Asia international dispute resolution webinar series

International dispute resolution in Africa

Presentation by Brian King and Elliot Friedman Freshfields Bruckhaus Deringer LLP

Increasing Asian investment in Africa

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Types of Investments Asian Investments in Africa by sector, 2011 – 2013

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Examples of Recent Asian Investments in Africa Wilmar International Ltd. (Singapore) acquires 27.5% stake in Compagnie Sucriere Marocaine De Raffinage SA (Morocco) • US$279 million (April 2013)

Korea Investment Corp. (Korea) acquires IHS Holdings Ltd. (Nigeria) • US$242 million (July 2013)

China Merchants Holdings (International) Co. Ltd. (Hong Kong) acquires 23.5% stake in Port de Djibouti S.A. (Djibouti) • US$185 million (February 2013)

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Recent Asian Investments in the African Oil and Gas Sector China National Offshore Oil Corp. acquires stake in Tullow Oil (Uganda) •

US$2.9 billion (2011-12)

Sinopec (China) acquires 33% stake in Apache Corp.’s operations in Egypt •

US$3.1 billion (2013)

Temasek (Singapore) acquires 20% stake in LNG block in Tanzania •

Approx US$1.3 billion (2013)

ONGC Videsh Ltd. (India) acquires 10% stake in Rovuma Offshore Area 1 Block (Mozambique) •

US$2.4 billion (2013)

Energi Mega Persada Tbk (Indonesia) acquires 25% stake in Buzi Hydrocarbons Pte. Ltd. (Mozambique) •

US$175 million provisional price (2013)

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The Case for Investment in Africa Steady and projected growth • International Monetary Fund estimates Sub-Saharan Africa alone will grow by nearly 6 percent this year • IMF estimates that Africa will have world’s fastest-growing economies during the next five years • Trade between Africa and the rest of the globe increased by roughly 200 percent between 2000 and 2011 • Africa's GDP is expected to reach US$2.6 trillion by 2020

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Overall economic growth

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Economic Growth, cont.

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Investment risks • Political instability

• Civil unrest

• Unfair taxation measures

• Discriminatory judicial or administrative system

• Resource nationalism

2013 Political Risk Assessment © Maplecroft, 2013 8

Risk mitigation: international arbitration 1. Investment treaties 2. Foreign investment laws 3. International commercial arbitration

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1. Bilateral Investment Treaties (BITs) Singapore

Singapore – Xanadu BIT

Xanadu (host state)

(home state)

Investor has a right to bring an arbitration against the state for violation of the BIT

Singapore investor in Xanadu (natural person or company)

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Protections provided by investment treaties Bilateral Investment Treaties (BITs) provide substantive protections against government actions • Fair and equitable treatment • Full protection and security • No expropriation without compensation • “Most favored nation” and “national” treatment • Free repatriation of investment and returns • No arbitrary or discriminatory treatment • “Umbrella” clause • Substantive protections reach executive, legislative and judicial actions

Enforcement mechanism: investor-state arbitration Key criteria to qualify for BIT protection • Qualifying “investor”: nationality-based • Qualifying “investment”: broadly defined 11

Existing investment treaties Many Asian nations have no, or only a few, bilateral investment treaties with African countries: • Japan has only one: Egypt • Malaysia has only four: Morocco, Ethiopia, Burkina Faso and Algeria • The Philippines has none

Does that leave investors unprotected? Not necessarily.

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Structuring investments in Africa Investors can structure their investments in Africa

Netherlands-Nigeria Investment-Protection Treaty

Investment in Nigeria

Singaporean company

Dutch B.V. (special purpose vehicle)

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Careful due diligence needed Not all investment treaties provide the same level of protection: • Some treaties have more robust substantive protections than others • Some treaties limit the ability of investors to arbitrate against a State • Some treaties require substantial business activities in state of incorporation

But MFN clauses may expand structuring options

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African countries that have BITs providing for investor-state arbitration with the UK, the Netherlands, and France Note: Not all the BITs represented here necessarily offer the full suite of investor protections or provide for investor-state arbitration. When structuring an investment, be sure to check the terms of the relevant BIT and the presence of an MFN clause.

UNITED KINGDOM NETHERLANDS

FRANCE

TUNISIA MOROCCO ALGERIA ALGERIA

LIBYA LIBYA

EGYPT

SENEGAL MALI MALI

CAPE VERDE

NIGER

SUDAN

GAMBIA NIGERIA NIGERIA BURKINA FASO GUINEA

SOUTH SUDAN

ETHIOPIA ETHIOPIA ETHIOPIA

CAMEROON LIBERIA GHANA CÔTE D’IVOIRE

UGANDA KENYA

BENIN CONGO

DEMOCRATIC REPUBLIC OF THE CONGO

BURUNDI TANZANIA MALAWI

MADAGASCAR

NAMIBIA

MAURITIUS SWAZILAND SOUTH SOUTH AFRICA AFRICA

Source: UNCTAD ZIMBABWE

LESOTHO

Structuring investments – a well-known Japanese example Saluka Investments BV v. Czech Republic (2006) • Japanese company, Nomura, formed Dutch subsidiary, Saluka, to invest in Czech Republic • Saluka initiated arbitration against the Czech Republic under the NetherlandsCzech Republic BIT • Saluka treated as a Dutch investor despite the fact that its parent was Japanese • Result: Award in favor of investor, followed by a substantial settlement

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Structuring investments – when? Structuring (or restructuring) should take place before a dispute arises • Mobil Corporation v. Venezuela, ICSID Case No. ARB/07/27 (2010) - After initial investment, and onset of aspects of dispute with Venezuela, Mobil restructured corporate chain to include Dutch entity and initiated arbitration based on Netherlands-Venezuela BIT - Tribunal extended BIT protection to claims arising after the restructuring, but not to disputes that had ripened prior to the restructuring • Phoenix Action Ltd. v. Czech Republic, ICSID Case No. ARB/06/5 (2009) - Investment made for the purpose of gaining the protection of a treaty - Tribunal dismissed claim as “one of the most egregious cases of ‘treatyshopping’ that the investment arbitration community has seen in recent history”

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Some African examples • The Ivory Coast - Cocoa growing and exporting is one of the largest industries in the Ivory Coast. However, cocoa exporters had not structured their investments through the only BIT with the country that provided for investor-state arbitration: the UK - Laurent Gbagbo threatened the expropriation of cocoa in his country, with international companies forced to consider their options thereafter - Absent the French intervention, there may have been losses to foreign investors who had not undertaken BIT structuring

• Madagascar – Daewoo Land Controversy - South Korean company Daewoo had a long-term lease for 1.3 million hectares of farmland in Madagascar - Catalyst leading to rebellion in which president was ousted by radio DJ Andry Rajoelina, who terminated the deal - Lesson: foreign investment may be controversial in any country. Structuring can provide protection against political risks

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Institutions and arbitral rules for investment arbitrations ICSID • Autonomous international institution providing facilities and administrative support for international arbitral proceedings • Created by treaty on initiative of World Bank in 1966 • Over 140 members of ICSID Convention (also known as “Washington Convention”) • Handles majority of investor-state arbitrations • Has its own jurisdictional requirements and institutional rules

ICSID Additional Facility • May be used where one party is a member of the ICSID Convention (or a national of an ICSID Member state) and other party is not

UNCITRAL Rules (for ad hoc arbitration) • Some institutions (e.g., Permanent Court of Arbitration) may administer UNCITRAL arbitrations

ICC Arbitration 19

Benefits of ICSID arbitration Neutral and self-contained international system • In principal, no exposure of arbitral process to national courts

The “World Bank factor” • Encourages compliance with awards and possibly settlement

Increasing transparency • But still a degree of confidentiality

Clear and reasonable cost schedules

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African signatories to the ICSID Convention TUNISIA 1965 1966

MOROCCO 1965 1967 ALGERIA 1995 1996 SENEGAL 1966 1967 CAPE VERDE 2010 2011 GAMBIA 1974 1975 GUINEABISSAU 1991 GUINEA 1968 1968

MAURITANIA 1965 1966

MALI 1976 1978

EGYPT 1972 1972

NIGER 1965 1966

CHAD 1966 1966

SUDAN 1967 1973

NIGERIA SOUTH SUDAN 1965 2012 ETHIOPIA CÔTE CENTRAL AFRICAN 1966 2012 1965 D’IVOIRE 1965 REPUBLIC CAMEROON LIBERIA 1966 1965 1965 1965 BENIN SOMALIA 1967 1966 1970 UGANDA KENYA 1965 1965 CONGO DEMOCRATIC 1966 1968 1966 1966 GABON 1965 REPUBLIC OF 1966 1967 RWANDA 1965 1966 THE CONGO 1978 1966 BURKINA FASO BURUNDI 1979 1968 1965 1967 TANZANIA 1970 SEYCHELLES 1966 1969 1992 TOGO 1978 1992 1966 1978 GHANA COMOROS 1967 1965 1978 1966 MALAWI 1978 ZAMBIA 1966 1970 1966 1970 ZIMBABWE MOZAMBIQUE MADAGASCAR MAURITIUS 1995 1991 NAMIBIA 1969 1995 1994 1966 1998 1969 BOTSWANA 1966 1970 1970

Date of signature | Date of entry into force

SWAZILAND 1970 LESOTHO 1971 1968 1969

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ICSID Arbitrations against African states 61% of African state signatories have been involved in ICSID proceedings ICSID Arbitrations Against African States By Sector Industrial Activities

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Mining

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Agriculture/ Forestry 10

Oil and Gas 14 Construction/ Operation Hospitality Power Generation

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12 General Commercial 11

Source: Karel Daele, Kluwer Arbitration Blog, 30 May 2012 22

ICSID arbitrations against African states In the 56 investment arbitrations against African states that had concluded at the time of this study (20 were still pending), the results have been as follows:

Settled prior to decision 13

13 Settled after a decision

Claims Dismissed

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Claims Upheld

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Source: Karel Daele, Kluwer Arbitration Blog, 30 May 2012 23

Freshfields in investor-state arbitration in Africa Tullow Uganda v. Uganda (2013) • Dispute involves petroleum exploration and production

Orascom v. Algeria (2012) • Dispute involves a multibillion dollar telecommunications investment

Ampal-American Israel Corporation v. Egypt (2012) • Dispute involves Egypt’s supply of gas to Israel

Equatorial Guinea v. CMS (2011) • Dispute, which is in ICSID conciliation proceedings, involves a capital gains tax on a hydrocarbons investment

Piero Foresti v. South Africa (2010) • Dispute involved South Africa’s “black empowerment” legislation

Biwater Gauff v. Tanzania (2008) • Dispute involved operation of water and sewerage services in Dar-es-Salaam

World Duty Free Company Ltd. v. Kenya (2006) • Dispute involved a duty-free enterprise

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2. Foreign investment laws A Bilateral Investment Treaty is not the only way to gain access to foreign investment protections and international arbitration •

Many states have Foreign Investment Laws providing such protections

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Foreign Investment Laws may provide: -

Substantive protections for foreign investment (e.g., no expropriation, fair treatment)

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An international arbitration right in the event of disputes

Caveats: • •

Some laws have qualifying criteria that must be met A State may change its foreign investment law unilaterally or abolish it altogether

Bottom line: proper due diligence essential

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Examples of foreign investment laws Tanzania • Arbitration upon agreement of the parties • Free transferability of profits, dividends, remittances, payments, etc. • No nationalization or expropriation without due process and compensation

Mozambique • Arbitration upon agreement of the parties • Does not apply to businesses conducting prospecting, mining-, gas- or petroleum-related operations • But separate mining laws provide treaty-type protections • National treatment; protection of property rights 26

3. International commercial arbitration Contract-based Designated in contract: dispute resolution clause A contract is only as strong as its dispute resolution clause • Enables enforcement of rights and obligations under the contract • A strong enforcement mechanism helps avoid disputes An arbitration clause is only as good as its drafting • Must be comprehensive and clear • Proper drafting reduces risk of disputes over the form and location of dispute resolution (saving costs and time)

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Enforcement under the New York Convention Arbitral awards are enforceable under the New York Convention • Enforceable in the courts of the 146 countries that have adopted the Convention • Reciprocity reservation means crucial to seat arbitration in a New York Convention state

Very circumscribed defenses to recognition and enforcement • Errors of fact or law are not grounds for refusing enforcement • Normally, a clear violation of due process is needed • Caveat: the “public policy” exception

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African signatories to the New York Convention TUNISIA 1967

MOROCCO 1959 ALGERIA 1989

SENEGAL 1995

MAURITANIA 2007

MALI 1994

CÔTE D’IVOIRE LIBERIA 1991 2005

GUINEA 1991

EGYPT 1959

NIGER 1965

DJIBOUTI 1977

NIGERIA 1970

BENIN 1974

CENTRAL AFRICAN CAMEROON REPUBLIC 1963 1988 GABON 2007

BURKINA FASO 1987

UGANDA KENYA 1992 1989 DEMOCRATIC REPUBLIC OF THE CONGO 2013

RWANDA 2009

TANZANIA 1965

GHANA 1968 ZAMBIA 2002 ZIMBABWE MOZAMBIQUE 1998 1994 BOTSWANA 1972

Date of Entry into Force

MADAGASCAR 1962

MAURITIUS 1996

SOUTH AFRICA LESOTHO 1976 1989

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Drafting effective arbitration clauses Institutional arbitration: strongly recommended • Will incur costs of institution but institutional supervision is valuable • Choice of institution: choose a major international institution (ICC, LCIA, SCC, ICDR, ICSID) unless there is a good reason not to do so

Ad hoc arbitration with UNCITRAL Rules: preferable to pure ad hoc arbitration • Provides a set of time-tested rules with United Nations imprimatur • Must remember to specify Appointing Authority

Pure ad hoc arbitration: permits tailor-made arbitration procedure • But heavy drafting burden on parties • Risks ending up in national court in event of non-cooperation or gaps

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Fora for Asian-African arbitration Seat of arbitration: should be specified in contract • Often-used “neutral” seats: London, Paris, Geneva, Stockholm, Singapore, Sydney • Popular seats in Africa: not yet • Choice of seat very important: determines procedural law applicable to the arbitration

Some arbitral institution options: • International Chamber of Commerce (ICC) arbitration seated in arbitrationfriendly jurisdiction • Singapore International Arbitration Centre • Dubai International Arbitration Center • Australian Centre for International Commercial Arbitration • Kuala Lumpur Regional Center for Arbitration

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Freshfields in commercial arbitration in Africa • Advising a major international oil company in a multi-billion dollar dispute with Nigeria; • Advised the shareholders of an African telecoms company in an ICC arbitration in Brussels arising out of a joint venture agreement creating the largest mobile phone operator in the country; • Advised an international oil company in a Geneva arbitration relating to a cashcall dispute arising under a farm-out agreement entered into with a North African State oil company; • Represented Econet Wireless in a dispute related to the sale of a controlling stake in a Nigerian mobile telecommunications company to Zain/Celtel Nigeria; • Advising the Tanzanian road agency TANROADS in three construction arbitrations; and • Advised in relation to a dispute involving a major hydro-power project in Malawi

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Putting it all together Thorough due diligence exercise prior to investing is critical • Investment treaty structuring • Understand relevant foreign investment laws • Strong and sensible dispute resolution clause • Tax structuring • Form of investment (joint venture or other) • Political risk insurance • Potential corruption issues

“For tomorrow belongs to the people who prepare for it today.” – African proverb 33

Questions? Brian King New York

Elliot Friedman New York

T +1 212 277 4020 E brian.king@ freshfields.com

T +1 212 230 4666 E elliot.friedman@ freshfields.com

Kazuki Okada Tokyo

Akiko Yamakawa Tokyo

T +81 3 3584 8502 E kazuki.okada@ freshfields.com

T +81 3 3584 3139 E akiko.yamakawa@ freshfields.com

Nicholas Lingard Tokyo/Singapore T +81 3 3584 8348 T +65 6908 0796 E nicholas.lingard@ freshfields.com

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Some of our arbitration awards and rankings “They have a massive arbitration practice.” – Chambers Global 2014

Global Arbitration Review Top of GAR 30 for 7 consecutive years 2014

Who's Who Legal Awards 2014 Global Arbitration Firm of the Year

Chambers Global Band 1 International Arbitration 2014

Chambers USA Arbitration Firm of the Year 2014

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This material is for general information only and is not intended to provide legal advice. © Freshfields Bruckhaus Deringer LLP 2015

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