The last few months have seen significant changes to mining regulations in various African states, giving rise to a concern that a regional trend of resource nationalism may be (re-)emerging. In this context it is important for companies associated with the mining sector to be aware of the protection international investment treaties may provide against the impact of resource nationalism on their assets, and how to maximise that protection before risks materialise. This bulletin briefly considers some of the last few months’ developments, before discussing how companies can use investment treaties to protect themselves against the risks they pose.
Category: State Contracts, Stabilization Clauses and Disputes
On 3 December 2016, Morocco and Nigeria signed a new bilateral investment treaty (the "BIT"), with the overarching aim of strengthening "the bonds of friendship and cooperation" between the two States. The BIT (available here) is yet to be ratified and to enter into force.
The BIT takes an interesting and in some ways innovative approach to the balance of rights and obligations as between investors and the respective host States, placing emphasis on the promotion of sustainable development and expressly safe-guarding the State's discretion to take measures to meet policy objectives. As compared to traditional investment treaties, the BIT imposes additional obligations on investors and appears to seek to address, to a degree, the criticism that such investment treaties have been too heavily geared towards protecting investor interests.
We explore below some of the more unusual aspects of the BIT, and consider the innovative nature of the BIT by comparison to other intra and extra-African treaties concluded in recent years.
ICSID has published Practice Notes for Respondents in ICSID Arbitration (the "Notes"), a 31 page practical guidance note on ICSID arbitration brought under the ICSID Convention or the ICSID Additional Facility Rules. The Notes aim to answer the questions most frequently asked of ICSID by respondent states and investors. In particular, they are intended to assist "novice" states who have never participated in an investment claim before, although their content will be of interest to prospective investor claimants too. The Notes are available in English, French and Spanish.
The Notes begin by considering conflict prevention mechanisms to help states avoid the prospect of an Investment Treaty claim. This section considers points such as:
- the importance of careful drafting in investment treaties to ensure the scope of their protections are clear; and
- preventing disputes arising by developing an awareness of investment obligations within government.
The next section of the Notes moves to consider the pre-arbitration phase of an investment dispute. It looks at how notice of a dispute is given by an investor and how states should respond to such notice. It stresses that states "should pro-actively assess the cost-benefit of settlement as soon as they receive notice of a dispute", whether informally through discussions or through formal negotiation, mediation or early neutral evaluation. The section also considers how a state can best prepare once it has become aware of a possible dispute, including developing a case and media strategy, choosing legal counsel and budgeting for legal costs.
The main portion of the Notes aims to demystify the procedural steps in an ICSID arbitration, setting out the typical sequence of the arbitration from the Request of Arbitration through to the Post Award phase. The analysis focuses on aspects of procedure which may be important to a Respondent while arbitral proceedings are ongoing, suggesting factors that may guide the state's position and providing an occasional warning of consequences (e.g. that non-participation will not prevent the formation of a Tribunal). The Notes also offer guidance on the typical split of costs between legal counsel, Tribunal and ICSID fees.
For all sections there is a list of further reading for those interested in more detail.
This is a useful publication pitched at true ICSID novices, offering both practical and tactical advice for states in how to avoid disputes and prepare effectively when disputes do arise. It also seeks to guide those states through the ICSID process. While relatively high-level, the Notes, together with the additional reading guide in each section, offer a strong foundation for those states with limited awareness of investment arbitration to educate their officials and approach future claims from a firmer foundation of knowledge. In particular, the Notes have the potential to help states to avoid taking steps that may, in the long term, harm their position. Those with practical experience of ICSID arbitration will likely be aware of the majority of what is contained in the Notes, but they may also find one or two helpful reminders or suggestions of matters to think about.
In this short video in our Observations series, Andrew Cannon, Partner in our International Arbitration and Public International Law practices, considers state immunity issues. Andrew discusses the restrictive doctrine of immunity enshrined in the State Immunity Act 1978 and describes the steps a party should take in dealing with a state to ensure an effective of waiver in respect of jurisdiction and enforcement.
For more information on state immunity, please contact Andrew Cannon, Partner, Hannah Ambrose, Professional Support Consultant, Vanessa Naish, Professional Support Consultant or your usual Herbert Smith Freehills contact.
Tuesday 21 October 2014, London, Dubai, Tokyo
9.30 – 10.30am BST
12.30 – 1.30pm GST
5.30 – 6.30pm JST
As the turmoil in Iraq shows no sign of abating, our panel of expert speakers draw from their own experience in advising clients in the oil and gas sector to consider the implications of this instability on international energy contracts, including:
- Hydrocarbon legislation in Iraq, including the positions of the Government of the Kurdistan Region of Iraq (KRG) and the Federal Government of Iraq (FGI) in relation to power to legislate and contract for petroleum operations;
- The legal proceedings launched by the FGI against the KRG and third party purchasers of oil exported by the KRG;
- The implications of the ICC arbitration initiated by the FGI against Turkey under an Inter-Government Agreement;
- The impact on international energy contracts of a potential declaration of independence by the Kurdistan Region of Iraq; and
- The implications of export of oil from Iraq by IS (formerly ISIS).
- Matthew Weiniger QC, Partner
- Caroline Kehoe, Partner
- Dominic Roughton, Partner
- Christopher Thomson, Senior Associate
If you would like to register for this event please contact Prudence Heidemans.
With the question of independence on the agenda in Scotland and Kurdistan to name only two, the possible creation of new states has potentially significant ramifications for business, and particularly investments, risk assessments and contracts. Today a panel comprised of Akok Manyuat Madut, Counsellor, Embassy of the Republic of South Sudan, Greg Marten, Associate General Counsel, Shell International B.V., Dominic Roughton, Global Head of Public International Law, and Andrew Cannon, Partner, addressed attendees from a number of different industries and national governments on issues pertaining to state succession.
Drawing on their own experiences, the panel considered: the process and challenges of achieving statehood; the practical and legal effects of state succession from the point of view of those who invest and do business where a new state has been, or may be, created; how states and governments are recognised; the consequences of state continuity and state succession; the private law implications of the creation of a new state on existing contracts; and how land and maritime boundaries can be drawn in the event of independence.
For further information about these issues, please contact Dominic Roughton or Andrew Cannon, or any other member of Public International Law Group at Herbert Smith Freehills.