Firms in foreign places

COMPANIES THAT FAILED TO COMPLY WITH HOST’S LAWS

Arbitration among companies and government is on rise in Africa.

Arbitration is becoming more prevalent in Africa, given the increased trade between companies and government. A recent case before the International Centre for the Settlement of Investment Disputes, under the auspices of the World Bank, set a new precedent for companies flouting local laws while operating in a foreign jurisdiction.

In the matter between British-owned Cortec Mining and the Kenyan government, it was found that an investment will not enjoy any protection under a bilateral investment treaty if a company flouts local laws.

Cortec argued its investment in Kenya was “nationalised” in 2013 after they had spent six years and millions of dollars in exploration and development.

But the Kenyan government said the special mining licence issued to Cortec could not have been expropriated because it was illegally issued for an area where mining was prohibited.

Ben Sanderson, the global manager of international arbitration practice at DLA Piper, who acted for the Kenya government, says the Kenyan and British investment treaty, unlike similar treaties, did not include express wording that required the company to prove it had complied with Kenyan local laws.

However, the arbitration tribunal agreed with Kenya’s arguments that, despite exact wording in the treaty, it is implied that an investment will only enjoy protection if the company complies with the local laws of its host.

Sanderson says arbitration is becoming much more prevalent in Africa, given the increased trade among companies and between companies and governments.

The growth in commercial arbitration (between companies) is in a wider variety of sectors than previously.

It now stretches across telecommunication, real estate, construction and infrastructure.

“Governments are quite savvy to this rise in disputes and arbitration.

“Some are even helping to set up arbitration centres,” Sanderson told Moneyweb.

There are centres in Kenya, Ghana, Egypt, Rwanda and Nigeria.

South Africa reviewed its investment laws and regulations in 2007 and subsequently terminated several bilateral investment treaties to which it was a party.

Law firm Webber Wentzel said in an e-alert that government sought to “substitute” the treaty protections with domestic legislation, which ultimately led to the passing of the Protection of Investment Act.

The act grants the government the right to take measures to “redress historical injustices; uphold the rights, values and principles of the Constitution of the Republic of South Africa; promote and preserve cultural heritage, foster economic development, protect the environment; and achieve the progressive realisation of socio-economic rights”.

The act does not provide for compulsory investor-state arbitration, and subjects disputes to the South African domestic courts.