining which kinds of decisions would be subject to recourse under Article 34. The Working Group considered the following proposal:

“award” means a final award which disposes of all issues submitted to the arbitral tribunal and any other decision of the arbitral tribunal which finally determine any question of substance or the question of its competence or any other question or procedure, but in the later case, only if the arbitral tribunal terms its decision an award.[5]

While there were wide support for the first part of the proposed definition, i.e. up to the word “substance,” serious concerns were expressed as regards the latter part, in particular the last portion referring to decisions on questions of procedure.[6] The Working Group noted that that a definition of “award” had important implications to a number of provisions of the Model Law and was of special relevance to the issues dealt with in Articles 34 and 16. Ultimately, the Working Group decided not to include a definition in the Model Law to be adopted by it given that there was not sufficient time for considering these complex questions in depth. Nevertheless, the Working Group invited the Commission to consider the matter further.[7]

Had the Supreme Court given any consideration to the travaux preparatoire of the Working Group, the aforesaid, it would have noted that the Working Group was in agreement regarding the finality of an arbitral award. The Working Group agreed that an award is a final award which disposes of all issues submitted to the arbitral tribunal and any other decision of the arbitral tribunal which finally determines any question.

In sum, the word “award” in Article 34 is not generic and does not accommodate all types of awards – which are not final. An award is dispositive of all or some substantive issue(s) and is restricted to awards that are final in nature. As regards the meaning and nature of an ‘award’, Redfern and Hunter note that “[a]n arbitral tribunal pronounces numerous decisions during the course of its proceedings. These decisions are mainly divided into two categories: “Orders” and “Awards”. While an award deals with substantive issues which resolve the issues in dispute, an order resolves the procedural issues in dispute which play a secondary role in the arbitral process”[8] Other commentators have noted that, “[t]he widely accepted meaning of “award” is that it is the final decision by the arbitrators, dispositive of the issues in the case. Tribunals may issue “partial awards” or “interim awards’’ which also may be final and binding on the parties.”[9]

In conclusion, a “partial” or “interim” award will be “final” if it is dispositive of the issues it deals with. It is unfortunate that the Supreme Court, despite having the opportunity to do so, did not define the word “award”. This, coupled with the court’s finding that other types of awards which are not final awards can be set aside in terms of Article 34 will lead to confusion. Litigants are now likely to challenge any arbitral decision labelled as an “award” when in fact not every arbitral decision labelled as an “award” is actually an “award.” The French Supreme defines “award” as “decisions which are made by arbitrators which resolve in a definitive manner all or part of the dispute that is submitted to them on the merits, jurisdiction or a procedural matter which leads them to put an end to the proceedings.”[10] The Indian Supreme Court explained the characteristics of an award without defining the term. According to the Indian Supreme Court, an award has the following four characteristics: (i) An award is made by the arbitrators; (ii) An award resolves a dispute; (iii) An award is a binding decision; and (iv) An award may be partial.[11]

It is submitted that what made the Arbitrator’s decision on the issue of prescription susceptible to an Article 34 challenge was that while it was a partial award, it was also a final award on the issues it disposed of. It was the Arbitrator’s final determination on the issue of prescription and was dispositive of the issue. Partial awards or interim awards may be final and binding on the parties. An interim award is a temporary award that is granted until such time as the arbitral tribunal has rendered its final decision.[12] An interim award can also be final in as much as it decides on an issue finally. A partial award settles some elements of a dispute, or only part of the claims or cross claims which have been brought, while the parties have to continue arbitrating on the remaining issues. Significant consequences flow from a final award. A final award is challengeable by the losing party, which may attempt to have it annulled or vacated under the law of the seat of arbitration.[13]

CONCLUSION: THE LACUNA IN THE JUDGMENT

As already noted, the Working Group attempted to define the term “award” but was unsuccessful. While there was wide support for the first part of the proposed definition up to the word “substance,” serious concerns were raised as regards the latter part with the result that the term “award” was left undefined. Ultimately, the role of defining what an award is or is not was left to national courts. The High Court has held that an award as envisaged in Article 34 of the Model Law must meet one or more of the following criteria:[14]

(a)it must be a final award;

(b) be the instrument by which the tribunal records its decision on arbitration;

(c)be a final settlement of the matters contained in it;

(d) considers and disposes of all the issues submitted for arbitration;

(e)finally determines any question of substance or of competence or of procedure;

(f)in the case of procedural questions, the arbitrator must term it an award and;

(g) the award must have the effect of res judicata in respect of what is contained in it

The Supreme Court should have given guidance on what an award is for purposes of Article 34. It should have done so with reference to the deliberations of the Working Group as well as international decisions from other relevant jurisdictions. The High Court, arbitration practitioners, academics and law students need this guidance. The Supreme Court did not help matters by holding that the word “award” is generic and accommodates all types of awards. It also did not help matters by holding that Article 34 allows for the setting aside of not just final awards but other types of awards. Ultimately, it is submitted that the Supreme Court should have made it clear that the term award should generally be reserved for decisions that finally determine the substantive issues with which they deal.[15]

_______________________________

* Partner, Kanokanga & Partners Law Firm. Harare, Zimbabwe.

[1] Arbitration Act (Chapter 7:15), available at: https://www.law.co.zw/download/1656/

[2] Emphasis added.

[3] Astro Nusantara International BV v PT Ayunda Prima Mitra [2012] SGHC 212 para 151

[4] Ibid

[5] A/CN.9/246 para 192.

[6] Ibid para 193

[7] Ibid para 194

[8] N Blackaby et al, Redfern and Hunter on International Arbitration (6 ed) (Oxford, 2015) 501-68.

[9] ML Moses, The Principles and Practice of International Commercial Arbitration (2 ed) (Cambridge University Press, 2013) 189.

[10] Group Antoine Tabet v Republic du Congo [2102] Rev Arb.

[11] M/S Centrotrade Minerals and Metal Inc v. Hindustan Copper Ltd., AIR 2017 SC 185, para 11.

Court Intervention in Arbitration in Kenya; Easy Properties Limited v. Express Connections Limited Case Brief by Sarah Mutheu*

Wed, 11 May 2022 05:53:23 GMT

The Commercial and Tax Division of the High Court of Kenya (“Court”) has recently pronounced itself in the case of Easy Properties Limited v Express Connections Limited (Hccmisc /E007/2020) (hereinafter referred to as the 1st application) consolidated with Express Connections Limited v Easy Properties Limited (Hccmisc /E003/2020) (hereinafter referred to as the 2nd application)[1] explained the instances which the court can interfere with arbitral decisions.

Facts

The two applications arose from the same arbitral proceedings which culminated in the final arbitral award dated 22nd October 2019 and the award on costs dated 5th October 2020 rendered by the Arbitrator, Mr. Allen Waiyaki Gichuhi. This was an Ad Hoc Arbitration, the sole arbitrator having been appointed by the Chartered Institute of Arbitrators, Kenya Branch[2]. The point of divergence in the two applications was that HCC ARB/E003/2020 sought an order that the said award be recognized, adopted, and enforced as a judgment of the court, while HCC ARB/E007/2020, sought a raft of prayers among them, an order that the said awards be set aside in their entirety. The 1st Applicant no. (M/s Easy Properties Limited) sought orders that the Final Award and the Award on Costs be set aside in their entirety. It also prayed for an order that the court certifies under Article 165 (4) of the Constitution that the application raised substantial questions of law and refer the matter to his Lordship the Chief Justice to empanel a bench of an uneven number of not less than three judges to hear the matter. Additionally, it prayed for an order that the matter or the relevant parts thereof be heard de- novo before the Environment and Land Court. Lastly, it prayed for orders that the court grants any other or further relief as this court may deem fit to preserve the integrity of law and due process in the Final Award.

The thrust of the application was that; (i) the issues submitted to arbitration being too complex thus incapable of being handled by a sole arbitrator and that the arbitrator exceeded his jurisdiction; (ii) that the process was unduly influenced because there existed conflict of interest between the representative of the Respondent and an expert relied upon by the Tribunal; (iii) that the Arbitral proceedings were conducted in a manner that did not conform to fundamental concepts of fair hearing, justice and equality; (iv) that the Arbitrator went against public policy as the decision did not take into account various legal and financial obligations on the subject property by the respondent; and (v) that the award affected rights, obligations and duties of persons and or entities who were not party to the arbitration proceedings.

The 2nd Applicant (M/s Express Connections Limited) filed a Notice of Preliminary objection[3] on the following grounds;

(i) that the application was filed outside the three (3) months limit contrary to Section 35(3) of the Arbitration Act[4];

(ii) that the court’s jurisdiction to set aside an award is limited to matters provided under Section 35 of the Arbitration Act and any other intervention by the court is expressly prohibited by Section 10 of the Act;[5]

(iii) that the application offended Section 5[6] of the Act to the extent that the applicant proceeded with the arbitration without stating his objection and is therefore deemed to have waived the right to object; and

(iv) that the application offends Rule 36(1) of the Arbitration Rules, 2015.[7]

The 2nd Applicant further stated that the application offended Section 17(2) of the Arbitration Act;[8] that the suit was barred by the doctrine of res judicata as the applicant cited issues which were raised by the applicant in Easy Properties Limited v Express Connections Limited. Additionally, that the applicant had not sought extension of time, hence, the application offended Sections 35 and 32A of the Arbitration Act.[9] Lastly, that the application was bad in law, fatally and incurably defective and amounted to an abuse of the court process.

The 1st Applicant filed the Replying affidavit in response to the Notice of Preliminary Objection. The affidavit stated that the final award was delivered to its advocates on 17th July 2020, while the award on costs dated 5th October 2020 was delivered on to its advocates on record in October 2020, hence time began to run from the said date. Additionally, that the two awards constitute the final award; hence, the application complies with section 35 of the Arbitration Act. Further, that the Arbitrator compelled them to proceed with the arbitration without their engineer's witness evidence; and that the award went beyond the scope of the arbitration agreement.

The 2nd Application by M/s Express Connections Limited, dated 4th November 2020 prayed that the Final Award delivered by the Arbitrator on 22nd October 2019 be recognized and adopted as a judgment of the court. It also prayed that this court recognizes and adopts the award on costs award made by the Arbitrator, on 5th October 2020. Further, it prayed for leave to enforce the Final Award as a decree of this court and lastly that the costs of the application be borne by the 1st Applicant.

Ruling

The court dismissed the 1st application and allowed the 2nd application. The court ruled that the Arbitration Act confers the Arbitrator exclusive jurisdiction over questions of fact and law which excludes appeals and limits reviews. The court may only be approached as provided by the Act. The Court found that the 1st Applicant had failed to demonstrate any of the grounds provided in Section 35 of the Arbitration Act to enable the court to set aside the arbitral award.

On the Issue of the application being barred by time, the Court reiterated the time limit for initiating setting-aside proceedings of three (3) months from the date on which the party making that application had received the arbitral award, or if a request had been made under section 34 from the date on which that request had been disposed of by the arbitral award. It follows that the 1st application was filed outside the stipulated period of three (3) months. Further, the Court concurred with the 2nd Applicant that the suit raised issues that were res judicata having been adjudicated and dismissed in the earlier case contrary to Section 7 of the Civil Procedure Act.

For the 2nd Application, the court found no impediment to the application and therefore was merited. It allowed the said application, and the final orders of the court were: -

(i) That the application dated 28th December 2020, filed by Easy Properties Limited, i.e. ARB No. E007 of 2020 is hereby dismissed.

(ii) That the application dated 4th November 2020, filed by Express Connections Limited, i.e. ARB No. E003 of 2020 is hereby allowed.

(iii) That Final Award delivered by Hon. Arbitrator, Advocate, Allen Waiyaki Con 22nd day of October 2019 be and is hereby recognized and adopted as a judgment of this court.

(iv) That the award on costs award made by Hon. Arbitrator, Advocate, Allen Waiyaki Gichuhi on 5th day of October, 2020 be and is hereby recognized and adopted as an order of this court.

(v) That Express Connections Limited, be and is hereby granted leave to enforce the Final Award as a decree of this court.

(vi) That Easy Properties Limited shall pay Express Connections Limited the costs of these consolidated applications.

Analysis

Extent of Court interference in arbitration proceedings

The Court was quick to note, from the outset, that the role and extent of the Court’s intervention in arbitration proceedings in Kenya is provided for by Section 10 of the Arbitration Act which provides that: “except as provided in the Act, no court shall intervene in matters governed by the Act”. The section limits the jurisdiction of the court in absolute terms to only such matters as are provided for by the Act and embodies the recognition of the policy of party’s ‟autonomy” which underlie the arbitration generally and the Act.[10]

The Court, in relying on the Supreme Court decision in Nyutu Agrovet Limited v Airtel Networks Kenya Limited; Chartered Institute of Arbitrators-Kenya Branch (Interested Party) pointed out that the Act cannot reasonably be construed as ousting the inherent power of the court to do justice.[11] The Nyutu Case stated that judicial intervention can only be countenanced in exceptional instances. Even then, the Apex Court underscored the need for adherence to the principle of party autonomy, which requires a high degree of deference to arbitral decisions and minimises the scope for intervention by the courts. Further, Section 10 of the Act was enacted to ensure predictability and certainty of arbitration proceedings by specifically providing instances where a court may intervene. Instances providing for judicial intervention under the Act include applications for setting aside an award, determination of the question of the appointment of an arbitrator, recognition and enforcement of arbitral awards, and other specified grounds such as where the arbitral tribunal rules as a preliminary question that it has jurisdiction. There is however a need for courts when considering applications for confirmation or setting aside of arbitral awards to adhere to the principle of party autonomy.

The circumstances under which the court can intervene are enumerated in section 35 and as the Supreme Court stated in the Nyutu Case stated in exceptional circumstances otherwise the arbitral award is final. Unless the arbitration agreement provides otherwise, an award is only subject to the provisions of the Act, final and not subject to appeal or review and that each party to the reference must abide by and comply with the award in accordance with its terms.

Grounds for setting aside the arbitral award

The Court restated the provisions of Section 35 (2) of the Arbitration Act which sets out the grounds upon which the High Court can set aside an arbitral award. The grounds which the applicant must furnish proof for the arbitral award to be set aside are: (1) incapacity of one of the parties; (2) an invalid arbitration agreement;(3) Lack of proper notice on the appointment of arbitrator, or of the arbitral proceedings or where the applicant was unable to present its case; (4) where the award deals with a dispute not contemplated by or one outside the terms of reference to arbitration or matters beyond the scope of reference; (5) where the composition of the arbitral tribunal or the arbitral procedure was contrary to the agreement of the parties except where such agreement was in conflict with provisions of the Act and the parties cannot derogate from such; or (6) where fraud, undue influence or corruption affected the making of the award.

______________________

* Senior Communications & Marketing Officer, Nairobi Centre for International Arbitration

[1] Easy Properties Limited & another v Express Connections Limited & another (Civil Miscellaneous E007 & E003 (Consolidated) of 2020) [2021] KEHC 39 (KLR) (Commercial and Tax) (7 September 2021) (Ruling),Civil Miscellaneous E007 & E003 (Consolidated) of 2020 - Kenya Law, (accessed on 1st April 2022)

[2] Id

[3]A legal issue based on a point of law raised by any party in a civil case that requires court determination before proceeding to the main case.

[4] Section 35(3), “An application for setting aside the arbitral award may not be made after 3 months have elapsed from the date on which the party making that application had received the arbitral award, or if a request had been made under section 34 from the date on which that request had been disposed of by the arbitral award.”

[5]Section 10, “Except as provided in the Act, no court shall intervene in matters governed by the Act.”

[6]Section 5, “A party who knows that any provision of the Act from which the parties may derogate or any requirement under the arbitration agreement has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time limit is prescribed, within such period of time, is deemed to have waived the right to object.”

[7]Rule 36(1), “if, before the award is made, the parties agree on a settlement of the dispute, the arbitral tribunal shall either issue an order for the termination of the arbitral proceedings or, if requested by the parties and accepted by the arbitral tribunal, record the settlement in the form of an arbitral award on agreed terms. The arbitral tribunal is not obliged to give reasons for such an award.”

[8] Section 17 (2), “A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence, however, a party is not precluded from raising such a plea because he has appointed, or participated in the appointment of, an arbitrator.”

[9] Section 35 on Application to Set aside an Award and Section 32A on the finality of an Award. See,Microsoft Word - Paged_Arbitration Act _No. 4 of 1995_.doc (kenyalaw.org) at Pages 18 and 20, (accessed on 1st April 2022)

[10] Section 10 Arbitration Act, No. 4 of 1995 (Revised 2012)

[11] Nyutu Agrovet Limited v Airtel Networks Kenya Limited; Chartered Institute of Arbitrators-Kenya Branch (Interested Party) [2019] eKLR.,Petition 12 of 2016 - Kenya Law (accessed on 1st April 2022)

Arbitration: Consequences of Failing to Communicate Statement of Claim by Davison Kanokanga*

Fri, 18 Mar 2022 16:20:02 GMT

CASE SUMMARY

Issue: Termination of arbitration for failure to communicate Statement of Claim (Article 23 as read with Article 25(A) of the Model Law-effect of arbitrator’s decision - whether arbitrator’s decision can be set aside in terms of Article 34.

This is a short commentary on the below judgment by the Harare High court, Zimbabwe after it held that an arbitrator’s decision terminating an arbitration for failure to communicate a statement of claim(article 23 as read with article 25(a)of the Model Law could be set aside in terms of article 34 of the Model Law.

CASE: REGAL INSURANCE COMPANY (PRIVATE) LTD versus ZIMBABWE POSTS (PRIVATE) LTD HH 28/22(HARARE HIGH COURT)

This is a short commentary on a judgment by the Harare High court, Zimbabwe after it held that an arbitrator’s decision terminating an arbitration for failure to communicate a statement of claim(article 23 as read with article 25(a)of the Model Law could be set aside in terms of article 34 of the Model Law.

THE FACTUAL MATRIX

On the 28th April 2016 the applicant and the respondent entered into a commercial agreement in terms of which the applicant would pay the respondent commission in respect of insurance sales at the respondent’s rented counters. Clause 15 of the agreement provided for the resolution of disputes by way of arbitration. A dispute arose between the parties. In 2018 the parties approached an arbitrator for the resolution of the dispute. The arbitrator convened a preliminary meeting at which the parties agreed on the time frames for the filing of pleadings. It was inter alia agreed that the applicant would file its statement of claim by the 13th July 2018.No statement of claim was filed by the applicant. No explanation for this failure was given by the applicant. Following the failure by the applicant to abide by the agreed arbitration road map and in the absence of any explanation, the respondent asked the arbitrator to terminate the proceedings in terms of article 25 of the Model Law which is attached as a schedule to the Arbitration Act (Chapter 7:15).On the 20th September 2018 the arbitrator without affording the applicant an opportunity to explain its default, acceded to the respondent’s request and went on to terminate the proceedings.

THE APPLICATION

Aggrieved by the arbitrator’s aforesaid award, the applicant filed a court application with the High court. The applicant described the application as one in terms of rule 230 of the High court rules as read with section 14 of the High court Act and article 34 subsection (2)(a)(ii), (iii) and subsection (2)(b)(ii) of the Arbitration Act for an order setting aside the arbitral award issued by the arbitral tribunal and directing that the parties be duly afforded the right to have their dispute resolved by a competent arbitrator.

THE RELIEF SOUGHT

The applicant sought an order in the following terms:

IT IS HEREBY ORDERED THAT:

1. The arbitral award by the Honourable Mutangadura dated 20 September 2018 did not delve into agreed terms of reference and consequently was not a final award.

2. Applicant be and is hereby entitled to refer the dispute to another arbitrator for resolution.

3 Each party to bear its own costs.

THE APPLICANT’S CASE

The applicant contended that it failed to abide by the agreed arbitration road map because its legal practitioners renounced agency. It learnt of the award terminating the arbitration proceedings on 20 September 2018.The arbitrator breached the audi alteram partem rule in that she proceeded to terminate the arbitration proceedings without affording the applicant an opportunity to be heard on whether or not it had sufficient cause for its failure to file the statement of claim. The dispute was not determined. It was against public policy to leave the dispute unresolved. The award is not a final award because it does not delve into the agreed terms of reference.

THE RESPONDENT’S CASE

It was the respondent’s case that the applicant neglected the agreed arbitration process in that it did not file a statement of claim. In the absence of an explanation from the applicant, the arbitrator was entitled to terminate the proceedings in terms of article 25. The applicant should have proceeded in terms of article 34 of the Model law.

THE JUDGMENT

The court identified three issues for determination, namely:

(a) Whether or not the arbitration was properly terminated?

(b) As a matter of procedure is article 34 applicable?

On the first issue the court held that the audi alteram partem rule connotes that both parties must be heard. Only the respondent was heard before the proceedings were terminated. Article 25 of the Model Law uses the words “without showing sufficient cause”. One cannot be expected to show sufficient cause unless one is afforded the opportunity to do so. Failure to file a statement of claim, on its own, is no proof that one has no sufficient cause. It was even more demanding for the arbitrator to hear the applicant before the proceedings were terminated because the respondent requested the arbitral tribunal to terminate the proceedings. The arbitration was not properly terminated.

On the second issue the court stated that, “whether one calls an award “final” (because it determines terms of reference) or “not final” (because it did not delve into agreed terms of reference) to me, the overall effect is the same in that the arbitration proceedings have been terminated. The court held that a proper case to set aside the award had been made out under article 34 save the relief sought cannot be a declarator.

Vis-à-vis the third issue, the court held that,” Reinstitution of proceedings terminated through article 25(a) as read with article 32 is not allowed as long as the award is extant”.

DISPOSITION

1.The arbitral award by the Honourable Mutangadura dated 20 September 2018 terminating the arbitration proceedings in terms of article 25(a) of the Arbitration Act (Chapter 7:15) be and is hereby set aside

2.The applicant be and is hereby entitled to refer the dispute to another arbitrator of the parties’ choice or in the absence of such agreed choice one who is appointed by the chairperson of the Commercial Arbitration Centre.

3. Each party to bear its costs.

AN ANALYSIS OF THE JUDGMENT

Was the arbitration properly terminated?

Article 25(a) of the Model Law provides that:

Unless otherwise agreed by the parties, if, without showing sufficient cause-

(a) The claimant fails to communicate his statement of claim in accordance with article 23(1), the arbitral tribunal shall terminate the proceedings.

The communication of a statement of claim is mandatory. Where a claimant fails to file a statement of claim such failure triggers a duty on the arbitral tribunal to issue an order asking the claimant “ to show cause as to why he failed to submit his claim within the time”[1]established or in accordance with article 23(1).Whilst the court correctly held that the arbitration was not properly terminated, it is submitted that what made the termination improper was the arbitrator’s failure to comply with article 25(a) in that she did not issue an order asking the claimant to show cause why it failed to file its claim. The termination of arbitration pursuant to a failure to file a statement of claim should only be undertaken where the failure to file the statement of claim was without sufficient cause.[2]

Was article 34 applicable in this matter?

In dealing with this issue the court stated that:

“Whether one calls an award “final” (because it determines terms of reference) or “not the overall effect is the same in that arbitration proceedings have been terminated.

It is submitted that when asked to intervene in arbitration proceedings, a court should bear in mind that:

In matters governed by this Model law, no court shall intervene except where so provided in this Model Law.[3]

Article 5 of the Model Law sets the limits of judicial involvement in arbitration. It is a mandatory provision of the Model Law which helps ensure the efficacy of the arbitral process as a dispute resolution mechanism.

When interpreting the Arbitration Act, courts should be guided by section 2(3)of the Act which provides that:

The material to which an arbitral tribunal or a court may refer in interpreting this Act includes the documents relating to the Model Law and originating from the United Nations Commission On International Trade Law ,or its working group for the preparation of the Model Law- ,-that is to say the travaux preparatoires to the Model law- ,and-,in interpreting the Model law- ,regard shall be had to its international origin and to the desirability of achieving uniformity in its interpretation and application.

An order to terminate arbitral proceedings is not subject to set-aside proceedings, as is otherwise the case with an arbitral award to the same effect. This is also true in respect of termination under article 25(a) of the Model Law.[4] An arbitration award as envisaged in terms of article 34 must meet one or more of the following criteria:[5]

(a)it must be a final award

(b) be the instrument by which the tribunal records its decision on arbitration

(d) considers and disposes of all the issues submitted for arbitration

(e) finally determines any question of substance or competence

(f) or of procedure

(g) in the case of procedural questions, the arbitrator must term it an award, and

(h) the award must have the effect of res judicata in respect of what is contained in it

A final award brings the parties dispute conclusively to an end.[6]

Not all decisions of the arbitrator are awards that enjoin the court to set them aside[7]. An arbitral award is one which finally decides an issue between the parties,[8] whereas procedural orders are those which are made during the arbitration proceedings in order to manage the arbitration– and as such do not have the status of awards.[9] On this distinction, Gary Born in his treatise on international commercial arbitration notes that “[a]n award must set forth the arbitrators’ resolution of a substantive issue in the arbitration. Purely procedural, logistical, or administrative decisions are not awards within the meaning of international arbitration conventions or national legislations.”[10]

The question of whether the arbitral tribunal decision to terminate proceedings on the basis of the claimant’s failure to file the statement of claim amounts to a final award was deliberated upon in an Indian case[11]. The court in that matter was of the view that the decision to terminate the proceedings on the basis of the default of a party for non-compliance with section 23 of the Act (article 23 of the Model Law)-under section 25 (article 25 of the Model Law)-was more of an order rather than a final award within the meaning of section 32 of the Act which replicates article 32 of the Model Law .In that context, the Indian court opined that an order of termination under section 25 of the Arbitration and Conciliation Act(article 25 of the Model Law)due to failure to file the statement of claim could not entitle the claimant to benefit from the setting aside of the award under section 34 of the Act which replicates article 34 of the Model Law. The High court of Singapore in PT Pukuafu Indah and Ors v Newmont Indonesia Ltd and Anor[12]rejected an application to set aside an order made by an arbitral tribunal noting that the categorization of a determination of the tribunal as an “award” has legal consequences, including the jurisdiction of the Singapore courts to set aside the award which is not extended to orders made by the arbitral tribunal.

The arbitrator’s decision terminating the arbitration was not a final award. It was not even an arbitral award. It was an order. Article 32(2) of the Model Law empowers an arbitral tribunal to issue an order terminating arbitral proceedings. The arbitrator’s order could not be set aside in terms of article 34 of the Model Law. The court erred when it said that “A proper case to set aside the award has been made under art 34---” and went on to grant relief which the applicant had not sought.

What was the effect of the termination of the arbitration on the rights of the parties?

Termination of arbitral proceedings pursuant to a claimant’s failure to file a statement of claim does not render the mandate of the arbitral tribunal functus officio. A claimant has a right to be heard by the tribunal after the termination of the proceedings, in order to demonstrate that the quashing was erroneous, or that the proceedings should be recalled on the basis of the existence of a sufficient cause that contributed to his failure to file the statement of claim.[13]The Indian Court in M/S SK and Associates explained that there is a possibility that the claimant could institute the claim afresh in case it was still within the period of limitation of time[14].It is respectfully submitted that the court erred when it said that the reinstitution of proceedings terminated through article 25(a) as read with article 32 is not allowed as long as the award is extant.

It is submitted that the judgment in this matter can be criticized for:

(1) Allowing the challenge proceedings under article 34 of the Model Law, when no such proceedings are maintainable against an order passed under article 25(a); and

(2) Holding that reinstitution of proceedings terminated through article 25(a) as read with article 32 is not allowed as long as the award is extant, which:

(a) confuses the effects of a procedural order with those of an arbitral award; and

(b) incorrectly concluded that the applicant was barred from pursuing the proceedings either by:

(i) approaching the same arbitral tribunal to show that the applicant had sufficient cause for its default of not filing its statement of claim in time (assuming, following the Indian courts position, that a tribunal is not functus officio after issuing a termination order under article 25(a); or

(ii) before a new tribunal.

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* Partner, Kanokanga & Partners Law firm, Harare, Zimbabwe

[1]Srei Infrastructure Finance Ltd v Tuff Drilling Private Ltd, Supreme Court of India, Civil Appellate Jurisdiction, Civil Appeal No 15036/2017,judgment(20 September 2017)(n81),19

[2]Bharat Heavy Electricals Ltd v M/S Jyothi Turbopower Services Pvt. Ltd and others, High court of Judicature at Madras, delivered on 7 June 2016,para 25

[3] Article 5 of the Model Law

[4] Ilias Bantekas-Termination of Proceedings-UNCITRAL Model Law on International Commercial Arbitration, a commentary-page 838

[5]Zimbabwe Electricity Transmission and Distribution Company(Pvt)Ltd v Tendai Cletos Masawi T/A Masawi and Partners and Retired Justice Mtshiya NO HH 404/20 pages 6-7

[6] Davison Kanokanga, Commercial Arbitration In Zimbabwe, Juta (Pty) Ltd 2020,page 163 para 8.5.7

[7] Ibid ,page 7

[8] Russell on Arbitration, (24th Ed, 2015): “In principle an award is a final determination of a particular issue or claims in the arbitration. It may be contrasted with orders and directions of the tribunal which address the procedural mechanism to be adopted in the reference.” (para. 6-002); See also, Redfern and Hunter on International Arbitration (6th Ed., 2015) (para. 9.10);

[9] Russell on Arbitration, (24th Ed, 2015): “In principle an award is a final determination of a particular issue or claims in the arbitration. It may be contrasted with orders and directions of the tribunal which address the procedural mechanism to be adopted in the reference.” (para. 6-002); See also, Redfern and Hunter on International Arbitration (6th Ed., 2015) (para. 9.10);

10.G. Born, International Commercial Arbitration, (3rd Ed, 2021), p. 3172.

[11]M/S Anuptech Equipments Private v M/S Ganpati Co-op Housing, AIR 1999 Bom 219,para 11

[12] [2012]SGHC 187

[13]Bharat Heavy Electricals supra

[14]M/S SK and Associates and Another v Indian Farmers and Fertilizers Cooperative Ltd ,Phoolpur, Allahabad and Another, High Court of Judicature at Allahabad, Civil Miscellaneous Arbitration Petition No73 of 2009,paras 19-20

Three Scenarios in which arbitration arises in the AfCFTA Dispute Settlement Mechanism by ALN Academy*

Wed, 23 Feb 2022 16:34:43 GMT

Abstract

The Protocol on Rules and Procedures on the Settlement of Disputes is one of the three Protocols that have been finalized under the Agreement Establishing the Africa Continental Free Trade Area. The Protocol shall administer the settlement of disputes between State Parties where the disputes arise from the provisions of the AfCFTA Agreement. In so doing, the Protocol provides for three avenues for the resolution of disputes between State Parties: panel and appellate body proceedings overseen by the Dispute Settlement Body, good offices conciliation and mediation, and arbitration. This article discusses the three scenarios in which arbitration arises in the AfCFTA framework as a means of dispute settlement. The three scenarios include: (i) the use of arbitration as a form of dispute adjudication, (ii) arbitration to determine a reasonable time period for implementation of panel decisions, and (iii) arbitration as a means of determining proportionality of the suspension of concessions.

Introduction

The Article 20 of the Agreement Establishing the Africa Continental Free Trade Area (AfCFTA Agreement) establishes a Dispute Settlement Mechanism (the DSM) that will be administered in accordance with the Protocol on Rules and Procedures on the Settlement of Disputes (the Protocol). The Protocol entered into force on 20 May 2019, together with the AfCFTA Agreement, the Protocol on Trade in Goods, and the Protocol on Trade in Services. Notably, the wording of the Protocol borrows heavily from the World Trade Organisation (WTO) Dispute Settlement Understanding.

The DSM is central to providing security and predictability to the African regional trading system.It is limited to disputes between State Parties to the AfCFTA Agreement (State Parties) concerning rights and obligations emanating from the provisions of the AfCFTA Agreement. It is important to note that the AfCFTA Agreement is a single undertaking; therefore, the definition of ‘Agreement’ is construed to include the AfCFTA Agreement, its protocols, its annexes, and its appendices. The significance of this construction is that disputes can arise from an impairment or nullification of the rights and obligations captured in any of these instruments and not just the AfCFTA Agreement. In this way, the DSM aims to preserve the rights and obligations of the State Parties under the AfCFTA Agreement, its protocols, its annexes, and its appendices.

The DSM provides for three avenues for the resolution of disputes between State Parties: (i) the panels and appellate body established and overseen by the Dispute Settlement Body (the DSB) (the Panels and Appellate Body, respectively), (ii) good offices conciliation and mediation, and (iii) arbitration.

Arbitration as a form of dispute adjudication

The Protocol envisages the use of arbitration to adjudicate disputes, determine a reasonable time period for implementation of panel rulings and recommendations, and determine whether the level of suspension of concessions is commensurate with the nullification and impairment caused, respectively. Additionally, the Protocol sets out arbitration as an alternative to dispute resolution proceedings by the Panels and the Appellate Body. Arbitration in this case requires the mutual consent of the State Parties involved in the dispute. This mutual consent differentiates arbitration from the Panel and Appellate Body proceedings which are compulsory once initiated. Furthermore, arbitration appears to be a more flexible form of dispute resolution under the DSM because the State Parties are allowed to select the procedures to be followed during the arbitration. Once State Parties have chosen to refer a dispute to arbitration, they are barred from resorting to the other avenues of dispute resolution.

The agreement to resort to arbitration must be notified to the DSB which comprises representatives of the State Parties. In this way, the notification will serve to inform all AfCFTA State Parties of the decision to arbitrate the dispute. The State Parties have autonomy throughout the arbitration process and third parties may only become party to the proceedings through the mutual agreement of the parties.

The Protocol requires that State Parties that are party to the arbitration abide by the resulting arbitral award. The award will be notified to the DSB for enforcement. Notably, the DSB is not required to approve the arbitral award for it to be effective. This differs from Panel proceedings whereby the recommendations and rulings of the Panels or Appellate Body which are contained in the Panel and Appellate Body reports must be approved by the DSB through adoption. It would also appear that there is no appeal against the arbitral award because appeals to the Appellate Body are restricted to issues of law covered in Panel reports and legal interpretations developed by the Panel. This scope excludes the arbitral awards which implies that these awards are final.

Arbitration to determine a reasonable time period for implementation of Panel rulings and recommendations

The Protocol appears to state that the arbitral award shall be enforced in the same manner as the recommendations and rulings issued by the Panels and Appellate Body. State Parties are required to promptly comply with these recommendations and rulings. The defaulting State Parties may seek an extension on the time required for implementation in cases where it is impracticable to comply immediately. The extension shall represent a reasonable time period to allow for compliance. Such a reasonable time period may be determined through mutual agreement of the parties to the dispute, through a time period proposed by the defaulting State Party that is approved by the DSB, or through binding arbitration within ninety (90) days after the date of adoption of the recommendations and ruling. The third option is the second time arbitration is provided for in the DSM.

Arbitration to determine whether the level of suspension of concessions is commensurate with the nullification and impairment

The Protocol sets out the measures to be taken when a State Party fails to comply with the rulings and recommendations either immediately or within the reasonable period granted when immediate compliance is impracticable. Additionally, the Protocol states that the above will apply to the enforcement of arbitral awards. Consequently, a State Party that fails to comply may provide voluntary compensation to the aggrieved State Party or the aggrieved State Party may seek consent from the DSB to suspend concessions or other obligations towards the defaulting State Party. These measures envisaged are temporary remedies until the defaulting State Party complies with the rulings and recommendations.

A key condition for initiating the suspension of concessions is that the suspension should be commensurate to the negative effects of the nullification or impairment caused by the defaulting State Party. Where a State Party is aggrieved by the level of suspension, it may refer the matter to arbitration. The arbitration proceedings will be limited to determining whether the level of such suspension is equivalent to the level of nullification or impairment. This is the third scenario in which arbitration may be used in the DSM.

Conclusion

The DSM foresees the use of arbitration in three different scenarios: to adjudicate disputes between State Parties, to determine a reasonable time period for implementation of Panel rulings and recommendations, and to determine whether the level of suspension of concessions is commensurate with the nullification and impairment caused. These three uses are interrelated. The result is that arbitral awards issued from arbitral proceedings arising from the mutual agreement of State Parties shall be enforced in a manner similar to the rulings and recommendations of the Panels and the Appellate Body.

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* Luisa H. Cetina, Director, ALN Kenya | Anjarwalla & Khanna; Kelly Nyaga, Trainee Lawyer, ALN Kenya | Anjarwalla & Khanna; and Jade Makory, Associate, ALN Kenya | Anjarwalla & Khanna

Zimbabwe’s Latest Arbitral Institution by Davison Kanokanga*

Wed, 13 Oct 2021 08:50:34 GMT

Zimbabwe now has three arbitral institutions:

The first one is the Commercial Arbitration Centre-Harare (CAC), founded in 1995 by Muchadeyi Ashton Masunda and Ian Donovan.
The second one is the Africa Institute of Mediation and Arbitration (AIMA) which was established by Mr Justice Moses Chinhengo (retired) in 2013.
The latest one is the Alternative Dispute Solutions Centre (“The Centre”) (www.adscentre.net) which was established in 2020 by Davison Kanokanga (Zimbabwe) Aaron Peron Ogletree (USA) and Arnold Z Chikazhe (Zimbabwe).

Why a new institution?

Arbitration in Zimbabwe is fast gaining momentum due to its advantages over litigation, and so the Centre complements the work being done by the other arbitral institutions.
No training of ADR practitioners has been taking place in Zimbabwe. Both the CAC and AIMA do not provide training, and so the Centre was established to fill in the aforesaid void. The Centre provides training for current and prospective ADR practitioners in and outside Zimbabwe.
A survey recently conducted by the Law Society of Zimbabwe amongst lawyers revealed a massive need for arbitration training. The results of the aforesaid survey led to a collaborative arrangement between the Law Society of Zimbabwe and The Centre for the provision of Alternative dispute resolution (ADR) training to lawyers. The first training is scheduled for November 2021.
The Centre has access to the most eminent and experienced evaluators, arbitrators, mediators and experts from many jurisdictions who resolve business and legal disputes in an efficient, cost-effective and impartial way. For example, for one to be on The Centre’s list of arbitrators, they must have received arbitration training. Both CAC and AIMA do not have this requirement.
Unlike The Centre, both CAC and AIMA are not membership-based organisations.
The Centre administers international arbitration and mediation, and acts as an impartial appointment and administering body for all forms of alternative dispute resolution, under the UNCITRAL Rules.
ADR mechanisms work best where a neutral, efficient, and credible organisation administers the process. Redfern and Hunter observed in 1995 that: [a]n established and well-organised arbitral institution can do much to ensure the smooth progress of an international arbitration even if the parties themselves- or their legal advisers- have little or no practical experience in the field (A. Redfern & M. Hunter, Law and Practice of International Commercial Arbitration 155 (2nd ed., London: Sweet & Maxwell, 1991). Arbitral institutions act as gatekeepers in the arbitral process. With three arbitral institutions to choose from, parties and ADR practitioners are spoilt for choice.

What to look for in arbitral institutions?

The institution named in the arbitration clause should be genuine, credible, and efficient;
The institution should have some permanency or a reasonable guarantee of permanency. Otherwise, the arbitration clause may prove to be inoperative or incapable of being performed;
An arbitral institution should have staff that is conversant with arbitral proceedings;
Regard should be had to the role the institution plays in the arbitral process. For example, does it have a hands-on approach to the conduct of arbitrations, or does it leave matters to the arbitral tribunals it appoints whilst keeping an eye on the arbitral process?
The services offered by the institution; and
What it charges for its services as the charges have a bearing on the total cost of the arbitration. Disputants prefer institutions whose charges are reasonable.

The Centre’s contact details are:

Suite 1 Mizrahi House,33 Robson Manyika Avenue,Harare,Zimbabwe

Telephone: +263(0)786851768

Email: info@adscentre.net

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* Partner, Kanokanga & Partners Law firm, Harare, Zimbabwe

East African Infrastructure Projects and Dispute Resolution By Bernd Ehle, Benjamin Ng’eno & Baptiste Rigaudeau

Thu, 23 Sep 2021 17:11:34 GMT

NB: This article was first published by Thomson Reuters, trading as Sweet & Maxwell, 5 Canada Square, Canary Wharf, London, E14 SAQ, in the International Business Law Journal (IBLJ) 4/2021 and is reproduced by agreement with the publishers.

INTRODUCTION

Sub-Saharan Africa, including East Africa, is experiencing a rapid growth in population. At the same time, the region suffers from an enormous infrastructure deficit when compared to other parts of the world: quality infrastructure is lacking on many levels, especially for transport, energy production, real estate and communications. This deficit has been recognised as a major obstacle to faster and more stable economic growth, productivity and job creation in Sub-Saharan African economies. For a number of years, therefore, various infrastructure projects have been undertaken throughout the Continent. In light of the existing backlog, this is only the beginning of a long-term development process to create a competitive business environment, promote trade and unleash Africa’s huge productive potential.

Many East African countries have ambitious infrastructure agendas, reaching from the construction of new ports and airports to modern road and railway networks and hydroelectric dams. The major challenge these countries are facing is financing. Several foreign States (especially China, Russia, the US and certain European countries) have seized the investment opportunities and are competing to provide financial aid—often not entirely disinterested, but with a (geo)-political agenda to gain access to resources and influence in emerging markets.

The growing number of complex infrastructure projects across the region, some of which are mentioned in this article, inevitably leads to a growing number of construction disputes. This article describes the landscape regarding major infrastructure projects in East Africa, including the impact of China’s Belt and Road Initiative. It examines how disputes related to such projects are being resolved today and provides a brief overview of the East African arbitration landscape. The article seeks to identify certain trends for the future, including the impact of the COVID-19 pandemic and digitalisation, and closes with an outlook into the future.

INFRASTRUCTURE DEVELOPMENT IN EAST AFRICA

Taking stock of the infrastructure development

East African States have upped the ante on infrastructure development. This is evident not only from regional and national policy documents such as the East African Community Vision 2050, the Tanzania Development Vision 2025 and Kenya’s Vision 2030, all of which prioritise infrastructure development as a core pillar of economic growth, but also from the number of ongoing projects. As of June 2019, there were at least 182 infrastructure projects with a value of USD 50 million and above that had commenced in East Africa. Collectively, these projects were valued at USD 146 billion and accounted for more than a third of the Continent’s infrastructure projects.

However, in what has been termed as “Africa’s Infrastructure Paradox”, the Continent’s track-record in moving projects to financial closure has been poor despite international investors having both the appetite and funds to spend on infrastructure projects in Africa. As of 2020, there were only 46 ongoing projects on the Continent with a value between USD 500 million and 1 billion; the vast majority of projects ranged between USD 50–100 million. This has been attributed to difficulties in structuring, financing, and delivering projects. Several projects fail at the feasibility and business plan stage owing to the insufficient technical capabilities and financial resources being dedicated to design and implement infrastructure projects with commercial potential. Other issues that may lead to failure include short political cycles, which challenge commitments to long-term infrastructure projects, delays in obtaining licences, approvals and permits as well as the inability to obtain guarantees.

Nonetheless, East African States have succeeded in securing funding commitments and increased budgetary allocations for infrastructure projects. In 2018, East Africa reported funding commitments of USD 14.2 billion with state spending ranging between USD 5.6–8.4 billion. While most projects are funded and owned by national governments as facilitators of infrastructure development, China has emerged as the single largest financier of infrastructure projects, surpassing private domestic firms and international development finance institutions. In 2020 alone, China funded 13.6 per cent of East Africa’s infrastructure projects, not counting international consortia. China is also involved in the construction with at least 50 per cent of the projects, primarily in the transportation sector, being built by Chinese firms. This is part of China’s African policy as well as its Belt and Road Initiative (BRI), which is further discussed below.

Despite the increase in financing from China, Africa’s infrastructure finance gap is still very significant. It is estimated that between USD 67.6 billion and USD 107.5 billion is needed annually to alleviate Africa’s current infrastructure deficit. An increasing number of EastAfricanStatesare turning to Public-Private Partnerships (PPPs) in order to finance this gap.

Notable infrastructure projects

Several mega infrastructure projects are underway in East Africa as part of a concerted effort by States to lower the cost of business, attract foreign investment and facilitate economic growth in the region. The transport and energy sectors account for the largest number of projects in the region.

East African States are investing heavily in modern port, airport, rail and road infrastructure to cater for the increased number of passengers and cargo volumes, while facilitating trade and boosting regional integration. Ports have attracted the most valuable projects in this sector, led by the USD 10 billion Bagamoyo Mega Port in Tanzania, which is set to become Africa’s largest port on the East African coast upon completion, superseding the Kenyan port of Mombasa. The project, which is jointly financed by Oman and China, will include 65 kilometres of railway connecting the port with the Tanzania-Zambia railway. It has however experienced delays after Tanzania’s government demanded the renegotiation of the project contracts.

Kenya is constructing a 32-berth port in Lamu to reduce congestion at the port of Mombasa. The port is part of the USD 25 billion Lamu Port and Lamu–South Sudan–Ethiopia Transport Corridor (LAPSSET), East Africa’s largest integrated infrastructure project that aims to connect countries in the region, including through intraregional highways, railway lines and airports. Djibouti has also built the Doraleh Multipurpose Port for USD 590 million. The port, which came into use in 2015, has been at the centre of a dispute concerning its management.

Railway projects have also drawn a significant amount of investment across the region, the most prominent of which is the construction of the first phase of a standard gauge railway from the port of Mombasa to Nairobi at a cost of USD 3.6 billion. This railway, along with the USD 4 billion Addis Ababa–Djibouti Railway, are being financed using loans from the Exim Bank of China as part of the BRI. The second phase of the railway from Nairobi to the Kenya–Uganda border is facing some obstacles after China decided to withhold USD 4.9 billion needed to complete the project. Tanzania, on the other hand, opted not to rely on Chinese funding for its USD 7.5 billion standard gauge railway system, which will link the country to its landlocked neighbours Rwanda and Uganda; this project has been financed through budgetary allocations and a syndicated loan from a development finance institution.

Spurred on by the discovery of oil and gas deposits in the region, the energy and power sector accounts for the second highest number of projects in East Africa. Tanzania’s USD 30 billion Likong’o–Mchinga Liquefied Natural Gas Project (LMLNGP) is the most valuable energy infrastructure project in the region. The project, which will be undertaken by a consortium of companies in conjunction with the Tanzania Petroleum Development Corporation (TPDC), a state-owned entity, is expected to commence in 2022. Similarly, Djibouti is building a USD 4 billion LNG plant to process and export natural gas from Ethiopia.

In Uganda, the construction of a USD 4.27 billion oil refinery is set to begin following the discovery of an estimated 1.7 billion recoverable barrels of oil in its Lake Albert basin in 2006. Uganda and Tanzania have also signed agreements with France’s Total and China’s CNNOC oil firms, paving the way for the construction of the 1,445 km East African Crude Oil Pipeline (EACOP) from Uganda to the port of Tanga in Tanzania. The project, which is valued at USD 3.5 billion, is touted to be the world’s longest heated pipeline. Several infrastructure projects have also been initiated in the renewable energy sector, including the USD 4.8 billion Grand Ethiopian Renaissance Dam (GERD) project that is expected to produce at least 5,000 MW making it the largest hydro-power project on the Continent, and the construction of a 30 MW solar energy plant in the Grand Bara desert in Djibouti by the French energy group Engie.

The array of mega infrastructure projects in East Africa, some of which are mentioned above, demonstrates a shift towards infrastructure that aims to spur intra-Africa trade. Furthermore, the alignment through regional projects allows the East African economies—particularly the smaller ones—to participate in collective bargaining, making it easier for them to secure funding for infrastructure projects.

While the above overview is by no means intended to be exhaustive, it presents some of East Africa’s most notable infrastructure projects while at the same time demonstrating the financing challenges that are encountered and the increasing prominence of China in the region’s infrastructure development.

China’s Belt and Road Initiative in the East African context

China’s direct investment into African infrastructure projects is nothing new. In the last two decades, it exceeded a cumulated USD 200 billion and peaked at USD 5.5 billion in 2008 alone. That amount of investment has resulted in hundreds of African projects being funded with Chinese capital to date.

The BRI launched by the Chinese government in 2013, originally contemplated only a few African stops. In theory, the only parts of the Continent intended to be concerned with the BRI were the Horn of Africa and the Suez Canal area in Egypt as these territories were to be included in the maritime road aspect of the BRI, and investments were to be focused mainly on port infrastructure.

Seven years into the initiative, however, a significant number of African projects have been tagged as BRI projects, despite not being in close proximity to the original stops. Further, although officially there are only ten African countries involved in the BRI (Angola, Chad, Djibouti, Egypt, Ethiopia, Kenya, Nigeria, Sudan, Uganda and Zimbabwe), several BRI projects either are located, or connected, to countries outside of this official list—the rationale being that the BRI is an adaptable and multidimensional effort that can incorporate projects on an ad hoc basis, as long as they broadly relate to connectivity aspects, which form a key part of the BRI’s underlying motives, and are officially announced as BRI projects by the Chinese authorities.

In 2018, loan and investment commitments of USD 60 billion were announced, with a significant portion geared towards addressing Africa’s infrastructure deficit. As is well documented, and sometimes considered as controversial, these loans are made on a State-to-State basis and/or are resource-backed.

As one of the original stops in the African arm of the BRI, Egypt has so far been one of the biggest recipients of BRI investment. Over 100 Egyptian projects have been financed through BRI funds amounting to just under USD 100 billion. The most significant among these projects is the construction and development of the Suez Canal Economic Zone (SCZone), a free trade zone aimed at facilitating economic and trade cooperation between China and Egypt. This project covers a 461 km2 area and plans to house over 150 Chinese companies of all sectors, for a total investment of over USD 2 billion. Egypt is also home to a second pharaonic BRI project, namely the construction of the country’s new administrative capital city, Wedian, which will be located 45 km east of Cairo.

The development of economic and trade cooperation zones such as the SCZone has in fact been chosen as a key pillar of the BRI investment strategy in Africa. Apart from Egypt, these types of infrastructure have notably been developed in Zambia (Zambia–China Economic & Trade Cooperation Zone), in Nigeria (Lagos Free Zone) and in Ethiopia (Oriental Industrial Park).

At the Horn of Africa, one of the original stops of the BRI in Africa, Djibouti in particular has been a main target of BRI investment. The Doraleh Multipurpose Port has received significant BRI investment with the objective of enlarging its capacities. As discussed further below, these efforts have resulted in major disputes, notably in relation to the decision by the Djibouti authorities to rescind the original operation concession, held by non-Chinese operators, to then allocate it to different operators from China. Additionally, Kenya has also seen significant projects financed and constructed under the BRI label, such as the Mombasa–Nairobi Standard Gauge Railway.

In terms of sectors targeted by African BRI efforts, in addition to the general transport infrastructure (especially maritime and rail), natural resources (with a particular emphasis on mining) and the construction sectors have been key investment recipients.

DISPUTE RESOLUTION PRACTICE

Insights into infrastructure-related disputes in East Africa

Sophisticated operators involved in East African infrastructure projects are also well versed in dispute resolution. International contracts entered into in relation to such projects typically contain dispute resolution mechanisms aimed at ensuring the efficient and quick resolution of disputes to mitigate adverse consequences for the underlying projects, such as a temporary or permanent suspension of the works. In this respect, experience shows that international infrastructure contracts often include multi-tier dispute resolution clauses, blending negotiation, adjudication, expert determination, mediation and arbitration.

A review of the most publicised disputes arising from infrastructure projects in East Africa helps shed light on the specifics of the dispute resolution mechanisms used in the relevant contracts, in particular with regard to the arbitration rules used and the different steps involved in the resolution of these disputes.

One of the most well-known disputes in the region in recent years is the one between DP World and Djibouti in relation to the Doraleh Port. In 2006, DP World, an entity owned by the Government of Dubai, was awarded a 50-year concession to build and operate the Doraleh terminal in Djibouti. In 2014, Djibouti, having failed to persuade DP World to renegotiate the concession terms, unilaterally terminated the agreement and seized control of the terminal. In the meantime, Djibouti had signed an agreement with a subsidiary of Chinese state-owned port operator, China Merchants Group, to build the Djibouti Multipurpose Port, an extension to the site located near a new Chinese military base.

These circumstances gave rise to two arbitration proceedings under the auspices of the London Court of International Arbitration (LCIA). First, in 2014, Djibouti lodged an arbitration claim against DP World, arguing that the rescission of the concession contract by the Djibouti government was valid as the contract had been procured through corruption. This claim was dismissed by an LCIA tribunal in 2017. In parallel, in 2014, DP World lodged a counterclaim against Djibouti for damages resulting from the State’s breach of the exclusivity clause in the concession contract when it entered into an agreement with China Merchants Group. This damages claim was upheld by the arbitral tribunal and Djibouti was ordered to pay USD 485 million to DP World as compensation. In 2018, DP World launched a further claim against Djibouti in relation to the seizure by the government of parts of the container terminals at the Doraleh Port subsequent to the rescission of the concession. This claim was heard by an LCIA sole arbitrator who held in 2020 that the seizure was unlawful given that it was based upon the invalid rescission of the concession. The sole arbitrator ordered the State to return the seized assets, or alternatively, to pay damages that had been quantified in excess of USD 1 billion.

Contractual disputes such as the one involving DP World are not the only type of disputes brought before arbitration tribunals in relation to East African infrastructure projects. Disputes between foreign investors and States initiated on the basis of international investment treaties (mostly bilateral investment treaties or BITs) have also emerged in the East African context, partly as a result of governmental efforts to assert greater control over natural resources located on a country’s territory, which runs counter to the interests of foreign investors (resource nationalism). For instance, in June 2018, two US companies (Bay View Group and Spalena Company) launched a claim for over USD 95 million against Rwanda over the cancellation of mining concessions. That claim is based on the 2008 US–Rwanda BIT, and is administered by the International Centre for Settlement of Investment Disputes (ICSID). As part of a privatisation program launched in 2005, the claiming investors entered into preliminary agreements (“acquisition contracts”) with the Rwandan government, which would then be turned into long-term contracts necessary for the implementation of their mining project. They invested more than USD 30 million on a new processing plant, upgrading processing and transport lines and establishing a medical clinic. When the State rejected the claimants’ application for long-term concession contracts in 2016, the State took control of the mining operations and seized the investments. As a result, the claimants argue that the State breached its obligations under the US-Rwanda BIT.

The above brief overview shows that the dispute resolution mechanisms in relation to East African projects can be of a contractual nature and treaty based. For commercial disputes, parties have typically agreed to resort to established institutional arbitration institutions such as the ICC and the LCIA, leading to efficient enforcement of contractual rights despite tense and complex factual situations.

A further element worth mentioning relates to potential disputes involving State lending agreements. In relation to the BRI in particular, China, through the Asian Infrastructure Investment Bank (AIIB) or the China EXIM Bank, has loaned significant amounts to African States in order to finance BRI infrastructure projects in these States. While the geopolitical interpretation of these mechanisms is not the topic of this article and the terms of these agreements have not been disclosed to the public, resolution of disputes in connection with these agreements will include specially created arbitration courts and State-to-State mechanisms, in conjunction with traditional diplomatic negotiations.

Whether the latter mechanisms would include alternative dispute resolution tools such as mediation and arbitration remains to be seen. One such mechanism is the China–Africa Joint Arbitration Centre (CAJAC) with offices in Shanghai and Johannesburg. The CAJAC was set up to provide a platform for resolving commercial disputes between Chinese and African parties, aiming to make parties from both sides feel comfortable when selecting the arbitral institution. It is structured to make use of existing arbitral institutions and has entered into partnerships with the Nairobi International Arbitration Centre (NCIA), the Arbitration Foundation of Southern Africa (AFSA), the Shanghai International Arbitration Centre (SHIAC), the Beijing International Arbitration Centre (BIAC), the Shenzhen Court of International Arbitration (SCIA), and the Organization for the Harmonization of Business Law in Africa (OHADA).

Applicable law in construction contracts

Unlike OHADA, which seeks to modernize and harmonize business laws of its member States, there is no common legal framework governing contractual relationships in East Africa. Each State has its own national law that would be applicable depending on the choice of law in the contract. Accordingly, the interpretation and effect given to the terms of a contract will depend on the national law governing the construction contract. The parties’ choice of law is influenced by various factors including their nationality, familiarity with the applicable law, the certainty offered by the law with respect to key aspects of the contract, the place of performance of the project as well as the jurisdiction and forum the parties have selected for dispute resolution. Most African infrastructure projects are contracted under local laws where the employer entity is the State or a state-owned entity, which will seek to make the choice of its own law mandatory.

The choice of law may also be affected by the decision of the project financiers. Contracts involving international finance institutions are often governed by the law of jurisdictions with an established body of law applicable to financing. Lenders often have a clear preference for English and New York Law as opposed to the local law at the location of the infrastructure project, not only because of its “neutrality” but also because it is felt that these legal systems are better equipped to deal with disputes concerning sophisticated project structures and documentation.

Some Development Finance Institutions (DFIs), including the African Development Bank (AfDB), provide that public international law shall be applicable to project finance agreements.

Unlike transactions financed by traditional DFIs, the terms of engagement in contracts financed by China are not clear owing to confidentiality provisions.

The regulatory environment for infrastructure projects is becoming increasingly complex with anti-corruption and bribery legislation emerging in many jurisdictions. In addition to the various anti-corruption regulations existing in East African States, some jurisdictions such as the UK and the US have enacted anti-bribery legislations which have extra-territorial application. Through such laws, investors face scrutiny at home and in the jurisdiction of the investment. Further, where the project is financed by DFIs, there is an additional level of scrutiny.

Overview of the East African arbitration landscape

The growing attractiveness of arbitration as a means of settling commercial and investment disputes in Africa has triggered new developments on various levels.

Importantly, it has led to increased legislative activity and the modernisation of arbitration laws in several countries, introducing overdue changes required by the local arbitration community by incorporating recent developments in arbitration practice. Rwanda passed its Arbitration and Conciliation Act in 2008, Kenya amended its 1995 Arbitration Act in 2009, and Mauritius updated its 2008 International Arbitration Act in 2013—in all three cases, the new acts are based on the UNCITRAL Model Law. In 2020, Tanzania enacted a new Arbitration Act, which is broadly modelled on the English Arbitration Act of 1996and provides a modern and comprehensive set of provisions enhancing clarity and efficiency in arbitration as against the earlier, antiquated act of 2002. The new law also provides for the establishment of the Tanzania Arbitration Centre to act as a regulator of arbitration in Tanzania and to keep a register of approved arbitrators in the country. Similar reforms will likely occur in other East African States whose arbitration laws have not kept pace with changing trends. Apart from responding to the needs of businesses, the legislative changes also serve to position the East African jurisdictions in the competition to emerge as the seat of choice for Africa-related international arbitrations. In early 2021, the African Arbitration Association (AfAA) helpfully introduced its “African Arbitration Atlas”, a free online resource intended to provide a comprehensive overview of the African arbitration legislation landscape.

While several East African States including Kenya, Mauritius, Rwanda, Tanzania and Uganda have for a number of years been contracting States to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), the cornerstone of the global international arbitration system, others have only joined in recent years. Those include Burundi in 2014, Angola in 2017, Sudan in 2018, the Seychelles and Ethiopia in 2020, and Malawi in 2021. Eritrea, Somalia and South Sudan have yet to adhere to the New York Convention. Overall, it has hence become easier to uphold international arbitration agreements and to enforce foreign arbitral awards in this part of the Continent—provided the local judiciary and lawyers alike are trained to adopt an arbitration-friendly approach when applying the New York Convention.

Another change in the dispute resolution landscape in Africa is the creation of new, and the further development of existing, arbitration institutions that provide modern alternative dispute resolution case administration services both domestically and internationally and adhere to accepted international standards of governance. East Africa features the Kigali International Arbitration Centre (KIAC), the Nairobi Centre for International Arbitration (NCIA), the Mauritius International Arbitration Centre (MIAC), the newly established Tanzania International Arbitration Centre (TIAC), and the International Centre for Arbitration and Mediation in Kampala, in Uganda (ICAMEK). The growing sophistication, reputation and caseload of these institutions, which are competing with other arbitral institutions on the Continent, will be crucial in establishing East Africa as a mature and safe place to arbitrate. It will not be long until these local institutions will supersede the non-African arbitration institutions that have for many years dominated the space of international arbitration in Africa, such as the ICC and the LCIA.

The development of a vibrant local arbitration community has yielded several arbitration associations that actively promote the nomination of arbitrators from African countries and provide training and knowledge transfer for African lawyers, in particular for the younger generation. These include the African Arbitration Association (AfAA), the Kenya Branch of the Chartered Institute of Arbitrators, and the Association of Young Arbitration Practitioners in Africa (AYA), which organises a yearly Africa Arbitration Academy for young practitioners. “The African Promise” aims to improve the profile and representation of African arbitrators, especially in arbitrations connected to Africa, a goal that is shared by AfAA’s Directory of African International Arbitrators (DAIA) and the group Racial Equality for Arbitration Lawyers (REAL). This account would be incomplete without mentioning I-Arb Africa, an Africa-focused international arbitration resource platform, and the annual East Africa International Arbitration Conference (EAIAC).

Last but not least, the construction industry and arbitration practitioners will be able to rely on the technical expertise of a growing body of local, sometimes internationally certified experts of African descent who can be appointed in arbitration proceedings. For instance, the Association of Consulting Engineers Tanzania (ACET), a member association of the International Federation of Consulting Engineers (FIDIC), maintains a list of national adjudicators in Tanzania.

TRENDS IN EAST AFRICAN CONSTRUCTION ARBITRATION

There is every indication that domestic and international disputes relating to construction projects in East Africa will increasingly be resolved through arbitration. Given the enactment of modern arbitration-related legislation, the proliferation of arbitral centres across the Continent, and the growing body of skilled local arbitration practitioners, the practice of arbitration in the region will reach fruition. Moreover, Africa-related disputes will increasingly be heard in Africa, before “Africa-focused” arbitration centres, rather than before international centres in distant cities abroad. This also applies to investment arbitration cases involving African States, which have been on the rise in recent years.

As in other regions of the world, the legal profession in Africa is adapting to new technologies entering the market. Law firms in particular are forced to change certain traditional ways of servicing their clients and to respond to their clients’ needs, making use of “legal tech” and competing with providers of new alternative legal solutions. The COVID-19 pandemic has acted as a catalyst for this transformation. Indeed, legal tech presents an opportunity for African legal markets to “leapfrog countries globally in its adoption of technology to improve legal services”. It is noteworthy, for instance, that the African Arbitration Academy was the first to develop, in April 2020, an innovative “Protocol on Virtual Hearings in Africa”, designed to take also into account the specific challenges and circumstances that may arise in relation to remote hearings in Africa. Naturally, the courts are often slower in embracing technological changes and will likely require more time to do the shift towards “remote justice”.

The construction sector will undergo a digital transformation with the adoption of modern technologies for the construction industry such as Building Information Modeling (BIM), a software used to create digital 3D representations of buildings and infrastructure to facilitate planning, designing, and construction. The new international standard ISO 19650, launched in January 2019, will likely pave the way to a more rapid digitisation. Furthermore, resorting to blockchain technology for construction contracts can help safeguard legal certainty and reduce the risk of misuse and corruption, which in turn could significantly enhance efficiency, productiveness and thus competitiveness—and promote foreign direct investment.

As on other continents, the construction industry in Sub-Saharan Africa has been heavily impacted by the COVID-19 pandemic, exacerbating financial difficulties, labor shortages, lack of construction material due to disruptions in the global supply chains, and project suspensions. As governments expand their spending on the health sector to combat the Coronavirus, less funding is available for infrastructure projects. The stalling of project financing in 2020 has been described to result in “an all-time low growth rate” for the construction sector inTanzania. As the pandemic endures, it remains to be seen how resilient the East African economies are. Existing financial difficulties may also result in parties to Africa-related disputes increasingly resorting to third party funding in arbitration proceedings.

Conclusion and Outlook

The multitude of infrastructure and construction projects and related investments throughout East Africa will inevitably lead to numerous disputes, especially where complex financial, operational and political risks materialise. In line with the “Africanisation” of dispute settlement and given the strategic importance of many of the infrastructure projects, disputes will no longer only be settled in traditional arbitral centres outside of the Continent, but increasingly in Sub-Saharan Africa itself. Many East African States are preparing the ground with domestic legislative reforms, capable arbitration institutions and a growing body of sophisticated local arbitration practitioners. The enormous potential can probably best be realised if all involved institutions and organisations take a collaborative approach to reaching this common goal.

Dispute resolution in general, and international arbitration in particular, has an important role to play in ensuring that disputes arising from infrastructure projects can be resolved efficiently and fairly—and thus contribute to successfully closing East Africa’s infrastructure gap and fostering economic growth in a sustainable way.

____________________________

* Partner, LALIVE, Geneva, Switzerland

** LL.M. International Dispute Settlement (MIDS) (Graduate Institute of International and Development Studies and the University of Geneva); Arbitration and International Disputes Lawyer; Advocate of the High Court of Kenya. The views expressed in this article are solely those of the authors.

*** Associate, LALIVE, Geneva, Switzerland

Challenge of an Arbitrator, Kompetenz-Kompetenz doctrine, and arbitrator’s right to arbitral costs: A recent determination by the High Court of Kenya By Victoria Kigen*

Thu, 02 Sep 2021 08:56:08 GMT

The Commercial and Tax Division of the High Court of Kenya (“Court”) has recently pronounced itself in the case of Kenya Medical Women’s Association v. Registered Trustees Gertrude’s Gardens; Paul Ngotho, Arbitrator (Interested Party)[2], regarding the termination of an Arbitrator’s mandate due to lack of impartiality and independence and exceeding the scope of his jurisdiction in his mandate.

Significantly, the law was clarified, to a certain extent, in three key areas:

Whether the High Court’s appellate jurisdiction on an application challenging the mandate of an arbitrator should only be invoked after the said application, in the first instance, has been made before and determined by an arbitral tribunal pursuant to Section 13(3) and 14(2) and (3) of the Arbitration Act[3].
Whether an arbitrator’s recommendation for parties to engage in mediation or other ADR processes in an arbitration reference exceeds the scope of his jurisdiction under the Kenyan law.
Whether withholding of a ruling by an arbitrator at his own discretion for purposes of securing costs for arbitration is permissible under the Kenyan law.

Facts

On or about May 2012, the applicant, Kenya Medical Women Association (“KMWA/applicant'') and the respondent, Registered Trustees Gertrude’s Gardens (“Gertrude Gardens/respondent”), entered into a formal lease agreement.

A dispute regarding the payment of rent arrears arose between the parties. The applicant sought to have auctioneers auction the respondent’s property. The respondent sought an injunction to stop the injunction process and further sought to have the dispute referred to arbitration pursuant to Clause 3 (F) of the lease agreement.

The court referred the matter to arbitration and Mr. Paul Gathu Ngotho was appointed as arbitrator by the Institution of Surveyors of Kenya (ISK) in 2017 who were the designated appointing authority in the lease agreement between the parties.

The arbitration process commenced on 22nd June 2018 and the arbitrator issued Order for Directions No. 3 following a preliminary meeting held on 23rd May 2018. The Order for Directions No. 3, and particularly paragraph E, which was in contention, ordered that:

“The parties having attempted negotiations previously, are agreeable in principle to mediation, even though that is not a contractual requirement, in order to save time and costs. The parties may seek mediation independently or seek the Tribunal’s help in the appointment of a mediator. While mediation is voluntary, the Tribunal will consider a party’s refusal or failure to cooperative in the apportionment of costs regardless of the outcome in these proceedings”

It is the above paragraph E in the Order for Directions No. 3 that led to the present contention as to whether: the directions for mediation were mandatory and within the jurisdiction of the arbitrator; the arbitrator’s statement of “…party’s refusal or failure to cooperative in the apportionment of costs regardless of the outcome in these proceedings” meant that the Tribunal would make an unfavorable order for costs against any party refusing mediation, if so, whether this sanction was within his jurisdiction; and there was justifiable doubt to the Arbitrator’s impartiality and independence, in the arbitration proceedings.

The applicant, aggrieved by Order for Directions No.3, filed an application to the tribunal for the recusal of the arbitrator. The tribunal required a further deposit of Kshs. 840,000 from the parties and Kshs. 140,000 from the applicant, and interest respectively for his services. The applicant, in protest of the demand, requested the tribunal to deliver the ruling on its application for recusal which the tribunal declined. The applicant contended that the tribunal thereafter withheld the writing of the interlocutory ruling conditional on payment of additional costs without legal justification (i.e., statutory provision, legal precedent or rules governing arbitration). The applicant argues that the imposition of costs overrode statutory objectives requiring affordable resolution of arbitration disputes.

The applicant then sought to invoke the principle of party autonomy to choose their preferred arbitrator, and have the court terminate Mr. Ngotho’s mandate in the arbitration.

In opposition to the applicant’s application, the respondent sought the court’s order that the tribunal’s direction in promoting alternative forms of dispute resolution mechanism, pursuant to Order for Directions no. 3 was in line with the guiding principle set out in Article 159 (1) (c) of the Constitution of Kenya 2010. Also, that the applicants had not advanced justifiable grounds for the disqualification and recusal of the arbitrator from presiding over the arbitral proceedings.

The Court’s Judgment

The Court dismissed the application with costs to the respondent.

The Court observed that, “…an application challenging the mandate of an arbitrator should, in the first instance, be made before a tribunal... before the same can be handled by the High Court in its appellate jurisdiction” pursuant to Section 13(3) and 14 (2) and (3) of the Arbitration Act[4] which reads as follows:

Section 13(3): -

(3) An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality and independence, or if he does not possess qualifications agreed to by the parties or if he is physically or mentally incapable of conducting the proceedings or there are justifiable doubts as to his capacity to do so.

Section 14(2) and (3): -

(2) Failing an agreement under subsection (1), a party who intends to challenge an arbitrator shall, within 15 days after becoming aware of the composition of the arbitral tribunal or after becoming aware of any circumstances referred to in section 13(3), send a written statement of the reasons for the challenge to the arbitral tribunal, and unless the arbitrator who is being challenged withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.

(3) If a challenge under agreed procedure or under subsection (2) is unsuccessful, the challenging party may, within 30 days after being notified of the decision to reject the challenge, apply to the High Court to determine the matter.

The Court held that by the facts presented before it that the tribunal had not made its determination as to the application for recusal, it was clear that the application was premature, and that the applicant had not followed the correct path in invoking the court’s appellate jurisdiction.

As for the Order for Directions No. 3E, the court found that it was not made in favor of any specific party but was a mere attempt by the arbitrator to “prevail upon the parties” to consider mediation as mode of dispute resolution. This, to the court’s mind, did not mean that the arbitrator portrayed bias or that there was any illegality in referring the dispute to mediation. The court premised its thinking to Article 159 (2) of the Constitution of Kenya 2010 which stipulates as follows: -

(2) In exercising judicial authority, the courts and tribunals shall be guided by the following principles— (a) justice shall be done to all, irrespective of status.

(b) justice shall not be delayed.

(c) alternative forms of dispute resolution including reconciliation, 96 Constitution of Kenya, 2010 mediation, arbitration and traditional dispute resolution mechanisms shall be promoted, subject to clause (3).

(d) justice shall be administered without undue regard to procedural technicalities; and (e) the purpose and principles of this Constitution shall be protected and promoted.”

The Courts found that the Constitution of Kenya encourages Courts and Tribunals (i.e., Arbitral Tribunals), in exercising their judicial authority to be guided by the principles of alternative dispute resolution. Thus, the dispute’s referral to arbitration did not preclude the arbitrator from recommending mediation if he deemed it appropriate. The court further finds that the arbitrator in his Order for Directions 3E noted that the mediation is voluntary save that refusal or failure to cooperate in the process would be factored in the apportionment of cost of the arbitration. Therefore, the court concluded that the arbitrator was not biased since he had not made any findings on the substantive disputes before him.

The court did not delve deeply on withholding of a ruling until the arbitrator’s fees are settled, but found that, if the allegations were true, then the court’s decision should be served upon the arbitrator for his attention with the court’s position being that he should conclude the arbitral proceedings in the shortest time and proceed to pursue his fees through the proper channels that are provided for under the Kenyan law.

Analysis

High Court’s jurisdiction on an application challenging the mandate of an arbitrator

An important takeaway of this case is likely to be the court’s treatment of the question, ‘when is an application challenging the mandate of an arbitrator ripe for the court’s jurisdiction?’. The court reaffirmed the decision in Chania Gardens Limited vs Gilbi Construction Company Ltd & Another [5] that: -

“…The first port of call to challenge the jurisdiction of an Arbitrator is the Arbitral tribunal in line with the principle that is commonly referred to in arbitration parlance in the German phrase, Kompetenz-Kompetenz. Therefore, the jurisdiction of this court on matters of challenge of an Arbitrator is not original in nature...Under Section 14 of the Arbitration Act, 1995 a challenge on an Arbitrator seeking his removal must first be heard by the Arbitrator.”

The court was unequivocal that an application challenging the mandate of an arbitrator should be made to the arbitral tribunal in the first instance and that the court’s jurisdiction is appellate and not original in nature. Further, it is not sufficient that an application for challenge has been filed before an arbitrator, the arbitrator must also decide the application on the merits for the appellate jurisdiction to be invoked.

This is yet another clear indication that the Kenyan courts are friendly towards arbitration and recognize the kompetenz-kompetenz doctrine where an arbitral tribunal has the power and authority to determine its own jurisdiction. By virtue of this decision, Kenyan arbitral tribunals may now be incentivized to expressly pursue their original jurisdiction in determining a challenge on its jurisdiction and acknowledge judiciary’s incontrovertible support.

Arbitrator’s power to recommend Mediation or any other ADR processes

In relation to the court’s observations that the mere fact that a dispute is referred to arbitration does not preclude an arbitrator from recommending mediation if he deems it appropriate, is a bold affirmation and recognition of the essence of Arbitration and all other forms of Alternative Dispute Resolution (ADR) mechanisms. In particular, the court noted that so long as an arbitrator recognizes party autonomy in making such recommendations and there is no evidence of bias, lack of independence or impartiality, then they are Constitutional.

The court, alive to the provision of Article 159 (2) of the Constitution of Kenya, 2010, validates the need for courts and tribunals (arbitral tribunals included) to be guided by the principles of alternative dispute resolution in making their decisions.

Certainly, the court acknowledged that the tribunal's discretion on mediation should not be found to be oppressive or favoring one party. A finding of bias and unfairness to the parties would be the only way such an Order for Direction by an arbitral tribunal may be found to be unconstitutional.

An arbitrator’s withholding of Ruling in order to secure costs

The third observation we make concerns the payment of arbitration costs by the parties. The court in its finding stated that, “…if the allegations are true”, then (i.e., refusal to render a ruling) the arbitrator should conclude the arbitration process within the shortest time possible and pursue his fees through “the proper channels” as provided for under the law.

Unlike the express provision in Section 32B (3) of the Arbitration Act which permits an arbitral tribunal to withhold the delivery of award to the parties until full payment of fees and expenses, there is no similar provision for withholding of a ruling in determination of interlocutory matters. It appears that the Court may have had in mind Section 32B (3) as the only proper mechanism under the Act for exercising lien for fees.

_____________________

* Ms. Victoria Kigen is a Case Counsel at the Nairobi Centre for International Arbitration and an Advocate of the High Court of Kenya. She holds an LL.B. from the Catholic University of Eastern Africa(CUEA), (Class of 2012), and a graduate of University of Miami School of Law, White & Case International Arbitration LL.M. (Class of 2017).

[2] Kenya Medical Women’s Association v Registered Trustees Gertrude’s Gardens; Paul Ngotho, Arbitrator(Interested Party) [2021] eKLR

[3] Arbitration Act, No. 4 of 1995 (Revised 2012), Laws of Kenya.

[4] Id.

[5] Chania Gardens Limited vs Gilbi Construction Company Ltd & Another [2015] eKLR

African Perspectives on Current ISDS Reform Options by Mouhamed Kebe*

Wed, 26 May 2021 08:08:11 GMT

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021[1]

I. Introduction on the interlink between increased investment and dispute settlement provisions

A. The importance of inter-African and foreign investment to African development

The economies of African nations, like most countries in the world, are dependent on foreign direct investment (FDI).[2]

The stability and growth of African economies is intricately intertwined with the ability of African governments to attract investors from outside the continent. As well stated by the International Journal of Financial Studies, “Foreign Direct Investment can bring in much needed capital, particularly to developing countries, help improve manufacturing and trade sectors, bring in more efficient technologies, increase local production and exports, create jobs and develop local skills, and bring about improvements in infrastructure and overall be a contributor to sustainable economic growth.”[3] With this plethora of potential benefits, it is absolutely essential that African nations create favourable environments for foreign investors. At the same time, however, they must ensure that the gains derived from FDI are in fact being used to create sustainable development.

B. The role of dispute settlement in attracting investment to the continent

While there is a list of other criticisms of this mechanism, both investors and states do agree on one benefit, which is what led to the almost global switch from diplomatic espousal to the Calvo Doctrine in the first place. At the renaissance of Investor-State Dispute Settlement (ISDS), States (both developing and developed) and investors viewed ISDS as stronger in promoting the rule of law than State-to-State Dispute Settlement. The idea behind this was that ISDS allows for investors to put a check on States, most specifically when they are seen as overstepping their bounds. Proponents of this argument argue that ISDS helps bring otherwise hesitant investors to markets they would otherwise avoid because of their poor legal systems. At the same time, at the advent of individual rights taking center stage in international law, ISDS was seen as even further protecting the rights of individual citizens around the globe.

Existing dispute settlement mechanisms under African investment agreements are, in many cases, not protecting the needs of African nations. Currently, the dispute settlement mechanisms built into investment agreements almost always allow for ISDS. Using ISDS, investors have been quick to challenge proposed local laws or policy decisions that may run contrary to their investment expectations. In most cases, little consideration is given to local needs or objectives. As a result, frustrations are boiling.

Several African leaders have begun to express concern over a perceived infringement of their sovereign rights and obligations being built directly into existing dispute settlement options. At the same time, African governments have historically argued that international arbitration, investors’ preferred method of dispute settlement, is extremely costly and perceived as biased towards investors, resulting in African nations having to pay large awards that further inhibit their economic growth. What has become clear is that there is diminishing confidence amongst African nations in the current dispute settlement mechanisms.

II. Investment protection and Africa’s Regional Economic Communities (RECs)

A. Overview of existing RECs

Strength in numbers is considered to be one of Africa’s most direct paths towards progress. For decades now, several regional economic blocs have been making steady progress towards growth and development. Today, Africa has an array of both trade blocs and monetary blocs. These include, among others, eight economic communities recognized as the building blocks of the African Union: the Arab Maghreb Union, the Community of Sahel-Saharan States, the Common Market for Eastern and Southern Africa, the East African Community, the Economic Community of Central African States, the Economic Community of West African States, the Intergovernmental Authority on Development and the Southern African Development Community.[4]

These economic communities have the principal purpose of integrating economic policy and facilitating the movement of goods and people between countries. Many African nations are either too small or lack the resources (both natural and in terms of capacity) to be economically viable on their own. By combining their collective knowledge and other strengths, these communities have demonstrated success in improving economic conditions in their member countries.

B. Example dispute settlement mechanisms utilized by each REC

Africa is home to a number of Regional Economic Communities (RECs), which hold substantial influence over investment policies on the continent. At the regional level, there are several African regional bodies that have begun putting in place protections against unlimited ISDS. The South African Development Community (SADC), through its Finance and Investment Protocol, for example, has limited the use of ISDS, requiring that disputes be resolved in local courts and tribunals. The East African Community (EAC) Model Investment Treaty specifically includes a provision stipulating no ISDS. Similarly, in the Common Market for Eastern and Southern Africa, the COMESA Common Investment Agreement provides for arbitration under ISDS to be brought to the COMESA Court of Justice. In this case, however, the law also leaves open the possibility that claims between parties not party to COMESA bring cases to African arbitration tribunals or to the international bodies (ICSID or UNCITRAL). This leaves open some doubt as to whether COMESA has in fact limited ISDS, given that countries belonging to different agreements may forum shop as needed. Finally, the ECOWAS Supplementary Investment Act does not provide for ISDS, but rather includes a provision that investors use local remedies to resolve disputes.

One of the issues with reform under regional bodies, however, is the lack of uniformity between policies pertaining to the same country. States that are party to several agreements are given the ability to somewhat manipulate the process by forum shopping. Larger countries with greater resources are able to select from a larger pool of possible forums and procedures, based on what will most favour them during a particular case. This disadvantages smaller countries with fewer resources and leads to overall confusion over what in fact is the governing principle and in what circumstances ISDS will actually be applied. The SADC, for example, has not made clear in which cases its dispute settlement mechanisms are to be used over the ISDS mechanism existing under overlapping agreements, making the entire system less effective and, often, leaving it ignored all together, particularly given that investors often prefer the ISDS model permitted to them under certain international agreements. As in other regions in Africa (for example, West Africa, where there exists several regional bodies) several members of SADC are also members of the COMESA. This adds to confusion and again diminishes the intention of moving away from ISDS, as investors have the option to search for more favourable forums (treaty shopping).

III. The OHADA model

One of Africa’s most successful attempts to attract additional investment and move away from the negative perspectives of the country has been the establishment of OHADA. This intergovernmental organization aims to harmonize investment and business laws in Africa with the purpose of better attracting foreign investment and increasing both intra-African and foreign trade.[5]

To date seventeen countries are parties to the OHADA.[6]

A. OHADA’s unique system of dispute settlement

i. Uniform system of laws

Member States developed a uniform set of laws, referred to as the Uniform Acts, which supersede all conflicting domestic provisions. There are currently nine Uniform Acts, which govern: General Commercial Law, Commercial Companies and Economic Interest Groups Law, Organizing Securities, Insolvency Law, Arbitration Law, Organizing Simplified Recovery Procedures and Measures of Execution, Contracts for the Carriage of Goods, Cooperative Companies Law, and Mediation Law.[7] As confirmed by the CCJA on April 30, 2011, and later confirmed by a Paris Court when upholding OHADA law over Cameroonian law,[8] these acts are supranational, rendering domestic laws inapplicable. The intent of each of these acts is to create modern, simple, legal rules that create a favourable economic environment within Member States. At the same time, in adopting these laws, OHADA Member States are looking to promote an independent and efficient judicial system. The acts are updated as necessary to reflect international trends on each subject matter. For example, the General Commercial Act, the Commercial Companies and Economic Interest Group Act, the Securities Act, the Bankruptcy Act and the Arbitration Act have all been updated. Additionally, OHADA most recently adopted the Meditation Act.[9]

As will be further detailed, the CCJA is the court of last resort for judgments rendered and arbitral awards pertaining to the Uniform Acts. This means that it is the court of last resort for all matters of business law that are governed by the acts.[10] Thus, business-related disputes must first be heard in domestic courts, unless it is determined that the competent jurisdiction has not acted on a case within 30 days.[11] This includes any appeals that may be made against a domestic court judgment. The CCJA then acts in the place of domestic supreme courts, serving as the final decision maker in cases falling under the OHADA Uniform Acts.[12] This Court does not hear matters that do not come under those acts; for example, the court does not hear criminal cases.

The Uniform Acts have helped to attract investors by creating consistency and predictability, allowing them to move from one jurisdiction to another with some confidence.[13] Since they are subject to the same set of laws in each country in which they invest within the OHADA region, investors are able to decrease the legal risks associated with investment. Moreover, the OHADA regime strengthens the rule of law by holding its Member States responsible to a supranational law. This in turn means that the protection of an investment is not tied to the stability of an individual country, but rather, to well-established laws that stand regardless of the internal conflicts or political issues that may be impacting one specific country. At the same time, investors are provided the option to have disputes arising from their investments settled by a competent body that is well-versed not only in the laws of OHADA, but also in strong international business practices. All in all, the OHADA system has had a “significant beneficial impact on access to finance, business registration and business cost savings,” according to the World Bank.[14] OHADA’s success in creating a supranational organization with harmonized laws should be applauded, particularly, as will be further explained below, in light of the number of similar attempts on the continent that have fallen short of achieving the same or similar objectives.

ii. The OHADA Common Court for Justice and Arbitration (CCJA)

One of OHADA’s most attractive accomplishments is not just its uniform laws, as previously discussed, but rather the establishment of its Common Court of Justice and Arbitration (CCJA). This court of thirteen judges provides advice on proposed uniform acts and serves as a court of cassation. This court is seen as superior to national courts in matters pertaining to the Uniform Acts and allows cases to be presented by either party or a national judge. Moreover, the CCJA facilitates and oversees arbitrations on matters related to the uniform acts. This serves to add a greater scrutiny to the impartiality of arbitration tribunals, reducing the possibility of corruption and adding greater legitimacy to dispute resolution. In creating this security, CCJA is building investor confidence that their investments will be protected. This court still has a hill to climb in building its reputation and legitimacy to a point where it is trusted as much as more established centres, such as the ICC and ICSID, but it is making strides in the right direction.[15]

In 2017, the CCJA amended its Arbitration Act, as well as the CCJA rules, making them more attractive and more efficient. These amendments were intended to put the CCJA better in line with its international counterparts, particularly the ICC, allowing it to become more globally competitive. Among other changes, the amended Act now specifically states that an arbitration may be initiated on the basis of an investment-related instrument. This means that disputes arising from the growing number of investment treaties that have been entered into by Member States may be brought to the CCJA, allowing for African settlement of the disputes, rather than international tribunals. Additionally, this new Act puts in place mechanisms for the parties to a dispute to resolve an issue amongst themselves before relying on a formal arbitration proceeding. This amendment puts the tribunal in line with international standards, creates a more effective process and gives parties an opportunity to avoid the costly and time-consuming process that is inherent to any dispute settlement.[16]

IV. Africa and ISDS

Africa has a great reason for being increasingly frustrated with the ISDS system. The continent has been a steady target of disputes brought under the system and States have over and over again seen their domestic policies questioned in front of international arbitrators. Approximately 11% of all arbitration disputes have involved African States.[17] These claims have often led to exorbitant judgments. Total claims against African States since 1993 have totalled $55.5 billion, with investors having claimed over $1 billion in damages on 10 separate occasions.[18] In one circumstance, Egypt was ordered to pay $2 billion to Union Fenosa as the result of what may be considered an exorbitant ruling.[19] Needless to say, these cases have largely contributed to Africa’s distrust of the ISDS system and desire to move away from this mechanism.

The results of growing tensions between African nations and the ISDS system have been mixed. Certain countries have reviewed the BITs to which they are party, to determine whether the ISDS provisions should be modified. Other countries, including South Africa and Tanzania have amended their domestic laws to refer investment disputes to national courts, moving even further away from the traditional ISDS model. Then, at the regional level, there has been an effort to establish regional mechanisms related to investment, as will be discussed below. Moreover, there are certain indications that the continent as a whole may not be ready to fully reject ISDS.

V. Proposed continental reforms

Taking collectively the strengths and weaknesses of each of the existing dispute settlement forums currently being used in African investment and forums that have been established in other regions, there is a strong argument that the African Union should establish a permanent tribunal for investment dispute resolution, located on the African continent. First and foremost, at this pivotal moment in the continent’s history, Africa must demonstrate that it is able to create an amicable environment for investment that will, at the same time, push the continent forward in its development objectives. To do this, when further negotiating the Dispute Resolution Protocol, the State members of AfCFTA must create a forum that will allow for equitable dispute resolution that takes into consideration the needs of States as much as private investors.

A. Following the OHADA model - Creating a common system for dispute settlement

A forum located on the African continent, with knowledge and experience of the local context within which disputes arise will be crucial in gaining the support of African nations. Having the tribunal in Africa would also reduce costs and burden to African governments. To foster accessibility, the African Union could have various satellite courts of the continental tribunal, allowing cases to be heard in a mutually agreed upon, convenient location for the parties. At the same time, there should be one primary seat where the permanent staff and judges of the court should be located on a regular basis. On a continent as big as Africa, geography is crucial in ensuring equitable treatment of parties. Moreover, it is essential that the tribunal be located in a stable, democratically strong country where it is less likely to be impacted by conflict or country turmoil in the host country.

In developing this continental court, the African Union should also take care to make sure the voices of all African nations are heard. Africa is a continent comprising 54 different countries, all at varying levels of economic development and each with its own needs. African Member States must consider this when drafting the rules for procedure for this court. Just as African nations do not want the desires of wealthy investors to overshadow their own needs, nor do smaller, less developed countries want their voices to be silenced by larger, stronger economies on the continent. If the continent is truly to develop collectively, then all countries must have an equal footing when it comes to dispute settlement. Equitable representation in the tribunal must be a top priority.

Judges at the African continental court should be from different countries throughout the continent and should have the business knowledge that foreign investors would expect of a tribunal of such stature. This diversity of judges from varying countries would help reduce the bias and corruption concerns that exist with local courts. It would also better assure that smaller countries be treated equitably when in conflict against larger, wealthier countries. Moreover, foreign investors have historically expressed concern that African courts are not familiar with business transactions and this has turned them away from using local or regional courts. In developing a continental tribunal, it is important to recognize that there are plenty of African nationals with the capacity to consider complex investment disputes that could serve on a continental court, from even the smallest countries with small economies. Utilizing local human capital from across the continent would achieve one of the key purposes of the AfCFTA, namely that local human resources are better utilized to meet local needs.

Perhaps the greatest benefit of having a continental tribunal will be the contextual awareness that is added by having local judges who are familiar with the most pressing issues on the African continent. African-bred judges will have greater concern for the impact investments in the continent are having. African judges will be more likely to consider the social, environmental and labour consequences of investments. This will give them a unique perspective on the reasoning behind why States may take certain policy decisions and allow them to weigh that reasoning with investors’ interests. This will in turn serve the purpose of balancing Africa’s sustainable development goals with investment decisions. With this in mind, judges should be carefully selected from each of the Member States to the AfCFTA. As is provided in the Articles of the current Dispute Settlement Protocol for the DSB process, judges hearing a given case should not be from either of the countries party to the dispute.

Special staffing consideration should be given to types of disputes that may be expected to arise, given the nature of investment in Africa. For example, given the predominance of the extractive industries on the continent, the court should be well-staffed with individuals familiar with these industries, who are able to comprehend the intricacies that may be argued in the event of a dispute. Moreover, staff should be aware of the interlinking between international and domestic law and should have an acute awareness as to when and to what capacity domestic law should govern. Again, it is important to reiterate that human capital is one of Africa’s most untapped or underutilized resources. The continental court, not unlike industries that stand to benefit from the AfCTA, should recognize this and find human resources that will be able to build confidence in investors, as well as State Parties, that the court is competent to resolve even the most complicated business matters.

As has also been suggested under the Dispute Settlement Protocol, the continental tribunal should have an appeals process, which allows parties to challenge decisions based on law or evident misinterpretation of facts. This appellate tribunal should have clearly defined procedures and directives, defined through the negotiation process of the AfCFTA.[20]

B. Limiting ISDS

In moving forward, African State Parties to the AfCFTA must also decide to what extent ISDS will be utilized to resolve investment disputes. As currently written, the Dispute Settlement Protocol appears to point towards State-to-State dispute settlement, with all language used referring to State Parties, without mention of investors or non-State actors. In considering the current world landscape as it pertains to ISDS, as discussed above, rather than moving completely towards State-to-State, Africa should consider the possibility for a limited, regulated ISDS. The limited approach utilized under the new USMCA and the CPTPP (the predecessor to the TPP Agreement, which is posed to be ratified by the remaining Member States) agreements offers a strong solution to many of the expressed grievances of African States, while at the same time allowing investors to bring legitimate claims for breaches of the Agreement. One limitation that could be put in, for example, as is currently alluded to under the Dispute Settlement Protocol, is a limitation on compensation as a remedy for an aggrieved party. This would alleviate the concerns over overly burdensome judgments, which, as discussed, have been one of the major sticking points in African opposition to ISDS.

The EU model that appears to be taking shape after the Achmea case, wherein the laws of the European Union are taking precedence over the needs of investors can be used as a guide in the African negotiation of the AfCFTA. The final terms of the AfCFTA should specify the supremacy of African continental law and should place clear limits over the cases in which private investors will be able to challenge domestic law. There should be express provisions built into the Agreement that protect individual countries’ right to regulate for the public good.

This said, the AfCFTA dispute settlement provisions should not outwardly exclude State-to-State dispute settlement, but rather, should adapt an either-or approach to ISDS and State-to-State. When considering State-to-State Dispute Settlement in the context of the African continent, there are several key specificities that are important to pause and consider. As has been reiterated several times throughout this book, more than anywhere else in the world, the sustainable development objectives of African nations are essential in assuring a prosperous future for the continent. States are balancing an array of different needs; everything from strengthening the rule of law to food security, from providing health services to creating jobs, must be considered if countries hope to reduce the current level of poverty and, quite frankly, if they wish to better attract foreign investment. Without improved infrastructure, for example, foreign investors will be wary of entering many markets. They will also be hesitant to enter a market that cannot guarantee protection of contracts. The long-term objectives of African States, therefore, must be built into current policies and laws.

While foreign investment will play a key role in creating strong economies that can lift countries from developing to developed, there must also be advances made in local development to assure the same trajectory. By way of example, in the extractive sectors, there is often a reliance on foreign investors to provide the technical assistance necessary to extract natural resources. At the same time, however, the country where the natural resource is located must ensure that the environment is protected, so as to not cause issues with food security or raise health concerns with local populations. There must also exist a strong system of rule of law to protect against illegal extraction and to ensure that the foreign investor is protected against third-party intervention into their projects. To improve the local economy, States must also ensure that the extraction project is involving local workers and creating better job opportunities for surrounding communities. Every project has a long list of different considerations for the State, while oftentimes the sole consideration of investors is profit.

State-to-State Dispute Settlement, the mechanism currently built into AfCFTA under the Dispute Settlement Protocol, for claims brought to the DSB, allows States to better consider their internal needs, without a direct challenge from investors who may view legitimate development objectives as contrary to potential profit. Allowing States to have a voice in arguing their public policy reasoning for certain decisions will protect against infringement on sovereignty and will allow local governments to maintain adequate control over domestic policy. Moreover, State-to-State Dispute resolution carried out on the continent will allow holistic consideration of the needs of not only individual countries, but of those of the continent. This mechanism could contribute to Africa’s intention of becoming more self-reliant.

At the same time, there are certain considerations that must be weighed in relation to State-to-State dispute settlement. For example, the willingness of States to bring a claim on behalf of a national may be hinged on the same problem of costliness that exists under international arbitration and not on the legitimate needs of an investor or on the black-and-white terms of a contractual agreement. Additionally, the capacity of African nations varies tremendously from one state to another. Larger countries with more resources[21] have greater capacity to bring claims and to then be successful in their pursuit than do smaller countries with fewer resources.[22] Moreover, there are varying levels of relationships between different governments on the continent and there is a risk that political interests may boil over into investment dispute settlement. For these reasons, a compromised position, where ISDS is limited, but State-to-State Dispute Settlement may also be used for cases that may have a more widespread impact, rather than a complete move to State-to-State Dispute Settlement is likely the best option for the continent. This would allow investors the opportunity to defend themselves when facing breaches of contract, but will, at the same time, allow governments to maintain their own sovereignty. Of course, the procedural rules built into the AfCFTA must demonstrate that States will maintain certain rights, even when faced with an ISDS claim.

Taking all of this into consideration, it is also important that Africa, as previously mentioned, develop a dispute resolution mechanism that does not create the same issues that exist under the current ISDS dominated system. What that means is that the system developed under AfCFTA should not place small economy countries with fewer resources in a more vulnerable position than their more affluent counterparts. This also means that the system should focus inward, rather than outward. The new AfCFTA dispute settlement system should be focused on the needs of African countries, rather than the desires of foreign investors. The African Union must do better to protect the interests of its Member States, all of its Member States, and must do so through creating a stronger, more equitable dispute settlement mechanism.

__________________________

* Partner, GENI & KEBE Member of the ICC Court of Arbitration

[2] FDI is defined as “an investment involving a long-term relationship and reflecting a lasting interest and control by a resident entity in one economy in an enterprise resident in an economy other than that of the foreign direct investor.” See IMF, “Foreign Direct Investment Trends and Statistics: A Summary” <https://www.imf.org/External/np/sta/fdi/eng/2003/102803s1.pdf>

[3] Prince Jaiblai, “International Journal of Financial Studies, Determinants of FDI in Sub-Saharan Economies: A study of DATA from 1990-2017,” available at: https://ideas.repec.org/a/gam/jijfss/v7y2019i3p43-d256918.html.

[4] These regional blocs work in parallel with the African Union in meeting its economic objectives. As stated by the African Union, “The RECs are closely integrated with the AU’s work and serve as its building blocks. The relationship between the AU and the RECs is mandated by the Abuja Treaty and the AU Constitutive Act, and guided by the: 2008 Protocol on Relations between the RECs and the AU; and the Memorandum of Understanding (MoU) on Cooperation in the Area of Peace and Security between the AU, RECs and the Coordinating Mechanisms of the Regional Standby Brigades of Eastern and Northern Africa.” See “Regional Economic Communities,” United Nations Economic Commission for Africa, available at: https://www.uneca.org/oria/pages/regional-economic-communities

[5] Redaud Beauchard and Mahutodji Jummy Vital Kodo, “Can OHADA Increase Legal Certainty in Africa?” The World Bank (2011), available at: http://documents.worldbank.org/curated/en/266761467990085419/pdf/659890WP00PUBL010Can0OHADA0Increase.pdf

[6] Benin, Burkina Faso, Cameroon, Chad, Central African Republic, Côte d'Ivoire, Congo, Comoros, Gabon, Guinea, Guinea Bissau, Equatorial Guinea, Mali, Niger, the Democratic Republic of Congo (DRC), Senegal, Togo

[7] Organization for the Harmonization of Business Law in Africa, “Organization,” available at: https://www.ohada.org/index.php/en/ohada-in-a-nutshell/history.

[8] CA Paris 16/25484, 20 December 2018. See Thomas Kendra, Thibaud Roujou de Boubee and Ledea Sawadogo-Lewis, “The Paris Court upholds the supranational nature of OHADA law in dismissing annulment application,

14 February 2019, available at https://www.hlarbitrationlaw.com/2019/02/the-paris-court-upholds-the-supranational-nature-of-ohada-law-in-dismissing-annulment-application-ca-paris-16-25484-20-december-2018/.

[9] Gaston Kenfack Douajni, “Recent Developments in OHADA Arbitration,” Global Arbitration Review, 11 April 2019, available at: https://globalarbitrationreview.com/chapter/1190118/recent-developments-in-ohada-arbitration

[10] Alhousseini Mouloul, “Understanding the Organization for the Harmonization of Business Laws in Africa (OHADA), 2nd edition, June 2009, available at: http://www.ohada.com/content/newsletters/1403/Comprendre-l-Ohada-en.pdf.

[11] Mouhamed Kebe, “The Attractiveness of the New OHADA Arbitration Act,” Geni & Kebe SCP, 13 December 2018, available at: https://www.lexology.com/library/detail.aspx?g=680f77e3-1b8c-4327-87c1-183a7abc45f4

[12] Alhousseini Mouloul, “Understanding the Organization for the Harmonization of Business Laws in Africa (OHADA), 2nd edition, June 2009, available at: http://www.ohada.com/content/newsletters/1403/Comprendre-l-Ohada-en.pdf.

[13] Mouhamed Kebe, “How Can OHADA Boost Integration and Investment in Africa?” Geni & Kebe SCP, available at: https://www.hg.org/legal-articles/how-can-ohada-boost-integration-and-investment-in-africa-19603

[14] “An Impact Assessment of OHADA Reforms,” International Finance Corporation’s OHAD Investment Climate Program, 2018, available at: http://www.ohada.com/content/newsletters/4643/rapport-ohada-ifc.pdf

[15] Fagbayibo, Babatunde, “Towards the harmonisation of laws in Africa, is OHADA the way to Go?” The Comparative and International Law Journal of Southern Africa, November 2009, available at: https://www.jstor.org/stable/23253105?seq=1#page_scan_tab_contents

[16] See Mouhamed Kebe, ‘’The attractiveness of the new OHADA Arbitration Act’’https://www.dlapiperafrica.com/fr/senegal/insights/2018/the-attractiveness-of-the-ohada-arbitration-system.html

[17] “Impacts of Investment Arbitration Against African States,” Transnational Institute, October 2019, available at: https://www.tni.org/en/isdsafrica.

[18] Ibid.

[19] Unión Fenosa Gas, S.A. v. Arab Republic of Egypt (ICSID Case No. ARB/14/4)

[20] On the trend and the relevance of having an appellate body in international dispute settlements, see: Noemi Gal-Or

‘’The Concept of Appeal in International Dispute Settlement’’ EJIL (2008), Vol. 19 No. 1, 43–65 doi: 10.1093/ejil/chm054, available at: http://ejil.org/pdfs/19/1/177.pdf

[21]Examples would include South Africa, Kenya, or Nigeria, among others.

[22]Examples would include The Gambia, Gabon, Niger, among others.

The Singapore Mediation Convention: A game changer in cross border disputes? By Dr Gaston Kenfack*

Tue, 18 May 2021 08:51:58 GMT

Presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021.

Question from Moderator to Gaston: Much has been said about the Singapore Convention and its future, but a historical analysis is often most instructive in contextualising its purpose. Gaston, I believe that you were a delegate at the negotiation of the Convention. Perhaps you can share some impressions and insights from that process, particularly with regard to the motivation behind the Convention.

Response: The negotiation of this Convention resulted in the updating of the 2002 UNCITRAL Model Law on International Commercial Mediation; therefore, the 2002 version was replaced by the 2018 version.

During the negotiation, it was agreed that States wishing to legislate on mediation have the possibility of adopting either the Singapore Convention itself or drawing inspiration from the 2018 UNCITRAL Model Law on International Commercial Mediation.

It is useful to underline here that Cameroon is an OHADA contracting State and that the OHADA Uniform Act on Mediation adopted in 2017 is inspired by the 2002 UNCITRAL Model Law on International Commercial Mediation.

Even though this OHADA Uniform Act on Mediation aims is to promote mediation in the OHADA contracting parties, it contains a provision according to which amicable agreements concluded by the parties without the assistance of a third (mediator or conciliator) are included in the scope of that Uniform Act.

As a member of the Cameroonian delegation, I must say that the Cameroonian delegation had, during the negotiation of the Singapore Convention, suggested that agreements reached by the parties in dispute without the intervention of a mediator or conciliator should be included in the scope of the Singapore Convention.

The Cameroonian proposal was thus inspired by the aforementioned OHADA Uniform Act on Mediation.

This proposal, supported by other delegations, even not parties to the OHADA Treaty, was not accepted, on the ground that the purpose of the Convention is to promote mediation for the settlement of trade disputes.

However, the concern being to promote not only mediation but also, more generally, the amicable settlement of disputes, it was agreed that the possibility to recognize and grant “exequatur” to amicable agreements reached by the parties themselves without the intervention of a third could be taken into account by those of the States who wish to do so.

For this reason, the 2018 version of the UNCITRAL Model Law on International Commercial Mediation, which amends the 2002 UNCITRAL International Trade Conciliation Model Law, includes a footnote 5 under Section 3, according to which "a State may consider enacting this section to apply to agreements settling a dispute, irrespective of whether they resulted from mediation. Adjustments would then have to be made to relevant articles."

Question from Moderator to Gaston: Are there areas which proved particularly difficult to reach consensus, and how were those addressed?

Response: Concerning areas which provided difficulties to reach consensus, I will focus on article 5 of the Convention that specifies the grounds for refusing exequatur.

This article 5 is one of the longest and more detailed provisions of the Convention.

Indeed, the grounds for refusal are so many because the Delegations of the States negotiating the Convention wanted to be sure that the said Convention is consistent with their public policy and that a Convention in harmony with the public policy of the Contracting States will really help in promoting worldwide mediation as an appropriate instrument or tool for the settlement of commercial dispute.

So, the negotiation of this article 5 and also article 4 was, to my humble opinion, laborious not because there was any intention to block the negotiations but rather because each Delegation participating in these negotiations was keen to come out with an instrument agreeable and acceptable to all.

In this regard, the negotiations took place in a courteous manner and in a spirit of mutual understanding.

Question from Moderator to Panel: In view of the key provisions and purposes of the Convention, does the panel think that the legal profession and disputing parties can derive benefit from the Convention?

Response from Gaston: In any event, mediation appears to be an advantageous means of resolving commercial and/or investment disputes, thanks to its flexibility.

Furthermore, while mediation or conciliation is a paid service, it still costs less than State justice or arbitration.

Therefore, it seems to me important that lawyers are educated on mediation/conciliation and on its advantages as a method to settle commercial and investment disputes.

This education should begin at the university level.

In my opinion, aiming to promote mediation as an alternative means of dispute resolution, the Singapore Convention of 2019 is intended to be for mediation what the 1958 New York Convention is for arbitration.

It appears that education is really important here; I mean education for lawyers because they have to know what mediation or conciliation is about, in order to be in a position to convince their clients on the advantages and utility of these methods of settlement of commercial and investment disputes.

________________________

* Chairman, Association for thé Promotion of Arbitration in Africa-APAA

Mediation in MENA: Where Next? By Amani Khalifa*

Tue, 18 May 2021 08:24:49 GMT

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021

The Singapore Convention

On 12 September 2020, the United Nations Convention on International Settlement Agreements Resulting from Mediation, the Singapore Convention, entered into force. The overarching purpose of the Convention is to create a mechanism for the enforcement of international settlement agreements resulting from mediation. The convention was described by the Prime Minister of Singapore, Mr. Lee Hsien Loong, as the “missing third piece” in the international dispute resolution enforcement framework. Currently, 53 states have signed the convention, including three states in MENA namely Jordan, Qatar and Saudi Arabia.

Mediation in MENA

Mediation in the Arab Middle Eastern region is rooted in the Islamic tradition of settling disputes with the help of a third party. Against this backdrop, many states in the region continue to promote commercial mediation through legislation and the creation of mediation institutions.

For example, in 2006, Jordan enacted legislation to regulate mediation of civil disputes. The law provides for mediation by both judges of the court of first instance and private mediators.

Also in 2006, Qatar established the Qatar International Center for Conciliation and Arbitration. In 2012, it promulgated the QICCA Conciliation Rules, which were largely inspired by the UNCITRAL conciliation rules. The Qatar International Court and Dispute Resolution Centre, established in 2010, also provides mediation services.

In 2009, the Bahrain Chamber for Dispute Resolution, which provides both arbitration and mediation services, was established. In 2019, in anticipation of the Singapore Convention, it adopted mediation rules.

In 2014, Saudi Arabia created the Saudi Centre for Commercial Arbitration. It adopted Arbitration and Mediation Rules together with a Code of Ethics for Mediators. Recently, the Centre also launched the Emergency Mediation Program to assist businesses in financial distress due to the impact of COVID-19 with the resolution of their disputes.

Finally, in the UAE, there are several institutions that provide mediation services. The Centre for Amicable Settlement of Disputes, which was established in Dubai in 2009, is linked to the Dubai courts. Mediation services are also offered by the Dubai International Financial Centre Courts and the DIFC-LCIA Arbitration Centre, which provides mediation services under the LCIA Mediation Rules.

Do Parties in MENA mediate?

There is good legislative and institutional support for parties who wish to mediate in the MENA region. However, statistics from regional institutions that offer mediation and arbitration indicate that commercial mediation remains underused. The Cairo Regional Centre for International Commercial Arbitration registered 13 mediation cases since its inception compared to 1303 arbitration cases. In 2019, the DIFC-LCIA registered 13 mediation cases compared with 67 arbitration cases. Between 2018 and 2020, QICCA administered 11 mediations and 77 arbitrations.

Justice Delayed

There may be many reasons why institutional mediation is still relatively underused by commercial parties in the region. One underlying reason could be the ease with which defendants in certain jurisdictions can delay the resolution of meritorious claims in court through dilatory tactics. These delays are exacerbated where there is a backlog of cases. Moreover, enforcement is complex and protracted in certain jurisdictions especially if sought against, for example, real property.

The World Bank’s Doing Business[1] contract enforcement ranking measures the time and cost for resolving a commercial dispute through a local first-instance court until payment. Egypt is ranked 166 out of 190 ranked countries with an average duration of 1010 days. Jordan is ranked 110 and with an average of 642 days. Qatar is ranked 115 with an average of 570 days. Bahrain is ranked 59 with an average of 635 days. Saudi Arabia is ranked 51st with an average of 575 days. The UAE is ranked 9with an average of 445 days.

In jurisdictions where contract enforcement is difficult and prolonged, there is a further incentive for defendants to engage in delay tactics in the hope that the ‘nuisance value’ created will reduce or offset the value of the claim from the Claimant’s perspective. This, in turn, reduces their incentive to engage in mediation.

Cost Sanctions

Many of the region’s civil procedure codes do not yet provide for Courts to impose cost sanctions on parties who have failed to engage in mediation or good faith settlement discussions of obviously meritorious claims. Because the cost of litigation is relatively low, some businesses may choose to contest meritorious debt claims in court as a means of managing cashflow.

By contrast, under part 36 of the England and Wales Civil Procedure Rules if a party refuses to settle a meritorious claim it may be penalised in costs. Moreover, in PGF II SA v. OMFS Company the Court of Appeal held that the defendant’s refusal to respond to an invitation by the claimant to mediate was unreasonable, which also led to adverse cost consequences.

Conclusion

If the correct incentives to mediate are not imposed, the Singapore Convention may not have the desired impact in the MENA region, notwithstanding the undoubted benefits of ease of enforcement of mediated settlements. Even if mediation is not compulsory, reform of the civil procedure codes to include penalties for dilatory tactics and to streamline enforcement processes could incentivise mediation and improve contract enforcement.

________________________

* Counsel, Freshfields Bruckhaus Deringer LLP co-authored by Leila Kazimi, DR Intern, Freshfields Bruckhaus Deringer (Dubai)

[1] Data collected as at May 2019.

Transparency and Consistency in Investor-State Arbitration: Adding New Ingredients to an Old Recipe of ISDS Reform by Mohamed H. Negm*

Fri, 14 May 2021 12:29:28 GMT

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021.

[1]

Introduction

Transparency and consistency are desirable qualities in any legal system. Inadequate transparency is one of the most common complaints aimed at the investor-State dispute settlement (ISDS) system. Confidentiality of proceedings has been one of the main features of investment arbitrations. Gradually, this confidential nature has become heavily criticised because investment disputes frequently concern public interest such as protection of public health or environment but at the same time offer little or no opportunities for public participation.[2] For these reasons, the general public and interest groups have pressed for access not only to the final awards, but also to proceedings. Demands for more transparent institutions and procedures have recently been raised.[3] Under such circumstances, the trend toward open and participatory investment arbitrations intensified and consensus that the public should have the right to be informed about a notification of a claim, an access to proceedings and a final award was established in the international community.[4]

On the other hand, consistency engenders predictability, thereby contributing to the system’s credibility and legitimacy. Conversely, a dispute system where comparable cases produce contradictory results is unpredictable, which increases disputes and their associated costs.[5] The debate over the lack of consistency in investment arbitration is not new. Several authors have extensively analysed instances of alleged inconsistency in an attempt to identify its causes and propose solutions.[6]

Transarency in Investment Arbitration: Manifestations and Prospects of Standardisation

Critics of investment arbitration have long condemned the lack of transparency at all stages of a dispute. This was because, until recently, treaties and international investment agreements (IIAs) were largely silent as to the degree of transparency which should attach to the arbitral proceedings conducted pursuant to them. Institutional rules also largely left the matter of procedural transparency to arbitral or party discretion.[7] In light of silence in treaties and institutional rules, parties to investment disputes held significant residual discretion to deal with many aspects of transparency by agreement. In the absence of agreement, tribunals were left to decide matters of transparency under the rubric of their general powers to regulate the proceedings.

a. International Arbitration Rules and Regulations: Causes of Dissimilarity and Prospects of Uniformity

Transparency in international investment arbitration refers to the extent to which the public can access arbitral proceedings and information pertaining to those proceedings. In this context, institutional arbitration rules offer different transparency frameworks. The substantive differences between these rules may be owed to the fact that there is no strict consensus as to the appropriate balance between squarely conflicting notions of confidentiality/privacy and transparency in international investment arbitration. On the one hand, compromising confidentiality peels away one main attraction of international arbitration. On the other, maintaining levels of transparency is of significant import in the context of investment arbitration because disputes often involve matters of particular public interest and consequence. In Biwater Gauff Ltd v. Tanzania, the claimant requested provisional measures on confidentiality as a result of the unilateral disclosure of the minutes of a tribunal meeting. The tribunal agreed to the requested measures, stating that the disclosure of some documents should not be allowed in principle since it would jeopardise the procedural integrity of the arbitral process.[8]

In this regard, the standardisation of arbitration rules dealing with privacy and transparency would be a welcome development in international investment arbitration. It has the potential to achieve greater normative uniformity across institutions and boost the subjective acceptance of the regime, altogether increasing the legitimacy of investment arbitration. First, standardisation helps reduce uncertainty as to “how calls for transparency will be resolved in any particular case”.[9] This is beneficial for states and investors alike who can rely on a single body of practice. Second, implementing a more robust set of transparency rules could increase public confidence in investment arbitration by virtue of its openness. Investor-state disputes may be of significant interest to potentially affected communities, such as those involving environmental or human rights concerns, state concessions over natural resources or approvals of the privatisation of public services, and disputes resulting in a state’s liability for which payment may be absorbed by public tax money. In this context, greater demands for transparency are justified and to be expected. In addition, transparency in arbitral decisions contributes to the development and drafting of new treaties and increases the predictability of investment law, consequently leading to greater “participation and confidence in the system particularly of the less knowledgeable investors and host States”.[10] Moreover, increasing access to decisions also enhances the quality of decisions as tribunals and parties learn from the experience of their predecessors.

b. Amicus Curiae Submissions and Third Party Funding

In addition to increasing the transparency of arbitrations by providing the public with information about the cases, some tribunals have also increased the openness of the proceedings by specifically allowing non-parties to act as “amici curiae” and submit information relevant to the dispute.[11] The 2006 revised ICSID Rules integrate that practice in an explicit provision allowing tribunals to accept amicus briefs. The rules require the tribunal to consult with the parties before deciding whether to allow the non-party submissions, but do not allow either or both parties together to veto the tribunal’s decision on the matter. This is consistent with the very concept of a “friend of the court” that serves to provide useful information to the tribunal, while leaving it up to the tribunal to determine how to use that information.

The relevant ICSID Rules (Rule 37(2) of the 2006 ICSID Arbitration Rules and Article 41(3) of the 2006 Additional Facility Rules) provide, inter alia, that “After consulting both parties, the tribunal may allow a person or entity that is not a party to the dispute… to file a written submission with the Tribunal regarding a matter within the scope of the dispute”. The 2006 ICSID Rules go on to provide that, when deciding whether to accept an amicus curiae submission, a tribunal must consider a non-exclusive list of three factors: (a) whether the submission will assist the tribunal determine a factual or legal issue by providing a perspective that differs from the parties to the dispute; (b) whether the submission is within the scope of the dispute; and (c) whether the non-party has a significant interest in the proceeding.

In Biwater Gauff Ltd v. United Republic of Tanzania, amici successfully invoked Amended Rule 37. The tribunal granted five non-governmental organisations the right to make written submissions. The tribunal concluded that the non-disputing parties’ written submissions had a reasonable potential to assist the arbitral tribunal by bringing a perspective, knowledge or insight that was different from that of the disputing parties.[12]

Similarly, the COMESA Investment Agreement states that the “arbitral tribunal shall be open to the receipt of amicus curiae submissions in accordance with” certain requirements set forth in a separate annex.[13] This annex, in turn, merely: (a) confirms the tribunal’s authority to accept and consider the submissions, (b) sets forth requirements for amicus curiae applicants to make their submissions in certain languages and disclose their identities and the identities of those who provided assistance in making the submission (financial or otherwise), and (c) adds that “submissions may relate to any matter covered by [the COMESA Investment Agreement] that is relevant to the claim before the tribunal”.[14]

On the other hand, third-party funding is an influential ingredient which, if not disclosed, may impede transparency in investment arbitration. Neither the ICSID nor UNCITRAL Rules provide for an express power to inquire into a third-party funder’s involvement. Although tribunals have relied on their inherent power to order disclosure in cases involving a potential conflict of interest, this is not a settled matter.

In an ICSID decision, the tribunal ordered the claimants to disclose whether they were the recipients of third-party funding, and to divulge the names and details of the funder and some terms upon which the funding had been provided. On 12 June 2015, the ICSID tribunal in Muhammet Çap & Sehil Inşaat Endustri ve Ticaret Ltd Sti v. Turkmenistan ordered the claimants, two Turkish construction companies, to disclose whether their claims in the arbitration are being funded by a third party.[15] In another PCA case under the UNCITRAL Rules, South American Silver Limited v. Bolivia, the tribunal ordered the claimant to disclose the identity of the third-party funder that granted financing to the claimant in the arbitration.[16] Tribunals have also considered the presence of third-party funding in whether to grant security for costs. In RSM v. Saint Lucia, the tribunal granted RSM’s request for security stating that the presence of third-party funder “supports the Tribunal’s concern that Claimant will not comply with a costs award rendered against it”.[17] More recently, in Eskosol v. Italy, the tribunal rejected Italy’s request for security for costs on the grounds Eskosol, with the assistance of a third-party funder, obtained an insurance policy from which costs could be paid.[18] Conversely, it has been reported that in Luis García Armas v. Bolivarian Republic of Venezuela, the ICSID tribunal ordered the claimants to provide guarantee for Venezuela’s costs in defending the investment arbitration on the basis that claimants’ third-party funding agreement provides that the funder is not liable for any adverse cost orders and claimants have not established that they have the resources to pay an adverse costs order themselves.[19]

It should be noted here that funding agreements may affect important procedural issues such as conflict of interests and requests for security for costs. Third-party funding may give rise to conflicts of interests in several ways with respect to the arbitrator’s independence, for instance if the arbitrator has a relationship with the third-party funder. However, conflicts of interests are not necessarily limited to arbitrators. Many third-party funders are well-known and large institutions, which are inevitably involved in other claims. Accordingly, the risk of non-disclosure in the context of conflict of interests is relatively high. A refusal would increase the chances of a challenge based on the arbitrator’s lack of impartiality and independence, including at the time of the enforcement of an arbitral award before national courts.

Consistency and Coherence of ISDS: What Is It About and What Lies Beyond?

A legal system is consistent when it produces coherent solutions, treats identical or similar situations in the same way, and gives equal treatment to the participants in the system. Nonetheless, many States have expressed their concerns regarding the predictability and consistency of the ISDS regime.

On the importance of consistency and coherence for the system’s legitimacy, Mauritius explained in the meetings of the UNCITRAL Working Groups that “this question of coherence and consistency is absolutely key. It is the major concern. There is an utter lack of predictability and therefore legitimacy in the framework as it exists today. There is no appeal; there is no harmonization system and for that reason and contrary to other views that have been expressed we say it is absolutely a problem of the system because ISDS is by its very nature fragmented and incapable of harmonization in its current form”.[20] Meanwhile, Egypt stated that “the problem of inconsistency and unpredictability will remain as long as there is this large part of overlapping treaties of international and investment treaties especially the old generations of bilateral investment treaties which involve inaccurate drafting, uncontrolled drafting and indefinite drafting of the rules of the protection of investment”.[21]

Certain features of investment law explain why it may be perceived as being more prone to inconsistent decisions than other areas of law. Specifically, its reliance on broad legal concepts and its decentralisation may foster inconsistent decisions, whereas other aspects, such as factual commonality and public availability of awards, may make the pre-existing inconsistencies more visible to observers.

a. Catalysts and Magnifiers of Inconsistency

The legal issues addressed in investment arbitration generally involve legal concepts that are designed to be applied to a broad range of situations, and, therefore, are open to criticism and different interpretations (e.g. fair and equitable treatment (FET), full protection and security (FPS), transparency, and arbitrary and discriminatory treatment).[22] Further, the decentralised nature of dispute resolution under investment treaties contributes to its inconsistency. Treaties provide for arbitration in the context of different arbitral institutions, each with its own set of differing rules. In addition, the mere nature of arbitration, where parties have a determining influence over the composition of the tribunal, allows for inconsistent results. Each dispute is decided by tribunals consisting of different arbitrators chosen by the parties, sometimes with opposing views on the relevant matters. Finally, international investment law only emerged in its current form in 1959, when Germany and Pakistan adopted a bilateral agreement, which entered into force in 1962.[23] The ICSID was not established until 1965, and significant case law in international investment law did not begin to take shape until the early 1990s with the end of the Cold War. While it may appear that investment law offers less certainty than many areas of domestic law, this is, in part, a product of the fact that many – if not most – areas of investment law are in the process of being formed.

In addition, different cases with similar factual patterns are common. In fact, it is not unusual for different cases to challenge a single state measure or group of measures affecting several investors. Occasionally, the common facts are not limited to the challenged measures, but also extend to the investment itself, which is sometimes jointly owned by different investors filing separate claims. The fact that different arbitration tribunals address similar facts contributes to the risk of inconsistent arbitral decisions. Besides, investment arbitration cases and decisions are often publicly available and regularly attract attention as they deal with state policies and matters of public interest. Although transparency may be seen generally as a factor that increases consistency – because it allows arbitral tribunals and practitioners to have access to previous decisions – it also highlights contradictions among decisions by different tribunals. Scholars and practitioners closely scrutinise decisions focusing on contradictions and thereby increase the perception of inconsistency.[24]

b. Tackling Parallel Proceedings: Adverse Consequences and Potential Mitigators

Parallel proceedings may threaten the credibility of investment arbitration as a public form of adjudication because they can run against the principle of legal certainty and undermine arbitration as a credible method of dispute settlement.[25] It is often in the context of parallel proceedings that inconsistency in investment arbitration arises. One paradigmatic example is the case of Ampal-American Israel Corporation and others v. Arab Republic of Egypt, in which Ampal-American Israel Corp and other companies brought an investment arbitration under the ICSID Convention and two BITs, as well as four other related arbitrations; three commercial and one additional investment arbitration under UNCITRAL Rules.[26] The Ampal tribunal drew the line at claims in parallel arbitrations that are “double pursuit of the same claim in respect to the same interest”, reasoning that it would be an abuse of process to pursue this kind of parallel proceeding once the jurisdiction of one of the fora is confirmed. Thus, the tribunal held that Ampal had to “cure the abuse” and submit the claim to the exclusive jurisdiction of one tribunal, relinquishing the other.

Hence, parallel proceedings may have negative consequences that undermine the advantages of arbitration including the risk of inconsistent awards, in particular when contradictory decisions are made, and a party tries to enforce the judgment or the award. Further, double recovery may occur where a company, shareholder or another company within the same group brings a treaty claim and a claim for breach of contract and prevail in both proceedings for the same wrong.

Indeed, some commentators have argued that “arbitration fulfils its function only if it finally settles the dispute underlying the claims of the parties. This means that the end of arbitration proceedings shall coincide, from a substantial point of view, with the end of the dispute between the parties. If, when a claim is judged, another substantially identical claim is pending in another arbitration (or can be started again before another tribunal), arbitration has failed in fulfilling that function”[27] by undermining the fundamental legal principles of legal certainty and procedural fairness. Parallel proceedings may also result in the increase in legal costs and in logistical issues because the parties need to present their arguments before multiple fora sometimes in different jurisdictions.

By and large, preventing parallel proceedings has not usually been a key concern for drafters of bilateral or multilateral investment arbitration treaties. Some treaties, however, include procedural mechanisms, which some consider may prevent parallel proceedings. For instance, fork-in-the-road clause gives parties a choice between seeking relief via either litigation in the host-state’s domestic courts, or international arbitration. Once the decision is made, the party waives its right to seek relief through the unchosen fora. While this does prevent the same entity from bringing claims in both litigation and arbitration, its effect is limited to that specific party.

Courts and tribunals may also resort to some doctrines in addressing parallel proceedings. Res judicata is one legal principle according to which courts and tribunals are bound by the earlier judgments or findings of another court or tribunal as to a dispute before them.[28] The principle is grounded in the desire to ensure finality in the resolution of a dispute and to eliminate the harassment of respondents. However, the effect of this principle is limited. It only comes into play after a proceeding is complete, where there is a triple identity of object, cause, and parties, and it applies only to successive, but not simultaneous, parallel proceedings. Besides, Lis pendens is used by an adjudicator to stay or suspend a proceeding until the conclusion of a parallel proceeding before another adjudicator.[29] This doctrine is applicable when parallel proceedings involve the same parties (persona), cause of action (causa petendi) and claims (petitum).[30] Some commentators have suggested that this triple identity test should be relaxed, the persona requirement – in particular – to include identical claims brought by shareholders, locally incorporated companies and companies within the same chain of ownership.[31]

In addition, arbitrators’ competence to rule on their own jurisdiction, the principle of competence-competence, provides tribunals with the means to stay proceedings before them for reasons that include the mitigation of adverse impacts of parallel proceedings. Although rules that govern investment arbitration are silent as to a tribunal’s power to stay proceedings, it is generally accepted that it falls within their inherent powers to conduct them in the manner they consider appropriate. Moreover, consolidation may be an option for parallel proceedings, in particular, when one or more of the arbitrators appointed in the various and related cases are identical. However, consent of all the parties involved is required, either expressly or by accepting the rules of the institution administering the arbitration or by explicit consent of the parties. Consolidation as a mechanism to increase the likelihood of consistent awards has been included on ICSID’s agenda for the amendment of its arbitration rules.[32]

c. Tools to Ensure Consistency in Investment Arbitration

Where regionalism is especially ascendant, some states have attempted to create tools to exercise control over their treaties and ensure that the obligations they have undertaken are interpreted consistently across their overlapping investment agreements. A review of some of the multilateral treaties negotiated in recent years, offer insight into how states may be responding to concerns regarding overlap and inconsistency in ISDS awards. States may use these tools to ensure that tribunals provide consistent interpretations of the obligations they have undertaken to avoid conflicts between different legal regimes and instruments. The first and most obvious tool could be drafting substantive provisions in the text that will guide interpretation. Another tool states have at their disposal in several regional IIAs is the ability to issue joint interpretations of their treaties. Nonetheless, while these provisions are becoming more commonplace, it is unclear whether they are a practical means of achieving consistency across awards, especially in large multilateral treaties. Furthermore, joint interpretations may impact consistency in instances where the statement effectively “amends” rather than “clarifies” the treaty. Moreover, it has been disputed whether joint interpretations and notes of interpretation are binding on investors.[33]

Perhaps the most underused tool is the non-disputing party submission procedure.[34] These submissions are non-binding persuasive pronouncements by a single state on the meaning of certain provisions. Most commentators and tribunals have recognised that State treaty-members’ “common, concordant, and consistent statements” of their intent with respect to a treaty provision provide the best evidence of its meaning.[35] Non-disputing party submissions are not as frequent as one might expect, however, especially considering that all member states, including non-parties to the dispute, have a right to submit statements on treaty interpretation, even without prior tribunal approval or party consent.

Conclusion

Transparency and consistency are undeniable features of any credible method of dispute settlement. Increased transparency of arbitration proceedings benefits the goal of consistency. Significant steps have been taken in this regard, notably the 2006 ICSID rules amendments requiring publication of awards or excerpts of awards, the 2014 UNCITRAL Rules on Transparency in Investment Arbitration and the Mauritius Convention. While a number of challenges still exist within the ISDS system, increasing its transparency and consistency fosters its legitimacy. Many of the criticisms levelled at ISDS can in fact be addressed through comprehensive, disciplined and collective efforts to attain those objectives.

_______________________

* Mohamed H. Negm is State Counsel, Arbitration and International Dispute Resolution, Egyptian State Lawsuits Authority – Ministry of Justice. He represents the interests of Egypt before international courts and arbitral tribunals in international investment arbitrations. He is currently representing the State of Egypt in 9 investment arbitrations before the ICSID. He has handled many complex, high value, commercial institutional and ad hoc arbitral proceedings involving parties from the Middle East, Europe, Asia, and the United States under the rules of leading arbitral institutions such as the ICC, CRCICA, UNCITRAL, LCIA, and DIAC. Mr. Negm has been appointed by the African Union as an Expert Consultant on the Pan African Investment Code (PAIC). He was recently selected by the Association of Young Arbitrators (AYA) as one of Africa's 50 Most Promising Arbitration Practitioners in 2020. He is the Institute for Transnational Arbitration Reporter for Egypt and OHADA. Mr. Negm lectures on Arbitration Law and International Dispute Resolution in the American Bar Association Rule of Law Initiative. He was the regional representative of LCIA-YIAG for the Middle East and North Africa. Mr. Negm publishes regularly in international journals on issues of international law, international investment and commercial arbitration.

[2] Gus Van Harten, Reforming the System of International Investment Dispute Settlement. In: LIM, Ching L. (ed.), Alternative Visions of the International Law on Foreign Investment. Cambridge: Cambridge University Press, 2016, p. 111.

[3] Anna Peters, The Transparency Turn of International Law. The Chinese Journal of Global Governance, 2015, Vol. 1, No. 1, p. 4.

[4] Marcos A. Orellana, The Right of Access to Information and Investment Arbitration. ICSID Review, 2011, Vol. 26, No. 2, p. 85.

[5] Samaa A. Haridi and Reza Mohtashami QC, Consistency, Efficiency and Transparency in Investment Treaty Arbitration, Report of the IBA Subcommittee on Investment Treaty Arbitration (2018).

[6] See e.g., Gabrielle Kaufmann-Kohler, Is Consistency a Myth? in Emmanuel Gaillard and Yas Banifatemi (eds), Int’l Arbitration Inst, Precedent in International Arbitration (Juris Publishing, Inc. 2008), pp. 137–148; Susan D Franck, The Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public International Law Through Inconsistent Decisions (2005) 73 Fordham L Rev 1521; Charles N Brower, Charles H Brower II and Jeremy K Sharpe, The Coming Crisis in the Global Adjudication System (2003) 19 Arb Intl 415.

[7] D. Euler, UNCITRAL Working Group II Standards in Treaty Based Investor-State Arbitration: How Do They Relate to Existing International Investment Treaties? 12 Asper Review of International Business and Trade Law (2012), 139, 143; J.A. Maupin, Transparency in International Investment Law: The Good, the Bad, and the Murky, Transparency in International Law (2013); C. Knahr & A. Reinisch, Transparency Versus Confidentiality in International Investment Arbitration – The Biwater Gauff Compromise, 6 The Law and Practice of International Courts and Tribunals (2007) 1, 97, 116.

[8] Biwater Gauff Ltd v. United Republic of Tanzania, Procedural Order No. 5, para. 55 (ICSID Case No ARB/05/22), February 2007.

[9] Nathalie Bernasconi-Osterwalder and Lise Johnson, Transparency in the Dispute Settlement Process: Country best practices, Bulletin No. 2, Best Practices Series, International Institute for Sustainable Development, February 2011.

[10] Federico Ortino, External Transparency of Investment Awards, Society of International Economic Law Inaugural Conference, Geneva (2008).

[11] Nathalie Bernasconi-Osterwalder and Lise Johnson, Transparency in the Dispute Settlement Process: Country best practices, Bulletin No. 2, Best Practices Series, International Institute for Sustainable Development, February 2011.

[12] Biwater Gauff Ltd v. United Republic of Tanzania, Procedural Order No. 5, para. 55 (ICSID Case No. ARB/05/22), February 2007, (“The arbitral tribunal grants the Petitioners the opportunity to file a written submission in these arbitral proceedings, pursuant to Rule 37(2)”).

[13] Art. 28(8); See also Annex A, Art. 8.

[14] Annex A, Art. 8.

[15] See Muhammet Çap & Sehil Inşaat Endustri ve Ticaret Ltd Sti v. Turkmenistan, Procedural Order No. 3, ICSID Case No ARB/12/6.

[16] South American Silver Limited v. Bolivia, PCA Case No. 2013-15, Procedural Order No. 10 dated 11 January 2016.

[17] RSM Production Corporation v. Saint Lucia, Decision on Saint Lucia’s Request for Security for Costs of 13 August 2014, para. 83.

[18] Eskosol SpA in Liquidazione v. St Italian Republic, ICSID Case No ARB/15/50, Procedural Order No. 3 of 12 April 2017, para. 37.

[19] Luis García Armas v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/16/1, Procedural Order No. 8 of 20 June 2018.

[20] Anthea Roberts and Zeineb Bouraoui, UNCITRAL and ISDS Reforms: Concerns about Consistency, Predictability and Correctness, June 2018

[21] Ibid.

[22] Christoph Schreuer, Coherence and Consistency in International Investment Law, in Robert Echandi and Pierre Sauvé (eds), World Trade Forum: Prospects in International Investment Law and Policy (Cambridge University Press 2013).

[23] Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd ed., Oxford University Press 2012), p. 6.

[24] Samaa A. Haridi and Reza Mohtashami QC, Consistency, Efficiency and Transparency in Investment Treaty Arbitration, Report of the IBA Subcommittee on Investment Treaty Arbitration (2018), p. 7.

[25] See Giovanni Zarra, Parallel Proceedings in Investment Arbitration (Giappichelli Editore 2016).

[26] This parallel investment treaty arbitration against Egypt was initiated under the 2013 UNCITRAL Arbitration Rules (“UNCITRAL Rules”) and Egypt’s investment treaty with Poland. In that proceeding, the claimants were Polish-Israeli national Yousef Maiman and three companies of the Merhav group of companies that he allegedly controls, including Ampal’s subsidiary, Merhav Ampal Group Ltd.

[27] Giovanni Zarra, Parallel Proceedings in Investment Arbitration XV (2017).

[28] See Denis Bensaude, The International Law Association’s Recommendations on Res Judicata and Lis Pendens in International Commercial Arbitration (2007) 24 JIA 415; see also Bernardo M Cremades and Ignacio I Madalena, Parallel Proceedings in International Arbitration (2008) 24 AI 507, 519.

[29] Gary B Born, International Commercial Arbitration, Vol III: International Arbitral Awards (Wolters Kluwer 2014) 3792.

[30] Denice Forstén, Parallel Proceedings and the Doctrine of Lis Pendens in International Commercial Arbitration: A Comparative Study between the Common Law and Civil Law Traditions (Uppsala University 2015). See also www.diva-portal.org/smash/get/diva2:813565/FULLTEXT01.pdf accessed 15 December 2017.

[31] See Christoph Schreuer, Shareholder Protection in International Investment Law (2005) 3 TDM 1, 14; Silja Schaffstein, The Doctrine of Res Judicata Before International Arbitral Tribunals (PhD Thesis, University of Geneva and University of London, 2011, paras. 713–715.

[32] See IAReporter, ICSID Identifies Sixteen Topics that Have Emerged from Rules Amendment Consultation, and Turns to Study and Drafting, IA Rep (Santa Monica, 8 May 2017).

[33] David Gaukrodger, The Legal Framework Applicable to Joint Interpretive Agreements of Investment treaties, OECD Working Papers on International Investment, No. 2016/01, OECD Publishing, Paris; Eleni Methymaki and Antonios Tzanakopoulos, Masters of Puppets? Reassertion of Control Through Joint Investment Treaty Interpretation, in Andreas Kulick (ed.) Reassertion of Control Over the Investment Treaty Regime (Cambridge University Press 2017), pp. 155–181.

[34] United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (2015) 54 ILM 747 (the “Mauritius Convention”).

[35] Gerald Fitzmaurice, The Law and Procedure of the International Court of Justice 1951-4: Treaty Interpretation and Other Points (1957) 33 Brit Y B Int’l L 203, p. 223; See Anthea Roberts, Power and Persuasion in Investment Treaty Interpretation: The Dual Roles of States (2010) 104 AJIL 179, 200.

The AfCFTA Investment Protocol: Recommended Perspectives for Country Negotiators By Naa Lamle Orleans-Lindsay*

Wed, 12 May 2021 12:44:06 GMT

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021

Summary

The African Continental Free Trade Agreement (AfCFTA) is acknowledged as one of the flagship projects for Africa’s developmental policies as established by the African Union. The Agreement establishing the AfCFTA which entered into force on 30th May 2019 has six (6) protocols including the investment protocol which is the subject of this article.

Introduction

The Investment Protocol presents a unique opportunity for African states to disentangle a complex , often- overlapping and fractured system of African related international investment agreements (IIAs). This includes the various investment related agreements developed by regional groups such as ECOWAS, COMESA and SADC , intra-African Bilateral Investment Treaties (BITs) and BITs between African countries and countries outside the continent. Over the past decade there have been strong efforts at both the national and regional level towards achieving harmonised investment regulatory framework(s) in relation to foreign direct investment.

The most recent attempt towards the development of a harmonised model document relating to investment was the Pan African Investment Code (PAIC) . The object of the PAIC as stated in the document is to ‘...promote, facilitate and protect investments that foster the sustainable development of each Member State...’[2] . The PAIC is non-binding on African member states [3] however the document acknowledges under Article 3.2 that the Code may be reviewed at a future date to become a binding instrument.

The opportunity to ‘escalate’ the PAIC from a non-binding document into a consolidated investment instrument to be adopted and utilised by African governments in negotiating IIAs is highly significant. Though there has been loud criticism from many quarters on the PAIC as being overly protectionist or narrowly focused as a model investment treaty document, it reflects consensus from African countries that investment on the continent must be focussed on sustainable development.

As negotiations on the Investment Protocol progress it is recommended that the following are taken into consideration by the countries involved in the negotiations:

There is no time like the present

As mentioned earlier one of the key criticisms of the PAIC was that it was ‘over-protectionist’ and veered towards promoting the rights of host states against the well established rights of foreign investors. The global COVID-19 pandemic which started spreading worldwide in the 1st quarter of 2020 placed into startling relief the necessity of governments around the world to take bold and rapid action to mitigate the adverse effects of the pandemic threatening to cripple their respective economies. UNCTAD[4] lists some of these actions as the tightening of foreign investment screening mechanisms, mandatory production and export bans of health related products and services, and the nationalisation of certain companies adversely affected by the pandemic. These actions which often went against the commercial interests of international investors is slowly emerging as a possible fertile ground for investor state disputes. The International Institute of Sustainable Development (IISD)[5] posited that hundreds of foreign investors could potentially bring claims to challenge the COVID 19 pandemic measures taken by host governments. These claims could conceivably be supported by third party funders looking forward to huge payouts on their investment arbitration portfolios.

The advocacy for reform of the IIA framework to ensure the rights of host states to regulate in the public interest whilst maintaining appropriate levels of investor protections which has been promoted by institutions such as UNCTAD and IISD has received an unexpected boost due to the effects of the COVID 19 pandemic on the economies of countries . The silver lining as it were of the pandemic is that there is arguably a greater level of acceptance and understanding now more than ever before in Africa and around the world, for the state’s right to regulate in the event of a crisis to public health, public safety, environment, security, finance etc.

The negotiators of the AfCFTA Investment Protocol must therefore seize the opportunity presented by the increased awareness and understanding of the state’s right to regulate, to actively promote within the Protocol provisions to preserve the rights of African governments to regulate in the public interest, the maintenance of a reasonable balance in the respective rights of investors and host countries as well as the obligation for investment to be driven by the sustainable development goals. Needless to say it is important that the host states' right to regulate is exercised in a transparent, non-discriminatory and good faith manner.

Leap-frog over the mire

Over the past decade African countries at a national and regional levels have taken strenuous efforts to reform the IIA framework[6]. Approaches have included a partial or complete opt out of ISDS, termination of IIAs and the crafting of new IIA models Though well-intentioned these efforts have often resulted in a lack of unified purposefulness in the direction of reform across the continent. The AFCFTA Investment Protocol provides an unrivalled opportunity for African states to come to a consensus (as far as practicable) on the core principles of international investment law that should be reflected in the document on matters such as most favoured nation treatment, national treatment, pre-establishment, right to regulate and dispute settlement mechanisms. It is noted that during the negotiations of the PAIC a lot of effort was put into defining these concepts and setting out their respective scopes of application.

The following are recommended for consideration:

Clear and as far as practicable unambiguous language on definitions and scope of concepts utilised in the Investment Protocol. There should be carefully drafted exceptions to the applications of the Protocol to specific policy areas and measures such as public health and safety, and sensitive industries & economic sectors.

Provision of detailed guidance on the interpretation of relevant provisions in the Protocol. This would avoid the application of wide discretion by courts, arbitral panels and other dispute resolution bodies in the interpretation and application of the Investment Protocol.

Innovative approaches to investor state dispute settlement including the exhaustion of domestic remedies and resort by parties to reputable regional arbitration or mediation institutions on the continent.

Insertion of investor obligations particularly in relation to sustainable development.

The PAIC it is argued should be the base document for the negotiators , the key reference document as it were. In an effort not to reinvent the wheel, best practice examples of similar continental investment agreements should be studied particularly those entered into by developing countries.

Building the blocks of consensus

Negotiators of the AFCFTA Investment Protocol have the herculean but not unsurmountable task ahead of achieving a consensus on all the relevant provisions of the document. African countries its humbly proposed, should take the following into consideration:

a. Inbuilt flexibility

African countries are economically vastly different from each other, from behemoths in size, population and GDP to small island nations and least developed countries. Obviously then agreement on thorny issues such as definitions of key terms, pre-establishment, performance requirements, right to regulate and international arbitration would not be readily obtained. Instead there should be some level of flexibility in limited circumstances for countries based on factors including their state of economic growth and developmental priorities to have a phased in/out approach to the provisions of the Protocol. Also to be considered would be the use of carefully crafted reservations to be utilised on a case by case basis by a contracting party.

b. Unratified IIAs

It is a curious fact that a significant number of African IIAs (whether with African/non-African countries) remain unratified. There are by conservative estimates almost a thousand IIAs signed by African countries of which less than two hundred are between African countries. The Republic of Ghana for instance has executed 25 BITs and ratified 7. A likely rationale is that these African IIAs were entered into as a demonstration of strong bilateral political ties rather than as a driver for international investment. With the AFCFTA framework firmly settled , and negotiations for an AFCFTA Investment Protocol ongoing, there is a distinct possibility of increased pressure on African countries to ratify these BITs which may date back over a decade and reflect first generation style IIAs. There must be a general understanding to halt the ratification of IIAs executed by African states, particularly those which do not reflect sustainable development and have a poor balance between the rights of states and foreign investors.

c. Negotiation of IIAs

Though the COVID -19 pandemic put a chill on many IIA negotiations it is a distinct possibility that some non-African countries may be desirous of ‘locking in’ African states into IIAs prior to a possibly less ‘liberal’/ pro-investor IIA document under the Investment Protocol. African countries should proceed with current or prospective IIA negotiations with much caution. This will prevent challenges from acceding to an AFCFTA Investment protocol which is inconsistent with recently executed or ratified IIAs.

d. Manage expectations

A lot of expectations are riding on the Protocol as the mechanism which would most likely resolve the complicated and often contrary framework of IIAs on the continent. This would in turn increase trade and investment. It is however a trite fact that the existence of IIAs does not necessarily translate into increased FDI. The negotiators of the Protocol must also take note of the barriers to FDI entry in Africa such as lack of transparency, excessive bureaucracy , corruption, and lack of harmonisation of investment legislation. Investment facilitation provisions in the Protocol may be most helpful to practically guide African governments in attracting investment towards sustainable development.

e. Scope of the Investment Protocol

It is unclear at present whether the Protocol will apply only to intra-African IIAs or also to IIAs between African and non-African states. As majority of IIAs entered into by African states are with non-African states as well as a majority of investment disputes arise between African states and non-African foreign investors, it would be imprudent to limit the scope of application of the Protocol to only intra-African IIAs. It would be useful for clarity on this matter to be established as early as practicable on the negotiations.

f. Capacity Building

The over fifty countries on the African continent have very varying experiences in the promotion of foreign direct investment , investment regulation and the management of investment related disputes. Therefore there will be very experienced country negotiators who have been involved in the negotiation of IIAs and investment dispute settlement. Conversely there will be representatives of other countries who will not have the benefit of such experiences. It will therefore be helpful for the AfCFTA Secretariat to provide opportunities for country representatives/negotiators to increase their knowledge and exposures in issues relevant to the Investment Protocol.

Conclusion

The first meeting of experts on the investment protocol has taken place within the 1st half of 2021. There is a lot of enthusiasm among African countries on the possibilities that the Protocol presents in increasing investment across the continent. With commitment and good faith of all the relevant parties it is clear that the Protocol once completed and acceded to by African states will be a key instrument in enhancing the framework to increase intra-African investment and set a more uniform playing field for investment agreements between Africa and the world.

______________________

* Head of Legal Division, Ghana Investment Promotion Centre. The views expressed in this Article are that of the author and do not represent the position or views of any particular government or party in the Investment Protocol negotiations

[2] Article 1 of the Draft PAIC

[3] Article 2.1 of the Draft PAIC

[4] UNCTAD Investment Policy Monitor May 2020, Special Issue No. 4, Investment Policy Responses to the COVID 19 Pandemic

[5] IISD -Protecting Against Investor–State Claims Amidst COVID-19: A call to action for government. April 2020

[6] UNCTAD June 2017 Issue 2; IIA Note discusses in further detail the approaches taken by various African countries to reform the IIA network.

Investment Arbitration within the OHADA Area: Where Do We Stand? by Dr Sylvie BEBOHI EBONGO*

Tue, 11 May 2021 18:22:03 GMT

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021

ABSTRACT

In late 2017, the OHADA Council of Minister modified and revised the Uniform Act on Arbitration and CCJA Arbitration rules which are the two rules governing arbitration within the OHADA area. The substantive point of the reform was the insertion of investment arbitration provisions in these two instruments governing arbitration in the OHADA area; this insertion thus expanded the scope of OHADA. Henceforth an arbitration under an instrument regarding investment such as an investment code or a bilateral or multilateral treaty is in the most natural way possible within the OHADA area.

The expansion of OHADA arbitration to investment arbitration constitutes therefore an undeniable innovation. However, this paper goes further and a bit “against the flow” will discuss the new OHADA approach toward investment arbitration, more specifically the impact of the reform to date in the OHADA landscape.

INTRODUCTION

On 23 and 24 November 2017, the OHADA Council of Minister modified and revised the two laws governing arbitration in the OHADA area: The Uniform Act on Arbitration[1] (UAA), and the CCJA Arbitration Rules. The new laws came into force on 15 March 2018. One of the substantive modifications of the OHADA reform on arbitration was the insertion of investment arbitration provisions in the UAA and the CCJA Arbitration Rules. Initially, OHADA Arbitration laws turned to commercial arbitration even though it had often dealt with disputes resulting from investment arbitration.[2] Following 2017’s revised provisions, the UAA and CCJA’s arbitration rules moved from commercial arbitration to expressly include investment arbitration.[3] By introducing these new provisions on investment, arbitration broadens the scope of OHADA arbitration.

OHADA is a regional organization with Seventeen-member states.[4] These member states are also members of one of the two regional economic and monetary organizations: The Economic Community of Central African States (ECCAS) and the Economic Community of West African States (ECOWAS). Therefore, OHADA arbitration has a regional investment policy impact.

The investment arbitration provisions were necessary due to the growing demand. For instance, the CCJA Arbitration Centre heard investor-State disputes based on an arbitration agreement in several instances, despite the absence of related investment provisions.[5]

A lot has been said about the OHADA arbitration reform especially about the expansion of the scope of its application following the introduction of the investment arbitration provisions.[6]

The aim of this paper is not to remake an in-depth presentation of the aforementioned provisions. Without compromising the positive contribution of the reform in particular as regard the introduction of provisions dealing with investment, this paper a bit “against the flow” will discuss the new OHADA approach toward investment arbitration, more specifically the impact of the reform to date. Have the new investment arbitration provisions appeared as a real innovation within the OHADA member States' investment landscape? Has OHADA investment arbitration evolved since the revised UAA and CCJA arbitration rules came into force? Can innovation be evidenced in the OHADA investment landscape?

This paper provides answers to the following questions.

I. OHADA investment arbitration provisions: a real innovation for resolving investment disputes within the OHADA Member States?

OHADA arbitration in itself has its roots in the OHADA Treaty. Hence, OHADA investment arbitration provisions must comply with the OHADA Treaty (A). Therefore, one can only expect the revised law to comply with the trend of investment arbitration laws (B).

A. The trend of the OHADA Treaty

Both the UAA and the CCJA arbitration rules are based on the OHADA Treaty. As per the OHADA Treaty,[7] “Pursuant to an arbitration clause or submission agreement, any party to a contract may submit a contractual dispute to arbitration as provided for in this part, where one of the parties is domiciled or has his usual place of residence in the territory of a State Party, or where the contract is performed or will be performed wholly or partly in the territory of one or more States Parties…”

The UAA provides that “An arbitration may be based on an arbitration agreement or on an instrument regarding an investment, in particular an investment code or a bilateral or multilateral investment treaty” and the CCJA revised Arbitration rules provide that “The mandate of the Court shall be the administration, in accordance with these Rules, of arbitral proceedings when a contractual dispute, pursuant to an arbitration agreement, is referred to it by any party to a contract, either where one of the parties is a resident or has its usual place of residence in the territory of one or more of the Member States, or where the contract is performed or to be performed, in whole or in part, in the territory of one or more Member States. The Court may also administer arbitral proceedings based on an instrument related to an investment, in particular, an investment code or a bilateral or multilateral investment treaty”.

Article 21 of the OHADA Treaty seems to limit OHADA arbitration to disputes arising from a contract and states also that one of the parties must be domiciled or has his usual place of residence in the territory of a State or that the contract shall be performed wholly or partly in the territory of one or more State Parties.

Thus, two conditions form the basis of OHADA Arbitration: A dispute arising from a contract and the domiciliation or place of residence in the territory of a Member State or the performance of the contract in one or more State parties.

If one looks especially at article 2.1 of the CCJA Arbitration Rules[8], it is clear that the first part of article 21 of the OHADA Treaty has been maintained. However, unlike the first part of article 21, there is no indication in the second part of article 2.1 dealing with investment arbitration, particularly whether one of the parties to the investment disputes must be domiciled or has his usual place of residence in the territory of a state party, or whether the investment is to be performed wholly or partly in the territory of one or more States Parties.

Besides, article 21 of the OHADA Treaty remains in its current wording, limited to disputes arising from a contract while articles 3 of the UAA and 2.1 of the CCJA arbitration rules open OHADA arbitration to disputes arising from an investment based on an international investment instrument such as an investment code or a bilateral or multilateral investment treaty.[9]

The new provisions in the UAA and the CCJA Arbitration rules disconnect with the OHADA Treaty as it fails to consider the state or the residence of the parties or the place of performance of the investment[10]. Once the international instrument has designed CCJA as the forum where the dispute must be settled, the CCJA has jurisdiction regardless the state, place of residence of the Parties or the performance of the investment within the OHADA area. Thus, the current wording does not comply with the current requirements of OHADA arbitration and has to be clarified or completed.

Discussing compliance between the new OHADA provisions on investment arbitration, some authors have argued that the actual reform of OHADA arbitration will be achieved with the OHADA Treaty reform.[11]

Even if the practitioners, especially arbitral tribunal who will be dealing with these provisions as they are written will have to interpret them broadly, in favour of disputes relating to investment arising from international investment instruments in the OHADA area, there should be a rationale to revise the OHADA Treaty to expressly include investment arbitration. There is also a rationale to review the OHADA arbitration provisions on investment that have been added so that the conditions relating to domiciliation and performance of the investment in one of the many OHADA States appear clearly.

In any event, some adjustments are still needed to complete the OHADA reform on arbitration.

The same remark applies when one looks at investment requirements that should underlie legislation dealing with investment arbitration.

B. The trend of the investment arbitration requirements and its policy

The development noted in OHADA arbitration legislation concerning investment arbitration has been marked by an "inclusion" policy. In other words, despite the substantive changesets observed, the OHADA legislator has chosen not to disrupt the structure of the texts as they existed. This choice was justified by the desire not to disturb the practitioners who were already familiar with the existing system of the OHADA arbitration texts.

If this choice not to encumber the existing texts is not in itself subject to criticism, since substantive modifications can be emphasized,[12] the legislator left out some essential requirements, especially dealing with investment arbitration. In other words, they are few added considerations regarding investment arbitration in the OHADA provisions related to investment arbitrations.

One of the requirements of investment arbitration is Transparency. As a matter of fact, investment disputes imply States or one of its entities and therefore public interest such as protection of public health or environment is a concern. Thus, Transparency in investment arbitration implies access of the general public and interest groups such as various non-governmental organizations to the final awards and proceedings[13] and information resulting from those proceedings.

The need for Transparency in investment arbitration mushroomed through the participation of amicus curiae in arbitral proceedings. Amicus curiae's involvement in investment arbitration responds to continuing public pressure and criticism of the ISDS system. Allowing third parties such as NGOs and civil society groups to intervene in arbitral proceedings contributes to the ISDS system.[14]

One of the questions raised when looking at the OHADA arbitration texts as revised is whether amicus curiae intervention can be allowed in case of investment disputes involving an OHADA State Party against an investor. Neither the UAA, nor the CCJA rules have considered that extremely topical subject. Article 8-2 of the CCJA's arbitration rules on voluntary intervention is the solution because it is written in general terms[15]and can be used to allow intervention of third parties, but this intervention is submitted to publicity of the proceedings and the consent of the parties.[16] However, it appears that the principle within OHADA arbitration is still confidentiality of the proceedings.[17] Access to information and documents related to an arbitration proceeding under the OHADA arbitration rules is subject to the consent of all the parties and to their will to publicize their dispute. [18]

Upstream the trend in investment arbitration, the OHADA rules have not taken directly into account the requirement of Transparency in investment while:

The new OHADA legislation on arbitration has been enacted after the adoption and entry into force of the Mauritius Convention on Transparency ; [19] Some OHADA State Members have signed and ratified the Convention.[20] Thus, Article 3 of the said convention Rules of Transparency apply to their BITs;

BITs signed between some OHADA member States and Canada expressly referred to the application of UNCITRAL arbitration rules.[21] Since these BITs have been concluded after 1st April 2014, UNCITRAL Rules on Transparency applied to them. OHADA member States are open to the application of UNCITRAL rules on Transparency. Therefore, with the expansion of the scope of application of OHADA arbitration rules to investment arbitration, it is necessary to align with UNCITRAL rules on Transparency to avoid any doubt in the application of provisions relating to Transparency on investment arbitration proceedings within the OHADA area;[22]

Many other arbitration institutions have adopted rules on Transparency. See, for example, The Investment Arbitration Rules of the Singapore International Arbitration Centre (SIAC IA),[23] the China International Economic and Trade Arbitration Commission (CIETAC) “Arbitration Rules on investment disputes” [24] or more recently in 2019, the ICC who provided new rules on Transparency foreseeing the possibility for the arbitral tribunal, after consulting of the parties, to adopt measures to allow oral or written submissions by amici curiae and non-disputing parties.[25] These ICC rules on Transparency have been confirmed in the 2021 note to parties and arbitral tribunal on the conduct of the arbitration under the ICC rules of arbitration.[26]

The structure of OHADA texts on arbitration is still primarily designed for commercial arbitration than investment arbitration, despite expanding the scope of application to investment arbitration. An authoritative doctrine has raised some critical issues revealing a nature inclined towards commercial arbitration.[27] However, these criticisms do not intend to undermine the significant step taken by the OHADA legislator in expanding OHADA arbitration to investment arbitration. They are seeking to improve the existing texts.

Since the name of the legislation has not changed and can lead to confusion, the solution could be to develop a separate corpus of rules mainly dedicated to investment arbitration within the OHADA area.[28] Such a separation will have the advantage of clarity.

Broadly, one might have expected the OHADA reform on investment arbitration with a firm policy towards investment in the OHADA Member States, especially because the OHADA reform on arbitration coincides with the discussion about the ISDS reform at UNCITRAL, which started in late 2017.[29]

There has been an increase in attendance of African states between the first session in late 2017 and the last in-person session in January 2020°. It is also true that an Africa intersession commission has been put in place to discuss the ISDS reform from an African perspective.[30] This African intersession Commission comprises some OHADA Members states, the African Legal Support Facility, Francophonie and other NGOs; nevertheless, there is no precise position arising from these meetings on the policy these countries want to implement for their investment laws and international investment instruments at a regional level, for instance.

It is unfortunate that within the OHADA area, there are still isolated positions on such a sensitive topic. Some OHADA Member States have expressed their standpoint towards the ISDS ongoing reform at UNCITRAL, Burkina Faso in 2020[31] and Mali in 2019[32]. A single voice carried by the whole Organisation on behalf of all the Member States could have been more constructive. What is the position of OHADA Members states towards ISDS? Would the OHADA Member States want to terminate the existing BITs and renegotiate them? On what criteria?

The OHADA Organisation has not seized the opportunity to express its opinion on how its perceived investment policies should be.

II. OHADA investment arbitration provisions: a real influence on investment policies of OHADA Member States?

For consistency, this section should also lead the reader to two considerations related to changesets observed in primary texts referring to investment within the OHADA area, if any (A) and in newly BITs concluded by OHADA Member States after the reform (B).

A. An influence on primary texts referring to investment within the OHADA Area?

As stated in the introduction, OHADA Member states are also members of the Economic Community of Central African States (ECCAS) and the Economic Community of West African States (ECOWAS). Some instruments of these regional organizations are aimed at investment regulation. Albeit non-exhaustive, this includes the CEMAC Common Convention on Investments in the States of the Customs and Economic Union of Central Africa, the CEMAC charter of Investments or the Economic Community of the West African States Supplementary Act.[33]

Part V of the CEMAC Common Convention on investments in the States of the Customs and Economic Union of Central Africa is dedicated to the settlement of disputes with chapter III dealing with arbitration.

The preamble of the Charter of investment of CEMAC states that Member States adhere to international main mechanisms guaranteeing investments including those relating to international arbitral courts proceedings and to the recognition and enforcement of arbitral awards. Article 4 paragraph 2 of the said investment Charter stipulates that all Member States of CEMAC adhere to the OHADA Treaty and article 5 paragraph 2 states that CEMAC Member States encourage recourse to arbitration and ensure the enforcement of arbitral awards.

The ECOWAS Supplementary Act was signed in 2008 and entered into force in 2009 to harmonize national laws and create a single Community investment Code. It provides for ISDS but only through arbitration at national courts or national investment arbitration centres.[34]

One might observe that the OHADA arbitration reform did not lead, at least for now, to modification on the primary texts referring to investments within the OHADA area, although some of them are obsolete[35].

The Charter of investment of CEMAC already encourages arbitration; however, with the expansion of OHADA arbitration scope, an express reference can be directly made to OHADA arbitration under the UAA or CCJA arbitration rules.

There is a need to reform or adapt these existing legislations with the investment policy the OHADA Member States would like to implement, which have been reflected in opening OHADA arbitration expressly to disputes arising from investments.

The idea behind this is that the existing primary texts within ECCAS and ECOWAS must encourage OHADA arbitration. This remark also applies to BITs concluded by OHADA Member States.

B. An influence in newly concluded BITs by OHADA Member States after the reform?

Most of the OHADA States, if not all, are host countries for investments. They are, therefore, signatories of many BITs aimed to protect foreign investors. To date, OHADA Member States have signed about 220 BITs with developed countries and other African countries .[36]

A handful of OHADA countries have signed new BITs after enacting new OHADA texts on arbitration that expand the scope of OHADA arbitration to investment disputes. These BITs include; Burkina -Faso – Turkey BIT[37], Congo- Morocco BIT 2018[38], Côte d’Ivoire-Japan BIT 2020[39], or Mali -UAE and Mali-Turkey BIT 2018.[40]

BITs give foreign investors the possibility of choosing from many arbitration options, the one the investor would like to sue the host state. In a large majority of BIT’s signed by OHADA member States, there is an option for international arbitration institutions such as ICSID, UNCITRAL or ICC.[41] Some references to OHADA arbitration exist but are still not systematic.[42]

It has been noted for example in BITs signed in 2014 by some OHADA Member States and CANADA for example, that only ICSID and UNCITRAL are mentioned as possible arbitration institutions before which an investor can sue the host state.[43]

The situation is not fundamentally different in the new BITs signed after the OHADA arbitration reform. Most of these BITs provide for ICSID, UNCITRAL or ICC arbitration.[44] This is the case even in BITs signed between an OHADA Member State and another African country.[45]

One of the exciting BITs of this series is the Burkina Faso – Turkey BIT signed in 2019, which provides an option for one arbitral institution within the OHADA area, the Ouagadougou Arbitration, Mediation and Conciliation Centre (CAMCO).[46] An interesting trend observed in that BIT and some others like the Côte d'Ivoire – Japan BIT is the parties' possibility to submit their dispute to "any other arbitral institution or arbitration rule".[47] Hence, one might expect that parties agree to submit their disputes to CCJA arbitration rules or an ad hoc arbitration under the UAA.

OHADA governments must show interest in their arbitration system by including OHADA arbitration as a possible forum of settlement of disputes between one Contracting Party and the investors of other contracting parties in the framework of the BITs they signed. This has to be the case, mainly when investment is performed in one OHADA country. To this effect, an author stated: “The credibility of an arbitration center is measured by the confidence it inspires in those who created it, manifested by its designation in arbitration clauses, national and international provisions”.[48]

CONCLUSION

The inclusion of investment arbitration in the UAA and the CCJA Arbitration Rules is an innovation in the OHADA investment dispute resolution landscape. However this inclusion has to date a limited impact deemed unachieved. Furthermore, these investment provisions need to comply with the OHADA Treaty and include investment requirements in the law. As of now, the expansion of OHADA arbitration to investment arbitration has no real impact on the investment framework. It's relevant to note that BITs concluded after the OHADA arbitration contain few references to OHADA arbitration.

Furthermore, the investment arbitration policy within the OHADA Member States is not consistent. Do these States intend to terminate the former BITs and negotiate new ones on a more protective basis? Or do they continue to impose the provisions of investment agreements they signed? The OHADA organization is silent on the ISDS reform initiated by UNCITRAL, reform currently at its ends.

The criticisms addressed above do not mean that the OHADA system of arbitration is not ready for investment arbitration. A strong foundation has been built before it, as it was possible to settle investment disputes within the OHADA arbitration framework. The current structure has to be completed, or rather, it would be better to have legislation dedicated especially to investment arbitration to avoid confusion or room for numerous interpretations.

Practitioners appointed or chosen as arbitrators should use the current texts and interpret them to ensure adherence to investment requirements. Parties also have a significant role to play.

It is also up to the Courts and CCJA to adopt an extensive favour arbitri interpretation of the current provisions when dealing with investment arbitration. Some OHADA Member States have signed the Mauritius Convention on Transparency and its application cannot be contrary to the public order in these countries if there is a need to apply provisions on transparency.

OHADA member states government shall continue improving their investment arbitration mechanisms and trust them.

____________________________

*Research Officer APAA, Co-founder & Partner HBE AVOCATS

[1] The First OHADA arbitration texts were adopted in 1999.

[2] Prior to the OHADA reform on arbitration, the CCJA was often used as an investment arbitration tribunal. Some BITs for instance have referenced the CCJA as a possible arbitration institution in case a dispute arises.

[3] Art.3 UAA, Art 2.1 CCJA Arbitration rules.

[4] BENIN, BURKINA FASO, CAMEROON, CENTRAL AFRICAN REPUBLIC, CHAD, COMOROS, CONGO, DEMOCRATIC REPUBLIC OF CONGO, EQUATORIAL GUINEA, GABON, GUINEA, GUINEA – BISSAU, IVORY COAST, MALI, NIGER, SENEGAL, TOGO.

[5] M.Kebe, « The attractiveness of the new OHADA arbitration Act”, https://www.lexology.com/library/detail.aspx?g=680f77e3-1b8c-4327-87c1-183a7abc45f4

[6] See for example, T. Kendra, OHADA Arbitration: Reforms adopted to keep the system modern, https://www.lexology.com/library/detail.aspx?g=c0f818a3-0aa7-4d0b-9a34-afea60ee8b00

R. Ziade, C. Fouchard, 30 march 2018, New OHADA Arbitration Text Enters into Force, http://arbitrationblog.kluwerarbitration.com/2018/03/30/new-ohada-arbitration-text-enters-into-force/

L. Franc-Menget, M.Papadhopulli , OHADA Arbitration Reform – Publication of the New Uniform Act Arbitration and the Revised CCJA Arbitration Rules, https://hsfnotes.com/arbitration/2017/12/22/ohada-arbitration-reform-publication-of-the-new-uniform-act-on-arbitration-and-the-revised-ccja-arbitration-rules/
F. Bernauer, V. Bénézech, G. Mezache The reform of OHADA's arbitration: a promise of greater efficiency?, https://iclg.com/alb/8370-the-reform-of-ohadas-arbitration-a-promise-of-greater-efficiency
P. Mabiala, Reforms to OHADA Arbitration Law, 2 November 2018, https://thearbitrationbrief.com/2018/11/02/reforms-to-ohada-arbitration-law/
G. Kenfack Douajni “Recent Developments in OHADA Arbitration, 11 April 2019 https://globalarbitrationreview.com/review/the-middle-eastern-and-african-arbitration-review/2019/article/recent-developments-in-ohada-arbitration.

M. Kebe, Geni & Kebe SCP , The attractiveness of the new OHADA Arbitration Act, https://www.lexology.com/library/detail.aspx?g=680f77e3-1b8c-4327-87c1-183a7abc45f4

[7] Art 21 OHADA Treaty

[8] CCJA Arbitration is directly based on article 21 of the OHADA Treaty.

[9] For more development on the compliance between the compliance between new OHADA arbitration provisions on investment and OHADA Treaty see for example, W. Ben Hamida “L’arbitrage d’investissement d’après le nouveau Règlement de la CCJA ”in A. Ngwanza (ed), Vingt ans d’arbitrage OHADA: bilan et perspectives, LexisNexis, 2019, pages 285-301, sp. 292- 293.

[10] W. Ben Hamida “L’arbitrage d’investissement d’après le nouveau Règlement de la CCJA ”, op.cit, p. 295.

[11] See for example, G. Kenfack Douajni, in “Le nouveau droit de l’arbitrage OHADA”, Rev. Camerounaise Arb, special volume, May 2018, p.59

[12] OHADA arbitration reform is aimed at more efficiency and transparency of arbitral proceedings. See for e.g Parties’s duty of loyalty and efficiency, arts 14 UAA, 16 CCJA arbitration rules, duty of impartiality and independence, prompt recognition of Arbitral awards art. 31 UAA, 30 CCJA Arbitration rules. For a summary on efficiency and transparency of the OHADA reform on arbitration R. Ziade, C. Fouchard, 30 march 2018, New OHADA Arbitration Text Enters into Force, http://arbitrationblog.kluwerarbitration.com/2018/03/30/new-ohada-arbitration-text-enters-into-force/.

[13] O. Svoboda, “Current state of Transparency in investment arbitration: progress made but not enough”, Cofola international 2017, Conference proceedings, p. 26; A. Kouyate “ La transparence dans l’arbitrage CCJA”, in A. Ngwanza (ed), Vingt ans d’arbitrage OHADA: bilan et perspectives, LexisNexis, 2019, pages 303-321, sp.314.

[14] L.Y. Fortier and R. Thériault “La transparence de l’arbitrage international à l’ère des différends États-investisseurs : du mythe à la réalité”, in mélanges en l’honneur de Alain Prujiner, Ed. Yvon Blais, 2011, p.67, sp.p.98.

[15] Art. 8-2 “No voluntary intervention shall be admissible before the constitution of the arbitral tribunal.

After the constitution of the arbitral tribunal, any voluntary intervention to an arbitral proceedings shall be subject to approval by the parties and the arbitral tribunal”.

[16] W. Ben Hamida “L’arbitrage d’investissement d’après le nouveau Règlement de la CCJA ”, op.cit. p. 298-299.

[17] Art. 14 CCJA Arbitration Rules : “Arbitral proceedings shall be confidential. The work of the Court relating to conduct of arbitral proceedings shall be subject to this rule of confidentiality, as well as any meeting of the Court held for the purpose of administering the arbitration. Confidentiality shall also apply to documents submitted to the latter or drafted by it in the course of the administered proceedings.

Unless otherwise agreed by all parties, the latter and their counsel, the arbitrators, the experts and any person involved in arbitral proceedings shall be bound by the duty to respect the confidentiality of the information and of the documents produced during the said proceedings. Confidentiality shall extend under the same conditions to arbitral awards.

The Secretary General may publish extracts from arbitral awards without mentioning elements which would enable the parties to be identified.

[18] On that question see W. Ben Hamida “L’arbitrage d’investissement d’après le nouveau Règlement de la CCJA ”, op.cit. p.299.

[19] https://uncitral.un.org/en/texts/arbitration/conventions/transparency

[20] https://uncitral.un.org/en/texts/arbitration/conventions/transparency/status.

[21] Burkina Faso, Cameroon, Côte d’Ivoire, Guinea, Mali and Senegal have signed BITs with CANADA in 2014 and 2015. Most of them refer to the application of UNCITRAL Arbitration rules. All these BITs are available on https://investmentpolicy.unctad.org/international-investment-agreements.

[22] A. Kouyate, « La transparence dans l’arbitrage CCJA », op.cit, p. 314-315.

[23] https://www.siac.org.sg/images/stories/articles/rules/IA/SIAC%20Investment%20Rules%202017.pdf

[24] China International Economic and Trade Arbitration Commission (CIETAC) “Arbitration Rules on investment disputes.

[25] W. Ben Hamida « L’arbitrage d’investissement d’après le nouveau Règlement de la CCJA », op.cit p.298/

Also ,https://cdn.iccwbo.org/content/uploads/sites/3/2017/03/icc-note-to-parties-and-arbitral-tribunals-on-the-conduct-of-arbitration.pdf § 139-143.

[26]https://iccwbo.org/content/uploads/sites/3/2020/12/icc-note-to-parties-and-arbitral-tribunals-on-the-conduct-of-arbitration-english-2021.pdf § 173-178

[27] W. Ben Hamida « L’arbitrage d’investissement d’après le nouveau Règlement de la CCJA », demonstrates that despite the expansion to investment arbitration most of the provisions, if not all refer to arbitration agreement ignoring investment arbitration see for example the following articles of CCJA Arbitration Rules : 8 on forced intervention, 9 on the control prima facie of the tribunal jurisdiction, 10 on party autonomy… the same critics are addressed to the UAA.

[28] W. Ben Hamida « L’arbitrage d’investissement d’après le nouveau Règlement de la CCJA », op.cit, p. 301.

[29] The first meeting of the UNCITRAL Working Group ISDS Reform took place from the 27 November – 1 December 2017. More details on ISDS Reform on https://uncitral.un.org/en/working_groups/3/investor-state

[30] http://undocs.org/en/A/CN.9/WG.III/WP.183

[31] http://undocs.org/en/A/CN.9/WG.III/WP.199

[32] http://undocs.org/en/A/CN.9/WG.III/WP.181

[33] Common Convention on Investments in the States of the Customs and Economic Union of Central Africa (adopted 14 December 1965, entered into force 1 April 1966). The CEMAC Charter of investments was signed in December 1999, Economic Community of West African States Supplementary Act A/Sa.3/12/08 Adopting Community Rules on Investment and the Modalities for Their Implementation with ECOWAS (signed 19 December 2008, entered into force 19 January 2009).

[34] M. Freedomm Qumba, “Assessing African Regional Investment Instruments and Investor- State Dispute Settlement”, British Institute of International and Comparative Law 2020, Pages 197 - 232 , see especially p. 201

[35] See for example the Common Convention on Investments in the States of the Customs and Economic Union of Central Africa, adopted 14 December 1965, entered into force 1 April 1966.

[36] https://investmentpolicy.unctad.org/international-investment-agreements/

[37] https://investmentpolicy.unctad.org/international-investment-agreements/countries/31/burkina-faso

[38] https://investmentpolicy.unctad.org/international-investment-agreements/countries/47/congo

[39] https://investmentpolicy.unctad.org/international-investment-agreements/countries/50/c-te-d-ivoire

[40] https://investmentpolicy.unctad.org/international-investment-agreements/countries/129/mali

[41] See for example the new generation of BIT’s signed between seven OHADA Member States (Benin, Burkina Faso, Cameroon, Côte d’Ivoire, Guinea, Mali and Senegal) and Canada in 2014 and 2015.

[42] See for example Benin – Burkina Faso, Benin - Chad BITs 2001, France – Senegal BIT 2007 containing references to OHADA Arbitration. The reference to OHADA arbitration can be found also in some investment law. See for example the Charter of investment of the Central African Republic (2001), Mali investment Code (2005) Congo investment Code (2003) or the Togo investment Code (2012). It’s important to note, however, that wording used in these different instruments to make reference to OHADA arbitration as an option to settle investment disputes can sometimes lead to confusion or have to be subject to interpretation.

[43] See note 27 and 37 above.

[44] See Art. 9 Congo-Morocco BIT 2018, Arts 10 and 11 Mali -UAE , Mali-TURKEY BITs, Art 23 Côte d’Ivoire – Japan BIT.

[45] For example Congo- Morocco BIT 2018. One might expect to have at least a reference to an African arbitration option such as OHADA arbitration or a Morocco arbitration institution.

[46] See Art 10 If after a period of six (6) months :from the date of the written notification referred to in paragraph 2, the consultations and negotiations have not made it possible to settle such disputes, they may be submitted, as the investor may choose, to:

(a) to the competent court of the Contracting Party in whose territory the investment was made;

(b) or, subject to the condition set out in paragraph 5 of this Article, to

(i) the International Centre for the Settlement of Investment Disputes (ICSID) established by the "Convention on the Settlement of Investment Disputes between States and Nationals of Other States" in the event that both Contracting Parties are Parties to this Convention;

(ii) an Ad Hoc Arbitral Tribunal established under the Rules of Arbitration Procedure of the United Nations Commission on International Trade Law (UNCITRAL), approved by the United Nations General Assembly on 15 December 1976, as revised in 2010;

(iii) the Istanbul Arbitration Centre;

(iv) the Ouagadougou Arbitration, Meditation and Conciliation Centre (CAMCO);

(v) any other arbitral institution or arbitration rule, if the parties in the dispute agree.

[47] Arts. 10 Burkina-Faso – Turkey BIT, 23 Côte d’Ivoire- Japan BIT

[48] J-C Ngnintedem, « Le juge OHADA et l’investissement international », RDAI 2015-1, P.105, sp. p.106.

High-Tech in International Arbitration: The Risks By Tarek Badawy*

Mon, 10 May 2021 11:36:16 GMT

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021

[1]

Introduction

The COVID-19 Pandemic (the “Pandemic”) accelerated the process of mainstreaming technology in arbitration and reshaping the way we perceive legal practice. With lockdowns in place, travel restrictions, and imposed social distancing measures, arbitral institutions, parties, and tribunals are required to adapt to this unprecedented situation. After all, “in times of crisis, whether actual, foreseeable or pending, time and money are of the essence, […] hence the need for innovation and tailored solutions”.[2] Life, businesses, and disputes must go on as usual. New cost and time efficient solutions must be implemented to ensure the smooth conduct of ongoing and future arbitral proceedings, especially as one year into the Pandemic, it does not seem that life will be back to normal anytime soon. This article provides a brief outline of the risks of high-tech in international arbitration, raising issues that need to be addressed to ensure arbitrations can proceed seamlessly during the Pandemic and beyond.

I- High-Tech in International Arbitration: The Risks

The use of technology in international arbitration is not immune to risks or challenges some of which are technical in nature (A) whereas the others relate to procedural matters and due process concerns (B).

A- Technical Risks

1. Technological illiteracy and unequal access to the internet

Most readers would remember the lawyer shouting “I am not a cat” as he mistakenly used a filter during a court hearing on Zoom. This video[3] that went viral revealed the technological illiteracy that many arbitrators, counsels, witnesses, or experts suffer from due to their failure to catch up with technology. The Pandemic took us all by surprise, and so did our need to become tech savvy. With other professional and family obligations, one wonders when practitioners will have the time to educate themselves in the use of technology. The pressure is on as failure to do so will negatively impact their chances of being appointed as counsel and arbitrators. More importantly, however, incidents such as the cat filter are disruptive to say the least and can delay if not obstruct the resolution of multi-million-dollar disputes, thus defeating the purpose of resorting to technology in the first place.

The use of high tech in arbitration also raises the issue of unequal access to the internet. With interruptions being common in the developing world, causing delays and disruptions to the online hearings,[4] it is unclear how international commercial or investor-State arbitrations involving counsel from areas with unreliable internet access will be managed without interruption. Unless this issue is addressed, the existing preference for hiring counsel and arbitrators from the developed world will continue, perpetuating a phenomenon that lawyers from the developing world are working hard to change.

2. Cyber-Security

Confidentiality is one of the most attractive benefits of arbitration and is an issue that various arbitration institutions emphasize in their procedural rules.[5] That said, the confidentiality of the proceedings can be easily compromised in the context of virtual hearings. A survey conducted in 2018 by Bryan Cave Leighton Paisner found that among the 105 surveyed practitioners (arbitrators, experts, counsels, etc.) from all regions of the world, 11% experienced a security breach (i.e., an unauthorized third party was able to obtain access to electronic documents or other information).[6] Moreover, in 2017, LogicForce, a cybersecurity consulting firm, surveyed 200 law firms and found that all firms were subject to hacking attempts and that 40% of these firms were unaware of such hacking until the study was conducted.[7] It is worth noting that these surveys were conducted before the Pandemic and the proliferation of virtual hearings. With the increase in virtual hearings (and the hackers’ knowledge of such increase), one expects a surge in cyber-attacks.

Hackers may be inclined to gain unauthorized access to videoconferencing apps or online platforms in the hope of accessing any confidential information such as trade secrets (notably in intellectual property and pharma disputes, among others). This is not limited to commercial disputes as hacking can also take place in State to State or investor-State arbitration, leaving intelligence information vulnerable to unauthorized access. For example, it is reported that in 2015, hackers successfully breached the website of the Permanent Court of Arbitration in the Hague, the Philippines’ Department of Justice and the law firm representing the Philippines during the Philippines-China territorial dispute in the South China Sea;[8] and in Libananco v. Turkey (ICSID Case ARB/06/08), Turkey managed to intercept correspondence between Claimant’s counsel and third parties.[9] Now, with the Pandemic ravaging the world and many arbitrations being conducted via Zoom, it is worth mentioning that this app was under scrutiny for a flaw in the system, allowing for anyone with access to the link to view (and potentially record) the video call.[10]

3. Data protection

The protection of personal information must also be guaranteed especially considering the increased promulgation of data protection laws in various jurisdictions. Personal data is broadly defined as “any information relating to an identified or identifiable natural person” (e.g., name, email, address, credit card and banking information, civil and marital status, etc.)[11] It follows that the consequences of this information being known to unauthorised persons can be devastating as it may lead to identity theft, compromising the personal security of arbitrators, witnesses, and experts, threats to family, extorsion, and other forms of abuse.

Given the importance of protecting personal information, the ICC Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under the ICC Rules of Arbitration provides that participants in arbitration “are aware and accept that their personal data may have to be collected, transferred, published and archived for purposes of the arbitration, and (ii) that applicable data protection regulations, including the GDPR, are complied with”. [Emphasis added]

Documents and pleadings are typically stored on a cloud platform, and while cloud service providers generally indicate in their privacy policies that they take all the necessary physical and technological measures to safeguard information they are entrusted with, such measures are not “bulletproof”, leaving personal information vulnerable to security breaches. For example, it is reported that (i) in 2012, more than 68 million Dropbox user accounts on Dropbox; (ii) in 2016, LinkedIn was hacked, and the hackers posted and sold 167 million emails and passwords online; and (iii) Yahoo was hacked in 2013, compromising more than a billion user accounts.[12]

B- Legal Risks

Following the Pandemic, parties and institutions were faced with the difficult decision of needing to either stay ongoing proceedings until further notice or opting for virtual hearings. While the decision is easy when the parties are aligned, since all the tribunal needs to do is comply with the Parties’ wishes, things become more complicated when either or both parties object to conducting virtual hearings. Since arbitration procedures largely depend on the lex loci arbitri, [13] should the law of the seat not be sufficiently flexible or welcoming of virtual hearings, issues of annulment will arise.

Sadly, not all legal systems are tech-friendly; and since we are still exploring the effects of virtual hearings throughout the world, one expects courts dealing with annulment claims to possibly re-interpret applicable law. One such example is the Egyptian Court of Cassation which, in a recent judgment, acknowledged the possibility of conducting hearings outside of Egypt (or even virtually) while deeming the arbitration to be seated in in Egypt.[14] For virtual hearings to be acceptable worldwide, courts in other jurisdictions should follow suit.[15]

II- High-Tech in International Arbitration: The Remedies

While the use of technology in international arbitration has its challenges, it is also an efficient and convenient way to conduct proceedings during lockdowns and imposed social distancing measures. This prompted the arbitration community to come up with a list of possible technical remeidies: (A) and procedural remedies (B) that should allow tribunals to conduct arbitrations smoothly.

A- Technical remedies

Cybersecurity and data protection issues should be raised as early as possible, i.e., during the first case management conference.[16] Raising cybersecurity and data protection concerns at the outset of the arbitration allows the parties and the tribunal to assess all possible risks that might occur during the proceedings and to agree on solutions to prevent external disruptions of the proceedings.

Parties and tribunals are encouraged to agree on a cyber security and privacy protocol that lays out the manner in which the virtual hearing will be conducted, thus ensuring the confidentiality of the proceedings as recommended by the Africa Arbitration Academy Protocol on Virtual Hearings in Africa (the “AAA Protocol”) and other organizations and arbitral institutions (e.g., the ICC Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19 Pandemic and the ICCA-NYC Bar-CPR Protocol on Cybersecurity in International Arbitration).

To prevent security breaches, parties and institutions must use secured digital platforms and videoconferencing applications with end-to-end encryption for both data storage and virtual hearings.[17] This is highly recommended by the ICC and the Africa Arbitration Academy.[18]

Furthermore, parties and tribunals must restrict access to the arbitration proceedings to a limited number of people authorized to participate in the proceedings (e.g., parties, counsel, tribunal members, tribunal secretary, witnesses, experts, etc.). This can be achieved with the installment of a two-factor authentication mechanism, which “provides an additional layer of security so that only authorized individuals are accessing sensitive information”.[19] The two-factor authentication mechanism will ensure that all participants feel secure about the confidentiality of the information they disclose in a virtual hearing or through a database.[20]

The question of data protection must be considered at every phase of the arbitration proceedings, starting from the request for arbitration and ending with the issuance of the award and subsequent retention and deletion of the personal data, which must comply with applicable law.[21] Each phase must comply with the common principles of fair and lawful processing, proportionality, data minimization, purpose limitation, accuracy, data security, and transparency,[22] all while giving the data subjects the opportunity to exercise their rights under applicable law.[23]

In order to comply with the general principles of personal data processing, data encryption must be resorted to as it is an effective way of ensuring the confidentiality of information collected. The ICC Guidance Note also requires that the parties and arbitral tribunals envisage the “minimum requirements of encryption to safeguard the integrity and security of the virtual hearing against any hacking, illicit access, etc.”[24]

The foregoing measures aim to maximize the confidentiality and security of virtual hearings, communication between the parties and/or tribunals, as well as the security of the documents shared online.

B- Legal remedies

Issues of fairness and due process related to the use of technology in arbitration proceedings can be remedied by ensuring the transparency of the hearings, where each party is given the opportunity to defend its position even if not physically present at the venue of the hearing.

During witness or expert examination, the video conferencing system must allow maximum visibility so that witnesses or experts could be seen, and the tribunal could confirm that no unauthorized person is present with them. To this end, online proctoring software and cameras can be installed after clearing privacy risks and securing the concerned parties’ informed consent.

Tribunals must also exercise their right to postpone a virtual hearing if it will result in unfairness to a particular party, (e.g., a party with poor internet connection) until the issue is addressed. Failure to do so can expose subsequent awards to annulment.

Conclusion

The use of technology in arbitration is “now progressively becoming the new normal”.[25] More so, the Pandemic has shown how flexible arbitration can be,[26] and the extent to which it can adapt to changing circumstances.

A year into the Pandemic, the number of virtual arbitral proceedings increased tremendously (virtual hearings are reported to be eleven times more common after 15 March 2020 than before),[27] and introduced technical and legal challenges, which may be overcome with a bit of creativity and eagerness to adapt. The Pandemic has shown us that the traditional methods of conducting arbitration (e.g., submission of hard copies, in-person hearings, etc.) may need to change and that there are more cost and time-efficient ways of doing things. Unfortunate as it may be, it took a Pandemic to push us to adapt to the requirements of the twenty-first century. As some would say, better late than never!

____________________________

* Partner, Shahid Law Firm, Cairo, Egypt. The author wishes to thank Shahid Law Firm Associate, Hoda El-Beheiry for her contribution to this article.

[2] Mohamed S. Abdel Wahab, “Dispute Prevention, Management and Resolution in Times of Crisis Between Tradition and Innovation: The COVID-19 Catalytic Crisis”, in International Arbitration and the COVID-19 Revolution, edited by Maxi Scherer, Niuscha Bassiri and Mohamed S. Abdel Wahab, Wolters Kluwer, 2020.

[3] https://www.youtube.com/watch?v=9f9eDBpnkaU.

[4] Jiyoon Hong and Jong Ho Hwang, “Safeguarding the Future Arbitration: Seoul Protocol Tackles the Risks of Videoconferencing”, Kluwer Arbitration Blog, 6 April 2020.

[5] Article 28 (3) of the UNCITRAL Arbitration Rules states that hearings should be conducted in private unless otherwise agreed by the parties. Article 30 (1) of the LCIA Rules provides that “The parties undertake as a general principle to keep confidential all awards in the arbitration, together with all materials in the arbitration created for the purpose of the arbitration and all other documents produced by another party in the proceedings not otherwise in the public domain, save and to the extent that disclosure may be required of a party by legal duty, to protect or pursue a legal right, or to enforce or challenge an award in legal proceedings before a state court or other legal authority. The parties shall seek the same undertaking of confidentiality from all those that it involves in the arbitration, including but not limited to any authorised representative, witness of fact, expert or service provider”. Furthermore, Article 22(3) of the ICC Rules provide that “upon the request of any party, the arbitral tribunal may make orders concerning the confidentiality of the arbitration proceedings or of any other matters in connection with the arbitration and may take measures for protecting trade secrets and confidential information”.

[6] Bryan Cave Leighton Paisner, “International Arbitration Survey: Cybersecurity in International Arbitration”, 2018. https://www.bclplaw.com/images/content/1/6/v2/160089/Bryan-Cave-Leighton-Paisner-Arbitration-Survey-Report-2018.pdf

[7] Claire Morel de Westgaver, “Cybersecurity in International Arbitration – A Necessity and an Opportunity for Arbitral Institutions”, Kluwer Arbitration Blog, 6 October 2017.

[8] David Turner and Gulshan Gill, “Addressing emerging cyber risks: reflections on the ICCA Cybersecurity Protocol for International Arbitration”, Practical Law Arbitration Blog, Thomson Reuters, 17 May 2019. http://arbitrationblog.practicallaw.com/addressing-emerging-cyber-risks-reflections-on-the-icca-cybersecurity-protocol-for-international-arbitration/

[9] Claire Morel de Westgaver, “Cybersecurity in International Arbitration – A Necessity and an Opportunity for Arbitral Institutions”, Kluwer Arbitration Blog, 6 October 2017.

[10] Jiyoon Hong and Jong Ho Hwang, “Safeguarding the Future Arbitration: Seoul Protocol Tackles the Risks of Videoconferencing”, Kluwer Arbitration Blog, 6 April 2020.

[11] General Data Protection Regulation (“GDPR”), Article 4 (1).

[12] Contel Bradford, “7 Most Infamous Cloud Security Breaches”, https://blog.storagecraft.com/7-infamous-cloud-security-breaches/.

[13] Mohamed S. Abdel Wahab, “Dispute Prevention, Management and Resolution in Times of Crisis Between Tradition and Innovation: The COVID-19 Catalytic Crisis”, in International Arbitration and the COVID-19 Revolution, edited by Maxi Scherer, Niuscha Bassiri and Mohamed S. Abdel Wahab, Wolters Kluwer, 2020.

[14] Court of Cassation, Case No. 18309/89JY, judgment dated 27 October 2020, “with the 1958 New York Convention, arbitration gradually moved away from the idea of localization, namely, the close association of arbitration with a particular geographical territory. In the context of the globalization of the legal profession, it has become common to rely on foreign lawyers to represent the parties in arbitration proceedings with their seat of arbitration in Egypt, without requiring any arbitration hearings to be held within the Egyptian territory, since the concept of the seat of arbitration as an abstract idea is not linked/related to the actual venue of arbitration hearings, especially with the increasing demand for arbitration hearings by virtual means of communication”.

[15] See Landesbank Baden-Wurttemberg et. al v. Spain (ICSID Case No. ARB/15/45).

[16] ICCA-NYC Bar-CPR Protocol on Cybersecurity in International Arbitration, 2020. https://cdn.arbitration-icca.org/s3fs-public/document/media_document/icca-nyc_bar-cpr_cybersecurity_protocol_for_international_arbitration_-_electronic_version.pdf?mc_cid=23ce363898&mc_eid=6e9a9290a8.

[17] Kun Fan, “The Impact of COVID-19 on the Administration of Justice”, Kluwer Arbitration Blog, 10 July 2020.

[18] ICC Guidance Note, para 32; AAA Protocol, para 5.2.

[19] Wendy G. Lozano and Naimeh Masumy, “Online Dispute Resolution Platforms: Cybersecurity Champions in the COVID-19 Era? Time for Arbitral Institutions to Embrace ODRs”, Kluwer Arbitration Blog, 25 September 2020.

[20] Kun Fan, “The Impact of COVID-19 on the Administration of Justice”, Kluwer Arbitration Blog, 10 July 2020.

[21] Wendy G. Lozano and Naimeh Masumy, “Online Dispute Resolution Platforms: Cybersecurity Champions in the COVID-19 Era? Time for Arbitral Institutions to Embrace ODRs”, Kluwer Arbitration Blog, 25 September 2020.

[22] GDPR, Article 5; Data Protection Law, Article 3.

[23] GDPR, Articles 12 to 22; Data Protection Law, Article 2.

[24] ICC Guidance Note, Annex I, C (iii).

[25] Joint Statement of 13 Arbitration Institutions relating to “Arbitration and COVID-19”, 16 April 2020. https://sccinstitute.com/media/1658123/covid-19-joint-statement.pdf.

[26] Troutman Pepper, “Virtual International Arbitration and the COVID-19 Pandemic: One Institution's Approach”, Lexology, 15 April 2020. https://www.lexology.com/library/detail.aspx?g=759b1c2a-bbed-4527-982d-fcedc6dc3bc5.

[27] Gary Born, “Empirical Study of Experiences with Remote Hearings: A Survey of Users’ Views” in International Arbitration and the COVID-19 Revolution, edited by Maxi Scherer, Niuscha Bassiri and Mohamed S. Abdel Wahab, Wolters Kluwer, 2020.

Belt and Road Initiative Disputes: An Arbitration Perspective on the Impact of the China-USA Trade War and COVID-19 by Daniel Meagher*

Fri, 07 May 2021 16:06:38 GMT

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021

Executive Summary

The Belt and Road Initiative represents great opportunities in Africa, however projects are reportedly under strain and criticism for a lack of transparency in selection of sub-contractors, delayed execution, lack of capacity building, and unwieldy debt burdens. External events in the last few years – in particular the US-China trade war and the spread of the COVID-19 virus have caused significant disruption for infrastructure projects and supply chains. This article explores those developments as they relate to Belt and Road projects in Africa, and comments upon the potential dispute and arbitration trends which may arise as a result.

I. Introduction

The Belt and Road Initiative (“BRI”) has resulted in incredible amount of Chinese investment into a wide array of infrastructure projects around the world. Specifically in Africa, Chinese investment since 2000 has totalled more than $153 billion.[2] Significantly, a sizable portion of that capital has reached into a multitude of projects across sub-Saharan Africa.[3]

However, as BRI projects have reached full stride, many have been repeatedly hampered by delays, budget overruns and a lack of transparency. During the last three years, those fissures have been greatly exacerbated due to an array of geopolitical developments. The United States and China have been engaged in a trade war since early 2018 – one which shows no sign of abating under the new U.S. administration. Beginning in 2019, China downshifted to a less-expansive BRI policy and has massively curtailed its BRI lending, putting at risk not only new projects, but the continued funding of projects already underway. Finally, the onset of the global pandemic in early 2020 wreaked the same havoc on BRI initiatives that it did to infrastructure initiatives elsewhere, bringing disrupted supply chains, government lockdowns, border closures and operational difficulties due to staff absences, social distancing measures and procurement of PPE equipment.

This collision of forces has the potential to greatly increase the risk of projects becoming derailed—and of the contractual disputes that follow. This paper reviews those forces and how they set the stage for a possible growth in arbitration cases.

II. The US-China Trade War

Imposition of Tariffs and Redirected Supply Chains

The origins of today’s US-China trade have their roots in the mid-1980s, when the United States began its increased reliance on Chinese imports, leading to the ballooning of the US trade deficit.[4] Donald Trump, elected president in 2016 on an “America First” platform, became particularly focused on reducing or eliminating this trade deficit with China, while also voicing concerns over inadequate protection of intellectual property rights in China. This latter concern stemmed in part from reported systems in place within China which allegedly forced US companies to manufacture goods within China (rather than in the US) and, in the process, transfer valuable technologies to Chinese entities.[5]

From January 2018 onwards, tariffs were imposed by the US government – initially on limited categories of goods, such as solar panels and residential washing machines.[6] However, in the course of 2018 and 2019, more tariffs were applied by both the US and China to hundreds of billions worth of goods across hundreds of categories of goods.

One of the immediate impacts of the tariffs was trade diversion, as each of the US and China looked to other countries for the import of goods that they would normally get from each other. In the case of the US, that meant products like electronics, electrical machinery and furniture were sourced from elsewhere, including Vietnam, Korea, Malaysia and Mexico. In the case of China, that meant mostly soybeans and grains were imported from countries like Chile, Malaysia and Argentina.[7] The data on this trade diversion does not show that either the US or China were getting significantly more goods or services from Africa.

A Short-Lived Truce

Despite the ongoing trade war, the US and Chinese governments continued a dialogue and in January 2020 reached the so-called Phase One Trade Deal.[8] Under that agreement, Beijing committed to import an additional $200 billion worth of American goods and services over the course of 2020 to 2022 (going some way towards addressing the trade deficit, which in 2017 prior to the trade war stood at US $375 billion for that year), together with making commitments towards more robust protections for intellectual property rights.

However, that deal, signed in the waning days of the Trump administration, ultimately represented only a temporary thaw in US-China relations. The election of President Joe Biden has brought no large-scale change to the tension between the two countries, as seen at the high-level meeting between US and Chinese officials held in Alaska in March 2021.[9] Indeed, merely days after that gathering, the US Department of the Treasury’s Office of Foreign Assets Control imposed sanctions on two additional Chinese government officials,[10] while China imposed its own sanctions on US individuals.[11] Furthermore, while pre-imposed tariffs remain in place, a series of further trade measures have been imposed by the US government against China, including export controls, enhancing scrutiny of Chinese foreign investment and the implementation of a series of prohibitions on Chinese military companies.[12]

III. China-Africa Trade and Investment

Collateral Damage of the US-China Trade War

While the US and China use tariffs to target goods imported from one to the other, the ramifications of such a trade war reach countries far removed from the line of fire.

In October 2018, the IMF estimated that trade tensions and tariffs imposed between the US and China could entail a cumulative loss of GDP in sub-Saharan Africa of up to 1.5% of GDP during 2018-2021, with much of that impact on commodity-exporting countries and those countries that are more integrated in global markets.[13]

As noted above, the trade war resulted in the redirection of supply chains, and some countries benefited by filling gaps arising from reduced US imports from China or reduced Chinese imports from the US. However, the extent to which African countries particularly benefited from these redirected supply chains has not been clear. What is clear, however, is that a decreased US demand for Chinese manufacturing export has led to decreased Chinese demands for the industrial metals and other commodities for China’s manufacturing processes.

As illustrative of this decreased Chinese demand for industrial metals and other commodities, oil and industrial metal prices fell following implementation of US tariffs on Chinese imports in June 2018.[14] However, China’s recovery from the pandemic from mid-2020 onwards has boosted some commodity prices (noting that it is estimated that China represents an estimated half or more of demand for many commodities globally). For example, copper slumped to $4,600 per tonne in March 2020 before then hitting an all-time high of $8,000 per tonne as of end 2020.[15]

These price swings and the decreased Chinese demand for raw materials (as a knock-on effect of the US-China trade war) have certainly affected commodity-exporting African nations. One of the clearest examples is the drop in the export of cobalt from the Democratic Republic of Congo to China, from approximately $4 billion worth of cobalt export in 2018, to only $2 billion in 2019.[16]

However, even with examples of drops in commodity export from Africa to China (as a knock-on effect of the US-China trade war), it might be that the ultimate impact of the US-China trade war on China-Africa trade as a whole has not been that severe. According to China’s Ministry of Commerce, China-Africa trade value decreased only marginally between 2018 and 2019, from $204 billion to $200 billion.[17]

A Changed Policy Environment

While the effect of the US-China trade war on China-Africa trade, and thus on BRI, is a topic for debate,[18] it is clear that since 2019 the Chinese government has implemented significant policy changes regarding BRI. In addition, there have been indications that Chinese banks are increasingly concerned as to the potential for the trade war to negatively impact the credit quality of Chinese companies that sponsor a given BRI project or perform a key role in the relevant supply chain. One Beijing-based banker was quoted as of July 2019 stating: “We’re considering rejecting funding for some Belt and Road projects after analysing the potential impact the trade war might have on the sponsor”.[19]

The policy change by the Chinese government from approximately 2019 onwards has meant consolidation of investments abroad rather than continued rapid expansion. As stated by Wang Huiyao, an advisor to China’s state council and president of the Center for China and Globalisation: “China is consolidating, absorbing and digesting the investments made in the past”.[20]

This consolidation with respect to the BRI is most immediately evident in the significant reduction of funding by China’s two major policy banks (the China Development Bank and the Export Import Bank of China). Those two banks lent an estimated $75 billion in 2016. In 2019, that number stood at only $4 billion.[21]

Similarly, according to Chinese government data, China’s overseas investment growth declined from 49.3% year-on-year growth in 2016, down to 23% in 2017, 13.6% in 2018, and a mere 0.1% in the first half of 2019. Moody’s, the international credit rating agency, has predicted that this downward trend will continue.[22]

It is harder to trace the immediate impact of this reduction in funding on BRI projects in Africa – indeed, there is some suggestion that China’s policy has been to increase its efforts in Africa and elsewhere in order to reduce its dependency on the US.[23] However the undoubted result is that in the case of at least some projects, if no alternative financing can be identified, projects will be abandoned or curtailed, and the lack of financing will expose underlying problems with a project such as cost overruns and delays by sub-contractors. These developments will undoubtedly lead to disputes and, potentially, arbitration.

IV. The COVID-19 Pandemic

In January 2020, in the midst of the US-China trade war and in the same month that the US and Chinese governments reached a short-lived truce as described above, an article published in the international medical journal The Lancet described a study of the first 41 cases of a novel coronavirus which had emerged in Wuhan, China at the very end of 2019.[24] In the course of 2020 (and still in 2021), the virus spread around the world with devastating effect, and governments worldwide took a range of drastic measures to try to contain and manage the spread of the virus.

From a commercial perspective, government measures including lockdowns and restricted movement have had a significant negative impact on businesses worldwide. Businesses have had to grapple with unpredictable supply chains, staff shortages, significantly altered customer demand (depending on sector) and innumerable knock-on effects of the pandemic.

As of April 2021, governments are still grappling with finding the right combination of lockdown measures, access to healthcare, vaccine roll-out and economic stimulus. There may be an end in sight, but much depends on globally-coordinated vaccine deployment, economic recoveries and future reactions of the scientific community and governments worldwide to new strains as they develop. In the meantime, the economic effect on Africa has been significant, with the continent’s GDP dropping 2.1% in 2020, leading to Africa’s first recession in 50 years.[25] The pandemic is reported to have had different effects on different African economies – with tourism-dependent economies the worst hit, followed by non-oil resource intensive economies, followed by oil-exporting countries.[26] Non-resource-intensive and non-tourism focused economies faired the best, with only a 0.9% GDP decline in 2020.[27]

The impact of COVID on BRI projects is similar to the impact of COVID on supply chains and construction projects worldwide. Constantly changing government lockdown measures differing from country to country, staff shortages at ports and border crossings, and related delays all accumulate to create significant delays in global supply chains and ultimately at a relevant construction site. Supply chain delays have been exacerbated even further by the current global shortage of shipping containers.[28]

Indeed, in June 2020, an official from China’s Ministry of Foreign Affairs admitted that about 20% of Belt and Road projects had been “seriously affected” by COVID, citing restrictions on travel, government lockdowns and similar.[29]

The Beginnings of a BRI Reassessment

There are also signs that, during the pandemic, various African governments have taken steps to re-assess certain BRI projects. In spring 2020, the Egyptian government postponed the construction of what would have been the world’s second-largest coal-fired power plant at Hamrawein.[30] In April 2020, the President of Tanzania announced the cancellation (or at least postponement) of the $10 billion port project at Bagamoyo.[31] In May 2020, Nigerian legislators voted for a review of all of China’s loans for all Chinese projects in Nigeria, in order to assess the terms of those loans.[32] In March 2021, it was announced that Kenya Railways had terminated the contract with the Chinese state-owned operator of the Mombasa to Naivashi Standard Gauge Railway and would be taking over operation of that railway line, with an intent on reducing costs of operation.[33]

All of these developments may have happened anyway, despite the pandemic, but the severe disruption caused by pandemic no doubt exacerbated existing problems in projects and provided African governments an opportunity to reassess their commitments and the terms of deals previously struck with regard to BRI projects.

The future of BRI projects is unclear, as economies worldwide still make their way through the pandemic. China’s economy recovered earlier than others, from approximately the second quarter of 2020 onwards.[34] BRI projects remain afoot, and many will continue forward to completion. However, the lasting impact of COVID-19 may have negative impacts on debt repayment to Chinese lenders and may lead to debt restructuring in projects which are already under financial strain.

V. Potential Dispute and Arbitration Trends

The combination of reduced financing from Chinese lenders, together with the delay and disruption caused by COVID-19, are likely to create problems or exacerbate any existing problems with BRI projects. This may at least lead to friction between relevant contractual counterparties, and may in some cases lead to formal dispute proceedings including arbitration.

Force Majeure, Material Adverse Change, Frustration, Hardship, Termination

The clearest example of dispute, and one which has already arisen in innumerable contractual relationships worldwide (including non-BRI contracts) as a result of the pandemic, are disputes as to whether or not the pandemic and associated government measures constitute an event of force majeure, or any similar claim such as material adverse change, hardship or frustration of contract. Parties might also seek to simply terminate the relevant contract(s). The question of whether any such claims are viable will be highly specific to the facts of the case and the terms of the relevant contract or other legal instrument.

In the case of claims of force majeure, for example, the focus in any given case is likely to be whether the pandemic or specific government measures cited have actually prevented the complaining party from performing its contractual obligations, or whether the pandemic or specific government measures presented only limited disruption which did not wholly prevent the complaining party from performing its contractual obligations. Depending upon the applicable law, the complaining party may also be under scrutiny as to the extent to which they have mitigated their actions and sought alternative ways of performing their obligations.

Price Adjustment and Renegotiation

As with any significant market disruption, parties to long term contracts might seek to trigger price adjustment clauses due to a change in circumstances (such as the disruption caused by COVID, or COVID-related legislation, or a drop in funding from Chinese lenders). This may be particularly the case in long-term contracts containing price adjustment or renegotiation clauses, such as oil and gas pipeline utilisation contracts and large-scale utility supply agreements. Whether or not price adjustment clauses have in fact been triggered may be another source of disputes between Chinese and African contractual counterparties.

Overspend and Delay Exposed By Reduced Financing

To the extent Chinese lenders are indeed rejecting and reducing financing for BRI projects, any cut in financing or lack of availability of top-up financing will expose overspend and delays in ongoing projects. This may well lead to disputes between contractors on any given project as to who is to foot the bill. To the extent any locally owned entities hold a participating interest in a project, even a minority participating interest, this may also mean direct disputes with Chinese State-owned contractual counterparties holding a majority interest.

Debt Default and Restructuring

The Africa Development Bank has predicted that, as a result of the pandemic’s economic shock (with its associated increased government spending and contraction of fiscal revenues), the average debt-to-GDP ratio for Africa is expected to climb by 10 to 15 percentage points in the short to medium term.[35] This could lead to defaults and associated protracted debt resolutions. That said, it has also been reported by independent researchers that Chinese lenders have granted an estimated $10.7 billion in global debt relief in 2020 and 2021 i.e. in the era of COVID 19. This has included debt relief pursuant to the Debt Service Suspension Initiative, a G20 effort, cancellation of loans under the Forum on China Africa Cooperation, and further ad hoc debt relief.[36]

Whether, in the context of any future debt default, Chinese lenders actually enforce against security held remains to be seen. However, it is a real concern – such that just weeks ago the Chinese embassy in South Sudan was prompted to issue a denial of intent to take control of the Juba International Airport following debt repayment difficulties for that project.[37]

Struggles with meeting debt obligations might also mean that further phases of projects do not go forward, placing partially completed projects under added strain. For example, Exim Bank of China had originally loaned SH162 billion (US $1.482 billion) to complete the Nairobi-Naivisha standard gauge railway (SGR) line. That loan was originally dispersed in December 2015, the railway line opened in October 2019, and repayments would commence from January 2021. However, due to reduced travel as a result of the pandemic, the revenues generated from passenger and cargo services on this railway line have not been enough to meet operation costs.[38] Whether linked to this or not, it was reported in December 2020 that funding from Chinese lenders will not be forthcoming for the second intended phase of that SGR line, extending from Naivisha to the border with Uganda.[39]

Further Sources of Dispute

There are other potential sources of dispute, further to those described above. These include any disputes arising from the period of low commodity prices in 2020 in particular (although many commodities have since recovered). Other sources of dispute may also include arbitrations commenced under investment treaties, to the extent host governments cancel projects, seek to renegotiate terms of contracts or else implement legislation to curtail or redirect any planned projects (whether under the guise of the changed circumstances caused by the pandemic or otherwise). A lot will be determined by the latter stages of the pandemic and government responses in 2021, together with how recovery from the pandemic is handled in 2021 and beyond.

VI. Conclusion

The US-China trade war and COVID 19 pandemic have caused strain and disruption to supply chains and projects worldwide, and a corresponding disruption to existing contractual relationships. Belt and Road projects are not immune from these disruptions, and while many efforts might be made to get projects back on track or to otherwise resolve disputes, it is likely to be the case that certain disputes remain incapable of resolution. In those limited cases, international arbitration is likely to provide a useful, neutral forum for the fair, thorough and enforceable resolution of disputes. Experienced arbitrators will be knowledgeable at navigating the complexities of delays in major construction projects together with any geopolitical elements to a case. Expert witnesses can provide valuable input as to impacts of COVID or other external events in a given sector. A strong legal team versed in the relevant applicable law(s) and in international arbitration procedure and strategy will be able to put forward a strong case and see it through to completion. Finally, once an award is reached, the New York Convention (i.e. the Convention on the Recognition and Enforcement of Foreign Arbitral Awards) provides a robust system for the international enforcement of arbitral awards worldwide. For observers and participants alike, there may be a significant suite of arbitrations arising out of Belt and Road projects in Africa post-pandemic, and international arbitration may be one of the critical frontiers where delays and problems caused by reduced financing and the COVID-19 pandemic are resolved.

_____________________

*Partner, Winston & Strawn London LLP. The views expressed herein are those of the author and not any organisation with which they are affiliated. The author would like to thank international trade specialists Cari Stinebower, Mariana Pendás and Ade Johnson of Winston & Strawn LLP, and Leonnie Gilpin of Winston & Strawn London LLP, for their thoughtful comments, research and input for this paper. This paper has been produced following the Africa Arbitration Association’s Second Annual Conference in April 2021, and the presentation of the titled topic by the author on a panel discussion of Belt and Road projects in Africa.

[2] China Africa Research Initiative, Acker K and Brautigam D, “Twenty Years of Data on China’s Africa Lending”, Briefing Paper No. 4, 2021. <Hyperlink, accessed 25 April 2021>

[3] (1) Ray, Rebecca, Kevin P. Gallagher, William Kring, Joshua Pitts, and B. Alexander Simmons. “Geolocated Dataset of Chinese Overseas Development Finance.” Manuscript submitted for publication. (2) Ray, Rebecca, Kevin P. Gallagher, William Kring, Joshua Pitts, and B. Alexander Simmons. “Geolocated Dataset of Chinese Overseas Development Finance.” Boston, MA: Boston University Global Development Policy Center. Online database. doi: 10.17605/OSF.IO/7WUXV. <Hyperlink, accessed on 2 April 2021>:

[4] United States Census web-page, setting out “Trade in Goods with China” from 1985 to 2021. <Hyperlink, accessed 31 March 2021>

[5] Office of the United States Trade Representative, Executive Office of the President, “Findings of the Investigation into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation Under Section 301 Of The Trade Act of 1974”, 22 March 2018, <Hyperlink, accessed 31 March 2021>

[6] Office of the United States Trade Representative, “President Trump Approves Relief for US Washing Machine and Solar Cell Manufacturers”, 22 January 2018. <Hyperlink, accessed 31 March 2021>

[7] Nomura study summary, June 2019. <Hyperlink, accessed 31 March 2021>

[8] Office of the United States Trade Representative, “Economic and Trade Agreement Between the Government of the United States and the Government of the People’s Republic of China”, 15 January 2020. <Hyperlink, accessed 31 March 2021>

[9] U.S. State Department Press Release, “Secretary Antony J. Blinken, National Security Advisor Jake Sullivan, Director Yang And State Councilor Wang At the Top of Their Meeting”, 18 March 2021, available at: <Hyperlink, accessed 31 March 2021>

[10] U.S. Department of Treasury’s Office of Foreign Assets Control’s press release, “Treasury Sanctions Chinese Government Officials in Connection with Serious Human Rights Abuse in Xinjiang”. <Hyperlink, accessed 31 March 2021>

[11] Financial Times, “China places sanctions on US and Canadian citizens”, 28 March 2021, <Hyperlink, accessed 31 March 2021>

[12] Exec. Order 13959 of Nov. 12, 2020, “Addressing the Threat From Securities Investments That Finance Communist Chinese Military Companies”. <Hyperlink, accessed 31 March 2021> The U.S. government stated that it based these decisions on its concerns (1) about China’s military civil fusion policies, (2) about human-rights abuses in the Xinjiang region, (3) with these companies’ relationships with the Chinese military–industrial complex, (4) about those companies’ perceived efforts to acquire U.S.-origin items for the Chinese military, and (5) about Chinese activities in the South China Sea.

[13] IMF Regional Economic Outlook, October 2018, page 9 and Figure 1.17.

[14] CSIS Briefs, “Innocent Bystanders: Why the US-China Trade War Hurts African Economies”, April 2019.

[15] Financial Times, “Commodity Boom: Supercycle Me”, 16 February 2021, available at: <Hyperlink, accessed 31 March 2021>

[16] Cobalt being a key material used in the manufacture of (among other things) semiconductors, smartphone batteries and rechargeable batteries in electric vehicles.

[17] Global Times (China), “China-Africa agriculture, infrastructure cooperation to be strengthened: experts”, 5 January 2021, citing China’s Ministry of Commerce. <Hyperlink, accessed 31 March 2021>

[18] For example, Yu Jie, a senior research fellow on China at Chatham House, a UK think-tank, has commented that: “Volatile Sino-US relations and more restrictive access to overseas markets for Chinese companies have prompted a fundamental rethink of growth drivers by Beijing’s top economic planners”. Cited in Financial Times, “China pulls back from the world: rethinking Xi’s ‘project of the century’”, 11 December 2020. <Hyperlink, accessed 31 March 2021>

[19] Reuters, “Trade war hits BRI financings”, 8 July 2019. <Hyperlink, accessed 25 March 2021>.

[20] Cited in Financial Times, “China pulls back from the world: rethinking Xi’s ‘project of the century’”, 11 December 2020 <Hyperlink, accessed 25 March 2021>

[21] Financial Times, “China curtails overseas lending in face of geopolitical backlash”, dated 8 December 2020 <Hyperlink, accessed 31 March 2021>, citing the database compiled by researchers at Boston University’s Global Development Policy Center, database titled: “China’s Overseas Development Finance: Geospatial Data for Analysis of Biodiversity and Indigenous Lands”, <Hyperlink, accessed 31 March 2021). Some analysts have observed that the drop in financing may not be that severe, because the above study does not take into account commercial lending by other Chinese banks (i.e. other than the official policy banks). See Rhodium Group, “China’s Belt and Road: Down but not out”, 4 January 2021 <Hyperlink, accessed 31 March 2021>. However at least some drop in financing and investment in Africa has occurred. According to a Chinese-government produced Statistical Bulletin of China’s Outward Foreign Direct Investment, foreign direct investment by Chinese investors in Africa did decrease significantly in 2019, from $5.4 billion in 2018 to $2.7 billion in 2019. See data compiled by John Hopkins China Africa Research Initiative, itself sourced from the Statistical Bulletin of China’s Outward Foreign Direct Investment: <Hyperlink, accessed 2 April 2021>

[22] Forbes, “Is China’s Belt and Road Already in Retreat”, 30 January 2020, <Hyperlink, accessed 25 March 2021>.

[23] Devermont J and Chiang C, Center for Strategic & International Studies, “Innocent Bystanders, Why the US Trade War Hurts African Economies”, April 2019.

[24] Wang C, Horby P, Hayden F and Gao G, “A novel coronavirus outbreak of global health concern”, 24 January 2020. <Hyperlink, accessed 31 March 2021>

[25] Africa Development Bank, Economic Outlook 2021, page 4. This was at least at the ‘better case scenario’ of the predictions published by the World Bank and Africa development Bank in April 2020, predicting GDP contraction between 2.1% and 5.1% in 2020. Africa Development Bank, “East Africa Economic Outlook 2020: Coping with the COVID-19 Pandemic”, citing World Bank’s Africa’s Pulse (April 2020).

[26] Tourism-dependent economies suffered an 11.5% decline in GDP in 2020; oil-exporting countries experienced a 1.5% decline in GDP in 2020, other resource-intensive economies suffered from a 4.7% decline in GDP in 2020. Africa Development Bank, Economic Outlook 2021, page 20.

[27] Africa Development Bank, Economic Outlook 2021, page 20.

[28] Bloomberg, “Shortage of New Shipping Containers Adds to Global Trade Turmoil”, 16 March 2021, <Hyperlink, accessed 2 April 2021>. See also: Hillebrand, “Where are all the containers? The global shortage explained”. <Hyperlink, accessed 2 April 2021>

[29] Reuters, “China says one-fifth of Belt and Road projects 'seriously affected' by pandemic”, June 2020. <Hyperlink, accessed 25 March 2021>

[30] The Economist, “The pandemic is hurting China’s Belt and Road Initiative”, dated 6June 2020 <Hyperlink, accessed 25 March 2021>. See also Institute for Energy Economics and Financial Analysis, “Plans for second-largest coal-fired plant on planet postponed indefinitely”, 16 April 2020. <Hyperlink, accessed 2 April 2021> However, this particular project postponement may have been due to overcapacity (resulting in part from reduced power demand due to the COVID-19 pandemic), together with the growing trend towards renewables: Business Day, “Fate of Egypt’s coal-fired project a sign of greener times”, dated 16 April 2020, <Hyperlink, accessed 31 March 2021>.

[31] The Economist, “The pandemic is hurting China’s Belt and Road Initiative”, dated 6June 2020. <Hyperlink, accessed 25 March 2021>.

[32] The Guardian, “Why House of Representaitves resolved to probe Chinese loans”, 25 May 2020, <Hyperlink, accessed 31 March 2020> See also The Economist, “The pandemic is hurting China’s Belt and Road Initiative”, dated 6June 2020. <Hyperlink, accessed 25 March 2021>

[33] International Railway Journal, “Kenya Railways to end SGR contract with Afristar”, 12 March 2021. <Hyperlink, accessed on 10 April 2021>

[34] Real GDP contracted by 6.8% in Q1 of 2020, before rebounding to 3.2% in 2020 Q2, and 4.9% and 6.5% in Q3 and Q4 respectively; meaning that real GDP grew by 2.3% in 2020. Source: IMF Data Mapper, available: <Hyperlink, accessed 31 March 2021>

[35] Africa Development Bank, Economic Outlook 2021, page 4.

[36] China Africa Research Initiative, “Global Debt Relief Dashboard”. <Hyperlink, accessed 2 April 2021>

[37] Construction Review Online, “China negates alleged takeover of Juba Internatoinal Airport, South Sudan”, 26 March 2021, <Hyperlink, accessed 2 April 2021>

[38] Business Daily, “Debt pain as payment of Sh162bn Naivasha SGER loan starts”, 5 January 2021 <Hyperlink, accessed 2 April 2021>

[39] South China Morning Post, “Africa railways feel pinch of China’s belt and road funding squeeze”, 19 December 2020. <Hyperlink, accessed 2 April 2021>

The AfCFTA Investment Protocol: An Opportunity to Converge and Propel the Pan African Investment Code (PAIC) Insights from the Negotiations of the PAIC by Stefanie Schacherer*

Tue, 04 May 2021 09:27:40 GMT

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021.

1 Introduction

The Pan-African Investment Code (PAIC) is the first continent-wide African model investment treaty elaborated under the auspices of the African Union.[1] The PAIC has been drafted from the perspective of developing and least-developed countries with a view to promote sustainable development. The instrument contains a number of Africa-specific and innovative features of which some are yet unique in investment treaty practice. Likewise, the PAIC solidifies a trend towards greater harmonization of approaches across the continent and fosters Africa as an investment rule maker globally.

The PAIC contains many innovative features and makes sustainable development its overarching objective. It reformulates traditional investment treaty language by inserting, for instance, exceptions to many of the standards of protection such as MFN and national treatment. It also introduces new provisions such as clauses on obligations for investors in relation to human rights, corporate social responsibility, use of natural re-sources, and land-grabbing. In addition, the PAIC omits certain investment standards which have been interpreted by investment tribunals in broad and unpredictable ways, such as fair and equitable (FET). The PAIC spells out horizontal obligations on how state contracts and public-private partnerships should be designed; how African states should adapt their labour policies and resource development; and how investors can help to promote technology transfer, clean technologies and environmental protection. Lastly, the PAIC gives countries the discretion to implement ISDS. Moreover, the PAIC has, since its adoption in March 2016, influenced the drafting of subsequent bilateral and regional investment instruments in Africa as well as national investment laws of certain African countries. To some extent the objective of sustainable development has already found its way into the AfCFTA Investment Protocol since the title of the Protocol has, reportedly, been changed to AfCFTA Protocol on Sustainable Investment. Now to what extent the Protocol will adopt similar approaches and provisions needs to be seen throughout the course of the upcoming negotiations.

2 The Elaboration and Negotiations of the PAIC

At the continental level, it is the African Union (AU)[2] that is mandated by its Member States to enhance the political and socio-economic integration of the continent and to promote sustainable development.[3] The most important integration endeavours currently undertaken by the AU are the establishment of the African Economic Community by the year 2034 as well as the establishment and finalisation of a continent-wide Free Trade Area.[4]

With the aim of enhancing economic integration, African Ministers responsible for continental integration decided in 2008 to initiate the work on a comprehensive investment code for Africa. The declared aim of the initiative was to attract greater flows of investments into Africa and to facilitate intra-African cross-border investments. Thus, the elaboration of the PAIC had started. From the beginning, it was the intention of the AU and its Member States to elaborate a text that would address Africa-specific needs. African independent experts drafted the text over several years. The groups of experts were composed of representatives coming from the different African regional economic communities (RECs), from academia as well as the private sector.

The process of elaboration can roughly be divided into three phases. In its first phase, the group of experts compiled African best practices in the field and elaborated a first draft. The next and decisive phase was during the year 2015, when the PAIC text was discussed at expert level. Two meetings of independent experts, all from Africa, were held in May 2015 in Tunisia and another one in September 2015 in Mauritius. Experts of AU Member States then reviewed the work of the independent experts during a continent-wide meeting in Uganda that took place in December 2015. The third phase started in the year 2016. At a ministerial meeting in Addis Ababa in March 2016, the competent African ministers approved the work of the PAIC. At the last meeting in Nairobi in November 2016, finally, governmental representatives agreed to adopt the PAIC as a non-binding model investment treaty.

3 Building Common Ground for the Regulation of Foreign Investment in Africa

The negotiations of the PAIC have highlighted that there are subject-matters and approaches for which a majority of African countries seem to agree. Three aspects that have been uncontroversial in the course of the negotiations. First, the need to have sustainable development as the overarching objective of the instrument and to integrate sustainable development concerns throughout the substantive and procedural provisions of the PAIC. Second, and by the same token, delegates negotiating the PAIC agreed on having investor obligations in the text, which are directly addressed to the investors. Third, another feature of the PAIC which was less controversial was the limitation of the scope of the instrument to post-establishment commitments.

3.1 The Objective of Sustainable Development

Preambles have a primary significance as to how an IIA will be interpreted in the event of a dispute between the parties or between an investor and a State.[5] Today, new and broader investment treaty objectives have become more and more relevant, one of which is certainly the objective of sustainable development.[6] In the African context, sustainable development goals are crucial given the important economic, social and environmental challenges the continent is still facing.

The Preamble of the PAIC recognizes that the promotion of sustainable development requires investments (para. 7). Yet, these investments should have positive spill-over effects such as to facilitate job creation, promote technology transfer, support long-term economic growth and contribute effectively to the fight against poverty.[7] The Preamble specifically refers to the right of AU Member States to regulate all aspects relating to investments within their territories with a view to promote sustainable development objectives.[8] The drafters of the PAIC did not intend to disregard the protection of investors and investments, but stressed the need to achieve an overall balance of the rights and obligations among AU Member States and the investors under the PAIC (para. 11). The Preamble emphasizes also the need to promote corruption free investment and improved laws and regulations that promote transparency and accountability in governance (para. 9). The PAIC in fact seeks to promote responsible investments.

To be consistent with the sustainable development objectives as inscribed in the Preamble, the PAIC starts off with a first article addressing its primary objective:

“The objective of this Code is to promote, facilitate and protect investments that foster the sustainable development of each Member State, and in particular, the Member State where the investment is located”.[9]

The objective statement is yet another clear link between investments and sustainable development is made.[10]

3.2 Investor Obligations

Balancing the rights and obligations has become a mainstream reform approach of most countries. And the most common way to do so is the reaffirmation of the right to regulate of the host state to regulate matters of public interest. The PAIC is no different in this respect. However, the more innovative and noteworthy aspect in the PAIC is the incorporation of investors’ obligations in the corpus of rules applicable to investors and investments. These obligations directly imposed upon investors. In other words, they are direct obligations. Such investor obligations go beyond mere questions of compliance with national laws and involve how foreign investors should actively contribute to achieve development goals of host states. In contrast, several IIAs contain indirect investor obligations, which are obligations that require the contracting parties – so States and not investors - to adopt measures aimed at regulating the behaviour of foreign investors. In contrast hereto stand direct investor obligations, which are obligations directly addressed to foreign investors. Direct obligations can mostly be found in African investment instruments. Otherwise, they have not yet gained widespread recognition in international investment treaty practice. The PAIC and also many other African instruments include comprehensive provisions relating to many sustainable development issues, such as environmental protection, socio-political obligations, anti-corruption, respect for human and labour rights, technology transfer and education.

As outlined above, the PAIC is intended to be a balanced legal instrument. In this respect, it contains a specific chapter on the direct obligations of investors,[11] counterbalancing the chapter on the guarantees of treatment for investors and investments. The chapter on investors’ obligations contains six provisions entitled: (1) framework for corporate governance, (2) socio-political obligations, (3) bribery, (4) corporate social responsibility (CSR), (5) obligations as to the use of natural resources and (6) business ethics and human rights. Under the PAIC, an investor has to comply with national and international standards of corporate governance for the sector concerned. The investor is required to comply in particular with transparency and accounting standards.[12]

There is likelihood that the Protocol will continue this trend as next to the PAIC, several other African instruments, such as the ECOWIC, SADC Model, EAC Model, Morocco-Nigeria BIT, all contain what has been called direct investor obligations. Lastly, including investor obligations always comes with the caveat of how to enforce them effectively. The PAIC is the express possibility for a State to file a claim against an investor in an investor-State arbitration, a so-called counterclaim. It is noteworthy that the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID Convention) accepts counterclaims under certain conditions.[13] However, in practice, tribunals often enough deny jurisdiction on counterclaims due to the absence of a clear treaty provision expressly allowing for such claims by the State.[14] The inclusion of an express reference to counterclaims thus clarifies any doubt that investors do consent to the tribunal’s jurisdiction over these claims. Yet, there are very few examples of treaties that contain an express reference to counterclaims. the PAIC provision dealing with counterclaims reads as follows:

“Where an investor or its investment is alleged by a Member State party in a dispute settlement proceeding under this Code to have failed to comply with its obligations under this Code or other relevant rules and principles of domestic and international law, the competent body hearing such a dispute shall consider whether this breach, if proven, is materially relevant to the issues before it, and if so, what mitigating or off-setting effects this may have on the merits of a claim or on any damages awarded in the event of such award”.[15]

The inclusion of a provision allowing counterclaims by States will ensure the enforceability of investor obligations contained in the PAIC.[16] This means that a State can invoke any violation of any relevant international treaty protecting the environment, human rights and labour standards under the PAIC’s provision on counterclaims. If the AfCFTA Protocol includes direct investor obligation, a provision should point out how the obligations will be enforced.[17]

3.3 Pre-establishment commitments

The majority of existing IIAs only guarantee standards of treatment of foreign investment regarding the post-establishment phase, but there is a growing number of treaties that include commitments with respect to the pre-establishment phase. This is in particular the case with comprehensive FTAs.[18] Recent practice shows that besides the United States and Canada, the EU also has sought to include pre-entry commitments in its treaties.[19] Pre-establishment obligations are formulated by including references to MFN treatment as well as national treatment.[20]

The drafters of the PAIC have been aware of current treaty practice, but considered that in the context of African countries such provisions may preclude a State from altering domestic law if circumstances so warrant in light of national sustainable development goals. To this effect, the PAIC’s MFN and national treatment provisions do not contain any reference to establishment, acquisition and expansion. In fact, the PAIC not only has a clear objective provision, it also explicitly excludes pre-establishment commitments. As Article 4.4 provides “for avoidance of doubt, establishment, acquisition and expansion under this Code only apply to the post-establishment phase”. It is an important policy choice to decide whether to extend the Protocol’s coverage to pre-establishment matters and, if so, to find the right balance between binding international commitments and domestic policy flexibility to keep strategic sectors of their economy closed to foreign investment.

It will be important to consider this choice in relation to the definition of an investor. If the definition of an investor is limited to African investors, pre-establishment commitments might be a suitable option; why? Because it could foster intra-African cross-border investment and lastly, African economic integration. For instance, the under the COMESA (2017) coverage is limited to African investors. According to Art. 3(2) “this Agreement shall cover investments of COMESA investors made in the territory of Member States in accordance with their laws”. If the Protocol covers third country investors, pre-establishment obligations can significantly restrain the host state’s ability in accepting or refusing foreign investment based on economic development considerations (e.g., the development of infant industries). This is the approach in the PAIC (Art. 4(5) extends the scope to investors of third countries) but the PAIC does not cover pre-establishment phase of an investment.

4 The remaining controversial parts

While the negotiations of the PAIC served as an excellent opportunity for exchange and consensus building, it also revealed that there are several aspects of international investment law, which remain controversial and for which it seems to be unlikely to find common ground in the near future.

4.1 Investor-State dispute settlement

Over the last years, ISDS became extremely controversial and probably constitutes the most controversial issue in today’s investment reform debate. The increase in the number of ISDS cases, the often very high sum of compensation and costs of arbitration as well as unexpected and inconsistent interpretations of IIAs by arbitral tribunals have resulted in rising criticism of the existing system.

There are two general alternative ways discussed on how to reform ISDS: either to keep and reform it as some countries have done,[21] or to abandon and replace it with national courts or with by setting up an ombudsman system as some countries have done.[22] The global debate is perfectly mirrored in Africa, and ISDS did not fail to be the most controversial aspect during the elaboration of the PAIC. In fact, the provisions dealing with ISDS are the only ones in the PAIC on which no agreement between the drafters could be found. It is well known that South Africa, for instance, has a clear policy against ISDS. The country recently reviewed all of its IIAs and terminated most of them. The law that will be applicable to foreign investors in South Africa is the 2015 Promotion and Protection of Investment Bill, which does not contain ISDS.[23] During the PAIC experts’ meetings, South Africa, together with a couple of other countries, argued for the exclusion of ISDS.[24] In fact, all SADC Member States are meanwhile opposed to ISDS as is evidenced by the amendments of August 2016 to the SADC Protocol on Finance and Investment.[25] The amended version no longer contains any reference to ISDS and only provides for State-State dispute resolution.[26]

However, many African countries still see a need for having ISDS in the PAIC in order to render their countries attractive for foreign investors. It is arguably true that foreign investors have poor trust in African judicial systems. Hence the need for ISDS seems, at least for the time being, inevitable. Among the countries in favour of ISDS was a consensus to shape provisions on ISDS in a manner so as to avoid the shortcomings of this mechanism and to address some of the criticism. Consequently, the ISDS provisions of the PAIC include a couple of important reform approaches, such as the exhaustion of local remedies. The traditional approach of IIAs is to provide for direct access to international arbitration for a foreign investor, usually after a ‘cooling-off period’.[27] It was for a long time considered that in many countries an independent judiciary cannot be taken for granted and that the defending State might influence the outcome of investor-State disputes in its own courts.[28] However, some authors argue that today the situation in most countries, including African countries, has changed; consequently the exhaustion of local remedies could and should revive.[29]

According to UNCTAD, the requirement of dispute resolution before the domestic courts of the host country has several advantages, and not least might foster sound and well-working legal and judicial institutions in the host States.[30] SADC as well as IISD also consider this approach to be beneficial for host States, since notably the exhaustion of local remedies can prevent frivolous claims and avoid the considerable costs of international arbitration.[31] Recent treaty practice shows that the requirement of the exhaustion of local remedies remains quite rare with the exception of the Indian Model BIT.[32] The drafters of the PAIC decided to include the requirement for foreign investors to first exhaust local remedies in the Member State where their investment is located before a request for arbitration can be submitted.[33] In this way, investor-State arbitration becomes a remedy of last resort under the PAIC.

In addition, the current version of the PAIC contains an important limitation to the investors’ access to ISDS. The State’s consent for arbitration is given on a case-by-case basis or on the basis of national law. ‘[T]he dispute may be resolved through arbitration, subject to the applicable laws of the host State and/or the mutual agreement of the disputing parties.’[34] This rather peculiar provision implies that if the host State’s law do not allow for ISDS, such as in the case of the South African Investment Bill,[35] ISDS cannot take place. And even if the host State’s law provides for ISDS, the investor would still need the agreement of the host State to initiate ISDS proceedings. Lastly, even in case of silence in the host State’s law, ISDS can only take place upon the mutual agreement of the disputing parties. In sum, the dispute settlement provisions of the PAIC thus seek in particular to avoid certain shortcomings of the existing ISDS system.

4.2 The fate of existing African investment agreements

The issue of the relationship with other investment agreements is addressed in the PAIC. The latter states as follows: “Member States may agree that this Code replaces the intra-African bilateral investment treaties (BITs) or investment chapters in intra-African trade agreements after a period of time determined by the Member States or after the termination period as set in the existing BITs and investment chapters in the trade agreements”[36]. This provision understands African integration in the long run and takes into account that continental integration demands a certain transitional period. The PAIC further clarifies that: “Member States may agree that in the case of a conflict between this Code and any intra-African BIT, investment chapter in any intra-African trade agreement, or regional investment arrangements, this Code shall take precedence”[37]. This provision would be crucial if the PAIC was adopted as a binding instrument as it clarifies the relationship with other investment agreements. In such a setting, the PAIC could ensure continent-wide coherence and legal certainty. However, the provision is written in soft language and highlights that African countries could not agree to have the continent-wide instrument prevailing over regional and bilateral investment agreements.

The Investment Protocol can be an excellent opportunity to terminate old intra-African BITs that reflect content-wise the model of European countries/the OECD.

Especially for Africa, UNCTAD has stressed the challenges relating to existing intra-African BITs: “The fate of these first-generation treaties re-mains uncertain. If the new regional (and continental) IIAs under negotiation do not entail the replacement of older BITs, the result will be an undesirable multiplication of treaty layers. On the other hand, replacing existing BITs with new regional initiatives would contribute to the consolidation and harmonization of the international investment policy framework in Africa.”

The Investment Protocol can replace existing old-fashioned BITs between AU member states. The EU with all its recent IIAs, has replaced old BITs that its member states had with the partner country in question. The EU is doing this through all its recent IIAs (see, EU-Canada CETA, Annex 30-A, EU-Vietnam Investment Protection Agreement, Annex 6)

5 Conclusion

The drafters of the PAIC were inspired by the current international reform discussion. Thus, several of the ideas that can be found in the PAIC text are what can be called common approaches in the international discussion on reforming the investment law regime as a whole. Such ideas mainly concern the reformulation of certain treaty standards, the inclusion of societal concerns as well as the rethinking of the ISDS system. Africa, unlike Brazil, is not making a fundamental contestation of the system of IIAs. The PAIC is rather an African tuning or recalibration of an IIA. It reflects the development that new IIAs are no longer based on either the North American or European models, but that other regions also engage in shaping IIAs according to their level of economic development and social needs.

The elaboration of the PAIC has permitted African countries to deliberate on their vision of the future shape of IIAs and to build awareness amongst them of the broader implications of foreign investment for their sustainable development. The PAIC thus reflects the broad consensus of all AU Member States on precise provisions over foreign investment regulation and endows Africa with a voice in the international debate on the future and reform of the international investment regime. In particular, the strong emphasis on sustainable development goals in the PAIC will serve as benchmark for the drafting and shaping of the future Investment Protocol to the AfCTA. The AfCTA represents an opportunity to foster trade integration in Africa but it also represents a crucial momentum for development-oriented regulation of investment and corporate activity in Africa. Investor-State relations should be based on a ‘win-win’ scenario and the PAIC has shown that investment law can provide for such an approach by better integrating investment facilitation and protection with the sustainable development objectives of African States.

____________________

* Postdoctoral Research Fellow, National University of Singapore

[1] Together with Professor Makane Moïse Mbengue, the author has been involved in the elaboration process from 2014-2015. Professor Mbengue has been the lead expert and negotiator. The views of the author do not necessarily reflect the views of the African Union or of other negotiators involved in the negotiation and drafting of the PAIC. Some of the information contained in this article is based on the experience of the author. The PAIC text (dated March 2016) is available at <http://repository.uneca.org/handle/10855/23009>.

[2] The African Union (AU) is a continental organization consisting of 55 African States. The AU was created in 2000 and established in 2001. Its headquarters are located in Addis Ababa, Ethiopia.

[3] Constitutive Act of the African Union (signed on 11 July 2000 and entered in 26 May 2001), Art.3 <www.achpr.org/instruments/au-constitutive-act/>.

[4] The Agreement establishing the AfCFTA, see <https://au.int/en/treaties/agreement-establishing-african-continental-free-trade-area>.

[5] Rudolf Dolzer and Margete Stevens, Bilateral Investment Treaties (Martinus Nijhoff, 1995), p. 20.

[6] UNCTAD, ‘Investment Policy Framework for Sustainable Development’ (2015) <http://unctad.org/fr/PublicationsLibrary/diaepcb2012d5_en.pdf> (hereafter: IPFSD). The term sustainable development is understood here as development, which relates to economic development, social development and the protection of the environment. See further also the contributions in Stephan W Schill et al (eds), International Investment Law and Development: Bridging the Gap (Edward Elgar 2015).

[7] PAIC, preamble, para 8.

[8] Ibid., para 10.

[9] PAIC, Art 1.

[10] See in the same sense, Art 2.2 of the SADC Protocol on Finance and Investment (signed on 18 August 2006), <http://investmentpolicyhub.unctad.org/Download/TreatyFile/2730>; In August 2016, SADC Member States have adopted an amended version of the Protocol on Finance and Investment.

[11] PAIC, chapter 4.

[12] Ibid.,, Art.19.1.

[13] ICSID Convention, Art. 46; see also Rule 40 ICSID Arbitration Rules. Yet Article 46 of the ICSID Convention does not, by itself, vest a tribunal with competence over counterclaims, the requirements of Article 25 of the ICSID Convention as well as of the applicable investment treaty must also be satisfied. See Urbaser v Argentina, ICSID Case No ARB/07/26, Award (8 December 2016), para 1117.

[14] See Spyridon Roussalis v Romania, ICSID Case No ARB/06/1, Award (7 December 2011), paras 859-877 and Saluka Investments BV v The Czech Republic, UNCITRAL, Decision on Jurisdiction over the Czech Republic’s Counterclaim (7 May 2004).

[15] PAIC, Art. 43.1.

[16] There are other ways of enforcement of investors’ obligations, such as by creating a monetary liability in domestic courts of the host State for a breach of the treaty obligations by an investor, SADC Model BIT, Commentary 39.

[17] Next to counterclaims, other options are Such as civil action for liability in national courts of the investors’ home state (Morocco-Nigeria BIT, Art. 20; SADC Model BIT (2012), Art. 17; EAC Model, Art. 11); or conditioning IIA protection and access to ISDS to the respect of the investor obligations (See a European example, Investments made through corruption are excluded from the dispute settlement mechanism under EU IIAs, see e.g., CETA, Art. 8.18(3)).

[18] Starting with North American Free Trade Agreement (NAFTA) (signed 17 December 1992, entered into force 1 January 1994) arts 1102 and 1103 <http://investmentpolicyhub.unctad.org/Download/TreatyFile/2413>; see also TPP, Art.9.4.

[19] CETA arts 8.6 and 8.7; EU-Vietnam Free Trade Agreement (2018) <http://trade.ec.europa.eu/doclib/press/index.cfm?id=1437>, arts 8.3 et ff. This is interesting to note since traditional BITs of EU Member States do not cover commitments relating to the pre-establishment phase.

[20] See NAFTA, Art.1103; US Model BIT, Art.4; CPTPP, Art.9.4.

[21] Such as the establishment of a permanent investment court system in EU treaties see CETA, arts. 8.18 ff; see also EU-Vietnam Investment Protection Agreement <http://trade.ec.europa.eu/doclib/docs/2018/september/tradoc_157394.pdf> 3.1 ff. The Indian Model BIT, Art.14 prohibits investors to threaten the State to use ISDS in order to obtain benefices, limits the scope of claim, and foresees the exhaustion of local remedies.

[22] Such as South Africa and Brazil. See for the ombudsman system, Brazil-Malawi CIFA, arts 4 and 13.

[23] Promotion and Protection of Investment Bill of South Africa.

[24] SADC recommends the exclusion of ISDS, see 2012 SADC Model BIT, Art. 29.

[25] Agreement Amending Annex 1 (Co-operation on Investment) of the Protocol on Finance and Investment (signed 17 May 2017, not yet entered into force) (Agreement Amending Annex 1) <http://www.sadc.int/files/7114/9500/6315/Agreement_Amending_Annex_1_-_Cooperation_on_investment_-_on_the_Protocol_on_Finance__Investment_-_English_-_2016.pdf>. The instrument will be further discussed under Section 6.1.

[26] ibid.

[27] A number of IIAs require pursuing local remedies for a period of time, see eg Agreement between the Belgium-Luxembourg Economic Union and the Republic of Botswana on the Reciprocal Promotion and Protection of Investments (signed 7 June 2006, not yet in force), Art.12.2 <http://investmentpolicyhub.unctad.org/Download/TreatyFile/331>; Agreement between the Republic of Korea and the Government of the Republic of Argentina on the Promotion and Protection of Investments (signed 17 May 1994, entered into force 24 September 1996), Art.8.3(a) <http://investmentpolicyhub.unctad.org/Download/TreatyFile/102>.

[28] Dolzer and Schreuer, 235.

[29] See Sornarajah, 190.

[30] UNCTAD, IPFSD.

[31] IISD Model, Art.45; 2012 SADC Model BIT, Art.29.4(b).

[32] Indian Model BIT, Art. 14.3.

[33] PAIC, Art. 42.1(c)

[34] Ibid.

[35] Promotion and Protection of Investment Bill of South Africa, Art.13.

[36] Art. 3.2 PAIC.

[37] Art. 3.4 PAIC.

Disputes Related To The Belt And Road Initiative: Are They Truly Different From Those Arising Out Of Past Global Investment Initiatives? By Baptiste RIGAUDEAU*

Tue, 04 May 2021 09:15:47 GMT

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021.

Executive Summary

The Belt and Road Initiative (BRI) is arguably a one-of-a-kind investment initiative, with many features separating it from past international trade or investment efforts. However, a comparative analysis of disputes arising out of the BRI or relating to BRI projects with disputes arising in connection with these past initiatives reveals significant similarities, in particular in relation to the type of dispute resolution mechanisms used to resolve them. Yet, these significant similarities do not overcome the specificities of BRI disputes, which are highly political and often resolved out of court through negotiations. Knowing and taking into account such specificities allows disputing parties to make the most of dispute resolution mechanisms to achieve greater bargaining powers during these negotiations. The below article presents a short description of similarities and crucial differences pertaining to BRI disputes, while drawing conclusions with respect to the attitude parties must adopt to resolve these disputes efficiently and with success.

Introduction

The Belt and Road Initiative (BRI), since its formal launch in 2013 has attracted a large amount of media and political attention from relevant public and private stakeholders. That attention has been prompted by the perceived difficulty for non-Chinese parties to systematize the BRI, to understand its scope and workings, and to define the requirements to secure their involvement in this “one of a kind” investment initiative.

That the People’s Republic of China (PRC) has portrayed the BRI as a century defining, extraordinary initiative is no surprise (although some have depicted it as just a simple attempt to revive millenary old trade routes).[1] But, the PRC’s portrayal admittedly also accords with an objective, even cursory, review of the BRI.

First, from an economics standpoint, the BRI is an extraordinary investment initiative, which cannot be considered equally to other trade and investment initiatives. The amount of capital invested by the PRC led financial institutions, such as the Asian Infrastructure Investment Bank (AIIB) and the Export-Import Bank of China (China EXIM Bank), is unmatched by other past investment initiatives, including those initiated for reconstruction purposes.[2]

Second, the BRI’s geographical scope is also unmatched by other past investment initiatives. The BRI currently involved projects on four of the six continents (Africa, Asia, America and Europe).[3]

Last, from a political standpoint, the BRI arguably distances itself from comparable past investment initiative by the debate it has stirred between political forces supporting and opposing it. This debate has given rise to various levels of misinformation, in the context of growing trade and political tensions, mainly involving the US and the PRC.

But, what about disputes relating to BRI projects? Do these disputes differ in type, scope, nature or any other relevant aspect from disputes relating to other past investment initiatives?

Given the type and size of the projects involved in the BRI, disputes have arisen and will continue to arise, with their resolution a key element determining the outcome of the initiative as a whole, i.e. either they are resolved efficiently and they do not signal the end of the relevant project when they arise; or they are not resolved efficiently and they result in the stalling/abandonment of the project, on top of creating unwanted bad publicity for the initiative as a whole (with damaging effects to the reputation of both the investing and the host States).

Analyzing the specific features of the BRI disputes gives an appearance of déjà-vu to many arbitration lawyers (Section 1). However, differences exist and identifying these peculiarities conditions the efficient resolution of BRI disputes, whether inside or outside of the courtroom (Sections 2 and 3).

1 BRI disputes Appear no different from other disputes relating to past trade/investment initiatives

According to recent International Chamber of Commerce (ICC) statistics and upon review of their inherent characteristics, BRI disputes appear no different from disputes that have traditionally arisen in relation to past trade initiatives. The sectors, nationality of the Parties or types of disputes relevant to BRI projects are those which have been traditionally handled through ICC Arbitration (Section 1.1). Likewise, disputes involving loan defaults at a State level have been common throughout history, and the BRI is not immune to such controversies (Section 1.2).

1.1 Commercial disputes relating to the BRI appear no different from traditional commercial disputes

According to ICC statistics, sectors which have been frequent users of ICC commercial arbitration are unsurprisingly also those most involved in BRI commercial disputes. ICC statistics show that the “Energy” and “Construction” sectors amounted to around 27 % of the ICC Court of Arbitration total caseload in 2018 (most recent year such statistics were compiled), and around 35 % of the ICC ADR Centre caseload.[4]

Likewise, parties often involved in ICC arbitration disputes are located in prominent BRI countries. Out of a total of 2282 parties involved in ICC arbitration cases in 2018, 1044 parties were incorporated in one of the 93 “Belt and Road” countries. Hence, approximately 46% of all parties involved in ICC Arbitration cases that year were from BRI countries.

In 2018, the top five most active BRI countries in ICC arbitration cases were Italy (with 87 cases involving Italian parties) followed by the United Arab Emirates (69 cases), Turkey (62 cases), the PRC (59 cases) and South Korea (54).

Likewise, large and complex construction projects are frequent users of ADR mechanisms (often using as dispute resolution mechanisms a combination of dispute boards, mediation and arbitration). These types of projects are the most frequent in relation to the BRI, and the underlying contracts at issue often include a combination of these sophisticated mechanisms. As a result, the disputes relating to these projects also are handled through frequently used dispute resolution mechanisms. Hence, the resolution of such disputes benefits from past dispute resolution practices developed and refined over many years.

1.2 BRI disputes over State to State loans and sovereign debt are no different from those arising from past trade/investment initiatives

BRI projects, as is well known, are driven by State initiative and financing. Most of the projects that have been labelled as BRI are financed through loans extended by the PRC Government through the AIIB or the China EXIM Bank. While the terms and scope of these loans is difficult to ascertain, they are negotiated at State level, following the signature of Memorandum of Understandings (MoU) between the PRC and the Host State.[5]

Incidents relating to the repayment of these loans have already led to tensions between the PRC and borrowing States. But it is unknown whether these disputes have resulted in court or arbitration disputes. None are currently in the public domain, which suggests they are rather resolved through direct State to State negotiations. In this respect, these disputes are no different from those which have arisen in the past in relation to State to State loans or to loans extended by multilateral lending institutions such as the International Monetary Fund (IMF) or the Asian Development Bank (ADB).

Within the context of the BRI, the PRC appears to be playing the diplomatic negotiation game as well as and along the same lines as other occidental States or multilateral lending institutions that have been involved in such kinds of disputes in the past. In other words, it appears to be willing to negotiate restructuring or delays in repayment of loans against various types of considerations, just like other traditional international lenders have done in the past in relation to their own loans.[6]

While using interstate negotiations are nothing new in these circumstances, the solutions yielded by these BRI specific negotiations have differed from those adopted in the past. The most striking example of this difference has also been one of the most criticized BRI-related events so far. It involves the port of Hambantota, which was famously leased to a Chinese State-Owned Entity (SOE) for 99 years, after Sri Lanka defaulted on loans which had been extended by the PRC to finance the project.[7] Likewise, the fact that the PRC has recently simply chosen to discontinue previously granted loans reveals a new strategy to deal with payment incidents at State level.

2 BRI Disputes are different because of the State element

The main aspect that differentiates BRI disputes from those that have arisen in the past seems to be the omnipresence of a State element, notably even in relation to commercial disputes (Section 2.1). That particularity must be taken into account by parties involved in these commercial disputes, and it reinforces the need to include solid dispute resolution mechanisms in their contracts.

2.1 BRI projects involve a large element of State intervention

The BRI is a highly politicized and much discussed investment initiative, partly because its main driver is the PRC. The PRC has every incentive to ensure that the BRI proceeds in a timely manner and presents an attractive investment opportunity for both host and investing countries. At the other end of the spectrum, critics of the initiative, such as the US, challenge the feasibility of the BRI or question the legitimacy of its apparent and underlying motives.

As a result of that global attention, the States themselves, particularly the PRC so far, have been involved at all levels of the BRI projects, either directly or indirectly. Directly, diplomatic negotiations have taken place between the PRC, as the main lender, and State borrowers, on the terms of the loans, the performance of each party’s obligations, and the consideration given in return for these loans. Indirectly, Chinese SOEs are heavily involved in the actual implementation of the BRI projects, their involvement being often a condition precedent for the relevant BRI project to be implemented. Many BRI projects have been funded by the PRC on the condition that they be implemented by Chinese SOEs (whether it be as main contractor or subcontractor), with a predominantly Chinese workforce, and using Chinese material. As a result, the Chinese State has eyes and ears on the ground and is able to monitor every detail of the implementation of a project and get involved to resolve an issue.

The consequence of State involvement in BRI projects is that whenever issues threatening the timely or actual completion of a project arise, Chinese SOEs (and the PRC by ricochet) will be made aware rapidly. Hence, PRC authorities will seek to find a solution quickly. In practice, this highlights the importance of out of court negotiations.

2.2 BRI disputes often are resolved in parallel to the courtroom

Examples of BRI disputes being arbitrated and litigated have recently surfaced more frequently, thereby putting the emphasis on the need for parties to BRI contracts to adopt robust dispute resolution mechanisms. These examples have also shown the tendency by parties to these contracts (whether they be public, quasi-public or private) to seek the resolution of their dispute through negotiations parallel to any arbitration or court case. That preference for settling disputes amicably (through negotiation or mediation) will come as no surprise to professionals experienced in dealing with Asian parties and disputes. However, this preference needs to be understood and considered by all parties involved in BRI contracts and disputes.

Non-Chinese parties also need to consider that, although their bargaining power might appear lower, they can gain leverage in negotiations by demonstrating their ability to enforce their contractual rights efficiently through a robust, independent and binding dispute resolution mechanism. Such mechanism can be a combination of dispute boards, mediation and arbitration, administered by a reputable dispute resolution institution. The end objective is to demonstrate to the counterparties involved that, if need be, the parties will have to go through a neutral process, where unequal bargaining powers or appearances thereof will not matter, and which will yield a result (whether it be a dispute board’s decision or arbitral award) enforceable efficiently and quickly against assets located all over the globe. The sole demonstration of one party’s ability to assert rights efficiently will often be enough to enhance its negotiating stance significantly, thereby levelling the negotiating playing field.

In this regard, it is worth noting that several arbitral institutions, including on the African continent, fit the bill and provide adequate options to parties during contract negotiations. In other words, while Chinese counterparts may be willing to push a non-negotiable contractual package (which would include their preferred dispute resolution clause), non-Chinese parties have many options to propose during negotiations to achieve the simple objective of being able to enforce their contractual rights before a neutral, efficient and experienced forum.

3 BRI disputes’ additional differences

3.1 Lack of Dedicated ISDS mechanism

The second notable difference between BRI related disputes and disputes arising out of past trade/investment initiatives is the current lack of a dedicated investor state dispute settlement (ISDS) mechanism covering BRI investments. There currently exists an ISDS mechanism, based on a network of International Investment Agreements (IIAs), and arbitration institutions specialized in administering these disputes, the most prominent being the International Centre for Settlement of Investment Disputes (ICSID). ICSID, which forms part of the World Bank Group, was created following the signature of the 1965 Washington Convention (ICSID Convention).[8] That generalist ISDS mechanism does not cover specific types of investment disputes and instead can be used by all types of investors, if they and their “investments” meet the requirements enounced in the relevant IIA and the ICSID Convention.

So far, no ISDS system specific to the BRI, let alone to BRI investments in Africa, has been created. In other words, BRI investors have had to resort to the general system to settle their dispute with host states. As an example, a Chinese investor, Beijing Everyway Traffic and Lighting Tech Co Ltd. recently launched an ad hoc arbitration against Ghana on the basis of the China-Ghana BIT. That arbitration, although not strictly related to a BRI project, includes features that will likely resemble those of future BRI investment arbitration disputes. Yet, in the absence of a BRI specific ISDS forum, these disputes and the related parties, run the risk of falling within the general system, when their interest may be to provide for another type of ISDS system, or to adapt protections afforded to foreign investors to their involvement with a BRI project. In this regard, the initiative to create the China-Africa Joint Arbitration Centre (CAJAC) does not appear to cover all potential types of BRI disputes, in particular those arising between foreign investors and host states.

3.2 Impact of Environmental and social issues

The third major difference is the role of environmental and social issues in the disputes relating to the BRI. These considerations have hardly been discussed in relation to other past trade/investment initiatives, while they now often are at the centre of disputes, including those relating to the BRI.

Indeed, the first sign of the importance of such issue is the Chinese President’s 2016 declaration to the Uzbek parliament that the BRI would be “green, healthy, intelligent and peaceful”.[9] Guidelines have even been issued to ensure the green implementation of BRI projects.[10]

Environmental issues raised in relation to BRI disputes result in the relevance of environmental laws and regulations, either domestic or international, being enhanced. It will also result in the larger involvement of environmental NGOs and actors, either local or international, into the dispute resolution process, through the possibility to file lawsuits in local courts against BRI actors, or to act as amici curiae before local or international tribunals ruling on BRI disputes.

Social issues, notably those relating to the social legitimacy of BRI projects, will prompt similar actions by NGOs or social groups, or local communities. These aspects will have to be carefully considered by litigants in order to fully understand their impact on questions of liability of States or on issues of causation between a State measure, and the alleged damage suffered by a private investor.[11]

________________________

* Associate, LALIVE

[1] See the BRI official website at https://www.beltroad-initiative.com/belt-and-road/

[2] Compare the estimated USD 13 billion of investment pertaining to the Marshall Plan to the estimated USD 8 trillions of the BRI.

[3] See interactive map from Boston University at https://www.bu.edu/gdp/chinas-overseas-development-finance/

[4] See ICC ADR Centre Rules at https://iccwbo.org/dispute-resolution-services/mediation/icc-international-centre-for-adr/

[5] See for example the Memorandum of Understanding signed between the PRC and the Democratic Republic of Congo (DRC) on 6 January 2021 at https://news.cgtn.com/news/2021-01-07/China-and-DRC-sign-MoU-on-Belt-and-Road-cooperation-WQDfnIxRq8/index.html.

[6] See about the growing demand for restructing of BRI loans at https://tfipost.com/2020/08/china-gave-away-billions-of-dollars-as-bri-loans-to-different-countries-now-they-are-not-coming-back/ and on the specific demand for restructuring by Zambia at https://www.scmp.com/news/china/diplomacy/article/3122836/chinas-top-diplomat-holds-debt-talks-zambia-after-appeal

[7] See explanation of Sri Lanka situation at https://foreignpolicy.com/2021/03/02/sri-lanka-china-bri-investment-debt-trap/

[8] See ICSID website at https://icsid.worldbank.org/resources/rules-and-regulations/convention/overview.

[9] See report on President’s Xi’s speech at https://www.globaltimes.cn/content/989967.shtml

[10] See Green Development Guidance for BRI Projects Baseline Study Report, released in December 2020 by the BRI International Green Development Coalition.

[11] See Jus Mundi Wiki Note, Social License to Operate, by Baptiste Rigaudeau and Emilie McConaughey.

Advantages of Technology in Arbitration by Gavin Dingley*

Mon, 03 May 2021 19:51:46 GMT

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021.

A. Introduction

1. Arbitral institutions have adopted new measures so that they can continue to manage arbitration proceedings during the COVID-19 Pandemic. Several leading arbitral institutions have since adopted electronic filings only and encourage the use of video conferencing for all hearings.

2. While these measures have been welcomed as allowing dispute resolution to carry on “business as usual,” arbitrators and parties must ensure that these measures do not negatively affect parties’ rights to due process. If due process is compromised, the finality of arbitration awards could be jeopardised.

B. The Framework

3. The use of technology in international arbitration is not new. As early as 2004 an ICC Task Force was commissioned for an IT Report which was subsequently revisited in April 2017. The latter, ICC Commission Report, outlined that the benefits of IT in international arbitration would outweigh the risks. It highlighted in particular that briefs with embedded electronic links to cited exhibits, testimony and legal authorities could help the tribunal better understand and evaluate cases, but caveated that it may also be time-consuming and expensive for parties to prepare.

4. In general, it suggested that the benefits of greater IT in international arbitration largely outweighed any risks and the report argued that many widely-available IT solutions were not used to save time and costs as effectively as they could be. Videoconferencing, which some tribunals and parties remained reluctant to use even for minor witnesses, was considered as a good example of an IT solution that could easily cut time and costs in international arbitration. It is undeniable that the onset of the COVID 19 Pandemic has fast-forwarded implementation of these recommendations by many years, to the arbitration community’s advantage.

C. The Benefits

Logistics

5. The advantages of remote arbitration hearings are numerous. While lengthy testimony does not translate as well in an online format, this promotes more time-efficient, focused hearings, which will result in cost reductions for parties. The novelty of an online format also allows for a more flexible dispute resolution process where parties can tailor the proceedings according to their requirements. Arbitration, particularly international arbitration, often involves significant travel and presents scheduling challenges which can delay the expeditious hearing of proceedings.

6. A remote forum allows proceedings to be scheduled in a timelier manner and avoids the costs associated with travel and accommodation. In addition to the cost and time efficiencies that can be realised through a remote forum, some participants may feel that their experience is enhanced as they are able to participate on equal terms with the tribunal and the counsel team, rather than only engaging from the back row of a hearing room.

7. Moreover, the availability of virtual hearings allows for a more diverse and greater array of options where the choice of Adjudicator is concerned. The ‘new’ system can facilitate arbitrators from Africa hearing disputes in Hong Kong, all with a simple internet connection. This will hopefully assist with enhancing the diversity problems which routinely plague the panels of various arbitral institutions from across the globe.

Reduced hearing length

8. In the main one of the perceived advantages of virtual hearings is a more focussed approach to the issues in dispute during oral submissions. This has also been identified in by the ICC in its recent ‘Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19 Pandemic’, where it suggested that parties should identify “whether the entirety of the dispute or discrete issues may be resolved on the basis of documents only, with no evidentiary hearing”. Reliance on written submissions, while not ideal, or even possible in all situations, is consistent with arbitration’s emphasis on efficiency.

Global Legal Teams

9. The implementation of digital trends in arbitration also allows legal teams or clients to have greater scope for constructing a truly global and cohesive legal team to defend their interests. This means that legal teams can harness the benefits and skill sets from different jurisdictions and specialisms from around the worked without the need to be in person or have exorbitant travel expenses.

Costs of the Arbitration

10. It is also undeniable that digital hearings severely reduce the costs of the arbitration. From hearing rooms to arbitrator’s travel expenses, the implementation of digitally administered dispute resolution makes arbitration a more attractive prospect to parties who are looking for a speedy resolution to their dispute.

D. The Challenge

11. That being said, the move to online hearings demonstrates the adaptability of arbitral institutions and the arbitration proceedings themselves. However, these same measures, if abused, could present new challenges for due process and equal treatment between the parties.

12. Under Article V (1) of the New York Convention, an arbitral award may be challenged if “a party against whom the award is invoked . . . was otherwise unable to present his case” or where “the arbitral procedure was not in accordance with the agreement of the parties, or failing such agreement, was not in agreement with the law of the country where the arbitration took place.”

13. The integrity of the arbitral award stems from a fair process based on party autonomy and a party’s reasonable opportunity to present its case. It is therefore unsurprising that emerging guidance such as The Seoul Protocol on Video Conferencing in International Arbitration emphasises that virtual proceedings must be fair to all parties in the dispute.

E. Discussion

14. Arbitral institutions have an important role to play in developing practices and protocols to coordinate this digital move. Most institutional rules grant the tribunal the power to direct the procedure as it wishes; and the onus will now likely be on the party raising an objection to a virtual hearing to explain why it would be untenable under pressing circumstances such those we currently face

15. Beyond this, there are a host of refinements and adjustments to be made to tailor traditional procedural safeguards to the virtual hearing setting. How will we address the concern for real-time witness coaching? Will the debate echo traditional discussions of the standards for witness preparation? Will we need to adjust the typical daily hearing schedule now that participants can expect to sit for long periods in front of their monitors? What should be done in the event of technical failures? These are among the practical issues that the international arbitration community will be considering and on which the proactive contributions of arbitral institutions will be welcome.

16. In developing new approaches, a number of existing soft law instruments will assist. Although they do not deal directly with virtual hearings, they offer helpful guidance on examining witnesses by videoconference. For example, the Hague Conference Draft Guide provides an exhaustive discussion of best practice in relation to video-link witness evidence. It considers factors such as time differences and operating outside regular business hours; introducing documentary evidence via video link; a protocol for speaking and interruptions, where there is a delay between the picture and the sound; and advice on room layout, access, acoustics and lighting. The ICC Commission Report provides a sample wording for a pre-hearing order for testimony to be given via videoconference that could be adapted to virtual hearings and issues of technological breakdown.

F. Conclusion

17. The Covid-19 pandemic has required us all to adapt rapidly and in unprecedented ways to a new reality – one in which has developed virtual hearings as the means for our disputes to continue to be resolved. The genius of arbitration and the international arbitration community is that of innovation. We must all work together to advance the technologies and develop the protocols needed to meet the challenges ahead.

_______________

* Barrister & Arbitrator, Five Paper

An Overview of the Hague Rules in Context by Femi Omere*

Mon, 03 May 2021 07:31:42 GMT

Presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021 on the Protection of Human Rights through Arbitration[1]

As a prologue to the written adaptation of the presentation I delivered at the AfAA Conference, it is worth recapping on some truisms. That is to say the continent of Africa continues to be endowed with a very sizeable amount of the world’s most precious and strategically important natural resources; and moreover, she is often regarded as the final frontier in which new extraction and market opportunities can be formed in order to maintain the growth story that symbolises the industrial / post-industrial ages. As we passage through the so-called 4th industrial revolution, it may be prudent for us on the continent of Africa to ponder as to whether we have seen this before; and as such, what might it all mean for our futures? A question that naturally follows is what are we doing to develop the real-life narratives that we wish to unfold? The AfCFTA and the unified approach to the continent’s affairs that this could garner, is potentially a massive step forward that may answer the last question posed. The devil of course shall be in the detail and importantly, the instruments we devise, deploy, and implement to secure equitable outcomes, shall be critical.

In considering the global attempts at addressing and furthering Human and Peoples Rights (HPRs), the historical African context, in so far as the last 500 years are concerned, are germane; these include slavery, colonialism, the struggle for independence, neo-colonialism and Africa’s attempts to unify, and ought to be imprinted on the global consciousness. A priori, any discussion and/or development of HPRs discourse and practices, must place the experiences of African states as central points of reference.

The Hague Rules, within the context mentioned and in light of broader contemporary developments, where issues of racial justice and equity have gained prominence, provide a supporting opportunity to the continent in the arbitration sphere. That is to say, the Hague Rules provide a powerful symbol and trajectory toward inculcating practices that go hand in hand with the centrality of human dignity, equity and justice, with its corresponding call to global corporate business to become firmly rooted within this endeavor.

The Hague Rules are a mechanism for balancing commercial goals and the impact on HPRs, in response to what we have seen over history: namely, a continued trend where the practices of business, including within their supply chain operations, and particularly those of large multinational corporations, have led to the abuse of HPRs.

The journey towards building an internationally workable framework to hold businesses accountable is relatively recent, and there have been attempts to reach these goals that have experienced varying degrees of success and failure. Such noteworthy attempts can be seen in the form of the UN Global Compact launched in 2000, and thereafter, the U.N. Sub-Commission on Human Rights, with its attempt at establishing binding, treaty-based HPRs obligations.[2] These developments are seen as key moments that paved the way for subsequent evaluations, comprising wider stakeholder involvement, and which ultimately culminated in the establishment of a broadly accepted set of standards in the form of the influential, though non-binding, UN Guiding Principles on BHR. The enumerated principles are founded on the pillars that are articulated within the document itself, namely: to protect, respect, remedy. Building out from the ‘Remedy’ pillar is where the Hague Rules become relevant, in facilitating access to an effective remedy to alleged HPRs violations.

The Hague Rules are based on the UNCITRAL Rules and create a broad basis on which parties can resolve their dispute. Their mission is to remove barriers to addressing breaches (e.g. competence of domestic courts, standing in national courts, prohibitive costs of litigation, excessive influence of states in judicial processes). The aim of the Rules is not to demonise businesses but to provide them with a framework within which to address the question of HPRs within their operations. They provide an avenue for individuals (as well as investors) to frame the mechanism for resolving disputes and/or to bring a claim, on the basis that:

i. Party autonomy is sacrosanct.

ii. Article 6 tackles inequality of arms and balance of power issues that are often prohibitive in arbitration.

iii. Article 5 addresses potential barriers to access, requiring effective opportunity to present a case, which is clearly a circle back to the UN Guiding Principles.

Other rules are BHR-specific, for example Article 32 provides for more flexible rules around evidence that are rights compatible and take into account fairness, and particular sensitivities of parties (e.g. scope, burden of proof, adverse inferences) and Article 11 regarding selection of arbitrators. Remedies are also adapted to be BHR-relevant, including non-monetary relief like specific performance and the power of tribunals to make additional orders (which are culturally appropriate).

In the final analysis, when one considers the issues of efficacy and uptake, the optional quality of the rules perhaps speaks for itself and as such we may not see significant usage of the rules for some time. It is in this light therefore, that the symbolism and evolutionary status of the Rules, as a living instrument, becomes all important, influencing expectations and other substantive methods by which HPRs may be protected, for example, at the treaty and contractual levels. That said, HPRs protection within the arbitration sphere provides added impetus to what appears to be a fast-developing trend running alongside public opinion, which asserts that there are certain foundational issues of our human existence (HPRs falling into this category) that can never be bypassed, dispute resolution fora included. How this plays out in the arbitration space remains to be seen.

_________________________

* Founder & Managing Director Hosted in Africa

[1] Main References: United Nations Guiding Principles on Business and Human Rights; Hague Rules on Business And Human Rights Arbitration; IBA Consultation response to OCHR Accountability and Remedy Project III; New Kid on the Bloc: An Introduction to the Hague Rules on Business And Human Rights Arbitration (Bhavya Mahajan) Cardozo J. Of Conflict Resolution [Vol. 22:221]

[2] 2003 Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights

Features of the Proposed International Investment Appellate Mechanism And Court System by Susan Kimani*

Mon, 03 May 2021 06:02:12 GMT

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021.

Discussions on possible reforms of the investor-state dispute settlement system are in progress under the auspices of UNCITRAL Working Group III. Two potential reforms under consideration are the creation of a permanent multilateral investment court or appellate mechanism. This paper examines some of the features of the appellate mechanism and court that are being discussed, based on the reports of the Working Group and submissions by states’ delegations to UNCITRAL. For instance, it examines the standard, scope of review and effects of an appeal at the appellate mechanism, and the potential means of appointment of adjudicators to the multilateral investment court. The paper concludes by enumerating some of the ways through which African governments can increasingly contribute to the reform debate.

1. Introduction

This paper was prepared for presentation at the 2nd annual international arbitration conference of the African Arbitration Association (AfAA). The paper considers two of the proposed reforms of the investor-state disputes settlement (ISDS) system, that is, (i) establishment of a stand-alone review or appellate mechanism and (ii) establishment of a standing multilateral first instance and appellate investment court (MIC). The paper is based on the ongoing discussions of the United Nations Commission on International Trade Law (UNCITRAL) Working Group III (WG).[1] It addresses (a) some features of the proposed appellate/review mechanism and MIC; (b) some perceived advantages and disadvantages of the mechanisms according to the views of states’ delegations; and (c) how African governments can contribute to the ISDS reform debate.

The issues highlighted in this paper represent some of the options currently being considered by the WG and they remain open to debate within the WG itself. The current work plan of the WG foresees completion of the discussions by 2025, thus, it is too early to tell which form the reforms will eventually take.

The author notes that the Permanent Court of Arbitration (PCA), with which she is affiliated, is very active in administering ISDS. Since the WG started its work, the PCA has been commenting on the work of the WG as an observer. The PCA itself does not take any view on the desirability or lack thereof of these reforms. The PCA consists of a diverse group of 122 Contracting Parties,[2] some of which are for or against some of the reforms. The PCA remains available to support states and parties in ISDS, regardless of the outcome of the reform debate.

2. Proposed Mechanisms

At its 38th to 40th sessions, the WG considered various ISDS reform options, based on proposals from various governments, including African countries such as Morocco[3] and South Africa.[4] The WG considered, inter alia, the proposed (i) stand-alone review or appellate mechanism and (ii) MIC.

2.1. A Stand-Alone Review or Appellate Mechanism

Some delegations propose that a stand-alone review or appellate mechanism could be set up as a separate appellate body – with the current ISDS regime maintaining most of its basic features and being complemented with a standing or at least semi-permanent appellate body. Some view that it could also function as a second instance of a MIC if one were to be set up.[5] Further, some states hold the view that the appellate body should be a single, multilateral standing body affiliated with a United Nations body.[6]

The appellate mechanism would be tasked with substantive review of decisions. It could also implement a system of binding precedent – there are views for and against this.[7]

The key features of the appellate mechanism currently being considered include:

2.1.1 Scope and standard of review

(a) Errors of law and “manifest” errors of facts: It is viewed that there should be some limit to the grounds of appeal so as to make the appellate mechanism relatively streamlined and faster, and the caseload easier to manage. The suggestion by some states is thus to limit the grounds to errors in the interpretation or application of law and on findings of relevant facts only[8] or “manifest” errors of facts (some states have however expressed the view that manifest errors of facts should not be reviewable). The Note by the UNCITRAL Secretariat for the 40th WG session contains suggested draft provisions on what would constitute an error of law or “manifest” error of fact.[9] With regard to an error of law, it could be an error that is “material and prejudicial” or any “errors in the application or interpretation of applicable law” (common standards in BITs). At the WG’s most recent session, the 40th session, views were leaning more towards the latter.[10] With regard to errors of facts, options exist between “determinations of fact that are clearly erroneous” and “manifest errors in the appreciation of facts”. The WG, during its 40th session, leaned more towards the latter, noting that it is a higher standard that ensures appropriate deference to the first-tier tribunal.[11]

Some pending questions include whether reference to “domestic law” falls in the category of legal or factual error; whether an error in the assessment of damages would constitute an error of fact, and whether there are issues that should be subject to de novo review at the appellate level.[12]

(b) Treatment of the existing grounds for review: Some delegations propose that the grounds for annulment under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) and grounds for refusal of recognition and enforcement under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (NYC) should be subsumed under the grounds for appeal.[13] They note that since the grounds for appeal could be said to encompass the narrower grounds for annulment and setting aside, the existence of an appeal could be seen as making the current annulment or setting aside procedures redundant. Further, keeping the annulment or set-aside remedies might de facto create a three-tier dispute settlement system, which might run contrary to the objectives of finality and efficiency (including the time and cost-efficiency).[14] A key question raised by the WG at the 40th session was the functionality of the approach of eliminating the current grounds for review, that is, whether domestic courts would be willing to defer their authority to an international body.[15]

2.1.2 Appealable Decisions

(a) Decisions on merit and procedure: Some delegations propose that only final decisions on both merits and procedural matters should be subject to appeal because it is preferable that an appellate tribunal be presented with the full record of the case before rendering its decision.[16]

(b) Interim measures and challenges: Divergent views have been expressed on whether decisions on interim measures would be subject to appeal. Some delegations propose that decisions on interim measures should not be subject to appeal in light of the negative impact on time and cost that this would have on the cost and duration of the proceedings. They are also often specific to a case, temporary in nature and could be reversed by the tribunal ordering them.[17]

(c) Decisions on jurisdiction: In this regard, the question raised by some delegations is whether decisions on jurisdiction should be included in the scope of appeal, and whether, if included, the appeal should be made while the proceedings are ongoing or be stayed. The time at which an appeal on jurisdiction could be made would have an impact on the efficiency of the appellate mechanism. On the one hand, it might be preferable that an appellate tribunal be presented with the full record of the case before rendering its decision. On this reasoning, an appeal should be made possible only after the final decision on the merits. On the other hand, appeal of a decision on jurisdiction at an earlier stage of the proceedings might save cost and time.[18] There are strong views that a challenge to a decision on jurisdiction should be made during the proceedings and not at the stage of the final decision, but views are divergent on whether the first-tier tribunal should stay or continue its proceedings while a decision on jurisdiction is pending in the appellate mechanism. Further, there is still a question whether the appellate mechanism could rule on the issue of jurisdiction when the final award on the merits is the subject of appeal, and whether the appellate body could overturn a decision by the first-tier tribunal stating that it did not have the competence to rule on the case.[19]

(d) Decisions arising out of investment treaties: There are diverging views on whether the appellate process should be limited to decisions rendered from treaty based ISDS disputes or whether the scope should include appeal of decisions arising from contracts or national investment laws.[20]

2.1.3 Effects of an appeal

(a) Suspension of the first-tier decision: Some delegations view that an appeal should temporarily suspend the effect of the first-tier decision (pending a decision by the appellate tribunal) and that such a decision should not be enforceable, nor subject to a set-aside procedure.[21]

(b) Affirm, reverse or modify decisions: With regard to the powers of an appellate tribunal, some delegations propose that it should be able to affirm, reverse or modify the decision of the first-tier tribunal and to render a final decision based on the issues before it.[22]

(c) Remand authority: There are differing views regarding remand authority due to concerns about cost and duration of proceedings. Some delegations propose that there may be remand authority, in limited circumstances, where the appellate tribunal is not able to complete the legal analysis based on the facts available before it.[23] Concerns remain as to how to re-establish the first-tier tribunal and in regard to the appertaining additional costs.[24]

(d) Binding nature of appellate decision: Some delegations express the view that a decision rendered by an appellate tribunal should bind only the disputing parties, and in case of remand, the first-tier tribunal. A diverging view is that the appellate body decision should have a broader effect to ensure consistency, particularly in cases where the tribunals would be interpreting the same provisions of an investment treaty or similar text. Decisions rendered through a permanent appellate mechanism, even though they might not be binding on other ad hoc first-tier tribunals, could have a persuasive influence on those tribunals when interpreting identical or similar treaty provisions. At the same time, it is noted that the interpretative impact that a decision of an appellate tribunal could have on treaties with identical or similar language (in particular, when the relevant state party was not a party to the appellate mechanism) would need to be further examined to take into account both how to manage the interpretative impact for future disputes and in light of existing interpretation of such provisions, among other implications.[25]

2.1.4 Enforcement

(a) Enforcement in participating states: Some delegations take the view that the possible application of the existing enforcement mechanisms to decisions rendered by a permanent body would depend on how such a body would be set up, in particular the extent to which its decisions could qualify as arbitral awards. In states participating in the MIC or appellate mechanism, an internal enforcement mechanism could be included in the founding convention, and hence questions as to the qualification of a decision as an “international arbitration award” or “ICSID award” would not arise. According to some delegations, an enforcement model which preserves the role of domestic courts possibly based on the NYC would be preferable to the ICSID model because it would avoid the situation where a domestic court would be required to enforce decisions that were contrary to the public policy of the state where enforcement was sought.[26]

(b) Enforcement under the NYC: Some delegations view that in non-participating states, the NYC could provide sufficient flexibility to apply to decisions rendered by a permanent body. Article 1(2) of the NYC refers to awards “made by permanent arbitral bodies to which the parties have submitted”. A question arises as to whether a permanent body could qualify as a “permanent arbitral body” under that Article.[27]

(c) Enforcement under the ICSID Convention: Article 53 of the ICSID Convention provides that ICSID awards “shall not be subject to any appeal or to any other remedy except those provided for in the Convention”. Given that the amendment of the Convention would be difficult to implement as it would require acceptance of all existing parties, according to some delegations, a possible avenue to explore would be an inter se modification of the ICSID Convention among the states establishing an appellate mechanism. This would be implemented following the procedure of Article 41 of the Vienna Convention on the Law of Treaties, whereby contracting parties may modify a treaty “as between themselves alone”.[28]

2.2. Multilateral Investment Court

According a delegation, the MIC (whose desirability and feasibility is yet to be decided upon by the WG) would have full-time adjudicators and two levels of adjudication.[29] The proposal to establish a MIC is based on the view that the concerns identified by the WG are intertwined and systemic, and that addressing specific concerns in a piecemeal approach would leave some concerns unaddressed.[30] It has been posited that the main purpose of the MIC would be to address concerns regarding inconsistency and incorrectness of decisions made by ISDS tribunals, as well as concerns regarding ethical requirements and appointment mechanisms for arbitrators and decision makers.[31] The stated rationale, according to a Note by the UNCITRAL Secretariat, is that by sitting permanently and deciding cases over time, judges could deliver more consistent decisions.[32]

It has been suggested by some delegations that the MIC could have a two-tier system, with a first instance layer, followed by an appeal or review on limited grounds by a different body. The system could be an add-on to the current ISDS regime or be established independently from any existing mechanism or institution.[33]

The key features of the MIC would be:

(a) Two levels of adjudication: There would be a first instance tribunal to hear disputes, as currently done by arbitral tribunals. An appellate tribunal would hear appeals from the tribunal of first instance.[34]

(b) Adjudicators and appointment: Some delegations proposed that the adjudicators be employed full-time, with no other activities. The number of adjudicators would be based on the projections of the workload of the MIC. They would be paid salaries comparable to those paid to adjudicators in other international courts. Independence from governments would be ensured through a long-term non-renewable term of office, combined with a transparent appointment process.[35] The main concern of some delegations is that the role of investors in the appointment of adjudicators would be diminished, if not eliminated, which would pose serious concerns about the legitimacy of the system.[36]

(c) Nomination of candidates: Different options for nominating candidates have been suggested by delegations, including: (i) by participating states; (ii) by an independent entity established within the permanent body; (iii) by individuals themselves; or (iv) a combination thereof.[37]

(d) Selection and appointment process: The proposed options for selection and appointment include the following: (i) direct appointment by each state; (ii) appointment by a vote of the contracting states; or (iii) appointment by an independent commission.[38]

(e) Neutrality: It is proposed by several delegations that any process of establishing a MIC should be fair and neutral, and that the court should have a detailed and transparent set of rules of procedure.[39]

(f) Structure and financing: Some states have so far expressed a clear preference for a system where all costs are borne by contracting parties of the MIC statute, while other states lean towards user-pays principle.[40] Cost concerns surround the remuneration of the adjudicators; financing the registrar and secretariat; case administration costs and operating costs.[41]

3. Perceived advantages and drawbacks of the proposed mechanisms

3.1. Perceived Advantages

(a) A delegation has expressed the view that the appellate mechanism would contribute to improving the consistency, predictability and legal correctness of investment awards.[42]

(b) According to another delegation, an appellate mechanism could enhance the legitimacy of ISDS and act as an important factor in promoting application of the rule of law to the settlement of disputes between investors and states.[43]

(c) According to a delegation, if the establishment of the court is done in a fair and neutral manner, the MIC has the potential to create an independent and legitimate system of ISDS.[44]

3.2. Perceived Drawbacks

(a) According to some delegations’ views, the appeal mechanism may create lengthier and costlier proceedings.[45]

(b) Some delegations view that since states would be free to choose whether to adopt the appeal option, an appellate mechanism would add to the existing lack of coherence or consistency.[46]

(c) With regard to the appeal mechanism, a concern has been raised that if appeal is an option, it could soon become the rule. States and investors who have lost a case may not be willing to forego a chance to file an appeal, be it only for reasons of internal accountability.[47]

(d) It has also been suggested that permanent mechanisms would lead to loss of flexibility, expert decision-making and that the confidence-inducing benefits of party-appointment of arbitrators would be lost.[48]

4. Participation by African countries

Numerous African states are taking part in the WG sessions. During the last session (40th session) held in February 2021, 11 out of the 54 states attending the session were African states. Additionally, six African countries participated as observer states. Several African states have also consistently submitted comments on the ISDS reform process.[49]

Governments and specialists in African countries may continue to take part in the ISDS reform debate through:

(a) Participating actively in the WG sessions, either as members of UNCITRAL through the existing representation system or as observers to the WG (who routinely contribute to the debates and whose remarks form part of the official record).

(b) Submitting comments, position papers and proposals to the UNCITRAL Secretariat on ISDS reforms.

(d) Ensuring participation in international conferences and in international organisations such as United Nations Conference on Trade and Development.

(e) Participating at regional meetings, such as the third intersessional regional meeting held in Conakry in September 2019 to familiarize representatives of African states with the WG’s current areas of work.

* Legal Counsel, Permanent Court of Arbitration.

[1] Working Group III: Investor-State Dispute Settlement Reform, available at: https://uncitral.un.org/en/working_groups/3/investor-state.

[2] Permanent Court of Arbitration website, available at: https://pca-cpa.org/en/about/introduction/contracting-parties/.

[3] A/CN.9/WG.III/WP.161, Submission from the Government of Morocco, available at: https://undocs.org/A/CN.9/WG.III/WP.161.

[4] A/CN.9/WG.III/WP.176, Submission from the Government of South Africa, available at: https://undocs.org/A/CN.9/WG.III/WP.176.

[5] A/CN.9/WG.III/WP.149, Possible reform of investor-State dispute settlement (ISDS) – Note by the Secretariat, para. 42, available at: https://documents-dds-ny.un.org/doc/UNDOC/LTD/V18/064/96/PDF/V1806496.pdf?OpenElement.

[6] A/CN.9/WG.III/WP.195, Submission from the Government of Morocco, p. 3, available at: https://documents-dds-ny.un.org/doc/UNDOC/LTD/V20/011/62/PDF/V2001162.pdf?OpenElement.

[7] A/CN.9/1050, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its fortieth session, para 60, available at: https://uncitral.un.org/sites/uncitral.un.org/files/report_40th_wg_iii_17_march.pdf; Possible reform of investor-State dispute settlement (ISDS), Note by the Secretariat, para. 40, available at: https://documents-dds-ny.un.org/doc/UNDOC/LTD/V18/064/96/PDF/V1806496.pdf?OpenElement.

[8] A/CN.9/1004/Add.1, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its resumed thirty-eighth session, paras 26-28, available at: https://documents-dds-ny.un.org/doc/UNDOC/GEN/V20/007/33/PDF/V2000733.pdf?OpenElement.

[9] A/CN.9/WG.III/WP.202, Possible reform of investor-State dispute settlement (ISDS): Appellate mechanism and enforcement issues – Note by the Secretariat, para 59, available at: https://documents-dds-ny.un.org/doc/UNDOC/LTD/V20/065/39/PDF/V2006539.pdf?OpenElement.

[10] A/CN.9/1050, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its fortieth session, para 66, available at: https://uncitral.un.org/sites/uncitral.un.org/files/report_40th_wg_iii_17_march.pdf.

[11] Ibid. para. 67.

[12] Ibid. paras 68-75.

[13] Ibid. para. 30.

[14] A/CN.9/WG.III/WP.202, Possible reform of investor-State dispute settlement (ISDS): Appellate mechanism and enforcement issues – Note by the Secretariat, para. 8, available at: https://documents-dds-ny.un.org/doc/UNDOC/LTD/V20/065/39/PDF/V2006539.pdf?OpenElement.

[15] A/CN.9/1050, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its fortieth session, para 77, available at: https://uncitral.un.org/sites/uncitral.un.org/files/report_40th_wg_iii_17_march.pdf.

[16] A/CN.9/1004/Add.1, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its resumed thirty-eighth session, paras 33-34, available at: https://documents-dds-ny.un.org/doc/UNDOC/GEN/V20/007/33/PDF/V2000733.pdf?OpenElement; A/CN.9/WG.III/WP.195, Submission from the Government of Morocco, p. 4, available at: https://documents-dds-ny.un.org/doc/UNDOC/LTD/V20/011/62/PDF/V2001162.pdf?OpenElement.

[17] Ibid. A/CN.9/1004/Add.1, para. 34; A/CN.9/1050, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its fortieth session, para 87, available at: https://uncitral.un.org/sites/uncitral.un.org/files/report_40th_wg_iii_17_march.pdf.

[18] A/CN.9/WG.III/WP.202, Possible reform of investor-State dispute settlement (ISDS): Appellate mechanism and enforcement issues – Note by the Secretariat, para 21, available at: https://documents-dds-ny.un.org/doc/UNDOC/LTD/V20/065/39/PDF/V2006539.pdf?OpenElement.

[19] Ibid. para. 34; A/CN.9/1050, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its fortieth session, para. 87, available at: https://uncitral.un.org/sites/uncitral.un.org/files/report_40th_wg_iii_17_march.pdf.

[20] Ibid. A/CN.9/1050, para. 87.

[21] Ibid. para. 95.

[22] A/CN.9/1004/Add.1, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its resumed thirty-eighth session, para. 40, available at: https://documents-dds-ny.un.org/doc/UNDOC/GEN/V20/007/33/PDF/V2000733.pdf?OpenElement; A/CN.9/1050, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its fortieth session, paras 97-100, available at: https://uncitral.un.org/sites/uncitral.un.org/files/report_40th_wg_iii_17_march.pdf.

[23] Ibid. A/CN.9/1004/Add.1, para. 41; Ibid. A/CN.9/1050, paras 101-102.

[24] Ibid. A/CN.9/1004/Add.1, para. 42.

[25] Ibid. paras 43-45.

[26] A/CN.9/WG.III/WP.202, Possible reform of investor-State dispute settlement (ISDS): Appellate mechanism and enforcement issues – Note by the Secretariat, para. 67, available at: https://documents-dds-ny.un.org/doc/UNDOC/LTD/V20/065/39/PDF/V2006539.pdf?OpenElement.

[27] Ibid. para. 70.

[28] A/CN.9/1004/Add.1, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its resumed thirty-eighth session, para. 78, available at: https://documents-dds-ny.un.org/doc/UNDOC/GEN/V20/007/33/PDF/V2000733.pdf?OpenElement.

[29] A/CN.9/WG.III/WP.159/Add.1, Submission from the European Union and its Member States, para. 13, available at: https://documents-dds-ny.un.org/doc/UNDOC/LTD/V19/004/19/PDF/V1900419.pdf?OpenElement.

[30] A/CN.9/WG.III/WP.185, Possible reform of investor-State dispute settlement (ISDS): Appellate and multilateral court mechanisms – Note by the Secretariat, para. 51, available at: https://documents-dds-ny.un.org/doc/UNDOC/LTD/V19/113/57/PDF/V1911357.pdf?OpenElement.

[31] A/CN.9/1050, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its fortieth session, para. 18, available at: https://uncitral.un.org/sites/uncitral.un.org/files/report_40th_wg_iii_17_march.pdf.

[32] A/CN.9/WG.III/WP.149, Possible reform of investor-State dispute settlement (ISDS) – Note by the Secretariat, para. 44, available at: https://documents-dds-ny.un.org/doc/UNDOC/LTD/V18/064/96/PDF/V1806496.pdf?OpenElement.

[33] A/CN.9/WG.III/WP.185, Possible reform of investor-State dispute settlement (ISDS): Appellate and multilateral court mechanisms – Note by the Secretariat, paras 62-64, available at: https://documents-dds-ny.un.org/doc/UNDOC/LTD/V19/113/57/PDF/V1911357.pdf?OpenElement.

[34] A/CN.9/WG.III/WP.159/Add.1, Submission from the European Union and its Member States, para. 14, available at: https://documents-dds-ny.un.org/doc/UNDOC/LTD/V19/004/19/PDF/V1900419.pdf?OpenElement.

[35] A/CN.9/WG.III/WP.185, Possible reform of investor-State dispute settlement (ISDS): Appellate and multilateral court mechanisms – Note by the Secretariat, para. 55, available at: https://documents-dds-ny.un.org/doc/UNDOC/LTD/V19/113/57/PDF/V1911357.pdf?OpenElement.

[36] A/CN.9/1050, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its fortieth session, paras 18-21, available at: https://uncitral.un.org/sites/uncitral.un.org/files/report_40th_wg_iii_17_march.pdf.

[37] Ibid. para. 30.

[38] Ibid. para. 32.

[39] A/CN.9/WG.III/WP.176, Submission from the Government of South Africa, para. 96, available at: https://documents-dds-ny.un.org/doc/UNDOC/LTD/V19/072/51/PDF/V1907251.pdf?OpenElement.

[40] Similar views have been expressed in regard to the appellate mechanism.

[41] A/CN.9/1004/Add.1, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its resumed thirty-eighth session, para. 84, available at: https://documents-dds-ny.un.org/doc/UNDOC/GEN/V20/007/33/PDF/V2000733.pdf?OpenElement.

[42] A/CN.9/WG.III/WP.161, Submission from the Government of Morocco, para. 34, available at: https://documents-dds-ny.un.org/doc/UNDOC/LTD/V19/012/95/PDF/V1901295.pdf?OpenElement ; A/CN.9/WG.III/WP.185, Possible reform of investor-State dispute settlement (ISDS): Appellate and multilateral court mechanisms – Note by the Secretariat, para. 7, available at: https://documents-dds-ny.un.org/doc/UNDOC/LTD/V19/113/57/PDF/V1911357.pdf?OpenElement.

[43] Ibid., A/CN.9/WG.III/WP.185, para. 8.

[44] A/CN.9/WG.III/WP.176, Comments from the Government of South Africa, para. 78, available at: https://documents-dds-ny.un.org/doc/UNDOC/LTD/V19/072/51/PDF/V1907251.pdf?OpenElement.

[45] A/CN.9/WG.III/WP.185, Possible reform of investor-State dispute settlement (ISDS): Appellate and multilateral court mechanisms – Note by the Secretariat, para. 9, available at, https://documents-dds-ny.un.org/doc/UNDOC/LTD/V19/113/57/PDF/V1911357.pdf?OpenElement ; A/CN.9/1004/Add.1, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its resumed thirty-eighth session, para. 22, available at: https://documents-dds-ny.un.org/doc/UNDOC/GEN/V20/007/33/PDF/V2000733.pdf?OpenElement.

[46] Ibid. A/CN.9/1004/Add.1, para. 21.

[47] Gabrielle Kaufmann-Kohler and Michele Potestà, ‘Can the Mauritius Convention serve as a model for the reform of investor-State arbitration in connection with the introduction of a permanent investment tribunal or an appeal mechanism?’, para. 32 (2016).

[48] Ibid. para. 31 (2016).

[49] Ahead of the 39th session held in October 2020, the following African governments submitted their comments on the reforms: Morocco, South Africa, Mali, Guinea, and Burkina Faso.

Arbitration is no silver bullet for the adjudication of business-related human rights by Isabelle Fellrath*

Sun, 02 May 2021 07:41:56 GMT

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021

Summary

Concerns for business’ accountability for inter alia the human rights incidence of their commercial activities are neither new nor undeserved. Arbitration is increasingly perceived as the most appropriate independent and impartial venue to adjudicate and seek redress for BHR infringements. Whilst arbitration may indeed offer some positive features, many weaknesses remain that considerably undermine its efficiency and legitimacy on BHR disputes. A thorough reflection is required on the means, stakes and risks. This presentation sets out to discuss some of these weaknesses. This summary discussion is the result of the author's personal reflections in the context of an adversarial debate within the framework of Panel 8A - Protecting Human Rights through Arbitration The Hague Rules on Business and Human Rights Arbitration. It is the sole responsibility of its author and not that of the institutions employing her or which she is related, and does not exhaustively reflect the author's position on a subject whose sensitivity and complexity she appreciates.

* * *

Concerns for business’ accountability for inter alia the human rights incidence of their commercial activities are neither new nor undeserved. These are not new echoed in the acute debate over the necessary interaction between investment and non-investment obligations such as indigenous and human rights, labour, and environmental laws[2]. They are not undeserved as illustrated by the relative helplessness of the system to integrate them efficiently as increasingly reflected in investment cases and discussions to reform foreign investment treaties and enforcement mechanisms. It is defiantly submitted, however, that international arbitration is not the panacea for the resolution of business-related human rights (BHR) disputes, on account of intrinsic arbitration features, namely its consensual basis (below 1), its private essence and anationality (below 2), its flexible approach to material applicable law (below 3), its structural lack of transparency (below 4), its prevailing reliance of parties to argue and finance it (below 5) and the limited effect of ensuing awards and remedies (below 6). We submit by ways of conclusions that, whereas arbitration might be no silver bullet for the adjudication of business-related human rights, there are other more efficient leads to pursue to ensure a proper integration of human rights (and other public interest issues, in particular environmental matters) in business activities and ensure full accountability in case of breach (below 7).

1. Illusory consent to arbitrate BHR disputes

By contrast to a state judge, who draws his legitimacy from the social contract and is the guardian thereof for the entire society, an arbitrator derives his authority and powers from a private contract and not from the authorities of a state and must proceed and decide the case on the basis of such an agreement[3]. Consent is also a necessary prerequisite to secure enforcement of any arbitral award[4]. Transposed to BHR disputes, chances are that business-side parties will be reluctant to offer their consent to arbitrate a BHR claim, particularly when it could open the floodgates for similar claims. This consent issue has been flagged by the Hague Rules but consent modalities have not been defined[5]. A practical illustration of consent-generated difficulties is provided for instance by the delicate never-ending coordination in the multi-fora Texaco Petroleum-Chevron / Ecuador disputes over charges of toxic waste waters release incidental to mining activities in estuaries and rivers, massive deforestation of tropical forests and abandonment non decommissioned wells on the one side[6], and allegations of breaches of the terms and conditions of the concession agreements on the other side[7].

2. Inappropriateness of forum to resolve BHR disputes

Another fundamental feature inherent in the private essence of arbitration is that it vests decision-making powers in private individuals[8] operating in tribunals related to no specific national or international legal order (autonomous arbitral legal order)[9]. Transposed to BHR disputes, it is debatable whether a private forum operating in a business setting would be apposite to resolve human rights issues, as “corporate arbitrators are not natural guardians of the public interest, but of business interests and of a new “industry” that, as experience shows, has privileged investors over the public interest […]”[10]. It is also debatable whether private forums related to no particular legal order should have any legitimacy to ensure human rights compliance.

3. Applicable law dilemma related to BHR disputes

As a matter of principles, arbitrators would decide disputes based on the terms of contract, the chosen law and subsidiary of most appropriate law(s) as well as possibly in equity. Transposed to BHR disputes, the attention given to human rights laws in arbitration would be aleatory to say the least. Firstly, human rights tend to be an exogenous variable to most international investment / commercial laws and contracts. Secondly, human rights instruments are prevalently meant to govern the State-to-individuals relationship with limited business-to-individual incidence, thus exposing per se primarily State liability and only incidental business liability. Human rights standards applying to business activities are mostly derived from non-binding external or internal code of conduct hence hardly enforceable. Thirdly, there are also no agreed conflict of law principles to resolve inevitable conflicts between human rights standards and investment/commercial laws, the jus cogens qualification being reserved only to a limited number of core human rights. The Occidental Petroleum v Ecuador case is cited one among many salient examples of this tension between investment law and human and indigenous rights and the misapprehension an arbitral ruling may generate[11].

4. Transparency deficit of arbitration inapposite for BHR disputes

Inherent to their private essence, arbitration proceedings are held strictly inter partes and confidential[12]. Transposed to BHR disputes, confidentiality would be inconsistent with the transparency requirement generally expected in public interest matters such as human rights, raising suspicion of behind closed-door arbitration process keeping human rights abuses outside media coverage, ultimately altering the sense of justice being administered (“Not only must Justice be done; it must also be seen to be done.”[13]) instructs that justice should be seen to be done) and undermining the exemplarity and deterrent effect. Whereas the BHR Arbitration Rules endeavor to address this concern with enhanced transparency provision (BHR Arbitration Rules, sect. IV), said adjustment is limited in scope and subject to tribunal’s discretion. Such provision could incidentally be a further disincentive to consent to BHR arbitration (above 1).

5. Parties’ asymmetrical legal and financial resources

As an all-inclusive private adjudication mechanism (private dispute resolution process, voluntary essence of arbitration, private individuals acting as arbitrator – secretary to arbitral tribunals, private infrastructure and logistics), arbitration remains fully independent from state apparatus, including on financial issues, and arbitrators lack the imperium necessary to instruct the case independently from the parties. It thus leaves it on the parties to designate the arbitrators, to argue their case in compliance with the agreed arbitration rules, and to advance and assume the entirety of arbitration costs (including arbitrators’ fees and expenses, hearing and expert report costs) without any temporary exemption of arbitration costs and outside any public legal aid mechanism based on the understanding that in line with the nature of the institution the State does not have to facilitate access to courts that do not depend on it[14].

Transposed to BHR disputes, these features would inevitably create serious imbalances between human rights victims and commercial or state entities, ultimately undermining effective access to the remedies BHR arbitration is supposed to be serving. These disparities may arise, inter alia, in relation to mastering arbitration technicalities and strategies, access to legal and financial resources (unlikely (financial) interest of third-party funders in directly supporting even high-profile human right cases), and possibly even finding arbitrators/experts available and willing to sit in sensitive cases. Whilst BHR Arbitration Rules provide a costs-containment provision, its efficiency remains to be tested in cases most likely to be long and complex (BHR Arbitration Rules art. 52).

6. Inappropriateness of remedies to BHR disputes and limited enforcement means

As the outcome of a private, consent-based proceeding issued by arbitrators appointed by the parties to state the law on a particular dispute, arbitral awards would only dispose of the specific issued referred to the arbitrators (saisine limitée), are final and binding only on the parties (no erga omnes effect)[15], and can be enforced only by the parties bound by the arbitration agreement exclusive any third-party enforcement.

Transposed to BHR disputes, even leaving aside the dubious arbitrability of human rights issues, arbitration most likely constitutes no satisfactory remedy for victims of human rights abuses, with the possibility of monetary compensation but limited prospects of long-term change in business practices. Incidentally, it is submitted that there is a certain paradox in claiming bypassing state judiciary to adjudicate human rights claims and suggesting as an alternative thereto to include such claim in investment or even contract arbitration involving, as a party, that same State. Besides, depending on their procedural status in the arbitration, BHR affected parties might have limited or no means of enforcing the ensuing awards. There are numerous examples showing that human rights enforcement cannot be (solely) left in the hands of private parties and companies, the dilemmas triggered by the current Burma/Myanmar situation being only the latest illustration of a long list of similar controversies.

7. Conclusions

By way of conclusion, it is argued that there are possible alternative leads to be explored to increase businesses’ exposure to BHR accountability. These would include the opening of existing human rights institutions to include individual v companies claims rather than creating yet new dedicated BHR arbitration institutions, it being unlikely that BHR claims could be part of strictly commercial arbitrations. An upstream option would be to ensure the proper internalization of human rights in international investment agreements (which efficiency would still, possibly unrealistically, lie within the hand of host governments)[16] and to provide for a possible denunciation of international investment agreements intended to perpetuate a system that violates human rights, social rights, indigenous rights, minority rights, and environmental laws.

____________________________

* Dr Isabelle Fellrath is a Swiss qualified and registered Attorney at Law, holding an LL.M. and Ph.D. from the University of Nottingham, UK. She represents parties in domestic and international arbitral proceedings and before state courts, and serves as an arbitrator with accreditation from various arbitral institutions (Hong Kong International Arbitration Centre, Lagos Court of Arbitration, Kigali International Arbitration Centre, General List of Arbitrators of the Court of Arbitration for Sport, Member of the Swiss Swimming Arbitral Tribunal for aquatic sports). She also has particular expertise in environmental and energy laws. She regularly publishes in her areas of expertise, which she has been teaching for many years at the Universities of Glasgow and Lausanne as well as at the Swiss Federal Institute of Technology in Lausanne. She is counsel at SwissLegal Rouiller & Associés, in Lausanne and Geneva, Switzerland.

[2] Publications are numerous ; cf. e.g. P.-M. Dupuy, E.-U. Petersmann, and F. Francioni (eds), Human Rights in International Investment Law and Arbitration, 2009; J. Hepburn, Domestic Law in International Investment Arbitration, 2017; P.-M. Dupuy, J. E. Viñuales (eds), Harnessing Foreign Investment to Promote Environmental Protection, Incentives and Safeguards, 2015; I. Feichtner, Markus Krajewski et al. (eds), Human Rights in the Extractive Industries: Transparency, Participation, Resistance, 2019; L. W. Mouyal, international Investment Law and the Right to Regulate: A human rights perspective, 2016.

[3] L. Gouiffès, L’arbitrage international propose-t-il un modèle original de justice?, in Recherches sur l’arbitrage en droit international et comparé, 1997, 1 at 49 ; R. David, Arbitration in International Trade, 1985, at 5 as quoted in W.L. Craig, ‘Uses and Abuses of Appeal from Awards’, 4 Arb. Intl (1988) 174, at 179; Premium Nafta Products Ltd (20th Defendant) & Ors v. Fili Shipping Company Ltd & Ors [2007] UKHL 40 (17 October 2007) ¶ 5.

[4] E.g. United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958, art. IV.

[5] BHR Arbitration Rules, 2019, Introductory note p. 3.

[6] Maria Aguinda et al. v. Texaco, Inc., 945 F. Supp. 625 (S.D.N.Y. 1996), 142 F. Supp. 534 (S.D.N.Y. 2001), 93 Civ. 7527, 2000 WL 122143 (S.D.N.Y. Jan. 31, 2000), 303 F.3d 470 (U.S. Court of Appeals for the Second Circuit, Aug. 16, 2002), dismissing liability claim on basis of forum non conveniens, Ecuador, resulting in liability litigation before Ecuadorian courts.

[7] Texaco’s successor Chevron successfully proceeded against Ecuador before Ecuadorian courts (in vain) and eventually arbitral tribunals operating under UNCITRAL to obtain compensation for various breaches of the terms and conditions of concession agreements; e.g. arbitration award March 30, 2010 (“2.The Respondent has breached Article II(7) of the BIT through the undue delay of the Ecuadorian courts in deciding TexPet’s seven court cases and is liable for the damages to the Claimants resulting therefrom); 3.The Claimants have not committed an abuse of process and are not estopped from bringing the present claim against the Respondent.” and PCA CASE N° 2009-23.

[8] B. G. Poznanski, The Nature and Extent of an Arbitrator’s Powers in International Commercial Arbitration, 4/3 JIA (1987) 71 at 71.

[9] E. Gaillard, Legal Theory of International Arbitration, 2010, Chap. 1(C).

[10] Report of the Independent Expert on the promotion of a democratic and equitable international order to the UNGA, 14 July 2015, A/HRC/30/44, ¶15.

[11] Occidental Petroleum Corporation and Occidental Exploration and Production Company v. The Republic of Ecuador, ICSID Case No. ARB/06/11.

[12] Oxford Shipping Co. Ltd v Nippon Yusen Kaisha (Eastern Saga) [1984] 3 All ER 835 (QB, 1984), at 842 ¶ B: “The concept of private arbitration derives simply from the fact that the parties have agreed to submit to arbitration particular disputes arising between them and only between them”; Justice Toohey (dissenting) in Esso/BHP v Plowman case: “[Privacy and confidentiality] are, to a considerable extent, two sides of the same coin”; Justice Colman, in Hassneh Insurance case, at 225-26 ¶ 8: “The disclosure to a third party of such documents [which are created for the purpose of private arbitration hearing] would be almost equivalent to opening the door of the arbitration room to that third party”; L.Y. Fortier, The Occasionally Unwarranted Assumption of Confidentiality, 15/2 Arb. Intl (1999) 131, at 132: “[…] [I]t has been the experience of the members of this Tribunal and their colleagues whom they have consulted who often act as ICC arbitrators that, as a matter of principle, arbitration proceedings have a confidential character which must be respected by everyone who participates in such proceedings […]”.

[13] Lord Chief Justice Hewart in R v Sussex Justices ex parte McCarthy ([1924) 1 KB 256, [1923] All ER Rep 233.

[14] Swiss Supreme Court in ATF 99 Ia 325 g. 3.

[15] Samsung Logix Corporation, Deval Denizeilik VE Ticaret A.S. v Oceantrade Corporation, EW High Court (Queen's Bench Division), 18 October 2007 [2007] EWHC 2372 (Comm).

[16] Cf. e.g. Netherlands model Investment Agreement of March 22, 2019; further : Ch. Blair, E. Vidak-Gojkovic, M.-A. Meudic-Role, The Medium Is the Message: Establishing a System of Business and Human Rights Through Contract Law and Arbitration, 35/ 4 JIA (2018) 379.

The Suitability of Arbitration as a Forum for the Resolution of Business Human Rights Disputes by Dr Sally El Sawah*

Thu, 29 Apr 2021 15:30:50 GMT

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021[1]

Summary

“The road to hell is paved with good intentions.” The Hague Rules on BHR Arbitration definitely pursue a noble purpose. Yet, they threaten the arbitration process and its legitimacy. The scarcity and fragmentation of the substantive rules that the arbitral tribunals are amenable to apply to decide on BHR disputes increase the risk of contradicting awards. The specificities of BHR disputes shake the efficiency and effectiveness of arbitration and question the accountability of arbitrators. A lesson should have been learnt from the ISDS debate and Reform. But no, it was irresistible to “tendre le bâton pour se faire battre”.

***

It is certainly not an easy task to be on the side “against” the Hague Rules on Business and Human Rights (“BHR”) Arbitration. It is not an easy task to advocate against “arbitration” among arbitration practitioners, and it is even more difficult when we add the words “Human rights”. Arbitrators strive for the enshrinement of the Rule of Law, which in our view, includes Human Rights. Therefore, advocating against the Hague Rules would entail that I am advocating against the Rule of Law, in a conference aiming to enhance the Rule of Law and the development of arbitration in the African continent.

Hearing the presentation of my dear colleague and friend Femi Omere, by advocating against the BHR Arbitration Rules, I would be advocating for the Multinational enterprises (“MNEs”), the “new colonisers of the Post-colonial era”, according to many?[2]

I am the devil incarnate, then.

Yet, what if we think about the suitability of arbitration in BHR disputes from a different perspective and put things into context:

1) what if advocating against the Hague Rules, or more generally the BHR arbitration, is actually to “protect arbitration” and its “perception” by the public at large?

2) Is BHR Arbitration (and not only the Hague Rules) not in fact a real threat to the viability of arbitration as a dispute resolution method in matters involving public interests?

3) Will BHR Arbitration not most likely increase the campaign against arbitration and give rise to the same criticism that we are witnessing today in Investor State Dispute Settlement (“ISDS”)?

Any imperfections happening or even the feeling that there are shortcomings in a single BHR arbitration case could shake the credibility of the whole arbitration system and question its legitimacy.

After all, the reasons which have led to the current ISDS reform and questioning the appropriateness of arbitration to solve Investor State disputes in favour of the creation of a multinational court are present in BHR Arbitration.

Regarding the ISDS reform, we have heard along the conference about: the “fragmentation of rules”, the “spaghetti bowl”,[3] a term that is very well-placed here.

That fragmentation, which has led to a strong debate about the effectiveness of the arbitration mechanism and its replacement by a multinational court in ISDS, was at the origin of contradicting awards and an ensuing lack of predictability and serious doubts about the legitimacy of arbitration in light of the lack of accountability of arbitrators. That fragmentation, contradiction and inconsistency, lack of effectiveness and accountability are the same critics that one can address to BHR Arbitration.

1-The “Spaghetti Bowl” – The Fragmentation of the Substantive Rules Governing BHR Disputes and the Lack of Predictability and Legal Certainty

The main purpose behind the Hague Rules on BHR Arbitration is to fill the existing gap of unavailable courts because of justiciability or lack of jurisdiction issues, and provide the redress required by the Pillar III of UN Guiding Principles on Business and Human Rights, i.e. the Remediation by MNEs to both victims of human rights violations on the part of companies, and companies themselves in relation to human rights violations carried out by their business parties.[4]

Therefore, it is legitimate to contend that we are in presence of Premature rules, a Premature remedy that will negatively impact the perception of arbitration. Have we put the cart before the horse?

Indeed, the rules governing Business and Human Rights are still embryonic. The UN Guiding principles on Business and Human Rights[5] were endorsed by the UN Human Rights Council on 16 June 2011. The principles implement the UN “Protect, Respect and Remedy Framework” developed by the Special Representative of the Secretary-General’s Report on the issue of human rights and transnational corporations and other business enterprises, who endorsed the Guiding principles to his final report to the Human Rights Council[6] with the aim of “contributing to a socially sustainable globalization”.

The Guiding Principles include three Pillars, the first sets-out the States’ duty to protect Human Rights; the second, the Corporate’s responsibility to protect Human Rights; and the third, safeguards the “access to remedy”, and by remedy the Principles mean “appropriate and effective”.

The UNGPs are the outcome of the Millennium Declaration of the UNGA of 8/9/2000; the Adoption of the UN Secretary General First Report on the rule of law and Transitional justice in Conflict and Post-Conflict Societies of 23 August 2004[7]. They were reinforced by the 2012 UNGA Declaration on the rule of law adopted only in 24/9/2012,[8] and the UN Secretary General 2012 Report to the Security Council on the rule of law and transitional justice in conflict and post-conflict societies.[9]

Since then, we have started to hear more and more about ESG (environment, social and governance) and CSR (corporate social responsibility). More and more practitioners are now becoming aware of ESG and CSR.

Yet, it is common knowledge that, whereas there is a plethora of rules with regard to Environment, the rules are still embryonic when it comes to Social and Governance. Both MNEs and States are still “learning” in this field, such there is lots of uncertainty and lacunae when it comes to the substantive rules applicable by arbitral tribunals sitting in BHR arbitrations.

Concerning the “E” for environment, there are more than 1500 climate-change related laws and policies, international, regional, sub-regional and national rules,[10] which, absent harmonization, creates a lot of inconsistency and unclarity, in a matter with lots of extraterritorial ramifications. This inconsistency is increased in a supply chain, where environmental concerns are integrated differently in each of the production units and where internal practices are often conflicting.

When it comes to the S (Social) and the G (governance) and CSR, there is a real lacuna about what these terms actually encompass and what they entail.

There is very little guidance to businesses about the conduct of human rights due diligence, and how to consider effectively issues of gender, vulnerability and/or marginalization, recognizing the specific challenges that may be faced by indigenous peoples, women, national or ethnic minorities, religious and linguistic minorities, children, persons with disabilities, and migrant workers and their families.

The other main problem when it comes to substantive rules, is the extraterritorial nature of obligations and rules that come into play in this kind of dispute, such that the inconsistency of awards will be a serious issue, which in our opinion, will inevitably impact the trust in the arbitration mechanism and its perception by the public at large.

In recent court cases brought by Human Rights victims against the mother company in the seat of its incorporation, we have seen that the fragmentation and unclarity of the standards of duty of care and of the substantive norms have led to inconsistent decisions by the courts of the same country and between national courts.[11]

If this is the case in State courts, how about arbitration where arbitrators are not bound by only one set of conflict of law rules and the factors of extraterritoriality can be increased with the increase of the number of the parties involved?

According to Article 46 of the BHR Rules,

“The arbitral tribunal shall apply the law, rules of law or standards designated by the parties as applicable to the substance of the dispute, or failing such designation, the law or rules of law which it determines to be appropriate. In all cases, the arbitral tribunal shall decide in accordance with the terms of the applicable agreement(s), if any, and shall take into account any usage of trade applicable to the transaction, including any business and human rights standards or instruments that may have become usages of trade”.

As explained in the commentary,

“The use of the complete phrase “law, rules of law or standards” in Article 46(1) intends to provide the parties with the broadest possible flexibility in choosing the normative sources from which the applicable law is drawn, including, for example, industry or supply chain codes of conduct, statutory commitments or regulations from sports-governing bodies or any other relevant (business and) human rights norms which the parties have agreed to apply. 3. The applicable law or rules of law determined by the tribunal under Article 46(2) may include international human rights obligations. Another matter for the tribunal to consider is the potential direct or indirect relevance of international human rights obligations of any States involved in the dispute either as parties or as the State of nationality of any of the parties.”

Putting Article 46 into context, given the fragmented legal framework, the arbitrators’ task will definitely not be the easiest, especially where there was no choice of law by the parties.

Added to that, the Commentary of Article 12 of the UNGPs provides that, “the responsibility of business enterprises to respect human rights is distinct from issues of legal liability and enforcement, which remain defined largely by national law provisions in relevant jurisdictions”.

In these circumstances, how would an arbitral tribunal determine such personal liability and whether or not it has been engaged in abstract of the laws applicable to legal liability and enforcement, if any?

The Urbaser v. Argentina Award of 2016 which involved the human right to water and sanitation and where the UNGPs have been invoked is a stark example of the challenges faced by arbitral tribunals in this type of disputes. The Tribunal emphasised that Argentina did not provide any legal ground entitling individuals to claim compensation for the violation of their right to water, nor that such violation entails a duty of reparation under international law with the effect that the concerned individuals obtain compensation for the alleged harm.

In this case, the Arbitral Tribunal solemnly declared that, “in light of this more recent development [CSR], it can no longer be admitted that companies operating internationally are immune from becoming subjects of international law. On the other hand, even though several initiatives undertaken at the international scene are seriously targeting corporations' human rights conduct, they are not, on their own, sufficient to oblige corporations to put their policies in line with human rights law. The focus must be, therefore, on contextualizing a corporation’s specific activities as they relate to the human right at issue in order to determine whether any international law obligations attach to the non-State individual.”[12]

Moreover, very complex issues of conflict of laws will arise in disputes involving supply chains which involve parties from multiple jurisdictions, and thus, include domestic measures involving extraterritorial obligations.

Aware of the complexities of supply chains and business structures, the Commentary of Article 17 of the UNGPs clarifies that “where business enterprises have large numbers of entities in their value chains it may be unreasonably difficult to conduct due diligence for adverse human rights impacts across them all. If so, business enterprises should identify general areas where the risk of adverse human rights impacts is most significant, whether due to certain suppliers’ or clients’ operating context, the particular operations, products or services involved, or other relevant considerations, and prioritize these for human rights due diligence.”[13]

This leads us to the following question: Can an arbitral tribunal appreciate whether human rights due diligence requirements have been met in a supply chain in a vacuum, or on the basis of Article 17 only, without relying on national legislations (if any)? and if the latter do exist, which ones?

Furthermore, although not at the origin of the Human Rights adverse impact, a business may find itself “complicit” in the acts of another business “if they are seen to benefit from an abuse committed by that party”. It will be a matter for national legislations on civil and criminal liability to deal with the legal liability according to the UNGPs commentary.[14] Yet, in the meantime, until such legislations are enacted, how can an arbitral tribunal determine such complicity? On which set of rules? Based on which criteria?

Finally, which rules to apply in case of gross human rights abuses in conflict-affected and high-risk areas?

These are not mere hypotheses as may be evidenced by existing material addressing serious violations of Human Rights such as “The OECD Due Diligence Guidance for Responsible Mineral Supply Chains”[15] and “The Lusaka Declaration of the ICGLR (International Conference of the Great Lakes Region)”.[16]

Accordingly, there is an increased likelihood of contradicting awards, which leads to the second criticism that can be raised against BHR Arbitration: the lack of effectiveness.

2- The Lack of Effectiveness and Efficiency of BHR Arbitration

I will not address the topic from the perspective of effectiveness of the award, which involves issues of arbitrability, commerciality, public policy, and class actions. I will address it from the effectiveness of the arbitration process itself.

To advocate for the BHR Hague Rules, my learned colleague Clémence Assou has mentioned that “arbitration provides ‘Innovative procedures’, like site visits”.

This, however, raises the following questions:

- How would experts be able to access conflicted zones to investigate?

- What is the likelihood for arbitrators to be willing or able to travel to the conflicted zone for appreciation of evidence?

Additionally, the UNGPs adopt the principle of proportionality concerning the means through which businesses meet their responsibilities to respect Human Rights, in consideration of their size, the sector of their activities and the severity of impacts of their activities on Human Rights, amongst others. The “Severity of impacts will be judged by their scale, scope and irremediable character.” (Commentary of Art. 14).

Yet, how would arbitrators and experts investigate the severity of impacts of the activities on Human Rights when they need visas to get into the country where the violations are taking place?

Moreover, coming to the costs of arbitration, “the BHR Arbitration Rules are not drafted from a rights holder-claimant’s perspective. […] The Rules’ default position on costs, for instance, claimants bear their and the defendant company’s legal costs, a possibility that would likely deter legitimate claims, especially if defendant companies are expected to employ high-priced legal counsel.”[17]

Finally, one may wonder why a Corporate would insert an arbitration clause instead of a choice of court clause recognising the jurisdiction of the courts of its place of incorporation? As pointed-out by learned Scholars, “arbitration will be agreed to when it has advantages for the corporate defendant. The flipside is that, for victim claimants, arbitration may pose risks that litigation in other forums does not. Prospective claimants may not be aware of these benefits to companies, and risks to claimants, when they agree to arbitrate.”[18]

This points us back to the issue of informed decision by the stakeholders and the fairness and effectiveness of the arbitration process in BHR disputes.

3- The Lack of Accountability and The Lack of Effectiveness

Article 19 provides for Multiparty arbitration including class actions and Joinder under the two following scenarios:

- parties or third-party beneficiaries of the underlying legal instrument that includes the relevant arbitration clause; and

- that of parties to, or third-party beneficiaries of, the arbitration agreement itself.

Firstly, regarding Class actions and the arbitrators' powers, how will arbitrators deal with Class Actions and actually, can they? is the arbitration system tailored in the first place to deal with them? Class actions in BHR Arbitration give rise to the same issues and debate about class actions in arbitration in general, such as issues of consent, arbitrability and management and conduct of the proceedings with fairness, efficiency and effectiveness.

Secondly, BHR Arbitration also thrusts into the limelight issues of accountability of arbitrators and effectiveness of the arbitration process when the host State has the same interests as the MNE and all reasons to thwart the arbitration proceedings.

Would the State seriously grant visas to the arbitrators and experts to conduct site visits? Can we really expect the enforceability of the award in the host State, if the arbitrators decide in favour of the victims?

Added to that, what if the State intervenes in the proceedings for the purpose of supporting the investor and not the victims of Human Rights violations?

What if the State invokes its right to regulate and thus its sovereign power to sacrifice certain rights, of a minority group for instance, in favour of the more general public interest? Article 1 of the Charter of Economic Rights and Duties of States enshrines, every State’s “sovereign and inalienable right to choose its economic system as well as its political, social and cultural systems in accordance with the will of its people, without outside interference, coercion or threat in any form whatsoever”.

Besides serious issues of jurisdiction, does an arbitral tribunal have the power, the tools, and even more, the legitimacy to apply the proportionality test in that case? Can it seriously appreciate and decide whether the State complied with the proportionality test requirements when it sacrificed the rights of minorities for the benefit of a more crucial interest of the more general public?

Finally, and more generally, are three, five or seven individuals well-armed and have the necessary tools to assess abuses and violations of Human Rights?

Conclusion

The BHR Arbitration Rules are both premature and “out of synch”.

One may wonder if, instead of spending resources to pay a panel of arbitrators who lack any accountability, would it not be more appropriate to use these resources to adjust the court system and rules and correct the pending deficiencies?

After all, Africa is not a rich continent, and it would be more beneficial both for African States and victims to use spent resources in BHR Arbitration (with or without Third-Party Funding) to foster the court system of these countries and enhance the Rule of Law. Perhaps, enhancing the rule of law in Africa through enactment of regulations and building capacity of African judges would be more beneficial for the victims of Human Rights.

The by-default rules, opt-out rules on transparency and the rules on expedited procedures require an “informed decision”. One may doubt that today, any of the stakeholders, including the MNEs themselves, have enough information of any kind to make an informed decision.

Finally, beyond the issue of perception of arbitration, with all the by-default rules added by the Hague Rules to adapt the arbitration system to the specificities of BHR disputes, are we actually still talking about the same thing?

____________________

* Dr Sally El Sawah is Founder and Principal of El Sawah Law | Paris and AfAA Deputy Secretary General. She is Attorney-At-Law at Paris and Cairo Bar Associations and Registered Foreign Lawyer (England & Wales). She holds an LL.M. and a Ph.D. in International Law from Sorbonne University and a Bachelor of Laws from Cairo and Sorbonne Universities.

[2] Anna Berti Suman, “Human rights violations in the ChevronTexaco case, Ecuador: Cultural genocide?” Global Campus Human Rights Journal 2017, p 259. Regarding the Chevron/Ecuador saga, the author explained that ‘‘the core of the discussion is represented by the assertion that the Chevron case could be regarded as a form of colonisation, cultural genocide and even a crime against humanity. This reflection is rooted in the analysis of international instruments enacted in defence of indigenous peoples’ rights.’’, p. 261.

[3] Patience Okala used this term in her contribution on “Current Initiatives and Proposals on ISDS Reform at Multilateral Levels”.

[4] Bruno Simma and others, “International Arbitration of Business and Human Rights Disputes- Elements For Consideration In Draft Arbitral Rules, Model Clauses, And Other Aspects Of The Arbitral Process, Prepared by the Drafting Team of the Hague Rules on Business and Human Rights Arbitration”, 2018, p. 3, <https://www.cilc.nl/cms/wp-content/uploads/2019/01/Elements-Paper_INTERNATIONAL-ARBITRATION-OF-BUSINESS-AND-HUMAN-RIGHTS-DISPUTE.font12.pdf> .

[5] <https://www.ohchr.org/documents/publications/guidingprinciplesbusinesshr_en.pdf>.

[6] A/HRC/17/31.

[7] Report of the Secretary-General, UN Doc S/2004/616 (2004), 23 August 2004.

[8] A/RES/67/1. In principle, the UN Declaration which underlies the interrelation between the rule of law and sustainable development is non-binding.

[9] S/2011/634.

[10] Grantham Research Institute on Climate Change and the Environment, “Global trends in climate change legislation and litigation: 2018 snapshot”, <https://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2018/04/Global-trends-in-climate-change-legislation-and-litigation-2018-snapshot-3.pdf>.

[11] Vedanta Resources Plc and Konkola Copper Mines Plc (Appellants) v Lungowe and Ors. (Respondents) [2019] UKSC 20; Ekaterina Aristova, Tort Litigation against Transnational Corporations in the English Courts: The Challenge of Jurisdiction, Utrecht Law Review Volume 14, Issue 2, 2018, p 7; Okpabi & Others v Royal Dutch Shell Plc & Another [2021] UKSC 3 ; Wiwa v. Royal Dutch Petroleum Co., Wiwa v. Anderson, Wiwa v. Shell Petroleum Development Company (3 cases before US Court for the Southern District of New York), < https://ccrjustice.org/home/what-we-do/our-cases/wiwa-et-al-v-royal-dutch-petroleum-et-al>.

[12] Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. The Argentine Republic, ICSID Case No. ARB/07/26, 8 Dec. 2016, para. 1195. (Emphasis added).

[13] Emphasis added.

[14] Commentary of Article 17 of the UNGPs.

[15] The 3rd Edition of the OECD Due Diligence Guidance was published in April 2016, <OECD (2016), OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas: Third Edition, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264252479-en>.

[16] The Lusaka Declaration on Illegal Exploitation of Natural Resources was signed by 11 Heads of State of the International Conference on the Great Lakes Region (ICGLR) in December 2010. The signatories are Angola, Burundi, Central African Republic, Democratic Republic of Congo, Kenya, Rwanda, Sudan, Tanzania, Uganda. The Declaration provides that “11. Call on the Multinational Companies to put an end to unfair protectionism and working with illegal or criminal organized groups in the region to the detriment of security in the region”. < https://www.oecd.org/daf/inv/mne/47143500.pdf>.

[17] Lisa E. Sachs, Lise Johnson, Kaitlin Y. Cordes, Jesse Coleman & Brooke Güven, “The Business and Human Rights Arbitration Rule Project: Falling Short of its Access to Justice Objectives”, (2019), <https://scholarship.law.columbia.edu/sustainable_investment_staffpubs/152>.

[18] Ibid.

The Advent of Investor Obligations in an African Model for International Investment Law Reform by Jackson Shaw Kern*

Thu, 29 Apr 2021 09:43:54 GMT

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021

Executive Summary

Incorporating investor obligations in international investment agreements may serve to achieve a more equitable balance as between the interests of host States and investors in international investment law. This approach has gained considerable traction in Africa. Now, as the project for the African Continental Free Trade Area advances, the question is not whether its investment protocol should contain investor obligations but rather how such obligations might be adopted in the most impactful manner. Beginning from the framework of prior instruments culminating in the draft Pan-African Investment Code of 2016, this article proposes the inclusion of enforceable investor obligations which may be balanced against better-defined investor protections in order to afford greater legal certainty paired with meaningful legal remedy, and thereby to foster expansion of responsible intracontinental investment in Africa.

Investor Obligations in Africa to Date

Identifying an optimal means of balancing the interests of the investor and the host State requires understanding their true interests. While the interest of the investor is to realize (and often to repatriate) a profit under rule of law, the interest of the host State is to enjoy benefits of capital inflows while free from harm. In order to balance these interests, investment agreements may establish not only rights of investors but also their obligations. While perhaps considered novel in some corners of the earth, investor obligations have a rich history in Africa.[2]

Through the nearly five years of the Pan-African Investment Code’s existence, it is by now well known that the Code is declared non-binding. Further than this, it would not itself textually establish arbitral jurisdiction to hear investor-State disputes even if it were binding. Rather, the Code permissively sets out that the African States may consent to such sort of arbitral jurisdiction if they so wish.[3] It is thus little more than a truism, a simple affirmation of an existing and inherent sovereign right.

Looking beyond consent and jurisdiction to the merits, to the substantive rights granted and the obligations that would be imposed under the model of the Code, what one finds is, as measured by the paradigm of global treaty practice over the past half-century, quite extraordinary. That paradigm has been the one-way street, a street in which substantive protections (substantive rights) flow in favor of the investor only. But when one looks to the Code, one sees two things, in rather stark relief.

First, while certain investment protections have been preserved (including the classic protection against expropriation), others which investors have come to expect as a matter of right, first and foremost the guarantee of fair and equitable treatment (“FET”) as well as the guarantee of full protection and security (“FPS”), are nowhere to be found. It is difficult to ignore the irony that by this choice, the African States would deny to investors of their African counterparties guarantees which have been afforded to Northern investors essentially since the time of independence (and which would continue to be afforded to those investors in the absence of any parallel effort to alter or amend still-extant North-South treaties). In a rather perverse manner, it is almost as if intra-African investors would be made to suffer for the African States’ dissatisfaction with a generation’s worth of arbitration results originating in the North and with which they have had nothing to do.

Second, building upon the tradition of the regional economic communities (“RECs”) and other recent intra-African investment instruments,[4] the Code contains investor obligations, thus marking a definitive end to the one-way street. The provisions on investor obligations are perhaps less than fully formulated, but they are more than merely aspirational or preambulatory: they are conceived to be hard investor obligations.[5] In a certain sense, here, the irony deepens. Northern investors may continue to enjoy FET and FPS while being free of any countervailing control on their conduct at international law. Meanwhile, intra-African investors are denied FET and FPS and, not only this, they are saddled with burdensome obligations (or so the argument might go). It has been written that this result is “not a function of animus” but rather “doctrinal confusion.”[6] What is certain is that as measured by these two features, the Code marks a fairly dramatic swing of the pendulum: reduced investor protections paired with inclusion of investor obligations.

This result in the Code is, in large part, a function of the multilateral negotiation dynamic. It may be recalled that as the modern era of international investment law was first being forged in the decade after the Second World War, the multilateral 1959 Draft Convention on Investments Abroad (the so-called Abs-Shawcross initiative) would fail.[7] Meanwhile, the first bilateral investment treaty (the renowned Germany-West Pakistan treaty) was markedly more successful in setting the tone; it was concluded in that same year.[8] It seems evident that the enduring paradigm of bilateral instruments may be explained by elementary negotiation theory: States with greater bargaining power (or the perception or illusion thereof) were able to gain more favorable terms vis-à-vis a single negotiating partner.[9] More powerful States thus preferred this result as contrasted to the less advantageous lowest common denominator which would inevitably emerge in a more rigorous multilateral negotiation.[10] Put more bluntly, capital exporting States were able to gain more favorable terms vis-à-vis capital importing States by playing them one-on-one.

In an illustration of the enduring power of this bilateral paradigm, four decades after the demise of the Abs-Shawcross initiative, an initiative by the OECD for a Multilateral Agreement on Investment would similarly meet with failure when negotiations were discontinued in the late 1990s.[11] Looking forward another twenty years, it is evident that this multilateral negotiation dynamic persists in the present pan-African investment initiatives. The instrument establishing the Continental Free Trade Area is, after all, not merely a multilateral instrument but a sort of mega-multilateral instrument comprising all the African States minus Eritrea.

The result that has been reached in the Code may ultimately contravene the very purpose of that insrument itself, as traceable to venerable prior African instruments. The establishment of the Organisation of African Unity in 1963 may be said to formally mark the birth of the pan-African project.[12] By 1980, when the Lagos Plan of Action for the Economic Development of Africa was adopted, the States clearly indicated their commitment to regional integration.[13] This agenda was furthered in the Treaty Establishing the African Economic Community of 1991,[14] following which many RECs were established. A primary purpose of these instruments was to promote intra-African trade and investment and thereby propel a balanced economic development.[15] The Code was, by its own terms, aimed squarely toward this end.[16]

To tie these strands together: the swinging of the pendulum that is seen in the Code reflects an element of backlash against the status quo of the investment law régime, dissatisfaction with the investment law jurisprudence, to be sure. But this result portends deep dissatisfaction paired with the reality of the mega-multilateral negotiation dynamic. We have today vastly uneven levels of economic development and capital accumulation across and within the very many African States. This reality leads to competing objectives and interests in the crafting of a pan-African brand of international investment law.

The bad news is that a poor historical record in the seeking of multilateral investment agreements now forms the backdrop against which the investment protocol initiative unfolds. The good news is that if we honestly acknowledge and confront this challenge, there may be a solution that presents itself.

The Prospect of Balance in the Investment Protocol of the African Continental Free Trade Area

The Agreement Establishing the African Continental Free Trade Area came into effect on 30 May 2019.[17] Within a July 2019 joint report of the United Nations Economic Commission for Africa, the African Union, the African Development Bank, and the United Nations Commission on Trade and Development entitled Assessing Regional Integration in Africa IX (“ARIA IX”), the authors offer four pillars of a foundation for its investment protocol.[18] These four pillars are now adopted as underpinning the forthcoming investment protocol negotiations, including a pillar of Investor Obligations:

United Nations Economic Commission for Africa et al, Assessing Regional Integration in Africa IX (2019) 187

One also sees in this depiction an Investment Protection pillar, including reference to FET (or a possible alternative thereto). Further, one sees a first pillar of Investment Promotion and Facilitation (which items are often foremost in investors’ minds at the time of making an investment) as well as a final pillar of State Commitments (which rightfully calls upon the States to do their part in achieving the goals of sustainable development).

Each of these pillars carries the potentiality of transformative power that may be unleashed to expand responsible intra-African investment. The focus for purposes of the present article is upon the second and third pillars, for the fundamental suggestion is that perhaps the pathway forward in first reaching a mutually agreeable instrument and thereby advancing intra-African investment lies in seeking an optimal point of balance as between investor rights and obligations. This objective requires going beyond merely setting out in a meaningful way the host State’s right to regulate.[19] It rather requires hard investor obligations that are actually justiciable in the investment arbitration forum.[20]

As may be seen in the Code, Africa has now spoken in favor of the enfranchisement of investor obligations. This approach is also gaining acknowledgement in the context of other fora, including more universal efforts for the reform of international investment law. Thus, the UNCITRAL Secretariat has recorded that its Working Group III for Investor-State Dispute Settlement Reform “may wish to consider formulating provisions on investor obligations which would form the basis for a State’s counterclaims” and that such obligations “may relate to the protection of human rights and the environment, compliance with domestic law, measures against corruption and the promotion of sustainable development.”[21] The Institut de Droit International has, for its part, recorded by resolution that “[b]oth the State and the investor are equally entitled to submit a claim in relation to an investment to a tribunal, subject to the terms of the instrument of consent, interpreted in accordance with the principle of the equality of the parties,” this latter being “a fundamental element of the rule of law that ensures a fair system of adjudication” and, as such, “a general principle of law applicable to the procedure of international courts and tribunals.”[22] Within the very most recent workplan document of the Working Group III, the point is affirmed once again, it being noted that its scope of works shall include “consideration of new rules with respect to… counterclaims.”[23]

Having witnessed the pendulum swing of the Code, reduced investor protections and expanded investor obligations, one manner of propelling the investment protocol of the Continental Free Trade Area may be to let the pendulum fall to the center of gravity, to seek a truly fair and equitable balance of investor rights and obligations.

On investor protections, reaching back to FET, it might be re-incorporated in a manner so as to afford greater legal certainty than one presently enjoys at the status quo. On this point, Africa faces a vast spectrum of options, perhaps beginning from a simple express prescription that FET is to be equated to the minimum standard of treatment of aliens at customary international law. This has been done in the context of, for example, the 2001 note of interpretation rendered by NAFTA’s Free Trade Commission and intended thereafter to be binding in disputes under NAFTA.[24] The formulation was then adopted in the 2004 US model treaty and maintained in the 2012 model treaty:

“1. Each Party shall accord to covered investments treatment in accordance with customary international law, including fair and equitable treatment and full protection and security.

2. For greater certainty, paragraph 1 prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to covered investments. The concepts of ‘fair and equitable treatment’ and ‘full protection and security’ do not require treatment in addition to or beyond that which is required by that standard, and do not create additional substantive rights. The obligation in paragraph 1 to provide:

(a) ‘fair and equitable treatment’ includes the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of the world; and

(b) ‘full protection and security’ requires each Party to provide the level of police protection required under customary international law.”[25]

In 2007, the drafters of the Common Market for Eastern and Southern Africa investment agreement employed a perhaps functionally equivalent formulation:

“1. Member States shall accord fair and equitable treatment to COMESA investors and their investments, in accordance with customary international law. Fair and equitable treatment includes the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of the world.

2. Paragraph 1 of this Article prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to covered investments and does not require treatment in addition to or beyond what is required by that standard.”[26]

The drafters added however a further provision which, while commendable for its sensitivity to varying host State conditions, may not assist in the endeavor to achieve greater legal certainty:

“3. For greater certainty, Member States understand that different Member States have different forms of administrative, legislative and judicial systems and that Member States at different levels of development may not achieve the same standards at the same time. Paragraphs 1 and 2 of this Article do not establish a single international standard in this context.”[27]

Within the 2012 Southern African Development Community Model Bilateral Investment Treaty, a note by the drafting committee records as follows:

“The fair and equitable treatment provision is, again, a highly controversial provision. The Drafting Committee recommended against its inclusion in a treaty due to very broad interpretations in a number of arbitral decisions. It requested the inclusion of an alternative formulation of a provision on ‘Fair Administrative Treatment.’”[28]

Two options are then set out. The first reads that “[e]ach State Party shall accord to Investments or Investors of the other State Party fair and equitable treatment in accordance with customary international law on the treatment of aliens,”[29] accompanied by the following specification: “For greater certainty, [the standard] requires the demonstration of an act or actions by the government that are an outrage, in bad faith, a wilful neglect of duty or an insufficiency so far short of international standards that every reasonable and impartial person would readily recognize its insufficiency.”[30] With these words, the drafters have captured essentially verbatim one of the most oft-quoted articulations of the deferential minimum standard in international jurisprudence, dating from the Neer Claim of nearly one hundred years ago.[31]

The precise contours of the minimum standard remain something less than fully demarcated, and this threshold remains oft-litigated even today. As such, even formulations such as these may not be fully effective in removing the indeterminacy that is characteristic of the standard nor in resolving the feature of most strident criticism.

A further option is to trend toward an independent standard detached from the international minimum, a more highly particularized prescription which might spell out a more precise meaning. The alternative formulation presented within the Southern African Development Community model treaty offers that “[t]he State Parties shall ensure that their administrative, legislative, and judicial processes do not operate in manner that is arbitrary or that denies administrative and procedural [justice] [due process] to investors of the other State Party or their investments [taking into consideration the level of development of the State Party.]”[32] Meanwhile in, for example, the Comprehensive Economic and Trade Agreement between Canada and the European Union and its member States, the parties have ascribed the following content to the FET standard:

“1. Each Party shall accord in its territory to covered investments of the other Party and to investors with respect to their covered investments fair and equitable treatment and full protection and security in accordance with paragraphs 2 through 7.

2. A Party breaches the obligation of fair and equitable treatment referenced in paragraph 1 if a measure or series of measures constitutes:

(a) denial of justice in criminal, civil or administrative proceedings;

(b) fundamental breach of due process, including a fundamental breach of transparency, in judicial and administrative proceedings;

(d) targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief;

(e) abusive treatment of investors, such as coercion, duress and harassment; or

(f) a breach of any further elements of the fair and equitable treatment obligation adopted by the Parties in accordance with paragraph 3 of this Article.

3. The Parties shall regularly, or upon request of a Party, review the content of the obligation to provide fair and equitable treatment. The Committee on Services and Investment, established under Article 26.2.1(b) (Specialised committees), may develop recommendations in this regard and submit them to the CETA Joint Committee for decision.

4. When applying the above fair and equitable treatment obligation, the Tribunal may take into account whether a Party made a specific representation to an investor to induce a covered investment, that created a legitimate expectation, and upon which the investor relied in deciding to make or maintain the covered investment, but that the Party subsequently frustrated.

5. For greater certainty, ‘full protection and security’ refers to the Party’s obligations relating to the physical security of investors and covered investments.

6. For greater certainty, a breach of another provision of this Agreement, or of a separate international agreement does not establish a breach of this Article.

7. For greater certainty, the fact that a measure breaches domestic law does not, in and of itself, establish a breach of this Article. In order to ascertain whether the measure breaches this Article, the Tribunal must consider whether a Party has acted inconsistently with the obligations in paragraph 1.”[33]

The States may now ascribe to their chosen treaty standards of investment protection any meaning they might wish in a forthcoming Africanization of international investment law.

Enforcing Investor Obligations

As for investor obligations, numerous of the substantive bases identified in the ARIA IX report are eminently viable candidates for inclusion, including in respect of human rights, labor rights, environmental rights, indigenous peoples’ rights and, of course, anti-corruption.[34] The proposed framework for balancing investor rights and States’ interests becomes meaningful where the investment protocol contains a mechanism to enforce the chosen investor obligations. On the issue of how to achieve jurisdiction over the investor in the arbitral forum, the authors of the ARIA IX report offer the following:

“Investor obligations

The international investment regime historically imposed obligations only on host States, not on private investors (Paulsson, 1995). However, as underscored by the PAIC, IIAs may serve as vehicles for investor rights and also for their obligations, which could rebalance the regime. Investor obligations can be a source for claims against transgressing investors and for counterclaims by defending States. The right to initiate proceeding may be bestowed upon the [host] State, its nationals or both (Amado, Kern and Rodriguez, 2017).”[35]

In similar vein, the UNCITRAL Secretariat has recorded that its Working Group III for Investor-State Dispute Settlement Reform “may wish to consider whether the framework for counterclaims by respondent States could be expanded to allow for claims by third parties against investors.”[36] Where desired, enhancements may be applied to the model of presently existing texts carrying investor obligations (such as in the RECs and the Pan-African Investment Code) to conclusively achieve obligations that are justiciable in international law.

In a first option, a contingent consent clause may be entered into the investment protocol, such that each host State’s standing offer of arbitration in respect of the investment protections is no longer unconditional but is rather contingent upon the investor giving his own consent to arbitration in respect of the chosen investor obligations:[37]

In a second option, jurisdiction over the investor may be obtained by direct effect of the investment protocol, with each State party acting to submit its own investor-nationals to the jurisdiction of an international tribunal by the simple fact of their effecting a cross-border investment, without need of their express consent, in a form of arbitration without privity:[38]

After all, in one of the very first treaty instruments to establish investor-State arbitration (and the first to confer jurisdiction upon the International Centre for Settlement of Investment Disputes), the Netherlands and Indonesia accorded in 1968 that “[t]he Contracting Party in the territory of which a national of the other Contracting Party makes or intends to make an investment, shall assent to any demand on the part of such national and any such national shall comply with any request of the former Contracting Party, to submit, for conciliation or arbitration, to [ICSID] any dispute that may arise in connection with the investment.”[39]

Conclusion

In conclusion, we propose a fair and equitable balance of investor rights plus countervailing investor obligations in international investment law. It has now been recognized that adoption of investor obligations is the right thing to do; in Africa, this debate is over. Further than this, in perhaps a rare instance, the normative motivation to do the right thing coincides with present practicality, for in this manner might one find the point of optimization and balance that may be acceptable to all. As a policy matter, such offers the viable pathway forward in negotiation of a mega-multilateral instrument with diverse capital importing and exporting interests present, both across and within the very many African States. At this time when the whole world casts about for a suitable model in the reform of international investment law, and at this time where we have placed our planet in peril, perhaps Africa might show the way by ensuring protections against true abuse of investors while also imposing hard investor obligations that will nurture the very most responsible business conduct, and thereby deliver what is truly a protocol on sustainable investment for Africa.

_____________________

*Of Counsel, Addis Law Group LLP co-authored by Gidey Belay Assefa of Addis Law Group LLP. The views herein expressed are those of the authors.

[2] Long prior to the emergence of the Pan-African Investment Code, investor obligations were seen in numerous instruments of the various regional economic communities. Early traces of investor obligations may be found in the 1980 Unified Agreement for the Investment of Arab Capital in the Arab States and the 1981 Agreement on Promotion, Protection and Guarantee of Investments Among Member States of the Organization of the Islamic Conference, to which some half of the States party are African. See Unified Agreement for the Investment of Arab Capital in the Arab States, 1980, available at https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/2394/download and Agreement on Promotion, Protection and Guarantee of Investments Among Member States of the Organization of the Islamic Conference, 1981, available at https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/2399/download. The 2006 Southern African Development Community Protocol on Finance and Investment requires investors to abide by the laws, regulations, administrative guidelines and policies of the host State. See Southern African Development Community Protocol on Finance and Investment, 2006, available at https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/2730/download. The 2007 Investment Agreement for the Common Market for Eastern and Southern Africa similarly requires investors to comply with all applicable domestic measures while expressly allowing for counterclaims by the host State (though it has never entered into force). See Investment Agreement for the Common Market for Eastern and Southern Africa, 2007, available at https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/3092/download. A 2008 Supplementary Act of the Economic Community of West African States introduces elements including investors’ obligations to conduct environmental and social impact assessments and to observe labor, human rights and corporate governance standards while expressly allowing the host State to raise a counterclaim or to initiate a unilateral claim opposable to the investor. See Supplementary Act of the Economic Community of West African States, 2008, available at https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/3266/download. These various provisions on investor obligations, while perhaps under-operationalized to date, are unmistakably present.

[3] Draft Pan-African Investment Code, December 2016, Article 42, available at https://au.int/sites/default/files/documents/32844-doc-draft_pan-african_investment_code_december_2016_en.pdf.

[4] See note 2 supra; see also, e.g., Reciprocal Investment Promotion and Protection Agreement Between the Government of the Kingdom of Morocco and the Government of the Federal Republic of Nigeria, 2016, available at https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/5409/download.

[5] Draft Pan-African Investment Code, December 2016, Articles 19-24, available at https://au.int/sites/default/files/documents/32844-doc-draft_pan-african_investment_code_december_2016_en.pdf.

[6] Won L. Kidane, Contemporary International Investment Law Trends and Africa’s Dilemmas in the Draft Pan-African Investment Code, The Geo. Wash. Int’l L. Rev. (2018) Vol. 50, 578.

[7] Draft Convention on Investments Abroad (Abs-Shawcross Draft Convention), 1959, available at https://www.international-arbitration-attorney.com/wp-content/uploads/137-volume-5.pdf.

[8] Treaty Between Federal Republic of Germany and Pakistan, 1959, available at https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/1387/download.

[9] See, e.g., M. Sornarajah, The International Law on Foreign Investment (Cambridge University Press, 3rd ed, 2010) 177.

[10] For a recent example of what may nonetheless be a significant success story in the domain of multilateral investment agreements, see Comprehensive and Progressive Agreement for Trans-Pacific Partnership, 2018, available at https://www.dfat.gov.au/sites/default/files/tpp-11-treaty-text.pdf. See also the China-led Regional Comprehensive Economic Partnership Agreement, 2020, available at https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/6032/download.

[11] OECD, Draft Multilateral Agreement on Investment, 1995, available at https://www.oecd.org/investment/internationalinvestmentagreements/multilateralagreementoninvestment.htm.

[12] Organisation of African Unity Charter, 1963, available at https://au.int/sites/default/files/treaties/7759-file-oau_charter_1963.pdf.

[13] Lagos Plan of Action for the Economic Development of Africa 1980-2000, Organisation of African Unity, 1980, available at https://www.uneca.org/itca/ariportal/docs/lagos_plan.pdf.

[14] Treaty Establishing the African Economic Community (with Protocol dated 2 March 2001), signed on 3 June 1991 (entered into force on 12 May 1994), available at https://treaties.un.org/doc/Publication/UNTS/No%20Volume/55375/Part/I-55375-0800000280526ec1.pdf.

[15] United Nations Economic Commission for Africa, How African countries are boosting intra-African investment, with a view to sharing best practices among member States (2017) 3.

[16] The Code, in its preamble, states that the member States recognize the “importance of trade and investments for the growth and development of Africa” and desire to “promote an attractive investment climate and expand trade and investment.” Draft Pan-African Investment Code, December 2016, Preamble, available at https://au.int/sites/default/files/documents/32844-doc-draft_pan-african_investment_code_december_2016_en.pdf. The protections and obligations that the Code extends are to African investors, and the presumed host states are the African states.

[17] Agreement Establishing the African Continental Free Trade Area, 2019, available at https://au.int/sites/default/files/treaties/36437-treaty-consolidated_text_on_cfta_-_en.pdf.

[18] United Nations Economic Commission for Africa et al, Assessing Regional Integration in Africa IX (2019) 187.

[19] On the right to regulate, see, e.g., Talkmore Chidede, The Right to Regulate in Africa’s International Investment Law Regime, Oregon Rev. of Int’l Law (2019) Vol. 20.

[20] For a fuller argument in favor of this proposition, see JD Amado, JS Kern and MD Rodriguez, Arbitrating the Conduct of International Investors (Cambridge University Press, 2018).

[21] Possible Reform of Investor-State Dispute Settlement (ISDS): Multiple Proceedings and Counterclaims, UN Doc. No. A/CN.9/WG.III/WP.193, dated 22 January 2020, available at https://undocs.org/en/A/CN.9/WG.III/WP.193.

[22] Resolution on Equality of Parties before International Investment Tribunals, Institut de Droit International, dated 31 August 2019, Preamble and Art. 2(1), available at https://www.idi-iil.org/app/uploads/2019/09/18-RESEN.pdf.

[23] Workplan to implement investor-State dispute settlement (ISDS) reform and resource requirements, UN Doc. No. A/CN.9/WG.III/WP.206, dated 21 March 2021, para. 9, available at http://undocs.org/en/A/CN.9/WG.III/WP.206.

[24] North American Free Trade Agreement, Notes of Interpretation of Certain Chapter 11 Provisions, NAFTA Free Trade Commission, 2001, available at http://www.sice.oas.org/tpd/nafta/commission/ch11understanding_e.asp.

[25] 2012 US Model Bilateral Investment Treaty, Art. 5 (“Minimum Standard of Treatment”), available at https://ustr.gov/sites/default/files/BIT%20text%20for%20ACIEP%20Meeting.pdf. An annex on interpretation states that “[t]he Parties confirm their shared understanding that ‘customary international law’ generally and as specifically referenced in Article 5 [Minimum Standard of Treatment] … results from a general and consistent practice of States that they follow from a sense of legal obligation,” and that “[w]ith regard to Article 5 [Minimum Standard of Treatment], the customary international law minimum standard of treatment of aliens refers to all customary international law principles that protect the economic rights and interests of aliens.” Ibid., Annex A.

[26] Investment Agreement for the COMESA Common Investment Area, 2007, Art. 14, available at https://investmentpolicy.unctad.org/international-investment-agreements/treaties/treaties-with-investment-provisions/3225/comesa-investment-agreement.

[27] Investment Agreement for the COMESA Common Investment Area, 2007, Art. 14, available at https://investmentpolicy.unctad.org/international-investment-agreements/treaties/treaties-with-investment-provisions/3225/comesa-investment-agreement (emphasis added).

[28] SADC Model Bilateral Investment Treaty Template, with Commentary, 2012, available at https://www.iisd.org/itn/wp-content/uploads/2012/10/SADC-Model-BIT-Template-Final.pdf.

[29] SADC Model Bilateral Investment Treaty Template, with Commentary, 2012, available at https://www.iisd.org/itn/wp-content/uploads/2012/10/SADC-Model-BIT-Template-Final.pdf.

[30] SADC Model Bilateral Investment Treaty Template, with Commentary, 2012, available at https://www.iisd.org/itn/wp-content/uploads/2012/10/SADC-Model-BIT-Template-Final.pdf.

[31] Neer Claim, Mexico-US General Claims Commission, RIAA, IV (1926) 61-62, available at https://legal.un.org/riaa/cases/vol_IV/60-66.pdf.

[32] SADC Model Bilateral Investment Treaty Template, with Commentary, 2012, available at https://www.iisd.org/itn/wp-content/uploads/2012/10/SADC-Model-BIT-Template-Final.pdf.

[33] Comprehensive Economic and Trade Agreement Between Canada, of the one part, and the European Union and its Member States, of the other part, provisionally entered into force on 21 September 2017, Art. 8.10 (“Treatment of investors and of covered investments”), available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A22017A0114%2801%29.

[34] See JD Amado, JS Kern and MD Rodriguez, Arbitrating the Conduct of International Investors (Cambridge University Press, 2018), Chapter 5. For a current inquiry into the anti-corruption basis identified in the ARIA IX report, see also JD Amado, JS Kern and MD Rodriguez, Elevating Corruption to an International Tort, in Investors’ International Law (J Ho and M Sattorova, eds.) (forthcoming 2021).

[35] United Nations Economic Commission for Africa et al, Assessing Regional Integration in Africa IX (2019) 198.

[36] Possible Reform of Investor-State Dispute Settlement (ISDS): Multiple Proceedings and Counterclaims, UN Doc. No. A/CN.9/WG.III/WP.193, dated 22 January 2020, available at https://undocs.org/en/A/CN.9/WG.III/WP.193 (emphasis added).

[37] JD Amado, JS Kern and MD Rodriguez, Arbitrating the Conduct of International Investors (Cambridge University Press, 2018) 87-90 and Annex, Model 6 (“Contingent Consent Clause”).

[38] JD Amado, JS Kern and MD Rodriguez, Arbitrating the Conduct of International Investors (Cambridge University Press, 2018) 90-93 and Annex, Model 7 (“Jurisdiction without Privity”).

[39] Netherlands-Indonesia Agreement on Economic Cooperation (with Protocol and Exchanges of Letters dated 17 June 1968), signed on 7 July 1968 (entered into force on 17 July 1971), 799 UNTS 13, Art. 11 (emphasis added), available at https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/3329/download.

The Singapore Mediation Convention: a game changer for mediation in cross-border disputes? BY AGADA ELACHI Ph.D. FICMC, FCIArb (UK)*

Thu, 29 Apr 2021 08:49:19 GMT

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021.

INTRODUCTION

The challenge of mediation as a dispute resolution mechanism has always been in the inability to enforce the agreements that flow from the mediation process in the event of non-compliance by parties. In some circumstances, accepting to and engaging the process of mediation is confronted by this singular challenge from the outset. This concern is particularly heightened with respect to commercial mediation.

To address this challenge in the context of disputes within national borders, many countries, Nigeria in particular have addressed this challenge using the ADR Judge within the framework of the Multi-door courthouse. Thus, there exists a legal framework for enforcement of mediation agreements. Internationally however, prior to the Singapore convention, there was no legal regime or framework under international public or private law for enforcing mediation agreements.

The Singapore convention offers that opportunity and hopefully will embolden users to engage the process of mediation for their international commercial transactions. I intend to x-ray the provisions of the convention from the perspective of its operation in the light of the willingness of parties particularly state - parties to adopt the convention by signing on to the treaty and engage in the process.

This presentation shall also focus on the implications of the convention for nation states especially as it relates to the crossroads between this convention and the domestic framework for dispute resolution.

BACKGROUND TO THE SINGAPORE CONVENTION

UNCITRAL developed the Model Law on International Commercial Conciliation (2002 Model Law) in 2002. The 2018 Model Law sought to revise this, primarily by replacing the term “conciliation” with “mediation”. It was recognized that the terms ‘mediation’ and ‘mediator’ were more widely used and changing the terminology would make it easier to promote and enhance the visibility of the Convention and Model Law. This simply meant that the only substantive change between the Model Law of International Commercial Conciliation (2002) and the 2018 Model law, which is now known as the Singapore convention, is a change of nomenclature that prefers Mediation to Conciliation because it is of wider acceptance and usage.

In December 2018, the United Nations General Assembly adopted, by consensus, the United Nations Convention on International Settlement of Agreements Resulting from Mediation, and recommended that the Convention be known as the “Singapore Convention on Mediation” (the “Singapore Convention” or “Convention”) and authorized the signing ceremony of the Convention to be held in Singapore on 7 August 2019.

Until the introduction of the Singapore Convention, an often-cited challenge to the use of mediation in international trade and commerce was the lack of an efficient and harmonized framework for cross-border enforcement of settlement agreements resulting from mediation. It was in response to this need that the Singapore Convention was developed and adopted by the United Nations to promote mediation as a mechanism for resolution of commercial disputes, and facilitate international trade and commerce by enabling disputing parties to easily enforce and invoke settlement agreements across borders.

Businesses will benefit from mediation as an additional dispute resolution option to litigation and arbitration in settling cross-border disputes. This Convention is to Mediation what the New York Convention 1958 is to International Commercial Arbitration.

WHAT IS THE SINGAPORE CONVENTION?

The Convention is designed as an efficient and harmonized framework for the facilitation of international settlement agreements resulting from mediation, by ensuring that settlements reached by parties become binding and enforceable in accordance with a simplified and streamlined procedure. The mediated international agreements must be concluded “in writing”. The Convention however, excludes settlement agreements which:

a) have been approved by a court or have been concluded in the course of court proceedings;

b) are enforceable as a judgment in a court of that state; and

c) that have been recorded and are enforceable as an arbitral award.

The rationale for these exceptions lie in the fact that there are other widely accepted international instruments such as the New York Convention and the Hague Convention on the nature of Court judgments that specifically govern those types of settlement agreements.

The Singapore Convention will focus on circumstances where these other instruments are not applicable. It thereby contributes to strengthening access to justice and the rule of law, and provides an option, which speaks to the peculiar needs of disputing parties.

The convention defines mediation in Article 2(3) as "a process to reach amicable settlement of their dispute with the assistance of a third person or persons ('the mediator') lacking the authority to impose a solution upon the parties".

This definition is broad and deliberately encompassing to ensure that the flexibility that mediation is known for is safeguarded by the convention and its application. The import is this, any process fits this description, and even where not referred to as “mediation,” a settlement from such process will qualify as mediation for the purpose of the convention.

It is noteworthy that the convention does not provide any restrictions as to a person who may be a mediator, the qualification if any they must have, or whether it must be conducted under the auspices of an institution. This in my humble opinion is good as it safeguards the flexibility that mediation is popular for. The primary goals of the Convention are to facilitate international trade and promote the use of mediation for the resolution of cross-border commercial disputes.

The Convention provides flexibility and autonomy to the State Parties by listing conditions to be fulfilled in order for a State to enforce a settlement agreement under the Convention rather than prescribing a specific mode of enforcement. This flexibility and autonomy is demonstrated in the provision as follows:

- “In accordance with its rules of procedure; and

- Under the conditions laid down in this Convention, in order to prove that the matter has been already resolved”,

According to Article 4, a party relying on a settlement agreement shall supply to the competent authority of the State where relief is sought –

a) The signed settlement agreement; and

b) Evidence that the settlement resulted from mediation.

The competent authority of the state is not defined in the convention, but it is presumed that the competent authority of the state in such a circumstance would be the national courts of the state. Thus, the national courts of the state have a very important role to play in the scheme of things. It is pertinent in that regard to ensure that Judges who man these national courts are provided the requisite training on the application of the convention.

To qualify as a settlement resulting from mediation, such settlement should include the mediator’s signature on the agreement, or document signed by the mediator confirming the mediation was carried out, or an attestation by the institution administering the mediation or any other evidence deemed acceptable to the competent authority.

The convention grants the competent authority of the State Party the autonomy to decide what evidence of the conduct of mediation in keeping with the conditions prescribed is acceptable. The Courts of a State Party to the Convention may refuse to grant relief on the grounds laid down in the Convention, including:

- if a party to the settlement agreement was under incapacity (bankruptcy, economic recession?).

- the settlement agreement is not clear or comprehensible

- if the settlement agreement is not binding, null and void, inoperative or incapable of being performed under the law, which it is subjected to.

- if there were serious breaches by the mediator of standards applicable to the mediator, without which breach that party would not have entered into the settlement agreement.

- failure by the mediator to disclose circumstances relevant to the mediator’s impartiality or independence.

- if granting relief would be contrary to the public policy of that party.

The last two grounds except the ground on public policy, relating to mediator conduct, align with Articles 5(4), 5(5) and 6(3) of the 2002 Model Law on International Commercial Conciliation. Of note or particular concern would be the standard by which the mediator’s conduct is assessed. In some countries, a particular behaviour may be acceptable whilst in others that may not be the case. This scenario supports my proposition that cultural nuances play a role in international mediation and more attention need be paid to such nuances.

In addition, pursuant to Article 5(2), relief may be refused where it is “contrary to the public policy” of the State in which enforcement is sought or the “subject matter of the dispute is not capable of settlement by mediation under the law of that State”.

This presents a challenge as it leaves the national courts with very wide discretion as to what amounts to public policy or subject not capable of resolution via mediation. In some countries, issues of title to land and declaration thereof are not subjectable to mediation or settlement agreements but must be resolved by the courts. This creates a basis for subjectivity in the application of an international convention.

Unlike the New York Convention (which does not specifically address reservations), the Singapore Convention expressly permits a number of reservations including in relation to whether or not the Convention would apply to the government of signatory states (Article 8).

Another exception to enforcement is the ability for parties to opt-out. Article 5 (1)(d) provides for this. The rationale here is in keeping with the right of parties to protest against a settlement agreement that does not express their clear wishes or that the relief sought is contrary to the terms of the settlement agreement.

A key distinctive feature of the Convention is the ability of a state party who is a signatory to make a reservation that the Convention will apply only to the extent that the parties to the settlement agreement have agreed to apply it. The consequence of such reservation is that parties of the signatory state may exercise the option to opt-in with respect to the enforceability or otherwise of the settlement agreement. The convention is not explicit on what the procedure for opt-in will be. It is my humble view that certain standards of practice will develop with time.

PROSPECTS

The Convention coming into effect holds great potential for us. The word ‘coming’ is used because according to article 14 of the United Nations Convention on International Settlement Agreements Resulting from Mediation, the convention comes into effect six months after 3 countries have ratified, approved, or acceded to the convention.

Many African countries, Nigeria in particular have not managed their international disputes well and it would appear that we are always holding the wrong end of the stick. The resort to arbitration has many times led to awards that are not only punitive in nature but which threaten our financial well being. This Convention no doubt provides for government and business entities out of Africa, an opportunity to engage in and utilize another mechanism for resolution of international commercial transactions without necessarily resorting to arbitration.

Mediation as mechanism for resolution of such disputes will set the stage for a greater say in the resolutions arrived at by all parties and also lead to greater compliance, as there are safety nets that avail the disputing parties, which are not apparent within the framework of public or private international law (opt-out or opt-in).

The signing of the Singapore convention presents an opportunity that all practitioners should as a matter of urgency embrace. There is a lot of international trade being currently promoted and nation states are looking to expand their horizons. Our own dear country Nigeria is not left out as we see from the efforts being put into wooing investors by the current government. A fall out of such heightened commercial activities will be trade disputes.

Worthy of mention is the Ajaokuta Steel Company dispute and the related arbitration and court processes is a case in point. I dare say that mediation would be a more effective way of resolving that impasse. Thus, the African mediator must be ready to sharpen their skills and take on the world. Opportunity knocks. Please take time to familiarize yourself with the convention.

CONCLUSION

The Convention is significant as it facilitates, for the first time, the enforcement of international commercial settlement agreements resulting from mediation. It is a welcome development, and indeed a game changer as it will set the stage for practitioners and users to deploy mediation more frequently. Africa as a continent must not only sign onto the convention, it must accept and ratify it, and incorporate it into the legal framework of nation states. This will boost confidence in would-be-investors that Africa is a safe destination to engage in commercial transactions.

The success of the Convention will depend on how many countries sign on to it and ratify and accept it into their legal framework. A direct consequence as stated earlier will be the growth of commerce due to confidence that where a party to a mediated settlement fails to comply, enforcement can be achieved in an efficient and effective manner under the convention by going after the assets of the defaulting party in a convention country.

Another major consequence will be the raising of ethical standards. There will emerge a body of guidelines, which will seek to regulate mediator’s conduct and guide against misconduct. We must not be found wanting. This will boost great confidence in the process of mediation.

___________________

*Managing Partner, Greenfield Chambers

The Singapore Mediation Convention: A Game Changer in Cross Border Disputes? By Lady Justice Joyce Aluoch*

Wed, 28 Apr 2021 15:27:03 GMT

Presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021

The two issues I was asked to discuss were:

1) The provisions at the heart of the Singapore Convention.

2) The key controversies in the text of the Singapore Convention, both now and in the future.

In response to the first issue, I considered the provisions at the heart of the Convention to be:

a) Article 1 which provides that the Convention applies to international settlement agreements resulting from mediation, concluded in writing by parties to resolve a commercial dispute.

b) Article 1 also lists exclusions from the scope of the Convention namely, settlement agreements completed by a consumer for personal, family or household purposes, or relating to family inheritance or employment law.

c) A settlement agreement that is enforceable as an arbitral award is also excluded from the scope of the Convention in order to avoid a possible overlap with the existing and future Conventions such as the New-York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), the Convention on Choice of Court Agreements and the Convention on the Recognition and Enforcement of Foreign judgment in Civil and Commercial Matters (2019).

d) Article 3 addresses the key obligations of the parties to the Convention with respect to both enforcement of settlement agreements and the right of disputing parties to invoke a settlement agreement covered by the Convention. Each party to the Convention may determine the procedural mechanisms that may be followed where the Convention does not prescribe any requirement.

e) Article 4 covers the formalities for relying on a settlement agreement, namely the disputing party shall supply to the competent authority the settlement agreement signed by them and evidence that the settlement agreement results from mediation. The competent authority may require any necessary document in order to verify that the requirements of the Convention are complied with.

f) The grounds upon which a court might refuse to grant a request of the disputing party against which it is invoked, are defined in Article 5. The grounds are grouped in 3 main categories, those in relation to the disputing parties, the settlement agreement and the mediation procedure.

Article 5 includes two additional grounds upon which a court may, on its own motion, refuse to grant relief. These grounds relate to public policy and the fact that the subject matter of the dispute cannot be settled by mediation.

g) Article 8 is on reservations, the first one permits a party to the Convention to exclude from the Convention settlement agreements to which a party or to which any governmental agency is a party, to the extent specified in the declaration.

h) A second reservation permits a party to the Convention to declare that it will apply the Convention only to the extent that the disputing parties have agreed to its application.

i) The Convention is consistent with the UNCITRAL MODEL LAW on International Settlement Agreement Resulting from Mediation (2018). This approach is intended to provide States with the flexibility to adopt either the Convention, the Model Law as a standalone text or both the Convention and the Model Law as complimentary instruments of a comprehensive legal framework on mediation.

As for the key controversies at the heart of the Singapore Convention now and in the future, I identified the following:

1) The Singapore Convention does not take any stand on the source of mediation, for example, the parties may have resorted voluntarily to mediation instead of commencing litigation, or an attempt at mediation may have been mandatory by a legal rule or by a court. This issue has been debated in the European Union where some member States believe that the only way to resort to mediation is to make it mandatory. This is not captured anywhere in the Convention. It is worth noting that as at now, neither the European Union nor the United Kingdom has signed the Singapore Convention. They say that they are considering whether to sign as a regional economic entity/block, or whether member States need to join individually. I find this to be problematic now and in the future.

2)How to secure the mediator’s confirmation is also bound to be problematic in future.

For example, Article 4 of the Convention sets out the evidence to be provided to the enforcing court. This includes a copy (translated if necessary), of the settlement agreement. It also includes the requirement that the settlement agreement,” resulted from mediation.” The examples given as to what could constitute such evidence include:

a) “a mediator’s signature on the settlement agreement or a document signed by the mediator indicating that the mediation was carried out.”

If the mediation was organized through an institution, the evidence may take the form of an attestation by that institution.

b) In the absence of such forms of evidence, any other evidence acceptable to the (enforcing court) may be acceptable.

c) Whilst this evidentiary requirement is understandable given the scope of the Convention, the need for the mediator to make some form of attestation to be put before the court as proof stated is potentially problematic. This is so because in most jurisdictions where mediation is well trenched, the fundamental principle of mediation is underpinned by a well- accepted principle that the parties may not call a mediator to give evidence in relation to a mediation because of confidentiality. This principle is usually recorded in a mediation agreement between the mediator and the parties, and in some jurisdictions including England and Wales, it is also enshrined in the statutes or court rules. Concerns are currently being raised that this new evidentiary requirement introduced by the Convention could erode the protection currently enjoyed by mediators. It is therefore advisable for the practitioners to raise this issue with mediators during the mediation preparatory meetings. It is also important to raise it in the mediation agreement to the effect that the mediator will not be required to give evidence. It is not clear how the enforcing courts will handle this issue.

3) I note that the definition of mediation in Article 2(3) of the Singapore Convention makes no reference to the impartiality of the mediator. Despite this, however, amongst the grounds to refuse enforcement of a settlement agreement, at least two relate to possible flaws in the mediation proceeding and its development, as well as the mediator’s behaviour. This might be problematic as time goes.

____________________

*Lady Justice Joyce Aluoch, EBS, CBS, (Rtd) Judge, Certified International Mediator, Chartered Mediator, Accredited Mediator

Recent developments in ISDS within the Eastern Africa Region – a regional BIT perspective by Lawrence Muiruri*

Wed, 28 Apr 2021 08:05:40 GMT

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021[1]

Introduction

In the recent past, African countries have found themselves more frequently before international arbitration tribunals for claims of violating their investment treaty obligations.[2] In some of these cases, African governments have been found liable and paid large awards or compensation to foreign investors; Egypt, Libya, Zimbabwe and Tanzania are among the countries recently confronted with exorbitant investor-state dispute claims.[3] Quite expectedly African countries have embarked on renegotiating and negotiating new treaty arrangements to address these amongst other challenges.

This paper will focus on ISDS in emerging treaties in the Eastern Africa region. Despite the controversies surrounding the legitimacy of the ISDS system and rethinking its continuity, recent BITs in the Eastern Africa Region have maintained it albeit with modifications. Some of the more recent BITs signed by Eastern Africa States, and the AfCFTA, will be examined.

1. The 2017 Triad - Natural Wealth and Resources Laws, 2017– Tanzania

With the promulgation into law of the triad, the Natural Wealth Resources (Review and Renegotiation of Unconscionable Terms) Act, 2017, the Natural Wealth and Resources (Permanent Sovereignty) Act, 2017 and the Written Laws (Miscellaneous Amendments) Act, 2017 amending the Mining Act, 2010, Tanzania unequivocally expressed a legislative departure from the ISDS framework and a preference for domestic remedies.[4] The Act reserves the adjudication of disputes to the national state legal systems i.e., the courts and other statutory authorities.

Despite these changes the 12 odd BITs that were in force before the triad laws remain enforceable unless renegotiated under those new provisions. Most of the existing BITs provide a two-tier mechanism for consultations and negotiations with a waiting period of six months before resort to either domestic courts or international arbitration. The latest China-TZ BIT[5] of 2013 follows this cafeteria approach including resort to either the domestic Courts, ICSID, UNCITRAL or other arbitral institutions.

The robust shift in policy may be indicative of the unease often expressed by developing countries on the unequal balance of power in the 1st generation BITs. Will this be the antidote that tilts the balance to attain an acceptable equilibrium? It will be interesting to watch how these changes will shape the future of dispute resolution as pertains to Tanzania and whether other countries in the region will adopt this approach.

2.Agreement between the Federative Republic of Brazil and the Federal Democratic Republic of Ethiopia on Investment Cooperation and Facilitation (2018)[6]

The agreement makes provision for state-to-state dispute settlement and appears to have no ISDS clause providing for direct investor-state claims.

The provisions provide that, if a Contracting Party considers that a specific measure adopted by the other Contracting Party constitutes a breach of Agreement, it shall submit a written request to the other Contracting Party, identifying the specific measure in question, and presenting the relevant allegations of fact and law and the Joint Committee shall meet within sixty (60) days from the date of the request[7] and prepare a report sixty (60) days from the date of the first meeting, extendable by mutual agreement. .[8]

In the event that the dispute is not resolved within the time frame set forth, or there is non-participation of a Contracting Party in the meetings of the Joint Committee convened, the dispute may be submitted to arbitration by a Contracting Party.[9] If the measure in question pertains to a specific investor: the initial submission shall identify the affected investor; representatives of the affected investor may be invited to appear before the Joint Committee; and a Contracting Party may refuse to discuss in the Dispute Prevention Procedure a question concerning an investment of a national of that Contracting Party in the territory of that Contracting Party.

Once the above procedures have been exhausted and the dispute has not been resolved, either Contracting Party may submit the dispute to an ad hoc Arbitral Tribunal or alternatively, the Contracting Parties may choose, by mutual agreement, to submit the dispute to a permanent arbitration institution for settlement of investment disputes.[10]

An Arbitral Tribunal shall consist of three arbitrators. Each Contracting Party shall appoint, within three (3) months after receiving the "notice of arbitration", a member of the Arbitral Tribunal. Within three (3) months of the appointment of the second arbitrator, the two members shall appoint a national of a third State with which both Contracting Parties maintain diplomatic relations, who, upon approval by both Contracting Parties, shall be appointed chairperson of the Arbitral Tribunal. The appointment of the Chairperson must be approved by both Contracting Parties within one (1) month from the date of his/her nomination. The decision of the Arbitral Tribunal is final and binding to the Contracting Parties.[11]

3. Agreement between the Government of the Republic of Singapore and the Government of the Republic of Rwanda on the Promotion and Protection of Investments (2018)[12]

In case of a dispute between a party and an investor of the other party, parties are to seek to resolve the dispute by consultations and negotiations[13].Where the dispute cannot be resolved within 6 months from the date of a written request for consultations and negotiations, then, unless the disputing parties agree otherwise, the disputing investor may submit the dispute to arbitration.[14]Arbitration can be conducted:

(a) under the ICSID Convention and the ICSID Arbitration Rules, provided that both the respondent Party and the Party of the disputing investor are parties to the ICSID Convention.

(b) under the ICSID Additional Facility Rules, provided that either the respondent Party or the Party of the disputing investor is a party to the ICSID Convention.

(d) to any other arbitral institutions or under any other arbitration rules, if the disputing parties so agree.[15]

Any dispute submitted to arbitration must take place within 3 years of the time at which the disputing investor became aware, or should reasonably have become aware, of the breach.[16]

Unless agreed otherwise, the arbitral tribunal shall be composed of three arbitrators, who shall not be nationals or permanent residents of either Party, each disputing party is to appoint one arbitrator and the disputing parties shall agree upon a third arbitrator, who shall be the chairman of the arbitral tribunal.[17] If an arbitral tribunal has not been established within 90 days from the date of claim submission to arbitration, the Secretary-General of ICSID, upon request of either disputing party, shall appoint, at his own discretion, the arbitrator or arbitrators not yet appointed.[18] If the Secretary-General is a national or permanent resident of either Party, or he or she is otherwise unable to act, the Deputy Secretary-General, who is not a national or permanent resident of either Party, may be invited to make the necessary appointments.[19]

Any arbitral award by the tribunal is final and binding upon the disputing parties.[20] A tribunal is required, before issuing a decision or award on liability to transmit its proposed decision or award to the disputing parties; the parties may then within 60 days submit written comments to the tribunal concerning any aspect of the proposed decision or award.[21] The tribunal shall consider any such comments and issue its decision or award not later than 45 days after the expiration of the 60-day comment period.[22]

4. Agreement between the Government of the Republic of Turkey and the Government of the Republic of Burundi Concerning the Reciprocal Promotion and Protection of Investments (2017)[23]

When it comes to ISDS, the agreement applies to disputes between one Contracting Party and an investor of the other Contracting Party concerning an alleged breach of an obligation of the former, which causes loss or damage to the investor or its investments.[24] In case of a dispute, a party should be notified in writing and the parties should endeavor to settle these disputes by consultations and negotiations in good faith.[25] If these disputes, cannot be settled in this way within six (6) months following the date of the written notification, the disputes can be submitted, as the investor may choose, to:

(a) the competent court of the Contracting Party in whose territory the investment has been made or;

(b) ICSID or;

(d) any other arbitration institution or any other arbitration rules if the disputing parties so agree.[26]

In deciding whether an investment dispute is within the jurisdiction of ICSID and competence of the tribunal, the arbitral tribunal shall comply with the notification submitted by the Republic of Turkey on March 3, 1989 to ICSID in accordance with Article 25 (4) of ICSID Convention, concerning classes of disputes considered suitable or unsuitable for submission to the jurisdiction of ICSID, as an integral part of the Agreement.[27] The arbitral tribunal shall take its decisions in accordance with the provisions of the Agreement, the laws and regulations of the Contracting Party involved in the dispute on which territory the investment is made, and the relevant principles of international law as accepted by both Contracting Parties.[28] The arbitration awards shall be final and binding for all parties in dispute.[29]

5. Proposed Economic Partnership Agreement between the Republic of Kenya and the United Kingdom of Great Britain and Northern Ireland (Kenya - UK EPA) (2020)[30] (Ongoing for formal Ratification)

The effective Kenya-UK BIT has been and continues to be in force since 1999 with an existing ISDS mechanism -typical of the 1990s BITs with an exclusive and automatic recourse to arbitration after three months of failure of local remedies or other means to resolve a dispute.

However, it is worthy of note to comment on the Kenya-UK EPA covering trade in goods etc. Although it is not typically an investment protocol but rather a trade agreement it is significant that some of its features may illuminate recent thinking. As a post-Brexit measure the negotiations for the Kenya-UK EPA begun in August 2020 based on the EAC-EU EPA text.[31] Of relevance here is the State-to-State dispute avoidance and settlement mechanism which proposes a tiered framework for dispute resolution through alternative means of consultation, with a fork in the road option for mediation, or arbitration. The EPA was eventually approved by the respective Parliament of Kenya[32] on 9th March 2021 and UK now awaiting formal ratification and depository procedures anticipated to take place in March 2021.

Although these provisions are typical of this kind of agreement it might be interesting to see whether some of the thinking behind adoption of an elaborate alternative dispute resolution framework and arbitration may translate to future BIT contexts with focus on investments. The dispute avoidance and settlement provide for the following mechanism:

i) Consultation

In case of a dispute, parties are to enter consultations.[33] A Party seeks consultations by means of a written request to the other Party, copied to the Committee of Senior Officials, identifying the measure at issue and the provisions of the Agreement that it considers the measure not to be in conformity with.[34]

Ideally, consultations are to take place, in the territory of the Party complained against (unless agreed otherwise) and are to be held within twenty (20) days of the date of the receipt of the request and shall be deemed concluded within sixty (60) days of the date of the receipt of the request of the Party complained against, unless the Parties agree to continue consultations.[35] All information disclosed during the consultations shall remain confidential.[36] Consultations on matters of urgency, including those regarding perishable or seasonal goods shall be held as soon as is practically possible and in any event within fifteen (15) days of the date of the receipt of the request, and shall be deemed concluded within thirty (30) days of the date of the receipt of the request, unless the Parties agree to continue consultations.[37]

ii) Mediation

If consultation fails, parties may by agreement seek recourse through mediation.[38] Where parties are unable to agree on a mediator within fifteen (15) days of the date of the agreement to request mediation, the Chairperson of the Committee of Senior Officials[39], or his or her delegate, shall select by lot a mediator from the pool of individuals who are on the list referred to in Article 125 and are not nationals of either Party[40] within twenty-five (25) days of the date of the submission of agreement to request mediation and in the presence of a representative of each Party.[41] The mediator will convene a meeting with the Parties no later than thirty (30) days after being selected.[42] The mediator shall receive the submissions of each Party no later than fifteen (15) days before the meeting and notify a non-binding opinion no later than forty-five (45) days after having been selected.[43] The mediation proceedings are to remain confidential.[44]

iii) Arbitration

However, there is a fork in the road situation presenting between consultation and the choice of either mediation or arbitration. Should parties not wish to go through mediation, they can move to arbitration after consultation.[45] Where consultation and/or mediation failed to resolve the dispute, the complaining Party may give notice to initiate the procedure for the establishment of an arbitration panel,[46]the notice for establishment of an arbitration panel is to be made in writing to the Party complained against and to the Committee of Senior Officials.[47]

An arbitration panel is to be composed of three arbitrators.[48] Within ten (10) days of the date of the submission of the notice for the establishment of an arbitration panel to the Committee of Senior Officials, the Parties shall consult in order to reach an agreement on the composition of the arbitration panel.[49] In the event that the Parties are unable to agree on the composition of the arbitration panel within the timeframe stipulated, each Party will select an arbitrator from the list of arbitrators established under Article 125[50] within five (5) days.[51] If any of the Parties fails to appoint its arbitrator, upon request of the other Party, the arbitrator shall be selected by lot by the Chairperson of the Committee of Senior Officials, or the Chairperson's delegate from the sub-list of that Party established under Article 125.[52]

According to Article 115(1)(a) of the Kenya – UK BIT, the arbitration panel is required to notify its ruling to the Parties and to the Committee of Senior Officials within one hundred and twenty (120) days from the date of its establishment. However, even if a delay is occasioned, under no circumstances shall the ruling be notified later than one hundred and fifty (150) days from the date of its establishment.[53]

The arbitration panel is supposed to make every effort to ensure that any decision is by consensus, where a decision cannot be adopted by consensus, the matter at issue shall be decided by majority vote.[54] The arbitration panel ruling is final and binding on Parties.[55]

6. The proposed Kenya - USA Free Trade Agreement Kenya-US (Negotiations Ongoing)

On 6th February 2020, US Former President Trump announced that the United States intends to initiate trade agreement negotiations with Kenya following a meeting at the White House with Kenyan President HE Uhuru Kenyatta.[56] The bilateral negotiations commenced on 7th July 2020.[57] In an attempt to determine how the dispute resolution clauses and ISDS provisions under the agreement may look like, some of the BIT provisions on dispute settlement and ISDS that USA is party to were considered.

Possible outlook of the Kenya-US BIT

From an analysis of the USA-BIT with Uruguay and Rwanda and the USMCA, there are several things we are most likely to see in the Kenya-USA BIT. They include:

(a) ISDS and State - State dispute settlement - both Rwanda and Uruguay BIT with the USA have provisions for both ISDS and State-State dispute settlement.

(b) Provisions that require disputes to be submitted to consultations and negotiations before the commencement of arbitral proceedings – both Rwanda and Uruguay have provisions requiring that disputes be submitted to consultations and negotiations before arbitration. There is a possibility for the same provisions to find their way to the Kenya-USA BIT.

(c) Absence of mediation – in both BITs (Uruguay and Rwanda) there are no provisions for mediation. It is likely that the Kenya-USA BIT will also not have mediation provisions. However, the USMCA advocates for alternative methods of dispute resolution, such as good offices, conciliation, mediation, and arbitration, it is therefore possible that these mechanisms will find their way to the Kenya-USA BIT.

(d) Consent to arbitration – By signing the BIT with USA, Uruguay and Rwanda consent to arbitration meaning there is no need to seek for consent to arbitration, once negotiations and consultations fail to bear fruits, the claimant can automatically submit the dispute for arbitration. However, USMCA seems to lie more on dispute resolution via a panel. It is interesting to see which form of dispute settlement will be preferred by the Kenya-USA BIT since the USA considers the USMCA as its 21st Century, high standard agreement.[58]

(e) The claims are likely to be submitted:

(i) under the ICSID Convention and the ICSID Rules of Procedure for Arbitration Proceedings, provided that both the respondent and the non-disputing Party are parties to the ICSID Convention.

(ii) under the ICSID Additional Facility Rules, provided that either the respondent or the non-disputing Party is a party to the ICSID Convention.

(iii) under the UNCITRAL Arbitration Rules.

(iv) if the claimant and respondent agree, to any other arbitration institution or under any other arbitration rules.

(v) Joint panel committee established between Kenya and the USA.

(f)Selection of arbitrators - it is likely that just like the two BITs a tribunal will consist of 3 arbitrators, each party will appoint one and they shall both appoint a chair to the tribunal.

(g) Place of arbitration - it is likely that the disputing parties will be allowed to agree on the legal place of any arbitration If they fail to reach an agreement, the tribunal may be empowered to determine the place of arbitration.

(h) Applicable law - the tribunal is likely to decide on issues in dispute in accordance with the BIT and applicable rules of international law. In USMCA, the panel is required to interpret the Agreement in accordance with customary rules of interpretation of public international law, as reflected in Articles 31 and 32 of the Vienna Convention on the Law of Treaties, 1969.[59]

(i)Decisions of the arbitral tribunal - the decisions of the arbitral tribunal are likely to be final and binding to all parties.

7. African Continental Free Trade Area (AfCFTA)

AfCFTA is a flagship project of Agenda 2063 of the African Union (AU). By December 3, 2020, thirty-six countries, including three East African Community (EAC) countries (Kenya, Rwanda, and Uganda) had ratified the AfCFTA and its trade operations were set to commence in January 2021.[60]

On 1st January 2021, African countries opened their markets under the AfCFTA based on the Assembly decision made on 5 December 2020.[61]

i. AfCFTA and Dispute Settlement

According to Article 4(f) AfCFTA one of the objectives of the Agreement is to establish a mechanism for the settlement of disputes concerning the rights and obligations of State Parties. The AfCFTA Dispute Resolution Protocol stipulates a State-to-State dispute mechanism to resolve differences arising out of the AfCFTA.[62] The Agreement creates a continental dispute settlement body(DSB) which establishes the Protocol on Rules and Procedures on the Settlement of Disputes.[63]

The DSB is empowered to interpret and apply all AfCFTA legal instruments (Protocols, Annexes and Appendices) and determine state parties’ rights and obligations under those legal instruments. Pursuant to article 20 of the AfCFTA and Article 3(1) of the Protocol on the Settlement of Disputes, the protocol will only: apply to disputes arising between State Parties concerning their rights and obligations under the provisions of the Agreement[64].

ii. AfCFTA and ISDS

The future of ISDS in the architecture of the AfCFTA is presently unclear. There is, however, a strong possibility that ISDS will be present in AfCFTA. First, most African countries appear to be in favor of ISDS. There is currently in existence at least 30[65] in-force intra-African BITs utilizing, an additional 120 intra-African BITs have been signed but not ratified not mention the existence of numerous ‘in force’ BITs between African States and third states that also provide for ISDS. Furthermore, more than half the Continent have also ratified the New York Convention.

Secondly, the presence of weak legal and regulatory frameworks existing in many member states is another compelling reason that may lead to the integration of the ISDS within the context of the AfCFTA. According to the World Justice Project (WJP) Rule of law Index 2019, where good governance, transparent, effective, and accountable institutions were concerned, African Nations ranked last. This could translate into a lack of investor confidence generally as member states need to be assured of a robust legal structure to facilitate the process of trading across borders. In fact, it was reported that more than half of the countries in Africa are found in the bottom quartile of the World Bank Group’s Doing Business 2019 rankings[66]. Given the weak regulatory environment, countries may see a need to use ISDS as it is a mechanism praised for its - predictability.

Thirdly, is the need for predictability. Predictability is one of the bedrock principles of the AfCFTA[67] Also, one of the specific objectives of the AfCFTA is to “establish a mechanism for the settlement of disputes concerning their rights and obligations”.[68] For this reason, ISDS is most likely going to find its way in AfCFTA.

However, there is still a possibility that ISDS may never find its way to AfCFTA. First, is the cost of ISDS claims. The amounts at stake in investment treaty arbitration are usually astronomical. The average claim in investor–state arbitrations based on BITs and other international investment agreements (IIAs) is about US$492 million[69] and multibillion-dollar claims are increasingly common. In ISDS claims, countries have real financial implications in terms of monetary awards, legal costs, and accrued interests to consider. For example, in Unión Fenosa Gas, S.A. v. Arab Republic of Egypt,[70] an award of over 2 billion US Dollars was made. In Process and Industrial Developments Ltd. v. The Ministry of Petroleum Resources of the Federal Republic of Nigeria,[71] Nigeria had to appeal a 9-billion award to Irish backed company over a failed gas deal.

Secondly, is the lack of consistency in the tribunal decisions of ISDS cases. Countries like Nigeria[72] and Egypt[73] have both suffered numerous inconsistent awards and these concerns are related to unjustifiably inconsistent interpretations of investment treaty provisions especially where it provides for principles afforded to foreign investors from the Most Favored Nation and National Treatment clauses. Limited devices available to address inconsistency and incorrectness of decisions has been exemplified by, for example, the inadequacies of the ICSID annulment mechanism and domestic court procedures.

Thirdly, ISDS has been criticized for the lack of appropriate diversity amongst decision makers specifically where it pertains to gender and geographical diversity. Throughout the history of investment arbitration, African arbitrators have been underrepresented even in cases involving an African state. According to The ICSID Caseload – Statistics (Issue 2019 – 2),[74] although Sub-Saharan Africa contributes 15 percent of all ICSID cases by State Party involved, the region only accounts for 2 percent of arbitrators, conciliators and ad hoc Committee members appointed in ICSID cases.[75] By contrast, Western Europe contributes 8 percent of all ICSID cases by State Party involved but account for a staggering 48 percent of arbitrators, conciliators and ad hoc committee members appointed in ICSID cases. North America (Canada, Mexico, and U.S.) contributes 4 percent of all ICSID cases by State Party involved but account for 20 percent of arbitrators, conciliators and ad hoc committee members appointed in ICSID cases.[76]

Conclusion

Until recently, BITs have formed the key framework for ISDS, but gradually, East African countries are reviewing these treaties to make them fit for their modern purposes and address the challenges facing the nations. From the examples of the treaties discussed above, most provide for both ISDS and State-State dispute resolution. This allows investors to seek speedy resolution of their disputes and allows states to also have a say in how these treaties are being interpreted by arbitral tribunals and other forums to create consistency in interpretations of treaties. However, there is a need for more clarity as pertains to the application of the same. For example, can an investor seek the interpretation of a section of a treaty or must the same be done only by the State via State-State dispute settlement.

More scholarly research should be conducted to inform models that can be applied uniformly and shape state practice in negotiations for intra-regional and multilateral agreements involving States within the region. Some of the BITs examined above include exhaustion of local remedies, at least one has incorporated domestic courts and tribunals and a majority have resorted to arbitration after failure of other means. From the sample above of the more recent BITs in the region the generic trend is a preference for tiered ISDS framework with fork in the road clauses and the cafeteria style approach with on choice of arbitration institution/forum.

_______________________

*Registrar/CEO Nairobi Centre for International Arbitration

[1] This Paper has been prepared with research assistance of Ms. Victoria Kigen (Case Counsel-NCIA). LLB CUEA Univ. LLM Univ. of Miami.

[2] tralacBlog, “Investor-state dispute settlement in Africa and the AfCFTA Investment Protocol” <https://www.tralac.org/blog/article/13787-investor-state-dispute-settlement-in-africa-and-the-afcfta-investment-protocol.html> accessed on February 16, 2021.

[3] Ibid.

[4] https://www.madini.go.tz/wp-content/uploads/2017/12/Natural-Wealth-and-Resources-Permanent-Sovereignty-Act-2017.pdf Accessed 18th March 2021.

[5] https://investmentpolicy.unctad.org/international-investment-agreements/treaties/bilateral-investment-treaties/990/china---united-republic-of-tanzania-bit-2013- accessed on 17 Mar 2021. The Treaty was signed on 24th March 2013 and entered into force on 17th April 2014.

[6] The agreement was signed on 11/04/2018 but has not yet been ratified.

[7] Article 23(2(a) of the Agreement between the Federative Republic of Brazil and the Federal Democratic Republic of Ethiopia on Investment Cooperation and Facilitation. Available at <https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/5717/download> accessed on March 2, 2021.

[8] Article 23(2) (b)&(c) of the Agreement between the Federative Republic of Brazil and the Federal Democratic Republic of Ethiopia on Investment Cooperation and Facilitation.

[9] Article 23(2) (d) Id.

[10] Article 24(1) Id.

[11] Article 24(9) Id.

[12] The agreement was signed on 14/06/2018 but has not yet been ratified.

[13] Article 11(1Id.

[14] Article 11(2) Id.

[15] Id.

[16] Article 11(3)(a) of the Agreement between the Government of the Republic of Singapore and the Government of the Republic of Rwanda on the Promotion and Protection of Investments.

[17] Article 12(1) Id.

[18] Id.

[19] Id.

[20] Article 16(2) Id.

[21] Article 16(4) Id.

[22] Id.

[23] The agreement was signed on 14/06/2017 but has not yet been ratified.

[24] Article 10(1) of the Agreement Available at <https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/5838/download> accessed on March 3, 2021.

[25] Article 10(2) of the Agreement.

[26] Article 10(3) Id.

[27] Article 10(5) Id.

[28] Article 10(6) Id.

[29] Article 10(7) Id.

[30] The agreement is in the process of ratification. It has been presented to the Parliament by the Secretary of State for Foreign, Commonwealth and Development Affairs by Command of Her Majesty December 2020. The UK Parliament voted in favour of the agreement in March 2021 while the Kenyan Parliament approved it on 9th March 2021.

[31] Ministry of Industrialization, Trade and Enterprise Development, “Memorandum to Parliament on Economic Partnership Agreement between the Republic of Kenya and the United Kingdom of Great Britain and Northern Ireland” < http://www.parliament.go.ke/sites/default/files/2021-01/ECONOMIC%20PARTNERSHIP%20AGREEMENT%20BTN%20UK%20%26%20KENYA%281%29.pdf> accessed on March 2, 2021.

[32] http://www.parliament.go.ke/sites/default/files/2021-03/Hansard%20Report%20-%20Tuesday%2C%209th%20March%202021%20%28E%29.pdf accessed 18th March 2021.

[33] Article 110(1) of the Economic Partnership Agreement between the Republic of Kenya and the United Kingdom of Great Britain and Northern Ireland. Available at <https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/6047/download> accessed on March 2, 2021.

[34] Article 110(2) of the Economic Partnership Agreement between the Republic of Kenya and the United Kingdom of Great Britain and Northern Ireland.

[35] Article 110(3) Id.

[36] Id.

[37] Article 110(4) Id.

[38] Article 111(1) Id.

[39] The Committee of Senior Officials is established under Article 106(1) and shall be composed of Permanent Secretaries or Principal Secretaries, as the case may be, from the EAC Partner State(s) and representatives from the UK at Senior Official level.

[40] Article 111(3) Id.

[41] See note 13.

[42] Id.

[43] Id.

[44] Id.

[45] Article 111(2) Id.

[46] Article 112(1) Id.

[47] Article 112(2) Id.

[48] Article 113(1) Id.

[49] Article 113(2) Id.

[50] Article 125 is on the list of arbitrators. The list shall contain at least 15 people who are willing to serve as arbitrators. The list shall be composed of three sub-lists: one sub-list for each Party to serve as arbitrators; and one sub-list of individuals that are not nationals of either Party and who shall act as Chairperson to the arbitration panel. Each sub-list shall include at least five (5) individuals.

[51] Article 113(3) Id.

[52] Article 113(3) Id.

[53] Id.

[54] Article 124(1) Id.

[55] Article 124(3) of the Economic Partnership Agreement between the Republic of Kenya and the United Kingdom of Great Britain and Northern Ireland.

[56] African Growth and Opportunity Act (AGOA), “The proposed Kenya - USA Free Trade Agreement” <https://agoa.info/bilaterals/kenyausa.html> accessed on March 3, 2021.

[57] Id.

[58] See, USMCA (trade.gov), accessed on March 3, 2021.

[59] Article 31.13.4 Id.

[60] Id.

[61] African Union, “African Business Council Applauds the Start of Trading on the Basis of the AfCFTA” <https://au.int/en/pressreleases/20210104/african-business-council-applauds-start-trading-basis-afcfta> accessed on March 2, 2021.

[62] African Union, “Training on the Settlement of Disputes: The African Continental Free Trade Area.” <https://au.int/en/newsevents/20190513/training-settlement-disputes-african-continental-free-trade-area#:~:text=The%20AfCFTA%20Dispute%20Resolution%20Protocol,to%20that%20of%20the%20WTO.> accessed on February 15, 2021.

[63] Part VI, Article 20 of the AfCFTA.

[64] Article 3 (1) of the AfCFTA.

[65]Maximizing investment protection in Africa: the role of investment treaties and investment arbitration, China Law insight blog, (July 2 2015) See: <https://www.lexology.com/library/detail.aspx?g=1e540917-3888-460f-9b0c-298c52ad864e> accessed on February 15, 2021.

[66] World Bank Group, Doing Business 2019, See: <https://www.doingbusiness.org/content/dam/doingBusiness/media/Annual-Reports/English/DB2019-report_web-version.pdf> Pg. 5 accessed February 15, 2021.

[67] Preamble of the AfCFTA Agreement.

[68] Article 4(f) of the AfCFTA Agreement.

[69] D Rosert, ‘The Stakes Are High: A review of the financial costs of investment treaty arbitration’ (July 2014) See: <https://www.iisd.org/sites/default/files/publications/stakes-are-high-review-financial-costs-investment-treaty-arbitration.pdf> accessed on February 15, 2021.

[70] Unión Fenosa Gas, S.A. v. Arab Republic of Egypt, ICSID Case No. ARB/14/4.

[71] Process and Industrial Developments Limited (P&ID) v. Federal Republic of Nigeria [Ad Hoc Arbitration] See: <https://www.irishtimes.com/business/energy-and-resources/nigeria-to-appeal-9-billion-award-to-irish-backed-company-over-failed-gas-deal-1.3991155> accessed on February 15, 2021.

[72] Process and Industrial Developments Limited (P&ID) v. Federal Republic of Nigeria [Ad Hoc Arbitration].

[73] Unión Fenosa Gas, S.A. v. Arab Republic of Egypt, ICSID Case No. ARB/14/4.

[74] ICSID, Caseload Statistics. (Issue 2019-2), <https://icsid.worldbank.org/sites/default/files/publications/Caseload%20Statistics/en/The%20ICSID%20Caseload%20Statistics%20%282019-2%20Edition%29%20ENG.pdf> accessed on February 15, 2021.

[75] Id.

[76] Id.

A Briefing on the Process, Status and Main Recommendations of ICSID’s Rule Amendments by Aïssatou Diop*

Tue, 27 Apr 2021 12:12:03 GMT

Paper presented at the AfAA 2nd Annual International Arbitration Conference[1], 15th - 16th April 2021

Introduction

The International Centre for Settlement of Investment Disputes (“ICSID” or the “Centre”) started its operations with the entry into force of the ICSID Convention. Since then, its Rules have effectively served to advance the Centre’s purpose of “provid[ing] facilities for conciliation and arbitration of investment disputes”[3] in the “cause of economic development.”[4] At the same time, ICSID has historically taken the pragmatic approach of always improving and updating its Rules. In keeping with this approach, ICSID launched its latest rule amendment project in 2016 and is collaborating with the UNCITRAL Secretariat on a draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement.[5]

This paper provides 1) a description of the Rule amendment process at ICSID from a historical perspective, 2) a status update on the current amendments, and 3) a discussion of some of the main recommendations made in the current amendments.

Background on Amendments at ICSID

ICSID’s current rule amendment process is its most ambitious and far reaching. Questions like how the amendment process works at ICSID and what amendments the Centre has made in the past rightly spark interest.

The ICSID Convention came into force on October 14, 1966. According to its Article 66, amending the ICSID Convention is a two-step process which requires, first, that two-thirds of the members of the Administrative Council decide to circulate a proposed amendment to all Contracting States, and second, that the Contracting States unanimously adopt the proposed amendment.[6] The stringent nature of these requirements explains why the ICSID Convention has not been amended yet. The task is not impossible, but it is difficult because it requires the totality of the Contracting States—currently 155—to agree.[7]

The ICSID Arbitration Rules came into force on September 25, 1967. Article 6(1) of the ICSID Convention tasks the Administrative Council with the adoption of rules of procedure for conciliation and arbitration proceedings and provides that such decisions are to be made by a majority of two-thirds of the members of the Administrative Council. According to Article 4 of the ICSID Convention, the Administrative Council consist of one representative of each Contracting State. Thus, amending the Arbitration Rules is a much simpler process than amending the ICSID Convention and, as the Convention’s drafting history suggests, this was intentional.[8]

The ICSID Additional Facility Rules came into force on September 27, 1978. They were designed to allow the Centre to administer conciliation, arbitration and fact-finding proceedings for certain disputes that did not fulfill the jurisdictional requirements of the ICSID Convention. Based on Regulation 7(1) of ICSID’s Administrative and Financial Regulations (“AFR”), amending the Additional Facility Rules only requires approval by a majority of the votes cast.[9]

In its 55-year history, ICSID has amended its Rules and Regulations three times: on September 26, 1984; January 1, 2003; and April 1, 2006.[10] Cumulatively, these amendments have touched the Arbitration Rules and the Administrative and Financial Regulations under the ICSID Convention and Additional Facility and the Institution Rules under the ICSID Convention. While the 1984 and 2003 amendments only addressed a limited number of issues, the 2006 amendments were rather forward-looking.

- With respect to the Centre’s Administrative and Financial Regulations, the 1984 amendments saw the alignment of the fees paid for lodging different proceedings, made applicants responsible for the payment of advances in annulment proceedings, and removed the requirement that the secretary of the commission, tribunal or ad hoc committee attend all meetings of that body.[11] Regarding the Arbitration Rules, the 1984 amendments touched Rule 21 on holding pre-hearing conferences; introduced Rule 39(5) on seeking provisional measures from local courts; and revised Rule 48(4) on publishing excerpts of the legal reasoning of tribunals.[12]

- The 2003 amendments eliminated differences between the Additional Facility Rules and ICSID Rules that “were unnecessary and needlessly complicated the task of the ICSID Secretariat.”[13] Also, the Additional Facility AFRs were dropped and the relevant provisions of the ICSID AFRs were made applicable to Additional Facility proceedings.[14] Other changes concerned Institution Rule 7 reminding parties that the registration of requests is without prejudice to the powers and functions of conciliation commissions and arbitral tribunal with respect to jurisdiction, competence, and the merits; Rule 1(3) and (AF) Rule 7 on the nationality of arbitrators; Institution Rule 2 and (AF) Rule 3 about evidence of the steps taken by juridical entities to authorize the initiation of proceedings; Rules 4 and 9 on adding flexibility to the deadlines on the appointment and disqualification of arbitrators; and Rule 46 on the time limit for the preparation of awards.[15]

- The 2006 amendments concerned Rule 6 and (AF) Rule 13(2) on expanding the scope of arbitrator disclosures; Rule 32(2) and (AF) Rule 39(2) on opening hearings to the public; Rule 37(2) and (AF) Rule 41(3) introducing submissions by non-disputing parties; Rule 39 providing for the expedited filing of requests for provisional measures; Rule 41(5) and (AF) Rule 45(6) introducing the manifest lack of legal merit objection; and Rule 48(4) and (AF) Rule 53(3) making mandatory the prompt release of excerpts of the legal reasoning of tribunals. The amendments also concerned AFR 14 clarifying that requests for increases in the rates applicable to commission, tribunal and ad hoc committee members could only be made in exceptional circumstances and submitted through the Centre.[16]

The Current ICSID Rule Amendment: Process and Scope

On October 7, 2016, at the 50th Annual Meeting of its Administrative Council, ICSID advised its Member States that it would commence a consultation process to consider potential amendments to its Rules.[17] ICSID also invited its Member States to suggest amendment topics.[18] On January 25, 2017, ICSID invited members of the public to file suggestions for Rule amendment.[19] Accompanying these invitations, ICSID published a list of topics for potential amendment.[20] Subsequently, ICSID produced a first working paper (“Working Paper # 1” or “WP#1”) in August 2018, integrating numerous comments received from States and the public. The purpose of WP#1 was “explain the basis for a proposed change, note relevant considerations, and suggest the potential wording or structure of amendments.”[21] ICSID held a Consultation Meeting with States in September 2018 and, subsequently, received further comments from States and the public on WP#1. ICSID compiled these and published them on the website in March 2019.

Since March 2019, ICSID has produced three additional working papers,[22] held two more Consultation Meetings with States, and published three further compendia of State and public comments. A detailed timeline of the amendments is provided in the table below. With the publication of WP#4 in February 2020, ICSID invited comments on the latest proposals and planned an in-person Consultation Meeting with States. The Consultation Meeting was cancelled, however, due to the COVID-19 pandemic. The number of outstanding issues to be addressed has narrowed considerably, and the ICSID Secretariat is currently preparing WP#5 that addresses these issues, to be published in the late Spring of 2021.

Timeline of the amendments[23]

Date | Step in the process

Oct. 2016 | Contracting States invited to suggest topics for rule amendment

Jan. 2017 | Public invited to suggest topics for rule amendment
Aug. 3, 2018 | Working Paper #1
Sept. 27–28, 2018 | First Consultation Meeting with States
Oct. 2018 | Further online and in-person consultations
Mar. 15, 2019 | Compendium of State and public comments on WP#1
Mar. 15, 2019 | Working Paper #2
Apr. 7-10, 2019 | Second Consultation Meeting with States
June 28, 2019 | Compendium of State and public comments on WP#2
Aug. 16, 2019 | Working Paper #3
Nov. 2019 | Third Consultation Meeting with States
Feb. 27, 2020 | Compendium of State and public comments on WP#3
Feb. 28, 2020 | Working Paper #4
Sept. 17, 2020 | Compendium of State and public comments on WP#4
Mar. 23, 2021 | Compendium of State comments on proposed amendments to ICSID Rules

As depicted in the table below, the current amendments cover the AFRs, Conciliation Rules and Arbitration Rules both under the ICSID Convention and the Additional Facility. Moreover, they cover the Institution Rules under the ICSID Convention and Fact-Finding Rules under the Additional Facility. Finally, they introduce new Mediation Rules under the Additional Facility.[24]

Scope of ICSID’s proposed amendments

ICSID Convention Proceedings	Additional Facility Proceedings
AFR	(Additional Facility) Rules
Institution Rules	(Additional Facility) AFR
Conciliation Rules	(Additional Facility) Conciliation Rules
Arbitration Rules	(Additional Facility) Arbitration Rules
	Fact-Finding Rules
	(Fact-Finding) AFR
	Fact-Finding) AFR
	Mediation Rules
	(Mediation) AFR

Main Recommendations

According to the ICSID Secretariat:

The overarching goals of the rule amendments are to modernize, simplify, and streamline the rules, while also leveraging information technology to reduce the environmental footprint of ICSID proceedings. The process draws on the lessons learned from hundreds of ICSID cases.[25]

The core objectives of the current amendments have been described as to: 1) reduce the time and cost of proceedings at ICSID, 2) expand the range of dispute settlement options offered by ICSID, and 3) continue to balance the interests of States and investors at ICSID.[26] What follows is a discussion of a selection of proposed rules exemplifying each of the core objectives.

Reduce the time and cost of proceedings

Expedited arbitration

Expedited arbitration (“EA”) is one of the proposals made in response to comments received from various stakeholders that “investment arbitrations are too long and too costly.”[27] The proposal focuses on reducing the length of time taken by the three phases of the proceeding that last the longest: the constitution of tribunals, exchange of written pleadings, and preparation of the award.[28] ICSID’s EA is an opt-in model that will be available for arbitration and post-award remedy proceedings both under the ICSID Convention and Additional Facility. EA may be especially practical in facilitating the access of small and medium enterprises (“SMEs”) to international arbitration, especially in cases involving smaller scale claims. It may also be an attractive option in cases involving fewer factual or legal disputed issues.[29]

As stated by ICSID, EA “provides less flexibility to change time frames, but more certainty as to the timing of the process.”[30] Thus, in terms of time frames, the process is designed to take 18 months or less from the registration of the request for arbitration until the issuance of the award. Proposed Rule 77 provides for a sole arbitrator to be appointed by default if the parties fail to notify the ICSID Secretary-General in writing of their election for a three-member tribunal within 30 days of consenting to the expedited process. Whether the tribunal is to consist of one or three arbitrators, there is a 60-day time frame from the date of consent to EA for concluding the tribunal constitution process. Proposed Rule 80 cuts in half (from 60 days in the normal process to 30 days) the time frame within which a first session is to be held from the constitution of the tribunal and makes holding it by telephone or other electronic means of communication the default, with an in-person meeting being an option if both parties and the tribunal agree. Proposed Rule 81 provides deadlines for the filing of all written submissions (60 days for the memorial and counter-memorial each and 40 days for the reply and rejoinder each) and page limits for these submissions (200 pages for the first round and 100 for the second round). The hearing is to be held within 60 days of the last written pleading and statements of costs submitted 10 days thereafter. The tribunal must render its award no later than 120 days from the date of the hearing.

In terms of process, the expedited nature of the proceeding requires a few “compromises”[31] in order “to strike a balance between an expedited procedure under commercial arbitration rules and a realistic schedule for investment disputes.”[32] For example, jurisdictional objections can be raised but for consideration with the merits and not examined in a separate, bifurcated phase. It is possible to file various applications, such as provisional measures, but their consideration runs in parallel with the procedural calendar without suspension. The parties’ consent to EA extends to the post-award remedy phase, such that for an award rendered under the EA process, any post-award remedy proceedings will fall under that process. Parties can opt out of EA by agreement or a decision of the tribunal at the request of either party. The schema below illustrates the steps and time frames of EA.

Click to view EA procedural steps and timelines[33]

Time Limits

With the amendments, ICSID has made concrete proposals to reduce the time frames taken to accomplish various steps in a proceeding, starting with a new general duties provision. This provision makes it a shared burden for tribunal and parties to ensure that the process is timely and cost-effective,[34] as shown in the box below. ICSID proposes a similar provision in conciliation proceedings under the ICSID Convention (Conciliation Rule 25) and in arbitration, conciliation, and fact-finding proceedings under the Additional Facility (Arbitration (AF) Rule 11, Conciliation (AF) Rule 33, and Fact-Finding Rule 13, respectively).

Rule 3 General Duties

(1) The Tribunal and the parties shall conduct the proceeding in good faith and in an expeditious and cost-effective manner.[35]

In addition, numerous rules now specify exact and/or reduced times for procedural steps. Generally, time limits may be extended, but both parties must agree, or the tribunal must find that the extension is justified by special circumstances. In particular, time limits prescribed by the Convention or the Rules may be extended, but only by agreement of the parties or decision of the tribunal that special circumstances exist that justify the failure to meet a time limit. Otherwise, procedural steps taken after the expiry of a time limit shall be disregarded (proposed Rule 11(2)). Time limits fixed by the tribunal or the ICSID Secretary-General may be extended, but only by agreement of the parties or by a decision of the tribunal or Secretary-General based upon a reasoned application submitted by either party before the expiry of the time limit. Otherwise, a procedural step taken after the expiry of the time limit shall be disregarded, unless the parties agree otherwise or the tribunal (or Secretary-General) finds that special circumstances exist that justify the failure to meet a time limit (proposed Rule 11(3)).

The call for heightened efforts to reduce the time and costs of proceedings is also made to tribunals. Under proposed Rule 12(1), the tribunal must make best efforts to meet time limits. If the tribunal cannot meet a time limit due to special circumstances, it must so advise the parties before the expiry of the time limit and provide the reason for it and anticipated length of the delay (proposed Rule 12(2)). ICSID also proposes Rule 31 (corresponding to proposed Arbitration (AF) Rule 40) to allow tribunals to convene case management conferences “[w]ith a view to conducting an expeditious and cost-effective proceeding” to identify uncontested fact, narrow issues in dispute, or address other issues relating to the resolution of the dispute.[36]

Arbitration Rule 38 on the closure of proceedings is eliminated along with the 120-day time limit for issuing awards. This is because tribunals have developed a practice of not closing the proceeding until the award is ready, which means that Rule 38 does not perform the function it was meant to of reducing the time it takes to issue awards.[37] Instead, ICSID proposes Rule 58 which, in a more impactful way, provides actual time limits that are pegged to specific procedural steps for the issuance of the award:

60 days after the latest of the constitution of the tribunal, last written or oral submission for award rendered based on a manifest lack of legal merit;
180 days after the filing of the last written or oral submission for award rendered on a preliminary objection in a bifurcated proceeding; and
240 days after the last written or oral submission in other matters.

Expand ICSID’s range of dispute settlement options

The dispute settlement options offered by ICSID consist of arbitration, conciliation and fact-finding. The amendments propose to expand the current options and add new ones.

Additional Facility

Currently, Article 2 of the Additional Facility Rules authorizes ICSID to administer conciliation and arbitration proceedings where either the dispute arises out of an investment but the State party to the dispute or the State whose national is a party to the dispute is not an ICSID Contracting State, or the dispute does not arise out of an investment but the State party to the dispute or the State whose national is a party to the dispute is an ICSID Contracting State. Article 2 also authorizes ICSID to administer fact-finding proceedings.

Proposed Article 2, whose text is provided in the box below, now only focuses on arbitration and conciliation. ICSID proposes to continue to administer fact-finding proceedings under the Additional Facility but under a new set of stand-alone Rules.

Article 2 Additional Facility Proceedings

(1) The Secretariat is authorized to administer arbitration and conciliation proceedings for the settlement of legal disputes arising out of an investment between a State or an REIO on the one hand, and a national of another State on the other hand, which the parties consent in writing to submit to the Centre if:

(a) none of the parties to the dispute is a Contracting State or a national of a Contracting State;

(b) either the State party to the dispute, or the State whose national is a party to the dispute, but not both, is a Contracting State; or

(c) an REIO is a party to the dispute.[38]

Proposed Article 2 expands the scope of current Article 2 with respect to arbitration and conciliation in two ways. First, Proposed Article 2 makes it possible for any State and the national of any other State to be parties to conciliation and arbitration proceedings under the Additional Facility, regardless of whether either State is an ICSID Contracting State. This inclusion accommodates some trends already observed in certain BITs[39] that allow disputes to be brought under the Additional Facility if both parties agree, where neither party is/comes from an ICSID Contracting State.[40] The requirement that the dispute arise out of an investment is kept because in the Centre’s experience, no disputes have been filed that did not arise out of an investment.[41]

Second, the disputants in conciliation and arbitration proceedings under the Additional Facility are no longer restricted to being a State and a national of another State. A Regional Economic Integration Organization (“REIO”) can be a party as a claimant or a respondent, and the proceeding can be between a State or REIO on the one hand and a national of another State on the other. The inclusion of REIOs in Additional Facility proceedings as parties is driven by the fact more and more REIOs, such as the European Union, are concluding in their own names international investment agreements (“IIAs”) that contain with dispute settlement provisions.[42] In addition, this sets the stage for an amendment of the ICSID Convention to include REIOs as ICSID Contracting Parties.[43] The fact that an REIOs can be parties to Additional Facility proceedings extends to the fact-finding and mediation rules. Rule 2(1) of the Fact-Finding Proceedings provides “[t]he Secretariat is authorized to administer fact-finding proceedings that relate to an investment, involve a State or an REIO, and which the parties consent in writing to submit to the Centre.” There is a similar provision at Rule 2(1) of the proposed Mediation Rules.

Mediation

As indicated above, ICSID is proposing a new set of stand-alone Mediation Rules under the Additional Facility as part of the amendment process. According to the ICSID Secretariat, the impetus for the Mediation Rules is that “[t]hey respond to the requests of stakeholders to provide greater mediation capacity. They complement new bilateral and multilateral treaties providing for mediation and more generally, the objective of the Centre to provide parties with a greater breadth of dispute resolution tools.”[44] Mediation, as a dispute settlement mechanism, is party-driven, informal, flexible, confidential, and cost-effective.

Under the ICSID Mediation Rules, the dispute would need to pertain to an investment but, as indicated above, the proceeding would be open to any State or REIO on the one hand and the national of any other State on the other hand, regardless of whether the relevant States are ICSID Contracting States.[45] Parties can undertake mediation on the basis of a pre-existing agreement or on an ad-hoc basis, and they can end the process anytime, by agreement of the parties or withdrawal of a party.[46] The process starts upon the filing of a request for mediation. Upon registration of the request by the ICSID Secretary-General, the parties can agree on the appointment of a mediator or co-mediators. Failing an agreement, the ICSID Secretary-General can make the appointment.[47] The parties have 15 days from the appointment of the mediator(s) to file their respective initial statements, and the mediator has 15 days thereafter to hold the first session for the determination of the mediation protocol.[48] During the mediation, the mediator can meet with each party alone or with both parties together. The process can accommodate a hearing or exchange of documents akin to document production in arbitration. Information or documents exchanged cannot be used outside of the mediation process.[49] The process can end upon the withdrawal of a party, if the mediator(s) determine that it is unlikely to succeed, or if a settlement agreement is reached. If a settlement is reached, it can call for enforcement under the Singapore Convention on the enforcement of settlement agreements.[50] The steps in the mediation process are depicted in the schema below.

Click to view steps in an ICSID mediation proceeding[51]

Continue to balance the interests of States and investors

Third-party funding

Proposed Rule 14 on third-party funding (“TPF”) is new in arbitration proceedings under the ICSID Convention. It is also proposed in arbitration under the Additional Facility (Arbitration (AF) Rule 23), conciliation under the ICSID Convention (Conciliation Rule 12), and conciliation under the Additional Facility (Conciliation (AF) Rule 21. The Rule states, in part:

Rule 14 Notice of Third-Party Finding

(1) A party shall file a written notice disclosing the name and address of any non-party from which the party, directly or indirectly, has received funds for the pursuit or defense of the proceeding through a donation or grant, or in return for remuneration dependent on the outcome of the proceeding (“third-party funding”). [52]

First, the Rule provides a definition of TPF as ‘the direct or indirect receipt of funds to pursue or defend a proceeding, where such funds are provided by donation, grant or in return for remuneration that hinges on the outcome of the proceeding.’ The main obligation that arises under the Rule is one of disclosure which is satisfied by a party filing a written notice indicating whether it receives TPF and, if so, the name and address of the funder. The notice must be filed with the ICSID Secretary-General upon the registration of the request or, if the arrangement is made at a later date, immediately upon its conclusion. The party receiving TPF has a continuing obligation to notify the Secretary-General of any subsequent changes to the information contained in the notice. This information is then provided to prospective or appointed arbitrators. Finally, Rule 14 allows the tribunal to order the disclosure of information beyond what is contained in the notice of TPF at any stage of the proceeding if it deems necessary.

TPF is more and more commonly used in international dispute settlement not only by claimants to prosecute claims but also by respondents to defend them. The main reason for regulating TFP in ICSID proceedings is to avoid conflicts of interest between funders and arbitrators which, in turn, reinforces the legitimacy of the process. Correspondingly, the arbitrator and conciliator declarations of independence and impartiality contain an express requirement to disclose any relationship with a third-party funder.[53]

Security for costs

Proposed Rule 53 is also new in arbitration proceedings under the ICSID Convention, and it is also proposed in arbitration under the Additional Facility (Arbitration (AF) Rule 63). Rule 53 states, in part:

Rule 53 Security for Costs

(1) Upon request of a party, the Tribunal may order any party asserting a claim or counterclaim to provide security for costs.

[…]

(6) If a party fails to comply with an order to provide security for costs, the Tribunal may suspend the proceeding. If the proceeding is suspended for more than 90 days, the Tribunal may, after consulting with the parties, order the discontinuance of the proceeding. [54]

As explained by ICSID, a security for costs “is intended to cover the costs that one party incurs in defending a claim asserted by the other party.”[55] Under proposed Rule 53, any party asserting a claim or a counterclaim has the possibility to request, and the tribunal has the authority to order, security for costs.[56] The Rule lays out the applicable procedure, including a calendar for making submissions on a request for security for costs. The Rule also specifies relevant circumstances that a tribunal must consider when deciding the request. These include a party’s ability and willingness to comply with an adverse decision on costs, the effect that providing security for costs may have on the party’s access to justice, and the parties’ conduct (e.g., any abuse of procedure, the assertion of frivolous claims, or the non-payment of advances on costs).[57] The list is non-exhaustive, but the factors in it represent common practice.[58] The fact that a party may be impecunious or has TPF alone is not enough for the tribunal to order that that party provide a security for costs, although this consideration may be taken into account by the tribunal. The tribunal’s decision is rendered in the form of an order and not a recommendation. Compliance is mandatory, and non-compliance can result in the suspension of the proceeding until security is provided or a discontinuance if security is not provided within 90 days. The tribunal has the power to modify or revoke its order on its own initiative or at the request of a party.

Conclusion

This paper has provided a cross section of the ICSID amendment process and proposals, based on the wealth of materials, in particular the working papers, prepared by the Staff of the ICSID Secretariat from the launch of the amendments in 2016 until today.

As discussed above, ICSID amends its Rules in order to improve and update them and, ultimately, to continue to effectively serve its purpose. The extensiveness of the current amendments is, in a way, a testimony to the Centre’s success in this regard. The explosion of its caseload has allowed ICSID to test its rules and, drawing from its rich experience and working with its Member States and members of the public, make the proposals currently under consideration. Given the experience with the on-going amendments, it is entirely foreseeable that future amendments might finally take on the ICSID Convention.

___________________________

* Aïssatou Diop is Legal Counsel at the International Centre for Settlement of Investment Disputes. While Ms. Diop alone is responsible for the contents of this paper and is not representing an ICSID position, the paper is based, for the most part, on research performed and materials produced by the Staff of the Secretariat pertaining to the Centre’s current proposals for rule amendment.

Endnotes

Nigeria’s New Approach to International Investment Agreements: Innovation, Refinement and Coherence by Ajuma Patience Okala*

Tue, 27 Apr 2021 11:46:07 GMT

Paper presented at the AfAA 2nd Annual International Arbitration Conference. 15th - 16th April 2021

1. INTRODUCTION

The conclusion, signing and ratification of a Bilateral Investment Treaty (BIT) is usually celebrated with measured pomp and pageantry as it is usually seen as a step that heralds an expectation of enhanced business and investment relations among investors of the Treaty Parties. With the BIT comes the expectation of the comfort and protection required to meet the profit expectations of investors on the one hand and an expectation of fulfillment of the investment expectations and possibly, economic development of the Host States, on the other hand.

In reality, whether or not the BITs meet the expectations of all involved is arguable, especially in relation to developing countries. The general notion is that the old generation BITs were designed essentially to give investment protection and comfort to investors to attract investments from capital-exporting countries, thereby meeting their profit expectations. In recent times, it is becoming apparent that in developing States, the profit expectations of the investors may have been met at the expense of the developmental objectives of the Host State, with sometimes harmful environmental and labour practices, ironically creating great poverty in areas of the greatest wealth.

The texts of the first-generation treaties, which centered primarily around investment promotion and protection appeared to have been designed to woo investors at any cost, no matter how much. They were a means through which capital importing countries do and sign whatever it took to attract investors and investments into their countries. Conversely, capital exporting countries sought to gain as much protection as the treaty could give to meet their profit expectations. It appears that the capital importing countries did not give much thought to the consequences of the loosely drafted provisions of such treaties beyond the optics of having signed a document that appeared to encourage inflow of investments.

Broadly drafted and unclear provisions such as definitions, fair and equitable treatment, full protection and security, pre-establishment, prohibition of performance requirements, expropriation and failure to circumscribe Most Favoured Nation (MFN) and National Treatment (NT) articles, devoid of ambiguities that enable broad interpretation of the text, are a few of the triggers of Investor- State Dispute Settlement (ISDS) cases.

The first generation treaty texts show a clear asymmetry between the rights and obligations of the investor, with the former far outweighing the latter. The treaties also included unbridled access to ISDS, which is at the core of investment protection policies implemented by host States to attract investors and is arguably the most important provision of International Investment Agreements (IIAs) to the investors, giving them the most comfort. Many still consider it scandalous that individual investors can commence commercial or investment arbitral proceedings against sovereign States, especially when the claims concern measures taken by the host State to achieve public policy objectives.

Overtime, there appears to have been a paradigm shift in that mindset as a result of a number of factors including the fact that the line between capital importing and capital exporting countries is fast fading or blurred. It also has not helped to see that a definite correlation between the signing of Bilateral Investment Treaties (BITs) and increase in FDI inflows is still a subject of debate.[1] Furthermore, some capital-importing countries have realized that even where the proliferation of treaties have attracted FDI, the investments attracted fall short of the right quality required to meet the economic growth expectations and developmental objectives of such host States.

Arbitral awards against developing countries heightened the concerns and fears of those who considered the text of the treaties and the system to be skewed against host States. Some recent awards against developing host States have brought this previously latent concern to the fore. A case in point is the 2017 award ordering Nigeria to pay P&ID $6.6 billion plus interest amounting to a total of over $9 billion for a project that was yet to take off.[2] Another example is the 2018 International Centre for the Settlement of Investment Disputes (ICSID) award ordering Pakistan to pay $5.9bn to mining firm Reko Diq,[3] an amount that is about two times the total Foreign Direct Investment (FDI) attracted by Pakistan in 2018. Some of these cases were brought on the basis of broadly drafted standards found in older IIAs that limit the right of host States to regulate investment in their territories, and that expose them more openly to investor–State disputes.[4]

Of further concern is the fact that in 2018, the majority of the new ISDS cases were brought by developed country investors against developing countries and transition economies.[5]

It is against this background that some developing countries such as Nigeria, which previously were capital importers and are now capital exporters, especially regionally, have commenced far reaching reforms to their IIA regimes. The focus of this short paper is to share Nigeria’s current approach in the negotiation of innovative content of BITs to meet not only the profit expectations of investors, but also the developmental objectives of the country.

2. NIGERIA’S REFORM-ORIENTED APPROACH TO NEGOTIATION OF BILATERAL INVESTMENT TREATIES (BITs)

With the global wave of reforms, largely informed by an increase in the number of ISDS cases, and the growing dissatisfaction of host States in the old order of IIAs, which were clearly disconnected from the achievement of their developmental objectives, Nigeria commenced holistic and far-reaching national and bilateral reforms of its IIA regime. The reforms were structured to mirror UNCTAD’s three phases of IIA reform found in its Reform Package for the International Investment Regime (2018 edition)[6].

Phase 1 was a national effort in the development of a new model BIT. Phase 2 centers around a national review of the existing stock of old generation BITs and a bilateral effort at modernizing the treaties that fall short of the quality required to attract responsible, inclusive, and sustainable investments. Phase 3 will entail an alignment of the bilateral reforms with the national laws to achieve cohesion at both levels. The reform process is driven by Nigeria’s Investment Promotion Agency (IPA), the Nigerian Investment Promotion Commission (NIPC) established under the provisions of the Nigerian Investment Promotion Commission Act.[7]

2.1 New Model BIT

The national reforms in Nigeria’s investment treaty regime commenced in 2015 with the development of a new model BIT in pursuit of sustainable development, balance of investors’ rights and obligations, preservation of Nigeria’s policy space, expansion of investment facilitation dimension of the treaties and more importantly, the insertion of safeguards to seemingly unrestricted access to Investor State Dispute Settlement (ISDS).

The model was developed by an Inter-Ministerial IIA team comprising core economic Ministries and Agencies, including the Federal Ministry of Justice as Chair, Nigerian Investment Promotion Commission as Technical Lead, the Federal Ministry of Industry, Trade and Investment and a practicing Arbitrator in the academia. The team was largely reflective of Nigeria’s standing Inter-Ministerial IIA team chaired by the Federal Ministry of Industry, Trade and Investment with Nigerian Investment Promotion Commission as technical lead/ Chief Negotiator.

The model, which became effective in February 2016 captures the national policy in innovative and modern provisions that set the tone for the attraction of RIBBS investments i.e Responsible, Inclusive, Balanced, Beneficial and Sustainable investments. Careful efforts were made to include well thought out definitions of key terms such as “investment” and “investor” to ensure that the protections and benefits of BITs only cover actual investments already established in Nigeria and determine in clear terms, who can access ISDS.

Other issues covered in the model, among others, were innovative provisions:

introducing circumscribed NT and MFN articles;
ensuring that BITs promote Nigeria’s sustainable development objectives including specifically addressing issues relating to the environment, human rights, health, labor, safety and anti-corruption;
preserving Nigeria’s policy space and the right of Nigeria to regulate in the public interest;
balancing the asymmetry in investor’s rights and obligations;
inserting temporary safeguard measures;
insertion of investment facilitation provisions to proactively assist investors with information and promote transparency of the legal and regulatory framework as well as transparency in arbitral proceedings;
including dispute prevention as a key component of the treaty;
establishing a Joint Implementation Committee to monitor the implementation of the treaty, share information on investment projects and serve as a de-escalation and mediation mechanism;
Inserting pre-conditions to accessing ISDS and safeguards to curb seemingly unrestricted exposure to international arbitration.

3. THE NIGERIA- MOROCCO BIT

In December 2016, the new model was used to successfully conclude negotiations and sign a BIT between the Federal Government of Nigeria and the Kingdom of Morocco. The Nigeria - Morocco BIT,[8] with its reform-oriented provisions, featured prominently in United Nations Conference on Trade and Development (UNCTAD)’s 2017 World Investment Report (WIR) and was cited as an example of a balanced “new generation” investment treaty, which other developing countries and emerging economies should emulate[9].

The Treaty captured virtually all the innovative reform-oriented provisions in Nigeria’s new model in addition to other critical investment protection provisions typically found in such treaties.

Though a number of its innovative provisions are yet to be tested, it seems safer to embed them in the treaty text with the chance of achieving the required objectives with them if and when they are tested as against not having them at all in the treaty text.

3.1 Dispute prevention, dispute de-escalation and mediation

Care was taken to word innovative provisions in the treaty to address some current global concerns on ISDS and the substantive provisions leading up to those concerns. One major issue addressed nationally in the model BIT and bilaterally in the treaty is dispute prevention, dispute de-escalation and mediation.

The Nigeria-Morocco BIT establishes a Joint Implementation Committee, which among other things, is a dispute prevention mechanism, to “…seek to resolve any issues or disputes concerning Parties’ investment in an amicable manner”.[10] The Committee also serves as a mediation and dispute resolution mechanism, to resolve disputes submitted under specified timelines, by an investor within 6 months from the date of the written request for consultations and negotiations, failing which “…the investor may, after the exhaustion of local remedies or the domestic courts of host State, resort to international arbitration mechanisms”.[11]

These provisions and the Joint Implementation Committee mediation provide ready solutions at a bilateral level to concerns on the improvement of time efficiency for ISDS, enhancing treaty Parties’ involvement and control over their instruments, dispute prevention and mitigation, exhaustion of local remedies and mediation, which are being considered at multilateral engagements at the ICSID Rules (Amendment) Process and UNCITRAL Working Group III.

At the national level in Nigeria, the OSIC Lab, an administrative dispute prevention and resolution mechanism has been established in the country’s Investment Promotion Agency: Nigerian Investment Promotion Commission to support the country’s efforts at dispute prevention and de-escalation and other forms of mediation.

Unlike the discussions at the multilateral level, the treaty text at the bilateral level has the added advantage of reflecting a mutually agreeable time efficiency template that takes cognizance of the developmental realities and constraints of the treaty partners, thereby addressing the issue very quickly.

In similar national and/or bilateral efforts to address some ISDS concerns, Argentina and the United Arab Emirates have included a ban of Third Party Funding (TPF) in their 2018 BIT.[12] The United States has also restricted TPF of domestic claims against the federal government.[13] Similarly, Egypt’s Investment Law No.72 of 2017 provides “…multitiered mechanisms for the settlement of investment disputes, including domestic litigation, amicable settlement and alternative dispute resolution (ADR)…”[14] Essentially, it is indicative of the fact that Egypt seeks to develop an effective and flexible mechanism for the settlement of investment disputes. Such are similar bilateral efforts to treat other identified concerns raised under the ICSID Rules Amendment Process and UNCITRAL WG III.

4. REFORMING THE OLD GENERATION BITS

In 2017, Nigeria commenced Phase 2 of the reform process, which entails reforming the existing stock of old generation BITs that are still in force despite their potentially injurious provisions that expose Nigeria to the needless risk of international arbitration. Inspired by a table in UNCTAD’s 2017 World Investment Report, which analysed IIAs on the basis of 11 reform-oriented provisions,[15] Nigeria came up with 20 critical and reform-oriented parameters. On the basis of the 20 parameters, which included critical considerations for the IIA reform,[16]of the key investment protection, facilitation and promotion provisions of most of the 29 BITs signed by Nigeria prior to the adoption of the new model, were assessed. The exercise revealed that a large percentage of the BITs fell short of the provisions needed to attract RIBBS quality investments. Validation of the work done on the assessment of Nigeria’s BITs was received from UNCTAD, the World Bank and Nigeria’s IIA team.

In 2019, practical steps commenced on the renegotiation and modernization of older BITs and concluded treaties that do not align with the current policy direction on Nigeria’s BITs. With guidance from UNCTAD, Nigeria recently undertook a country-specific analysis of each BIT in force with country by country proposals on the next steps to be taken to proactively modernize each BIT. The analysis highlights:

a) scores of each Treaty based on the 20 critical and reform-oriented parameters used for the assessment;

b) tenures and current status of each Treaty (since a large number of them are already expired but are automatically renewed along with the potentially injurious provisions);

c) next dates for the possible unilateral termination of the Treaties; and

d) tenure of the survival clause (during which the treaty provision will still be in effect even after the Treaties are terminated).

Similar country-specific analysis of concluded but yet-to-be-ratified BITs was undertaken with specific focus on the availability of quality safeguards to ISDS and the absence of pre-establishment provisions.

Engagements with some treaty partners has commenced on modernization of some treaties.

5. ALIGNMENT AND COHESION IN NATIONAL AND BILATERAL EFFORTS

To ensure cohesion of the reforms at the national, regional and bilateral levels, Nigeria has commenced preliminary work on Phase 3 of the reform process that entails the review of critical investment protection, facilitation and promotion provisions of the national investment law, the Nigerian Investment Promotion Commission Act,[17] which contains a number of unqualified protections, in addition to a seemingly unrestricted unilateral offer of Investor-State Dispute Settlement by international arbitration to foreign investors.

The objective is to ensure that the national investment law and other related legislations largely align with reforms undertaken at the bilateral level so that the gains made in the model BIT are not lost through the current provisions of the legislations.

Similar efforts at cohesion are being replicated at regional and multilateral negotiations including discussion on the AfCFTA Investment Protocol for Africa, the ICSID Rules Amendment Process, UNCITRAL Working Group III on the reform of ISDS and the formulation of Guiding Principles on Investment policymaking for D-8 countries developed jointly with UNCTAD. [18]The non-binding Guiding Principles provide guidance for investment policymaking with a view to: promoting inclusive economic growth and sustainable development; promoting coherence in national and international investment policymaking; fostering an open, transparent and conducive global policy environment for investment; and aligning investment promotion and facilitation policies with sustainable development goals. These initiatives aligns with Nigeria’s key IIA reform pillars, including sustainable development, right to regulate and preservation of policy space, balancing the asymmetry between investors rights and obligations and encouraging international cooperation on investment-related challenges in addition to mitigating investment disputes through the use of Ombudspersons or similar institutions.

6. CLOSING THOUGHTS

As the impact, negative and sometimes costly implications of loosely worded treaty provisions grow on treaty partners, the importance of carefully wording of such provisions and inclusion of reform-oriented provisions cannot be over-emphasized. It therefore behooves such treaty partners to formulate and embrace innovative tailor-made provisions that meet their policy objectives in order to ensure that the treaty meets a balance of expectations of both the investors and the Host States.

While the desirability of reforms in treaty negotiation is increasingly gaining ground, attention must be given to other success factors in the negotiation of such treaties, prominent among which are skilled treaty negotiators and having like-minded treaty partners, with complementary objectives around the table.

Forums such as the AfAA Conference provide an opportunity to share experiences and interrogate issues that help build the capacity of treaty negotiators and expose countries to the need to embrace the wide range of reforms in their investment treaty regimes. This, in my view, is a critical first step in enhancing the possibility of concluding even more reform-oriented treaties, which over time can change the “face” of BIT networks across the world.

____________________

* Deputy Director and Legal Adviser of Nigerian Investment Promotion Commission and Chief Negotiator of Nigeria’s International Investment Agreements team

[1] https://investmentpolicy.unctad.org/uploaded-files/document/unctad-web-diae-pcb-2014-Sep%2024.pdf (09 March 2020)

[2]https://jusmundi.com/en/document/decision/en-process-and-industrial-developments-ltd-v-the-ministry-of-petroleum-resources-of-the-federal-republic-of-nigeria-part-final-award-friday-17th-july-2015 (03 March 2020)

Process and Industrial Development Ltd. v. The Ministry of Petroleum Resources of the Federal Republic of Nigeria.

[3]Tethyan Copper v. Pakistan https://www.thefreelibrary.com/Barrick+Gold+Corporation+(TSE%3a+ABX)+-+Barrick+Announces+Reko+Diq...-a0595353574 (03 March 2020)

[4] Hamed EL-KADY and Mustaqeem DE GAMA, The Reform of the International Investment Regime: An African Perspective, ICSID Review, (2019), pp. 1–14.

[5] https://investmentpolicy.unctad.org/publications/1202/fact-sheet-on-investor-state-dispute-settlement-cases-in-2018 (04 March 2020)

[6] https://investmentpolicy.unctad.org/publications/1190/unctad-s-reform-package-for-the-international-investment-regime-2018-edition- (04 March 2020)

[7] http://www.nigeria-law.org/Nigerian%20Investment%20Promotion%20Commission%20Act.htm

[8]https://investmentpolicy.unctad.org/international-investment-agreements/treaties/otheriia/3711/morocco---nigeria-bit-2016- (03 March 2020) https://www.iisd.org/itn/2017/09/26/the-2016-morocco-nigeria-bit-an-important-contribution-to-the-reform-of-investment-treaties-tarcisio-gazzini/ (03 March 2020)

[9]https://issuu.com/unpublications/docs/world_investment_report_2017/68 Pages 120-123 and 140 (03 March 2020)

[10] Article 4(4)d

[11] Article 26

[12]Agreement for the Reciprocal Promotion and Protection of Investments between the Argentine Republic and the United Arab Emirates, signed April 16, 2018 (03 March 2020) https://investmentpolicy.unctad.org/international-investment-agreements/treaties/bilateral-investment-treaties/3819/argentina---united-arab-emirates-bit-2018- (02 March 2020)

[13] 31 USC 3727 (United States Anti-Assignment of Claims Act). https://www.iisd.org/itn/2019/06/27/third-party-funding-and-the-objectives-of-investment-treaties-friends-or-foes-brooke-guven-lise-johnson/ (02 March 2020)

[14]Moataz HUSSEIN https://www.iisd.org/itn/2018/10/17/new-egyptian-investment-law-eyes-on-sustainability-and-facilitation-moataz-hussein/ (03 March 2020)

[15]https://issuu.com/unpublications/docs/world_investment_report_2017/68 Page 121 (04 March 2020)

[16] The parameters include reference to sustainable development, inclusion of enterprise-based definition of investment, inclusion of temporary safeguard measures, inclusion of transparency and investment facilitation clauses, among others.

[17]Nigerian Investment Promotion Commission Act No. 16 of 1995 (see earlier reference to this Act) http://www.nigeria-law.org/Nigerian%20Investment%20Promotion%20Commission%20Act.htm (03 March 2020)

[18] The D-8 Organization for Economic Cooperation, also known as Developing-8, is an organization for development co-operation among the following countries: Bangladesh, Egypt, Nigeria, Indonesia, Iran, Malaysia, Pakistan, and Turkey. Text of the principles available at: https://investmentpolicy.unctad.org/publications/1221/joint-d-8-organization-for-economic-cooperation---unctad-guiding-principles-for-investment-policymaking (04 March 2020)

Description of the Belt and Road Initiative and some of the projects/transactions thereunder, involving Africa – opportunities for Africans by Kwadwo Sarkodie*

Tue, 27 Apr 2021 09:36:04 GMT

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021

This paper, which follows my presentation, provides an overview of the Belt and Road Initiative (the "BRI"), its aims, objectives and progress to date. It also discusses the impact and implications that the BRI will have on/for Africa within the broader context of African efforts to develop, industrialise and foster trade and investment on the continent. Moreover, this paper also looks at some of the challenges which arise, including how and when these can lead to disputes, and the role that the African dispute resolution community can play in resolving and mitigating such disputes when they arise.

Scope of the BRI

Launched at the end of 2013, the BRI is a globe-spanning network of sea and land trade routes originating in China, and funded by vast sums of Chinese capital. At its heart, the BRI is an infrastructure initiative (90% of BRI projects are linked to ports, rail and road, mineral processing or energy (oil, gas and renewables)) – albeit on a vast scale. Africa is a central element of the BRI; as the second-largest recipient of BRI investment, after Asia.

Infrastructure and interconnectivity: planning and projects

Africa's infrastructure challenge remains the most significant and persistent hurdle to industrialisation and intra-African trade. Approximately US$ 68-108 billion is required to meet Africa's infrastructure financing needs.

China is the largest funder of infrastructure in Africa, and the BRI of course comprises a significant influx of capital for infrastructure. China has so far invested in over 40 African countries under the BRI. Notable projects include the following:

US$1.6bn – Nigeria. The railway between Lagos and Ibadan, opened in January 2021. This is part of the larger proposed US$ 11.1bn 2,733km railway line between Lagos and Kano.
US$589.5m – Uganda. The Isimba Hydroelectric Power Station, a 183.2 MW hydroelectric power station was commissioned on 21 March 2019 (funded by the Export-Import Bank of China), construction began in 2015.
US$3.4bn – Ethiopia/Djibouti. The modernisation of the railway from Addis Ababa to Djibouti (and associated construction of an industrial park in south Addis Ababa), completed in January 2021.

Despite the increase in high-profile projects, the question remains as to whether the BRI is a purely economic construct to enhance international cooperation (as China claims), or a geopolitical tool to enhance China's global strategic influence (as its strategic competitors suspect). Regardless of the true position, the challenge for African countries is to align China's ambitions with their own needs and objectives, and therefore effectively take advantage of the synergies and opportunities that undoubtedly exist.

What are the biggest opportunities for Africans presented by the BRI, and are there any challenges?

Funding & Infrastructure

There is undoubtedly a vast and unprecedented influx of funding into major infrastructure projects in Africa as a consequence of the BRI. The influx has the potential to help address long-overdue gaps and shortcomings in national infrastructure, and also to provide for more effective and efficient links within sub-regions of the continent. However, funding often comes with conditions. These can serve to limit the opportunities for Africans to participate. For instance, the Standard Gauge Railway project (the "SGR Project") in Kenya (linking Mombasa with Nairobi, and originally planned to extend to Uganda) was funded on the condition that it be constructed by Chinese entities. Such restrictions are not uncommon on BRI projects. The conditions surrounding the SGR project are not uncommon, given that a third of major infrastructure projects undertaken in Africa are constructed by Chinese entities. Statistics show that while the labour constructing African BRI projects is increasingly African, more senior staff on projects are usually Chinese. This restricts the opportunity for knowledge transfer and capacity-building. Opportunities for participation by African contractors are often limited (though may yet remain significant additional opportunities further down the supply chain).

It must therefore be kept in mind that challenges remain. The SGR Project in Kenya, serves as an example of how BRI projects ultimately remain subject to China's aims and objectives, as the funding party. In the project the objective to continue the line through to Uganda (therefore providing and important link, facilitating trade between two key regional economies) was abruptly dropped when China declined to fund the next phase of the line's development. This is likely a consequence of the Chinese Government's recent steps (against the background of the global COVID-19 Pandemic and a changing global financial landscape) to scale back BRI investment, and shift away from more low-cost and less commercial funding. As such, we have seen a drop in the levels of BRI investment over the course of 2020.

Outside of funding, there are opportunities brought by the infrastructure assets themselves. A clear potential benefit is the increase of connectivity across Africa, and its potential to boost intra-African trade, economic activity and development.

Disputes

African parties involved in BRI projects, be they states, contractors or suppliers, must appreciate the risk that a divergence between their interests and the interests of China, could very likely lead to a fundamental change in the project structure, a dispute or a stalled project. By way of example, the Beijing Everyway Traffic and Lighting Co Ltd v Ghana claim (brought under the Ghana-China BIT, in February 2021) provides an example of Chinese companies becoming more assertive in relation to pursuing and protecting their perceived rights in relation to projects and investments in Africa.

As regards advice and disputes, there are clear opportunities for African lawyers and consultants. Infrastructure projects on a 'mega-project' scale inevitably give rise to disputes, at all levels. Such projects will require a robust and efficient mechanism to address disputes as they arise in the course of the project itself (e.g. a DAB or DRB). Further, more significant and project-critical disputes may need to be resolved by arbitration (and other ADR methods, such as mediation, can also play a role). This underlines the importance of the work of bodies such as AfAA – in promoting knowledge of arbitration and dispute resolution in Africa.

The potential for dispute work is vast, and disputes are not necessarily confined to Sino-African companies and states. Other international actors are likely to be involved as contractors, suppliers and funders.

How can the opportunities presented by the BRI be taken advantage of?

We have seen arbitral institutions take specific steps to improve their ability to service BRI-related disputes, and to address related issues and considerations that arise. Examples include the ICC's "Belt and Road Commission" and the HKIAC's "Belt and Road Advisory Committee". Further, arbitral institutions (such as the CAJAC) are now in existence which aim to cater specifically to disputes in relation to Sino-African projects.

African arbitral institutions have an important role to play in taking steps to upskill domestic legal sectors (e.g. by developing skills and sharing their experience of complex cross-border arbitration with arbitrators, judges, lawyers, clerks etc.), thereby developing knowledge and capacity.

Against the background of the COVID-19 Pandemic and travel restrictions which we have all had to become familiar with, investing in, developing and adapting technology to support the conduct of arbitration has become, and will continue to be, more important.

The African Continental Free Trade Area

This year has seen the coming into being of the African Continental Free Trade Area ("AfCFTA"). This is the largest free trade agreement since the creation of the WTO. It serves to enhance economic integration and cooperation in an economic area worth US$ 3.4 trillion, with a population of 1.2 billion people, and offers a further vital potential force for Africa's further development. The AfCFTA has as its objective the deepening of economic integration amongst African states by creating a unified market for goods and services and, in the process, to drive Africa's industrialisation and structural transformation.

The aforementioned infrastructure gap, and shortcomings in key areas such as power capacity and availability and data connectivity, present obstacles to the achievement of the objectives of AfCFTA. Indeed, as important as the removal of trade barriers, which AfCFTA provides for, is the alleviation of these physical barriers and bottlenecks which hinder the capacity for trade between, and within, African countries.

The BRI therefore has what is potentially a highly important role to play in working towards maximising the opportunities presented by AfCFTA – specifically by making available such a considerable (and vital) volume of funding to be directed towards infrastructure projects. Such projects can, in turn, deliver infrastructure assets through which increased trade, unlocked by the AfCFTA, can flow.

Concluding remarks

With such a volume of capital being committed, to such major projects, this undoubtedly presents opportunities – and infrastructure investment is a clear and pressing African need. However, as can fully be expected, in committing such investment, China understandably has its own objectives and aims (including expanding Chinese access to new markets and facilitating Chinese strategic global expansion) foremost in mind. Africans will need to be astute, and aware of their legal and commercial rights and how to protect them, if they are to take best advantage of this once-in-a-generation opportunity. An approach that might be summarised as "belt and braces", for the Belt and Road.

___________________

* Partner, Mayer Brown International LLP

Keynote Address by Stephen Karangizi* presented at the AfAA 2nd Annual International Arbitration Conference

Tue, 27 Apr 2021 09:11:55 GMT

AfAA 2nd Annual International Arbitration Conference - Reform and Innovation in International Dispute Resolution: African Perspectives, 15th - 16th April 2021

1. Salutations and Opening

The President of the African Arbitration Association and former Attorney-General and Minister of Justice of the Federal Republic of Nigeria, Chief Bayo Ojo;
The Secretary-General of the African Arbitration Association, Dr Rukia Baruti;
The Board of Directors and Members of the African Arbitration Association;
Distinguished speakers and participants;
Colleagues, ladies and gentlemen.

I am delighted to join you on the occasion of the second annual conference of the African Arbitration Association to take stock of the growth of the association so far and to deliberate on the conference theme – Reform and Innovation in International Dispute Resolution: African Perspectives.

I am even more pleased to be delivering the keynote address of the conference as this signifies the importance of the partnership between the ALSF and the AfAA. As many of you know, the ALSF supported the establishment and preliminary launch of the AfAA in Abidjan in 2018 - not least because both our organisations acknowledge and seek to promote legal capacity and processes and their utilisation or contribution towards sustainable development in Africa. This includes addressing the asymmetry of legal capacity between African countries and investors, ensuring balance and fairness in contracts and dispute resolution, and providing innovative solutions to various legal issues.

2. Outline of Address

Ladies and gentlemen, it is on that last point, which is also reflected in the theme for the conference, that I wish to focus this address. I will begin by rehashing the slew of issues in need of reform and innovative solutions; Next, I will discuss some interesting developments that are speaking to or could address these issues; And then, Mr President, you will no doubt – on account of seniority privileges at the bar – permit me to offer some snap proposals in conclusion.

3. Issues in need of reform and innovative solutions in Africa

These issues are known to all of us. But for the purpose of this address, I shall categorise them as follows:

Issues	Examples/Causes
i.	Legal capacity and accessibility issues	Dearth of expertise in or exposure to cutting-edge areas of law; Wide dispersion of cutting-edge legal expertise; Sub-standard trainings in some cases; Exclusive outsourcing of legal work to international non-African firms; Limited range of local law firms; Cross-jurisdictional practice limitations; High costs of legal training; Inadequate relevant physical infrastructure and facilities; Poor organisation and promotion; Non-selection of qualified persons for transactions, arbitrations;
ii.	Legal rules and processes	Lopsided investment treaty and contract provisions, and dispute resolution frameworks; Lack of or weak harmonisation across borders - within RECs and continentally; Non-qualitative frameworks for law and rule-making;
iii.	Gender inequality	I believe the matter speaks for itself! Increasing female enrolments and qualifications are not commensurate with senior and leadership roles, or arbitration appointments; Marginalisation from large transactions;
iv.	Cultural and customary issues	Disregard for cultural and customary norms; Inadequate documentation or recognition of cultural and customary norms – especially in large-scale land-based transactions;
v.	Inter-disciplinary collaborations & Data issues	Inadequate understanding or connections with non-traditional disciplines and emerging areas, e.g., technology, e-commerce, blue economy, space, data sciences, etc.; Poor data collection, interpretation, and analysis for effective decision and rule-making;
vi.	IP protections	Insufficient knowledge or understanding of creators of IP issues; Ease of IP registrations; Inadequate attention to IP issues in complex commercial transactions;

These issues are by no means exhaustive. Nor are they mentioned in any particular order. In highlighting and attempting to categorise them, one hopes to instigate the process of analyses and clarification necessary for the more enterprising and progressive ones among us to begin considering and innovating solutions to the issues.

4. Some interesting developments

Ladies and gentlemen, it is not all doom and gloom. If the issues I just mentioned evoked despair, then the recent developments I am about to share should give us hope and inspire further efforts to overcome the challenges. In the interest of time, I will only share 3 or 4 of such developments:

i. The ALSF Academy

Allow me, Mr President, to lead with and expatiate on a flagship innovation of my own organisation – the ALSF Academy virtual capacity building platform. Long before the pandemic we recognised that it would take innovative solutions to achieve our vision of ensuring sustainable legal capacity for Africa. The ALSF Academy therefore utilises technology to address some of the issues I mentioned earlier, especially the legal capacity and accessibility issues. The platform enables us to provide training and skills in the key sectors of our operations – extractives, power, infrastructure and sovereign debt; as well as in relevant soft skills – while also ensuring that we will have access to an expanding pool of qualified experts to advice on complex commercial transactions. The training materials, which include video presentations, slides, and course handbooks, are complemented by other sector publications and online resources developed or supported by or accessible to the ALSF. The materials and resources are being developed through our partnership with various legal entities including - ABLFA (African Business Law Firms Association), CIFAF (International Training Centre in Africa for Francophone Lawyers), EALS (East Africa Law Society), ILFA, SADC-LA (SADC Lawyers Association), ERSUMA (Regional High School of Magistracy of OHADA), and Strathmore Extractives Industry Centre (SEIC). To this end, we are also working with the AfAA to expand on the arbitration resources available to enhance the skills and practice of African lawyers.

The merits of the ALSF Academy online portal include sustainability, knowledge transfer, and continuous improvement:

Sustainability: The online portal provides all-round access to skills and information complementary to in-person trainings and that can be readily updated or upgraded.
Knowledge transfer: The training provided through the portal enhances the capacity of African lawyers especially in key learning areas in line with international best practices.
Evaluation and improvement: The ALSF can monitor and improve the effectiveness of the training through the analysis of data on who has accessed the portal and which sections have been viewed and utilised.

Since the launch of the online portal in 2019, more than 7,000 new users have been registered and 223 users have completed various levels of training on the platform. We expect to register more users as we develop more content and introduce more interactive features. In time, the ALSF Academy should coordinate all relevant legal resources and training for African lawyers. The ALSF Academy is available at: WWW.ALSF.ACADEMY.

ii. Other law and tech platforms - The Lawyers Hub / LawTrella / I-Arb Africa / Arbitration in Africa Surveys / AfAA Arbitration Law Atlas

The next set of innovations are also technology-based and speak to a number of the issues I mentioned earlier, i.e., legal capacity and accessibility issues, legal rules and processes, interdisciplinary collaborations & data issues, IP protections, and gender inequality.

Mr President, I recently had the pleasure of participating in the Pan African Lawyers Union (PALU) conference panel on Legal Technology and Continuing Legal Education in Africa and was introduced to some amazing work by some young African lawyers. That they are women alone I believe goes a long way in resolving the gender inequality issues!

One of the enterprising young women was involved in the creation of the Lawyers Hub – a legal-technology policy organisation that provides technology-driven solutions to policy making, legal practice, and access to justice. Their policy hub brings together lawyers, tech professionals, civil society, academia and public policy professionals to develop technology driven options for governance, including in emerging areas such as internet governance, digital trade, digital ID, and digital inclusion, as well as the interface with more traditional concepts such as human rights and sustainability. They are also engaged in the use of technology to improve dispute resolution processes and are exploring artificial intelligence and machine learning technology to improve access to and efficient delivery of justice. Another of the women innovators has created LawTrella, an online platform that uses technology to facilitate continuous professional development, networking, co-working and client interaction.

Mr President, I have more initiatives by women to speak about. The SOAS Arbitration in Africa Surveys (which the ALSF has supported), contribute to resolving the data issues mentioned earlier, for more effective decision making. The I-Arb Africa website features useful information on African countries’ accession to various arbitration centres, eligible African arbitrators, an international directory of arbitrators, arbitration schedules and events, awards involving African participation, and analyses of awards and developments in the arbitration space. Of course, the AfAA’s own online platform provides a directory of its members and their expertise and hosts and provides links to various arbitration resources including an atlas of African arbitration laws (supported by the ALSF) – which should facilitate reviews and analyses and harmonisation or convergence of arbitration rules and processes across borders.

iii. Reforms in the international investment regime

According to the UN Conference on Trade and Development (UNCTAD)’s 2019 World Investment Report, out of 29 International Investment Agreements concluded in 2018, 27 contained various innovative features – including provisions espousing sustainable development objectives, gender equality, preservation of regulatory space, enhanced investment dispute settlement provisions or none at all.

And, regarding Investor State Dispute Settlement (ISDS) reforms, the ongoing processes for reform of ISDS frameworks – notably the ICSID and UNCITRAL regimes – are well known. The issues being considered for reform are relevant to us and wide ranging, including proposals relating to third-party funding, whether to have an ad hoc or standing advisory centre, review or appellate mechanisms, cost-effectiveness of proceedings, electronic processes, selection of arbitrators, arbitrators’ code of conduct and ethics, exhaustion of local remedies, frivolous claims, security for cost, and dispute prevention and mitigation. But perhaps more can still be done to coordinate African perspectives and articulate them more forcefully.

I note that two great panels will be discussing the reforms in the international investment regime in more detail this afternoon, so I will say no more than that it is refreshing that the ongoing reviews are open and inclusive.

5. Conclusions

Mr President, I will now conclude this address with a few thoughts for our consideration.

i. A proposal for virtual hearing management services

The objective will be to provide a simple and quick to deploy virtual infrastructure for participation in virtual hearings by African countries (especially fragile countries with technological and infrastructural challenges) by leveraging or utilising the resources of AfAA members or affiliates across the continent. While it is derived from a similar service by the American Arbitration Association, the design must be distinct if it is to be responsive to the needs of African clients. Some of the unique features of this platform could include local language translation services; “demystification” of the locus the subject matter of the investment dispute; access to relevant cultural information, and secure meeting rooms.

ii. A feedback loop

As advisors to African governments on transactions that could potentially end up in disputes, the ALSF is interested in utilising the lessons learned in ISDS outcomes or awards to enhance transactions by our regional member countries. The AfAA is therefore encouraged to consider developing its analyses frameworks to support this process.

iii. Illicit Financial Flows (IFFs) and Climate Change

Africa loses about US$90 billion in illicit capital flight every year – that is nearly 4% per cent of the continent’s GDP. And the solution mainly lies in improving national capacities and governance/regulatory systems, negotiating better investment and taxation agreements, cooperating home countries, and transparency of the global financial system. But the international arbitration regime has a part to play in curbing this criminality. If investors can challenge taxation in international arbitration on the grounds of expropriation or violation of national treatment, most-favoured nation treatment and fair and equitable treatment, then investors must also be accountable for their international financial crimes. Thus, the international arbitration regime can contribute to exposing unscrupulous activities such as nationality planning, money laundering, transfer misprising, and other tax evasion or corrupt practices, without violating the notion of non-arbitrability of tax. This will require arbitrators to be well-informed and vigilant in this ever-evolving field; as well as appropriate reforms in international dispute resolution.

Also, while climate change has worse repercussions for Africa, our continent’s legal systems are yet to develop the legal frameworks to fully confront this issue. As the laws and regulations play catch up, our arbitrators need to be vigilant and use their roles in defending against the impact of some of the investments on climate change in Africa.

Finally, I wish to end with news of collaboration between the ALSF and the AfAA. Further to our support of the Africa Arbitration Legislation Atlas, we are planning to collaborate on more projects aimed at creating knowledge products, capacity building, and promoting arbitration in Africa. The details of the projects are yet to be finalised, but I am hopeful that we can realise our common objectives if all of us members and partners continue to work together.

Mr President, ladies and gentlemen, congratulations on your second annual conference. I look forward to a lively and rewarding experience.

Thank you.

_______________

* Director & CEO, African Legal Support Facility (ALSF)

UNCITRAL ISDS Reform: Mandate, process and reform solutions by Anna Joubin-Bret*

Tue, 27 Apr 2021 08:52:28 GMT

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th – 16th April 2021

I. Executive Summary

The United Nations Commission on International Trade Law (“UNCITRAL” or “Commission”) Working Group III is currently working on a comprehensive reform of the system for investor-State dispute settlement (“ISDS”). Delegations have begun by identifying concerns related to the lack of consistency, coherence, predictability and correctness of arbitral decisions, arbitrators and decision makers, and cost and duration of ISDS and assessed that these problems and shortfalls warrant reform. The Working Group is now in the phase of developing concrete reform solutions to address these concerns. Ideally, these reform solutions should be applicable to the more than 3,000 existing international investment agreements (“IIAs”) through a multilateral instrument and be presented in a flexible manner to ensure that States can adopt them in accordance with their priorities.[2] The African perspective plays a vital role in this reform process. For many African countries the current ISDS system raises important questions and their contributions to the UNCITRAL reform deliberations ensure that their interests and experience are taken into account in the development of a reformed ISDS system for the 21st century.[3]

II. Background

ISDS provides a forum for foreign investors to bring claims against the host State to international arbitration tribunals. It was created with the aim of enhancing confidence in the stability of the investment environment primarily in developing countries.[4] More than 3,000 IIAs are in force today.[5] In parallel to the increase in the global web of treaties, the number of ISDS cases brought by foreign investors against States under these IIAs increased and passed the 1,000 mark in 2020.[6]

The UNCITRAL reform process was initiated in 2017 in order to address strong and growing criticism by its stakeholders but also the general public of the ISDS system as it has been set up and operating in the last 60 years. Given the increase in the number of ISDS cases, the fact that they are brought against public measures and involve compensation to foreign investors with public funds, the ISDS system has come under broader public scrutiny. Criticism has emerged in particular relating to the methods of appointing arbitrators, and the impact of such methods on arbitrators’ independence and impartiality, the lack of coherence of a system based on decisions made by tribunals constituted to hear a specific case (also referred to as “ad hoc” tribunals), and the lack of corrective mechanisms (i.e., the lack of appropriate control or appellate mechanisms), the length and costs of the proceedings and the lack of transparency.[7] A first wave of criticism against ISDS had emerged in Latin America based on the perception of bias against States and gave rise to measures by Venezuela, Bolivia and Ecuador to distance themselves from the ISDS system.[8] Criticism in Europe crystallized around the negotiation of the Transatlantic Trade and Investment Partnership Agreement (TTIP). High profile cases such as Phillip Morris v. Australia[9] and Phillip Morris v. Uruguay[10] have also put the topic on a political level in other regions. Reforming ISDS has become in the last decade a recurrent topic in international conferences and academic work,[11] further highlighting the fact that stakeholders in the system had long discarded criticism as factually incorrect but had underestimated the role of perception.

III. Mandate

In July 2017, UNCITRAL entrusted its Working Group III with the possible reform of the ISDS system against the background of its global reach and its experience with the negotiation of legal instruments in the field of international arbitration. It was the prevailing view that UNCITRAL provides an appropriate multilateral forum to discuss relevant issues in an inclusive and transparent manner, where the interests of not only States but also of other stakeholders could be considered. It was recalled that UNCITRAL has successfully undertaken a first step towards reform of ISDS with the preparation of standards on transparency.[12]

In 2014, the Rules on Transparency in Treaty-based Investor-State Arbitration (2014) (Rules on Transparency), UNCITRAL’s first instrument applicable specifically to ISDS, came into effect.[13] These rules address the need “to take account of the public interest involved in such [ISDS] arbitrations”.[14] The rules apply to ISDS proceedings initiated under the UNCITRAL Arbitration Rules pursuant to an IIA concluded on or after 1 April 2014 unless the parties to the agreement have agreed otherwise. The rules also apply if the IIA was concluded before 1 April 2014 if its parties have agreed to their application.

UNCITRAL further prepared a convention designed to facilitate the application of the Transparency Rules to the 3,000 or more investment treaties concluded before its entry into force, the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (New York, 2014) (the "Mauritius Convention on Transparency") . In essence, the Mauritius Convention on Transparency introduces the substantive transparency standards embodied in the Transparency Rules into the fragmented treaty-by-treaty regime by way of a single multilateral instrument.

After the adoption of these texts, the question was raised whether the Mauritius Convention on Transparency could provide a useful model for possible further reforms in the field of ISDS. It was noted that the then current circumstances posed a number of challenges to ISDS and proposals for reforms had been formulated by a number of organizations.[15] In 2016, a research paper elaborated by the Geneva Center for International Dispute Settlement (CIDS) presented to UNCITRAL formed the basis for further consultations on whether to undertake work on ISDS reform.[16] The report proposed to follow an approach similar to the one pursued in respect of the Transparency Rules and the Mauritius Convention on Transparency, that would allow reform of a complex and atomized system by way of a single multilateral instrument.

The Commission entrusted Working Group III with a broad mandate to work on the possible reform of ISDS. It was emphasized that the Working Group would, in line with the UNCITRAL process, ensure that the deliberations would be Government-led, include the widest possible breadth of available expertise from all stakeholders, with high-level input from all Governments, be consensus-based and fully transparent.[17]

IV. Process

1. A government-led process

The Commission had noted that ISDS involves a number of policy issues and highlighted that Governments should have a leading role in the reform process. They should be represented by officials with adequate expertise and experience in negotiating investment treaties or investment chapters in free trade agreements and with exposure to claims related to ISDS.[18] The reform deliberations in Working Group III have benefitted from high level input from government representatives in the working group sessions as well as in the form of over 50 written submissions contributing to the Working Group’s deliberations.[19]

2. And inclusive process

The Working Group sessions have benefitted from significant and increasing participation by States, including developing and least developed countries. The Working Group session in January 2020 in Vienna, for example, was attended by more than 400 delegates representing 106 States, and 66 international organizations and non-governmental organizations.[20]

Considerable efforts are being made by the UNCITRAL Secretariat to reach out to all regions and countries to raise awareness and build capacity within delegations to effectively participate in the ISDS reform process. Three inter-sessional regional meetings were organized with the support of the Secretariat and hosted by the Governments of the Republic of Korea, the Dominican Republic and Guinea.[21] Moreover, Hong Kong SAR, China hosted a virtual pre-intersessional meeting.[22]

Prior to Working Group sessions, the Columbia Centre for Sustainable Investment (CCSI) and the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), with the assistance of the UNCITRAL Secretariat, regularly conduct training and briefing sessions on ISDS topics being discussed in the Working Group sessions in order to allow delegations to participate fully and effectively in the deliberations. The European Union, Switzerland, Germany and France have provided financial support to facilitate participation by delegations from developing and least developed countries.

3. Broad inputs from all stakeholders

The deliberations of the Working Group are based on a broad range of available expertise from different stakeholders. More than 66 international inter-governmental organizations and non-governmental organizations with a variety of industry and policy expertise have participated in the Working Group sessions as observers and have organized numerous side events during as well as in-between the Working Group sessions.[23] An Academic Forum on ISDS and a Practitioners Group have been set up early in the process as informal groups aimed at making constructive contributions to the ongoing discussions by providing information from their research and experience.[24]

The UNCITRAL Secretariat has prepared working papers on identified issues and reform options in preparation of the Working Group sessions with reference to a broad range of published information on the topics.[25] Further, the Secretariat has organized a series of informal webinars, in which state representatives and leading experts shed light on reform topics with the aim to brainstorm on the reform options on the agenda and to advance the discussions.[26]

4. Consensus-based process

Legislative work by UNCITRAL and its working groups is generally based on consensus.[27] In accordance with UNCITRAL practice, consensus does not require unanimity, but is instead based on a widely prevailing majority and the absence of a formal objection that would trigger a request for a vote. While the adoption of an instrument or a text by consensus does not give it any binding nature and States remain free to decide whether they want to adopt or apply it, it was stated that efforts should be made to consider all possible options so as to achieve the broadest consensus.[28]

5. Transparency

The reform process is being conducted in a fully transparent manner. Each step of the deliberations is documented in the Working Group and Commission reports. The reports as well as the notes by the Secretariat and submissions by States are publicly available on the UNCITRAL web page in all six UN languages.[29] Moreover, audio recordings of the sessions are available on the UNCITRAL web page.[30]

6. Coordination with parallel ISDS reform developments

Besides the UNCITRAL ISDS reform process, reform developments are also taking place in other fora. ICSID is updating its rules through the Rules and Regulations Amendment process particularly addressing concerns relating to cost and duration of ISDS processes.[31] As the reform topics partially overlap, as does their respective membership, the Secretariats of UNCITRAL and ICSID are cooperating closely in order to work towards harmonized solutions and avoid a further fragmentation of the legal framework for ISDS. Reform items such as third-party funding and the establishment of an appeal mechanism will require close cooperation with the ICSID Secretariat in order to develop an effective and coherent reform package. The UNCITRAL reform process generally takes into account the implications of the ISDS reform for the application of existing arbitration rules and administering institutions.

The OECD is hosting a forum that also touches upon certain ISDS related topics – the Freedom of Investment process. The UNCITRAL Secretariat particularly took into consideration the OECD’s work on the topics of shareholder claims and reflective loss in its preparatory work.[32]

Other reform developments are taking place on the level of IIAs. Most of the IIAs signed in recent years contain reform elements including the approaches of no ISDS, a standing ISDS tribunal, limited ISDS and improved ISDS procedure.[33] These developments are monitored and supported by the United Nations Conference on Trade and Development (UNCTAD), which assists policymakers, government officials and other IIA stakeholders to reform IIAs with a view to making them more conducive to sustainable development and inclusive growth.[34]

The Secretariat also monitors developments such as the negotiation of the investment protocol of the African Continental Free Trade Area (AfCFTA) and the related provisions on dispute settlement. Participation by the African Union Secretariat in Working Group III and outreach efforts are underway to avoid a further fragmentation of the system and a coherent delivery on ISDS reform.

Lastly, while it is the objective to develop reform options in a coherent and consistent manner, an additional layer of consistency needs also be addressed. It was noted that a reform of ISDS needs to ensure that ISDS does not undermine the obligations of States to take action under the Sustainable Development Goals and against climate change under the Paris Agreement.[35]

7. Progress during COVID-19 pandemic

In order to maintain the momentum of the reform discussion and to ensure that the process remains inclusive and transparent during COVID-19 pandemic which brought about all sorts of restrictions and challenges, the Secretariat has put together a programme of virtual events and other inter-sessional activities open to all delegations and stakeholders. This programme included informal briefings for delegations, a series of webinars on the reform options on the agenda and the Virtual Panel Series “UNCITRAL Texts and COVID-19 Response and Recovery”.

In October 2020 and February 2021 Working Group III held hybrid sessions on a video-conferencing platform, with interpretation into all six UN languages and the possibility of physical participation in Vienna. While this format is not necessarily conducive to substantive negotiations and to consensus, it provides a useful tool for exchanges of views among delegations and give instructions to the Secretariat.

V. Reform Solutions

The Working Group completed the first two phases of the reform agenda based on a broad consensus on identified concerns with regard to the current ISDS system and the desirability of reform and has started with the preliminary consideration of a number of reform solutions as part of phase three of its mandate.[36]

1. Development of reform solutions

In its session in October 2019, the Working Group has started with the preliminary consideration of the identified reform options.[37] These discussions were based on the States’ submissions and the working papers prepared by the UNCITRAL Secretariat; they also take into consideration input from relevant observers. The Working Group has given concrete feedback and directions, based on the working papers and usually requested that the Secretariat proceeds with the development of draft provisions.

At this stage, and without prejudice to the decisions of the Working Group, it is possible to categorize the reform options into two broad categories or streams. A first category, that we could call, procedural reform options would include those reform options that typically feature in the investment chapters of the more modern free trade agreements and address the ISDS procedure with a view to correct lack of clarity, shortcomings in the procedure that have over the years shown to need addressing by the States. Most of these reform options have already been addressed in one way or the other in existing treaties but would benefit from being consistently generalized for all ISDS disputes.

Under this category or stream, the Working Group has identified the following reform options:

· Strengthening ADR mechanisms, including recourse to investor-State mediation

· Developing structures and policies to strengthen and operationalize dispute prevention

· Develop new methods for selection and appointment of ISDS arbitrators

· Develop a code of conduct for adjudicators in ISDS

· ISDS procedural rules reforms (including procedure to address frivolous claims; multiple proceedings; reflective loss; counterclaims; security for costs; third party funding; treaty interpretation, calculation of damages)

A second category regroups reform options of more structural or institutional nature. There reform options consist on setting-up new mechanisms and new institutions such as:

· The establishment of a multilateral advisory centre patterned on the WTO-ACWL to assist States in ISDS procedures

· Establishment of an appellate mechanism or a second instance appellate court to hear appeals against arbitral awards or first instance court judgements.

· The establishment of a permanent investment court comprising a first and a second instance standing body.

The Working Group has also started discussing the delivery mechanism for the entire reform of ISDS, through a Multilateral instrument to host and implement the reforms.[38]

2. Implementation of the reform: a multilateral framework based on the Mauritius Convention on Transparency model?

Implementation is a key question and has been addressed in numerous submissions by States.[39] As discussed early in the process, a potential model is the Mauritius Convention on Transparency. Such mechanism for ISDS reform implementation could consist of a convention designed to facilitate the application of a reform to the roughly 3,000 investment treaties concluded before the entry into force of such reform. It could introduce changes into the fragmented treaty-by-treaty regime by way of a single multilateral instrument and would constitute the vehicle by which the various reform options are proposed to States for implementation.[40]

Submissions by States further suggest the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) as a model.[41] It is suggested that “blocks” of options could be considered as minimum standard and other blocks that States could opt-in or opt-out of.[42] A submission foresees the development of an instrument establishing a standing multilateral first instance and appellate court and an open approach to implement the reform option, allowing States to either use the standing mechanism as such, or limit its use, for instance, by applying it to State-to-State dispute settlement only, or by utilizing only the appellate mechanism.[43] Yet another submission proposes the elaboration of a “suite” approach, aimed at developing a menu of relevant solutions, of which States would incorporate one or more into their investment treaties, taking into account their own political and policy concerns and interests.[44]

It was also noted in the Working Group that a set of core provisions to which all States would sign on and a number of additional optional elements that could be opted in or out by any participating State would be a possible way forward but it still needs to find a way to balance flexibility for States with further fragmentation and inconsistency in the ISDS system.[45]

VI. Spotlight on Role of and contributions by African States and experts

In accordance with its geographic representation, the 60 member States of UNCITRAL include 14 African States. Membership is currently held by Algeria, Burundi, Cameroon, Côte d’Ivoire, Ghana, Kenya, Lesotho, Libya, Mali, Mauritius, Nigeria, South Africa, Uganda and Zimbabwe. However, many more African States and observer organizations have actively participated in the Working Group III deliberations.

The Secretariat has received numerous written submissions from African States and experts on the reform solutions discussed in the Working Group.[46] Also, an inter-sessional regional meeting was hosted by the government of Guinea in Conakry in September 2019 to discuss issues related to ISDS reform and African experiences and priorities. This meeting was attended by government officials from 33 States.[47]

The Secretariat is in close contact with the Organization for the Harmonization of Business Law in Africa (OHADA) to coordinate work related to arbitration and mediation. Moreover, the Secretariat is making efforts to coordinate its work with the AfCFTA Secretariat, building on the close working relationship and collaboration, in particular with regard to transparency in ISDS, the operation of the UNCITRAL transparency registry as well as the work of Working Group III on ISDS reform. The Secretariat has organized webinars in French on the reform topics of a code of conduct, the selection and appointment of judges and the costs and financing of an advisory centre facilitating the participation by francophone African States. Moreover, the Organisation internationale de la Francophonie hosts pre-session consultations in French to discuss the work and progress of Working Group III, which were also attended by many francophone African States.

VII. Conclusion

The Working Group has completed a first round of preliminary considerations of reform options, tasked the Secretariat with further extensive preparatory work and engaged actively in discussion on the structure and resources for future work. For several of the reform options on the agenda, draft provisions have been developed by the Secretariat to provide the Working Group with a solid basis for further deliberations. A work plan has been prepared aiming for a delivery of a complete reform of the ISDS system by 2024 and a final adoption by the Commission in 2025.

The Working Group continues to simultaneously discuss, elaborate and develop multiple reform solutions. It finds itself now at the juncture where it needs to allocate working group time to the development of streams of reform options, grouping them for more coherence into a first set of provisions to reform the dispute settlement provisions of existing and future IIAs or relevant rules and a second batch or stream on a reformed dispute system design with the establishment of standing bodies such as a first instance court, an appellate court or mechanism and an advisory centre on ISDS for developing countries. It will also start deliberating on the delivery mechanism for the overall reform process, through a multilateral convention that will host the entire reform.

Now that the development of reform options is well underway, it is even more important for States and stakeholders from the African region to be fully involved and to make their voices and priorities heard. While negotiating an investment chapter to the AfCFTA, it is also essential that the reform options being developed in UNCITRAL are reflected or further taken on-board, that coordination mechanisms are established to ensure that the first investment chapter to be developed after the reform of ISDS has begun completely reflects the current state of play and builds on it.

___________

* Anna Joubin-Bret is the Secretary of the United Nations Commission of International Trade Law (UNCITRAL) and Director of the International Trade Law Division of the Office of Legal Affairs of the United Nations; Ms Joubin-Bret was assisted by David Probst, an Associate Expert in International Trade law at the UNCITRAL Secretariat; The views expressed in this article are those of the authors and do not necessarily represent those of the Organization.

[2] This contribution reports on an ongoing reform process, which continues to make progress. For the latest updates on UNCITRAL’s activities and the current status of the reform discussion, please visit the UNCITRAL Working Group III web page (https://uncitral.un.org/en/working_groups/3/investor-state) and follow our posts on twitter (@annajoubinbret) and LinkedIn (https://www.linkedin.com/company/uncitral/).

[3] The UNCTAD World Investment Report 2020 states that in 2019 “[a]s in previous years, the majority of new cases (80 per cent) were brought against developing countries and transition economies.”, available at https://unctad.org/system/files/official-document/wir2020_en.pdf (last accessed 9 April 2021).

[4] See also “Possible reform of investor-State dispute settlement (ISDS), Note by the Secretariat”, UNCITRAL, Working Group III, 34th Sess. (Vienna, 27 November-1 December 2017), UN Doc. A/CN.9/WG.III/WP.142 (18 September 2017) para. 6.

[5] “International Investment Agreements Navigator”, (United Nations Conference on Trade and Development, Investment Policy Hub), <https://investmentpolicy.unctad.org/international-investment-agreements> (last accessed 2 December 2020).

[6] “Investor-State Dispute Settlement Cases pass the 1,000 Mark: Cases and Outcomes in 2019”, UNCTAD IIA issues note, issue 2 (July 2020), <https://unctad.org/en/PublicationsLibrary/diaepcbinf2020d6.pdf> (last accessed 2 December 2020); Many more cases are brought under contracts and investment laws.

[7] See Gabrielle Kaufmann-Kohler and Michele Potestà (CIDS – Geneva Centre for International Dispute Settlement), “Can the Mauritius Convention serve as a model for the reform of investor-State arbitration in connection with the introduction of a permanent investment tribunal or an appeal mechanism? Analysis and roadmap” (3 June 2016), available from <https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/cids_research_paper_mauritius.pdf>, para. 18-23; See also Anna Joubin-Bret and Jean E. Kalicki, “Introduction”, in Anna Joubin-Bret and Jean E. Kalicki, eds., Reshaping the Investor-State Dispute Settlement System, (Brill | Nijhoff 2015), pp. 1-17.

[8] Bolivia denounced the ICSID Convention in 2007 (See news release, Denunciation of ICSID Convention (16 May 2007), available from <https://icsid.worldbank.org/news-and-events/news-releases/denunciation-icsid-convention> (last accessed 2 December 2020)); Ecuador denounced the ICSID Convention in 2010 (See news release, Denunciation of the ICSID Convention by Ecuador (9 July 2009), available from <https://icsid.worldbank.org/news-and-events/news-releases/denunciation-icsid-convention-ecuador> (last accessed 2 December 2020)); Venezuela denounced the ICSID Convention in 2012 (See news release, Venezuela Submits a Notice under Article 71 of the ICSID Convention (26 January 2012), available from <https://icsid.worldbank.org/news-and-events/news-releases/venezuela-submits-notice-under-article-71-icsid-convention> (last accessed 2 December 2020)).

[9] Philip Morris Asia Limited v. The Commonwealth of Australia (PCA Case No. 2012-12), see UNCTAD Investment Dispute Settlement Navigator, <https://investmentpolicy.unctad.org/investment-dispute-settlement/cases/421/philip-morris-v-australia> (last accessed 2 December 2020).

[10] Philip Morris Brand Sàrl (Switzerland), Philip Morris Products S.A. (Switzerland) and Abal Hermanos S.A. (Uruguay) v. Oriental Republic of Uruguay (ICSID Case No. ARB/10/7), see UNCTAD Investment Dispute Settlement Navigator, <https://investmentpolicy.unctad.org/investment-dispute-settlement/cases/368/philip-morris-v-uruguay> (last accessed 2 December 2020).

[11] See for example Evolution and Adaption, The Future of International Arbitration, ICCA Congress Series no. 20 (2018); Anna Joubin-Bret and Jean E. Kalicki, eds., Reshaping the Investor-State Dispute Settlement System, (Brill | Nijhoff 2015); See also George A. Bermann, Reshaping the Investor-State Dispute Resolution System, ICSID Review - Foreign Investment Law Journal, Volume 31, Issue 1, Winter 2016, Pages 232–235, https://doi.org/10.1093/icsidreview/siv041 (last accessed 29 January 2021).

[12] “Report of the United Nations Commission on International Trade Law, Fiftieth session (3-21 July 2017)” General Assembly, 72nd Sess., UN Doc. A/72/17, para. 258.

[13] UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (effective date: 1 April 2014), text and additional resources available on the UNCITRAL web page at <https://uncitral.un.org/en/texts/arbitration/contractualtexts/transparency> (last accessed 4 December 2020).

[14] “Report of the United Nations Commission on International Trade Law”, 46th Sess. (8-26 July 2013) General Assembly, 68th Sess., UN Doc. A/68/17, Annex I, at C.

[15] “Report of the United Nations Commission on International Trade Law”, 48th Sess. (29 June-16 July 2015) General Assembly, 70th Sess., UN Doc. A/70/17, para. 268; See also “Settlement of commercial disputes: presentation of a research paper on the Mauritius Convention on Transparency in Treaty-based Investor-State Arbitration as a possible model for further reforms of investor-State dispute settlement, Note by the Secretariat” UNCITRAL, 49th Sess. (New York, 27 June-15 July 2016) UN Doc. A/CVN/9/890 (24 May 2016).

[16] Gabrielle Kaufmann-Kohler and Michele Potestà (CIDS – Geneva Centre for International Dispute Settlement), “Can the Mauritius Convention serve as a model for the reform of investor-State arbitration in connection with the introduction of a permanent investment tribunal or an appeal mechanism? Analysis and roadmap” (3 June 2016), available from <https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/cids_research_paper_mauritius.pdf>, p. 93, 94.

[17] See also wording of the mandate in “Report of the United Nations Commission on International Trade Law”, 50th Sess. (3-21 July 2017) General Assembly, 72nd Sess. Supplement No. 17, UN Doc. A/72/17, para. 264.

[18] “Report of the United Nations Commission on International Trade Law”, 50th Sess. (3-21 July 2017) General Assembly, 72nd Sess. Supplement No. 17, UN Doc. A/72/17 (henceforth Commission Report 72), para. 250.

[19] Submissions by States and observer organizations are published on the UNCITRAL Working Group III web page at <https://uncitral.un.org/en/working_groups/3/investor-state> (last accessed 2 December 2020).

[20] See “Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its resumed thirty-eighth session” (Vienna, 20–24 January 2020) UNCITRAL, 54th Sess., UN Doc. A/CN.9/1004/Add.1 (28 January 2020) (henceforth WGIII Report 1004/Add.1) p. 3; See also “UNCITRAL Working Group on investor-State dispute settlement (ISDS) continues work on reforms”, Press Release, UNIS Vienna, United Nations Information Service, (24 January 2020), available at <https://unis.unvienna.org/unis/en/pressrels/2020/unisl289.html> (last accessed 2 December 2020).

[21] First Inter-sessional Regional Meeting 10-12 September 2018, Incheon, Republic of Korea; Second Inter-sessional Regional Meeting, 13-14 February 2019, Santo Domingo, Dominican Republic; Third Inter-sessional Regional Meeting, 26 September 2019, Conakry, Guinea.

[22] Virtual Pre-Intersessional Meeting on the Use of Mediation in ISDS, 9 November 2020.

[23] See WGIII Report 1004/Add.1, p. 3; See also “UNCITRAL Working Group on investor-State dispute settlement (ISDS) continues work on reforms”, Press Release, UNIS Vienna, United Nations Information Service, (24 January 2020), available at <https://unis.unvienna.org/unis/en/pressrels/2020/unisl289.html> (last accessed 2 December 2020).

[24] See “Report of the United Nations Commission on International Trade Law, 51st Sess. (25 June–13 July 2018) General Assembly 73rd Sess., UN Doc. A/73/17 (31 July 2018), para. 144; See also “Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-sixth session (Vienna, 29 October–2 November 2018)” UNCITRAL, 52nd Sess., UN Doc. A/CN.9/964 (6 November 2018) (henceforth WGIII Report 964) para. 15; Concept papers of the Academic Forum on ISDS can be accessed on the following dedicated web page: <https://www.jus.uio.no/pluricourts/english/projects/leginvest/academic-forum/>.

[25] Working Papers and additional resources can be accessed on the UNCITRAL Working Group III web page at <https://uncitral.un.org/en/working_groups/3/investor-state>.

[26] See the dedicated web page, Virtual Panel Series: UNCITRAL Texts and COVID-19 Response and Recovery - 8 to 9 and 13 to 16 July 2020 at <https://uncitral.un.org/en/COVID-19-panels>.

[27] Commission Report 72 , para. 259.

[28] Ibid.

[29] See UNCITRAL Working Group III web page at (<https://uncitral.un.org/en/working_groups/3/investor-state>) (last accessed 4 December 2020).

[30] Audio recordings of the Working Group III sessions can be accessed at <https://uncitral.un.org/en/audio>.

[31] For further information on the ICSID Rules and Regulations Amendment project see the ICSID web page at <https://icsid.worldbank.org/resources/rules-and-regulations/icsid-rules-and-regulations-amendment-working-papers> (last accessed 3 December 2020).

[32] See Secretariat Note 170.

[33] See ”Reforming Investment Dispute Settlement: A Stocktaking” UNCTAD (March 2019, Issue 1), available at <https://unctad.org/en/PublicationsLibrary/diaepcbinf2019d3_en.pdf> (last accessed 3 December 2020); In the (signed but not yet ratified) U.S.-Mexico-Canada Agreement (USMCA), Canada withdraws from the ISDS mechanism as it existed under NAFTA; Recently, 23 Member States of the European Union signed an agreement for the termination of intra-EU bilateral investment treaties as such.

[34] ”Reforming Investment Dispute Settlement: A Stocktaking” UNCTAD (March 2019, Issue 1), available at <https://unctad.org/en/PublicationsLibrary/diaepcbinf2019d3_en.pdf> (last accessed 3 December 2020).

[35] WGIII Report 1004, para. 99.

[36] The Working Group had identified a number of concerns related to the following three broad categories: the lack of consistency, coherence, predictability and correctness of arbitral decisions, arbitrators and decision makers, and cost and duration of ISDS. The Working Group had further agreed to discuss, elaborate and develop multiple potential reform solutions simultaneously.

[37] WGIII Report 1004, para. 25.

[38] See WGIII Report 1004, para. 17; WGIII Report 970, para. 39 and 40; This list of reform options was considered non-exhaustive and other concerns were not precluded from being identified and dealt with at a later stage of the deliberations.

[39] The Submissions that refer to the implementation of multiple reform options include the following: Submission by the European Union 159/Add.1; “Possible reform of investor-State dispute settlement (ISDS)

Submission from the Government of Colombia, Note by the Secretariat”, UNCITRAL Working Group III, 38th Sess. (Vienna, 14–18 October 2019) UN Doc. A/CN.9/WG.III/WP.173 (14 June 2019) (henceforth Submission by Colombia 173); and Submission by Ecuador 175; see also “Possible reform of investor-State dispute settlement (ISDS), Submission from the Governments of Chile, Israel, Japan, Mexico and Peru, Note by the Secretariat”, UNCITRAL Working Group III, 38th Sess. (Vienna, 14–18 October 2019) UN Doc. A/CN.9/WG.III/WP.182 (2 October 2019) (henceforth Submission by Chile, Israel, Japan, Mexico and Peru 182), suggesting implementation of reform options through a “suite” approach; See also Secretariat Note 194; WGIII Report 1004, paras. 101 and 104.

[40] Gabrielle Kaufmann-Kohler and Michele Potestà (CIDS – Geneva Centre for International Dispute Settlement), “Can the Mauritius Convention serve as a model for the reform of investor-State arbitration in connection with the introduction of a permanent investment tribunal or an appeal mechanism? Analysis and roadmap” (3 June 2016), available from <https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/cids_research_paper_mauritius.pdf>, p. 93, 94.

[41] Submission by Colombia 173.

[42] Submission by Colombia 173, para. 29.

[43] Submission by the European Union 159/Add.1, paras. 35–37, 39.

[44] Submission by Chile, Israel, Japan, Mexico and Peru 182, p. 2 and Annex.

[45] Ibid., para. 108.

[46] See UNCITRAL Working Group III webpage, <https://uncitral.un.org/en/working_groups/3/investor-state> (last accessed 8 April 2021).

[47] See Summary of the intersessional regional meeting on investor-State dispute settlement (ISDS) reform submitted by the Government of the Republic of Guinea, A/CN.9/WG.III/WP.183, available at <https://undocs.org/en/A/CN.9/WG.III/WP.183> (last accessed 7 April 2021).

Dispute Resolution in African Regional Investment Agreements: Innovation or Stagnation? By Jackwell Feris*

Tue, 27 Apr 2021 07:08:59 GMT

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th – 16th April 2021

The Approach of Member States of the Southern African Development Community to Investor-State Dispute Resolution

Investor-state dispute settlement ("ISDS") has long been contentious within Southern Africa largely because of the South African government's policy position towards international investment arbitration. This policy position was primarily informed by the challenge to South Africa's black economic empowerment requirements in the mining and minerals sector of South Africa by foreign investors from Italy. This policy position also filtered into the multilateral relationship of South Africa with other Southern African Development Community ("SADC") member states, as can been seen with the adoption of the Amendments to Annex 1 (Cooperation in Investment) of the SADC Protocol on Finance and Investment ("Amended Investment Protocol") by SADC member states at the 36th SADC Summit in August 2016 which specifically omitted recourse by SADC investors to international investment arbitration against SADC member states. This decision effectively expunged ISDS as an option for SADC investors against member states for any alleged violations of the guarantees or commitments under the Amended Investment Protocol and restricted dispute resolution to inter-State dispute resolution.

The prelude to the expungement of ISDS in SADC could perhaps be said to be the unanimous decision of the SADC Summit on 18 August 2014 to adopt a new Protocol on the SADC Tribunal which intended to restrict the SADC Tribunal’s jurisdiction to inter-State disputes and abolish its jurisdiction over cases brought by non-State parties. However, despite being signed by SADC member states the new Protocol on the SADC Tribunal has not yet entered into force. And as things currently stand it may never come into force due South Africa withdrawing its signature thereto pursuant to the judgement of its highest court (the Constitutional Court) in the case of Law Society of South Africa and Others v President of the Republic of South Africa and Others[1] which ordered the South African President to withdraw his signature from the new Protocol on the basis that South Africa's participation in the new Protocol constituted a violates the South African constitutional values. The consequence of the new Protocol not yet being enforced implies that the Tribunal Protocol remains valid, save for the fact that it remains inoperable. Although the SADC Tribunal was not specifically established for the resolution of investment disputes, history reflects that it was approached by SADC nationals for that purpose and also accepted that it had jurisdiction to entertain such cases.

With the SADC Tribunal being inoperable and the expungement of ISDS through the Amended Investment Protocol, it can be argued that ISDS in SADC is non-existent on a multilateral level in SADC. As there is clear intent by SADC member states that ISDS on a multilateral level be eliminated and that dispute resolution by investors with a member state be through such state's domestic courts or such other specific dispute resolution mechanism contemplated by such state's domestic laws (i.e., Investment Laws). The other option for SADC investors is possibly diplomatic protection under customary international law. However, as history has also shown governments in the region are not always inclined to initiate an espousal claim against other member states pursuant to a request for diplomatic protection by its national. In the case of Van Zyl and Others v Government of Republic of South Africa and Others[2] South Africa declined to exercise diplomatic protection against Lesotho relating to a claim by a South African national that Lesotho expropriated its mining leases for diamonds in Lesotho. The courts agreed with the South Africa government's refusal to exercise diplomatic protection amongst others on the basis that such a decision is discretionary and constitutes executive action under the South African Constitution.

The position with ISDS by SADC member states on a multilateral does not align to what has been done or is being done on a bilateral level by SADC member states. The bilateral position each member state may adopt is also reflected in the SADC Model Bilateral Investment Treaty ("SADC Model BIT") which provides for an election by each member state to either include ISDS or omit ISDS in its bilateral investment treaties ("BITs"). It must however be understood that the SADC Model BIT was developed as a consequence of the goal under the Annex 1 (Cooperation in Investment) of the SADC Protocol on Finance and Investment (prior to its amended by the Amended Investment Protocol) to promote harmonization of member states investment policies and laws in the region. The SADC Model BIT contains several innovative features which could be included in any new BIT with the option of ISDS such as counterclaims by the state, the participation of amicus curiae, consolidation of arbitrations and potential appeal mechanism etc. It also provides for more onerous substantive obligations on investors.

As far as I am aware there are no new BITs that any of SADC member states have negotiated or concluded with third party states that reflects any of the provisions proposed in the SADC Model BIT. Most of the BITs of SADC member states that are still enforce are old generation BITs which expressly incorporate ISDS. South Africa despite its policy position on ISDS is also still party to several BITs (some with fellow SADC members[3] and other African[4] states) that contain express ISDS provisions. From this it is also apparent that there was no outright abandonment of ISDS by South Africa on a bilateral level, but that the strategic nature of the relationship with a third party state would dictate whether ISDS is in or out. The South African policy position remains primarily geared towards resolving investment disputes with investors domestically, with a preference for mediation and alternatively court litigation or arbitration (commercial arbitration, whether international or domestic) to the extent that an underlying agreement provides therefor.

With these developments on ISDS in the SADC region, the question then is whether this is not a clear sign of stagnation of ISDS on a multilateral level? And I must say that it appears to be so, even if one compares the developments with ISDS in SADC with other Regional Economic Communities (RECs) in Africa. In West Africa under the Economic Community of West African States (ECOWAS), the ECOWAS Court of Justice provides access to investors to resolve investment disputes. Under the Common Investment Agreement for Common Market for Eastern and Southern Africa (COMESA), which is not yet enforced, provision is made for investment disputes to be referred to the COMESA Court of Justice or a tribunal constituted under such Court. Several RECs in Africa have provisions for Intra-regional investors to access ISDS, even though through a regional Court.

The total expungement of ISDS on a multilateral level in SADC needs to be corrected. The perception by investors of domestic court systems is that the judiciary is not entirely independent and impartial. This perception is exacerbated when government or a government functionary is counterparty to a dispute with an investor. Whether there is any credence to this perception is difficult to ascertain, but it does raise legitimate concerns by investors and further highlights the need for an effective multilateral dispute resolution system in SADC for investment disputes. In addition to the comparison of the approach adopted in other African RECs with investment dispute resolution it is also important to consider how the European Union ("EU") has approached ISDS in recent years. The decision in Acheama[5] by the Court of Justice of the European Union ("CJEU") put the spotlight on intra-European investor-dispute resolution. The decision resulted in the resolution by the EU to “terminate all bilateral investment treaties concluded between them by means of a plurilateral treaty, or, where that is mutually recognised as more expedient, bilaterally" and consequently to remove the option of investor-state arbitration. The EU's policy is now to establish a permanent Multilateral Investment Court moving away from investor-state arbitration. By doing so the EU appears to recognize the fundamental rationale for the continued existence of an effective investment dispute resolution system on a multilateral level for investors in Europe[6]. It may not be investment arbitration, but a judicial system that is not perceived to be biased towards a particular state. The rationale behind a multilateral court system is premised on the same fundamentals as investor state arbitration, namely: the fear that national courts will be biased providing a so-called "home advantage" to the state to the disadvantage of non-nationals. The fear is predicated not purely on concerns about the independence and impartiality of the judiciary, but the judiciaries' expertise and skills to adjudicate specialised and complex investment disputes.

As can be seen with the Acheama matter the CJEU has begun to assert a role as the so-called protector of foreign investors within the EU. In SADC or on an African continental level there is no multilateral court system providing similar forms of recourse as the CJEU. It must be recognized by SADC and African states more broadly when we talk about investment protection, that establishing a multilateral court system for the resolution of investment disputes in the absence of investor state arbitration does not imply that the principles of "mutual trust" and "sincere cooperation" is being challenged.[7] But it recognizes that national justice system in Africa has not always provided satisfactory protection to investors. It is not clear whether there are any real efforts by SADC member states to ensure the SADC Tribunal becomes operational again, in particular pursuant to judgement of both the South African Constitutional Court ordering the South African President to withdraw the signature of South Africa to the new Protocol for the Tribunal and the more recent judgement of the Tanzanian High Court added its voice of displeasure to the disbandment of the SADC Tribunal. In a judgement handed down in 2019 by the Tanzania High Court in the case of Tanganyika Law Society and Others v Ministry of Foreign Affairs and International Cooperation of the United Republic of Tanzania, the Tanzanian High Court[8] the court also held that:

"The suspension of the operations of the SADC Tribunal; and failure or refusal to appoint Judges contrary to the clear Treaty provisions, was inimical to the Rule of law as a foundational principle inherent to the legitimacy of the Community; and as expressly entrenched in the Treaty"

Whatever the efforts are by SADC member states in either progressing the ratification of the new Protocol of the SADC Tribunal or considering how to deal with the decisions of both the South African and Tanzanian courts, there is a clear question mark over the SADC Tribunal's jurisdiction to adjudicate investment disputes independent from any other multilateral SADC investment instrument. Even if the SADC Tribunal becomes fully operational again it is imperative that the jurisdiction of the SADC Tribunal be clearly defined. One would probably argue (and correctly so) that by virtue of the Amended Investment Protocol ISDS has clearly be removed on a multilateral level and that any recourse to the SADC Tribunal (if operational again) by SADC investors must expressly be provided for in the Amended Investment Protocol and consequently the SADC Treaty and SADC Tribunal Protocol will need to reflect this.

The question whether the SADC Tribunal had jurisdiction to entertain human rights disputes and by implication also investment disputes has been raised by several academics. The decision by the SADC Tribunal in Mike Campbell (Pvt) Ltd and others v The Republic of Zimbabwe[9] case (“Campbell dispute”) which although premised on human rights abuses (i.e., unlawful expropriation of Zimbabwean white farmers on racial discriminatory grounds) were akin to investment disputes. The Campbell dispute was specifically referenced and discussed by the Singapore Court of Appeal in the matter of Swissbourgh Diamond Mines (Pty) Ltd v Kingdom of Lesotho[10] ("Swissbourgh") when it had to express a view on the nature and extent of the SADC Tribunal's jurisdiction to entertain investment dispute, in light of the Swissbourgh claim that Lesotho participated in the shuttering/disbandment of the SADC Tribunal leave Swissbourgh and others without effective legal recourse against Lesotho. In analysing the SADC Tribunal Protocol, the court expressed the view that articles 14 and 15 of the SADC Tribunal Protocol did not provide investors with a right to refer investment disputes to the SADC Tribunal. The court held that "This does not sit well with our finding that Arts 14 and 15 of the Tribunal Protocol do not, without more, give investors the right to refer a dispute to the SADC Tribunal. With respect, we doubt the correctness of those aspects of Campbell v Zimbabwe. Significantly, we note that this appears to be what led the SADC Summit to suspend the operation of the SADC Tribunal and to introduce changes to the Tribunal Protocol confining the SADC Tribunal’s jurisdiction to inter-State disputes: see [26] above.[11]"

The finding of the Singapore Court of Appeal leads me to consider the rationale that underpin the conclusion that "that Arts 14 and 15 of the Tribunal Protocol do not, without more, give investors the right to refer a dispute to the SADC Tribunal". The constitutive instrument of SADC, the SADC Treaty which was signed on 17 August 1992 and entered into force on 30 September 1993. SADC was established with the objective of advancing economic development and integration, strengthening the social and cultural ties, and eradicating poverty and communicable diseases in the Southern African region. In pursuit of these objectives, article 9 of the SADC Treaty establishes several institutions including the SADC Tribunal. Article 16(1) of the SADC Treaty provides for the establishment of the SADC Tribunal “to ensure adherence to and the proper interpretation of the provision of the SADC Treaty and subsidiary instruments and to adjudicate upon such disputes as may be referred to it”, with article 32 containing a dispute settlement provision. Despite the SADC Treaty providing for the establishment of the SADC Tribunal it took several years for the member states to give effect thereto. On 7 August 2000, the SADC Member States entered into the Tribunal Protocol, which came into force on 14 August 2001. As envisaged under Art 16(2) of the SADC Treaty, the Tribunal Protocol governs matters relating to the SADC Tribunal such as its composition, powers, functions and procedures. Articles 14 and 15 of the Tribunal Protocol set out the basis and scope of the SADC Tribunal’s jurisdiction.

Lesotho in the Swissbourgh case contended that when one has regard to the provision of the SADC Treaty and the Tribunal Protocol, these instruments do not appear to confer upon investors any independent and enforceable right to refer an investment dispute to the SADC Tribunal. The court[12] found that the provision of the SADC Treaty and Tribunal Protocol is primarily concerned with the establishment of the SADC and its key organs and institutions, and that while article 32 of the SADC Treaty is a dispute resolution provision, it is only intended to provide for a mechanism for the resolution of inter-State disputes amongst the SADC member states. Thus, the court agreed with Lesotho's interpretation and also held that the SADC Treaty is not intended to accord any specific or enforceable rights to investors and reliance thereon to bring an investment protection claim is misconstrued. The court further aligned it with the interpretation of the government "that articles 14 and 15 of the Tribunal Protocol do not constitute an independent basis of jurisdiction for the SADC Tribunal to assume jurisdiction over a dispute given that they are functionally equivalent to articles 36(1) and 34(1) of the Statute of the International Court of Justice (26 June 1945) respectively, neither of which establishes an independent basis of consent for the submission of any independent dispute to the International Court of Justice (''the ICJ”)". The court stated "that the Tribunal Protocol are not jurisdiction-conferring provisions that establish any basis of consent by the SADC member states to the submission of particular investment disputes by private investors to the SADC Tribunal; indeed, a contrary conclusion would constitute a radical expansion of the jurisdiction of the SADC Tribunal which is unsupported by the text and surrounding context of the Tribunal Protocol".[13] The interpretation by the Singapore Court of Appeal in the Swissbourgh case that the SADC Treaty was not intended to accord any specific or enforceable rights to investor to bring investment protection claims to the SADC Tribunal appears to be correct. SADC member states can probably be comforted by this interpretation of the SADC Treaty by the Singapore Court of Appeal, as it also aligns to the SADC member states position that the SADC Tribunal was never meant to entertain, amongst others, investment disputes or human rights disputes directly from SADC nationals.

What we thus see is that ISDS broadly on a multilateral level appears to have stagnated in SADC as the Amended Investment Protocol specifically excludes access by investors to any form of ISDS and the SADC Tribunal (if it becomes functional without the ratification of the 2014 Protocol) will not without amendments to the SADC Treaty and the SADC Tribunal Protocol be able to assert a role as protector of intra-SADC investors within the SADC region similar to the CJEU. The hopes of SADC investors will now have to be placed on what will potentially be in the Investment Protocol to the Agreement establishing the African Continental Free Trade Area ("AfCFTA"). It is hoped that the Investment Protocol to the AfCFTA will provide Intra-Africa investors with effective recourse against states in the event of violations of substantive guarantees and commitments, independent from intra-State dispute resolution for trade in goods or service under the Protocol on the Rules and Procedures on the Settlement of Disputes of the AfCFTA. However, if article 42 of the Draft Pan African Investment Code is considered as the base document to inform the content of the ISDS article of the Investment Protocol under the AfCFTA, we can probably expect a dispute resolution system that will not be uniform. This will potentially make the Investment Protocol under the AfCFTA an ineffective instrument for the promotion of investment intra-Africa and it will force African investors to rely on appropriate treaty structuring through BITs or investment agreement with host governments to derive investment protection and simultaneously benefit from the preferential terms under the AfCFTA.

__________________________

* Partner at Cliffe Dekker Hofmeyr Inc

[1] Law Society of South Africa and Others v President of the Republic of South Africa and Others (CCT67/18) [2018] ZACC 51; 2019 (3) BCLR 329 (CC); 2019 (3) SA 30 (CC).

[2] 2005 (11) BCLR 1106 T: case relates to a request to the South African government to exercise diplomatic protection on behalf of its citizen (Van Zyl) in relation to an alleged expropriation of mining leases by Lesotho.

[3] South Africa/Mauritius BIT (enforce); South Africa/Zimbabwe BIT (enforce); South Africa/Mozambique (signed, but not enforce); South Africa//Madagascar (signed, but not enforce); South Africa/DRC (signed, but not enforce)

[4] South Africa/Nigeria (enforce); South Africa/Senegal (enforce); South Africa/Egypt (signed, but not enforce); South Africa/Ethiopia (signed, but not enforce)

[5] Slovak Republic v. Achmea B.V. (Case C-284/16)

[6] Investor-State Dispute Settlement using the ECOWAS Court of Justice – an Analysis and Proposals, Matthew Happold – ICSID Review, Vol.2 (2019), pp 496 - 518

[7] Ibid

[8] 2019 Case No. 23 of 2014 (Judgment delivered on 6 June 2019): https://www.tralac.org/documents/blogs/2907-tls-v-ministry-of-foreign-affairs-and-international-cooperation-ag-misc-civil-cause-no-23-of-2014-2019-judgment-4-june-2019/file.html

[9] Mike Campbell (Pvt) Ltd and others v The Republic of Zimbabwe [2008] SADCT 2; also William Michael Campbell and another v The Republic of Zimbabwe [2009] SADCT 1.

[10] Swissbourgh Diamond Mines (Pty) Ltd v Kingdom of Lesotho [2018] SGCA 81

[11] Ibid

[12] Ibid

[13] Ibid

High-Tech in International Arbitration and Its Risk – An Introduction, by Anna Förstel-Cherng*

Tue, 27 Apr 2021 06:46:52 GMT

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th – 16th April 2021

Executive Summary

Through the course of arbitral proceedings, practitioners can use an array of different technological tools to assist and facilitate their work. These range from tools to more efficiently sort documents through predictive coding, to artificial intelligence services which can predict costs and even outcomes of cases. New types of contracts such as smart contracts also utilize new types of arbitration proceedings such as Blockchain arbitration.

Introduction

Modern technology has played and will continue to play a key role in the reform and innovation of the international arbitration practice. We have long grown accustomed to the ubiquitous use of e-mails, online legal research platforms and digital file storage. However, while modern technology has much more to offer, the arbitration community has historically been hesitant to explore and incorporate new technological developments into its daily practice.

This article follows up on the panel discussion during the African Arbitration Associations’ second Annual International Arbitration Conference (14 – 16 April 2021). It aims to provide a brief introduction on how technology is used in arbitration and give an outlook on technologies which may reform the international arbitration practice in the future.

Predictive Coding to Process Documents

At the outset of arbitral proceedings or prior to their initiation, parties may wish to use predictive coding to review large sets of documents and to determine the evidentiary base for their case.

The process of predictive coding starts by setting parameters and identifying documents which will form the sample set of documents to be reviewed. Each sample is coded as “relevant” or “not relevant” by a lawyer with good knowledge of the case, which in turn trains a predictive formula (algorithm). The algorithm is then applied to review the entire set of documents and can be further improved by human review of additional sample documents. The use of predictive coding aims to increase efficiency and achieve a higher level of consistency of relevant documents.[1]

Predictive coding is also used to identify documents during the document production phase to automate the process of identifying documents falling under the document production request. However, it may be disputed whether the use of predictive coding in this context is accurate enough to be appropriate. Therefore, the use of predictive coding should be disclosed to enable both the tribunal and the other party to ask questions to satisfy themselves that predictive coding was used in an appropriate manner. This can help avoid procedural irregularities which may give grounds for a challenge.[2]

The extent to which predictive coding is currently used in arbitration is unclear. As of 2018, only 5% of the respondents to the Queen Mary Survey on the Evolution of International Arbitration indicated that they frequently use artificial intelligence, including data analytics and technology-assisted document review.[3]

Artificial Intelligence to Predict the Outcome of a Case

Once parties have established the evidentiary base of their case (e.g. with the help of predictive coding), they may again turn to Artificial Intelligence (AI) tools to gauge their chances of success prior to filing the case.

At its core, AI is a branch of computer science focused on replicating or simulating human intelligence in machines in order for them to think like humans and mimic their actions.[4] Predictive analytics as an AI tool are increasingly used to predict the outcome of disputes. These tools are particularly attractive to litigation funders, which aim to achieve a competitive advantage in their risk assessment. One example for an AI tool used by litigation funders is Legalist, which claims to use data from millions of court records to support the case assessment.[5]

In the arbitration context, Arbilex, founded in 2018, uses AI and predictive analytics to assess the likelihood of success of arbitration cases, as well as the likely costs.[6] However, the data set of available court cases is generally significantly larger than for awards, which impacts the accuracy of these AI tools. It remains to be seen whether arbitral institutions will allow AI platforms access to their awards.[7]

While the prediction of the outcome of a case generated by AI can be appealing to funders and practitioners alike, one must carefully assess the risk of bias embedded in AI. Since AI software is trained on large-scale data, if such data includes racial biases, these are incorporated into the training data. For example, the US program COMPAS assesses the likelihood of recidivism in defendants who are up for parole. While the algorithm makes no reference to ethnicity or race, a study has shown that the COMPAS assessment is biased against African Americans.[8] Thus, if predictive analytics and AI are to be used more widespread in arbitration it is paramount that the arbitral community institutes safeguarding mechanisms and checks to minimize the impact of bias of AI technologies.[9]

Online Case Management Platforms

Once a party decides to proceed to arbitration, be it because AI tools predicted a high chance of success or at its own accord, the party will face different levels of digitalisation depending on the arbitral rules applicable to its case.

First, a party will need to determine whether an arbitration can be commenced by filing the claim electronically rather than in hardcopy. Many institutions have now switched written submissions and communications to be predominantly electronic. Arbitral institutions also differ in whether they (for internal purposes) use fully electronic case management systems such as the Vienna International Arbitral Centre (VIAC) and the Stockholm Chamber of Commerce (SCC). However, a more recent development and a step towards fully digitalizing the administrative aspects of arbitration is the adoption of online case management platforms to which also the arbitrators and parties have access. The SCC and VIAC now also provide such online case management platforms.[10]

Chinese arbitral institutions such as Shenzhen Court of International Arbitration (SCIA) and Guangzhou Arbitration Commission (GZAC) have also invested in digital platforms, which not only allow for online filing and processing payments but also offers a remote hearing platform. As a special feature of these platforms, the voice-to-text technology automatically generates and displays a transcript of the hearing synchronously during the hearing.[11]

Remote Hearings

The travel restrictions and social distancing rules imposed in many countries in reaction to the COVID-19 pandemic triggered a re-evaluation in the arbitration community of remote arbitral hearings. Several other procedural aspects were already regularly conducted remotely, such as organisational conferences and submissions via e-mail, but most hearings were still held as physical in-person hearings.

In general, national arbitration laws rarely address the question whether hearings can be held remotely, even if one party objects. Many modern and flexible institutional rules either expressly or implicitly allow hearings to be conducted remotely, such as Vienna International Arbitral Centre (VIAC) and London Court of International Arbitration (LCIA). It is then within the discretion of the arbitrators to evaluate whether a remote hearing can safeguard the parties’ right to be heard and the right to fair and equal treatment.[12]

It is increasingly accepted among arbitration practitioners that an oral and synchronous exchange of arguments or evidence in a remote hearing can, in principle, satisfy a party’s right to a hearing.[13] Conversely, not holding the hearing remotely when one or more parties cannot attend in-person for an extended period of time may violate the parties’ right to a hearing and the arbitrators’ obligation to conduct the proceedings efficiently and expeditiously.[14]

Experience gained, especially over the last year, has shown that well-organised remote hearings which properly adhere to recommended protocols and guidelines can be an efficient and comparatively low-cost method of conducting arbitrations.[15]

The increased use of semi- and fully remote hearings, where appropriate, could remedy the growing criticism of arbitration as being too expensive and too long. Furthermore, the use of remote hearings can address concerns of the environmental impact of international arbitral proceedings and foster an increase in diversity of arbitrators.[16]

Blockchain Arbitration

A comparatively new technology used for online dispute resolution is so called blockchain or “on chain” arbitration which has been developed primarily for disputes arising out of smart contracts.

Blockchain is a specific type of database, which differs from a typical database in the way data is stored. It is an incorruptible digital ledger of transactions which can be programmed to record not only financial transactions but almost anything which is of value to be recorded. The data is not stored in a single location but spread across a network of millions of computers simultaneously.[17] Blockchain is mostly used in connection with cryptocurrencies such as Bitcoin, but have numerous other applications.[18]

Smart contracts have arisen from blockchain technology and, unlike regular contracts, are not written in a specific language such as English but completely in code. Based on blockchain technology, smart contracts are self-executing, and transactions are trackable and irreversible.[19]

To serve disputes arising from smart contracts, blockchain arbitration was developed. Blockchain arbitration is structured as an automatic dispute resolution system, which is combined into a digital asset system. Arbitrators are provided with the ability to implement decisions directly on the blockchain or within the system, without the need for a paper award. The UK Jurisdiction Taskforce recently published draft rules for such dispute resolution mechanisms, expressly aimed at resolving disputes arising from new technologies such as cryptoassets, - currencies, smart contracts etc.[20]

One example for a blockchain arbitration system is the online dispute resolution platform Kleros, which was founded in 2017.[21] Kleros is a decentralized arbitration process relying on crowdsourced adjudicators, or “jurors”, who are randomly assigned to a case. After assessing the evidence, jurors commit their vote to one of the contractually specified options. The option with the most votes is the winning one. Each juror who is coherent with the final decision will then be paid a specified fee while the arbitrable smart contract defines which party has to pay the arbitration fee.[22] Jurors are financially incentivised to decide coherently. However, since deciding “coherently” is defined as deciding in line with the majority, it can be debated whether this incentivises correct decisions or rather a bet on how the majority would rule even if this is contrary to the individual juror’s evaluation, which may be based on special expertise.

Conclusion

The COVID-19 pandemic has forced the arbitral world to reconsider its scepticism towards technology and adapt quickly in order to continue serving its clients and secure the continuation of pending and new arbitral proceedings. Most notably, many practitioners and arbitral institutions were forced to predominantly work remotely – often for the first time.

It remains to be seen whether the momentum gained from the pandemic with regard to some technologies – such as online hearing platforms – will increase the acceptance of other technologies as well.

___________________________

*Attorney at Law, Binder Grösswang

[1] Claire Morel de Westgaver & Olivia Turner, Artificial Intelligence, A Drive for Efficiency In International Arbitration – How Predictive Coding Can Change Document Production, Kluwer Arbitration Blog (Feb 23, 2020), http://arbitrationblog.kluwerarbitration.com/2020/02/23/artificial-intelligence-a-driver-for-efficiency-in-international-arbitration-how-predictive-coding-can-change-document-production/.

[2] Claire Morel de Westgaver & Olivia Turner, supra.

[3] 2018 International Arbitration Survey: The Evolution of International Arbitration, Queen Mary University of London, http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2018-International-Arbitration-Survey---The-Evolution-of-International-Arbitration-(2).PDF.

[4] Jake Frankenfield, Artificial Intelligence (AI), Investopedia (Mar 8, 2021), https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp.

[5] https://www.legalist.com/philosophy.

[6] http://www.arbilex.co/welcome.

[7] Eric Chang, A Roundup of Tech and Dispute Resolution News, Kluwer Arbitration Blog (Apr 14, 2021), http://arbitrationblog.kluwerarbitration.com/2021/03/09/a-roundup-of-tech-and-dispute-resolution-news/..

[8] Id.

[9] Brand Rosen, Global Experts Keep it Real in Webinar Exploring Artificial Intelligence and its Role in Arbitrations and Legal Practice, Kluwer Arbitration Blog (Dec 12, 2020), http://arbitrationblog.kluwerarbitration.com/2020/12/12/global-experts-keep-it-real-in-webinar-exploring-artificial-intelligence-and-its-role-in-arbitrations-and-legal-practice/.

[10] Allison Goh, Digital Readiness Index for Arbitration Institutions: Challenges and Implications for Dispute Resolution under the Belt and Road Initiative, 38 J. Intl. Arb. 253, at 256-259 (2021).

[11] Id.

[12] Alice Fremuth-Wolf, Ingeborg Edel & Anna Förstel, How the COVID-19 pandemic may shape the future of international arbitral proceedings, IBA, Arbitration Committee Publications (Nov. 25, 2020), https://www.ibanet.org/Article/NewDetail.aspx?ArticleUid=A7F75D89-2CFD-4386-96B9-53341D0A55DA.

[13] Compare Maxi Scherer, Remote Hearings in International Arbitration: An Analytical Framework, 37 J. Intl. Arb. 407 (2020).

[14] Compare Kun Fan, The Impact of COVID-19 on the Administration of Justice, Kluwer Arbitration Blog (Jul 10, 2020),http://arbitrationblog.kluwerarbitration.com/2020/07/10/the-impact-of-covid-19-on-the-administration-of-justice.

[15] Id.

[16] Compare Lucy Greenwood & Kabir Duggal, The Green Pledge: No Talk, More Action, Kluwer Arbitration Blog (Mar 20, 2020), http://arbitrationblog.kluwerarbitration.com/2020/03/20/the-green-pledge-no-talk-more-action; Alice Fremuth-Wolf, Ingeborg Edel &Anna Förstel, supra.

[17] Derric Yeoh, Is Online Dispute Resolution The Future of Alternative Dispute Resolution?, Kluwer Arbitration Blog (Mar 29, 2018), http://arbitrationblog.kluwerarbitration.com/2018/03/29/online-dispute-resolution-future-alternative-dispute-resolution/.

[18] Luke Conway, Blockchain Explained, Investopedia (Nov 17, 2020), https://www.investopedia.com/terms/b/blockchain.asp.

[19] Jake Frankenfield, Smart Contracts, Investopedia (Mar 25, 2021), https://www.investopedia.com/terms/s/smart-contracts.asp.

[20] Eric Chang, supra.

[21] https.//kleros.io/.

[22] Clement Lesaege, Federico Ast & William George, Kleros, Short Paper v1.0.7, Sep. 2019, at 1 ff.

Institutional Arbitration: Moving into the future strengthening Institutional Arbitration & ADR in an increasingly virtual world, by Sarah Mutheu*

Tue, 01 Dec 2020 07:35:55 GMT

For a cross-border system of dispute resolution that frequently involves participants from different countries, the challenge posed by COVID-19 to international arbitration is grave. However, given that arbitration is a flexible and consensual process, it is well positioned to respond swiftly to these challenges. Indeed, in a short space of time there has been a significant and collaborative response from the international arbitration community, led by the major arbitral institutions, to find ways to maintain access to justice in a timely and efficient manner.

The primary reason for introducing arbitrations into the dispute resolution system was to lessen the burden on courts. International Arbitral Institutions have been established all over the world to aid and assist the parties in resolving their disputes. Especially in the current scenario, arbitration being a private process has an unarguable edge over the traditional litigation in courts. In order to function efficiently, the Arbitral Institutions have brought about certain changes in their operation amidst these trying times. Majority of these interim changes are buttressed by technology and the internet. Institutions have placed a never before reliance on Video Conferencing, e-filings, virtual hearings etc. But the question that arises is, would these changes suffice the need of the hour and most importantly the needs of the parties to the dispute?

Arbitral institutions are at the forefront of the international arbitration community’s response to COVID-19. Commendably, many institutions have largely remained fully operational while implementing remote working practices and virtual hearings. In April 2020, 13 arbitral institutions issued a joint statement “Collaboration is particularly important as each of our institutions looks to ensure that we make the best use of digital technologies for working remotely.” The statement calls for solidarity, cooperation and collaboration in response to COVID-19. The statement emphasized the joint ambition of the institutions to “support international arbitration’s ability to contribute to stability and foreseeability in a highly unstable environment, including by ensuring that pending cases may continue and that parties may have their cases heard without undue delay.”

The ambition to see cases continue has led to a focus on the use of digital technologies, including virtual hearings. Online dispute resolution is not a new phenomenon. However, the global measures taken in response to COVID-19 have meant that the use of digital technologies to facilitate case preparation, management and hearings is no longer optional – particularly where parties are unwilling or unable to wait until the current crisis passes. This reality has prompted a number of institutions to issue specific guidance to parties and tribunals grappling with how to convert physical in-person hearings into a virtual environment.

When to use virtual hearings

A threshold question confronting parties and tribunals is whether a particular case is appropriate for virtual hearing. Clearly, the ability of all participants to access the necessary technology, software and equipment and a reliable high-quality internet connection is a prerequisite to a virtual hearing. Additionally, time zone differences may make it more difficult to convene a full day virtual hearing, so adjustments will need to be made to the hearing timetable.

Where time zone differences cannot be easily accommodated, parties and tribunals may consider an asynchronous virtual hearing as suggested by Michael Hwang S.C. during a recent SIAC webinar. This can be useful for oral openings / closings, or jurisdiction challenges, though unsuitable for cross-examination. For an asynchronous virtual hearing to take place, one party appears before the arbitral tribunal and makes its oral submissions, the recording and transcript of which will be uploaded to a secure online platform for the other party to review. The second party then appears before the tribunal and makes its oral submissions and the recording and transcript of which will be uploaded to the same platform. The parties will then convene with the tribunal for a final virtual hearing during which any outstanding issues are dealt with. This is a possible method of convening a virtual hearing while ensuring that parties have a reasonable opportunity to be heard.

NCIA Virtual Rules

The Nairobi Centre for International Arbitration (NCIA) has published a Guidance Note on Facilities Booking Conditions and Use during the COVID-19 Period. These notes provide guidance to parties, counsel, tribunals and users on possible measures to be considered in mitigating the adverse effects of the COVID-19 pandemic on arbitrations, mediations and meetings held at the NCIA facilities. The guidance note applies in addition to the extra steps the Centre has taken to streamline its internal processes in the wake of the COVID-19 pandemic. NCIA has also adopted the Nairobi Centre for International Arbitration (Virtual Hearings) Rules, 2020. Parties and the Arbitral Tribunal are required to agree in advance on the procedures, schedules and deadlines to be followed during the virtual hearings and also the virtual platform to be used during the hearings. Further, NCIA has adopted a Model Nairobi Centre for International Arbitration, Arbitration Clause (including Virtual Hearing Option) and Model Nairobi Centre or International Arbitration Virtual Hearing Agreement to be signed by parties in order to facilitate virtual hearings.

Conclusion

Prior to COVID-19, certain pre-hearing steps in the arbitral process—such as initial case management conferences and pre-hearing conferences with the tribunal—were often held by teleconference or videoconference, particularly when the parties and their counsel were in different jurisdictions. In addition, it was not unusual, pre-COVID-19, for certain witnesses to appear at hearings via video in instances where physical attendance was not possible due to health or visa issues, or other circumstances

What is new in the post-COVID-19 world is that parties, counsel and arbitrators are now accustomed to, and generally skilled at, using Zoom, Webex and other video platforms to conduct meetings, conferences and even hearings in a virtual format. By necessity, the “barriers to entry” for these technologies in the international arbitration world appear largely to have been overcome. Whereas, before COVID-19, there was often a resistance by some counsel and arbitrators to the use of videoconference technology—due to concerns about whether it would function properly and a general reluctance to spend the time necessary to learn how to use it—counsel and arbitrators have now been forced to adopt and become familiar with these technologies

The pandemic has changed the way in which international arbitrations are conducted in fundamental ways. By necessity, international arbitrations in the age of COVID-19 are being conducted entirely (or almost entirely) virtually. There is obviously no way to know with certainty what the future will bring, but a reflection on the ways in which international arbitration, and the arbitration community, already have changed in the age of COVID-19 permits some predictions.

Arbitrators and practitioners are already used to remote processes, and the Rules of various arbitral institutions give a wide discretion to tribunals as to the conduct of arbitrations. Additionally, most of the major international arbitration institutions have issued Guidelines on the conduct of remote proceedings. As to the future, it seems reasonably certain that more use will be made of virtual hearings, both purely virtual and hybrid.

________________________

*Sarah Mutheu, Senior Communication & Marketing Officer-NCIA

Arbitration & Alternative Dispute Resolution in COVID-19 times ¬able NCIA highlights by The Nairobi Centre for International Arbitration§

Mon, 17 Aug 2020 17:29:34 GMT

The social and economic impact of the 2019 novel coronavirus disease (COVID-19) outbreak will likely continue to have legal and access-to-justice implications for some time, giving rise to new disputes and delaying the progress of existing disputes before the courts. The depth of this crisis creates a need for parties and their legal representatives to consider focusing on rebuilding their business relationship, re-negotiating their existing contract, and finding alternative paths to resolving their conflicts, rather than insisting on strict enforcement of contractual terms. This may lead to more demand for arbitration, mediation, conciliation and other amicable methods of dispute resolution, as well as a combination of different dispute resolution processes.

The Coronavirus lockdown and social distancing measures which are in place in most countries around the world have affected our personal and working lives in one way or another and are exerting greater pressure on the arbitration community to find innovative ways to adapt through greater use of technology. In this regard, the Nairobi Center for International Arbitration (NCIA) has made great strides and has applied a Business Continuity Plan that gives priority to the safety and health of the NCIA staff and their families while servicing operations and containing the spread of the virus amid the pandemic. Measures in place include a minimal on-site function. In addition, respective tribunals, arbitrators, mediators or adjudicators with ongoing cases have been urged to consider applicable provisions of the NCIA Arbitration Rules (NCIA Rules) and to engage parties for possible remote e-enabled procedures, enlargement or extensions of time.[1]

Administration of Disputes

Notwithstanding the pandemic, the NCIA has continued to administer nineteen (19) disputes and has panel-listed an additional seventeen (17) arbitrators and mediators with multiple skills for conducting arbitrations and mediations under the NCIA’s Rules. Furthermore, the NCIA has, together with a network of China-Africa Joint Arbitration Centres (CAJAC), developed and finalized a Constitution and Rules for arbitration of disputes of Sino-African origin registered with any of CAJAC’s five affiliate centers; the centres are in Johannesburg, Shanghai, Beijing, Shenzhen and Nairobi. The CAJAC Constitution and Rules are up for adoption by CAJAC’s five affiliate centres and are destined to have a formidable impact on arbitration practices in the future.

Arbitration and Alternative Dispute Resolution Conferences & Events

On the national front, just before the world was hit by the Covid-19 storm, the NCIA held its 2nd International Arbitration and ADR Conference in March 2020 under the theme “Tracking Africa’s Arbitration and Alternative Dispute Resolution (ADR) Mechanisms: It is Business Unusual”. The conference brought together speakers and participants from across the globe with the aim of tracking the progress made in arbitration and use of ADR mechanisms in Africa. Shortly thereafter, in an effort to adapt to the new normal, the NCIA began a monthly webinar series that has seen growth and participation by attendees and panelists from around the globe.

Development of a National Alternative Dispute Resolution (ADR) Policy

The NCIA commenced the process of developing a National ADR Policy in conjunction with the Kenyan Judiciary and the International Development Law Organization (IDLO). To this end, a zero draft National ADR Policy was developed and deliberated on by over 600 stakeholders.[2] The zero draft National Alternative Dispute Resolution Policy was refined with input from the forums to produce the National Alternative Dispute Resolution Policy which was thereafter subjected to a national validation forum with wide representation stakeholders.[3] The draft policy is currently before a National Steering Committee appointed by the Hon Attorney General to provide guidance and oversee the formulation of a national policy and institutional framework on ADR and propose appropriate reforms to the legal and institutional framework with a view to harmonizing the practices, standards of accreditation, training and provision of alternative dispute resolution services in Kenya.[4]

International ranking

The 2020 Arbitration in Africa Survey Report of top African arbitral centres and seats ranked the NCIA among the top five best arbitral centres in Africa in regard to the quality of support facilities and administrative staff. The NCIA ranked 8th among the top ten arbitral centres in Africa based on the number of arbitration cases administered and Memorandums of Understanding (MoUs) concluded with other arbitration centres. The report also ranked NCIA among the top five arbitral centres in Africa that users indicated they would recommend.

Training

The NCIA has developed a training curriculum for both mediation and arbitration to increase capacity, skills and competences to mediators and arbitrators to enable them to provide a fair and efficient process. The calendar, which can be accessed by clicking here, highlights some of the courses offered at the NCIA.

Conclusion

The impact of COVID-19 is reaching far beyond what anyone has seen in recent years. Of paramount importance is the health and public safety impact the pandemic has had and will likely have in the future. Everyone has a duty to take recommended precautions to prevent the spread of the virus. As this duty also extends to those organizing and conducting arbitral proceedings, careful consideration of the impact of the virus on arbitration, and the measures which can be taken to halt its rapid spread, remain necessary. Going forward, we may see the drafting of notices, submissions, correspondence, pleadings, statements, and applications—which are traditionally document-only tasks being made electronic. Arbitral institutions may now deem it necessary to amend their rules and procedural regulations to align, complement and augment public health safety. It is now clear that any arbitration that is currently in progress will be impacted in some way by the Coronavirus pandemic. It is for disputing parties, their attorneys, and their respective arbitral tribunals to work together to sensibly try and identify and resolve those issues in an efficient and fair way that reflects the extraordinary situation the world finds itself in.

___________________________

§ Nairobi Center for International Arbitration; Co-operative Bank House, 8th Floor, Haile Selassie Avenue, Nairobi Kenya. See:

[1] See, The Nairobi Center for International Arbitration (Arbitration) Rules 2015, available here (accessed August 14, 2020).

[2] Alternative Dispute Resolution Policy (Zero Draft), available at here (accessed August 14, 2020).

[3] Alternative Dispute Resolution Policy (Draft), October 2019, available here (assessed August 14, 2020).

[4] See, The National Steering Committee for Formulation of the Alternative Dispute Resolution Policy—Appointment, The Kenya Gazette, Vol. CXXII —No. 21, 31st January, 2020, available here

The Al-Kharafi v. Libya award and the jurisdictional limits of Egyptian courts By Tarek Badawy§

Fri, 24 Jul 2020 20:38:26 GMT

On 3 June 2020, the Cairo Court of Appeal (the “Court”) ordered the annulment of the arbitral award in the case of Mohamed Abdulmohsen Al-Kharafi & Sons Co. v. Libya and others (“Al-Kharafi v. Libya”),[1] where the tribunal (the “Tribunal”) had granted Al-Kharafi nearly US$ 1 Billion in damages for Libya’s breach of its obligations to protect Al-Kharafi’s investments. The Court’s judgment left many arbitration practitioners wondering about the actual grounds of annulment and questioning whether such grounds are valid under Egypt’s Arbitration Law (the “Arbitration Law”).

The Facts:

In 2006, Al-Kharafi leased land (the “Land”) from the Libyan government to develop a tourism project in Libya to be executed within 7.5 years (the “Project”). Al-Kharafi would also benefit from usufructuary rights on the Project for 90 years starting from the day it receives the Land. Al-Kharafi was responsible for financing and operating the Project, which included a 5 Star Hotel, a shopping mall, apartment hotels, and restaurants.

The contract signed with Libya (the “Contract”) stipulated that the Libyan Government would give the Land to Al-Kharafi free of any liens, incumbrances, or any physical or legal obstacles that could preclude Al-Kharafi from benefiting from its 90-year investment.

The Court notes that, upon signing the Contract, Al-Kharafi was surprised to find that the Land was subject to legal and physical incumbrances that the Libyan authorities were unable to remove, which precluded Al-Kharafi from enjoying its quiet possession of the Land.

In January 2009, Libya offered Al-Kharafi alternative locations for the execution of the Project. Al-Kharafi refused the offer, insisted on implementing the Project according to the terms of the Contract (i.e., on the Land), and requested the Libyan authorities to remove the physical and legal impediments that prevented Al-Kharafi from enjoying its peaceful possession of the Land. The parties failed to reach an agreement.

In May 2010, and without any warning, the Libyan Minister of Economy cancelled the Project and revoked the investment license granted to Al-Kharafi. Al-Kharafi objected stating that Libya’s actions were abusive. It further emphasized that it was willing to perform its obligations under the Contract provided Libya remove the physical and legal obstacles so that Al-Kharafi may enjoy quiet possession of the Land.

Al-Kharafi argued that it incurred economic and moral damages as a result of Libya’s actions, which allegedly breach the Contract as well as domestic and international investment laws applicable in Libya (notably the Unified Agreement for the Investment of Arab Capital in the Arab States (1980)) (the “Arab Investment Treaty”)).

Following the constitution of Tribunal, the Parties reportedly agreed to subject their dispute to Libyan law.

On 22 March 2013, the Tribunal ruled that:

a.The Contract was not an administrative contract. Rather, it was a BOT contract subject to the rules applicable to civil contracts, including the Arab Investment Treaty;

b.Al-Kharafi exhausted all amicable means to resolve the dispute before initiating the arbitration;

c.Al-Kharafi’s inability to proceed with the Project was caused by Libya’s failure to deliver the Land free of any physical or legal incumbrances, and as a result;

d.Libya should not have rescinded the Contract or revoked the investment license.

e.The Tribunal found that Al-Kharafi’s investment was terminated in an abusive manner, triggering Libya’s responsibility for the pecuniary (including lost profit) and moral damages sustained by Al-Kharafi.

In the dispositive of the award, the Tribunal ordered that Al-Kharafi be awarded:

i. US$ 30 Million in moral damages;

ii. US$ 5 Million for losses and expenses actually incurred;

iii. US$ 900 Million for lost profit; and

iv. US$ 1,940,000 in arbitration fees and expenses.

(i.e., a total of US$ 936,940,000) in addition to 4% interest annual interest on the awarded amount.

The Court’s analysis:

The Court did not summarize the parties’ arguments[2] but began its analysis by explaining that while an arbitral tribunal’s error in calculating damages is not subject to review by the Court of Appeal, arbitration may not operate in isolation from general legal principles. Therefore, in the Court’s opinion, if an arbitral tribunal exceeds or breaches fundamental principles of justice or “distances itself from the behavioral duties that [a tribunal] must uphold”, the award it renders must be annulled.

Guided by the foregoing, the Court found that proportionality between the awarded damages and the harm sustained by a claimant is a principle of public policy, whose breach empowers the Court to annul the award if the disproportionality between the harm and damages is found to be egregious, highly unjust, and unjustifiable.

The Court criticized the Tribunal’s reasoning by noting that it based its calculation of damages on theoretical assumptions and abstract principles that were not supported by the facts of the case. Furthermore, it found Al-Kharafi’s behavior vexatious, as it noted that at Al-Kharafi was initially willing to settle the dispute for approximately US$ 5 Million, yet kept increasing the amount it claimed throughout the proceedings until it exceeded US$ 2.05 Billion.

The Court was also concerned by the Tribunal’s suggestion that the “lost profit” portion of the damages sustained by Al-Kharafi exceeded US$ 2 Billion (even if Al-Kharafi claimed less than this amount as lost profit) before reducing the damages for lost profit to US$ 900 Million (plus interest). The Court explained that a distinction needed to be made between (i) damages for lost profit, which are a form of direct damages that will inevitably occur in the future; and (ii) compensation for lost opportunity (whose existence is uncertain in the future, thus requiring a conservative examination of the facts to determine if it warrants compensation for “lost hope”). The Court found that the Tribunal conflated both types of restitution and failed to approach the evidence with caution, leading the Tribunal to award Al-Kharafi “excessive” damages.

To reach this conclusion, the Court examined the expert evidence submitted by Al-Kharafi before holding that it was based on flawed assumptions, exaggerated the losses, and ignored the fact that the Project was never implemented. It was, what the Court coined, a “Project on paper”. The Court added that the foregoing, coupled with the political situation in Libya following the Contract’s execution (implicitly referring to the instability that led to the removal of Colonel Ghaddafi), proves that it was unrealistic for Al-Kharafi to expect to make any profit. In other words, the Court found that the revocation of the license protected Al-Kharafi’s investment from an ill-fated future in Libya!

Against this background, the Court concluded that the Tribunal erred in its reasoning and acted in an abusive and discriminatory manner that breached fundamental principles of law and justice which mandates that its award be annulled on public policy grounds.

Initial Thoughts:

This case raises several questions that should be addressed by the Egyptian Court of Cassation, ranging from potential errors of law, to defining the scope of public policy. For example, the Court appears to have applied principles of Egyptian law in matters of damages and compensation to a dispute subject to Libyan law when it examined the difference between inevitable lost profit and possible lost opportunity. Notwithstanding the substantial similarity between the Egyptian and Libyan legal systems, the Court effectively stated how it would approach the case on the merits if it were in the Tribunal’s shoes. Unless this approach can be linked to a ground of annulment, the Court would have exceeded its powers under Egypt’s Arbitration Law, even if its substantive analysis were correct. Moreover, the Court made certain statements that suggest that its analysis on damages may have been incorrect under Egyptian law as well. For instance, its affirmation that the deteriorating situation in Libya following Libya’s revocation of the Contract saved Al-Kharafi additional losses (since the Project would have stalled) is irrelevant to the calculation of lost profit under Egyptian law. What matters for the purpose of this exercise is what Al-Kharafi objectively expected to gain at the time it executed the Contract but for Libya’s subsequent breach.[3] The facts taking place following Libya’s reported breach should have no bearing on the damages owed to Al-Kharafi.

Notwithstanding the Court’s apparent ultra vires actions, its analysis appears to have been affected by two factors, namely (i) Al-Kharafi’s refusal to accept Libya’s offer to construct the Project on another land (i.e. its failure to mitigate its losses); and its (ii) alleged failure to take serious steps to implement the Project before the rescission of the Contract and revocation of the investment license. Put differently, it did not sit well with the Court that the Tribunal could award damages nearing US$ 1 Billion when Al-Kharafi’s actual damages were in the neighborhood of US$ 5 Million, and knowing that Al-Kharafi (i) failed to take serious steps to implement the Project; and (ii) refused offers to construct the Project on another land to mitigate its damages.

The Court held that the award of damages that are disproportionately higher than the harm incurred (or one that would certainly take place in the future) breaches public policy, which would justify annulment under Article 53(2) of the Arbitration Law and VI(2)(b) of the New York Convention. No precedent was relied on by the Court, leaving practitioners wondering whether this is an uncontested principle of Egyptian law. Assuming it is, reaching this conclusion would necessarily require a reassessment of the case on the merits to decide whether the Tribunal applied the test to determine damages correctly. The limits of this analysis have yet to be defined by precedent.

Equally unclear is the reason for the Court’s abstention from explaining what constitutes proportionate compensation that complies with Egyptian public policy, since doing so would have allowed the Court to enforce the part of the award that meets acceptable public policy limits. Partial annulment is exercised by Egyptian courts, as several awards were annulled “in part” on public policy grounds when tribunals awarded delay interest rates that exceeded the statutory cap. The Court missed the opportunity to set a precedent by seeking guidance from jurisprudence on what Egyptian law deems to amount to usura vorax.[4] However, unlike the reduction of awarded delay interest rates that are clearly stated in Egyptian legislation,[5] the determination of what represents proportionate compensation inevitably involves an analysis of the merits that may force the Court of Appeal to exceed its statutory powers. The Court of Cassation will need to answer this question by determining the limits of this examination; or even more, to confirm whether such an examination is permissible in the first place.

Conclusion:

The Cairo Court of Appeal was offered a golden opportunity to set a ground-breaking precedent that could have put an end to the longstanding Al-Kharafi v. Libya saga. Instead, it raised important yet unarticulated legal questions to the dismay of arbitration practitioners. One hopes that the Egyptian Court of Cassation will clarify these questions by determining the scope of Egyptian public policy and the limits, if any, of a court’s involvement in the determination of damages, which is an issue that traditionally falls within the discretionary purview of an arbitral tribunal.

____________________

§ Partner, Shahid Law Firm, Cairo.

[1] Mohamed Abdulmohsen Al-Kharafi & Sons Co. v. Libya and others, award available athttps://www.italaw.com/cases/2185.

[2] The parties had exchanged swords before the Court of Appeal and Cassation on other grounds before the case made its way back to the Court for determination of the award’s compliance with Egyptian public policy.

[3] Court of Cassation, Case No. 45/36 JY, judgment dated 31 March 1970.

[4] Court of Cassation, Case No. 282/89 JY, judgment dated 9 January 2020.

[5] Egyptian Civil Code, Art. 227.

A “New” List – Arbitrators of African Descent by Funke Adekoya SAN*

Fri, 26 Jun 2020 10:08:01 GMT

Katherine Simpson of Simpson Dispute Resolution in collaboration with Nancy M. Thevenin of Thevenin Arbitration & ADR have created a list of arbitration professionals of African descent[1].

The process of creating such a list began in February 2020 and was initially to comprise a list of African-American arbitrators, in response to their perceived absence on arbitration panels. The project was later expanded to comprise individuals who were a "person of African descent" and "with an international ADR practice that touches or will touch the US."

Requests for participation in the list were sent to various organisations and bodies, including the American Bar Association ("ABA"), Blacks of the American Society of International Law ("BASIL"), as well as different international dispute resolution email list-serves. Peer recommendation or referral was also used and each nominee to the List prepared his or her own short "bio" for publication. Updating the list with more names is a continuous and ongoing process.

It is envisaged that the “New List” will make these professionals more visible and accessible to institutions and law firms seeking individuals of colour to appoint as arbitrators, mediators, potential hires, conference speakers, or co-authors.

Many individuals on the list have an extensive international dispute resolution practice and are on the panels of several arbitral institutions. These individuals have been recognized for their dispute resolution experience in various jurisdictions including the United States.

With expertise in international arbitration ranging from labor and employment to tax and finance, the list is a reminder of the wealth of experience arbitrators of African descent can bring to international dispute resolution.

_________________________________

*Funke Adekoya, SAN, Partner, ǼLEX

[1] A New List: Arbitrators of African Descent

International Arbitration in Angola by Nuno Albuquerque,Conceição Manita Ferreira & Luísa Castro Ferreira [The article was first published in Global Legal Insights – International Arbitration, 2020]

Thu, 21 May 2020 18:30:39 GMT

Introduction

This article has the main purpose of giving a general overview of the legal framework for international arbitration in Angola. With this short study, we intend to give a general but precise view of how the international arbitration proceedings work in Angola.

Background

Angola is one of the fastest-growing economies in the world, being now positioned to become an active member of the global economic community, since it has a privileged geographic location on the coast of the Atlantic Ocean, and abundant natural and human resources. Angola’s economic development policies are focused on private investment, so Angola is perfectly placed to provide interested investors with financial incentives that increase potential for return on capital. According to the World Bank statistics, Angola has made substantial economic and political progress since the end of the war in 2002. . In the last few years, Angola has been undertaking deep legal reforms in order to modernise its legal system so it can foster investment projects in the country. For instance, a reform to the Voluntary Arbitration Law is being studied, and in 2016 Angola ratified the New York Convention. Given the evolving process of political and economic opening-up of Angola, it has become necessary to provide more security, certainty and juridical predictability in regard to the resolution of eventual conflicts arising from internal and external relations. According to the World Bank, foreign direct investments in Angola reached their peak in 2015 with US$9.2 billion, compared to US$1.7 billion in 2002 when the civil war ended.

Since Angola is experiencing exponential economic growth and an increase in international transactions and foreign direct investments involving Angola and/or Angolan parties, the practice of international arbitration in Angola is also growing. Given the reforms of the last few years, it is expected that the use of arbitration for domestic cases with a foreign element will increase (i.e., where a party has foreign shareholders). Also, there are an increasing number of arbitrations relating to Angolan parties where recognition and enforcement in Angola are important issues to consider, while an increasing number of investment arbitration cases relating to Angola or Angolan parties can be seen as well.

Currently, Arbitration in Angola is regulated by Law no. 16/03, of 25 July 2003, the “Voluntary Arbitration Law” (VAL). This law does not strictly follow the UNCITRAL Model Law (Model Law); however, it includes many solutions that are common to the ones found in that Model Law. In contrast to the Model Law, we can point out the following aspects:

the VAL contains no provision on definitions;

it does not provide for rules on interpretation;
it adopts the disposable rights criteria regarding arbitrability;
it does not address the issue of preliminary decisions;
it does not distinguish between different types of awards; and
it permits appeal on the merits in domestic arbitrations, unless the parties have agreed otherwise.

Regarding institutions and centers for arbitration, Decree no. 4/06, of 27 February 2006, has the purpose of promoting institutional arbitration in Angola, and deals with the licensing procedures for the incorporation of arbitration centres. The Ministry of Justice is the entity empowered to authorise the incorporation of arbitration centres in Angola. To date, the Ministry of Justice has authorised the creation of the following arbitration centres:

Harmonia – Centro Integrado de Estudos e Resolução de Conflitos;
Arbitral Juris;
CAAL – Centro Angolano de Arbitagem de Litígios;
Centre of Mediation and Arbitration of Angola,
CEFA’s Arbitration Centre;
CREL – Centro de Resolução Extrajudicial de Litígios; and
CAAIA - Centro de Arbitragem da Associação Industrial de Angola.

Arbitration is also foreseen in other legislation, namely the following:

Private Investment Law (Law no. 14/15, of 11 August 2015);
the Mobile Values Law (Law no. 22/15, of 31 August 2015);
the Petroleum Activities Law (Law no. 10/04, of 12 November 2004); and
the Public Procurement Law (Law no. 20/10, of 7 September 2010).

In 2016, Angola took another major step to improve participation in international arbitration, by signing the New York Convention on the Recognition of Foreign Arbitral Awards (New York Convention). On 6 March 2017, Angola deposited its instrument of accession to the New York Convention with the UN Secretary General. Under Article XII (2), the Convention entered into force in Angola on 4 June 2017, 90 days after the deposit of its instrument of accession.

Presently, the majority of arbitration cases conducted in Angola are ad hoc. Normally, the Angolan state and companies in the public sector accept, without any complaints, the use of arbitration to resolve disputes with foreign investors.

Arbitration Agreement

According to Article 1 of the VAL, parties may opt to use arbitration for disputes regarding disposable rights (that being those rights that the parties can construct and extinguish by act of will and those which parties can renounce). The VAL generally admits the arbitrability of disputes pertaining to disposable rights, provided that these disputes are not subject, by special law, to the exclusive jurisdiction of judicial courts or to mandatory arbitration. Regarding any disputes involving the state or other legal persons of public law, the VAL establishes that these entities may enter into arbitration agreements when the relevant dispute concerns a private law relationship, in administrative contracts or in other cases specifically provided by law (article 1 of the VAL). Only the disputes reserved by law to the State courts or to some other type of proceedings cannot be submitted to arbitration. Therefore, all commercial disputes can be subject to arbitration.

In order to resort to arbitration, the parties must establish an arbitration clause (in the contract or in the form of a separate agreement for future disputes arising from a defined legal relationship) or an arbitration agreement (signed by the parties to resolve an immediate dispute), which states that any dispute must be resolved using arbitration, instead of seeking judicial courts. To be valid and effective, an arbitration agreement must comply with several requirements. The arbitration agreement will be void if:

it is not made in writing;
it goes against the provisions stated in article 1 of the VAL; or
the object of the arbitration is not specified and there is no other way to specify it.

The VAL only includes rules on the expiration of the arbitration agreement, and does not include rules on the modification and revocation of the arbitration agreement. Thus, the arbitration agreement and the arbitration clause expire when:

any of the arbitrators dies, is excused, becomes disabled for the exercise of the arbitration and is not replaced;
a majority cannot be reached in the deliberations (in cases where the arbitration is collective); and
the award is not rendered by the established deadlines.

However, according to section 4 of article 2 of the VAL, the arbitral clause or convention is not automatically void when the contract where it is inserted is void, if it is clear that the will of the parties is to have an arbitral clause or convention regardless of the validity of the contract.

Regarding the competence of the arbitral tribunal, article 31 states that the arbitral tribunal may decide on its own jurisdiction (the principle of competence-competence). This decision can only be syndicated in impugnation or opposition to the execution of the arbitral award. This means that the award of the arbitral tribunal by which it rules on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement can only be appreciated by the judicial court after the arbitral tribunal has rendered the award. This legal provision gives a letter of law to the fundamental principle of arbitration, the principle of competence-competence: that the arbitral tribunal has full competence to resolve all questions raised in the arbitral proceedings relating to it, whether of a substantive nature relating to the merits of the case, or of a procedural nature. The principle of competence-competence preserves the autonomy of the arbitral tribunal in relation to the jurisdiction of the state courts.

Arbitration Procedure

The parties are free to agree on the procedural rules (directly or by reference to an institution). In the absence of agreement, the tribunal will have the power to determine those rules (article 16). The same reasoning applies to the place of arbitration (article 17). Arbitration begins when the request for submission of the dispute to arbitration is received by the Respondent – if nothing otherwise is stipulated by Agreement of the parties. This request for submission of the dispute to arbitration is generally named “notice to arbitration”. The notification can be made by any means, as long as it is possible to prove its receipt by the other party. The notification must contain:

the identification of the parties;
the indication that they wish to submit the conflict to arbitration;
the indication of the Arbitration Agreement; and
the subject of the conflict, if that isn’t already stated in the Arbitration Agreement.

Also, if the parties are due to nominate the arbitrators, the claimant must indicate the arbitrator chosen by them in the notice to arbitration, and must invite the other party to indicate their arbitrator. If the arbitration procedure is to be commanded by a single arbitrator, the notifying party must suggest an arbitrator, and invite the other party to accept that suggestion. However, the nomination can also be made by a third party. If that happens, the notifying party must also notify that third party to appoint and communicate the appointment of the arbitrator to both parties.

As stated previously, article 16 of the VAL states that the parties can agree about the rules of the arbitration. However, if those rules aren’t defined until the acceptance of the first arbitrator, the arbitrators must define the rules of the arbitration. The seat of the arbitration is also determined by agreement of the parties in the Arbitration Agreement or later. In common with the rules of arbitration, if the parties do not agree on the seat of the arbitration until the acceptance of the first arbitrator, the seat of arbitration must also be chosen by the arbitrators.

According to the VAL, and in line with most arbitration laws, the arbitration proceedings are subject to fundamental principles of due process, including the principle of equality of the parties and the adversarial principle (article 18 of the VAL). Indeed, the arbitration procedure must respect the following principles and rules:

the principle of equal treatment of the parties;
the right to response must be granted in all phases of the procedure; and
both parties must be heard, orally or by writing, before the rendering of the award.

These are the fundamental principles and rules that must be respected in any procedure. The breach of these principles and rules may lead to the setting-aside of an award.

The VAL stipulates that parties to an arbitration must be represented by a constituted lawyer (i.e. an Angolan lawyer). The National Council of the Angolan Bar Association decided on 31 March 2014 that only lawyers with valid registration may intervene as lawyers in arbitration proceedings.

According to article 24 of the VAL, in national arbitration, the arbitral court must decide in accordance with the national law, unless the parties establish that the conflict is to be solved by referring to equity. However, if the parties agree on the decision by the rules of equity, they automatically renounce the ability to appeal the award. On the other hand, in international arbitration, the parties are free to designate the applicable law, and may do so by referring to a specific national law or state legal system. If the parties do not agree in this matter, the arbitral court must decide what substantive law to apply, resorting to the conflict rule which it considers applicable to the dispute.

Regarding the production of proof, in arbitration all means of proof allowed by law are accepted. There is no specific rule in Angolan law establishing limits to the permissible scope of disclosure or discovery. If the proof depends on a third party and that third party refuses to collaborate, the parties or the arbitral court can request the judicial court to carry out the procedure so that proof is produced.

The arbitration procedure ends when the award is deposited or after the award becomes definitive, if a withdrawal happens, since the withdrawal is free at any time of the procedure. If the arbitral award is not rendered within the applicable time limit or if for some reason the tribunal becomes incomplete and a new arbitrator is not appointed, the proceedings will not be dismissed, but the arbitral agreement itself will be deemed to have lost its validity - for that specific dispute - article 5 of the VAL.

The VAL allows the parties to agree on a time limit to render the award, but if nothing is said until the acceptance of the first arbitrator, the said time limit will be of six months and will only be extended by agreement of the parties (article 25 of the VAL). Instead of agreeing on a specific limit, the parties may refer the dispute to institutional arbitration (providing that the rules of the institution contemplate the extension of the time limit to render the award). After all the diligence on the process is made, the arbitrators must decide and render an award, which is to be notified to the parties and deposited in the secretariat of the Provincial Court of the place of arbitration.

Arbitrators

An arbitral tribunal may be composed by a single arbitrator or several, but there must always be an odd number of arbitrators (article 6, paragraph 1, of the VAL).

Appointment

Arbitrators are appointed by the parties in the arbitration agreement or in posterior writing. However, the VAL establishes supplementary criteria to be used in the cases where the parties have not established the means of designating a single or several arbitrators. Indeed, if the parties do not agree on the designation of the arbitrators, or on the way they are to appoint the arbitrators, each of the parties appoints one arbitrator, and the arbitrators appoint the third arbitrator, which completes the composition of the arbitral court (article 8, paragraph 1 of the VAL). The VAL is silent as to the means of constituting an arbitral tribunal in the case of multiple parties.

Requirements

Arbitrators must be singular persons who have the full enjoyment and exercise of their civil capacity (article 9, paragraph 3 of the VAL). Arbitrators must be independent and impartial. Arbitrators are free to reject their designation but, once accepted, the excuse of functions is only admissible if it is justified by a supervening cause that makes it impossible for the arbitrator to exercise its functions.

Any person invited to exercise the functions of arbitrator has to reveal immediately all circumstances that may cause doubts about their impartiality and independence. If any circumstance causes a founded doubt of the impartiality and independence of the arbitrator, they may be refused the right to arbitrate. However, the party that appoints the arbitrator can only refuse the designation if the motive is subsequent to the appointment.

In the case of failure to appoint one arbitrator, and unless the parties have agreed on another appointing authority, the missing arbitrator will be nominated by the president of the local State Court (article 14 of the VAL).

Replacement

An arbitrator can be replaced in case of death, refusal, permanent disability for the performance of its duties, or if the appointment becomes void. The motives for the replacement are very similar to the ones established by the UNCITRAL Law. They are contemplated in article 10 of the VAL. The VAL addresses the matter of challenging the arbitrator when there is reasonable doubt about his or her impartiality or independence, or when he or she manifestly does not possess the qualifications that were previously agreed upon by the parties (article 10, paragraph 2 of the VAL). If the arbitrators do not step down, the decision on this is made by the Tribunal, with appeal to the State Courts (article 10 of the VAL).

Interim Relief

Interim relief may be granted in arbitration, unless otherwise stated by the parties. Any of the parties may require that the court orders interim measures, related to the object of the conflict, namely the provision of guarantees that it considers necessary. Interim relief is stated in article 22 of the VAL, which is inspired by article 17 of the UNCITRAL Model Law. However, it does not specify what kind of measures are admitted. This does not prevent the parties from requesting from the court, in accordance with the Civil Procedure rules, any procedure they deem necessary to prevent or protect the injury of rights. It is essential that the petitioner alleges and proves two requirements: the periculum in mora and the fumus bonus iuris.

Arbitration Award

The VAL contains a considerable number of provisions regarding the award and its preparation (articles 24 to 33 of the VAL).

Unless the parties agree otherwise, under article 25 of the VAL, the Arbitration Award must be rendered in the timeline of six months after the acceptance of the last arbitrator. Any extension to that timeline must be agreed by the parties and cannot be decided unilaterally by the arbitrators. There is also the possibility for the parties to agree that, if any instruction measure is necessary, the timeline can be suspended during that period of time for which the instruction is in course. The decision must be rendered with the presence of all of the arbitrators, by simple majority, except if the parties have stipulated a larger majority. The parties can also establish that, if the arbitrators cannot reach an agreement, the decision can be made by the president of the court.

Under article 27 of the VAL, the arbitration award must be made in writing and must contain the following information:

the identification of the parties;
reference to the Arbitration Agreement;
the object of the conflict;
the seat of arbitration;
the location and date on which the award was rendered;
the decision and justification for the decision;
signature of the arbitrators; and
indication of the expenses associated with the process and their distribution between the parties.

The statement of a decision given in accordance with the rules of equity is sufficient, with a statement of the facts that are considered proved. If any arbitrator disagrees with the decision, the reasons for the disagreement must also be stated in the decision.

Under article 23 of the VAL, the fees and costs of the process and their division between the parties must be agreed by the parties, unless this decision results from regulations of arbitration chosen under article 16 of the VAL. The decision is to be notified to the parties, who can ask for the correction of material errors, obscurities or clarification of doubts, within 10 days. The court has 30 days to respond to such requests. Throughout the process, the parties can also reach an agreement regarding the subject of the conflict. Under article 28 of the VAL, the agreement must be submitted to the court for homologation.

According to paragraph 4 of article 20 of the VAL, in the course of the process, the withdrawal by any of the parties is also admitted, as long as the opposing party agrees with it,. The withdrawal must be homologated by the court.

Challenge of the Arbitration Award

For domestic arbitrations, the arbitration award can be challenged in two ways: annulment of the award and appeal of the award. Appeal can be waived by the parties, but not their right to request the award to be set aside. Annulment of an award can occur in the following cases:

when the conflict is not sought to be solved through arbitration;
when the court that rendered the award is incompetent;
when the arbitral agreement has expired;
when the arbitral court has been irregularly constituted;
when the decision doesn’t contain the justification;
when the decision has violated the principles of equality of response and that fact has influenced the resolution of the conflict; when the court has decided on questions that were not to be decided or when it did not decide on questions that it should decide; or
when the arbitral court, in cases where it decides through equity and custom, did not comply with the public order or with the Angolan legal order.

The arguments of incompetence of the court and irregularity of the constitution of the court can only be invoked if, during the process, the exception of incompetence of the court or irregularity of its constitution have been also invoked and the court declared itself competent to resolve the conflict, or if the irregularity had influence on the final decision.

If an award does not decide on a certain subject that was brought to the court’s attention, the omission can be admitted, if it is demonstrated that the lack of decision on a certain question or issue was determinative of the final decision.

A request for annulment must be addressed to the Supreme Court and the deadline to submit the annulment is 20 days from the date of notification of the arbitral award. The right to request the annulment of an award cannot be waived.

An award can be appealed in the same way that a judicial award can be appealed. Appeal petition must be addressed to the Supreme Court and the deadline to submit the appeal is 15 days from the date of notification of the arbitral award. There is a slight difference in the law when it comes to international and domestic arbitration. With international arbitration, the non-appeal principle (as stated in article 44 of the VAL) applies, except when the possibility of appeal is expressly agreed by the parties. With domestic arbitration, the principle is of the admissibility of the appeal, except if the parties expressly renounce that right (as stated in article 36 of the VAL).

Enforcement of the Arbitration Award

National awards

Article 33 of the VAL states that the award has to be fulfilled in 30 days. If this does not happen, the non-lacking party may coercively execute/enforce the award. Awards rendered in Angola (i.e., awards rendered within domestic arbitrations and awards rendered in Angola, within international arbitrations) are enforceable exactly as if they were decisions rendered by a state court (article 37 of the VAL). If the deadline given by the court to voluntarily accomplish the award is over, or if such deadline isn’t fixed by the court, the interested party has 30 days after the notification of the award to enforce it before the Provincial Court, in the terms stated in the Angolan Civil Procedure Code.

The requirement for the enforcement must be accompanied by the arbitral award, its rectification or clarification, and the proof of notification and deposit of the award. The summoned party has the right to oppose the enforcement of an arbitral award, stating one or more of the grounds mentioned in articles 813 and 814 of the Angolan Civil Procedure Code:[1]

unenforceability of the award;
falseness of the process or transfer or infidelity of the latter, when one or the other influences in terms of the enforcement;
illegality of the claimant;
illegality of the defendant;
undue accumulation of executions;
unlawful coalition of claimants;
fault or nullity of the first summons to the action, when the defendant has not intervened in the proceedings;
uncertainty, illiquidity or unenforceability of the obligation;
res judicata prior to the sentence that is to be enforced;
any fact that extinguishes or modifies the obligation, provided that it is after the close of the discussion in the declaration process, and is proved by a document. The prescription of the right or obligation can be proven by any means; or
any fundament that is sufficient to annul the award.

Opposition to enforcement of an award must be filed within eight days from the date the defendant is notified of the enforcement process. The decision on the opposition to the enforcement is not appealable.

International awards

Angola has ratified the New York Convention via Resolution no. 38/2016, which was published in the Official Gazette of the State on 12 August 2016. Angola made a reservation pursuant to which the New York Convention will only apply to the recognition and enforcement of awards issued in the territory of another contracting state.

Since Angola has ratified the New York Convention, article 1096 of the Angolan Civil Procedure Code – which states the requirements necessary to recognize an award in the Angolan judicial system - will no longer be applicable to arbitral awards. When the New York Convention is in force in Angola, its articles IV and V will be applicable.

To provide certainty that foreign arbitral awards are practically enforceable in the country, Angola may need to harmonise both the provisions of the VAL and the Angolan Civil Procedure Code with its obligations under the New York Convention.

Investment Arbitration

Investment arbitration is not specifically regulated under Angolan law. Therefore, unless more favourable rules have been adopted in international instruments, the VAL applies to investment arbitration.

The New Private Investment Law of Angola prescribes, under paragraph 2 of article 15, that conflicts and their interpretation can be resolved by arbitration[2]. This law also has the aim to foresee the main guarantees granted to foreign investors in the scope of public international law or established by the international jurisprudence of the most various arbitration institutions, namely:

the Angolan State must ensure, irrespective of the origin of capital, fair, non-arbitrarily discriminatory and equitable treatment of incorporated companies and companies and the foreign investor’s assets;
payment of a fair compensation, prompt and effective in the case of expropriation or requisition for weighty and justified reasons;
protection of intellectual and industrial property rights;
protection of acquired rights over possession;
non-interference in the management of private companies, except in cases expressly provided for by law; and
non-cancellation of licences without judicial or administrative proceedings.

Additionally, bilateral investment treaties (BITs) provide for the authorisation or consent of the Angolan State to arbitration in terms that allow the foreign investor immediate recourse to international arbitration, without the need to enter into any subsequent arbitration agreement. Some of the BITs involving Angola provide that an arbitral tribunal shall consist of three arbitrators, each party being responsible for choosing one arbitrator and the third arbitrator being the arbitrator-president chosen by agreement between the other two. In the absence of an agreement for the choice of the third arbitrator, the latter, under the most diverse investment contracts, shall be appointed by one of the following entities:

the General Secretariat of the Paris International Chamber of Commerce (ICC);
a designation authority appointed by the Secretary General of the Permanent Court of Arbitration at The Hague, under the UNCITRAL Regulation; and
the President of the Provincial Court of Luanda, at the request of either party.

Some BITs involving Angola refer to the arbitration of disputes by the International Centre for the Settlement of Investment Disputes (ICSID), the Complementary Mechanism for the Administration of Conciliation, Arbitration and Inquiry Procedures (CIRDI), as well as for the Arbitral Tribunal of the International Chamber of Commerce (ICC), or even for an international arbitrator or tribunal to be designated by special agreement or established in accordance with the UNCITRAL Rules of Arbitration.

In summary, it can be said that Angola does indeed protect foreign investments through arbitration, namely in the private investment sector, and has taken steps to reduce bureaucracy and facilitate international arbitration and investment arbitration; namely and most importantly, by ratifying one of the most important arbitration conventions that was missing from the Angolan legal system, the New York Convention.

Third-party funding

No regulation on third-party funding of arbitration exists in Angola. Given the fact that there is no regulation on third-party funding, it would seem prudent for arbitration agreements to include certain provisions to ensure less uncertainty in potential claims, and in particular:

1) the obligation to disclose the existence of funding agreements in the event of disputes, and the content to be disclosed; and

2) acknowledgment by the parties that, as a security measure to avoid a potential annulment of the award or refusal of its recognition and enforcement under the 1958 New York Convention, the funder’s eventual uplift should not comprise any recovery of costs or indemnity due to the prevailing party in the arbitration or litigation.

Conclusion

In conclusion, one can say that Angola has travelled a long path in the arbitration journey, but a lot is yet to be done. We believe that since arbitration has a growing place in alternative dispute resolution, more and more steps will be made in the near future.

_______________________________________________

* Founding Partner, N-Advogados & CM Advogados

** Head and Main Partner, N-Advogados & CM Advogados

*** Attorney, N-Advogados & CM Advogados

[1] Article 813 (reasons for opposition to the execution based on sentence): the opposition to the execution of a sentence can only have the following reasons: a) unenforceability of the title; b) falsity of the process or transfer, whenever it influences the terms of the execution; c) illegitimacy of the applicant or the defendant or tis representation; d) undue cumulation of executions or illegal coalition of applicants; e) fault or nullity of the first notification for the action, when the defendant didn’t intervene in the process; f) uncertainty, illiquidity or unenforceability of the obligation; g) res judicata prior to the sentence that is trying to be enforced; h) any extinctive or modifying fact of the obligation, since it is posterior to the closing of the discussion in the declarative process and proven by document. The prescription of the right or obligation can be proven by any means.

Article 814 (execution based on an arbitral award): 1. There are reasons for the execution based on an arbitral award, not only the foreseen in the precedent article, but also those in which an annulment of the decision can be based. 2. The court rejects the request for execution when it recognizes that the dispute can’t be put to the arbitrators’ decision, for being submitted to special law, exclusively to judicial courts or to mandatory arbitration, or if the right is indisposable.

[2] Article 15, paragraph 2: Within the scope of the present law, the conflicts that eventually arise regarding disposable rights can be solved throughout the alternative means of dispute resolution, such as negotiation, conciliation and arbitration, since by special law they are not committed to judicial courts or to mandatory arbitration.

Legislative Changes to the Zimbabwean Arbitration Landscape by Davison Kanokanga

Thu, 27 Feb 2020 15:26:36 GMT

The recent promulgation of two new laws, the Consumer Protection Act [Chapter 14:44] and the Zimbabwe Investment and Development Agency Act [Chapter 14:37], represents far-reaching changes to domestic and international arbitration in Zimbabwe. This article addresses key elements of each law in turn.

The Consumer Protection Act [Chapter 14:44] and its impact on the Arbitration Act [Chapter 7:15]

On 10 December 2019, the Zimbabwe government promulgated the Consumer Protection Act [Chapter 14:44]. The Act seeks to:

(a) protect the consumer of goods and services by ensuring a fair, efficient, sustainable and transparent marketplace for consumers and business;

(b) provide for the establishment of the Consumer Protection Commission and its functions;

(d) provide for alternative dispute resolution

(e) repeal the Consumer Contracts Act [Chapter 8:03]

(f) provide for matters connected therewith or incidental thereto

The repeal of the Consumer Contracts Act [Chapter 8:03] removes the prior prohibition of the arbitration of disputes between consumers and suppliers that had been established under the Arbitration Act [Chapter 7: 15]. Section 4 (2) of thelatter provides that the following matters shall not be capable of determination by arbitration:

(a) an agreement that is contrary to public policy; or

(b) a dispute which, in terms of any law, may not be determined by arbitration; or

(d) a matrimonial cause or a matter relating to status, unless the High Court gives leave for it to be determined by arbitration; or

(e) a matter concerning a consumer contract as defined in the Consumer Contracts Act [Chapter 8:03] unless the consumer has by separate agreement agreed thereto.

By repealing the Consumer Contracts Act [Chapter 8:03], the Consumer Protection Act [Chapter 14:44] impliedly amended Section 4 (2) (e) of the Arbitration Act [Chapter 7:15] by deleting the same. Consequently, disputes between consumers and suppliers or services providers are now arbitrable. Moreover, Section 60 (1) of the Consumer Protection Act [Chapter 14:44] expressly provides that the Arbitration Act [Chapter 7:15] shall apply to any such disputes that are referred to arbitration, while Section 60 (7) establishes that an arbitrator shall have the same powers as the court in hearing and resolving any such dispute.[1]

The Zimbabwe Investment and Development Agency Act [Chapter 14:37]

The Zimbabwe Investment and Development Agency Act was promulgated on 7 February 2020. Before its promulgation, the laws governing investment in Zimbabwe were disjointed and uncoordinated.

The Zimbabwe Investment Development Agency Act helps address the inconveniences suffered by investors as follows:

(a) it repeals the Zimbabwe Investment Authority Act; the Special Economic Zones Act and the Joint Ventures Act

(b) it replaces the aforesaid pieces of legislation with one piece of legislation, the Zimbabwe Investment and Development Agency Act.

(d) It provides for the promotion, entry, protection and facilitation of investment

(e) It provides for the establishment of the Zimbabwe Investment and Development Agency

New Investment Institutions

The functions of the Zimbabwe Investment and Development Agency are, inter alia:[2]

(a) To promote, plan and implement investment promotion strategies for the purpose of encouraging investment by domestic and foreign investors

(b) To promote the decentralisation of investment activities

(d) To facilitate entry and implementation of investment projects

(e) To assist investors in all appropriate investment related support that may be required

The One stop Investment Services Centre facilitates the prompt processing of investment enquiries through relevant desks. There are approximately fifteen desks from departments or ministries that process investment enquiries within the Centre. [3]

Dispute Settlement

The Zimbabwe Investment and Development Agency Act [Chapter 14:37] provides that every dispute concerning an investment within the scope of the Act shall be governed by and construed in accordance with the laws of Zimbabwe, including where applicable:

(a) Domestic arbitration as provided in the Arbitration Act, 1996; or

(b) Any other International arbitration referred to by mutual agreement of the parties.[4]

In the case of foreign investors, the dispute may also be submitted to dispute settlement mechanisms provided for in any treaty or agreements on the promotion and protection of investments between Zimbabwe and the country from which the foreign investor originates.[5]

Every investor is entitled to equal access to the law and the protection of investments.[6]

Registration Requirement for Bilateral Investment Agreement Protection

A foreigner who established his or her investment in Zimbabwe before 7 February 2020 and claims to be protected by a Bilateral Investment Protection and Promotion Agreement concluded before 7 February 2020 must register their investment with the Agency no later than twelve months after such date.[7]

A foreigner who establishes his or her investment in Zimbabwe after 7 February 2020 and claims to be protected by a Bilateral Investment Protection and Promotion Agreement concluded before or after 7 February 2020 must register their investment with the Agency no later than ninety (90) days after such date.[8]

An investor who fails to register the investment within the period specified under the Act shall be deemed to have waived the protection of the Bilateral Investment Protection and Protection Agreements in question, with the result that any dispute in relation thereto can only be settled by a domestic court or domestic arbitration.[9]

___________________________

* Partner, Kanokanga and Partners

[1] Section 60 (7) of the Consumer Protection Act [Chapter 14:44]

[2] Section 4 of the Zimbabwe Investment and Development Act [Chapter 14:37]

[3] Section 5 of the Zimbabwe Investment and Development Act [Chapter 14:37]

[4] Section 38 (1) of the Zimbabwe Investment and Development Agency Act [Chapter 14:37]

[5] Section 38 (2) of the Zimbabwe Investment and Development Agency Act [Chapter 14:37]

[6] Section 16 (2) (a) and (b) of the Zimbabwe Investment and Development Agency Act [Chapter 14:37]

[7] Section 38 (3) of the Zimbabwe Investment and Development Agency Act [Chapter 14:37]

[8] Section 38 (6) of the Zimbabwe Investment and Development Agency Act [Chapter 14:37]

[9] Section 38 (5) of the Zimbabwe Investment and Development Agency Act [Chapter 14:37]

Should the courts intervene to prevent an invalid arbitration? By Bilshan Nursimulu* and Ben Hornan** [The article was first published in MARC Insights 2019]

Thu, 09 Jan 2020 19:21:04 GMT

One of the reasons why Mauritius is considered as a pro-arbitration jurisdiction is because of its courts’ effective supervision of – but non-interference in – the arbitral process. Almost systematically, the Mauritius courts decline to hear a dispute when a defendant claims that it is governed by an arbitration clause. However, for understandable reasons, a party may consider that a particular dispute should not be determined by an arbitral tribunal, for example where it is contended that the arbitration agreement is not valid or the dispute in question is not arbitrable. From that perspective, there is a considerable risk that if an arbitral tribunal determines a dispute and the relevant courts subsequently annul the arbitral award or refuse to enforce it on the ground that the arbitral tribunal lacked jurisdiction to do so, the parties will already have incurred significant costs, wasted considerable time and disclosed confidential information and documents to each other in the arbitral process, which cannot be recovered. An attempt to mitigate such prejudice by asking the tribunal to determine its jurisdiction as a preliminary issue is often unsuccessful, especially when the tribunal considers that the jurisdiction or arbitrability issue is interlinked with the substantive issues in the case and that it is better to determine all issues together.

The sacrosanct principle on which the Mauritius courts consistently rely is that of competence-competence, i.e. it is for the arbitral tribunal to determine whether it has jurisdiction to determine a dispute. This principle was well established in the Mauritius caselaw even before it was expressly laid down in the International Arbitration Act. Of course, the arbitral tribunal’s decision is in principle subject to a subsequent review by the courts. The practical commercial difficulty of waiting for that review is self-evident and explained above.

There are nevertheless limits to the scope of application of the principle of competence-competence. In exceptional circumstances, parties can ask the court to intervene at the outset in order to restrain the opposing party from proceeding with an arbitration.

One such exception is found in section 5(1) of the International Arbitration Act, which provides that on the relevant application being made, the Court should refer the parties to arbitration “unless a party shows, on a prima facie basis, that there is a very strong probability that the arbitration agreement may be null and void, inoperative or incapable of being performed”. Commenting on this provision, in UBS AG v The Mauritius Commercial Bank Ltd [2016 SCJ 43] the Court held that “[t]he burden put in this way means that the hurdle has been set high since the objecting party has to satisfy, on a prima facie basis, the very high threshold imposed by the “very strong probability” standard”.

That said, it is not only in the circumstances of an application under section 5(1) of the International Arbitration Act that the courts may determine whether it is appropriate to restrain a party from referring a matter to arbitration. In that respect, the English Court of Appeal in Sabbagh v Khoury & Others [2019] EWCA Civ 1219 upheld the principle that the statutory power of an English court to grant an injunction – which may be exercised not only to protect legal and equitable rights but also to prohibit vexatious and oppressive conduct – can be exercised to restrain arbitral proceedings, even where the arbitration is seated abroad. In particular, the Court held that the principle enshrined in section 1(c) of the English Arbitration Act 1996 that a court should not intervene in arbitral proceedings except as provided in statute does not per se prohibit an anti-arbitration injunction but it “implies a need for caution, rather than an absolute prohibition”. Hence, the court’s power to grant such injunctive relief should only be exercised in exceptional circumstances, such as when the commencement or continuation of the arbitration proceedings would be oppressive and vexatious. Although the Court’s analysis is premised on an interpretation of the applicable English legislation, it is expected that the Supreme Court of Mauritius will at least take guidance from the principles developed therein, especially as the provision in section 1(c) of the English Arbitration Act 1996 is derived from article 5 of the UNCITRAL Model Law on International Commercial Arbitration, which is mirrored in the Mauritius International Arbitration Act.

Although it is not possible to identify exhaustively the “exceptional” circumstances in which an arbitration will or should be considered as oppressive and vexatious, in Sabbagh (supra), the English Court of Appeal considered that it was justified to grant an anti-arbitration injunction in respect of a claim which had been found, by virtue of an earlier determination of an English court, to be outside the scope of the arbitration agreement between the parties. Similarly, the English courts have previously restrained arbitration proceedings on the basis that it would be oppressive and vexatious for the party pursuing them to ignore an earlier determination that the arbitration agreement in question was invalid. However, the case for an anti-arbitration injunction may be made out even without a prior ruling on the scope or validity of the relevant arbitration agreement, for instance where such a determination is in the process of being made. In Minister of Finance v IPIC [2019] EWCA Civ 2080, the English Court of Appeal restrained arbitrations that had been commenced while court applications were on foot challenging a previous award under sections 67 and 68 of the English Arbitration Act 1996. Staying the court applications and allowing the arbitrations to continue – as the court of first instance had ruled – infringed the challenging parties' rights to invoke the supervisory jurisdiction of the court. The arbitrations were also vexatious[1] in that any decision by the arbitrators as to their own jurisdiction (under the doctrine of competence-competence) would be provisional only, as the court would need to make a final determination in response to the applications. The Court considered these circumstances exceptional and restrained the arbitrations accordingly.

So far, the Supreme Court of Mauritius has not made any pronouncement on the exceptional circumstances that may lead to an anti-arbitration injunction. To our knowledge, the Court has however had the opportunity to analyse the issue on at least two occasions. In an unreported matter earlier this year, the Judge in Chambers refused an ex parte application for an anti-arbitration injunction on the ground that in accordance with the competence-competence principle, the arbitral tribunal should first determine whether the dispute is arbitrable under Mauritius law; the Judge further refused to cause the matter to be called inter partes for submissions on the merits of the injunction application. Hence, in our view, the Judge’s dismissal of the anti-arbitration injunction by relying solely on the competence-competence concept shows a more, and in our view unduly, stringent application of that principle. A similar approach is observed in Flashbird Limited v Compagnie de Sécurité Privée et Industrielle SARL [2018 SCJ 402], where the Court was asked to either set aside an award issued in a MARC arbitration or stay the enforcement of that award pending the determination by an ICC tribunal as to whether the latter, as opposed to the MARC arbitrator, had jurisdiction to determine the dispute between the parties. Allowing the ICC tribunal to make that determination would arguably be consistent with the competence-competence principle (notwithstanding that it might also undermine the finality of the MARC award). However, while the Court declined to set aside the MARC award, it did not go on to consider the merits of the alternative application to stay the enforcement of the award (i.e. injunct the award creditor from enforcing it) on the basis of the competence-competence principle.

The purpose of this article is not to review the Mauritian decisions above. Suffice to say that they are missed opportunities to establish the position that would apply under Mauritius law as regards the exceptions to the competence-competence principle, irrespective of whether those exceptions would be successfully established in those cases. The courts’ pro-arbitration approach certainly benefits the development of Mauritius as a seat of arbitration, but they must also embrace the sophistication of the non-interventionist principle, which is not absolute.

___________________________________

*Barrister at 5 Fifteen Barristers, Mauritius

**Partner, Hogan Lovells

[1] While in Sabbagh the Court considered whether arbitration would be "vexatious and oppressive", in Minister of Finance it considered whether arbitration would be "vexatious, oppressive or unconscionable".

Egypt and Investor-State Dispute Settlement: The Russian roulette effect of domestic laws by Tarek Badawy[1]

Sun, 08 Sep 2019 07:13:56 GMT

As the most active African player in the investor-state dispute settlement (“ISDS”) world, second to none on the continent, one must wonder why Egypt is the primary target of investor claims notwithstanding its efforts to attract foreign investors. With an active Investment Ministry and a generally efficient Investment Authority, Egypt must be doing something right; but why is it that there are so many Investor-State arbitrations against Egypt?

Over 30 cases adjudicated by the International Centre for Settlement of Investment Disputes (“ICSID”) alone involve Egypt. While Egypt was able to win a few notable cases, the scale may soon tip in favor of investors, however, as several new cases are currently being disputed before ICSID.

The primary question, though, lies not in the improvement of Egypt’s record, which is largely due to its ability to select competent counsel, but in the reasons that caused such a high number of cases to be filed in the first place. In other words, Egypt should focus on conflict prevention rather than conflict resolution. There are several reasons for the surge in cases against Egypt in recent years, [2] four of which stand out:

I. THE DANGERS OF CONFLICTING LEGISLATION

In 2000, East Mediterranean Gas (“EMG”) was established as a free zone company for the purpose of exporting gas to neighboring States. EMG’s free zones status attracted investors from several jurisdictions, including the USA and Poland. However, in 2008, EMG’s free zones status was unexpectedly revoked, which led to the imposition of a 20% corporate tax on the company. With negotiations failing, Polish and US investors brought investment claims against Egypt under the applicable bilateral investment treaties (“BITs”) for creeping expropriation resulting from the withdrawal of the tax breaks and other breaches. ICSID and UNCITRAL tribunals sided with the claimants, costing Egypt both time and money (see Ampal v. Egypt, ICSID Case No. ARB/12/11 (“Ampal”); and Maiman and others v. Egypt, PCA Case No. 2012/26 (“Maiman”)).[3] This could have been avoided but for the hasty decision to suddenly and unexpectedly withdraw the tax benefits granted to EMG.

The EMG cases bring to light the classical tension between a State’s freedom to legislate and an investor’s right to a safe, secure, and predictable investment. While an analysis of this dichotomy is beyond the scope of this article, the fact remains that by failing to consider the investors’ interests, the haphazard manner in which members of parliament (“MPs”) and other officials proceeded with legislating without assessing the impact of their actions on investors put the country at risk of facing claims by disgruntled investors.

An important area to be cautious is the Law on Special Economic Zones. This law was promulgated in 2002 to offer incentives and tax breaks to industrial projects operating within designated special economic zones. This naturally attracted foreign investors to these industrial zones, where they established impressive industrial projects, including Africa’s largest manufacturer of fiberglass pipes. However, ten years later, the Income Tax Act (a completely different law) was amended to specifically impose a 20% withholding tax on short-term loans repaid by projects within the zone.[4] Admittedly, while this withholding tax did not appear to affect projects within special economic zones (special economic zones have proved to be a success thus far), in 2016 Egyptian legislators spiced things up a little by enacting a Value Added Tax Law to “override any conflicting provision under a different law” including the Law on Special Economic Zones. There is a need to be vigilant and to avoid situations of legal uncertainty that can fuel future investment disputes against Egypt.

While investors have successfully brought claims against Egypt under various BITs, we have yet to witness a case challenging the gradual withdrawal of incentives offered by the Law on Special Economic Zones. For this reason, it is essential for Egyptian legislators to learn from the lessons of the past and avoid, in their keenness to legislate, creating to domestic conflicts of laws.

II. LAWS DO NOT ALWAYS REFLECT ACTUAL PRACTICE

As in the case of economic and investment laws, Egyptian MPs must also consider the impact of non-economic laws on investors. To this end, and in line with the importance of ensuring predictability for both States and investors, States must ensure that their laws reflect actual practice, otherwise the risk of successful investor claims increases.

The first case that comes to mind is the oft-cited Waguih Elie George Siag and Clorinda Vecchi v. Egypt, ICSID Case No. ARB/05/15 (“Siag”), which turned on the tribunal’s approach to interpreting a provision of Egypt’s Citizenship Law which, in practice, was not applied. The facts, as outlined by the award on jurisdiction, suggest that Mr. Siag, an Egyptian by birth, owned a tourist development project in Egypt. In March 1990, he applied for Lebanese citizenship, which he acquired in June 1990. Three years later, in May 1993, he obtained Italian citizenship through his marriage to Clorinda Vecchi, the co-claimant.

Mr. Siag’s project faced certain difficulties that ultimately led him to initiate an ICSID claim against Egypt under the Italy-Egypt BIT despite the fact that he appeared to consider himself Egyptian following his acquisition of Lebanese and Italian citizenship, which should have precluded the tribunal from hearing the case.[5] However, Mr. Siag’s lawyers relied on a provision of Egypt’s Citizenship Law (Article 10(3)) that is rarely -if ever- applied, to argue that he had lost Egyptian citizenship by the force of law in 1991, one year after his acquisition of Lebanese citizenship since he did not notify the Egyptian authorities of his wish to retain Egyptian citizenship following naturalization.

In his support was an expert opinion by Professor Fouad Riad, the leading authority on Egyptian citizenship law at the time, and a High Administrative Court judgment, although a reading of the judgment reveals that it dealt with a different question, and that the Court’s relevant remark was clearly obiter dictum. In other words, there was no precedent supporting Mr. Siag’s claim. The tribunal indulged, notwithstanding Egypt's legitimate claim that the claimant’s interpretation of the Article in question was not supported by jurisprudence or practice. In other words, Egypt maintained that Article 10(3) of the Citizenship Law was for all intents and purposes a dead-letter law.

The tribunal also ignored the fact that following his acquisition of Lebanese citizenship, the trinational residing in Egypt (i) acted before the commencement of his investment (and thereafter) as an Egyptian citizen; (ii) was provided by the government with numerous Egyptian nationality certificates between 1991 and 1997; and (iii) made several declarations concerning his nationality status to the Egyptian authorities for the purpose of his project (i.e. represented himself as an Egyptian before Egyptian regulatory bodies).

Mr. Siag won based on a provision of the Citizenship Law that was not applied in practice (at least at the time the cases were disputes). Leaving any comments on the tribunal’s reading of the Citizenship Law aside, the Siag arbitration raises an important question of significant relevance to investment arbitration; that of the gap between what the law says on paper, and how it is applied in practice. The tribunal applied the letter of the law, disregarding how it's interpreted and applied in practice.

In the absence of a consistent approach by tribunals as to how to deal with the gap between law and practice, both investors and States risk being penalized due to unpredictability. In Siag, had the tribunal deferred to the State’s application of its own law, the outcome would have been very different. While such unpredictability, which is at odds with both the investors’ and States’ legitimate expectations, is a result of the inconsistent approach by tribunals towards this issue, fundamentally, it can be avoided if States ensure their laws reflect practice.

III. THE ATTRIBUTION CONUNDRUM

Understanding the rules of attribution is fundamental to determining whether the acts of third parties can be ascribed to a State for the purpose of defining its responsibility for wrongful acts. When domestic laws do not clearly outline the relationship between entities, confusion ensues, and so does the risk of liability. Here is a brief explanation.

It is common for the Egyptian government to contract with investors through government-owned statutory bodies that were converted from “public authorities created in the public interest” to authorities acting as commercial entities (e.g., the Suez Canal Authority (“SCA”) or the “Authority”) or referred to as corporations or companies (e.g., the Egyptian General Petroleum Corporation (“EGPC”), the Egyptian Natural Gas Holding Company (“EGAS”)).

While for purposes of attribution to the State these institutions may arguably be considered independent from the State (since they appear to take the form of corporations), the challenge with this argument is that the constitutive statutes of these so-called corporations send mixed signals to investors and tribunals regarding these entities’ real nature. For example, the SCA’s constitutive statute provides that the Authority “has an independent budget” a fact that suggests it is separate from the State, before adding in the same Article that such a budget is to be “subject to the supervision of the Accountability State Authority” and “ratified by Presidential decree”.[6] An investor must wonder if the SCA is genuinely independent, why is it regulated by law and not governed by a corporate bylaw? Why is its budget subject to the supervision of the government? And why does the President have to burden himself every year with issuing a decree ratifying that budget? Despite the foregoing, the tribunal in Jan de Nul N.V., Dredging International v. Egypt, ICSID Case No. ARB/04/13 (“Jan de Nul”) found that the acts of the SCA could not be attributed to the State, a conclusion that was made easier by the fact that in this specific dispute, the SCA’s impugned acts were purely commercial. Does this mean that if such acts were not purely commercial, the tribunal would have ruled otherwise? The answer is not entirely clear, and the confusing manner in which the SCA’s constitutive statute is drafted does not provide any concrete answer either.

In the absence of clear boundaries between the State and statutory bodies acting on its behalf, investors will not shy away from filing Investor-State arbitrations in the hope of having tribunals determine that a connection with the State can be established. Armed with local counsel that can provide rational and contextual explanations of such cryptic constitutive statutes in light of applicable domestic jurisprudence, the investors’ chances of success will increase, which is exactly what happened in arbitrations involving EGPC, another government-controlled entity, whose opponents were represented by a team of international and local counsel familiar with the intricacies of Egyptian administrative law, the domestic law governing attribution matters. While EGPC is referred to in English as a “corporation”, which suggests that it is an independent corporate entity, the claimants in Maiman and Ampal demonstrated that it is a corporation in name only, since an examination of EGPC’s constitutive statues revealed that it is:

§ An entity that has no shareholders, partners, or quota holders;

§ its structure does not contain a general assembly;

§ the Board of Directors is not subject to the oversight of a general assembly (as is typical of corporations); but is subordinate to the Minister of Petroleum; and

§ its board of directors is mostly composed of Government officers acting in their official capacities.

The clear control of the government over EGPC has cost Egypt at least two recent Investor-State arbitrations involving EGPC and its subordinate entities (Ampal and Maiman).

The problem with attribution is not limited to the SCA and EGPC. Similarly structured entities exist in several other industries including mining, rail transport, telecommunications, and aviation and airport affairs to name but a few. With investments increasing in these sectors, and as the relationship between these statutory bodies and the State remains ambiguous, one would expect more arbitrations in the future, more uncertainty, and more money spent on lawyers and arbitrators.

IV. INEFFECTIVE BLOCKING LEGISLATION

To engage in business in Egypt, foreign investors must set up a local entity, which can take the form of an incorporated special purpose vehicle (“SPV”). These local SPVs often execute administrative contracts that contain arbitration clauses. However, Egypt has enacted blocking legislation amending the Arbitration Act to subject the initiation of commercial arbitrations involving administrative contracts to the approval of the concerned Minister. This is a public policy norm.[7] Without such an approval, Egyptian administrative courts would have automatic jurisdiction. The Minister will rarely grant such an approval absent higher national interests.

An administrative contract under Egyptian law is a contract that is:

§ Executed by or on behalf of a public law person;

§ In relation to the management or functioning of public utility; and

§ that contains exorbitant clauses (e.g., discretion to amend terms, termination in public interest, amend prices following a regular review process).

This means that most supply and infrastructure-project-agreements concluded with the government will be deemed administrative contracts that may not be resolved by means of commercial arbitration unless the Minister deems otherwise.

While such blocking legislation may preclude SPVs from filing commercial arbitration against the State, it does not prevent these SPVs’ shareholders from initiating Investor-State arbitrations since their activities in Egypt (including owning shares in a local SPV) qualify as an “investment” under most applicable BITs. It follows that while under a build operate and transfer (“BOT”) contract for the construction of a refinery, airport, or similar structure, the SPV contracting with the government may fail to secure the Minister’s approval to exchange swords in commercial arbitration, the SPV’s shareholders will not be precluded from soliciting the ISDS mechanism.

Needless to say that many claimants resorting to ICSID recognize that it has greater benefits than commercial arbitration, chief among which are publicity of the cases and easier enforcement procedures. The blocking legislation, therefore, may not be so effective after all, and may actually be more counterproductive. This calls for a careful reconsideration of the efficacy and need for such blocking legislation.

CONCLUSION

Egypt is an investor-friendly State that strives to offer investors significant opportunities for growth. Yet despite having an active Ministry of Investment, it has struggled with a large number of ICSID and other Investor-State claims which could have been avoided but for structural legislative challenges. Absent legislative amendments, the risk of investor claims will persist. There is therefore an urgent need to address the rising trend of investment disputes through a dispute prevention lens that addresses the structural roots of the problem to guarantee Egypt’s continued ability to attract foreign investors.

__________________________________

[1] Partner, Shahid Law Firm, Egypt. The views expressed in this article are those of the author only and do not constitute legal advice. Tarek Badawy can be reached by email at tarek.badawy@shahidlaw.com.

[2] While the number of arbitrations filed against Egypt increased following the 2011 Revolution, this article addresses structural problems which also exist in times of political and economic stability.

[3] While Ampal and Maiman were initiated after the 2011 Revolution, the revocation of EMG’s free zones statues took place in 2008.

[4] Income Tax Act (as amended), Art. 56.

[5] Article 25 of the ICSID Convention precludes citizens from suing their State under the ICSID Convention.

[6] Law No. 30 of 1975 on the Suez Canal Authority, Art. 4.

[7] Court of Cassation, Cases No. 13313, 13460 / 80 JY, judgment dated 12 May 2015.

Breach of the Public Procurement Act as a Public Policy Defence to the Enforcement of an Arbitral Award in Nigeria by Chizaram Uzodinma

Mon, 26 Aug 2019 09:59:02 GMT

Introduction

Recently, the Supreme Court in Mauritius invoked its powers under section 39(b)(ii) of the Mauritius International Arbitration Act 2008,[1] to set aside an arbitration award on the ground that the enforcement of the underlying contract was in flagrant and concrete breach of the Mauritius Public Procurement Act therefore, the award was a violation of the Mauritius public policy.[2]

This article will attempt to address whether the Nigerian courts would hold a similar view as the Supreme Court in Mauritius, that a breach of the Nigerian Public Procurement Act should be held as so fundamental as to amount to a breach of the public policy of Nigeria warranting the refusal of the enforcement of an award arising from such a breach.

Background Facts of the Mauritius Supreme Court Decision

Betamax, a shipping company had entered into a contract with the Mauritius State Trading Company for the freight of petroleum product from India to Mauritius. Subsequently, the contract was terminated by the Mauritius government on the basis that the contract was entered into in breach of the Public Procurement Act of Mauritius. Betamax commenced arbitration against the government of Mauritius for breach of contract, and the tribunal decided in favour of Betamax. Betamax thereafter sought to enforce the award in Mauritius. However, the Mauritius government challenged the enforcement and also applied to set aside the award on the basis that the contract was illegally concluded. Therefore, the enforcement of the award will be in breach of the country’s public policy. The Supreme Court set aside the award after holding that the contract would violate the fundamental legal order of Mauritius because it was “in flagrant and concrete breach of public procurement legislation enacted to secure the protection of good governance of public funds”. The Court added that “such a violation breaks through the ceiling of the high threshold which may be imposed by any restrictive notion of public policy”.

Refusal to Enforce an Award on Grounds of Public Policy under Nigerian Law

The concept of public policy is quite broad and does not have any statutory definition in Nigeria. However, judicial decisions exist where attempts were made to define the term, public policy. For instance, in Okonkwo v. Okagbue,[3] the Supreme Court viewed the term as the ideals which for the time being prevails in any community as to the conditions necessary to ensure its welfare, so that anything is treated as against public policy if it is generally injurious to the public interest. Furthermore, in Total Nigeria Plc. v. Ajayi,[4] the Court of Appeal stated that “the principle of public policy is to protect public interest by which the courts would not sanction what is injurious to public welfare or against the public good. The phrase public policy, therefore, means that policy of the law of not sanctioning an act which is against the public interest in the sense that it is injurious to public welfare or public good.”

The nebulous feature of the notion was also recognized by the Supreme Court in Sonnar Ltd. v. Nordwind,[5] where Eso, J.S.C. said “Surely, public policy is an unruly horse and judges are not such masters of equestrian ability to take on such experience”.

The above decisions of the Supreme Court and the Court of Appeal reveal that when courts are confronted with the issue of public policy as a defence against the enforcement of an arbitral award, the courts usually take a restrictive approach in its interpretation of the concept. In Agro-Allied Development Ent. Limited. v. United Shipping Trading Co. Inc.,[6] the Court of Appeal upheld a High Court decision which made a recognition and enforcement of an award order despite the argument of the appellant that the award was against the public policy of Nigeria. The Court considered that there was no perversity in the judgment of the High Court and that the award is not contrary to any public policy in Nigeria. Furthermore, in Nigerian National Petroleum Corporation (NNPC) v. Lutin Investment Limited & Anor[7], the appellant argued that the arbitrator be removed because he had acted against public policy by moving the seat of arbitration to London at the expense of the parties when the agreement was governed by Nigerian law. The Supreme Court unanimously dismissed the appeal and recognized the power or discretion of the arbitrator to go abroad to hear evidence from witnesses.

Notwithstanding the nebulous nature of the term “public policy”, courts have held that illegal contracts are against public policy. In effect, where an arbitration agreement is classified by a court as an illegal contract, the court is likely to find that an award made on the basis of that arbitration agreement is unenforceable for being a product of an illegal contract. So, if the arbitration agreement is prohibited by statute, an award from it may not have favourable recognition from courts. In Fasel Services Ltd & Anor. v. NPA & Anor,[8] the Supreme Court stated that “without getting unduly enmeshed in the controversy regarding the definition or classification of that term (illegal contract), it will be enough to say that contracts which are prohibited by statute or at common law, coupled with provisions for sanction (such as fine or imprisonment) in the event of its contravention are said to be illegal.” Furthermore, in Oguntuwase v. Jegede[9] the Court of Appeal stated that “the general principle of the law that an illegal contract will not be upheld and enforced by the Court is founded on the public policy embodied in the maxim,in pari delicto, potior est conditio defendentis and ex-trupi causa non orituractio, that is, a party who is himself guilty of an action, does not have a right to enforce performance of an agreement founded on a consideration that is contrary to public interest or policy”. Therefore, an award arising from an illegal contract may be set aside on the grounds of public policy.

Breach of the Public Procurement Act and the Public Policy Ground for Refusal of Enforcement

The Public Procurement Act 2007 (‘the PPA’) was enacted to ensure a fair, competitive and transparent standard for the procurement and disposal of public assets. It governs the manner in which public funds are used to purchase public goods and services. Therefore, provisions of the PPA impacts on public policy because a flagrant violation of the PPA could result in the award of a major procurement contract to an unqualified contractor or the purchase of substandard goods or services, which would be injurious to public welfare and interest.

It may be argued that not every violation of the PPA should be treated as a breach of public policy, and that some provisions should be treated as directory, as the Court of Appeal in Revenue Mobilization, Allocation and Fiscal Commission v. Onwuekweikpe Esq.,[10] has muted: “it is not every non-compliance with the provisions of a statute that is fatal. A breach of mandatory enactment renders what has been done null and void. But if the statute is merely directory, it is immaterial, so far as it relates to the validity of the thing done, whether the provisions of the statute are accurately followed out or not.” However, section 58 of the PPA makes it a punishable offence for natural or legal persons to contravene “any provision of this Act”. This section connotes that the provisions of the PPA cannot be treated as merely directory.

The effect of a contract which breached statutory provision is aptly stated by the Supreme Court in Corporate Ideal Insurance Ltd v. Ajaokuta Steel Company Ltd & Ors[11] albeit in relation to the Insurance Act 2003. The Apex court stated that “A contract which violently violates the provisions of a statute as in this case, with the sole aim of circumventing the intendment of the law maker is, to all intents and purpose, illegal, null and void and unenforceable. Such a contract or agreement is against public policy and makes nonsense of legislative efforts to streamline the ways and means of business relations”. It is opined therefore, that the PPA, which affects public interest is not just a directory statute, but a mandatory enactment which contravention will render a contract based thereon, illegal and against public policy.

In context of a challenge to the enforcement of an award on the public policy ground, the courts would have to consider the alleged breach in juxtaposition with the provisions of the PPA and determine whether there has indeed been a violation of the PPA. Where it determines that the PPA was violated in awarding the contract, the court may align with the position of the Mauritius Supreme Court by setting aside or refusing recognition of an arbitral award arising from the contract.

Conclusion

From the provisions of Nigerian case law on public policy, it has been established that the Nigerian courts adopt a restrictive approach in applying the public policy ground for setting aside or refusing the enforcement of an arbitral award. However, it is also established that illegal contracts are contrary to public policy, and that a contract is illegal where it violates mandatory provisions of statute. Due to the mandatory nature of the PPA, which was enacted to protect public interest in the procurement of goods and services and which sanctions the contravention of its provisions, it is believed that the Nigerian courts would consider a contract executed in breach of its provisions in a similar manner as the Mauritius Supreme Court in the Betamax case and set aside or refuse the enforcement or an award arising from such a contract on the public policy ground.

____________________________

[1] Similar to Section 48(b)(ii) of the Nigerian Arbitration and Conciliation Act CAP A18, LFN 2004 and Article 34(2)(b)(2) of the UNCITRAL Model Law 1985, amended in 2006.

[2] Paray N.B, Dabee, S and Maxime, S.P (2019). The Supreme Court of Mauritius sets aside award on grounds of breach of domestic public policy [online]. Lexology. Available from:https://www.lexology.com/library/detail.aspx?g=dbac875b-12f7-44d9-b921-f2fd0e8fe677 [accessed 6 June 2019].

[3] (1994) 9 NWLR (Pt. 368)

[4] (2003) LPELR-6174(CA)

[5] (1987) 4 NWLR (Pt. 66) 520

[6] [2011] 9 NWLR (Pt. 1252) 258

[7] (2006) 2 CLRN 1 (SC)

[8] (2009) LPELR-1245(SC)

[9] (2015) LPELR-24826(CA)

[10] (2008) LPELR-8398(CA)

[11] (2014) LPELR-22255(SC)

Commercial Arbitration in Zimbabwe by David Kanokanga*

Wed, 14 Aug 2019 11:48:27 GMT

Adjudication, arbitration, conciliation and mediation are some of the alternative dispute resolution mechanisms in use in Zimbabwe. Of these, arbitration is the most prominent one. On the 13th of September 1996, Zimbabwe repealed its outdated Arbitration Act (Chapter 7:02) and replaced it with the Arbitration Act (Chapter 7:15). Through section 2 of the said Act, the country adopted with minor modifications, the United Nations Commission on International Trade Law (UNCITRAL) Model Law. The said Act applies to every arbitration agreement, whether made before, on or after the 13th of September 1996. It covers both domestic and international arbitration.

Matters that are not capable of determination by arbitration in Zimbabwe

In Zimbabwe, the following matters are not capable of determination by arbitration:

(a) An agreement that is contrary to the public policy.

(b) A dispute which in terms of any law, may not be determined by arbitration.

(d) A matrimonial cause or a matter relating to status, unless the High Court gives leave for it to be determined by arbitration.

(e) A matter affecting the interests of a minor or an individual under a legal disability, unless the High Court gives leave for it to be determined by arbitration.

(f) A matter concerning a consumer contract as defined in the Consumer Contracts Act (Chapter 8:03), unless the consumer has by separate agreement agreed thereto.

Arbitration in Zimbabwe

Since the introduction of the Arbitration Act (Chapter 7:15) the use of arbitration as an alternative dispute resolution mechanism has gained momentum. Most commercial contracts contain an arbitration clause that enables the parties to choose arbitration as their preferred method of resolving any existing or future dispute between them arising out of or in connection with the contract, including any question regarding its existence, validity or termination.

Most contracts nominate the Commercial Arbitration Centre (CAC) in Harare as the appointing authority in the event that the parties are unable to agree on an arbitrator. The CAC was founded in 1995 by Muchadeyi Masunda and Ian Donovan, the godfathers of arbitration in Zimbabwe. It was the first arbitration centre to be established in Zimbabwe. The second centre, Africa Institute of Mediation and Arbitration (AIMA) is relatively new. It was established by Justice Moses Chinhengo (retired) in 2013. Most of AIMA’s panellists are retired judges. The CAC’s panellists are mostly senior lawyers, retired judges and professionals within fields such as Construction, Engineering, Accounting and Banking.

Advantages of Arbitration

More and more businesses are resorting to arbitration as a dispute resolution mechanism. This is because arbitration offers them the following advantages:

(a) It helps them resolve their disputes in a less antagonistic manner, thereby enabling them to preserve their business relationships.

(b) They are able to keep the dispute and its resolution away from the public, and are thus able to protect their secrets.

(d) The flexible nature of the arbitral process makes it possible for them to structure the arbitral process the way they want.

(e) It tends to be quicker and more cost effective than litigation.

(f) The arbitral award is final.

Challenges of arbitration in Zimbabwe

Whilst the use of arbitration as a dispute resolution mechanism in Zimbabwe continues to grow, the field faces various challenges. For example, there are hardly any resources on commercial arbitration in Zimbabwe. Moreover, there is virtually no training for arbitrators taking place in Zimbabwe. Although there are several Fellows or Members of the Chartered Institute of Arbitrators in Zimbabwe, most of these received their training outside the country or by correspondence.

Finally, apart from a few articles, there are no publications on commercial arbitration in Zimbabwe. The one book written many years ago by Muchadeyi Masunda and Ian Donovan has been out of print for over a decade.

The Book Commercial Arbitration in Zimbabwe

In my forthcoming book entitled Commercial Arbitration in Zimbabwe, I highlight the undesirability of the state of affairs described above, underscore the importance of having trained arbitrators, and call for the training of arbitrators.

The book will be of interest and benefit to arbitrators, lawyers, students of arbitration, judges, and those who deal with local and international contracts which include arbitration clauses.

Anyone wanting to know about commercial arbitration in Zimbabwe, the relationship between the Zimbabwean judiciary and the arbitral process, the attitude of the Zimbabwean Courts towards arbitration agreements, how arbitral awards are enforced in Zimbabwe and the circumstances under which arbitral awards might be set aside by the Courts should struggle no more as through the book they will have easy access to that information.

The formation of the African Arbitration Association in 2018 should encourage each African country to have readily available resources on the conduct of arbitration in their jurisdiction. This way, arbitration practitioners from different jurisdictions can share information and draw from each other’s experience with arbitration. The book Commercial Arbitration in Zimbabwe is aimed at doing exactly that for Zimbabwe.

Topics Covered by the book Commercial Arbitration in Zimbabwe

The book covers a wide range of topics, including:

· The historical background of commercial arbitration in Zimbabwe

· Characteristics of arbitration

· A comparison of arbitration with litigation

· The advantages of arbitration

· The appointment of arbitrators

· The qualities and qualifications of arbitrators

· Types of arbitrators

· The difference between the seat of arbitration and the venue

· Principles of natural justice

· The arbitrator’s powers

· Interim measures

· Security for costs

· Termination of an arbitrator's mandate

· Liability of arbitrators

· Preliminary meeting

· The hearing

· How to deal with a dilatory disputant

· The Zimbabwean judicial system

· The courts and arbitration

· The structure and types of arbitral awards

· The registration of awards

· The functus officio doctrine

· When an arbitral award may be set aside and the effect of setting aside an award

It is hoped that this book will promote the use of arbitration as a dispute resolution mechanism and shine a spotlight on commercial arbitration in Zimbabwe.

_____________________

*www.kanokangalawfirm.net

The Role of Governments in support of African Arbitration – A Presentation by Adebayo Adenipekun, SAN, FCIArb*

Thu, 25 Apr 2019 07:04:56 GMT

Support for Arbitral Institutions

As at May 2016, there were at least 72 Arbitration institutions in Africa.[1] Most of these institutions are privately run. By implication, arbitration is driven more by the efforts of private persons than by the efforts of government. While that is not in itself wrong, there are success stories in government-supported arbitral institutions. For instance, the Cairo Regional Centre for International Commercial Arbitration (CRCICA) is a respected arbitral institution in Africa. It started as the product of an agreement between the Asian-African Legal Consultative Organization (AALCO) and the Egyptian government. The government, therefore, played a major role in setting this organisation on its feet. Even better, the Egyptian Government endowed the CRCICA with all the privileges and immunities that will permit it to run as a truly independent body. To that end, CRCICA is accepted for its independence and the Centre is not known to have been unduly influenced by the Egyptian state, which has itself received heavy fines by CRCICA panels. For instance, on 31 January 2018, a CRCICA panel awarded damages over $1 billion against the Egyptian government.[2] Lastly, the Global Arbitration Review reports[3] that the Egyptian government has provided caseload opportunities for CRCICA by selecting CRCICA as the institution of choice in bilateral and multilateral agreements.

In Mauritius, the LCIA ran an institution known as the LCIA-MIAC which was the product of a 2011 joint agreement between the Mauritian government and the LCIA. That agreement ended in 2018 with LCIA terminating its role and leaving the Mauritius International Arbitration Centre (MIAC) to operate independently. The government’s role was crucial to negotiating the joint-venture which exposed MIAC to the top-tier arbitration access that LCIA provides. The Mauritian government has also not hidden its intentions to make Mauritius a state-of-the-art hub for arbitration in Africa. Till date, MIAC prides itself in the full support that it gets from the government of Mauritius. However, MIAC is independent of the government, and strict provisions for independence are in the MIAC constitution.

Another good example is the Kigali International Arbitration Centre (KIAC). KIAC is a generally a private-sector idea. However, it received the strong support of the Rwandan government to take off and operate. The Rwandan government promulgated LAW N°51/2010 which established the KIAC and its organs. That Act confers KIAC legal personality as well as financial and administrative autonomy. The Rules of the Centre were created by ministerial order in an official gazette. In essence, the government threw its weight behind the KIAC to facilitate the Centre’s swift development.

In Nigeria, the Lagos Court of Arbitration (LCA) completely revolutionised arbitration in Nigeria, particularly in Lagos State. In a state where arbitration was rapidly growing, the establishment of the LCA caused arbitration practice to explode. The centre is home to at least three different arbitration bodies; the hearing rooms are purpose-built for arbitral proceeding and thus more convenient than hotel rooms and meeting rooms which used to be the norm. The hearing rooms are just floors above the administrative offices of several arbitration institutions which means that the facilities and staff of those institutions are only an elevator-ride away from hearing venues, thereby significantly reducing secretarial costs. The Court has different auditoriums which imply that the centres can now host symposiums, workshops and pieces of training in a venue exclusively for arbitration and where they get scheduling preferences, as opposed to hotels and eventual public halls. Also, a sprawling building dedicated solely to arbitration has significantly reduced the risks of non-parties chancing upon parties, witnesses, arbitrators and hearings. All these have been made possible by the building of the LCA by the Lagos State Government and the enactment of the Lagos Court of Arbitration Law (Law No. 8 of 2009.

These examples all show that governments can play a strong role in assisting arbitration. The greatest fear that arises from government assistance in arbitration is the threat of interference. The models above may present a guide of just how a government can ensure and demonstrate the independence of arbitral practice within its shores.

Creation of a multilateral framework

Governments are in a position to create a multilateral framework for arbitration. Governments have the manpower to negotiate at that level and governments have the financial capacity to fund such arrangements. Three examples are relevant here.

The first is OHADA (Organisation pour l'harmonisation en Afrique du Droit des affaires or Organisation for the Harmonization of Corporate Law in Africa). OHADA is the creation of 17 West and Central African civil law states. The OHADA framework includes the Common Court of Justice and Arbitration (CCJA) which supervises the OHADA Arbitration Centre. The Arbitration Centre, headed by the Secretary-General, administers arbitrations under the supervision of the President of the CCJA. The CCJA ultimately entertains appeals/challenges from arbitral proceedings as well as enforcement and award-validity proceedings. The CCJA also performs appointment roles – the CCJA is responsible for creating and updating a list of arbitrators. Every year, the CCJA meets to consider the list and update same based on nominations received year-round. Members of the court are themselves excluded from the list. The court appoints arbitrators taking into account their nationality, domicile and qualifications.

The second is the Africa Continental Free Trade Agreement. This is a trade agreement to which about fifty-two (52) African countries have signified interest, in one form or the other. Arbitration features prominently in this agreement. A reference may be instituted upon referral by a Dispute Settlement Board (DSB) set up pursuant to the Agreement. On the other hand, it may be set up directly by the parties, pursuant to Article 27 of the Agreement. The Secretariat is required to provide support to tribunals including assisting in the composition of tribunals. The Secretariat is also authorised to avail tribunals with experts that may be relevant to references.

The third is the China-Africa Joint Arbitration Centre. Realising that about $60 billion of Chinese investment was flowing to Africa, China took steps to protect those investments by negotiating the creation of the Centre. Crucially, CAJAC is not regarded as a standalone institution but a part of the Forum on China-Africa Cooperation (FOCAC), the official forum between the governments of all African states, except Swaziland and China. CAJAC utilises existing arbitral institutions in Africa, designated as CAJAC Centres – like the Nairobi Court of International Arbitration, the Arbitration Foundation of Southern Africa for Eastern and Southern African disputes respectively. The Chinese Centres are the Shanghai International Arbitration Centre (SHIAC), Beijing International Arbitration Centre (BIAC) and the Shenzhen International Court of Arbitration. This arrangement is expected to increase the frequency and quality of references that the arbitration centres will entertain.

Infrastructure and superstructure

When parties debate arbitration venues, they consider a lot of factors. In debating the seat of arbitration, parties consider the state of the law, the attitude of the judiciary, the ease of recognition and enforcement, the legal view on finality, etc. However, the considerations for the venue are completely different. Parties already have an idea of the lawyers they are likely to brief and the arbitrators they are likely to appoint. They want a venue that is easy to access, that is comfortable, and that is security for their representatives and arbitrators. They also do not want to inflate arbitration costs by having to fly in the support staff integral to arbitration. Thus, the more developed a country, the likelier it is to be chosen as a seat.

While discussing the rise of arbitration in Mauritius, Keating Chambers explains that Mauritius has certain practical advantages as a choice venue for arbitration. These advantages were identified as excellent hotels and conference centres which serve as excellent venues for arbitrations, available good secretarial support and good security. They also note that “Mauritius has good transport links with Dubai, Nairobi and Johannesburg and multiple flights a day to all of the major hubs”.[4]

The 2010 Queen Mary Arbitration Survey found that of the top six reasons for selecting arbitration venues, convenience ranked third, and general infrastructure ranked fifth. Both ranked higher than the “location of people, including legal advisors”. In effect, responders to that survey were willing to bear the cost of flying their people and legal advisors in, if it was convenient and the infrastructure was right. With particular regard to infrastructure, the (26% of responders identified good transport connections while 21% were concerned about hearing facilities (including translators, interpreters and court reporters). Safety and the absence of bribery also featured as important factors.

Experience tells us that infrastructure cannot grow without government support. The private sector cannot just decide to build connecting bridges between cities without the permission of municipal authorities. Permission alone is not all the private sector will need – active funding, legal backing and allied development are all essential. Nigeria has an oceanfront development, the Eko Atlantic City which was conceived to be a major upscale building development. However, property interests are reported to be low because the road network leading to the development is notoriously narrow for the traffic it caters to and heavily prone to flooding.

If the arbitration user is concerned about bribery, there is nothing he can privately do to prevent bribes from scuttling his arbitration, if the government does not pursue an aggressive campaign against bribery. If the country has a poor transport system that discourages arbitrators and foreign counsel from flying in, arbitral institutions might find themselves running small domestic claims only. Governments must provide infrastructural backing.

Treaties and contracts negotiation

As explained earlier, CRCICA is the arbitral institution of choice in most agreements to which Egypt is a party. Experience tells that agreements signed by the Nigerian government regularly select the Regional Centre for International Commercial Arbitration, Lagos as the arbitral institution of choice in its agreements. Per capita, no entity executes more contracts than governments. The government is therefore in the best position to popularise arbitration law by executing arbitration clauses and by choosing institutional references above ad hoc references to boost the reputation and caseload of verified arbitral institutions.

Presently, African governments have exported scores of arbitrations by choosing non-African arbitration centres, accepting foreign law jurisdiction clauses and agreeing to foreign venue arbitration provisions. When the disputes arise, it may just make economic and practical sense to choose a foreign arbitrator who lives a train-ride away from the venue and to instruct counsel who are just a few blocks away from the arbitration centre, to the detriment of local arbitrators and counsel. Thus, there is a need for a rethink.

Law Enactment

The example of the LCA Act and the Rwandan instruments in support of the KIAC show us that the government’s law-making powers are a compliment to arbitration. African Governments can support arbitration by deliberately pursuing the enactments of laws that support arbitration, standardise arbitration and make its arbitration practice less tedious for parties. Many African countries are already doing this.

Counsel instruction

As governments are parties to so many arbitration clauses, they are the single most frequent appointer of arbitrators as well as the single most frequent instructor of counsel. It was recently reported that an analysis of ICSID cases involving East African state parties revealed that “all of them, save for one involving Burundi, involved the state being represented by an international law firm (ILF)”.[5]

If African state parties in arbitrable disputes continue to ship out references, homegrown arbitration competence will suffer. The report that all cases involved representation by an ILF does not paint the full picture – the truth is that in most of these cases, the ILFs partner with local counsel. Nevertheless, the point that is made by such analysis is valid – African practitioners do not often get a healthy bite of arbitration pie. The imbalance is also more vivid when it is noted that European state parties do not instruct African counsel, and the European counsel they instruct never see the need to partner with African counsel in defending such European states. The effect is that out of at least four separate counsel opportunities (as lead and supporting counsel in African/foreign references), the African counsel has just one, while his European counterpart has at least three.

African governments in supporting arbitration must deliberately pursue the education of domestic practitioners. This can be achieved by insisting that only local counsel are instructed (with liberty to partner with colleagues from anywhere else in the world). That way, the local counsel are not just spectators – they dictate the strategy of the reference, they conduct oral hearings (except when they cede/share responsibilities), and they sign the core arbitration documents. Scholastically, the globalisation of learning has placed African arbitrators practically at par with their Euro-American colleagues. Experientially, however, the gulf is wide; and African governments have to play a role in this regard.

A part of African governments playing a role is in African governments recognising their place as contractual parties and not just sovereign entities. African governments very rarely refer otherwise arbitrable disputes to arbitration – they choose rather to pressure their contractual parties using their sovereign apparatuses such as law enforcement and regulators. The result is that African states are now perpetually respondents in arbitration, and the lawyers that represent them have to wait for investors and contractual partners to take the initiative before they can experience arbitration.

While that is happening, developments in arbitration in other continents now see states going on the offensive. In Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Bizkaia Ur Partzuergoa v Argentina[6], Argentina was the respondent, but it pursued and won a counterclaim. That decision has now sparked the contemplation that states can begin to institute human rights claims against investors before ICSID. Commendably, Nigeria too has taken steps to reverse the perpetual-defensive stance in arbitration as it just obtained a $2.6 billion judgement against an oil firm.[7]

Appointing Arbitrators

There have been instances where an African state party submitted to a reference before a panel on which none of its nationals was present. In some instances, institutional rules prevent the appointment of nationals of disputing parties as arbitrators. However, such prohibitions do not explain the failure to appoint other Africans. Certainly, if the rules of an institution prohibit Nigeria from appointing a Nigerian to a tribunal, those rules do not prohibit the appointment of a Ghanaian. In any event, this unfortunate appointment imbalance had existed even when there were no institutional prohibitions, the presence of. In the past, African states have completely overlooked arbitrators from fellow African countries and appointed from other continents, blinded by the myth of superior arbitration knowledge.

Experience has shown that on some points in an international trade dispute, arbitration knowledge alone is not enough. Arbitrators have to have a working knowledge of the region and allied issues surrounding the dispute. Without a doubt, a non-African may have this knowledge, but it is likelier to be found in an African. For these reasons, as contractual parties, African states must now realise that the appointment of an arbitrator is not merely formal – it marks the first sword-stroke in the dispute resolution process. African disputes should be resolved by Africans.

Again, state parties thinking of themselves as contractual parties is crucial here. A private investor gives a lot of thought and strategy to appoint its arbitrator. Why then should a state appoint its arbitrator merely that an official may inflate official costs? Governments will have to pursue a policy of Afro-centric tribunals. Of course, this does not mean that African states will always prevail before such tribunals; however, such references will be shorn of the biases and disconnects that prevent a fair adjudication of disputes to which African states are a party.

Boosting Trade

Arbitration follows trade. If trade increases in volume, disputes will also increase in frequency and value, as will the imperative to quickly resolve them. This will also spike the usefulness and appeal of arbitration. In the light of fears of African re-colonisation, a centre like CAJAC will never have received the broad African support it has received today, without the promise (partly fulfilled) of over $60 billion trade investment from China. China has demonstrated to African countries how African countries too can protect their citizens. So many African countries are exporting goods and services, and naturally, arbitration will grow from this economic activity. Indeed, the arbitration framework of the AfCTA is an acknowledgement of the fact that if goods are to move freely between 54 countries, a robust arbitration network must exist. Thus, if African governments boost trade, they will boost arbitration.

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* Adebayo Adenipekun, SAN, FCIArb, Afe Babalola & Co.

[1] Dr Emilia Onyema, List of Arbitration Institutions in Africa

[2]http://shahidlaw.com/2018/02/22/shahid-law-firm-acting-as-co-counsel-secures-the-highest-damages-ever-awarded-by-a-crcica-%E2%80%8Etribunal/

[3]https://globalarbitrationreview.com/chapter/1169230/crcica-overview

[4]http://www.keatingchambers.com/wp-content/uploads/2017/12/AJ-Arbitrating-in-Mauritius.pdf

[5]http://arbitrationblog.kluwerarbitration.com/2018/03/10/africa-stand-africa/

[6]https://www.italaw.com/sites/default/files/case-documents/italaw8136_1.pdf

[7]https://www.iarbafrica.com/en/news-list/17-news/907-nigeria-arbitration-tribunal-awards-govt-$1-69bn-over-dispute-on-brass,-forcados-assets

Investment Arbitration, the ICSID, and Stay of Enforcement of Arbitral Awards: Spotlight on The Gambia’s Recent Victory by Prof. Uche Ewelukwa Ofodile, S.J.D. (Harvard)*

Tue, 12 Mar 2019 08:06:40 GMT

Introduction

On November 11, 2015, the Republic of The Gambia (“The Gambia”) filed an application for annulment of an Award rendered on July 14, 2015, (the “Award”) in the case of Carnegie Minerals (Gambia) Limited v. Republic of The Gambia, ICSID Case No. ARB/09/19. As part of its application for annulment, The Gambia requested a stay of enforcement of the Award. Pursuant to Section 52(5) of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (the “ICSID Convention”) and Rule 54(1) of the ICSID Rules of Arbitration Proceedings (the “Arbitration Rules”), the enforcement of the said Award was provisionally stayed on November 19, 2015. On February 1, 2016, an ad hoc Committee (“Committee”) of the International Center for the Settlement of Investment Disputes (“Center”), acting pursuant to Arbitration Rule 54(2), extended the stay of the enforcement of the Award. On September 4, 2018, The Gambia filed application for a continued stay of enforcement (“Application”) of the said Award. On October 18, 2018, the Committee granted The Gambia’s request. While celebrating The Gambia’s recent victory, it is important to remember that a stay of an ICSID award is a temporary and an extraordinary remedy and that it is not granted automatically. What lessons then can a prospective applicant for a stay learn from this case? What are the potential obstacles and challenges to an application for a stay?

Carnegie Minerals (Gambia) Limited v. Republic of The Gambia: Position of the Parties

The Gambia based her request for a stay on economic hardship and the prejudice that would result to it from lifting the stay. The economic hardship argument was based on the impact that payment of the Award would have on the economy of The Gambia. The Gambia argued that lifting the stay would cause it economic hardship as “the enforcement of the Award sum would amount to at least 2% of The Gambia’s entire GDP,” and “[p]aying the Award while the possibility of annulment exists—along with the risk of non-recoupment—would put a significant, unnecessary, and unavoidable impediment upon those development efforts.”

As summed up by the Committee, The Gambia’s prejudice argument was based on the claim that, “if it were to pay the award The Gambia would run the risk of having difficulty recovering any amounts paid if the Award were to be annulled, particularly in light of the fact that the benefit of the Award is being held on trust and the Claimant has not disclosed information about that trust that The Gambia has requested.”

Carnegie Minerals (Gambia) Limited (“Carnegie”) argued, unsuccessfully, that two and a half years had already passed since the registration of the application for annulment, and that maintaining the stay would cause prejudice as the Award does not include post-Award interest and the beneficiary of the Award suffers the devaluation of the Award with the passage of time. Carnegie also argued, again unsuccessfully, that there was a risk that The Gambia will not comply or enforce the Award if it is upheld.

Potential Obstacles and Challenges to a Request for a Stay of Execution of Award

One of the biggest considerations for a prospective applicant is purely financial. An application for a stay of enforcement of arbitral award necessarily involves considerable expenses in the form of legal fees, cost of the proceedings, and other related expenses. In Carnegie Minerals (Gambia) Limited v. Republic of The Gambia, The Gambia had problems paying the necessary fees and this prompted the Center to suspend proceedings or threaten to suspend proceedings. On March 28, 2016, the Center notified The Gambia’s default to pay the required advances. On April 12, 2016, the Committee authorized The Gambia to pay the required advances in installments. Not until June 2016, upon receipt of a partial payment of the required advances, were the parties invited to confirm their availability for a first session. On March 7, 2017, proceedings were suspended for non-payment of the required advances. Proceedings resumed on April 17, 2018, following the payment of the required advances.

A second consideration for a prospective applicant is the ability to advance cogent grounds (supported as necessary by evidence) for a stay. Rule 54(4) of the Arbitration Rules require the applicant to specify the circumstances requiring a stay, but is silent about burden of proof and what it takes to discharge this burden. In Standard Chartered Bank (Hong Kong) Limited v. Tanzania Electric Supply Company Limited (“SCB HK v. TANESCO”), the ad hoc Committee observed that Article 52(5) of the ICSID Convention, “does not indicate that one particular party bears the burden of establishing circumstances requiring a stay” and that establishing the existence of such circumstances is part of the Committee´s discretionary power.

Stay of Awards: Legal Strategies and Arguments

An award creditor can always oppose a request for a stay of enforcement. As the Committee noted in SCB HK v. TANESCO, “it is for the award debtor to advance grounds (supported as necessary by evidence) for the stay. If the award creditor disputes these grounds, it must also advance evidence in support of any ‘positive allegations’ that it makes.” In addition to or in the alternative, an award creditor can request that the annulment Committee order an applicant to provide security in the form of an unconditional and irrevocable bank guarantee for the whole amount of the Award. In Carnegie Minerals (Gambia) Limited v. Republic of The Gambia, Carnegie requested, unsuccessfully, that The Gambia provide security in the form of an unconditional and irrevocable bank guarantee for the whole amount of the Award issued by a first-tier reputable international credit institution (outside of The Gambia and with no principal establishment branch in The Gambia) immediately payable upon the issuance of a final decision of the Committee rejecting the Application for annulment, or if the Annulment Proceedings are withdrawn or discontinued.

Conclusions

Carnegie Minerals (Gambia) Limited v. Republic of The Gambia teaches a number of very useful lessons:

1. When the situation warrants, a losing party in an investor-State arbitration claim should consider requesting a stay of enforcement of any related arbitral award. Every party to an ICSID dispute that applies for an annulment as contemplated under the ICSID Convention has a legitimate right to request for a stay of enforcement or the continuation of a stay of enforcement until a committee renders a final decision on the request for annulment. However, a request for a stay of enforcement of an arbitral award cannot be made willy-nilly and can only be made in conjunction with an application for annulment.

2. The decision whether or not to grant a stay is at the discretion of the annulment committee. In Libananco Holdings Co. Limited v. Republic of Turkey, the Committee noted that: “The exercise of the discretion of the Committee depends on the circumstances surrounding the Stay Request.”

3. With every application for a stay, the key test is whether there is “sufficient doubt” that the applicant on annulment will comply with the award, if upheld. Given this test, an applicant for a stay is well advised to advance pertinent and sufficient evidence to dispel any doubt.

4. Whether a stay would be granted or denied does not depend on the potential merits of the application for annulment. Indeed, a sizeable group of committees have held that the prima facie grounds for annulment are not relevant to whether an applicant on annulment is entitled to a stay.

5. Although requests for stays are frequently granted, the award creditor is not entirely at the mercy of the award debtor. First, the award creditor can raise sufficient doubt as to the award debtor’s willingness and ability to comply with the award. Second, the award creditor can argue that if a stay is to be granted, it should be made conditional upon the provision of adequate security.

6. While The Gambia was lucky to obtain an unconditional stay of enforcement, some applicants are not so lucky. In SCB HK v. TANESCO, the Committee granted TANESCO’s request for the continuation of the stay of enforcement of the award but on the condition that, “TANESCO provide an unconditional and irrevocable bank guarantee or security bond issued by a first-tier reputable international credit institution … for the full amount of the Award rendered against TANESCO, inclusive of all interest accrued to the date of issuance of said irrevocable bank guarantee or security bond, and immediately payable to or cashable by SCB HK upon the issuance of a final decision of the Committee rejecting the annulment, or if the annulment proceedings were withdrawn or discontinued.” The Committee also ruled that in the event that TANESCO declined to issue such guarantee, the termination of the stay on enforcement would be automatic.

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* E.J. Ball Professor of Law, University of Arkansas School of Law; Arkansas Bar Foundation Professor (2014 – 2016).

African States, Investment Disputes and Stay of Arbitral (ICSID) Awards: The Current State of Play by Prof. Uche Ewelukwa Ofodile, SJD (Harvard)*

Mon, 11 Mar 2019 18:18:59 GMT

Introduction

On October 18, 2018, an ad hoc Committee (“Committee”) of the International Center for the Settlement of Investment Disputes (“Center” or “ICSID”) allowed an application by the Republic of Gambia (“The Gambia”) requesting the continued stay of the enforcement of a nearly $23 million arbitral award granted in the case of Carnegie Minerals (Gambia) Limited v. Republic of The Gambia: Decision on the Gambia’s Request for a Continued Stay of Enforcement of the Award (ICSID Case No. ARB/09/19). Unless modified or terminated, the decision will remain in place until the Committee rules on The Gambia’s application for the annulment of the Award. Despite The Gambia’s apparent victory, celebrations are not exactly in order for at least two reasons. First, a stay of enforcement of an ICSID arbitral award can be modified or terminated at the request of either party to a dispute; a common reason for modifying or terminating an award is if an award debtor fails to fulfill a condition (e.g. the provision of adequate financial security) for the stay. Second, as the Tanzania Electricity Supply Company (“TANESCO”) discovered recently in the case of Standard Chartered Bank (Hong Kong) Limited v. Tanzania Electric Supply Company Limited (“SCB HK v. TANESCO”), a stay of enforcement of an arbitral award does not necessarily mean that the underlying application for annulment will be ultimately successful. On April 17, 2017, a Committee granted TANESCO’s request for a stay of a $148.4 million award in favor of Standard Chartered Bank Hong Kong (“SCB HK”). However, on August 2, 2018, the same Committee upheld the initial award and rejected TANESCO’s annulment application in its entirety.

Stay of Award: What is It? What is the Legal Basis? What is the appropriate Legal Standard?

Article 52(5) of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (the “ICSID Convention”) and Rule 54(1) of the ICSID Rules of Arbitration Proceedings (the “Arbitration Rules”), provide the legal basis for a stay of enforcement of arbitral awards. A request for a stay of enforcement of an award can be included in the initial application for annulment of an award or can be made subsequently. Article 52(5) of the ICSID Convention, first sentence, provides that a Committee constituted to hear a party’s application for annulment “may, if it considers that the circumstances so require, stay enforcement of the award pending its decision.” Article 52(5) of the ICSID Convention, second sentence, provides: “If the applicant requests a stay of enforcement of the award in his application, enforcement shall be stayed provisionally until the Committee rules on such request.”

A stay of an award is an exceptional recourse mechanism designed to safeguard against the violation of fundamental legal principles relating to the arbitral process. Ordinarily, ICSID awards are final and binding. Article 53(a) of the ICSID Convention clearly states: “The award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention. Each party shall abide by and comply with the terms of the award except to the extent that enforcement shall have been stayed pursuant to the relevant provisions of this Convention.”

Who has Standing to Request a Stay of Enforcement of an Arbitral Award?

Only a party to a dispute before the ICSID can apply for a stay of enforcement of an award rendered in connection to that dispute. Essentially, under the ICSID Convention, the right to request a stay of enforcement is triggered by an application for the annulment of an award. As previously noted, an application for a stay may be made as part of the initial application for annulment or at any time during an annulment proceeding. Rule 54(5) of the Arbitral Rules specifically mandates the Secretary-General of the ICSID to promptly notify both parties of the stay of enforcement of any award and of the modification or termination of such a stay. A stay of enforcement becomes effective on the date on which the Secretary General dispatches such notification.

A Stay of an Award: How Often Are Requests Made? What is the Record of African States?

According to the ICSID, as of April 15, 2016, a total of 43 requests for the stay of enforcement had been made in connection with some 90 registered annulments. African countries have been involved in at least 10 requests for a stay of enforcement of an award. African States that have in the past requested a stay of enforcement of an arbitral award include:

· The Republic of Guinea: MINE v. Guinea ARB/84/4;

· The Arab Republic of Egypt: SPP v. Egypt ARB/84/3;

· Wena Hotels v. Egypt ARB/98/4;

· The Republic of Seychelles: CDC Group plc v. Seychelles ARB/02/14;

· The United Republic of Tanzania: Standard Chartered Bank (Hong Kong) Limited v. Tanzania Electric Supply Company Limited ARB/10/20; and

· The Democratic Republic of Congo – Mitchell v. DRC ARB/99/7;

Is there a Presumption in Favor of a Stay of Enforcement?

The legal texts provide no basis for a presumption in favor of granting a stay or continuing a provisional stay of enforcement. On the contrary, the language of Article 53 of the ICISD Convention and Rule 54(2) of the Arbitral Rules suggest that the decision whether or not to grant a stay is at the discretion of the ad hoc committees. A sizeable group of committees have confirmed that that there is no presumption in favor of a stay of enforcement. In Occidental Petroleum Corporation and Occidental Exploration and Production Company v. Republic of Ecuador: Decision on the Stay of Enforcement of the Award, 30 September 2013 (ICSID Case No. ARB/06/11) the Committee stated that “an award debtor is not entitled to a continued stay of enforcement,” and that “there is no basis for a presumption in favor of continuation of the stay.” Although there is no presumption in favor of a stay of execution, more often than not requests for stays are granted.

What Factors Support a Stay of Execution of an Award?

The ICSID Convention does not offer any guidance as to the factors that an ad hoc committee must take into account when considering whether or not to grant a stay. Article 52(5) of the ICSID Convention simply states that “the Committee may, if it considers that the circumstances so require, stay enforcement of the Award pending its decision.” Although a discretionary decision, annulment committees take into account a variety of factors in considering whether to grant a stay on enforcement. In SCB HK v. TANESCO, the Committee reiterated the non-exhaustive list of all the circumstances that may be a committee may deem relevant in determining how to rule upon a request for a stay on enforcement. These include:

· prospects for compliance with the award if the award is not annulled

· absence of dilatory tactics;

· the risk of non-recovery of sums due under the award if the award is annulled;

· absence or minimal prejudice to the opposing party by delaying the payment adverse economic consequences on either party; and

· a balance of both parties’ interest.

Conclusion

The stay of enforcement of an ICSID award is an important, extraordinary and temporary remedy. A review of prior cases indicates that African countries are not strangers to applications for stay of enforcement of arbitral awards. A prospective applicant for a stay should bear several things in mind. First, although a stay of enforcement has been granted in many cases, there is no presumption in favor of granting a stay of execution. Second, as a sizeable group of committees have concluded, the prima facie grounds for annulment are not relevant to the determination of whether an applicant on annulment is entitled to a stay. Third, while a stay can come as a welcomed relief for an applicant, it can come with stiff conditions attached and always has financial implications for the applicant in the form of significant legal fees and costs. Finally, a grant of a stay of enforcement of an award does not affect an underlying application for annulment one way or another and does not mean that the award debtor will ultimately prevail in the effort to get an award annulled. Bolivia should know. Bolivia granted mining concessions to a Chilean company Quiborax SA and its Bolivian investment entity, Non Metallic Minerals SA. When Bolivia revoked the mining concessions, Quiborax SA initiated a claim with the ICSID. In 2015, in the case of Quiborax SA and Non Metallic Minerals SA v. Plurinational State of Bolivia, a Tribunal determined that Bolivia had violated the rights of the Claimants and awarded the latter nearly $50 million in compensation. In December 2015, Bolivia applied to have the arbitral award annulled and successfully moved to stay the enforcement of the award. In February 2017, an ad hoc Committee denied the Claimant’s request to lift the stay on the award. However, in May 2018, the Committee ultimately rejected Bolivia's application for annulment.

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*E.J. Ball Professor of Law, University of Arkansas School of Law; Arkansas Bar Foundation Professor (2014 – 2016).

The attractiveness of the new OHADA Arbitration Act by Mouhamed Kebe*

Fri, 08 Mar 2019 13:34:55 GMT

A year ago, OHADA[1]adopted a new Uniform Arbitration Act, repealing the previous Uniform Act dated 11 March 1997. This reform is part of an effort to promote and consolidate, further illustrated by a new Uniform Act on Mediation being adopted and the Common Court of Justice and Arbitration's (CCJA’s) Rules of Arbitration being revised.

The reform aims to make the OHADA space more attractive for dispute resolution.

This paper addresses the main features of the reform, complemented where necessary by the new CCJA arbitration rules and the Uniform Act on Mediation. It is followed by a table showing the main developments of the common legislation on arbitration.

Security, flexibility and efficiency seem to be the motto of this new Act. This motto applies to the various phases of the process of accessing arbitration at the start of a trial and throughout the arbitration.

Access to OHADA Arbitration: Openness and Security

Expanding OHADA arbitration to investment arbitration

In addition to the traditional openness of OHADA law to any arbitration having its seat in one of the OHADA States and to legal persons under public law, the reforms extend the scope of the OHADA arbitration law to include investment arbitration. Investment arbitration is usually defined as an arbitration forum that hosts disputes between a State or one of its entities, and a foreign private entity carrying out an investment transaction in that State.

Although the creation of the International Investment Dispute Settlement Center (ICSID) is part of this approach, other forums have gradually opened up to this issue too. It is in this light that the new Act includes bilateral investment treaties (BITs) and investment codes as new bases for arbitration. This step, provided for in the new Act is reiterated by the new CCJA Arbitration Rules, which expressly authorise the Court to administer arbitration proceedings based on BITs or national investment laws.

It should be noted that, in practice, the Court of Arbitration of the CCJA has accepted several investor-state disputes on the basis of an arbitration agreement, particularly in the absence of specific, relevant common provisions. Therefore, the new Act only crystallises and completes the evolution of the Court's internal practices and that of other forums such as ICSID, which have now freed arbitration agreements from being the sole pathway to arbitration. Arbitration under the new Act and the CCJA forum offers a big comparative advantage in that it is close to the host countries geographically and from the point of view of the OHADA legal system with which they are familiar.

Therefore, the OHADA law of arbitration (through both its normative part, the Uniform Arbitration Act, and its institutional arm (CCJA) is well positioned in the field of investment arbitration. If accepting legal instruments relating to investments and establishing certain correlative, institutional guarantees by the CCJA characterise a certain opening up of OHADA arbitration, it is important to consolidate this tendency as much with substantial arguments (definition of the notions of investment, investor, etc.) as with procedure (transparency of procedure, admission of amicus curiae, etc.).

The opening up of arbitration to other modes of dispute resolution: the case of expanded OHADA mediation

The tempting offer of OHADA arbitration does not stand in the way of other alternative dispute resolution methods. It does not prevent a stage of prior dispute resolution. In this case, the Court will suspend proceedings pending the completion of the dispute resolution step (or finds failure to do so, if necessary.)

The example of mediation is a good one, especially as mediation is now the subject of uniform legislation in the OHADA space. At first glance, it should be noted that this does not apply to mediation undertaken voluntarily by an arbitral tribunal for the purpose of providing an amicable settlement of a dispute. Indeed, the Uniform Act on Mediation (UAM) governs institutional or ad hoc mediation, which is conventional, or which involves the intervention of a third party, an independent dispute settlement procedure, or a prior method of arbitration. In the latter case, supplementing the UAM, the Arbitration Uniformed Act unequivocally states that ''no arbitral or judicial proceedings relating to a dispute already arising, or which may arise later, is given effect by the arbitral tribunal or the state court until the conditions that go with it have been met.”

This procedure does not preclude, according to the text, initiating parallel proceedings for provisional purposes, or purposes that cannot be considered as a waiver or termination of the mediation. It is compulsory to execute the agreement resulting from the mediation and it may be exequaturated or endorsed by the competent court and taken back in the form of an award of agreement by the arbitral tribunal. This provision, which demonstrates the effectiveness of OHADA mediation and the institutional dialogue between methods of dispute resolution, also applies to mediation proceedings initiated without arbitration being in progress.

The arbitration proceedings: reliability, flexibility and speed

The new Uniform Arbitration Act proposes a reliable, flexible and timely arbitration procedure.

It offers arbitration with institutional support from CCJA. Without the parties having to opt for the CCJA arbitration rules, they have the opportunity to benefit from the support of this institution. This is the case where an arbitrator’s challenge process is not provided for by the parties or carried out by the competent jurisdiction within 30 days; the competent jurisdiction is removed and the challenge may be brought before the CCJA. The competent court remains exclusively competent in the event of an appeal against a decision dismissing the challenge.

It is also worth mentioning that in the event of a judicial decision that has become possible as a result of an arbitration agreement that is manifestly void or inapplicable, the CCJA remains the sole body competent to receive a recourse against that decision.

The arbitral procedure’s reliability is assured by the obligation of independence and legal dedication of arbitrators. In particular, these requirements make it possible to avoid conflicts of interest and leads to arbitrators recusing themselves if necessary. The parties also enjoy equal treatment during the proceedings, allowing them to assert their respective rights. The litigant parties are received regardless of their quality or status. The reliability and flexibility of the procedure are also measured by the openness in applying international law standards in case where the parties are silent on the choice of law. From the point of view of procedural rules, the parties may refer to the rules of an arbitration centre of their choice or determine a procedural law that suits them. These provisions show the opening of the "OHADA space" to "non-OHADA rules" and international best practices in arbitration.

The celerity of the arbitration procedure is demonstrated through the competitive deadlines proposed at all stages of the procedure. If the parties disagree, or if there are insufficient contractual terms on the appointment of the arbitrators, the parties have between 30-75 days to do so with the intervention if necessary of the competent court. Likewise, the arbitration tribunal must be constituted within 6 months, unless otherwise agreed. The parties nevertheless have the option to extend the legal or contractual period. More generally, the parties are encouraged to act with speed and loyalty in conducting proceedings. They must refrain from using delay tactics. Otherwise, they risk sanction and closure of the proceedings, if necessary.

The outcome of the procedure: safety and efficiency

The new Act guarantees security and efficiency in the arbitration process.

Whether it is the result of an agreement between the parties during the proceedings or a decision arising from the court hearing, the arbitral award has the authority of res judicata as soon as it is given. This award may provide a provisional enforcement to allow the parties to benefit quickly from its findings, without affecting the full judgement, including various remedies. This provisional enforcement remains valid even when an action for annulment is brought against the sentence in question.

As a general rule, the arbitration award must be exequaturated. The decision on the application for exequatur is obtained before the competent court of the relevant jurisdiction within 15 days. It is deemed acquired in the case of silence of the court. It is likely to provide cessation only before the CCJA when it is only negative.

The sentence thus rendered is not subject to opposition, appeal or judicial review. It may, however, be the subject of a review or an action for annulment before the competent court in the relevant jurisdiction whose decision is subject to review proceedings only before the CCJA. The flexibility of the OHADA arbitration procedure results from the fact that waiver clauses to the action for annulment may be provided by the parties, provided that they are not in conflict with international public policy.

The new common law of arbitration therefore establishes the OHADA space as a new place of international arbitration that is very attractive, especially for foreign investors in Africa.

________________________________

* Attorney, CCJA Arbitrator, Member of the Court of Arbitration of the ICC, Managing Partner, GENI & KEBE

[1] OHADA is: ‘Organisation pour l’Harmonisation en Afrique du Droit des Affaires,’ (Organisation for the Harmonisation in Africa of Business Laws), which is a uniform set of business laws and implementing institutions adopted by 17 states in West and Central Africa.

Statistics showing participation by region in ICSID arbitration, as of 31 May 2017. Africa is one of three major regions participating in ICSID arbitration. Source: ICSID

Statistics showing the participation of African entities by region (including public entities) in ICC arbitration. Source: ICC

Litigious Arbitration: The African Lawyer and His Many Hats by Adebayo Adenipekun, SAN, FCIArb*

Thu, 20 Sep 2018 06:30:27 GMT

Litigation is the commonest legal practice area in Africa. In Nigeria, for example, people here associate lawyers solely with litigation and disputes. As a result, litigation has come to be viewed as a rough venture, a contact sport. The tactics employed by lawyers in litigating disputes – the evisceration of witnesses under cross-examination without care for boundaries, the willingness to foray into shameful and scandalous questions and the use of a whole range of guerrilla tactics – further serve to smear the image of the process to the potential litigant. There are also personal religious and cultural beliefs that precipitate either total reluctance to initiate a court process or real unwillingness to invoke the court against a class of persons. Add to that the fact that much like a war, the only thing that is certain of the timing of a court action is the date of commencement. It is anybody’s guess how long hostilities will last. In sum, parties are loathe to litigate against persons with whom they would desire future timely relations.

On this score arbitration has strong appeal. Arbitral users can rest assured comforted by the confidentiality of arbitration. A witness may do badly in a reference and not have to worry about the public impact his testimony will have on the share price of his company. Scandalous personal details elicited under cross-examination stay within the knowledge of the participants at the reference and do not constitute indelible public record. This has led to the view that arbitration, as opposed to litigation is likelier to elicit frank and honest testimony. On a commercial plane, the parties can sort out their differences quickly and return to their supply arrangement, joint venture or concession.

Enter the lawyer. Some have bemoaned the influx of legal practitioners into arbitration with others expressly accusing lawyers of ruining arbitration. One author takes the view that the lawyer’s assumption that qualification to practice law is an automatic qualification to practice arbitration is responsible for indiscriminate set-aside applications that trail awards and legalese creeping into arbitration practice. Confidentiality in arbitration is both an advantage to the process and in the hand of the determined assailant, a bane of the process. Lawyers and party representatives have taken the status of arbitrators as non-judicial officers as a license to be offish, confrontational, condescending and downright impolite to arbitrators. With the absence of timeline default penalties in arbitration, lawyers have bogged down arbitrations with lethargic representation and compelled arbitrators to decide the reference according to their own timetables. As there are often no financial or professional punishments for late filings and deadline indiscipline, it has been easy for lawyers to casually seek timeline extensions anchored in the nebulous “interest of justice”.

A lawyer with his training and orientation is definitely a hard disciple to proselyte in arbitration. He will scrutinise every procedural order, query every direction and doubt every award that is unfavourable. If he does so privately, the reference may be safe. But when he, wearing his litigator’s hat, assumes that the unlimited jurisdiction of the High Court extends to making that court an appellate tribunal to arbitral tribunals, the reference is in jeopardy. Nigeria recently made the news in arbitral circles when the Court of Appeal upheld the power of a High Court to stay proceedings of international arbitration. Without prejudice to that decision’s validity, with that decision in the hand of the litigious Nigerian lawyer, international references are now fair game and in the crosshairs. Already, lawyers have “appealed” procedural directions deferring objections, apportioning costs for unforeseen procedural deviations and refusing unwarranted procedural extensions. The lawyer’s inability to drop the litigator’s hat in arbitration can undermine the user’s legitimate expectations of award finality.

Nigerian litigious practice has received its share of criticisms relating to the taking of evidence. On the one hand, there is the complaint that the rules of evidence are not robust enough to capture all the forms of evidence that can be produced today, that the courts are not equipped to perceive, deal with, archive and handle evidence and that the arbiters are themselves not equipped to interact with modern day evidence. And there is another criticism of the process – that the codified rules of evidence perpetuate technical justice and that litigants are at the mercy of a legal system that exists mainly to exclude evidence, than to take evidence. While the Nigerian Evidence Act does not apply to arbitral references and states so clearly in Section 256(1), this has not closed the door to all sorts of evidentiary objections in references. In references, lawyers have invoked the litigious principle of demonstration of documents that stipulates that all documents must be read out to the extent of their utility at hearing and argued that an arbitrator must not study exchanged documents in private. Lawyers have argued that certain documents must be certified by public authority or that as registrable instruments, they must proceed from a certain source and have certain endorsements. These submissions, which have no place in arbitration, have delayed hearings and scuttled references. Worse, when convinced that these rules should have applied to awards, submissions like these have frustrated awards and prevented their enforcement within the limitation period.

Imagine that a reference that was supposed to be confidential so as to protect the facts and evidence in it is submitted to the public-record Court (with copious reproductions of its proceedings and a robust narration of the same confidential facts) in a bid to set an order or award aside. Imagine that a reference that parties opted for to ease the taking of evidence is scuttled by evidentiary objections. Imagine that a reference that parties agreed to for its speedier course is delayed by numerous guerrilla tactics and converted to litigation only to later (post-award) be subjected to the same multi-tier litigation that parties opted out of to start with. Interestingly, the courts, borrowing a leaf from arbitration, are devising means to attend to cases with despatch and interpret codified evidentiary rules more liberally with encouraging results. The ironic result is, suits imitate arbitration while arbitration, by the conduct of litigious counsel, becomes litigious.

Arbitrators have to take a firmer stance with lawyers and should be more disposed to referring flagrant, deliberate disciplinary breaches to the relevant regulator. It is also important to modernise the laws. The question of what the evidentiary/procedural rules applicable to a reference would be is easily resolved by a modernised body of arbitration rules under the Arbitration and Conciliation Act. Solicitors and lawyers who are in the position to draft arbitration clauses can envisage some of these challenges and stipulate the application of certain accepted and functional rules. Most of all, the automatic arbitration competence of lawyers is already a proven fallacy to arbitrators although it remains unknown to the users who repeatedly brief these lawyers. The arbitration education of lawyers is thus mandatory for the survival of the practice in Africa. Efforts, intended and otherwise, to popularise and standardise the practice of arbitration in Africa such as the establishment of the Association of African Arbitrators and the publication of this newsletter are a welcome development. These publications will expose the Nigerian lawyer to international best practices in arbitration and finally impress on him the difference between the practice and litigation and the commercial and jurisprudential justifications for that difference. The Nigerian lawyer must learn – or else be compelled to know – that arbitration is not an extension of his litigious practice. He should know when to barge, heel and attack. And he should know that his litigious hat does not suit his arbitral robes.

_______________________

*Partner, Afebabalola & Co.

Enforcement/setting aside of Arbitral Award by Prof. Paul Idornigie*

Mon, 17 Sep 2018 08:35:45 GMT

On the 10^th day of January, 2017, the High Court of the Federal Capital Territory, Abuja, Nigeria in Suit No: FCT/HC/CV/610/14 before His Lordship, Hon. Justice A.B. Mohammed delivered a judgment in the case involving ABANG ODOK V. ATTORNEY GENERAL OF BAYELSA STATE (available at here), on a matter for the enforcement/setting aside of the Final Award of Professor Paul Obo Idornigie, SAN, PhD, C.Arb, Sole Arbitrator. The Final Award was rendered on 17 January, 2014.

Abang Odok was the Claimant in the arbitral proceedings while Attorney General of Bayelsa State was the Respondent. The Claimant was also the Applicant (Award Creditor) at the High Court while the Respondent was still the Respondent (Award Debtor). The Award Debtor filed a Notice of Preliminary Objection challenging the jurisdiction of the court to entertain the application to recognize and enforce the award. The main ground for challenging the award was that the suit before the High Court did not disclose any reasonable cause of action and therefore the court lacked jurisdiction to entertain the matter.

The court dismissed the preliminary objection on the ground that it lacked merit. The Respondent then applied to set aside the award on the sole ground that the Sole Arbitrator who claimed to have been appointed by the court was not so appointed. This was premised on the fact that the court order showed that Professor Paul Idonije was appointed by the court while Professor Paul Obo Idornigie rendered the award and argued that Professor Idonije and Professor Idornigie were not the same person. The Respondent/Award Debtor submitted that Professor Idornigie had no jurisdiction to render the award and that the arbitral proceedings were a nullity. It is noteworthy that at the Preliminary Meeting, the Sole Arbitrator presented himself as the court-appointed Arbitrator and both parties confirmed his appointment. It was contended on behalf of the Applicant that even if Professor Idornigie was not properly appointed, the parties confirmed his appointment at the Preliminary Meeting.

Furthermore section 34 of the Nigerian Arbitration and Conciliation Act, 2004 (same as Article 5 of the UNCITRAL Model Law on International Commercial Arbitration, 1985 as amended) gave powers to courts to intervene in arbitral proceedings in limited circumstances and that the issue of the name of the arbitrator was not one of the grounds. Since the arbitral tribunal is competent to rule on its jurisdiction as provided in section 12(3) of the Nigerian Arbitration and Conciliation Act, the court held that the proper forum to challenge the appointment of the Sole Arbitrator was at the arbitral proceedings. Instead the Respondent confirmed the appointment of the Sole Arbitrator and participated fully in the arbitral proceedings. In consequence the court recognized and enforced the award.

Two things were established in this judgment, namely, (a) where there is an application to set aside an award and another to enforce, the one to set aside takes priority; and (b) the grounds for the courts to intervene in arbitral proceedings are limited and the issue of whether the arbitrator was properly appointed ought to have been raised at the arbitral proceedings and since it was not raised, the Award Debtor is deemed to have waived his right.

_______________________

*Professor of Law, Nigerian Institute of Advanced Legal Studies

Successor to LCIA-MIAC Arbitration Centre publishes new arbitration rules by Duncan Bagshaw*

Sun, 09 Sep 2018 21:33:27 GMT

The Mauritius International Arbitration Centre ("MIAC"), which was recently established in Mauritius to succeed the LCIA-MIAC Arbitration Centre, has published its first Arbitration Rules.

As recently reported in an earlier blog (here), LCIA-MIAC recently terminated operations after the LCIA decided to withdraw from the agreement with the Government of Mauritius under which the LCIA-MIAC Arbitration Centre operated.

The transitional provisions for this change have the effect that arbitrations under agreements providing for LCIA-MIAC arbitration, made before 31 August 2018, will be administered by the LCIA in London (unless the parties reach another agreement in writing). MIAC has said that it will administer arbitrations under agreements made after 1 September 2018, whether providing for LCIA-MIAC or MIAC arbitration.

The MIAC Arbitration Rules have been drafted along familiar lines, based on the UNCITRAL Arbitration Rules. Some notable features include:

A panel of three arbitrators will be appointed unless the parties agree to a sole arbitrator, or the claimant has proposed a single arbitrator and the respondent fails to respond to that proposal (and the appointing authority considers a sole arbitrator appropriate).
The Secretary General of the Permanent Court of Arbitration (based in The Hague) is designated as the appointing authority which will appoint arbitrators if the parties do not agree.
The Rules do not provide (unlike the UNCITRAL Arbitration Rules) for the parties to agree on an appointing authority other than the Secretary General of the PCA.
The Rules do not provide for expedited or summary procedures, or for the appointment of an emergency arbitrator.
The seat of the arbitration is deemed to be Mauritius if the parties have not otherwise agreed.
The tribunal is empowered to grant interim measures but there is no express provision for the tribunal to do so without notice to the party against whom an order is sought.
The rules provide that awards will be final and binding but do not provide that there can be no appeal from the award (so that, for example, they may not be taken to rule out an appeal under s.69 of the Arbitration Act 1996, if the seat is England).
The rules do not include provisions for the rates to be charged by the Arbitral Tribunal.

A model arbitration clause providing for MIAC arbitration has been published which does not exclude the right of appeal.

Parties considering entering into contracts providing for arbitration under the MIAC Arbitration Rules should therefore take advice on their intended agreements, and may wish to consider (amongst other things):

Providing for any right of appeal to be excluded or expressly providing for a right of appeal if the seat is Mauritius (because Mauritius law provides for no appeal but allows the parties to opt-in to an appeal mechanism);
Providing for a single arbitrator (if preferred);
Providing for an appointment process other than that set out in the MIAC Rules.

It appears that the MIAC rules have been drafted simply, avoiding controversy by being closely based on the UNCITRAL Arbitration Rules. Whilst they lack innovations adopted by many institutions, such as provision for an emergency arbitrator, the format of the rules is at least tried and tested.

The MIAC rules may be contrasted with the rules of the MARC Arbitration Centre, the other arbitral institution based in Mauritius, which was established by the Mauritius Chamber of Commerce and Industry and which recently revamped its constitution, Court and Advisory Board and adopted new arbitration rules. The MARC Rules include emergency arbitrator procedures, an optional appeal procedure and a summary procedure for dismissal of claims or defences "manifestly without merit".

_____________________

* Counsel, Stephenson Harwood

Shaping Investment Arbitration: The Experience of COMESA and SADC** by Dr. Rukia Baruti*

Mon, 09 Jul 2018 15:58:09 GMT

1. Introduction

The development of international investment arbitration beyond its contractual basis is a relatively recent phenomenon. Not too long ago, it was inconceivable – unless consent to arbitrate had been given in a concession contract – for private investors to initiate direct arbitration against host States. But neither Contracting Party to the first bilateral investment treaty (‘BIT’) nor signatory of the 1965 Convention on the International Centre for Settlement of Investment Disputes between States and Nationals of Other States (‘ICSID Convention’)[2] would have foreseen that they had unwittingly participated in a chain of events that would ultimately limit host States’ sovereign powers and open other bases up for direct arbitration by private investors.

Now, the right to initiate arbitration against a host State is not only contained in contracts but also in host State laws, bilateral, regional and multilateral investment instruments. And ever since, investment arbitration has developed considerably, in large part due to a proliferation of BITs and their interpretation and application by arbitral tribunals. While these developments have seen African States involved in more than a third of the total number of investment arbitrations at ICSID, their role in the development of international investment arbitration has thus far been almost exclusively limited to signing BITs and defending enforcement of BITs against them.

This paper reviews the development of international investment arbitration and the changing role of the African States in it. In particular, the States belonging to the Common Market for Southern and Eastern Africa (‘COMESA’)[3] and the Southern African Development Community (‘SADC’).[4] In doing so, it traces the emergence of investment arbitration, its development by the practice of arbitral tribunals and the experience of COMESA and SADC Members with investment arbitration. It then considers how COMESA and SADC Members have responded to the issues raised in the arbitral practice of BITs. It concludes by suggesting that their response hints at an evolving shift in roles from mere observers to a more hands-on role in the development of investment arbitration by the African States.

2. The Emergence of Investor-State Arbitration

Investment arbitration was born out of the need to address the deficiencies of diplomatic protection as a means of resolving investor-State disputes. In the 1930s, host States had concluded some concession contracts in the mining and oil sectors with private investors. These concession contracts included investor-State arbitration clauses to protect private investors from unilateral changes by the host State.[5] However, as evidenced by the great oil nationalisation arbitrations of the 1970s, there were significant problems with these types of arbitrations due to the abuse of sovereign powers by host States within a contractual framework.[6]

Furthermore, while the inclusion of these clauses addressed the problems encountered with diplomatic protection, investor-State arbitrations were not possible without a concession contract between the private investor and the host State and only a minority of private investors ever had a concession contract.[7] Accordingly, in the absence of a concession contract providing for investor-State arbitration, diplomatic protection remained the only option for resolving disputes between host States and private investors.[8]

Subsequently, BITs appeared to offer another solution to the investor-State dispute settlement problem. This solution was in most of the older BITs from the 1960s concluded by the European States mostly with developing States, which contained an umbrella clause. The umbrella clause – also known as the “observance of undertakings” clause – required either party to “observe any other obligations” it may have entered into with regard to investments by nationals or companies of the other Party. This clause arguably obliged host States under the BIT to comply with investment contracts concluded with private investors, effectively elevating a contract claim to a treaty claim. However, the precise scope of an umbrella clause has been the subject of controversy and inconsistent decisions by arbitral tribunals.[9]

Conversely, the genius of the 1965 World Bank ICSID Convention was in embodying an investor-State dispute settlement system in an instrument that bound the Contracting States thus ensuring that any agreements on dispute resolution voluntarily entered into would be honoured. The ICSID Convention authorised both conciliation and arbitration as a means of resolving investor-State disputes. Not only did the ICSID Convention create a self-contained system that kept out the national courts, on arbitration, but it also adopted the model of commercial-style arbitration before specialised international tribunals. These tribunals would issue final and binding awards recognised and enforceable in any ICSID Contracting State as if it were a final judgment of a court in that State.[10] Accordingly, the ICSID Convention obligated States to comply with ICSID awards as an international law obligation.[11] Furthermore, in creating ICSID as a neutral forum for the direct determination of investor-State disputes, it depoliticized the process by obviating the need to involve the investor’s home State.

However, mere ratification of the ICSID Convention does not confer jurisdiction on ICSID or its arbitral tribunals – a Contracting State has to have given consent. As the Report of the Executive Directors on the ICSID Convention states, among other things, consent to jurisdiction needs to be in writing and once given it cannot be withdrawn unilaterally.[12] Nevertheless, paragraph 24 of the Report provides that it does not require the consent of both parties to be expressed in a single instrument. On this, it states that “a host State might in its investment promotion legislation offer to submit disputes arising out of certain classes of investments to the jurisdiction of ICSID, and the investor might give his consent by accepting the offer in writing.” Thus, in a first of its kind, the 1984 SPP v Egypt case[13] saw a claimant successfully initiate arbitration at ICSID by accepting a host State’s unilateral offer to arbitrate contained in a 1988 Egyptian investment law to which Egypt had adhered by Law No. 90 of 1971 acceding to the ICSID Convention.

Then in 1987 in the Asian Agricultural Products Ltd. (AAPL) v. Republic of Sri Lanka[14] case the claimant, a Hong Kong company, invoked Article 8(1) on ‘Reference to International Centre for Settlement of Investment Disputes’ of the 1980 UK-Sri Lanka BIT to initiate ICSID arbitration. Sri Lanka did not challenge ICSID’s jurisdiction and this case became the first that ICSID registered based solely on a BIT provision.

Following the AAPL v Sri Lanka case the majority of BITs started explicitly including provisions on investor-State dispute settlement (‘ISDS’) with arbitration under ICSID. At around the same time, the shortage of capital[15] and the need to attract it had intensified and spurred conclusion of BITs, which had become the preferred method of investment protection following the failure to conclude a multilateral agreement on investment.[16] Like most developing countries, African countries viewed inward foreign direct investment (‘FDI’) as an integral part of their development strategy. As such, the notion that to attract FDI, States have to demonstrate their ability to protect such investment, has, over the decades, been ingrained in the economic mindsets of African States. Consequently, at the height of their pursuit of such investment COMESA and SADC Members concluded many BITs. These BITs were negotiated on the basis of a pre-existing model agreement drafted by the developed State.

The proliferation of BITs was accompanied by the conclusion of Regional Free Trade Agreements like the 1993 North Atlantic Free Trade Agreement (‘NAFTA’) and multilateral treaties such as the 1994 Energy Charter Treaty (‘ECT’) both of which included arbitration provisions affording private investors the ability to invoke treaty violations directly. Simultaneously, ICSID membership grew and became the leading forum for the resolution of investor-State disputes with the number of claims filed annually having increased dramatically from barely having any in the 1970s to registering 597 cases by the end of 2016.[17]

3. Development of Investment Arbitration

As cases at ICSID increased, so did the development of investment arbitration. While investment treaties provide the framework of investment arbitrations, the treaties need to be interpreted then applied. But there may be situations faced by an arbitral tribunal that neither the investment treaty concerned nor the applicable law and arbitration rules addresses. In such cases, there is a general understanding that arbitral tribunals have inherent powers or the discretion to fill the jurisdictional lacuna to enable them to exercise their powers in controlling the arbitration process.

As a result, investment arbitration tribunals have played a significant role in interpreting and applying investment treaties thus developing investment arbitration. In this regard, arbitral tribunals have, through their practice of treaty interpretation and application, developed – albeit inconsistently – certain areas of investment arbitration in ways that treaty parties had not anticipated. Such areas have included: (i) expanding grounds for founding jurisdiction by, for example, expansive interpretation of the definition of ‘investment’ and ‘investor’ or through the application of the most-favoured-nation (‘MFN’) clause;[18] (ii) extending the interpretation of the fair and equitable treatment standard (‘FET’);[19] (iii) establishing the basis for third party participation;[20] (iv) delineating the scope of interim measures;[21] and (v) deciding on the standard for non-expropriation breaches,[22] scope and valuation[23] of compensation.

Whereas some of these developments through arbitral practice have been welcomed by treaty parties and subsequently incorporated into their treaties[24] and institutional arbitration rules,[25] many still have not and have in fact left questions open by rendering conflicting awards.[26] This disconnect between what treaty parties expect from their investment instruments and how arbitral tribunals have interpreted and applied them has caused tension between States and arbitral tribunals.

Consequently, some States have exercised their inherent powers to address some of the issues raised in the interpretation of their treaties. On this, Article 31(3) (a) and (b) of the Vienna Convention on the Law of Treaties (‘VCLT’) provides that treaty interpretation shall take account of the treaty parties’ subsequent agreements and practice. Additionally, some investment treaties include provisions stating that the treaty parties can issue joint interpretations (even after arbitration is underway) that will bind investor-State tribunals.[27] The exercise of this power has divided opinions of investment treaty tribunals. Some tribunals anxious about ensuring equality of the parties have expressed concern because they consider that a State that is alleging to be issuing an interpretation of a treaty during an on-going arbitration, may, in fact, be making an illegitimate attempt to amend the treaty retroactively.

This issue first arose in Pope & Talbot v Canada [28] when the NAFTA States decided to issue their interpretation on the FET standard. Although the interpretation was issued after the Award on Merits ruling that Canada had violated the FET standard, the determination of damages had yet to be made. The tribunal considered this to be an amendment of the treaty designed to interfere with on-going arbitration proceedings but concluded that its findings of liability would stand.

In part, due to the dissonance between States and arbitral tribunals regarding the interpretation of investment treaties an increasing number of developing States, including African countries, are disengaging from the regime of concluding BITs.[29] Many States are concerned that the unpredictability of tribunal decisions interferes with their ability to regulate by influencing them to make regulatory decisions based on the need to avoid liability to investors under a BIT. Accordingly, States are seeking to renegotiate current BITs, unilaterally terminating existing treaties or denouncing multilateral arbitration conventions.[30]

4. COMESA and SADC Experience with Investment Arbitration

Equally, the experience of investment arbitrations by COMESA and SADC Members has soured their perception of BITs. As at the end of 2014, more than half (61 percent) of COMESA and SADC Members had been involved in a total of 60 investor-State arbitrations, a majority (55) of which were ICSID arbitrations representing 11.11 percent of the total number of ICSID arbitration claims at the time.[31] Despite involving African States, these 60 arbitrations only had 15 African arbitrators as members of the tribunals.

Also by the end of 2014, COMESA and SADC Members had concluded more than 15 percent of the total number of BITs[32] and all BITs they concluded from the 1990s contained investor-State arbitration clauses. Despite the increase in the number of BITs they concluded, there was no corresponding increase in the percentage of FDI inflows into COMESA and SADC regions. Furthermore, not only did the increase in the number of concluded BITs fail to show a corresponding increase in FDI inflows, but there was a gradual increase in the number of investor-State arbitrations involving COMESA and SADC Members.

This rise in investor-State arbitration claims in COMESA and SADC regions is alarming. It raises concerns not only about the investment climate in these States and their ability to comply with their BIT obligations – but given their developing status – it also raises concerns about the detrimental impact on their economies as a result of the amount of money spent on defending claims and paying damages to successful investor Claimants.

Out of 39 concluded cases, 13 were settled; three were discontinued; four were dismissed; 11 were in favour of the investor; seven were in favour of the host State; and two had no information available for review. Given that the settled arbitrations involved some monetary compensation to the investors, it is reasonable to conclude that the host States lost more cases than they won.

The underlying causes of the rise in investment arbitration claims in these States included (a) a violent change in government; (b) legal and political instability in the aftermath of anti-government protests; (c) conflict situations due to civil strife; (d) corruption; (e) a change in government policy or law; and (f) insufficiently developed tax regimes. The most common cause of investment disputes was a change of policy or a change of law. Such changes raise the issue of the regulatory space required by developing States to be able to adopt new laws and policies designed to improve their economies and the lives of their citizens without the fear of being challenged by foreign investors. While most of these causes for investment disputes can arise in any given country, they are invariably more common in developing States, and the longer they remain unaddressed, the more crippling they are on the capacity of developing States to adhere to the rule of law, let alone comply with their BIT obligations.

Additionally, provisions in BITs – especially those in the older BITs – were rather vague. Not having participated in their drafting, COMESA and SADC Members are more likely to interpret their provisions differently from the predominantly “Western” or developed country arbitral tribunals.[35] The fact that African arbitrators are very rarely appointed in such arbitrations is disadvantageous because the African perspective in the development of investment arbitration by way of interpretation of their BITs is lacking.

5. The Shaping of Investment Arbitration by COMESA and SADC

Given the preceding, COMESA and SADC Members decided to attempt a regional approach to regulating FDI. They did so by concluding regional investment instruments. In 2007 COMESA concluded the COMESA Common Investment Area Agreement (‘CCIA Agreement’).[36] In 2006, SADC concluded the SADC Protocol on Finance and Investment (‘FIP’), which came into force in 2010.[37] Annex I of the FIP on Co-operation on Investment was amended in August 2016. However, the changes have yet to be ratified[38] and the amended FIP is not publicly available for review. Additionally, in 2012, SADC concluded the SADC Model Bilateral Investment Treaty.[39]

Even though the CCIA Agreement is yet to enter into force and the amendments to the FIP are yet to be ratified, and the SADC Model BIT is currently being revised,[40] these instruments show a significant change in the focus of attention in investment instruments. This change is evident not only in the level of detail but also in the new provisions introduced as well as in the restriction or omission of certain traditional standards of protection. These instruments include provisions aimed at addressing some of the concerns raised in the practice of investment tribunals, with the specific aim of shifting the emphasis away from the protection of investments.

5.1. Standards of Treatment

Although the FIP includes the FET standard, it qualifies it by providing that it shall be no less favourable than the treatment granted to investors of a third state.[41] As such, it links FET to MFN treatment, which should limit potential damages by ensuring that all foreign investors receive the same level of compensation. In the amendments to the FIP, the FET standard has been deleted.[42] The FIP does not provide for national treatment (‘NT’); instead, Article 7 allows the Member States to grant preferential treatment to their nationals in accordance with their domestic legislations to enable them to achieve national development objectives. However, it requires the Member States to ‘eventually harmonize their respective domestic policies and legislation within the spirit of non-discrimination.’[43] The amendments to the FIP offer NT on post-establishment rights of management, operation and disposition of investments.[44]

FET has been given special attention in the CCIA Agreement and the SADC Model BIT because it is the most frequently invoked standard. In this regard, the CCIA Agreement obliges Member States to apply FET to investors and their investments in accordance with the customary international law minimum standard[45] and clarifies that this ‘does not require treatment in addition to or beyond what is required by that standard.’[46] It acknowledges that the Member States have different forms of administrative, legislative and judicial systems and that they understand that different levels of development may not achieve the same standards at the same time.[47] This approach differs from the traditional one to the international minimum standard by introducing a degree of flexibility in its interpretation based on the level of development of the respondent country.[48] Moreover, the CCIA Agreement excludes the full protection and security provision.

The SADC Model BIT recommends not to include the FET standard and suggests an alternative standard called ‘Fair Administrative Treatment.’ This standard requires, taking into consideration the level of development of the Member State in reviewing its approach to procedural justice or due process in administrative, legislative, and judicial processes so as to ensure that these do not operate in a manner that is arbitrary or that deny justice or due process to investors or their investments.[49] While it recommends excluding the FET standard, it does include it as an option but links it to the customary international law minimum standard by using the specific language of the Neer case,[50] which is known for its high threshold.[51] While the SADC Model BIT includes a provision on ‘protection and security’, it makes it a standalone provision that is not linked to FET, but instead to non-discriminatory treatment. Furthermore, compensation relates to losses suffered as a result of war or another armed conflict, which is determined on a non-discriminatory basis.[52]

Similarly, to avoid uncertainty in the interpretation of the phrase ‘like circumstances’ with respect to non-discrimination provisions, both the CCIA Agreement and the SADC Model BIT require an overall examination on a case-by-case basis of all the circumstances of an investment so that a broad view is taken as opposed to merely looking at whether the investors are in the same sector or a related or competitive sector.[53] The amendments to the FIP contain a similar provision.[54] Both the CCIA Agreement and the SADC Model BIT exclude NT for measures included in the exceptions or exclusion lists, and the SADC Model BIT also allows for the exclusion of NT to certain sectors.

The MFN clause has been excluded from the SADC Model BIT. Also, unlike the CCIA Agreement, which confers NT for both pre-establishment and post-establishment rights, the SADC Model BIT only covers non-discrimination for post-establishment rights of management, operation and disposition[55] to limit the potential for claims.

The regional investment instruments of COMESA and SADC include provisions on expropriation and compensation. While the FIP still adopts the typical BIT standard for compensation, the CCIA Agreement requires ‘prompt’ and ‘adequate compensation’, which may be adjusted to ‘reflect the aggravating conduct by a COMESA investor or such conduct that does not seek to mitigate damages.’[56] However, the amendments to the FIP provide for “fair and adequate” compensation.[57] Similarly, the SADC Model BIT departs from the typical expropriation provision in at least two ways. Firstly, it does not require an expropriation to be non-discriminatory to be lawful. The explanation given for this is that expropriations are commonly targeted and specific and could, therefore, be viewed as discriminatory anyway. Secondly, it adopts a different standard of compensation for expropriation, which is ‘fair and adequate’ to be paid ‘within a reasonable period of time.’[58]

Both the CCIA Agreement and the SADC Model BIT allow host States to pay awards that are ‘significantly burdensome’ in instalments, i.e. on a yearly basis ‘over a period agreed by the Parties, subject to interest at the rate established by agreement’ of the disputants or by a tribunal.[59] However, compensation will not be payable for ‘the issuance of compulsory licences granted in relation to intellectual property rights, or to the revocation, limitation or creation of intellectual property rights to the extent that such issuance, revocation, limitation or creation is consistent with applicable international agreements on intellectual property.’[60] Similar provisions are included in the amendments to the FIP.[61]

Furthermore, a measure of ‘general application shall not be considered an expropriation of a debt security or loan covered by these agreements solely on the basis that the measure imposes costs on the debtor that cause it to default on the debt.’[62] In addition, both instruments affirm the right of a host State to regulate for the public good by providing that regulatory measures taken by a host State ‘designed and applied to protect or enhance legitimate public welfare objectives, such as public health, safety and the environment’ will not constitute an indirect expropriation.[63] This provision is also adopted in the amendments to the FIP.[64]

As seen above, provisions on standards of protection in the COMESAfa and SADC investment instruments show a clear restriction in coverage compared to similar provisions in traditional BITs. There is also a complete exclusion of some of the standards of protection typically found in BITs.

5.2. Host States’ Rights

To further limit the coverage of the standards of protection, the regional investment instruments introduce host States’ rights. In this regard, the CCIA Agreement permits a host State to take ‘emergency safeguard measures’ if it suffers injury as a result of economic activities under the CCIA Agreement[65] and to take ‘measures to safeguard balance of payments … external financial difficulties’ by applying restrictions on investments with respect to which it has undertaken commitments on transfers of assets, NT, MFN treatment and expropriation if it suffers a serious balance-of-payment and external financial difficulties.[66]

The FIP includes a specific article on the ‘Right to Regulate’ that allows the Member States to regulate in the interests of the public. Through this provision, Member States can ‘adopt, maintain or enforce any measure’ considered appropriate for ensuring that ‘[i]nvestment activity is undertaken in a manner sensitive to health, safety or environmental concerns.’[67] This provision has been expanded in the amendments to the FIP to allow a host State to ‘take regulatory or other measures to ensure that development in its territory is consistent with the goals and principles of sustainable development, and with other legitimate social and economic policy objectives.’[68]

Similarly, the SADC Model BIT includes a provision on the ‘Right of States to Regulate.’[69] It provides that a host State ‘has the right to take regulatory or other measures to ensure that development in its territory is consistent with the goals and principles of sustainable development, and with other legitimate social and economic policy objectives.’[70] This right is to be ‘understood as embodied within a balance of the rights and obligations of Investors and Investments and host States.’[71]

The SADC Model BIT also bestows upon host States the right to pursue development goals. In this respect, a host State ‘may grant preferential treatment’ to any enterprise ‘in order to achieve national or sub-national regional development goals.’[72] A host State may also ‘support the development of local entrepreneurs’ and ‘seek to enhance productive capacity, increase employment, increase human resource capacity and training, research and development.’[73] Finally, a host State may take measures to ‘address historically based economic disparities suffered by identifiable ethnic or cultural groups due to discriminatory or oppressive measures.’[74] It appears that the introduction of provisions on host States’ rights in these regional instruments aims to balance out the rights and obligations of host States and investors.

5.3. Investor Obligations

In developing the balancing act, the regional investment instruments introduce provisions on investor obligations. In this respect, the FIP requires investors to abide by the laws, regulations, administrative guidelines as well as policies of the host State.[75] The amendments to the FIP require investors to abide by this provision for the ‘full cycle of those investment’.[76] Similarly, the CCIA Agreement requires investors and their investments to comply with all applicable domestic measures of the host State.[77] The SADC Model BIT has several provisions placing obligations on investors. These include an obligation against corruption,[78] compliance with domestic laws,[79] provision of information,[80] environmental and social impact assessment,[81] environmental management and improvement,[82] the minimum standard for human rights, environment and labour;[83] corporate governance standards,[84] investor liability,[85] as well as transparency of contracts and payments.[86] In deviating further from the approach of the traditional BITs, these regional instruments take into account host State concerns by incorporating investor obligations to integrate environmental, social and governance issues in investment decision-making.

5.4. Dispute Settlement

While retaining the BIT practice of including ISDS provisions, the regional investment instruments take a more restrictive approach to allowing recourse to arbitration. They also allow counterclaims intended to achieve a more balanced access to investment dispute resolution. All the regional investment instruments confer on investors the right to bring direct claims against a host State but make this conditional upon attempting an amicable settlement of disputes. The FIP requires that (after failing to settle the dispute amicably), investors should exhaust local remedies before resorting to arbitration. However, the amendments to the FIP do not include an ISDS provision and provide only for State-to-State dispute resolution.[87]

The CCIA Agreement obliges disputing parties to seek to resolve their disputes through amicable means, both before and during the cooling-off period.[88] The cooling-off period is a minimum of six months. If no alternative means of resolving a dispute is agreed, a disputing party is obliged to seek the assistance of a mediator to resolve it during the cooling-off period.[89] If three months before the expiration period of the cooling-off period the disputing parties have failed to agree on a mediator, the President of the COMESA Court of Justice, or his designate, shall appoint a mediator from the COMESA Secretariat’s list. The appointment shall be binding on the disputing parties.[90]

The SADC Model BIT does not make it obligatory to resort to mediation, it does, however, provide that either disputing party may request mediation of the dispute after a notice of intent has been submitted, and the other disputing party may agree to such mediation.[91]

Additionally, both the CCIA Agreement and the SADC Model BIT impose a three-year cut-off period for submission of an arbitration claim.[92] Like the FIP, the SADC Model BIT requires the exhaustion of local remedies before arbitration proceedings are commenced. If local remedies have been exhausted the time limit for bringing an arbitration claim under the SADC Model BIT is one year from the conclusion of the request for local remedies.[93] Moreover, the SADC Model BIT prevents the initiation of arbitration under a BIT if the issue in dispute would be covered by choice of forum clause contained in any investment law, regulation, permit or contract.[94]

Whereas the CCIA Agreement and the SADC Model BIT provide investors with a choice of forum for bringing claims against a host State, including arbitration under the ICSID Convention and ad hoc arbitration under the UNCITRAL Arbitration Rules or under any other arbitration institution or rules,[95] they also attempt to limit the potential for multiple claims by including fork-in-the-road clauses that prevent an investor from choosing another forum after having initiated proceedings for a claim relating to the same subject matter.[96]

The CCIA Agreement and the SADC Model BIT allow host States to bring counterclaims against investors. Under the CCIA Agreement, the host State may do so as a defence, counterclaim, right of set-off or a similar claim.[97] Under the SADC Model BIT, a host State may counterclaim for damages or other relief resulting from an alleged breach of the BIT.[98] The SADC Model BIT also allows the initiation of a civil action by the host State, political subdivisions or private entities in domestic courts against an investor or investment for damages arising from an alleged breach of the obligations set out in the BIT.[99] In reformulating their dispute resolution provisions, the regional instruments attempt to shift the focus away from investment protection.

6. Conclusion

Investment arbitration developed in response to the need to better protect foreign investors and their investments. This protection was achieved by establishing ICSID to provide a more effective forum for the resolution of investor-State disputes. Simultaneously, developed States drafted and concluded BITs mostly with developing States, which later offered arbitration under ICSID and are seemingly skewed in favour of investors. However, the prominence of ICSID as the preferred forum for ISDS and the proliferation of BITs as well as investment tribunal practice, have not been favourable to COMESA and SADC Members who have had to defend a relatively high percentage of ICSID arbitrations.

While COMESA and SADC Members signed several BITs at the height of their pursuit of FDI, they had little if any input in their drafting or the subsequent development of investment arbitration. In recognition of the failure of BITs as a tool for attracting FDI and the need to prevent the rise of investment arbitration claims, COMESA and SADC Members concluded regional investment instruments. It is evident from the content of these investment instruments that they are in response to the arbitral practice of investment tribunals as they shift the focus of their purpose away from the protection of investors and their investments.

This approach is apparent not only in the inclusion of specific provisions aimed at balancing out the rights and obligations of host States and investors but also in the limitation of coverage or omission of certain investment protection provisions. Viewed holistically, the deliberate shift away from an emphasis on protection demonstrates the changing role of these African States in the international investment regime from mere observers to fully fledged participants keen to shape the development of investment arbitration.

___________________________________

* Secretary General, AfAA and Managing Director, AILA.

**Rukia Baruti, ‘Investment Facilitation in Regional Economic Integration in Africa: The Cases of COMESA, EAC and SADC’ Journal of World Investment & Trade 18 (2017) 493–529).

Link to Footnotes

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Recent developments in ISDS within the Eastern Africa Region – a regional BIT perspective by Lawrence Muiruri*

A Briefing on the Process, Status and Main Recommendations of ICSID’s Rule Amendments by Aïssatou Diop*

Nigeria’s New Approach to International Investment Agreements: Innovation, Refinement and Coherence by Ajuma Patience Okala*

Description of the Belt and Road Initiative and some of the projects/transactions thereunder, involving Africa – opportunities for Africans by Kwadwo Sarkodie*

Keynote Address by Stephen Karangizi* presented at the AfAA 2nd Annual International Arbitration Conference

1. Salutations and Opening

2. Outline of Address

3. Issues in need of reform and innovative solutions in Africa

4. Some interesting developments

i. The ALSF Academy

ii. Other law and tech platforms - The Lawyers Hub / LawTrella / I-Arb Africa / Arbitration in Africa Surveys / AfAA Arbitration Law Atlas

iii. Reforms in the international investment regime

5. Conclusions

i. A proposal for virtual hearing management services

ii. A feedback loop

iii. Illicit Financial Flows (IFFs) and Climate Change

UNCITRAL ISDS Reform: Mandate, process and reform solutions by Anna Joubin-Bret*

I. Executive Summary

II. Background

III. Mandate

IV. Process

1. A government-led process

2. And inclusive process

3. Broad inputs from all stakeholders

4. Consensus-based process

5. Transparency

6. Coordination with parallel ISDS reform developments

7. Progress during COVID-19 pandemic

V. Reform Solutions

1. Development of reform solutions

2. Implementation of the reform: a multilateral framework based on the Mauritius Convention on Transparency model?

VI. Spotlight on Role of and contributions by African States and experts

VII. Conclusion

Dispute Resolution in African Regional Investment Agreements: Innovation or Stagnation? By Jackwell Feris*

East African Infrastructure Projects and Dispute Resolution By Bernd Ehle, Benjamin Ng’eno & Baptiste Rigaudeau

International Arbitration in Angola by Nuno Albuquerque,Conceição Manita Ferreira & Luísa Castro Ferreira [The article was first published in Global Legal Insights – International Arbitration, 2020]