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ICSID and the Investor-State Dispute Settlement System (ISDS) to be or not to be for African states?2015 Annual Conference of the Chartered Institute of Arbitrators, Nigeria Branch,

Abuja 3rd-4th November 2015

Rose Rameau, MCIArb, Esq., Fulbright Scholar,

University Of Ghana School of Law

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State consent in investment arbitration

AgendaI. Consent in investment arbitrationII. How does the notion of competence –competence affect the consent Of sovereign states?III. B.G Group plc v. Argentina

a. Factual background and procedural history

b. Consent in B.G Group plc v. Argentina.IV. What does BG mean to African States?

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Consent generally

I. CONSENT GENERLLY

A. Where does consent come from?An agreement to arbitrate is the "foundation stone" of international arbitration

In order for an arbitral tribunal to have jurisdiction in an arbitration proceeding; the parties

must have had a contractual obligation in which they consent to submit themselves to the

jurisdiction of the tribunal.

-Clause Compromissoire (Compromissory clause)

-Submission agreement or Compromise

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Continued Introduction

B. Competence-Competence or Kompetenz-Kompetenz

• Article 41of the ICSID Convention states: (1) The Tribunal shall be the judge of its own competence.

• (2) Any objection by a party to the dispute that the dispute is not within the jurisdiction of the Centre, or for other reasons is not within the competence of the Tribunal, shall be considered by the Tribunal which shall determine whether to deal with it as a preliminary question or to join it to the merits of the dispute

C. Results

Arbitration agreement is the nucleus of the arbitration process.

1. It grants the power to the arbitrators to resolve the dispute

2. It burdens the parties to respect the agreement by not seeking other means of dispute resolution that is not provided in the agreement

3. Thus, consent to arbitrate derives from the arbitration agreement.

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Continued consent…

D. True

1) Domestic arbitration

2) Commercial arbitration

? Investment arbitration.

*** Investment arbitration presents some particularities in this respect • Investment treaty arbitration – the double-key test– the host State's offer to arbitrate disputes with a

defined class– the investor's acceptance of that offer

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II. Consent in investment arbitration

A. Where investment arbitration is concerned, there is usually

1. No traditional arbitration agreement

2. Consent is not easily established- It is based on investment treaties between two sovereign states for the future consent of potential claimants or investors

3. This is similar to a third-party beneficiary contract

contracting states make promises to each other for the benefit of their respective citizens.

4. In international commercial arbitration, the agreement that the parties sign usually grants power to the arbitrators to resolve the

difference.

5. In contrast, in international investment arbitration, the mere signature to the international agreement, such as a BIT, does

not in itself grant the tribunal jurisdiction over a sovereign state

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II. Consent in investment arbitration Continued

B. What happens when there is an objection to state consent?

1. Objection to consent triggers the jurisdiction of the tribunal.

2. Tribunal should not proceed if there is no consent to arbitrate.

3. The same tribunal that decides whether a state consents to the proceeding is the same tribunal that will decide whether it has has competence to hear the matter. (art 41 ICSID)

4. Competence-Competence theory conflicts with the principle of state’s sovereignty.

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To what extent DOES the notion of competence-competence minimise the power of state consent

in investment aRbitration?

1. A state should be allowed to consent to arbitration by articulating in its domestic laws and other instruments how and when arbitration would proceed.

2. Mere signature of BIT does not mean that the state has consented.

3. Signature to BIT is an offer to consent in the future. States that have included local litigation and or negotiation prior to arbitration intend to have have those provisions as a condition precedent.

- B.G Group plc. v. Argentina exposes discussions on the battle of consent and the competence-competence theory.

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IV. B.G Group plc v. Argentina

A. Brief fact:

- UK-Argentina BIT which requires that investors submit disputes to the host state court for 18 months before filing for arbitration.

- BG argued that the local litigation requirement should be interpreted as a non-mandatory step.

- The tribunal agreed and awarded 185 million in BG’s favor.

- The award was confirmed by a district court in Washington then on appeal it was set aside on the basis that the tribunal exceeded its mandate by waiving the local litigation requirement.

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IV. B.G Group plc v. Argentina

Issues before the US supreme Court:

1. Whether the tribunal has exceeded its powers in its interpretation of Article 8 of the BIT?

Federal Arbitration Act: “A Court may annul an award if it finds the tribunal exceeded the power mandated”

2. Should deference be given to the tribunal’s decision, or should there be a de novo review of the tribunal’s factual and legal analysis? In order words, who should interpret the local litigation requirement?

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IV. B.G Group plc v. Argentina

AT & T Technologies: Issues regarding validity of the agreement should be determined by the court… de novo review.

First Options: Jurisdiction v. admissibility. Admissibility would mean a mere procedure and the tribunal would decide. Jurisdiction is substantive means the court would decide.

Here, the Court held this was just procedure.

Howsam: Procedural issues such as time bar similar to local litigation requirement so the Sup. Court should give deference to the tribunal’s decision

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IV. B.G Group plc v. Argentina

B. Consent in BG

Majority Decision

- Contractual analysis in relation to local litigation requirement.

- This was a procedural issue centered on admissibility and not jurisdiction.

- BIT was viewed as a contract in which the parties’ intention were to be assessed in the same way as for private agreement. Consent was not specifically expressed as a condition on the fulfillment of the local litigation requirement. So non-compliance should not invalidate the arbitration proceeding.

- Georgia v. Russian Federation, Case concerning Application of the International Convention on the Elimination of All Forms of Racial Discrimination (ICJ, Decision on Preliminary Objections, 1 April 2011, Paras 133-135), and highlighted that the trend in public international law has clearly favoured the strict application of procedural prerequisites (para 250).

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IV. What does BG mean to African States?

1. STOP SIGNING BIT.

2. FDI WILL CONTINUE TO INCREASE IN AFRICA.

3. REVIEW STATE INVESTMENT LAWS AND PLACE INVESTORS ON NOTICE.

4. RENEGOTIATE BIT’S AND REDRAFT CLAUSES TO REFLECT BETTER BALANCE

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IV. What does BG mean to African States?

1. STOP SIGNING BIT.

THE GHANA EXAMPLE• Signed 26 BITs; only 8 in force

• China, Denmark, Germany, Malaysia, Netherlands, Serbia, Switzerland, UK

• No BITs with African nations are in force• All include:

• Fair & Equitable Treatment• Most Favoured Nation• Expropriation

• All include arbitration:• ICSID or UNCITRAL• Ghana-China: ad hoc arbitration for quantum only

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IV. What does BG mean to African States?

2. FDI WILL CONTINUE TO INCREASE IN AFRICA.

Ghana has fewer BITs

in force than:

• Senegal (12)

• Nigeria (13)

• Cameroon (9)

• South Africa (17)

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IV. What does BG mean to African States?

3. REVIEW STATE INVESTMENT LAWS AND PLACE INVESTORS ON NOTICE.

- A “right to deny benefits” to “mailbox” or “brass name plate” companies and introduce the possibility of lifting the corporate veil

- Energy Charter Treaty

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IV. What does BG mean to African States?

4. RENEGOTIATE BIT’S AND REDRAFT CLAUSES TO REFLECT BETTER BALANCE

• All BITs include:• Fair & Equitable Treatment• Most Favoured Nation• Expropriation

• All include arbitration:• ICSID or UNCITRAL• -----------------------------------------------------------------------

--• Observance of obligations ("umbrella clauses”• Full protection and security

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Full protection and security clause

Physical security– obligation to protect investments from harm– due diligence standard– relevance of both acts and omissions of the

State – can be breached by failure to prevent conduct

of third parties– compensation for damage

Asian Agricultural Products Ltd v. Sri Lanka– compensation for requisitioned property

American Manufacturing and Trading, Inc. v. Zaire

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Questions?

Rose Rameau, MCIArb, Esq., Fulbright Scholar,

Thank you!

These are presentation slides only. The information within these slides does not constitute definitive advice and should not be used as the basis for giving definitive advice without checking the primary sources.

University Of Ghana School of Law