Ubuntu: the Africa Arbitration Academy Model Bilateral Investment Treaty

Introduction

In the tenth issue of the Outlook we looked at the interplay between investment arbitration and human rights.[1] One of the issues touched upon was the next generation model[2] bilateral investment treaties[3] ('BITs') that have been designed to address the specific needs and goals of The Gambia, in the context of promoting and protecting foreign investment flowing into its economy and settling disputes arising from those investments.

In this article we will address yet another model BIT that includes innovative and sophisticated clauses: the Africa Arbitration Academy New Model Bilateral Investment Treaty ('AAA Model BIT'), which was launched by the Africa Arbitration Academy ('AAA') in July 2022 (in Arabic, French, Portuguese and English) to recognise 'the desire of African States to promote an attractive investment climate that enhances sustainable development'[4] in Africa (both through foreign and intra-African investment).[5]

According to the preamble of the AAA Model BIT, there is a need to promote and accelerate economic growth in Africa by eliminating 'barriers to trade and investment'[6] and it 'recognises' that promoting and protecting investments will foster economic co-operation and sustainable development.[7] At the same time it 'reaffirms' the importance of promoting diversity, equality, the rights of indigenous people, traditional African knowledge and, notably, 'the host State's right to regulate for the interest of the public'.[8]

In addition, Article 1 of the AAA Model BIT sets out an 'overarching philosophy for the interpretation, performance and enforcement of the substantive provisions of the BIT[9] based on the traditional African principle of ubuntu, which 'accords respect to human dignity and equality to any person irrespective of status in a communitarian sense'[10] and derives from the popular African idiom umuntu numuntu nga bantu[11] literally translated as 'a person is a person because of what other members of the community have done for them'.[12]

With this in mind, we will now turn to the specifics of the substantive protections under the AAA Model BIT as well as its investor-State dispute settlement provisions.

Substantive protections

The explanatory notes of the AAA Model BIT underscore that in the context of drafting or negotiating other regional instruments such as the Draft Pan African Investment Code or the Southern African Development Community Protocol on Finance and Investment ('SADC Protocol'), a significant number of African States were in favour of completely abandoning classic substantive protections such as the fair and equitable treatment standard or FET.[13] This policy stance was shaped around the idea that the FET standard has an overly broad meaning that has gone beyond customary international law and consequently led to unpredictable outcomes when applied by international investment tribunals.

However, since the AAA Model BIT aims to attract foreign investment to Africa, it has not departed from the traditional content of most bilateral investment treaties and their common basic substantive protections.[14] The drafters of the AAA Model BIT noted that despite the critical voices and firm policy position of several African States, the fact was that newly signed investment treaties by African States (from 2016 onwards) did contain the FET standard.[15]

That being said, the principles behind the AAA Model BIT often come to light in its definitions of these substantive protections and even more so in other sections of the AAA Model BIT that have been included to deal not only with investors' rights, but also with their obligations vis-à-vis the host States.[16]

The AAA Model BIT establishes a general undertaking for investors to comply with the already mentioned principle of ubuntu in their dealings with the local communities, nationals and third party-States that may be affected by an investment.[17] However, it provides little guidance as to how the principle could be applied in practice.

When it comes to the usual protections, while the general concepts are virtually in line with common treaty practice, the AAA Model BIT provides some guidance on how to interpret and apply them. For example, in the FET clause (which is limited to the minimum standard of treatment in customary international law),[18] the text includes an 'avoidance of doubt' clause that sets out which specific actions by States can trigger FET protection (e.g. denial of justice, fundamental violation of due process, conduct that is manifestly arbitrary, targeted or capricious).[19] Notably, the 2017 Qatar - Ethiopia BIT (not yet ratified), contains a different minimum standard of treatment that focuses on procedural rather than substantive fairness and equity: the so-called 'fair administrative treatment' or 'FAT', which was developed in the SADC Protocol as an alternative to the criticised FET standard.

From the outset, the AAA Model BIT clearly differentiates between direct expropriation ('involving transfer of title or outright seizure')[20] and indirect expropriation (with equivalent effect). Article 6.5 (b) of the AAA Model BIT lists a total of five factors[21] that should be taken into account when assessing (through a 'fact-based inquiry') whether there is a case for indirect expropriation.

In addition, Article 6.7 of the AAA Model BIT establishes a rule that, while not unprecedented,[22] is certainly not common in the BIT era. In the event of direct expropriation of land located in the territory of the host State, the amount of compensation to be awarded to the investor should be determined in accordance with the domestic legislation of the host State.

Finally, as already stated, the AAA Model BIT establishes obligations for investors in a wide array of areas (such as labour and human rights)[23] and also includes specific carve-outs in connection with its substantive protections (for example in environmental-related measures).[24]

Another example is Article 15 ('compliance with domestic laws'), which includes a general obligation for investors (and their investments) to comply with all laws and regulations of the host State despite them being foreign nationals. This is relevant in light of Article 16 ('denial of benefits') because its subsection (c) highlights that rights under the treaty may be denied by the host State if the investor does not comply with its domestic laws. The AAA Model BIT itself identifies specific conduct that is automatically considered a breach of those domestic laws (e.g. Article 12 on corruption).[25]

Investor-State dispute settlement

The AAA Model BIT contains specific provisions on investor-State dispute settlement through international arbitration (some commonplace, others innovative) that are worth highlighting:

1. a time bar (no more than three years may have elapsed since the investor first knew about the treaty breach alleged in the notice of arbitration);[26]
2. parties may seek interim relief from the courts of the host State;[27]
3. the parties' ability to submit their dispute to an African institution or regional court located in Africa (besides ICSID or ad hoc arbitration under the UNCITRAL rules);[28]
4. in the event of non-ICSID arbitration, the default seat of arbitration would be an African city (other than those located in the investor's home State or in the host State).[29]
5. a diversity requirement for arbitral tribunals, with a preference for presidents of African descent;[30]
6. the ability for host States to counterclaim against investors for their failure to comply with treaty obligations (assuming that a counterclaim does not waive any jurisdictional challenge raised by the State nor preclude domestic court proceedings against investors);[31]
7. third-party funding, which entails a disclosure obligation that also applies to the ultimate funder;[32] and
8. oral or written submissions to the arbitral tribunal by non-disputing States and other third parties (amicus curiae), particularly regarding traditional African knowledge that might be relevant to the dispute and that local or ethnic communities can present as shawara or other forms of traditional African insight.[33]

Conclusion

The AAA Model BIT is a welcome initiative for promoting investment in Africa whilst preserving its cultural values and communities. It remains to be seen whether it will fulfil its goals in light of, for example, the carve-out of investment protection for environmental matters[34]. Given that more and more corporations and investors abide by modern standards and best practices in corporate governance, ESG, human rights and other relevant fields, it is likely that the provisions of the AAA Model BIT (or other provisions based on it) will be more easily accepted.

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[1] C. Hernández and A. Amorín, 'A Human Rights Perspective on Investment Arbitration after COVID-19: current issues and future trends' (2022) Issue 10, Investment Arbitration Outlook.

[2] 'Model' bilateral investment treaties are templates prepared by States for the purposes of negotiating new BITs with other States.

[3] The Sustainable Investment Facilitation and Cooperation Agreement ('SIFCA').

[4] AAA Model BIT, Introduction, para 1.

[5] AAA Model BIT, Preamble, para 1: 'UNDERSTANDING the need to promote and accelerate social, economic and intra-African growth through direct, conscious and concerted efforts to eliminate barriers to trade and investment while promoting the free movement of labour, goods and services across African states.'

[6] AAA Model BIT, Preamble, para 1.

[7] AAA Model BIT, Preamble, para 3.

[8] AAA Model BIT, Preamble, para 5.

[9] AAA Model BIT, Art 1.

[10] AAA Model BIT, Art 1.1.

[11] Generally, ubuntu has been defined in connection with the Zulu or Xhosa principles which have a similar spelling and meaning. See C. B. N. Gade, 'The Historical Developments of the Written Discourses on Ubuntu' (2011) South African Journal of Philosophy, Volume 30, Issue 3, p 313: 'in this context, and more precisely between 1993 and 1995, ubuntu was defined for the first time as something connected to the proverb umuntu ngumuntu ngabantu. If this hypothesis is correct, then the term ubuntu and the proverb became intimately connected within the space of just a few years. Even in 1997, Hennie Lötter stated that: 'Ubuntu means that a person becomes a person through other persons' (Lötter 1997: 46).).'

[12] AAA Model BIT, Definitions, p 13.

[13] AAA Model BIT, Art 5, Explanatory Notes.

[14] Namely, AAA Model BIT, Art 4 (non-discrimination standards, including most-favoured-nation treatment and national treatment); Art 5 (minimum standard of treatment, including fair and equitable treatment and full protection and security); Art 6 (expropriation and compensation) and Art 8 (transfer and repatriation of funds).

[15] Nigeria - Morocco BIT (2016) Art 7; Rwanda - United Arab Emirates BIT (2017) Art 4 and Morocco - Japan BIT (2020) Art 3.

[16] AAA Model BIT, Art 7 (essential security measures); Art 9 (environment); Article 10 (labour, human rights protection and gender equality); Art 11 (intellectual property and indigenous peoples'/communities' rights and resources); Art 12 (anti-corruption, anti-money laundering and counter-terrorism financing); Art 13 (corporate governance and practices); Art 14 (entry and exit of foreign nationals); Art 15 (compliance with domestic laws); Art 16 (denial of benefits); Art 17 (rights of States to regulate); Art 18 (corporate social responsibility) and Art 19 (taxation).

[17] AAA Model BIT, Art 1.2.

[18] AAA Model BIT, Art 5.2 (a).

[19] AAA Model BIT, Art 5.2 (b).

[20] AAA Model BIT, Art 6.5 (a).

[21] AAA Model BIT, Art 6.5 (b): 'interference with a tangible or intangible property right or proprietary interest in an Investment; the economic impact of the Contracting Party's government action, although the fact that an action or series of actions by a Contracting Party has an adverse effect on the economic value of an Investment, standing alone, does not establish that indirect expropriation has occurred; the extent to which the Contracting Party's government action interferes with distinct, reasonable Investment-backed expectations; the duration of the Measure or series of Measures of a Contracting Party; and the character of the Measure, particularly the object, context and intent of such action.'

[22] Model India BIT, Art 5, fn 3.

[23] AAA Model BIT, Art 10.3: 'Investors and their Investments shall not manage or operate in a manner that is inconsistent with international labour and human rights obligations binding on the Host State or on their home State, whichever obligations are higher.'

[24] AAA Model BIT, Art 9.3: 'Nothing in this Agreement shall be construed as preventing a Contracting Party from adopting, maintaining, or enforcing, in a non-arbitrary and non-discriminatory manner, any Measure that it considers appropriate to ensure that any investment activity in its Territory is undertaken in a manner sensitive to environmental concerns.'

[25] AAA Model BIT, Art 5.5: 'A breach of any provision under this Article 12 by an Investor or an Investment is deemed to constitute a breach of the domestic laws of the Host State concerning the establishment and operation of an Investment.'

[26] AAA Model BIT, Art 22, A (2).

[27] AAA Model BIT, Art 22, B.

[28] AAA Model BIT, Art 22, C (4).

[29] AAA Model BIT, Art 22, D.

[30] AAA Model BIT, Art 22, E.

[31] AAA Model BIT, Art 22, G.

[32] AAA Model BIT, Art 22, I.

[33] AAA Model BIT, Art 22, K (3): 'a sub-national group, local or ethnic community of a Contracting Party may, at the discretion of the Tribunal, provide oral or written shawara (insight, information or other useful details) to the Arbitral Tribunal regarding the tarihi (history) or asiri (secrets) of any aspects of Traditional Knowledge, Traditional Cultural Expression or genetic resources which form the core of the subject matter in dispute before the Tribunal.'

[34] AAA Model BIT, Art 9.3: 'Nothing in this Agreement shall be construed as preventing a Contracting Party from adopting, maintaining, or enforcing, in a non-arbitrary and non-discriminatory manner, any Measure that it considers appropriate to ensure that any investment activity in its Territory is undertaken in a manner sensitive to environmental concerns.'