Doing well by doing good
Impact investing offers great potential for Africa
Welcome to the fourth edition of Africa Focus. This issue explores various ways in which African nations are becoming more hospitable to business and investment interests, depicting a fast-changing continent where—despite undeniable challenges—there is much cause for optimism.
Bright spots include regional measures adopted to attract power sector investment, discussed in "Protecting energy sector investors in West Africa." In "Doing well by doing good," we consider the rise of impact investing, which presents great opportunities both for investors seeking solid returns and for African governments looking to address socioeconomic challenges. The continent also has the potential to lead on developing best practices with its maritime shipping sector, as we explain in "Sustainability in Africa's maritime industry." In "Proposed amendments to South Africa's Companies Act," our team provides an update on regulatory changes advanced to create a more business-friendly climate. The degree to which several African countries have succeeded on this front is the subject of "World Bank report highlights successes in Africa." Finally, we focus on the outlook for arbitration in "Resolving disputes in Africa's mining sector."
Promising developments in Africa extend beyond the business sphere. This spring, White & Case is hosting and sponsoring a private opening preview of Sotheby's auction of Modern and Contemporary African Art in London. This client event celebrates the work of artists across the continent, with a strong focus on the independence and colonial eras. Modern and Contemporary African Art, Sotheby's newest department, was formed in 2016 to address growing market demand. Sales in this category have broken more than 50 artist records and attracted collectors from 40 countries across six continents.
We hope you enjoy this edition of Africa Focus. Please let us know if there are topics or issues you would like us to cover in the future.
Impact investing offers great potential for Africa
Countries make strides by streamlining regulations across 11 key areas
Several of the contemplated changes may improve South Africa's business climate
Africa has an opportunity to lead on environmental and social global best practices
The Energy Protocol of the Economic Community of West African States seeks to attract power-sector investment
International arbitration can benefit the parties to a range of mining disputes
International arbitration can benefit the parties to a range of mining disputes
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Mining is one of Africa's flagship industries and a growth engine for many of the continent's countries, such as Angola, Côte d'Ivoire, the Democratic Republic of the Congo (DRC), Ghana, Mozambique, Namibia, Nigeria, South Africa, Tanzania and Zambia. The nature of the mining business, which involves significant long-term capital investments, high potential returns and sensitive political issues, makes disputes inevitable. It is worth exploring if and to what extent international arbitration offers a suitable and effective dispute resolution mechanism for typical mining disputes.
While each dispute is unique, from a systematic perspective, Figure 1 represents an attempt to classify typical mining disputes.
We consider the suitability of (international) arbitration as a dispute resolution mechanism in each of these relationships (see Figure 1):
If a dispute arises, the mining company will generally have three ways to resort to international arbitration. First, it may rely on an arbitration clause contained in the concession agreement. Some countries, such as Namibia1 and Tanzania,2 provide for model concession agreements that contain an arbitration clause.
Second, absent such a clause, the mining company may be able to rely on the host nation's legislation (such as a mining code), which sometimes provides a standing offer by the host nation to arbitrate disputes with foreign miners (as is the case, for example, in the DRC and Ghana).3
Third, depending on the type of governmental measure at issue, the mining company may have access to investment arbitration under an investment protection treaty. Africa accounts for 922 bilateral investment treaties (BITs), most of which refer to investment arbitration in case of dispute, very often under the International Centre for Settlement of Investment Disputes of 1965 rules.4 Having been ratified by 154 member nations (48 in Africa alone),5 the ICSID convention sets forth a self-contained enforcement regime, which requires mandatory recognition and enforcement of a valid award.6 Besides these BITs, there are regional investment agreements like the Investment Agreement for COMESA and the SADC Protocol on Finance and Investment, which also contain provisions for investment arbitration.
International arbitration is not only available to mining companies and foreign investors. A host nation may seek recourse against a mining company under either the concession agreement or the applicable law, for example, for failing to perform the exploration or exploitation, not paying the concession fees, taxes and bonuses, or for environmental damages. In such cases, international arbitration is also an option, if the arbitration clause allows the dispute to be decided by an arbitral tribunal.
Finally, the use of international arbitration to resolve disputes with the host nation is not universally supported on the continent. Tanzania recently modified its law to prohibit the use of international arbitration in mining/foreign investment contracts following the initiation of two large-scale arbitrations by foreign companies.7
Most reported mining arbitrations are investment arbitration cases, which often become public. Over the years, several reported investment arbitration cases have accumulated, helping mining companies to better assess their own prospects of success. Among these reported Africa-related mining investment arbitration cases, the following stand out:
First Quantum v. Democratic Republic of Congo,8 an ICSID arbitration related to the revocation of copper mining titles and permits of a Canadian mining company by the DRC. The case was complex and multifaceted. In 2009, the DRC cancelled First Quantum's exploration permit for a mine and ordered the site closed because of alleged contractual violations. First Quantum, together with its co-investors in the project, launched an ICC arbitration against the DRC's state mining entity in early 2010. Meanwhile, the DRC granted First Quantum's mining rights to another investor, who in turn sold it to a third investor in August 2010, prompting First Quantum to initiate litigation to halt the sale. After the DRC withdrew First Quantum's permit for another mine, the company also initiated an ICSID claim against the state through a subsidiary. Eventually, all claims were settled for US$1.25 billion in 2012 and the arbitration proceedings were discontinued.9
Miminco also involves the DRC.10 In this case, which also provided for dispute resolution under both ICSID and ICC, the investor, a Delaware-based mining company, alleged that DRC officials and soldiers seized the mine and confiscated its equipment. Moreover, Miminco was evicted from its office premises in Kinshasa. Miminco contended that during the war the mining concessions were invaded, pillaged and unlawfully operated by the Congolese civil and military authorities, and Miminco sought damages of more than US$35 million.11 The parties eventually settled the case for US$13 million.12
Piero Foresti et al. v. South Africa arose out of the introduction of Black Economic Empowerment (BEE) provisions in the South African Mineral and Petroleum Resources Development Act of 2002.13 BEE provisions favored historically disadvantaged persons by requiring the divestiture of equity by the mining operators to allow the disadvantaged to access the mining sector. An ICSID tribunal dismissed with prejudice the Italian mining investors' claims under the Italy-South Africa BIT and the Luxembourg-South Africa BIT (one of the co-claimants was an Italy-based corporation organized under the laws of Luxembourg used by some of the Italian individual investors) and ordered the investor to reimburse South Africa €400,000 for fees and costs. Interestingly, South Africa retained the BIT with Italy,14 but not those of many other European states (including Luxembourg).15 This case is also relevant for the manner in which the tribunal handled the intervention of affected third parties in the proceedings. The tribunal drafted a set of rules for amicus intervention. The affected third parties were: (1) granted access to some of the parties' submissions; (2) authorized to make written submissions; and (3) invited to give feedback to the tribunal on the effectiveness and fairness of their participation in the case.16
In contrast, commercial arbitration proceedings are often confidential, and it is difficult to determine the number of commercial mining arbitration cases dealing with concession agreements, construction works, supply chains, joint ventures and operations. Still, the trade press and even general press have reported on some cases due to their public policy impact (especially if there were parallel investment proceedings). Among the reported commercial arbitration cases, Senegal v. ArcelorMittal (conducted under the ICC Rules in Paris) is notable. There, in a reversal of roles, the host nation sued the mining company.17 Senegal brought a claim for rescission of a US$2.2 billion contract against ArcelorMittal. The claim was based on ArcelorMittal's suspension of works for the development of an iron ore mine and related infrastructure projects. Senegal won the case and the company eventually paid US$150 million to settle.18
As the mining industry grows in many African countries, so does the potential for disputes. This holds particularly true in times of resource nationalism, when host governments try to act against investors to increase their control of, and the value derived from, developing natural resources located in their territories.19 For many of the potential disputes, international commercial arbitration provides an effective dispute resolution mechanism with features preferable to domestic court proceedings. In some cases with unlawful host nation intervention, investment arbitration will offer the only effective remedy. Mining companies are well advised to devise their dispute resolution strategy before disputes arise.
The authors would like to thank Ms. Natalia Filandrianou, LL.M., for her valuable research contributions.
1 Article 29 of the 1998 Model Petroleum Agreement (https://www.resourcecontracts.org/contract/ocds-591adf-0557496060/view#/).
2 Clause 28 of the 2013 Model Production Sharing Agreement (https://www.resourcecontracts.org/contract/ocds-591adf-8006566420/view#/).
3 Article 319 of the DRC Mining Code (as amended in 2018); Section 27(3) of the Ghana Minerals and Mining Act 2006.
6 Article 54(1) of the ICSID Convention.
8 International Quantum Resources Limited, Frontier SPRL and Compagnie Minière de Sakania SPRL v. Democratic Republic of the Congo, ICSID Case No. ARB/10/21 cf. https://www.italaw.com/cases/567 https://globalarbitrationreview.com/article/1030879/first-quantum-settles-congo-claims.
9 On April 12, 2012, the ICSID Tribunal issued a procedural order-taking note of the discontinuance of the proceeding, cf. https:// icsid.worldbank.org/en/Pages/cases/casedetail. aspx?CaseNo=ARB/10/21. According to a press release by the company all claims were settled in March 2012, cf. first-quantum.com/Media-Centre/Press-Releases/Press-Release-Details/2012/First-Quantum-Closes-Sale-of-Residual-DRC-Assets-to-ENRC-and-Finalizes-Settlement-of-All-Claims-in-Relation-to-DRC-Operations/default.aspx
10 Miminco LLC v. Democratic Republic of the Congo (Consent Award), ICSID Case No. ARB/03/14, 19 November 2007, Arbitration Intelligence Materials.
11 Miminco LLC v. Democratic Republic of the Congo (Consent Award), ICSID Case No. ARB/03/14, 19 November 2007, Arbitration Intelligence Materials, pp. 4, 6.
12 Miminco LLC v. Democratic Republic of the Congo (Consent Award), ICSID Case No. ARB/03/14, 19 November 2007, Arbitration Intelligence Materials, p. 4.
13 Piero Foresti, Laura de Carli and others v. Republic of South Africa, ICSID Case No. ARB(AF)/07/1, cf. https://www.italaw.com/cases/446; Burnett/Bret, Arbitration of International Mining Disputes, OUP 2017, Appendix 2, p. 307, para. 60.
16 https://www.italaw.com/sites/default/files/case-documents/italaw8035.pdf; see also de Paor, Climate change and arbitration: annex time before there won't be a next time, Journal of International Dispute Settlement, Volume 8, Issue 1, 1 March 2017, pages 179–215.
17 Senegal wins court case against Arcelor Mittal – government: https://www.reuters.com/article/senegal-arcelormittal/senegal-wins-court-case-against-arcelor-mittal-government-idUSL5N0H64EZ20130910.
18 Burnett/Bret, Arbitration of International Mining Disputes, OUP 2017, Appendix 2, p. 307, para. 65.
19 Burnett/Bret, Arbitration of International Mining Disputes, OUP 2017, p. 29, para. 5.01.
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