Log in

BLOG

Blog Moderators

  • 7 May 2021 5:06 PM | Anonymous

    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>

  • 4 May 2021 10:27 AM | Anonymous

    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.

  • 4 May 2021 10:15 AM | Anonymous

    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.

  • 3 May 2021 8:51 PM | Anonymous

    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

  • 3 May 2021 8:31 AM | Anonymous

    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

  • 3 May 2021 7:02 AM | Anonymous

    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.

    (c)   Providing feedback and direction to and through the African Union Office of Legal Counsel.

    (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.

  • 2 May 2021 8:41 AM | Anonymous

    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.

  • 29 Apr 2021 4:30 PM | Anonymous

    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.

  • 29 Apr 2021 10:43 AM | Anonymous

    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;

    (c) manifest arbitrariness;

    (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

  • 29 Apr 2021 9:49 AM | Anonymous

    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





African Arbitration Association, P.O. Box 695, Nyarutarama, KG 9 Av. No. 66, Kigali, Rwanda

Contact us here

Privacy Policy  | Directory Terms of Use© 2018 African Arbitration Association


DISCLAIMER: No responsibility for loss occasioned to any person acting or refraining from action in reliance on or as a result of the information in or omitted from this website can be or is accepted by the AfAA, its officers, board members, employees or any other persons affiliated with the AfAA.