4 May 2021 by

Dispute Resolution in African Regional Investment Agreements: Innovation or Stagnation?

Investor-state dispute settlement ("ISDS") has long been contentious within Southern Africa largely because of the South African government's policy position towards international investment arbitration.

 

The Approach of Member States of the Southern African Development Community to Investor-State Dispute Resolution

Investor-state dispute settlement ("ISDS") has long been contentious within Southern Africa largely because of the South African government's policy position towards international investment arbitration. This policy position was primarily informed by the challenge to South Africa's black economic empowerment requirements in the mining and minerals sector of South Africa by foreign investors from Italy. This policy position also filtered into the multilateral relationship of South Africa with other Southern African Development Community ("SADC") member states, as can been seen with the adoption of the Amendments to Annex 1 (Cooperation in Investment) of the SADC Protocol on Finance and Investment ("Amended Investment Protocol") by SADC member states at the 36th SADC Summit in August 2016 which specifically omitted recourse by SADC investors to international investment arbitration against SADC member states. This decision effectively expunged ISDS as an option for SADC investors against member states for any alleged violations of the guarantees or commitments under the Amended Investment Protocol and restricted dispute resolution to inter-State dispute resolution.   

The prelude to the expungement of ISDS in SADC could perhaps be said to be the unanimous decision of the SADC Summit on 18 August 2014 to adopt a new Protocol on the SADC Tribunal which intended to restrict the SADC Tribunal’s jurisdiction to inter-State disputes and abolish its jurisdiction over cases brought by non-State parties. However, despite being signed by SADC member states the new Protocol on the SADC Tribunal has not yet entered into force. And as things currently stand it may never come into force due South Africa withdrawing its signature thereto pursuant to the judgement of its highest court (the Constitutional Court) in the case of Law Society of South Africa and Others v President of the Republic of South Africa and Others[1] which ordered the South African President to withdraw his signature from the new Protocol on the basis that South Africa's participation in the new Protocol constituted a violates the South African constitutional values. The consequence of the new Protocol not yet being enforced implies that the Tribunal Protocol remains valid, save for the fact that it remains inoperable. Although the SADC Tribunal was not specifically established for the resolution of investment disputes, history reflects that it was approached by SADC nationals for that purpose and also accepted that it had jurisdiction to entertain such cases.

With the SADC Tribunal being inoperable and the expungement of ISDS through the Amended Investment Protocol, it can be argued that ISDS in SADC is non-existent on a multilateral level in SADC. As there is clear intent by SADC member states that ISDS on a multilateral level be eliminated and that dispute resolution by investors with a member state be through such state's domestic courts or such other specific dispute resolution mechanism contemplated by such state's domestic laws (i.e., Investment Laws).  The other option for SADC investors is possibly diplomatic protection under customary international law. However, as history has also shown governments in the region are not always inclined to initiate an espousal claim against other member states pursuant to a request for diplomatic protection by its national. In the case of Van Zyl and Others v Government of Republic of South Africa and Others[2] South Africa declined to exercise diplomatic protection against Lesotho relating to a claim by a South African national that Lesotho expropriated its mining leases for diamonds in Lesotho.  The courts agreed with the South Africa government's refusal to exercise diplomatic protection amongst others on the basis that such a decision is discretionary and constitutes executive action under the South African Constitution.

The position with ISDS by SADC member states on a multilateral does not align to what has been done or is being done on a bilateral level by SADC member states. The bilateral position each member state may adopt is also reflected in the SADC Model Bilateral Investment Treaty ("SADC Model BIT") which provides for an election by each member state to either include ISDS or omit ISDS in its bilateral investment treaties ("BITs"). It must however be understood that the SADC Model BIT was developed as a consequence of the goal under the Annex 1 (Cooperation in Investment) of the SADC Protocol on Finance and Investment (prior to its amended by the Amended Investment Protocol) to promote harmonization of member states investment policies and laws in the region. The SADC Model BIT contains several innovative features which could be included in any new BIT with the option of ISDS such as counterclaims by the state, the participation of amicus curiae, consolidation of arbitrations and potential appeal mechanism etc. It also provides for more onerous substantive obligations on investors.

As far as I am aware there are no new BITs that any of SADC member states have negotiated or concluded with third party states that reflects any of the provisions proposed in the SADC Model BIT. Most of the BITs of SADC member states that are still enforce are old generation BITs which expressly incorporate ISDS. South Africa despite its policy position on ISDS is also still party to several BITs (some with fellow SADC members[3] and other African[4] states) that contain express ISDS provisions. From this it is also apparent that there was no outright abandonment of ISDS by South Africa on a bilateral level, but that the strategic nature of the relationship with a third party state would dictate whether ISDS is in or out. The South African policy position remains primarily geared towards resolving investment disputes with investors domestically, with a preference for mediation and alternatively court litigation or arbitration (commercial arbitration, whether international or domestic) to the extent that an underlying agreement provides therefor.   

With these developments on ISDS in the SADC region, the question then is whether this is not a clear sign of stagnation of ISDS on a multilateral level? And I must say that it appears to be so, even if one compares the developments with ISDS in SADC with other Regional Economic Communities (RECs) in Africa. In West Africa under the Economic Community of West African States (ECOWAS), the ECOWAS Court of Justice provides access to investors to resolve investment disputes. Under the Common Investment Agreement for Common Market for Eastern and Southern Africa (COMESA), which is not yet enforced, provision is made for investment disputes to be referred to the COMESA Court of Justice or a tribunal constituted under such Court. Several RECs in Africa have provisions for Intra-regional investors to access ISDS, even though through a regional Court.

The total expungement of ISDS on a multilateral level in SADC needs to be corrected. The perception by investors of domestic court systems is that the judiciary is not entirely independent and impartial. This perception is exacerbated when government or a government functionary is counterparty to a dispute with an investor. Whether there is any credence to this perception is difficult to ascertain, but it does raise legitimate concerns by investors and further highlights the need for an effective multilateral dispute resolution system in SADC for investment disputes. In addition to the comparison of the approach adopted in other African RECs with investment dispute resolution it is also important to consider how the European Union ("EU") has approached ISDS in recent years. The decision in Acheama[5] by the Court of Justice of the European Union ("CJEU") put the spotlight on intra-European investor-dispute resolution. The decision resulted in the resolution by the EU to “terminate all bilateral investment treaties concluded between them by means of a plurilateral treaty, or, where that is mutually recognised as more expedient, bilaterally" and consequently to remove the option of investor-state arbitration. The EU's policy is now to establish a permanent Multilateral Investment Court moving away from investor-state arbitration. By doing so the EU appears to recognize the fundamental rationale for the continued existence of an effective investment dispute resolution system on a multilateral level for investors in Europe[6]. It may not be investment arbitration, but a judicial system that is not perceived to be biased towards a particular state. The rationale behind a multilateral court system is premised on the same fundamentals as investor state arbitration, namely: the fear that national courts will be biased providing a so-called "home advantage" to the state to the disadvantage of non-nationals. The fear is predicated not purely on concerns about the independence and impartiality of the judiciary, but the judiciaries' expertise and skills to adjudicate specialised and complex investment disputes.

As can be seen with the Acheama matter the CJEU has begun to assert a role as the so-called protector of foreign investors within the EU. In SADC or on an African continental level there is no multilateral court system providing similar forms of recourse as the CJEU. It must be recognized by SADC and African states more broadly when we talk about investment protection, that establishing a multilateral court system for the resolution of investment disputes in the absence of investor state arbitration does not imply that the principles of "mutual trust" and "sincere cooperation" is being challenged.[7] But it recognizes that national justice system in Africa has not always provided satisfactory protection to investors.  It is not clear whether there are any real efforts by SADC member states to ensure the SADC Tribunal becomes operational again, in particular pursuant to judgement of both the South African Constitutional Court ordering the South African President to withdraw the signature of South Africa to the new Protocol for the Tribunal and the more recent judgement of the Tanzanian High Court added its voice of displeasure to the disbandment of the SADC Tribunal. In a judgement handed down in 2019 by the Tanzania High Court in the case of Tanganyika Law Society and Others v Ministry of Foreign Affairs and International Cooperation of the United Republic of Tanzania, the Tanzanian High Court[8] the court also held that:

"The suspension of the operations of the SADC Tribunal; and failure or refusal to appoint Judges contrary to the clear Treaty provisions, was inimical to the Rule of law as a foundational principle inherent to the legitimacy of the Community; and as expressly entrenched in the Treaty" 

Whatever the efforts are by SADC member states in either progressing the ratification of the new Protocol of the SADC Tribunal or considering how to deal with the decisions of both the South African and Tanzanian courts, there is a clear question mark over the SADC Tribunal's jurisdiction to adjudicate investment disputes independent from any other multilateral SADC investment instrument. Even if the SADC Tribunal becomes fully operational again it is imperative that the jurisdiction of the SADC Tribunal be clearly defined. One would probably argue (and correctly so) that by virtue of the Amended Investment Protocol ISDS has clearly be removed on a multilateral level and that any recourse to the SADC Tribunal (if operational again) by SADC investors must expressly be provided for in the Amended Investment Protocol and consequently the SADC Treaty and SADC Tribunal Protocol will need to reflect this.

The question whether the SADC Tribunal had jurisdiction to entertain human rights disputes and by implication also investment disputes has been raised by several academics. The decision by the SADC Tribunal in Mike Campbell (Pvt) Ltd and others v The Republic of Zimbabwe[9] case (“Campbell dispute”) which although premised on human rights abuses (i.e., unlawful expropriation of Zimbabwean white farmers on racial discriminatory grounds) were akin to investment disputes. The Campbell dispute was specifically referenced and discussed by the Singapore Court of Appeal in the matter of Swissbourgh Diamond Mines (Pty) Ltd v Kingdom of Lesotho[10] ("Swissbourgh") when it had to express a view on the nature and extent of the SADC Tribunal's jurisdiction to entertain investment dispute, in light of the Swissbourgh claim that Lesotho participated in the shuttering/disbandment of the SADC Tribunal leave Swissbourgh and others without effective legal recourse against Lesotho. In analysing the SADC Tribunal Protocol, the court expressed the view that articles 14 and 15 of the SADC Tribunal Protocol did not provide investors with a right to refer investment disputes to the SADC Tribunal. The court held that "This does not sit well with our finding that Arts 14 and 15 of the Tribunal Protocol do not, without more, give investors the right to refer a dispute to the SADC Tribunal. With respect, we doubt the correctness of those aspects of Campbell v Zimbabwe. Significantly, we note that this appears to be what led the SADC Summit to suspend the operation of the SADC Tribunal and to introduce changes to the Tribunal Protocol confining the SADC Tribunal’s jurisdiction to inter-State disputes: see [26] above.[11]" 

The finding of the Singapore Court of Appeal leads me to consider the rationale that underpin the conclusion that "that Arts 14 and 15 of the Tribunal Protocol do not, without more, give investors the right to refer a dispute to the SADC Tribunal". The constitutive instrument of SADC, the SADC Treaty which was signed on 17 August 1992 and entered into force on 30 September 1993. SADC was established with the objective of advancing economic development and integration, strengthening the social and cultural ties, and eradicating poverty and communicable diseases in the Southern African region. In pursuit of these objectives, article 9 of the SADC Treaty establishes several institutions including the SADC Tribunal. Article 16(1) of the SADC Treaty provides for the establishment of the SADC Tribunal “to ensure adherence to and the proper interpretation of the provision of the SADC Treaty and subsidiary instruments and to adjudicate upon such disputes as may be referred to it”, with article 32 containing a dispute settlement provision. Despite the SADC Treaty providing for the establishment of the SADC Tribunal it took several years for the member states to give effect thereto. On 7 August 2000, the SADC Member States entered into the Tribunal Protocol, which came into force on 14 August 2001. As envisaged under Art 16(2) of the SADC Treaty, the Tribunal Protocol governs matters relating to the SADC Tribunal such as its composition, powers, functions and procedures. Articles 14 and 15 of the Tribunal Protocol set out the basis and scope of the SADC Tribunal’s jurisdiction.

Lesotho in the Swissbourgh case contended that when one has regard to the provision of the SADC Treaty and the Tribunal Protocol, these instruments do not appear to confer upon investors any independent and enforceable right to refer an investment dispute to the SADC Tribunal. The court[12] found that the provision of the SADC Treaty and Tribunal Protocol is primarily concerned with the establishment of the SADC and its key organs and institutions, and that while article 32 of the SADC Treaty is a dispute resolution provision, it is only intended to provide for a mechanism for the resolution of inter-State disputes amongst the SADC member states. Thus, the court agreed with Lesotho's interpretation and also held that the SADC Treaty is not intended to accord any specific or enforceable rights to investors and reliance thereon to bring an investment protection claim is misconstrued. The court further aligned it with the interpretation of the government "that articles 14 and 15 of the Tribunal Protocol do not constitute an independent basis of jurisdiction for the SADC Tribunal to assume jurisdiction over a dispute given that they are functionally equivalent to articles 36(1) and 34(1) of the Statute of the International Court of Justice (26 June 1945) respectively, neither of which establishes an independent basis of consent for the submission of any independent dispute to the International Court of Justice (''the ICJ”)". The court stated "that the Tribunal Protocol are not jurisdiction-conferring provisions that establish any basis of consent by the SADC member states to the submission of particular investment disputes by private investors to the SADC Tribunal; indeed, a contrary conclusion would constitute a radical expansion of the jurisdiction of the SADC Tribunal which is unsupported by the text and surrounding context of the Tribunal Protocol".[13] The interpretation by the Singapore Court of Appeal in the Swissbourgh case that the SADC Treaty was not intended to accord any specific or enforceable rights to investor to bring investment protection claims to the SADC Tribunal appears to be correct. SADC member states can probably be comforted by this interpretation of the SADC Treaty by the Singapore Court of Appeal, as it also aligns to the SADC member states position that the SADC Tribunal was never meant to entertain, amongst others, investment disputes or human rights disputes directly from SADC nationals.

What we thus see is that ISDS broadly on a multilateral level appears to have stagnated in SADC as the Amended Investment Protocol specifically excludes access by investors to any form of ISDS and the SADC Tribunal (if it becomes functional without the ratification of the 2014 Protocol) will not without amendments to the SADC Treaty and the SADC Tribunal Protocol be able to assert a role as protector of intra-SADC investors within the SADC region similar to the CJEU. The hopes of SADC investors will now have to be placed on what will potentially be in the Investment Protocol to the Agreement establishing the African Continental Free Trade Area ("AfCFTA"). It is hoped that the Investment Protocol to the AfCFTA will provide Intra-Africa investors with effective recourse against states in the event of violations of substantive guarantees and commitments, independent from intra-State dispute resolution for trade in goods or service under the Protocol on the Rules and Procedures on the Settlement of Disputes of the AfCFTA.  However, if article 42 of the Draft Pan African Investment Code is considered as the base document to inform the content of the ISDS article of the Investment Protocol under the AfCFTA, we can probably expect a dispute resolution system that will not be uniform. This will potentially make the Investment Protocol under the AfCFTA an ineffective instrument for the promotion of investment intra-Africa and it will force African investors to rely on appropriate treaty structuring through BITs or investment agreement with host governments to derive investment protection and simultaneously benefit from the preferential terms under the AfCFTA.   

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

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