The paper contributes to the existing academic discourse on the reform of Investor State Dispute Settlement (ISDS) by advancing a proposal for a standing Investment Court under the African Continental Free Trade Area (AfCFTA) Agreement, with the aim of informing the on going negotiations over the content of the AfCFTA Protocol on Sustainable Investment and future multilateral investment agreements around the world. Both an inter-State mechanism and the possibility of including a limited version of ISDS are examined and considered as the closest alternatives to the proposed African Investment Court. The paper sets out why a standing two-tier court with full-time adjudicators responds effectively to the concerns raised by African countries and local and foreign investors by striking a balance between being sufficiently investor friendly while simultaneously protecting the policy space of host countries.
1. Introduction
Trading under the Agreement Establishing the African Continental Free Trade Area (AfCFTA Agreement hereafter) officially started on 1 January 2021 after being postponed from 1 July 2020 due to the COVID-19 pandemic.1 The AfCFTA was achieved through the focused effort of the
African Union2 which successfully drew its Member States to sign this historic Agreement with the aim of boosting intra-African trade and investment and promoting a single market for goods and services with the potential to overcome the prevailing fragmentation of African economies while moving towards the African Union Agenda 2063: ‘The Africa We Want’.3 It is envisaged that the AfCFTA will expand trade and investment through greater harmonization and coordination of trade and investment liberation and facilitation instruments within the Regional Economic Communities (RECs) and across the continent. Therefore, the AfCFTA is more than a traditional Free Trade Area (FTA) Agreement, but it rather resembles Economic Partnership Agreements (EPAs). This is supported by Article 6 of the AfCFTA Agreement which stipulates that “[t]his Agreement shall cover trade in goods, trade in services, investment, intellectual property rights and competition policy.” 4
To give some context, a United Nations Conference on Trade and Development (UNCTAD) survey of Special Economic Zones (SEZs) in Africa found that due to the AfCFTA, Foreign Direct Investment (FDI) in SEZs is expected to increase by 15 per cent due to investment from
Member States and 30 per cent from outside Africa.5 The continent-wide survey also captured the optimism on the continent with over 85 per cent of respondents expecting FDI from Africa to increase significantly and 95 per cent expecting growth in investment from outside Africa as a result.6 According to SEZ stakeholders, the most promising industries for FDI flows in Africa following the implementation of the AfCFTA include textiles and electronics.7 Therefore, the AfCFTA presents an opportunity to move away from primary commodities traditionally driving African trade and investment such as mining and hydrocarbons towards higher value-add industries such as automotive and electronics. Amid these progressive developments, there is a reality that must be confronted: with the increase in investment, there will be an increase in disputes, and if not well handled, could derail the objectives of the AfCFTA Agreement. This is reinforced by the fact that the current legal architecture for the settlement of international investment disputes has been weighed by a strong focus on arbitration. There is substantial scholarly literature that has noted the limitations of this mode of dispute settlement,8 with an emerging body of scholarship focusing on the benefits of a court-based system.9
This paper situates within the body of scholarship that argues for a court- based system. The purpose of this paper is not to reinforce the theoretical merits of a court-based system. Instead, it seeks to provide a normative picture of what such a court system should look like in the African context: its architecture, modus operandi and other useful attributes. Therefore, the proposed normative design will add to the existing literature surrounding the advocacy for a court-based system by giving a detailed picture of the form the court should take. The proposals in this paper are intended to inform the ongoing discussions over the content of the AfCFTA Protocol on Sustainable Investment by: (i) providing a theoretical and empirical assessment of Africa’s relationship with the Investor-State Dispute Settlement (ISDS) mechanisms, in particular, international arbitration; and (ii) advancing a proposal for a multilateral court that will allow for the equitable resolution of investment disputes without compromising on the Member States and private investors’ interests. This proposal will be articulated in the final half of the paper while the proceeding sections will critically examine existing mechanisms, emerging treaty drafting practices and Africa’s relationship with ISDS. The findings and proposals in this paper are intended to go beyond academia by producing a prototype for a standing African Investment Court that Member States can draw upon and in so doing, set up the scaffolding to accelerate discussions on the creation of a continental court under the AfCFTA.
1.1 The nature of investment dispute resolution under the AfCFTA Agreement
It should be emphasized from the outset that the AfCFTA Phase II negotiations offer a unique opportunity to debate, when negotiating the Protocol on Sustainable Investment, and agree to a mechanism that will allow for the equitable resolution of investment disputes without compromising on Member States and private investors’ interests. Phase I of the negotiations produced four legal instruments: the AfCFTA
Agreement, the Protocol on Trade in Goods, the Protocol on Trade in Services and the Protocol on Rules and Procedures on the Settlement of Disputes. Article 7 of the AfCFTA Agreement states that Member States “shall enter into Phase II negotiations in the following areas: (a) intellectual property rights; (b) investment; and (c) competition policy”. On dispute settlement, the AfCFTA Agreement provides for the establishment of a Dispute Settlement Mechanism (DSM) for the settlement of disputes between Member States administered in accordance with the Protocol on Rules and Procedures on the Settlement of Disputes. The Protocol establishes a Dispute Settlement Body (DSB) to handle disputes arising between Member States concerning their rights and obligations under AfCFTA Agreement. Article 1 of the Protocol defines a dispute as “a disagreement between Member States regarding the interpretation and/or application of the Agreement in relation to their rights and obligations”. Notably, the AfCFTA Agreement defines Member States to mean the “Member States of the African Union”.10 This implies it is for the Member States to bring disputes either on behalf of their governments or individual investors.
Under this formulation, the private sector does not have the standing to sue host States. Indeed, the rights of private investors will be one of the important matters to be debated and agreed upon under the Protocol on Sustainable Investment. Phase II negotiations were initially expected to be completed by January 2021 but the deadline could not be met due to the pandemic and as a result, the legal text of the Protocol on Sustainable Investment is still under negotiation. The negotiations are expected to be concluded in 2022.
1.2 The AfCFTA Protocol on Sustainable Investment
The continental legal instrument to be adopted as the AfCFTA Protocol on Sustainable Investment will constitute a binding international agreement for the Member States to the AfCFTA Agreement. The AfCFTA Agreement defines an AfCFTA Protocol to mean “an instrument
attached to this Agreement, which forms an integral part of the Agreement”.11 It means Member States will be bound by all the AfCFTA instruments and cannot choose their obligations. Therefore, the AfCFTA Protocol on Sustainable Investment will not be a stand-alone agreement.
In terms of substantive content, given that the negotiations between the AfCFTA Member States have not been made public, the private sector should refer to recent developments in the field of investment promotion and facilitation for an indication of potential outcomes. It is envisaged that under an investment agreement based on ‘cooperation’, Member States will be required to enact new laws or adjust existing investment related legislation to give effect to obligations under the Protocol on Sustainable Investment. To give effect to this, the Protocol will most likely provide for the establishment of specific committees, for the purpose of inter-State dialogue, consisting of representatives of the Member States.
In terms of dispute resolution provisions, the options include delegation to regional or international dispute settlement bodies, or the creation of institution(s) with supra-national powers such as the standing African Investment Court, with jurisdiction over disputes involving private investors with a commercial presence within the Member States. While indications are that national courts, given the cooperative nature of the Agreement, could be preferred, the curtain has not yet been drawn on the other options. All in all, a guarantee of effective legal remedies through dispute settlement procedures exercised by independent judicial fora would be crucial to the success of the investment regime under the AfCFTA Agreement.
The next sub-section explains why incorporating an investment dispute settlement mechanism would be crucial to achieving the objectives of the AfCFTA.
2. Why is an Effective Investment Dispute Resolution Regime Crucial to the AfCFTA?
An effective investment dispute resolution regime is crucial because investors within the AfCFTA, the cornerstone of the Agreement, expect to enjoy enforceable rights. This is supported by the high number of international investment cases involving African States for breach of treaty provisions. Based on the International Centre for the Settlement of Investment Disputes (ICSID) statistics, as of July 2021, 128 ISDS claims have been filed against African countries.12 Of these, 15 per cent of the cases involve Parties from sub-Saharan Africa and 18 per cent from the Middle East and North Africa. Similarly, according to a 2017 ICSID Report on Africa, of the 135 cases involving African Parties registered in ICSID at the time, 79 per cent were commenced by investors from outside Africa.13 The ICSID statistics indicate a relatively high percentage of cases filed against African States by investors mostly from outside Africa. On the other hand, from the perspective of African States, this issue is particularly sensitive given that many governments lack the necessary financial resources to deal with disputes of such magnitude. Thus, both investors and the AfCFTA Member States have a vested interest in the outcome of the negotiations over the dispute settlement provisions of the Protocol on Sustainable Investment.
The picture is, however, unlikely to change following the successful negotiation of the AfCFTA Protocol on Sustainable Investment due to the differences between the nature of disputes administered under the AfCFTA and arbitral institutions such as the ICSID. The jurisdiction of ICSID covers disputes arising directly out of an investment between a Contracting State and a national of another Contracting State,14 whereas
the AfCFTA Agreement’s jurisdiction covers disputes between Member States in relation to the Agreement.15 Therefore, the AfCFTA investment dispute settlement mechanism will not have jurisdiction to hear disputes brought by investors from outside Africa, who statistically dominate the number of proceedings against African States. Only those investment disputes covered by the AfCFTA Agreement would remain under the jurisdiction of the AfCFTA. This suggests that the AfCFTA investment dispute settlement mechanism will have a very limited impact on the overall number of the ICSID and investment cases in general because investment disputes will continue to be submitted to the ICSID and other institutions to which African States are a party.16 However, over time, we may begin to see more investment disputes involving African investors and African States thereby strengthening the role and importance of the investment dispute resolution mechanism under the AfCFTA.
Furthermore, although relatively small, FDI flows in Africa warrant protection through the inclusion of an investment dispute settlement mechanism to safeguard investors’ interests and strengthen the attractiveness of the continent to intra-African investment and potentially, foreign investment. According to a study by the African Development Bank (AfDB), intra-African FDI from 2003 to 2017 was about USD 92.8 billion and shared mainly among four capital-exporting countries, namely the Republic of South Africa (39 per cent), Morocco (11 per cent), Nigeria (9 per cent) and Kenya (8 per cent) respectfully.17 In terms of the global share of investment, based on the UNCTAD World Investment Report 2021, FDI flows to Africa declined by 16 per cent in 2020 to USD 40 billion, representing 4 per cent of the global FDI flows but projected to
increase by 5 per cent in 2021.18 These figures remind us of the importance of balancing the interests of Member States and investors in the AfCFTA Protocol on Sustainable Investment as a catalyst for sustainable investment.
The dispute resolution options are examined next.
3. State-State Dispute Resolution
The AfCFTA Member States may elect an active State-State dispute resolution mechanism to handle investment disputes within the AfCFTA. Inter-State dispute resolution mechanisms are becoming increasingly popular as shown in a number of recent Bilateral Investment Treaties (BITs).19 The AfCFTA Protocol on Rules and Procedures on the Settlement of Disputes provides for a dispute settlement board, consultations, mediation and arbitration as avenues for settling inter-State disputes.20 On the latter, subject to mutual agreement of Member States, “where the parties to a dispute consider it expedient to have recourse to arbitration as the first dispute settlement avenue, the parties to a dispute may proceed with arbitration” and shall agree on the procedures to be used in the arbitration proceedings.21 The Parties to the arbitration proceedings are bound to abide by the arbitration award which is required to be notified to the DSB for enforcement in accordance with the provisions of the Protocol on Rules and Procedures on the Settlement of Disputes.
While the merits of inter-State dispute resolution are plausible, the mechanism only entertains disputes between Contracting States, which may not necessarily reflect the interests of the private sector. In the AfCFTA context, this could lead to the underutilisation of the forum since
Africa’s private sector lacks the political influence and economic scale to lobby governments to litigate on their behalf.22 Moreover, locking out the private sector may lead to a redirection of the original purpose of the forum from economic integration and investment protection towards human rights protection, as demonstrated by the experience of regional courts in Africa (see Section 5).23
On that background, having established that an investment dispute settlement forum that accounts for the African commercial context and supports private sector involvement is essential, the next sub-section discusses Africa’s preparedness for ISDS under the AfCFTA Agreement.
4. Investor-State Dispute Resolution
The AfCFTA Member States are expected to debate the option of embedding ISDS during the negotiations on the Protocol on Sustainable Investment, strengthened by the fact Africa already has an architecture for handling investment disputes. According to a SOAS Arbitration in Africa Survey 2020 Report, of the 91 arbitration centres in Africa, the top five include the Arbitration Foundation of Southern Africa (AFSA), the Cairo Regional Centre for International Commercial Arbitration (CRCICA), the Kigali International Arbitration Centre (KIAC), the Lagos Court of Arbitration (LCA) and the Nairobi Centre for International Arbitration (NCIA).24 There are several other forums across the continent, particularly at the regional level, with a mandate to handle commercial disputes. For example, the Organization for the Harmonization of African Business Law
(OHADA) has a set of uniform laws applicable to its Member States and a Common Court of Justice and Arbitration (CCJA) where natural and legal persons have the standing to bring cases.25 Similarly, the East African Community (EAC) has a supranational court, the East African Community Court of Justice (EACJ), with the jurisdiction to take referrals from Member States’ national courts and make preliminary rulings in the interpretation of EAC laws.26 The EACJ has jurisdiction to sit as an arbitral tribunal with its judges acting as arbitrators.27 Despite Africa’s growing capacity to handle international commercial disputes, the decision to embed ISDS is likely to be guided by two major factors: (i) the ongoing reform activity around the world and (ii) AfCFTA Member States’ relationship with ISDS.
4.1 Ongoing reform activity around the world
The negotiations over the AfCFTA Protocol on Sustainable Investment have come at a time when there is deep scepticism about ISDS in Africa and around the world. According to the UNCTAD World Investment Report 2021, the number of investment policy measures of a restrictive nature more than doubled in 2020 amounting to 50, against 21 in 2019, with the global share of restrictive policy measures reaching 41 per cent, the highest on record.28 The increased use of restrictive measures was largely driven by national security concerns over FDI in sensitive industries such as oil and gas.
On investment dispute resolution, the idea of replacing international arbitration with other mechanisms or limiting investor access has
pervaded this field for the past decade with African countries such as the Republic of South Africa foreclosing future participation in international investment arbitration except in very limited circumstances29 and the United Republic of Tanzania terminating the Tanzania-Netherlands BIT in April 2019 over similar concerns. A continental position is reflected in the 2020 African Union Declaration on the Risk of Investor–State Dispute Settlement with Respect to COVID-19 Pandemic Related Measures.30 This was adopted at the 14th meeting of African Union Ministers for Trade held on 24th November 2020. The Declaration highlights the potential adverse effect of the disputes arising between investors and States under investment treaties in relation to the measures taken by African governments to respond to the COVID-19 pandemic. It calls on African Union Member States to explore options under international law to mitigate the risks of ISDS claims, including through a mutual temporary suspension of ISDS provisions in investment treaties with respect to COVID-19 related measures and the renegotiating investment treaties by integrating provisions better suited to national interests.
This concern is buttressed by emerging trends which have shown an increasingly cautious approach to ISDS being taken in some of the more recent megaregional agreements.31 For example, the ongoing negotiations on the modernisation of the Energy Charter Treaty (ECT) which commenced in 2020 are extremely influential given Africa’s growing extractive industries and their appeal to foreign investment. Consequently, following the commencement of the second phase of the ECT negotiations, which cover dispute settlement, a group of nearly 100 representatives from the European Parliament and national Parliaments signed and issued a declaration calling on “EU (European Union)
negotiators to ensure that the provisions in the ECT that protect foreign investment in fossil fuels are deleted and therefore removed from the ECT” and for “ISDS provisions (…) to be scrapped or fundamentally reformed or limited.”32 These global developments present important questions for African governments over the future of ISDS in the Protocol on Sustainable Investment.
The AfCFTA Member States’ relationship with ISDS is examined next.
4.2 AfCFTA Member States’ relationship with ISDS
Africa’s relationship with ISDS can be characterised as complex for two reasons; (i) the overwhelming acceptance of the ISDS framework and (ii); the growing unease over the operation of ISDS. On the acceptance of the ISDS framework, almost one-third (47) of the 155 countries that have ratified the ICSID Convention are in Africa33 and more than half (42) of the countries in Africa have ratified the 1958 New York Convention.34 African countries have also signed hundreds of BITs that provide for ISDS while African investors are starting to exercise that right against African35 and non-African States.36 Therefore, African countries have embraced the ISDS regulatory framework.
However, as a consequence, many African countries are now facing their first known ISDS claim and coming to terms with the economic implications of these disputes.37 For example, South Sudan gained its
independence in 2011 and faced its first ISDS claim in 2012.38 Equally, an ICSID tribunal issued one of the largest known investment treaty awards (USD 2 billion) in August 2018 against an African country.39 Furthermore, the limited involvement of African arbitrators and African institutions in the ISDS processes is a matter of great concern. Based on the June 2021 ICSID Caseload Statistics, although sub-Saharan Africa contributes 15 per cent of all ICSID cases by State Party involved, the region accounts for only 2 per cent of arbitrators, conciliators and ad hoc committee members appointed in ICSID cases.40 By contrast, Western Europe contributes 8 per cent of all ICSID cases by State Party involved but accounts for 48 per cent of arbitrators, conciliators and ad hoc committee members appointed in ICISID cases.41 North America (Canada, Mexico and the USA) contributes 6 per cent of all ICSID cases by State Party involved but accounts for 20 per cent of arbitrators, conciliators and ad hoc committee members appointed in ICSID cases. Given the increased involvement of African States in ISDS, the continued exclusion of African arbitrators is unwarranted.
On that background, despite the overwhelming acceptance of the ISDS regulatory framework, African countries are not shielded from the growing concern over its operation. These concerns were captured in a March 2019 letter to the United Nations Commission on International Trade Law (UNCITRAL) Working Group III by members of the Working Group on Business and Human Rights.42 The human rights experts argued that International Investment Agreements (IIAs) and their ISDS mechanisms, in particular, international arbitration, “have often proved to
be incompatible with international human rights law and the rule of law”. They recommended “systemic structural change” to address some of the perceived problems in the system, including the exorbitant costs associated with the proceedings and the extremely high arbitral awards that lead to undue restrictions on States’ fiscal space and undermine their ability to regulate economic activities.43
Consequently, one of the objectives of the AfCFTA is to “promote and attain sustainable and inclusive socio-economic development…”. On the right to regulate, the Member States explicitly recognised the importance of democracy, human rights, gender equality and the rule of law by “reaffirm[ing] the right of Member States to regulate within their territories and the Member States’ flexibility to achieve legitimate policy objectives…”.44 The Morocco-Nigeria BIT (2016), although not in force, represents Africa’s boldest attempt at realising these objectives at the bilateral level through the inclusion of provisions on ‘Impact Assessment’ (Article 14), ‘Investor Liability’ (Article 20) and ‘Right of the State to Regulate’ (Article 23). Therefore, given Africa’s complex but evolving relationship with ISDS, a bold decision must be taken by the AfCFTA Member States on the future of ISDS under the AfCFTA Agreement.
The next section discusses whether the exclusion of ISDS from the AfCFTA Agreement is a viable option taking into consideration emerging megaregional treaty practice and the availability of possible alternatives.
5. Exclusion of ISDS in its Entirety: A Viable Option?
The exclusion of ISDS from the AfCFTA Agreement could, to some extent, be considered a viable option considering the issues discussed above and emerging treaty practice. Megaregional agreements are very
influential in terms of informing and directing treaty practice in the concerned region(s) and the most recent megaregional treaties clearly show a cautious approach to drafting ISDS provisions and in some cases, its total exclusion. For example, the Regional Comprehensive Economic Partnership (RCEP) Agreement was signed on 15th November 2020.45 Its Investment Chapter does not provide for ISDS. However, the RCEP allows Member States to enter discussions on ISDS no later than two years after the date of entry into force of the Agreement and conclude them within three years of the commencement of the discussions. Similarly, the Agreement in Principle for the China–EU Comprehensive Agreement on Investment (CAI) was reached on 30th December 2020.46 The Agreement contains a section dedicated to investment liberalisation, but it does not provide for ISDS. Instead, it provides for an inter-State mechanism for settling disputes between the Parties using a two-step approach consisting of consultations and recourse to an arbitration panel.47 In the same vein, the EU–United Kingdom Trade and Cooperation Agreement (TCA) was concluded on 30th December 2020 with a chapter on Investment Liberalization without common investment protection provisions such as fair and equitable treatment (FET) and ISDS.48
Some megaregional trade and investment agreements have significantly limited the space for ISDS. For example, the United States–Mexico– Canada Agreement (USMCA) entered into force on 1st July 2020 following its ratification by Canada on 13th March 2020, the United States on 29th January 2020 and Mexico on 19th June 2019. The USMCA replaces the North American Free Trade Agreement (NAFTA) which was
signed in 1992. The Agreement contains a revised ISDS provision under Annex 14-D which limits the application of ISDS exclusively to disputes between the United States and Mexico and narrows the claims that investors can bring under the Agreement.49 Similarly, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) came into force on 30 December 2018. Under Chapter 9, the Member States agreed to suspend the application of the provisions relating to investor– State contracts and investment authorisation. There is, therefore, a narrow window for challenging government measures, as claims by private parties in relation to investment contracts and investment approvals are excluded.50
Given the approach taken in the abovementioned megaregional treaties, the AfCFTA Member States may opt to limit or exclude ISDS, which has already been embraced in some African countries. For example, the Republic of South Africa ratified the AfCFTA Agreement and has openly and formally rejected international investment arbitration. Following a review of its BIT framework, the Republic of South African government elected to terminate some of the country’s ‘first generation’ BITs and put in place a domestic policy framework for resolving investment disputes.51 The Republic of South Africa went further by enacting the Protection of Investment Act (PIA), which entered into force in 2018. The legislation makes no provision for ISDS and only provides for dispute resolution in domestic courts and State-State arbitration. This is provided under Section 13(4) of the PIA which states that an investor “is not precluded from approaching any competent court, independent tribunal or statutory body within the Republic for the resolution of a dispute relating to an investment”. Similarly, Section 15(5) provides that subject to the exhaustion of domestic remedies, the Republic of South African government “may consent to international arbitration” but “[s]uch arbitration will be conducted between [the Republic of South Africa] and the home State of the applicable investor”. Given its substantial economic power and political influence on the continent, the Republic of South Africa’s voice would be crucial to the future of ISDS in the AfCFTA Agreement.
However, the Republic of South Africa is not alone on the reform path.52 In 2016, Namibia enacted an Investment Promotion Act which, under Section 28(4), provides that “the jurisdiction over disputes relating to this Act lies exclusively with the courts of Namibia, but the Minister and investor or investment, as required by the circumstances of the alleged breach of rights or obligations, may, by written agreement, agree to arbitration in accordance with the Arbitration Act, 1965 (Act No. 42 of 1965) in Namibia.”53 Similarly, in 2017, Tanzania enacted the Natural Wealth and Resources (Permanent Sovereignty) Act which, under Section 11(2), provides that “disputes arising from extraction, exploitation or acquisition and use of natural wealth and resources shall be adjudicated by judicial bodies or other organs established in the United Republic and in accordance with laws of Tanzania” and they “shall not be a subject of proceedings in any foreign court or tribunal.”54 This was followed by a Public-Private Partnership (Amendment) Act 2018 which requires all Public Private Partnership agreements to be subject to local arbitration under the arbitration laws of the United Republic of Tanzania and/or conclusively dealt with by Tanzanian courts.
Regional support for domestic litigation is found in the 2016 EAC Model Investment Treaty. Pursuant to Article 23.4, an investor may submit a claim to arbitration provided that the investor “has first submitted a claim before the domestic courts of the host State for the purpose of pursuing local remedies”.55 A special note to Article 23 of the EAC Model Investment Treaty shows a preference for the exclusion of ISDS. The note reads: “[T]the preferred option is not to include Investor-State Dispute Settlement. Several States are opting out or looking at opting out of investor-State mechanisms, including Australia, South Africa and others…”.56 A strong preference for African institutions is also found in the Pan-African Investment Code (PAIC)57 which provides for ISDS in “any established African public or African private alternative dispute resolution centre or the Permanent Court of Arbitration centres in Africa (or the African Union Court of Arbitration) or African regional court where applicable.”58 In addition, the PAIC contains an important limitation to the investors’ access to ISDS pursuant to Article 42(c) which states that “the dispute may be resolved through arbitration, subject to the applicable laws of the host State and/or the mutual agreement of the disputing parties.” This implies that if the host State’s law does not allow ISDS, as in the case of the Republic of South Africa, ISDS cannot take place and even where the host State’s law provides for ISDS, the investor would still need the consent of the host State to initiate the proceedings.
Nevertheless, in order to strengthen cooperation among the AfCFTA Member States, there may be a preference to submit the disputes to an Africa-based dispute settlement body(s) as opposed to an international tribunal because of the undeniable affordability and convenience from
both an African State and local investors’ perspective and the tremendous understanding of the local context that these bodies are perceived to possess. As investment flourishes on the continent because of the AfCFTA, it is envisaged that regional bodies would be pressed to develop capacity; improve their understanding of business-related matters; and their repository of business law precedent in order to serve a rapidly growing market.
However, more often than not, multinational corporations, when negotiating transactions on the continent, will insist that disputes be brought outside the host country, and typically outside the continent as a whole, to neutral international dispute settlement bodies, due to concerns about fairness and independence. These concerns are underpinned by the troubled and very short life of the South African Development Community (SADC) Tribunal; marked by jurisdictional challenges.59 The SADC Tribunal was established pursuant to Article 9(g) of the SADC Treaty. Under Article 18 of the SADC Protocol on Tribunal and the Rules of Procedure, natural and legal persons have the standing to file claims with the SADC Tribunal.60 The problem arose from the Mike Campbell (Pvt) Ltd. and others v. Republic of Zimbabwe, in which white farmers in Zimbabwe initiated claims challenging Zimbabwe’s land reform programme and compulsory acquisition of agricultural land. The SADC Tribunal’s decision in favour of the farmers effectively signalled its untimely end. This began in 2010 when a SADC Summit of Heads of State and Government suspended the SADC Tribunal by electing not to renew the terms of the serving judges or to appoint new judges. This was followed by a new Protocol in 2014, adopted and signed by the SADC Summit, limiting the Tribunal’s jurisdiction to State-State disputes.61
However, in 2018, the Republic of South Africa’s Constitutional Court ruled that former President Jacob Zuma’s signing of the Protocol was unconstitutional.62 As a result, in August 2019, the Republic of South Africa’s President, Cyril Ramaphosa, officially withdrew the country’s signature from the Protocol.63 Lessons from the SADC experience should be given considerable weight in negotiations, especially since several members of the SADC have ratified the AfCFTA Agreement, including Eswatini (21st June 2018), Namibia (25th January 2019), the Republic of South Africa (31st January 2019) and Zimbabwe (25th April 25).
On that background, despite the emergence of megaregional treaties, as well as domestic and regional support for the exclusion of ISDS, strong protection for the private sector is essential for encouraging investment and sustainable economic development on the continent. However, concerns about independence and the ghost of the SADC Tribunal are likely to overshadow any of the current and future regional dispute settlement bodies that permit private actors to sue States.
The next sub-section discusses whether utilising other Alternative Dispute Resolution (ADR) mechanisms such as mediation, conciliation and negotiation as a precondition for accessing ISDS could offset the African countries’ concerns.
6. Utilising Other Alternative Dispute Resolution Options
The idea of limiting access to ISDS, in particular international arbitration, by introducing an exhaustion of domestic remedies requirement, is an option that the AfCFTA Member States ought to consider given that it can help to prevent frivolous claims thereby avoiding the considerable costs
associated with international arbitration.64 The PAIC makes exhaustion of domestic remedies such as mediation, conciliation, consultation and negotiation, a precondition for accessing ISDS.65 However, these mechanisms are still generally underutilised in the settlement of international investment disputes despite over 70 per cent of investment treaties containing cooling off periods.66 Nonetheless, these ADR mechanisms are generally perceived to be less time and cost intensive than arbitration and utilising them could address some of the concerns regarding cost and duration while preserving long-term relationships.67
There is, however, differing treaty practice in relation to drafting ADR provisions in investment agreements. Firstly, some agreements provide for a specified time period that must elapse before submission of a claim to arbitration, without any reference to mediation and other forms of ADR. For example, the Bolivia-US BIT (1998) states that “a … party to an investment dispute may submit the dispute for resolution” to binding arbitration provided, inter alia, “that three months have elapsed from the date on which the dispute arose”.68 This is supported by a recent study which found that 44 per cent of the cooling off periods do not mention any means, 42 per cent mention negotiation, 10 per cent mention consultations, 3 per cent mention conciliation and 1 per cent mention mediation.69 Therefore, most investment agreements are silent as to the method and process parties might use to achieve an amicable settlement.70
Secondly, some agreements provide for either and/or negotiations, consultation, conciliation and mediation as a means of reaching an amicable settlement. For example, Article 12 (1) of the Iraq-Saudi Arabia BIT (2019) refers to direct amicable settlement through mediation or conciliation.71 Similarly, Article 8 of the Bahrain-Russian Federation BIT (2014) mentions mediation to be held under the Additional Facility Rules of the ICSID. Other agreements provide for mediation together with consultation and negotiation. For example, Article 9.18 of CPTPP offers “Conciliation and Negotiation”. In the event of an investment dispute, the claimant and the respondent should initially seek to resolve the dispute through consultation and negotiation, which may include the use of non- binding, third party procedures, such as good offices, conciliation or mediation.’ Thus, there is scope for incorporating all or some of the ADR mechanisms as a precondition for accessing investment arbitration.
Thirdly, some investment agreements such as the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) Investment Agreement (2017) make negotiation, consultation, conciliation and mediation optional for the investor by requiring advance consent of the State at the investor’s election.72 Other agreements merely provide that a disputing party should give favourable consideration to a request for negotiation, conciliation, or mediation by the other disputing party. For example, the EU-Singapore Investment Protection Agreement 201873 and the EU-Viet Nam Investment Protection Agreement (2019)74 both include provisions requiring the recipient to “give sympathetic consideration to a request and reply by accepting or rejecting it in writing within ten days of its receipt.”75 Similarly, Article 17.1 of the Netherlands Model BIT (2019) provides that in the first instance “[a] disputing party shall give favourable consideration to a request for negotiations, conciliation or mediation by the other disputing party.” AfCFTA Member States, however, might be reluctant to embrace this approach given that it places the exhaustion of domestic remedies requirement at the discretion of the investors.
Fourthly, some investment agreements have mandated the use of negotiations, consultations, conciliation or mediation. For example, Article 12 of the Rwanda-United Arab Emirates BIT (2017) provides for “Mediation and Conciliation, 1. In lieu of, or in addition to, the mandatory negotiation requirement, the parties to the Investor-State Dispute may agree” therefore making participation mandatory for the investor, at the State’s election. Similarly, Article 14 (4) of the Costa Rica-United Arab Emirates BIT (2017) provides that “for greater certainty, compliance with the requirements pursuant to paragraphs 1, 2 and 3 regarding consultation and negotiation and third-party procedures is mandatory and a condition precedent to the submission of the dispute to arbitration.” Equally, Article 10(3) of the Mauritius-UAE BIT (2015) provides for “consultations and negotiations” in the initial phase, and thereafter makes mediation or conciliation mandatory for investors, at the State’s election. Given the growing concerns over the operation of ISDS, AfCFTA Member States are more likely to support similar mandatory ADR provisions.
Lastly, while most investment agreements reserve negotiations, consultations, conciliation or mediation to the pre-arbitration stage, some allow the disputing parties to refer their dispute, by mutual agreement, to ad hoc or institutional mediation or conciliation before or during the arbitral proceedings. For example, Article 12 (4) of the Colombia-Turkey BIT (2014) provides that: “Nothing in this Article shall be construed as to prevent the parties to a dispute from referring their dispute, by mutual agreement, to ad hoc or institutional mediation or conciliation before or during the arbitral proceeding.”76 Given that cooperation is at the heart of the AfCFTA Agreement, the Member States may be encouraged to incorporate such an ADR friendly approach for the amicable settlement of investment disputes.
However, a cooling off period and recourse to other ADR mechanisms does not absolve the concerns of the African States over the inclusion of international arbitration, particularly the SADC Member States. In other words, the inclusion of international arbitration, whether limited through an exhaustion of domestic remedies requirement or not, would guarantee private party representation in the AfCFTA regulatory framework while retaining the less favoured international arbitration practice. For these reasons, the inclusion of other ADR options, a tried and tested measure in all fairness, is unlikely to offset the prevailing concerns over ISDS.
On that background, having interrogated a range of dispute settlement options for the AfCFTA Protocol on Sustainable Investment including an inter-State mechanism, recourse to ISDS through international arbitration tribunals, other ADR practices, regional and local courts, including the ghost of the SADC regional tribunal, systemic reform is deemed necessary to reach a compromise between private investors and AfCFTA Member States interests and expectations from the cooperation Agreement. Thus, a proposal for a standing hybrid investment court (the African Investment Court) is presented next, with clear explanations of how such a court would balance the interests of both Member States and the private sector and bring about systemic structural change within the African context.
7. Proposal for a Standing African Investment Court under the AfCFTA Agreement
For almost a decade, the EU has been advocating for the establishment of a Multilateral Investment Court system where private investors retain standing to file claims directly against States.77 However, in the African
context, a standing African Investment Court to rule on investment disputes within the AfCFTA would be a new and much welcomed development. This is supported by a 2016 United Nations Economic Commission for Africa (UNECA) report, which concluded that “[t]he continent could consider a pan-African solution such as the African Court of Justice … for the proposed Continental Free Trade Area (CFTA) …’78 Similarly, Emilia Onyema concludes that an African Commercial Court “will ensure that arbitration… [is]…the dispute resolution of choice by commercial parties…[and] play… [a]… supportive role for the actualisation of the goals of greater intra-African trade in goods, services and investment, envisioned in the AfCFTA”.79 The jurisdictional, structural and logistical features of the proposed African Investment Court are examined next.
7.1 The issue of jurisdiction
Jurisdictional provisions are one of the most important provisions because they would determine who might bring an investment dispute before the African Investment Court. State consent to the jurisdiction of the Court could be achieved through a combination of: (1) accession to the instrument establishing the standing mechanism, in this case, the Protocol on Sustainable Investment and (2) a specific notification (“opt-in”) that a particular existing or future agreement would be subject to the jurisdiction of the Court. The notion of accession or transferring jurisdiction from one body to another is well established in international law.80 This means that the precise scope of jurisdiction of the African Investment Court and the substantive rules that it would apply would be determined by the concerned IIAs or underlying treaties. It would also mean a reference could be added to the agreements concluded after the establishment of the Court conferring jurisdiction on the standing mechanism, or it could be added later through a renegotiation of the agreement. The opt in mechanism would allow contracting parties to an investment agreement to become parties to the instrument establishing the standing court through a notification concerning their agreement to consent to its jurisdiction, thereby empowering the African Investment Court to decide disputes arising under that agreement. This would essentially enable the extension of the court’s jurisdiction to current and future investment agreements, with the contracting parties’ consent. However, maintaining all the pre- existing intra-African investment agreements would defeat the goal of harmonisation under the AfCFTA resulting in multiple and overlapping investment protection regimes. Therefore, the AfCFTA Member States would have to consider whether the African Investment Court would have jurisdiction in case of divergence with pre-existing intra-African BITs, if these are not separately terminated.
7.2 How would it be structured?
The African Investment Court would have two levels of adjudication consisting of a first instance tribunal with a mandate to hear disputes, conduct fact-finding and then apply the applicable law to the facts, similar to arbitral tribunals. The first instance tribunal would also handle cases remanded back to it by the appellate tribunal where the appellate tribunal could not dispose of the case. The second level would be the appellate tribunal. This is important because States have long complained of the finality of arbitration decisions without any higher-level reconsideration.81 An appeal process using tenured judges would diminish this concern and lead to greater consistency. Grounds for appeal would be error of law, including serious procedural shortcomings or manifest errors in the appreciation of the facts but not a de novo review of the facts.82 Both the first instance tribunal and the appellate tribunal would have their own rules of procedure. There would be one primary seat where the permanent staff and judges of the court are located on a regular basis. It is envisaged that a Court located on the African continent with knowledge and experience of the local context within which disputes arise will be crucial in gaining the support of African countries.
7.3 How would the adjudicators be appointed?
Adjudicators at the African Investment Court would be nominated by the contracting States and required to apply directly for appointment.83 However, consideration should be given to allowing non-nationals of contracting States to be appointed, especially given the inbuilt opt in mechanism. They would be subject to a vote requiring a significant majority of votes of the contracting States. This would lead to the availability of a pool of adjudicators with the broad knowledge and experience foreign investors expect of a tribunal of this stature. The persons nominated should be independent. A robust and transparent appointment process would, therefore, be necessary to ensure the independence and impartiality of the adjudicators. Taking lessons from the World Trade Organisation (WTO) Working Procedures, adjudicators could be appointed to the divisions of the African Investment Court on a randomised basis to ensure that the disputing parties would not be in a position to know in advance who will hear their case.84 Inspiration could also be drawn from, inter alia, the Caribbean Court of Justice, which has a screening mechanism to ensure that what the adjudicators appointed do, in fact, meet the requisite standard of judicial independence.85
Given that the power to appoint adjudicators to the standing mechanism resides with the Member States, investors may view the mechanism as skewed in favour of Member States thereby leading to its underutilisation. To mitigate this, Member States would be expected to take a balanced and longer-term perspective by appointing objective adjudicators who would internalise their national interests as potential respondents in investment disputes but also ensure an adequate level of protection for their investors.86 Adjudicators’ independence from their national governments would be ensured through a long-term non-renewable term of office. This could consist of a nine-year term, for example, combined with a robust screening and appointment process.87 The adjudicators should not have any other appointments, in particular, other remunerated or political activities and they would be paid salaries comparable to those paid to adjudicators in other international courts. To this end, adjudicators would be required to disclose past interests, relationships or matters that could affect their independence or impartiality. Even after the end of their term, they would remain subject to obligations to ensure that their independence and impartiality in office is not called into question.
On the issue of qualifications, it is important to recognise that there are many African nationals appointed to the highest judicial offices or are jurisconsults of recognised competence in international law.88 These could, for example, be senior or recently retired judges from international tribunals or domestic supreme courts. Therefore, it is suggested that the African Investment Court uses comparable qualification requirements similar to other international courts.
Furthermore, mechanisms could also be used to ensure both geographical and gender diversity of the adjudicators. Article 36(8) of the Rome Statute of the International Criminal Court provides an example of the types of rules which could be set for adjudicators in a permanent body. The Assembly of States Parties, that elects the International Criminal Court (ICC) judges, is required to “take into account the need for the representation of the principal legal systems of the world, equitable geographical representation and a fair representation of female and male judges”.89 For the election of ICC judges, regional and gender voting requirements have been established by requiring at least six female and male judges. Each regional group of the United Nations has at least two judges.90 If a regional group has more than 16 Member States, this leads to a minimum voting requirement of three judges from the regional group.91 The ICC’s mechanism for ensuring geographical and gender diversity provides a good example and one that ought to be considered in the African Investment Court architecture.
7.4 How would the decisions be enforced?
Effective enforcement of awards of the African Investment Court is vital. There would be no need for review awards at domestic level or through international tribunals given that the African Investment Court would
feature an appeal mechanism. Therefore, the function of annulment or set- aside currently exercised by national courts and ICSID annulment committees would be exercised through the review process provided by the appeal mechanism. It is suggested that the instrument establishing the African Investment Court should create its own enforcement regime, which would not provide for review at domestic level. Therefore, enforcement of the decisions of the African Investment Court in the territory of a State that would have consented to its founding Charter could be achieved by providing in the Charter a special enforcement regime. For instance, it could require the Contracting States to recognise a decision of the African Investment Court as binding and enforce the obligations arising as if it were a final judgment of its national courts. It means States not party to the court’s Charter would not be bound by its enforcement regime. In such cases, without a uniform regime for the enforcement of judgments of international courts,92 enforceability of decisions by the African Investment Court would largely depend on the New York Convention.93
The African Investment Court’s awards could be capable of enforcement pursuant to the New York Convention as awards made by “permanent arbitral bodies”94 under which the State would retain some control over the decision through the grounds for non-recognition and non- enforcement under Article V of the New York Convention.95 Given the hybrid nature of the proposed African Investment Court, blending both court and arbitral features, its awards could be regarded as those of a “permanent arbitral body”.96
To ensure finality, it might be necessary to include mechanisms to prevent the disputing parties from activating set-aside procedures.97 Article 3.22 of the EU-Singapore Investment Protection Agreement provides a good example. It states that “[f]inal awards issued pursuant to this Section by the Tribunal shall be binding between the disputing parties and shall not be subject to appeal, review, set aside, annulment or any other remedy,” and reinforced by Article 3.7(1)(f)(iii) which requires a declaration that the claimant “will not seek to appeal, review, set aside, annul, revise or initiate any other similar procedure before an international or domestic court or tribunal, as regards an award pursuant“ to this Section.” Therefore, recognition of the African Investment Court as a permanent arbitral body would be indispensable to the success of its enforcement regime.
8. What should African States and Investors Expect from an African Investment Court?
Given the aforementioned concerns surrounding the operation of ISDS, in particular, international arbitration, in Africa, the African Investment Court would first and foremost bring about predictability and consistency through the establishment of a standing mechanism with permanent, full- time adjudicators. Under the current system, parties cannot have reasonable expectations that a ruling in one dispute will be followed in another due to the ad hoc nature of the process.98 Greater predictability of legal interpretation and consistent case-law both at the first instance and appeal level is likely to lead to more efficiency thereby reducing the scope for adventurous claims and the number of cases overall. It is assumed that a diligent investor will not bring a claim based on a legal argument that has been rejected by a standing mechanism, whereas this is reasonably expected with regards an ad hoc tribunal established for each dispute.
In addition, the proposed two-tier mechanism is the most effective structure for ensuring predictability and consistency. An appeal mechanism will review the legal correctness of the decisions taken at first instance and correct any legal errors, which is also an important feature of domestic legal systems, since it ensures a check on decision-makers. This will gradually bring about greater consistency. Furthermore, a standing African Investment Court will be better placed to gradually develop a more coherent approach to the relationship between investment law and other domains, in particular, other fields of international law such as international human rights law and international environmental law, which would inform and lead to better decision making.99 For instance, the WTO Appellate Body has made a number of pronouncements on the relationship of WTO law with other fields of international law.100
A system of full-time adjudicators will ensure independence and impartiality. This will bring double-hatting, acting as counsel and arbitrator, to an end in the African context and remove the incentives of repeat appointments.101 The very existence of these perceived incentives plays a large role in raising concerns around the legitimacy of the international investment arbitration regime.102 Therefore, moving away from a system of party-appointed arbitrators is likely to lead to more opportunities for the appointment of adjudicators from underrepresented groups. A requirement for full-time adjudicators is in line with the practice of international courts not to allow their judges to have external appointments. For example, the International Court of Justice requires sitting Members not to act as arbitrators in investor-State disputes or commercial arbitration.103
An African Investment Court is likely to lead to a reduction in the cost and duration of proceedings which would ensure effective access for small and medium-sized enterprises. ICSID estimates that on average, it takes 6–8 months to appoint arbitrators104 and the screening process comes at a cost as counsel spends time considering which arbitrators would best suit the interests of their client.105 Time and money will not be spent on choosing adjudicators under the proposed framework. Through a robust and transparent selection process, the African Investment Court’s adjudicators would be considered independent and impartial on account of their tenure thereby leaving very rare cases that a potential conflict of interest might arise and would need to be challenged. Similarly, since adjudicators’ remuneration would not be linked to the time spent on a particular case, they would have no interest in long pleadings or hearings than strictly necessary which would remove perceived incentives to prolong the time of proceedings.106 Furthermore, the African Investment Court would be better suited for handling related cases brought under different treaties.107 As more treaties become subject to the jurisdiction of the Court through the opt in mechanism, the more effective the court will become in managing joinder of cases or even the dismissal of cases.
Perhaps the greatest benefit of having a continental tribunal will be the contextual awareness that is added by having local judges who are familiar with the most pressing issues on the African continent. These include concern over the impact investment disputes might have on the continent. African judges will be more likely to take into consideration the social, environmental and economic consequences of their decisions and to balance their reasoning with investors’ interests. This is the essence of cooperation and sustainability; concepts at the heart of the AfCFTA Agreement and the African Union Agenda 2063: ‘The Africa We Want’. While other mechanisms, including international investment arbitration, regional and local courts, exhaustion of domestic remedies and an inter- State mechanism, are likely to further the AfCFTA’s objectives in their own different but limited way, it is submitted that establishing a standing two-tier African Investment Court offers the best available option for achieving sustainable investment and balancing the interests of investors and AfCFTA Member States.
9. Conclusion
This paper has contributed to the existing academic discourse on the reform of ISDS by advancing a proposal for a standing African Investment Court under the AfCFTA Agreement, with the aim of informing the ongoing negotiations over the content of the Protocol on Sustainable Investment and future multilateral investment agreements around the world. As explained, the AfCFTA Investment Protocol necessitates an international legal instrument on investment which will constitute a binding international agreement for the Member States involved, to enhance obligations accepted under the AfCFTA Agreement.
This paper has shown that dispute settlement is critical to the proposed rules-based investment governance. However, an effective dispute settlement regime should ensure equity in representation and predictability. Therefore, investors will be looking at how well their rights are protected under the Agreement when deciding how aggressively to move into the continent and, at the same time, governments will be more likely to buy into the Agreement if it allows for greater protection of their rights than existing investment dispute settlement mechanisms. As a result, an inter-State mechanism was dismissed because it does not offer investors direct access but rather, they must rely on their home State to adjudicate on their behalf.
The possibility of including a limited version of ISDS has also been examined and is the closest alternative to the proposed African Investment Court. The ISDS regime could be perceived as bringing predictability to investments given that most investment agreements offer such recourse. It is, therefore, submitted that given existing investment regulatory instruments often provide for cooling off periods, consisting of conciliation, consultations, negotiations and mediation, to enable parties to reach an amicable settlement, these could potentially be incorporated thereby providing a caveat on the operation of international arbitration. However, a growing number of African States have expressed concern over ISDS, criticising among other things, the bias of arbitral tribunals towards investors as well as inconsistent and costly awards. As a result of
this backlash, some African countries have gone as far as terminating BITs (e.g., the Republic of South Africa and the United Republic of Tanzania) or renegotiating investment treaties to limit or exclude ISDS. It is, therefore, anticipated that a limited version of ISDS through the incorporation of exhaustion of domestic remedies requitements is less likely to receive the support of AfCFTA Member States, if it permits recourse to international arbitration. Similarly, some States may favour the resolution of investment disputes through the domestic courts of the host governments or regional tribunals. The challenge, however, is convincing investors that African national courts or regional courts are independent of the host governments and have the expertise to effectively adjudicate complex investment disputes.
Having discussed the shortcomings of existing dispute settlement mechanisms, this paper has set out why a standing two-tier court with full- time adjudicators responds effectively to the concerns identified by African countries and local and foreign investors, taking into consideration regulatory practices from around the world. At its core, this systemic change would involve a tribunal of first instance and an appellate body, with African judges having fixed terms and paid a regular salary. It is, therefore, submitted that a standing African Investment Court needs to be considered and further developed by the AfCFTA Member States as it strikes the right balance between being sufficiently investor friendly while simultaneously protecting the policy space of host countries. Overall, a multilateral investment court is arguably the best option for providing a collective response to the limitations of an inter-State mechanism and the recurring concerns over the operation of ISDS in Africa and around the world and should, therefore, be considered when negotiating the AfCFTA Protocol on Sustainable Investment.
