Consent to Arbitration Based on Investment Codes

In international arbitration, consent to arbitration can be expressed in different forms, including in domestic laws. While it is widely recognized that States can commit themselves by way of international treaties (or by virtue of contracts covering future disputes), States can also give their consent to arbitration based on investment codes.

Due to the significant number of international treaties for the promotion and protection of investments worldwide, investment arbitration proceedings based on domestic laws are rarer. However, investment codes reflect the investment policy of many importing countries, particularly in Africa.

Consent to arbitration in investment codes, and other domestic acts, is a “unilateral undertaking” of the State. As pointed out by the arbitral tribunal in Tradex Hellas S.A. v Republic of Albania, while consent by written agreements is the traditional method, consent may be effected unilaterally by the State’s national laws.[1]

[…] the Tribunal notes that, although consent by written agreement is the usual method of submission to ICSID jurisdiction, it can now be considered as established and not requiring further reasoning that such consent can also be effected unilaterally by a Contracting State in its national laws the consent becoming effective at the latest if and when the foreign investor files its claim with ICSID making use of the respective national law.

It is worth noting, however, that the mere existence of consent to arbitration under a national law is generally not sufficient. Investors have to accept the offer to arbitration in writing while the legislation is in force. In reality, acceptance is often made by filing a Request for Arbitration.

Arbitral jurisdiction may be defined as the power of an arbitral tribunal to decide a case. In this respect, the basis for arbitral jurisdiction is parties’ consent. In other words, if no consent has been given by the parties, the arbitral tribunal will not have jurisdiction to decide the case.

Consent to Arbitration Based on Investment Codes

States can consent to arbitration on different levels depending on the wording of their investment codes.

Some investment codes are clear about a State’s consent to arbitration. This clear consent to resort to arbitration may encompass provisions that are construed so as to give an option to foreign investors to submit the dispute to arbitration. In such a case, the investor’s option is imposed upon the host State.

Provisions to this effect can be found in the code of investment of Mauritania,   Afghanistan and the Central African Republic. For instance, Article 22 of the investment code of the Central African Republic provides that any dispute with the host State and a foreign investor may be resolved by arbitration, including via ICSID or OHADA arbitration.

As straightforward provisions establishing a State’s unequivocal consent to arbitration may be riskier for host States, many States have amended their investment codes.

Investment codes’ provisions that expressly refer to domestic courts in case of dispute are not considered as an offer to arbitration (in such a case, the State can, of course, give its consent by an investment agreement or treaty, which will prevail over the domestic legislation).

An example of this kind of provision is Article 17 of the Law on the Policy of Foreign Direct Investment in Bosnia and Herzegovina, which reads as follows:

Foreign investment disputes shall be settled by the relevant courts in Bosnia and Herzegovina, unless interested parties contract some other procedure for the settlement of disputes, including but not limited to domestic or international conciliation or arbitration.

Some investment codes refer to arbitration as an “authorized” means of dispute resolution. A typical example would be a provision stating that the dispute “may” be resolved by arbitration or arbitration “may be agreed upon” by the parties, among other methods of dispute resolution.  This kind of provision is rarely understood as a unilateral consent to arbitration, since it depends on a previous agreement between the State and the foreign investor. This is case of Section 5(3) of the 2010 Seychelles Investment Act, for instance. [2]

An investor aggrieved by any nationalization or expropriation may seek constitutional or other remedies under the laws of Seychelles, or resort to other methods of resolution of disputes provided for in any agreement between the investor and the Government.

Others provide for consent to arbitration, but only when a dispute is not referred to the exclusive competence of domestic courts. For instance, the 2013 Law of the Republic of Belarus on Investments allows the settlement of disputes that are not referred to the exclusive competence of the courts of the Republic of Belarus to be referred to UNCITRAL or ICSID arbitration:

Article 13. Settlement of disputes between an investor and the Republic of Belarus

[…] If disputes not referred to the exclusive competence of courts of the Republic of Belarus, arisen between an investor and the Republic of Belarus are not regulated under a pre-trial procedure through negotiations within three months from the day of receipt of a written proposal about the regulation thereof under a pre-trial procedure, then such disputes may, at the option of the investor, be regulated also:

• in an arbitration court being established for settlement of each specific disputed according to the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL), unless the parties agree otherwise;

• at the International Centre for Settlement of Investment Disputes (ICSID) in the case if this foreign investor is citizen or legal person of a member state of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States of March 18, 1965.

In Southern Pacific Properties (Middle East) Limited v. Egypt, the foreign investor relied upon Egyptian Law No. 43 of 1974 concerning the Investment of Arab and Foreign Funds and the Free Zone (“Law No. 43”) to file a Request for Arbitration before the International Centre for Settlement of Investment Disputes (“ICSID”). Article 8 of Law No. 43 provided for ICSID arbitration:[3]

Investment disputes in respect of the implementation of the provisions of this Law shall be settled in a manner to be agreed upon with the investor, or within the framework of the agreements in force between the Arab Republic of Egypt and the investor’s home country, or within the framework of the Convention for the Settlement of Investment Disputes between the State and the nationals of other countries to which Egypt has adhered by virtue of Law No. 90 of 1971, where such Convention applies.

Egypt objected, stating that Article 8 of Law 43 did not constitute an unequivocal consent. According to the State, an agreement with the foreign investor would be required to establish jurisdiction. The arbitral tribunal rejected Egypt’s argument and found that Article 8 of Law 43 constituted “an express ‘consent in writing’ to the Centre’s jurisdiction within the meaning of Article 25(1) of the Washington Convention in those cases where there is no other agreed-upon method of dispute settlement and no applicable bilateral treaty”.[4]

Substantive Protections Provided in Investment Codes

Similar to investment treaties, investment codes encompass a range of substantive rules for the protection and promotion of foreign investors. For instance, the following substantive protections can be found in investment codes of African countries:

• fair and equitable treatment (see, e.g., Section 7 of the External Investment Code of Cape Verde (Law No. 89/IV/93);
• national treatment (see, e.g., Section 7 of the External Investment Code of Cape Verde (Law No. 89/IV/93))
• protection from discriminatory measures (see, e.g., Article 10 of the Investment Code of Burundi (Law No. 1/24));
• protection of intellectual property rights (see, e.g., Article 35 of the Investment Promotion Act, 2009 of South Sudan);
• due process (see, e.g., Article 15 of the Private Investment Law (Law no. 10/18 of June 26th));
• protection from nationalization and expropriation (see, e.g., Section 5(1) of the Seychelles Investment Act 2010); and
• the right to free transfer of capital (see, e.g., Section 6(1) of the Seychelles Investment Act 2010).

Many investment codes also define the terms “investment” and “investor” in a similar manner to bilateral investment treaties. (see, e.g., Section 1 of the Protection of Investment Act 2015 of South Africa).

[1] Tradex Hellas S.A. v. Republic of Albania, ICSID Case No. ARB/94/2, Decision on Jurisdiction dated 24 December 1996, pp. 187-188.

[2] Investment Code of The Seychelles (Investment Act 31 of 2010).

[3] Today, foreign investments in Egypt are governed by Law No. 72 of 2017.

[5] Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt, ICSID Case No. ARB/84/3, Decision on Jurisdiction dated 14 April 1988, ¶ 116.