| A US firm stripped of investment rights without | | | | dispute between the government and an international |
| notice | | | | investor covered by a BIT. |
| In 2005, the Government of Mozambique decided to | | | | Practically, the first remedy available to the claimant is |
| withdraw the award of the Chifunde concession from | | | | to lodge a plaint / an administrative appeal (if it was |
| the Alliance One. Which was formed out of a merger | | | | not done before) against the Government's decision. |
| between the US-based companies Dimon and | | | | This should be in respect with the Concession |
| Stancom, both of whom held concessions in the | | | | Agreement concluded between the Government and |
| Mozambican provinces of Niassa, Tete and Manica. | | | | the investor. |
| International observers find the government's decision | | | | The next channel for an immediate legal remedy, |
| to switch the concession from Dimon to MLT illegal, | | | | before any judicial recourse, should be a conciliation / |
| since it violates existing investment agreements | | | | consultation process which is provided for under both |
| signed by the Government. According to | | | | the US-Mozambique BIT (Article X.1.) and the ICSID |
| Government's officials, the reason is simply clear. The | | | | Convention (article 28). |
| government wants tobacco processing to happen in | | | | Local tribunals and courts: the first competent |
| Mozambique, and so urged all the concessionary | | | | institution should be the national courts and tribunals. |
| companies to build processing plants. Adding that only | | | | In Mozambique, the national courts are competent to |
| MLT responded, and has built the second largest | | | | adjudicate any disputes arising from illegal |
| processing plant in Africa in Tete City. This explains | | | | government's decisions. However, given the state of |
| that: its reward was the Chifunde concession (quoted | | | | independence and competence of judicial officers, it |
| from Savana Newspaper of May 2006). | | | | would be a strategic mistake to seek redress in the |
| The present article outlines the legal basis and | | | | national courts, hence the necessity to pursue the |
| requisites for a dispute settlement initiative in case of | | | | following alternatives. |
| remedy and compensation for the claimants. It | | | | The US-Mozambican Council on Trade and |
| reviews different alternatives available for a | | | | Investment was established under the TIFA of 2005. |
| conciliation / dispute settlement mechanism and | | | | This is a high level diplomatic mechanism which is |
| suggests the most efficient process towards this | | | | optional, and not compulsory. Its decision would be |
| goal. | | | | some how very slow, but would be most compelling |
| The Legal basis for a conciliation / arbitration claim | | | | given the level of cooperation and the need for |
| There are different legal frameworks under which | | | | protection of US investments in Mozambique. |
| the investment dispute can be settled. The following | | | | The International Centre for Settlement of |
| instruments are, more or less, all relevant for this | | | | Investment Disputes. The ICSID Convention |
| case which mainly relates to the protection of | | | | stipulates in its article 25.1. that "The jurisdiction of |
| investment rights, including concession rights, and | | | | the Centre shall extend to any legal dispute arising |
| expropriation procedures: | | | | directly out of an investment, between a Contracting |
| The Chifunde Concession Agreement (between the | | | | State (or any constituent subdivision or agency of a |
| Government of Mozambique and the tobacco | | | | Contracting State designated to the Centre by that |
| companies: Alliance One viz. Stancom and Dimon). For | | | | State) and a national of another Contracting State, |
| the moment we do not have this document, which is | | | | which the parties to the dispute consent in writing to |
| the most important to understand the case. It should | | | | submit to the Centre. When the parties have given |
| be obtained asap. | | | | their consent, no party may withdraw its consent |
| The Mozambican Investment code: Law No. 3/93 of | | | | unilaterally." |
| June 24, 1993, on Investment and subsequent | | | | The settlement of the dispute under the Multilateral |
| amendments contained in Decree No. 14/93 on July | | | | Investment Guarantee Agency - MIGA. Both the US |
| 21, 1993 and decree No. 36/95 on August 8, 1995. | | | | and Mozambique are members of MIGA. However |
| The Mozambican law holds that "when deemed | | | | investments are covered by MIGA according to |
| absolutely necessary for weighty reasons of national | | | | specific request by members and specific areas of |
| interest or public heath and order, the nationalization | | | | interest. It remains necessary to ask the claimant if |
| or expropriation of goods and rights...shall (result in | | | | the investment under dispute is covered by the |
| the owner being) entitled to just and equitable | | | | MIGA insurance, since with limited information, we are |
| compensation." | | | | unable to ascertain these facts. The MIGA conciliation |
| The US-Mozambique BIT of December 1, 1998, which | | | | mechanism is free and very effective. |
| came into effect on March 3, 2005, and the Trade | | | | The main issues raised by the arbitration initiative |
| and Investment Framework Agreement (TIFA) | | | | Obviously, apart from the US-Mozambique BIT |
| signed on June 21, 2005, which establishes a Council | | | | conciliation mechanism as a priority option, the ICSID |
| on Trade and Investment charged with the task of | | | | is the most advisable alternative for the settlement |
| holding consultations and work towards the removal | | | | of such as dispute. The review of past and current |
| of impediments to bilateral trade and investments. | | | | ICSID cases is very instructive when it comes to the |
| Since the investor is composed of US companies, the | | | | ultimate decision for the case under review. This |
| BIT is the major instrument which should be used for | | | | cases include the World Duty Free Company Ltd. v. |
| legal reference. | | | | The Republic of Kenya, a $500 million arbitration case |
| The Convention on the Settlement of Investment | | | | concerning the illegal cancellation of a concession for |
| Disputes between States and Nationals of Other | | | | duty free services at the international airport in |
| States also known as the ICSID Convention. This | | | | Nairobi (JKIA) which started in January 15, 2001. This |
| convention, which established International Centre for | | | | is why we believe that some specific concerns need |
| Settlement of Investment Disputes ((ICSID), was | | | | to be studied further for this alternative |
| adopted on March 18, 1965 and entered into force on | | | | 1. Investments covered: (is the claimant entitled to |
| October 14, 1966, when it had been ratified by 20 | | | | legal protection under the ICSID ?) |
| countries. As on April 10, 2006, 143 countries have | | | | According to article I (d) of the US-Mozambique BIT, |
| ratified the Convention to become Contracting | | | | investments covered include "every kind of |
| States. It was ratified by both Mozambique and the | | | | investment owned or controlled directly or indirectly |
| USA, and entered into force for as follows: | | | | by that national or company, and includes |
| (a) Mozambique ratification/accession to the | | | | investments consisting or taking the form of : |
| convention (Resolution no. 10/92 of the Assembleia | | | | (iii) contractual rights, such as ......... concessions, or |
| da República, Bulletim da República, 25 | | | | other similar contracts" |
| September 1992, I Série (39) pag. 197 (3) 2o | | | | 2. The consent of the parties to the dispute for an |
| Supplemento). | | | | ICSID arbitration |
| (b) The United States of America: ratification of the | | | | ICSID rules require in article 25, the consent of both |
| convention: | | | | parties. For this case, the US-Mozambique BIT has |
| - Signature of convention on August 27, 1965 | | | | already included provisions where both parties have |
| - Deposited the instrument of ratification on June 10, | | | | consented to the ICSID arbitration mechanisms. It |
| 1966 | | | | would however be necessary to inform the |
| - Entry into force of the convention: October 14, | | | | Government of Mozambique of the decision to seek |
| 1966 | | | | dispute settlement through ICSID. |
| The Convention establishing the Multilateral | | | | 3. The issue of time limit for filing a petition: |
| Investment Guarantee Agency - MIGA, concluded at | | | | Unless the concession agreement (or the investment |
| Seoul (Korea), on October 11, 1985. It entered into | | | | authorization issued by the Government of |
| force on April 12, 1988. Both the uS and Mozambique | | | | Mozambique) has established other dispute resolution |
| are members of MIGA. | | | | procedures and specific time limits, there is no pre |
| Mozambique: ratification/accession to the MIGA | | | | requisites for lodging an investment petition. There is |
| convention (Resolution no. 9/92 of the Assembleia da | | | | no time limit for submitting a preliminary petition to |
| República, Bulletim da República, | | | | the ICSID Secretary General. However after the |
| Maputo 25 September 1992, I Série (39) pag. | | | | appointment of the tribunal by the ICSID, time limits |
| 197 (3) 2o Supplemento ). | | | | are imposed for subsequent procedures. |
| MIGA, a member of the World Bank Group, routinely | | | | Conclusion |
| provides an umbrella of deterrence against | | | | The 2005 decision by the Government of |
| government actions that could disrupt insured | | | | Mozambique to withdraw the award of the Chifunde |
| investments and helps resolve potential disputes to | | | | concession from the Alliance One was an act of |
| the satisfaction of all parties--both of which enhance | | | | discretionary powers. But the Government's decision |
| investor confidence in the safety of investments and | | | | remains a violation of legally awarded investment |
| encourage the flow of foreign direct investment. In | | | | rights (according to the Concession agreement). The |
| order to prevent a potential claims situation from | | | | Alliance One consortium was formed out of a merger |
| escalating, MIGA provides free mediation services to | | | | between the US-based companies Dimon and |
| all its clients. This service has been very effective to | | | | Stancom, both of whom held concessions in the |
| date, with all cases but three reaching an amicable | | | | Mozambican provinces of Niassa, Tete and Manica. |
| resolution. | | | | The national laws and international agreements offer |
| In addition to ensuring the safety of projects | | | | various remedies to the illegal cancellation of |
| guaranteed by MIGA, the agency helps countries | | | | investment rights. The national investment code |
| improve their investment climates by working to | | | | provides for compensation even in case of |
| remove the obstacles to the flow of foreign | | | | expropriation for weighty national interests or other |
| investment. One of these obstacles is the existence | | | | compelling health or environmental reasons. |
| of disputes between investors and the countries that | | | | It is advisable to initiate as soon as possible, all |
| host the investments. | | | | available administrative appeal, conciliation |
| Alternative dispute mechanisms | | | | mechanisms, and mediation under the US-Mozambique |
| According to the US-Mozambique BIT, the arbitration | | | | BIT before any other judicial and international dispute |
| mechanisms available are as spelled out in Article IX.2., | | | | resolution procedures. The judges and arbitrators |
| which offers various arbitration alternatives: | | | | would like to ascertain that all legally available channels |
| (a) the national courts or administrative tribunals of | | | | were used to settle the dispute before reaching the |
| the investment's host country ; | | | | highest and more expensive dispute resolution |
| (b) any other " previously agreed dispute settlement | | | | mechanisms. |
| procedures" ; | | | | In case all mediation / administrative appeal and |
| (c) the ICSID [see also article I (i) and (j)] if it is | | | | related initiatives fail, other international mechanisms |
| available, if ninety days have elapsed after the | | | | would be then justified. For a serious and most |
| dispute arose, and if the claimant did not submit the | | | | compelling dispute settlement mechanism, it is |
| dispute under mechanisms (a) or (b). | | | | advisable to file a petition with the Secretary General |
| (d) the UNCITRAL Arbitration Rules | | | | of the ICSID for conciliation and later if not |
| (e) any other arbitration institution as agreed by both | | | | successful, for arbitration. For this mechanism, no |
| parties or in accordance with any other arbitration | | | | time limit is required. |
| rules. | | | | However, the US-Mozambique BIT (in its article IX.2. |
| It is noteworthy to observe that the aggrieved party | | | | c) requires that no petition can only be submitted to |
| may seek "interim injunctive relief, not involving the | | | | the ICSID conciliation / arbitration, if ninety days have |
| payment of damages, before the judicial or | | | | elapsed after the dispute arose, and if the claimant |
| administrative tribunals" of the host party (article | | | | did not submit the dispute under other mechanisms |
| IX,3.b). It is not however a compulsory duty for the | | | | (national courts or other available conciliation |
| claimant to file a petition in the national courts. | | | | mechanisms). |
| According to an international expert's assessment, to | | | | Considering the high costs involved in the ICSID |
| date the Mozambican judicial system has been largely | | | | conciliation / arbitration procedure, it is a priority |
| ineffective in resolving commercial disputes. Instead | | | | option to consider the mechanism defined under the |
| most disputes among Mozambican parties are either | | | | TIFA (US-Mozambique council). Also alternatively, it |
| settled privately or not at all. For disputes between | | | | would be useful contact the office of the Resident, |
| international and domestic companies, the law closely | | | | World Bank, Maputo, for a prior MIGA conciliation |
| follows UNCITRAL, the United Nations Commission of | | | | process. It would be also cost effective to agree |
| International Trade Law. In February 1999 the | | | | with the competent government's department on |
| National Assembly passed alternative dispute | | | | which alternative should be used as agreed by both |
| resolution (ADR) legislation. The Center for | | | | parties. In case there would be no response, the BIT |
| Commercial Arbitration, Conciliation and Mediation | | | | is very clear on the dispute settlement mechanisms |
| (CACM), offers commercial arbitration. This channel is | | | | already agreed on. |
| not recommended given the specific nature of the | | | | |