Over the last decade, there have been an expression of varying perspectives towards the role and relevance of bilateral investment treaties (BITs). The content of BITs has evolved from being investor focused to a more balanced approach which takes into consideration the needs of the state party as well. Whilst some countries such as Brazil have eschewed BITs altogether and found alternative ways of participating in the International Investment Regime,2 Nigeria is still taking the BIT route in order to potentially boost foreign investment in the country. This article will highlight the features of Nigeria BITs before considering the uniqueness of the latest Morocco-Nigeria BIT. It is the writer's view that the Morocco-Nigeria BIT represents a major departure from the traditional BIT models. This paper further reflects on the missing gaps in the BIT and weighs up other potential options available to Nigeria in the future.
The story so far
Nigeria has currently signed 29 BIT's with 15 in force.3 Nigeria's BIT provisions are broadly divided into the substantive protections and procedural rights provisions. The substantive provisions include clauses such as Fair and Equitable Treatment (FET), Expropriation, Protection and Security, Most Favoured Nation (MFN) and the Umbrella Clause. The procedural rights include the cooling off period, access to local courts and arbitration. The BITs currently in force have similar standard provisions with a few minor differences.
These minor differences include the cooling off period which in the BITs is either three or six months. However, the Netherlands-Nigeria BIT has no cooling off period. The investor can proceed to arbitration without pursuing local remedies or otherwise. Some BITs also include an additional provision which imposes an obligation on the investor to go through the competent courts of the contracting party in whose territory the investment was made. The Finland-Nigeria BIT and the Nigeria-Spain BIT, which are both in force, contain such provisions.
Five Nigeria BITs exclusively provide for ICSID arbitration (France, Germany, Korea, Netherlands and the United Kingdom) while the others provide for both ICSID and adhoc UNCITRAL arbitrations. It is worthy of note that five BITs (Egypt, Finland, Spain, Switzerland and Turkey) contain fork-in-the-road provisions.4 Nevertheless, the Finland-Nigeria BIT contains the provision that an investor who has submitted the dispute to a national court may still have recourse to arbitration if, before a judgement has been delivered on the subject matter by a national court, the investor decides not to pursue the case any longer through national proceedings and withdraws the case.
Nigeria-Morocco BIT: New generation of Nigeria BITs?
The Nigeria-Morocco BIT was signed on 3 December 2016.5 Although the BIT is yet to come into force, it has received commendation as a potential step towards a more balanced form of intra-African investor protection treaty. However, a breakdown of the various clauses is necessary to see whether it is indeed ground-breaking especially in comparison to the other BITs that have emerged over the last few years.
Innovative new provisions include Article 24 on Corporate Social Responsibility. In addition to complying with all applicable laws and regulations of the host state and the obligations in the agreement, the investors and their investment should strive to make maximum feasible contributions to the sustainable development of the host State and local community through high levels of socially responsible practices. There is usually no balance between the rights an investor derives from BITs and the implementation of CSR initiatives by the investor. Both the Organization for Economic Co-operation and Development (OECD) and the International Labour Organization (ILO) had adopted two instruments in the area of CSR as far back as the 1970's. These are the OECD Guidelines for Multinational Enterprises (OECD Guidelines),6 adopted in 1976 and the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy (MNE Declaration)7 adopted in 1977. However, investors are not obligated to uphold these standards unless the host state mandates it. Article 24(2) of the Nigeria-Morocco BIT expressly states that investors should apply the ILO Tripartite Declaration on Multinational Investments and Social Policy as well as specific or sectorial standards of responsible practice where these exist.
Furthermore, Article 14 introduces impact assessment which investors must comply with. Investors must comply with environmental assessment screening in addition to conducting a social impact assessment of the potential investment. The imposition of such obligations on investors is a marked deviation from the more traditional BITs such as the Netherlands-Nigeria BIT and the Nigeria-United Kingdom BIT. Other investor obligations include the fact that investors have to take measures to combat corruption (Article 17), uphold human rights, act in accordance with core labour standards and comply with environmental management standards (Article 18), meet or exceed nationally and internationally accepted standards of corporate governance (Article 19) and employ high levels of socially responsible practices in their operations (Article 24). It should be noted that these obligations are in line with the 2008 Supplementary Act of the Economic Community of West African States whose objective is standardising investment protections within the economic bloc.8
The actual connotation of what constitutes fair and equitable treatment has been the subject of great academic discussion and debate. It is a key provision available to investors to protect their investment and one which has consistently been pleaded before investment arbitral tribunals. Investors are entitled to a minimum standard of treatment. Even if nationals of the host state are subject to the same treatment as the foreign investor, state responsibility may still arise if treatment falls below the level prescribed under customary international law.9 The debate surrounding what constitutes the standard has been broadly focused on whether it is gauged on the basis of customary international law standard or whether it is independent of all international standards and only to be interpreted against the backdrop of the specific BIT. The latter approach which is more of an autonomous approach, leaves more room to an arbitrator's imagination and is less restrictive than the former.10
Article 7 of the Morocco-Nigeria BIT expressly gives investors a minimum standard of treatment in accordance with customary international law, including fair and equitable treatment, full protection and security. All other Nigeria BITs (except France and Spain BIT) simply provide that each contracting party shall ensure fair and equitable treatment to investments without setting the exact standards. Even though the Morocco-Nigeria BIT provides for greater certainty by expressly prescribing the applicable customary international law minimum standard, there was a missed opportunity in this agreement. A more precise and detailed definition could have been offered. Using the text of the EU-Canada Comprehensive Economic Trade Agreement (CETA) as an example, the final text of CETA show-cased some advancement in the drafting of FET clauses. The particulars of what constitutes a breach of FET were clearly itemised in the text.11 Nevertheless, the FET standards in the Morocco-Nigeria BIT are not absolutely imprecise to leave the host states downright vulnerable to broad interpretations of the standards.
One of the main discussions arising out of the proposed Transatlantic Trade and Investment Partnership (TTIP)12 between the European Union and the United States will be the inability of companies to sue the EU over environmental laws. This is in response to a cluster of Investor State Dispute Settlement (ISDS) claims over the past decade in which investors sue host states based on environmental laws and regulations that do not favour them.13 Taking a cue from the TTIP, Article 13 of the Morocco-Nigeria BIT emphasises the host state's regulatory powers with regards to the environment. Article 13(2) states that the parties recognise that each party retains the right to exercise discretion with respect to the regulatory, compliance, investigatory and prosecutorial matters and to make decisions regarding the allocation of resources to enforcement with respect to other environmental matters determined to have higher priorities. This provision ensures that host states are not open to claims regarding their non-discriminatory environmental measures.
Additionally, the BIT contains novel procedural provisions on dispute settlement. Article 26 establishes a joint committee to pre-assess investor claims. Before initiating an eventual arbitration procedure, any dispute between the parties shall be assessed through consultations and negotiations by the joint committee. Although the establishment of a joint committee is similar to that contained in CETA, the pre-assessment provision in Article 26(1) is what makes it unique. Article 26(1)(c) goes further on to state that whenever possible, representatives of the investor and representatives of the parties or non-party entities involved in the measure or situation under consultation shall participate in the bilateral meeting. Article 26(5) states that if the dispute cannot be resolved within six (6) months from the date of the written request for consultations and negotiations, the investor may, after the exhaustion of local remedies or the domestic courts of host state, resort to international arbitration. In terms of sequence therefore, the investor must first submit any dispute to consultations and negotiations before a joint committee, potentially followed by litigation before national courts of host state and ultimately international arbitration.
Unlike previous BIT's which contain less precise preconditions for arbitration, this treaty strives to make arbitration under the ICSID convention or UNCITRAL rules a last resort. The major difficulty with Article 26 however lies in the detailing. The establishment of a joint committee is not clear. It raises the question of whether the joint committee will be assembled adhoc or have a permanent composition. The article is also silent on the legal implication of the assessment by the joint committee and if the negotiations at the bilateral meetings are to be legally binding.
Not to be left out are the cost implications of the dispute resolution provisions of the BIT. An investor with a potential claim will have to go through the joint committee bilateral meetings and local courts before being able to proceed to arbitration. Even though this makes the dispute resolution provisions more balanced between the host state and the investor, it may be detrimental to the investor as it is not cost and time efficient. The Nigerian litigation system can be cumbersome with long processes and undue delay, such that disputes before the national courts may take an average length of 10 years where the appellate system is fully explored. An investor may instead be encouraged to treaty shop in order to come under a BIT such as that between the Netherlands and Nigeria which has a more direct and generous ISDS provision. Article 12 of the Netherlands-Nigeria BIT provides that any dispute which cannot be settled within a reasonable lapse of time by means of diplomatic negotiation can be referred to an arbitral tribunal. There is no definition of reasonable and so the investor can proceed to arbitration as soon as practicable.
The BIT necessity fallacy
Evidence suggests that BITs play a very minor role in attracting foreign direct investment (FDI) in a country.14 A case in point is Brazil which is the eighth largest economy in the world yet has no BIT in force. Instead, Brazil adopted a pioneering template known as the Cooperation and Facilitation Investment Agreement (CFIA) which both protects investors and ensures quality investment. The CFIA which is based on three pillars namely risk mitigation, institutional governance and thematic agendas for investment cooperation and facilitation, sets itself apart from conventional BITs by preserving the developmental strategies of the host state while still meeting the various needs of investors.15
Since 2010, South Africa has slowly phased out its BITs through unilateral termination and non-renewal. These BITs were signed post-apartheid as a way of attracting FDI into the country. The South African backlash against ISDS is mostly in reaction to the 2007 Foresti case.16 In this case, some investors from Italy and Luxembourg filed a claim against South Africa alleging indirect expropriation and a breach of Fair and Equitable treatment standards. In 2002, as part of its Black Economic Empowerment (BEE) policy, South Africa had passed the Minerals and Petroleum Resources Development Act (MPRDA). This Act required black equity ownership in mining companies. The investors contended that this constituted an expropriation of their mineral rights. Although the matter was eventually settled out of court, the South African government concluded in its review of BITs that it posed risks and limitations on the ability of the government to pursue its constitutional-based transformation agenda. Nonetheless, the South African economy continues to get a steady inflow of Foreign Direct Investment.17
As earlier mentioned, ISDS provisions are one of the main components of BITs. The ISDS landscape is however shifting gradually.18 There has been a questioning of the rightfulness of the conventional ISDS model. In November 2017, the Working Group III of the United Nations Commission on International Trade Law (UNCITRAL) held a week long meeting to discuss ISDS reform. This became necessary due to the emerging divergent attitude of countries towards ISDS. There are some countries such as the USA and Japan who agree that reform is necessary but believe that it should be gradual and incremental. The change effected by Nigeria in the Morocco-Nigeria BIT is perhaps an example of this. It was not a completely radical departure from the traditional BIT model but it effected changes in its ISDS provisions to make it more balanced by restricting access to investor-state arbitration.
There are countries which advocate for reform of the current system through the development of alternative models. The European Union has been a supporter of the establishment of an International Investment Court. The Comprehensive, Economic and Trade Agreement (CETA) signed between the EU and Canada which has been provisionally in force since September 21 2017 contains the establishment of an investor-state dispute court. However, before the ratification of CETA by the European Parliament, Belgium made a request to the ECJ to rule on the legality of this Multilateral Investment Court. This ruling is still pending.19
Brazil continues to sign its Cooperation and Facilitation Investment Agreement (CFIA) with other countries. The CFIA consists of no Investor-State arbitration but instead it provides for mediation by a joint committee appointed by the parties. If mediation and settlement by the joint committee fails, then state to state arbitration will be permitted.
Using the traditional model of BITs as a backdrop, Nigeria has certainly taken progressive steps in the Morocco-Nigeria BIT. As highlighted in this paper, there are still options that Nigeria may consider in future in order to ensure fair and balanced contractual obligations keeping in mind its developmental aspirations. While on the world stage, Nigeria's position on BITs and especially ISDS remains unclear, a more radical option may be to shun BITs altogether as some countries have done. However, a gradual but well defined approach to BITs is just as agreeable.
1 Busola Bayo-Ojo, Associate Dispute Resolution department, SPA Ajibade & Co., Lagos, NIGERIA.
2 Jose Henrique Vieira Martins "Brazil's Cooperation and Facilitation Investments Agreements (CFIA) and Recent Developments" (2017) available at https://www.iisd.org/itn/2017/06/12/brazils-cooperation-facilitation-investment-agreements-cfia-recent-developments-jose-henrique-vieira-martins/ > accessed on 11th October 2018.
3 UNCTAD Investment Policy Hub < http://investmentpolicyhub.unctad.org/IIA/CountryBits/153 > accessed on 11th October 2018.
4 A provision in investment treaties which restricts the investor's options for seeking redress to either an action before the local courts or to international arbitration. For more information on 'Fork in the Road' provisions, see Lucy Reed, Jan Paulsson and Nigel Blackaby Guide to ICSID Arbitration 2004, Kluwer Law International p. 58.
5 Reciprocal Investment Promotion and Protection Agreement between the Government of the Kingdom of Morocco and the Government of the Federal Republic of Nigeria signed at Abuja on 3rd December 2016.
6 Organisation for Economic Co-operation and Development (OECD) guidelines for multinational enterprises. See http://www.oecd.org/investment/mne/1922428.pdf accessed on 11th October 2018.
7 Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy adopted by the Governing Body of the International Labour Office at its 204th Session (Geneva, November 1977) and amended at its 279th (November 2000), 295th (March 2006) and 329th (March 2017) Sessions. See < https://www.ilo.org/wcmsp5/groups/public/---ed_emp/---emp_ent/---multi/documents/publication/wcms_094386.pdf> accessed on 11th October 2018.
8 Supplementary Act A/SA3/12/08 adopting community rules on investment and the modalities for their implementation with ECOWAS. See http://investmentpolicyhub.unctad.org/Download/TreatyFile/3266 accessed on 11th October 2018.
9 The international minimum standard is a norm of customary international law which governs the treatment of aliens, by providing for a minimum set of principles which States, regardless of their domestic legislation and practices, must respect when dealing with foreign nationals and their property.
10 Jadeau, Flavien and Gelinas, Fabien, "CETA's Definition of the Fair and Equitable Treatment Standard: Toward a Guided and Constrained Interpretation" (March 11, 2016), in A. Bjorklund et al., eds., The Comprehensive Economic and Trade Agreement between the European Union and Canada (CETA), Special Issue: Transnational Dispute Management (2016), available at SSRN: https://ssrn.com/abstract=2931503 or http://dx.doi.org/10.2139/ssrn.2931503 accessed 27th November 2018.
11 The BIT states that "fair and equitable treatment" in Article 7 (2)(a) 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 a party.
12 In 2017, US president Donald Trump suspended TTIP negotiations. On March 29 2018, the US department of commerce secretary, Wilbur Ross, indicated the administration would be willing to resume TTIP negotiations.
13 See Metalclad Corporation v. The United Mexican States (ICSID Case No. ARB/(AF)/97/1); SD Meyers v. Canada (A NAFTA dispute decided under UNCITRAL Arbitration Rules) and Vattenfall AB and Others v. Federal Republic of Germany (ICSID Case No. ARB/12/12). See also
Tamara L. Slater "Investor-State Arbitration and Domestic Environmental Protection" (2015) 14 Washington University Global Studies Review 1.
14 Lisa E. Sachs and Karl P. Sauvant "BITS, DTTs and FDI flows: An overview" in The Effect of Treaties on Foreign Direct Investment: Bilateral Investment Treaties, Double Taxation Treaties and Investment Flows, Karl Sauvant and Lisa Sachs (eds.), (Oxford: Oxford University Press, 2009).
15 The Cooperation and Facilitation Investment Agreement available at http://www.mdic.gov.br/arquivos/CFIA-Presentation-EN.pdf, accessed 11th October 2018.
16 Piero Foresti, Laura de Carli & others v. Republic of South Africa (ICSID case No. ARB/(AF)/07/1).
17 South Africa Economic Update April 2018 available at http://pubdocs.worldbank.org/en/798731523331698204/South-Africa-Economic-Update-April-2018.pdf accessed 11th October 2018.
18 Anthea Roberts, "Incremental, System and Paradigmatic Reform of Investor-State Arbitration" (2018) 112 American Journal of International law.
19 Pedro Martini, "Brazil's New Investment Treaties: Outside Looking...Out?" available at < http://arbitrationblog.kluwerarbitration.com/2015/06/16/brazils-new-investment-treaties-outside-looking-out-2/>, accessed11th October 2018.
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