Recent political and legal developments in Africa’s ‘coup belt’ have led to significant turmoil in the mining sector, with governments terminating mining concessions and amending legislations to the detriment of investors. These events highlight the complex interplay between resource nationalism and investment promotion and protection, leaving mining investors aggrieved and seeking compensation for their consequent losses. This post explores options available to those investors.
Remedies under international investment treaties
Investment treaties offer a wider range of protections, some of which could form the basis for claims by mining investors aggrieved by adverse government measures, as follows:
- A prohibition against expropriation. This is protection is particularly relevant, in the case of termination of mining concessions.
- An obligation for the host state to provide fair and equitable treatment and full protection and security to investments.
- A prohibition against arbitrary and discriminatory treatment, and
- The right of investors to transfer returns out of the host state.
These protections are usually complemented by the right to resolve any claims before an independent arbitral tribunal, allowing investors to seek direct recourse against host states and found their claims based on the treaty (rather than on contracts between them and the host state). Where available, these arbitrations are usually conducted under the ICSID Convention, preferred by investors for several reasons, including:
- ICSID tribunals operate independently of any national legal system eliminating room for interference by national courts, a stark contrast with tribunals constituted under other procedural rules whom national courts oversee.
- ICSID awards are automatically enforceable in any ICSID member state compared to non-ICSID awards which face the same enforcement challenges as commercial arbitration awards and may be denied recognition and enforcement by the host state courts and/or abroad.
However, to access the above protections (including the right to resolve disputes by arbitration), the investor and its investment must come within the scope of the relevant treaty, usually one between the host state and the investor’s home state. This usually requires the investor and their investment to come within the definitions under the treaty:
- The definition of “investor” usually pertains to the citizenship of the investor or the company’s registered office location.
- “Investment” is typically broadly defined as “every kind of asset” including property, shares, bonds, and rights under public law or contract.
It is entirely permissible for existing or prospective investors to restructure or structure their investments to access the above protections against adverse government measures. A proper assessment of relevant treaties is necessary to ascertain the applicability of remedies in the event of a dispute or the possibility of an investment structuring or restructuring.
Investors may be hesitant to claim against a state where they have operations. However, investment treaties can be effectively used to compel governments to negotiate through the application of mandatory negotiation periods, also known as “freezing periods.”
Other available remedies
Mining contracts (including concessions) and the host state’s national laws offer additional avenues for investors to seek redress. These either complement or serve as alternatives to remedies under international treaties, for example, when the latter is not available.
Contractual remedies
It is common for contracts with the host state (including concession) to contain clauses which are directly violated by adverse government measures, with stabilisation clauses being a notable example. Stabilisation clauses protect investors from adverse legal changes, requiring host states to provide compensation or remedies for measures negatively impacting investments. They are also likely to be relevant when pursuing an investment arbitration.
If breached, depending on the terms of the contracts, investors may be able to explore the amicable settlement of their dispute through negotiation or mediation, or through final and binding arbitration away from the courts of the host state.
National investment legislations
Although less common, host states sometimes provide guarantees to foreign investors under their national investment legislations. As with the international treaties, these usually include guarantees against expropriation and discrimination, as well as a promise to resolve any dispute related to the guarantees before an arbitral tribunal. Nigeria, Ghana and South Africa are examples of countries with these legislations, with the South African legislation only providing for consent to arbitration on a case-by-case basis.
Conclusion
Mining remains a high-risk, high-reward venture, with the opportunity for lucrative returns tempered by operational and other risks, such as adverse government measures. Investors can mitigate these risks by leveraging bilateral and multilateral treaties (including investment restructuring), national laws, and well-drafted contracts. These instruments ensure investors obtain protection, fair treatment, and compensation amid unpredictable government policies, especially in developing regions. Governments are equally advised to take these into account when amending relevant legislation and reviewing licenses.
For further information, please contact:
Matthew Weiniger KC, Partner, Linklaters
matthew.weiniger@linklaters.com
