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The Prospects and Challenges of Trade and Investments Arbitration in Africa

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By Dr. Kariuki Muigua, PhD (Leading Environmental Law Scholar, Policy Advisor, Natural Resources Lawyer and Dispute Resolution Expert from Kenya), Winner of Kenya’s ADR Practitioner of the Year 2021, ADR Publisher of the Year 2021 and CIArb (Kenya) Lifetime Achievement Award 2021*

According to UNCTAD, some of the issues raised by critics of the current ISDS system include: a perceived lack of legitimacy and transparency; inconsistencies between arbitral awards; difficulties in correcting erroneous arbitral decisions; questions about arbitrators’ independence and impartiality; and concerns about the costs and duration of arbitral procedures. Despite the earliest proponents of the ISDS system’s advantages, and as already pointed out, most of the developing world countries, especially in the African continent have in recent times complained about the unfair effects of the ISDS system on their domestic affairs.

Specifically, African countries have raised concerns about the traditional investor-state dispute settlement (ISDS) system including: lack of legitimacy and transparency; exorbitant costs of arbitration proceedings and arbitral awards; inconsistent and flawed decisions; the system allows foreign investors to challenge legitimate public welfare measures of host states before international arbitration tribunals, and governments are concerned about their sovereignty or policy space as they have discouraged governments from adopting public welfare regulations, resulting in regulatory chill. Regulatory chill is used to refer to a situation where governments do not enact or enforce legitimate regulatory measures due to concern about ISDS. It has been noted that using lawsuit threats as a bargaining chip, arbitration lawyers also encourage their clients to use the threat of investment disputes as a way to scare governments into submission.

In addition to the above challenges, divergent interpretation by arbitral tribunals of identical treaty clauses has also led to a fragmentation of ISDS case law, thereby undermining the confidence of many countries in the system. This lack of confidence has been exacerbated by the fact that cases are litigated and decided by a small professional community of arbitrators and counsels who generally hail from western countries and elite socio-economic backgrounds. Furthermore, the systematic use of ISDS has excluded national courts from the process of hearing disputes involving public law/policy matters. Notably, in a number of high-profile ISDS cases, host countries have been sued by foreign investors on the basis of a seemingly outdated treaty signed decades previously. Foreign Direct Investment into Africa is estimated to have climbed from $10 billion in 1999 to $41,8 billion in 2017.

It is also documented that there has been an unprecedented boom in the number of claims against African countries where, between 2013 and 2019 only, African States have been hit by a total of 109 recorded investment treaty arbitration claims which represents about 11% of all known investor-state disputes worldwide. It has also been noted that the sharp increase in the number of ISDS related cases filed between 1987 and 2014 took many countries by surprise, with developed countries having started to recalibrate the contents of their IIAs, and developing countries generally stopping to sign new treaties or even beginning to terminate existing ones. Indeed, as a result of the highlighted concerns raised by the developing countries, some states such as Indonesia and South Africa have gone as far as unilaterally terminating IIAs on a larger scale. Some players view ISDS as a system that “threatens domestic sovereignty by empowering foreign corporations to bypass domestic court systems” and “weakens the rule of law.”‘

The United Nations Conference on Trade and Development (UNCTAD) observes that national investment laws operate within a complex web of domestic laws, regulations and policies that relate to investment (e.g. competition, labour, social, taxation, trade, finance, intellectual property, health, environmental, culture). However, most of the times, it is the enforcement of these domestic laws against them that the foreign investors seek to challenge before the investor-state arbitration tribunals when they do not favour them or would result in higher operating costs.

Taking Kenya as an example, Kenya has been sued before international investment arbitration tribunals based on its Bilateral Investment Treaty’s (BITs) commitments. In 2013, when Kenya considered new changes in the mining sector to ensure its people benefit from its mineral resources, some investors sued the Government. In Cortec Mining Kenya Limited, Cortec (Pty) Limited, and Stirling Capital Limited v. Republic of Kenya, the claimants, Cortec Mining Kenya Limited (CMK), a private company constituted in Kenya, and its majority shareholders, Cortec (PTY) Limited and Stirling Capital Limited, two British holding companies, began to invest in a mining project in a niobium and rare earths exploration project located at Mrima Hill in Kenya in 2007, and obtained their Special Prospecting License (SPL 256) in 2008, which expired in December 2014 after two renewals.

According to the investors, they were also granted Special Mining License 351 (SML 351) in March 2013 based on SPL 256. However, in August 2013, the newly elected Kenyan government investigated and suspended several hundred “transition period” mining licences, including the investors’ SML 351, due to “complaints regarding the process.” According to the investors, this amounted to a revocation of their licence. In 2015, the investors filed a request for an investor-state arbitral tribunal established under a bilateral investment treaty (BIT), where they claimed that Kenya’s revocation of their SML 351 (their “key asset”) constituted a direct expropriation contrary to the United Kingdom–Kenya BIT. The Kenyan Government’s position was that “there was no expropriation of the “purported licence [SML 351]” by the Government because the licence was void ab initio for illegality and did not exist as a matter of law, as held by the Courts in Kenya. As a result, the Government argued, “where there is no protected investment, there can be no expropriation.”

The International Centre for Settlement of Investment Disputes (ICSID) Tribunal held it lacked jurisdiction to hear a dispute concerning a mining project that the tribunal found did not comply with domestic environmental law. The tribunal thus confirmed that both the ICSID Convention and the BIT protected only “lawful investments”. It held that non-compliance with the protective regulatory framework was a serious breach.” Concluding both on jurisdiction and merits that SML 351 was not a protected investment, the tribunal dismissed all of the investors’ claims. The tribunal ordered the investors to pay half of the costs claimed by Kenya, in view of the unsupported “corruption objection” allegation and other blameful conduct by Kenya during the arbitral proceedings. The Claimants in the Cortec case have, however, since applied for annulment of the award, seeking partial annulment of the Award on two grounds: (i) that the Tribunal manifestly exceeded its powers (ICSID Convention, Article 52 (1)(b))’ and (ii ) that the Tribunal failed to state the reasons on which the Award was based (ICSID Convention, Article 52(1)(e)).

The application for annulment was, however, dismissed in a decision delivered on 19th March 2021 and the applicants condemned to pay the costs of the application and the stay of enforcement of award previous granted was lifted. On its part, the award raised significant issues of public international law, including how questions of investor compliance are considered in investor-state dispute settlement and the legal implications of investor noncompliance. Had the Claimants in this case succeeded in their application for annulment, it is would have most likely added to the complexities surrounding the ability of host countries to regulate the investors’ activities that are likely to interfere with their duties under the sustainable development agenda and other regulatory laws, relating to human rights, economic, social and environmental concerns. Thus, the abuse of Investor State Dispute Settlement System by the foreign investors and the adverse effects on host countries go beyond the huge financial burdens that it can potentially place on the losing state to affect its sovereign ability to regulate the investors’ activities in protection of public interests and welfare as well as meeting its sustainable development goals.

*This article is an extract from the Book: Settling Disputes Through Arbitration in Kenya, 4th Edition, Glenwood Publishers, Nairobi, 2022 by Dr. Kariuki Muigua, PhD, Kenya’s ADR Practitioner of the Year 2021 (Nairobi Legal Awards), ADR Publisher of the Year 2021 and ADR Lifetime Achievement Award 2021 (CIArb Kenya). Dr. Kariuki Muigua is a foremost Environmental Law and Natural Resources Lawyer and Scholar, Sustainable Development Advocate and Conflict Management Expert in Kenya. Dr. Kariuki Muigua is a Senior Lecturer of Environmental Law and Dispute resolution at the University of Nairobi School of Law and The Center for Advanced Studies in Environmental Law and Policy (CASELAP). He has published numerous books and articles on Environmental Law, Environmental Justice Conflict Management, Alternative Dispute Resolution and Sustainable Development. Dr. Muigua is also a Chartered Arbitrator, an Accredited Mediator, the Africa Trustee of the Chartered Institute of Arbitrators and the Managing Partner of Kariuki Muigua & Co. Advocates. Dr. Muigua is recognized among the top 5 leading lawyers and dispute resolution experts in Kenya by the Chambers Global Guide 2022.

References

Muigua, K., Settling Disputes Through Arbitration in Kenya, 4th Edition, Glenwood Publishers, Nairobi, 2022, p. 308 to 315.

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Former KCB Company Secretary Sues Over Unlawful Dismissal

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Former KCB Group Company Secretary Joseph Kamau Kania who has sued the Bank for Unlawful Dismissal

Former KCB Group Company Secretary Joseph Kamau Kania has sued the lender seeking reinstatement or be compensated for illegal sacking almost three years ago. Lawyer Kania was the KCB Group company secretary until restructuring of the lender in 2021 that saw some senior executives dropped.

Through the firm of Senior Counsel Wilfred Nderitu, Kamau wants the court to order KCB Group to unconditionally reinstate him to employment without altering any of the contractual terms until his retirement in December 2025.

In his court documents filed before Employment and Labour Relations Court, the career law banker seeks the court to declare the reorganization of the company structure a nullity and amounted to a violation of his fundamental right to fair labour practices as guaranteed in Article 41(1) of the Constitution. He further wants the court to declare that the position of Group Company Secretary did not at any time cease to exist within the KCB Group structure.

He further urged the Employment Court to declare that the recruitment and appointment of Bonnie Okumu, his former assistant, as the Group Company Secretary, in relation to the contemporaneous termination of his employment, was unprocedural, insufficient and inappropriate to infer a lawful termination of his employment.

“A declaration that the factual and legal circumstances of the Petitioner’s termination of employment were insufficient and inappropriate to infer a redundancy against him, and that any redundancy declared by the KCB Group in relation to him was therefore null, void and of no legal effect and amounted to a violation of his fundamental right to fair labour practices as guaranteed in Article 41(1) of the Constitution,” seeks lawyer Kamau.

Kamau says he was subjected to discriminatory practices by the KCB Bank Group in violation of his fundamental right to equality and freedom from discrimination as guaranteed in Article 27 of the Constitution and the termination of his employment was unfair, unjustified, illegal, null and void.

Lawyer Kamau further seeks the court to declare that the Non-Compete Clause in the 2016 Contract is unenforceable by the KCB Group as against him and is voidable by him as against the Bank ab initio, byreason of the termination of the Petitioner’s employment having been a violation of Articles 41(1) and 47(1) and (2) of the Constitution, and of the Employment Act.

He also wants the Employment Court to find that finding that KCB’s group legal representation by Messrs of Mohammed Muigai LLP Advocates law firm in respect of his claim for unlawful termination of employment resulted in a clear conflict of interest by reason of the fact that a Founding and Senior Partner at the said firm lawyer Mohammed Nyaoga is also the Chairman of the CBK’s Board of Directors.

“A Declaration that the circumstances of KCB’s legal representation by Messrs. Mohammed Muigai LLP Advocates resulted in a violation of the Petitioner’s fundamental right to have the employment dispute decided independently and impartially, as guaranteed in Article 50(1) of the Constitution,” seeks lawyer Kamau.

Kamau is seeking damages against both KCB Group and Central Bank of Kenya jointly and severally for the violation of his constitutional and fundamental right to fair labour practices.

He wants  further wants court to declare that CBK is liable to petitioner on account of its breach of statutory duty to effectively regulate KCB Group to ensure that KCB complied with the Central Bank of Kenya Prudential Guidelines and all other Laws, Rules, Codes and Standards, and that, as an issuer of securities, it complied with capital markets legislation.

Kamau through his lawyer Nderitu told the court that he was involved in Shareholder engagement in introducing the Group aide-mémoire that significantly improved the management of the Annual General Meetings, including obtaining approval without voting through the Memorandum and Articles of Association of Kenya Commercial Bank Limited among others.

He said that during his employment at KCB Bank Kenya and with the KCB Group, he initially worked well with former KCB CEO Joseph Oigara until 2016 when the CEO allegedly started sidelining him by removing the legal function from his reporting line.

He further claims he was transferred from the Group’s offices at Kencom House to its offices Upper Hill under the guise that the Petitioner was merely to support the KCB Group Board.

He adds that at that point his roles were given to Okumu for reasons that were not related to work demands.  He stated that Oigara at one time proposed that he should leave his role in the KCB Group and go and serve as the Company Secretary of the National Bank of Kenya Limited, a subsidiary of the Group, a suggestion which he disagreed with to Oigara’s utter annoyance.

Kamau stated that his work was thenceforth unfairly discredited, leading to his being taken through a disciplinary process whose intended outcome failed miserably, and the Petitioner was vindicated.

“More specifically, the Petitioner contends that the purported creation of a new organizational structure towards the end of 2020 was in fact Oigara’s orchestration targeted to remove certain individuals by requiring them to undergo interviews in the pretext that new roles were created, and amounted to a further violation of the Petitioner’s fundamental right to fair labour practices under Article 41(1) of the Constitution,” said in his court documents.

He further adds that this sham reorganization demonstrates how the role of the KCB Group Company Secretary purportedly ceased to be and was then very briefly replaced with a new role of the KCB Group General Counsel. The role of KCB Group Company Secretary then ‘resurfaced’ immediately thereafter, in total violation of legal and regulatory requirements.

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Court of Appeal Upholds Eviction of Radcliffes from Karen Land

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Adrian Radcliffe, the Expatriate Squatter, Evicted from Karen Property by Innocent Purchaser for Value

The Court of Appeal has stayed the decision of the Environment and Land Court purporting to reinstate Adrian Radcliffe into possession of the 5.7 Acre Karen Land by Kena Properties Ltd after eviction by the lawful owners in February 2022. Adrian Radcliffe who was evicted by Kena Properties Ltd, the innocent purchaser of the Land for value.

Before his eviction, Mr. Radcliffe had been living on the land as a squatter expatriate for 33 years without paying any rent. Since he moved into the property as a tenant, he only paid deposit for the land in August 1989 despite corresponding severally with the owner of the land. His attempt to acquire the land by adverse possession claim filed in 2005 was dismissed by Court in 2011 on the basis that he has engaged with the owner of the land July 1997 and agreed to buy the land which he failed to do. The High Court [Justice Kalpana Rawal as she then was] concluded that:

“His [Mr. Adrian Radcliffe] averments that he did not have any idea of the whereabouts of the Defendant and that he could possibly be not alive, were not only very sad but mala fide in view of the correspondence on record addressed by him to the Defendant’s wife. I would thus find that the averments made by him to the contrary are untrue looking to the facts of this case.”

On 10th March 2022, Mr. Adrian Radcliffe and Family purported to obtain court orders for reinstatement into the land. However, the Court of Appeal issued an interim stay of execution of the said orders. The Court of Appeal has now granted the application of Kena Properties Ltd and stayed the execution of the Environment and Land Court Order pending the hearing and determination of the Appeal.

The Court also stayed the proceedings at the Environment and Land Court on the matter during the pendency of the Appeal. In effect, the eviction orders issued by the Chief Magistrate Court for eviction of Mr. Adrian Radcliffe in favour of Kena Properties as the purchaser of the property for value were upheld and the company now enjoys unfettered ownership and possession of the suit property until the conclusion of the Appeal.

The Court of Appeal in granting the orders sought by Kena Properties Ltd concurred with Kena Properties Ltd that as the property owner it had an arguable appeal with a high probability of success which would be rendered nugatory if Adrian Radcliffe a trespasser was to resume his unlawful possession of the suit property, erect structures thereon, recklessly use or abuse the said suit property as he deems fit. In any case, that is bound to fundamentally alter the state of the suit property and render it unusable by Kena Properties Ltd as the property owner.

At the same time, the Appellate Court rubbished the argument of Adrian Radcliffe in opposition to the application for stay that he has been in occupation of the suit property for more than 30 years and that he and his family were unlawfully evicted from the suit property on 4th February, 2022. The Court also rejected Radcliffe’s claim that Kena Properties Ltd has no valid title to the suit property and held that as the purchaser, the company was entitled to enjoy ownership and possession of their property during the pendency of the appeal.

The Court dismissed claims of Mr. Adrian Radcliffe that Kena Properties Ltd as the property owner acquired title to the suit property illegally and unprocedurally finding to the contrary. Further, it rejected Adrian Radcliffe’s claim that Kena Properties as the purchaser cannot evict a legal occupier of a property putting paid to the claim that he was a legal occupier at the time of eviction.

As a matter of fact, Mr. Adrian Radcliffe cannot claim to be the legal occupier of the property having attempted to acquire it by adverse possession before the High Court thwarted his fraudulent scheme on 28th February 2011. Mr. Radcliffe did not appeal the 2011 High Court decision meaning it is still the law that he is not the owner of the land nor the legal occupier of the land having attempted to adversely acquire against the interests of the lawful owner who sold it to Kena Properties.

Mr. Adrian Radcliffe is a well-to-do Water, Sanitation and Hygiene (WaSH) UNICEF consultant and former UN employee (who has been earning hefty House Allowance). Many have wondered why he has been defaulting in paying rent for 33 years on the prime plot of land in Karen while living large and taking his kids to most expensive schools in Kenya. No question, a local Kenyan could never have gotten away with such selfish impunity.

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Review: Journal of Conflict Management and Sustainable Development, Vol. 9, No. 1

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The Journal of Conflict Management and Sustainable Development, Volume 9, Issue No. 1, which is edited by and published by Dr. Kariuki Muigua, PhD is out and stays true to the reputation of the journal in providing a platform for scholarly debate on thematic areas in the fields of Conflict Management and Sustainable Development. The current issue published in September 2022 covers diverse topics including Resolving Oil and Gas Disputes in Africa; National Environment Tribunal, Sustainable Development and Access to Justice in Kenya; Protection of Cultural Heritage During War; The Role of Water in the attainment of Sustainable Development in Kenya; Property Rights in Human Biological Materials in Kenya; Nurturing our Wetlands for Biodiversity Conservation; Investor-State Dispute Resolution in a Fast-Paced World; Status of Participation of Women in Mediation; Business of Climate Change and Critical Analysis of World Trade Organization’s Most-Favored Nation (MFN) Treatment.

Dr. Wilfred A. Mutubwa and Eunice Njeri Ng’ang’a in “Resolving Oil and Gas Disputes in an Integrating Africa: An Appraisal of the Role of Regional Arbitration Centres” explore the nature of disputes in the realm of oil and gas in Africa taking a look into the recent continental and sub-regional developments in a bid to establish regional integration. Additionally, it tests the limits of intra-African trade and dispute resolution and the imperatives for the African regional courts and arbitration centres. In “National Environment Tribunal, Sustainable Development and Access to Justice in Kenya,” Dr. Kariuki Muigua discusses the role played by the National Environment Tribunal (NET) in promoting access to justice and enhancing the principles of sustainable development in Kenya. The paper also highlights challenges facing the tribunal and proposes recommendations towards enhancing the effectiveness of the tribunal.

Dr. Kenneth Wyne Mutuma in “Protecting Cultural Heritage in Times of War: A Case for History,” argues that cultural heritage is at the heart of human existence and its preservation even in times of war is sacrosanct. It concludes that it is thus critical for states to take positive and tangible steps to ensure environmental conservation and protection during war within the ambit of the existing international legal framework. In “The Role of Water in the attainment of Sustainable Development in Kenya,” Jack Shivugu critically evaluates the role of water in the attainment of sustainable development in Kenya and argues water plays a critical role in the attainment of the sustainable development goals both in Kenya and at the global stage. The paper interrogates some of the water and Sustainable Development concerns in Kenya including water pollution, water scarcity and climate change and suggests practical ways to enhance the role of water in the Sustainable Development agenda.

Dr. Paul Ogendi in “Collective Property Rights in Human Biological Materials in Kenya,” reflects on property rights in relation to human biological materials obtained from research participants participating in genomic research. He argues that property rights are crucial in genomic research because they can help avoid exploitation or abuse of such precious material by researchers. In “Nurturing our Wetlands for Biodiversity Conservation,” Dr. Kariuki Muigua notes that Wetlands have a vital role in not just delivering ecological services to meet human needs, but also in biodiversity conservation. Wetlands are vital habitat sites for many species and a source of water, both of which contribute to biodiversity protection. The paper examines the role of wetlands in biodiversity conservation and how these wetland resources might be managed to improve biodiversity conservation.

Oseko Louis D. Obure in “Investor-State Dispute Resolution in a Fast-Paced World,” preponderance of disputes between States or States and Investors created need for a robust, effective, and efficient mechanisms not only for the resolution of these disputes but also their prevention. He notes that developing states lead in being parties to Investor-State Disputes (ISD) particularly as respondents. He proceeds to conceptualize and problematize investor-state disputes resolution in a fast-paced world. Lilian N.S. Kong’ani and Dr. Kariuki Muigua in “Status of Participation of Women in Mediation: A case Study of Development Project Conflict in Olkaria IV, Kenya” review the status of participation of women in mediation to resolve conflicts between KenGen and the community. The paper demonstrates a need for further democratization of the mediation processes to cater for more participation of women to enhance the mediation results and offer more sustainable resolutions.

Felix Otieno Odhiambo and Melinda Lorenda Mueni in “The Business of Climate Change: An Analysis of Carbon Trading in Kenya analyses the business of carbon trading in the context of Kenya’s legal framework. The article examines the legal framework that underpins climate change into the Kenyan legal system and provides an exposition of the concept of carbon trading and its various forms. Michael Okello, in “Critical Analysis of World Trade Organisation’s Most-Favored Nation (MFN) Treatment: Prospects, Challenges and Emerging Trends in the 21st Century,” highlights the rationale behind MFN treatment and also restates the vision of multilateral trade to achieve equitable and special interventions with respect to trade in goods, services and trade related intellectual property rights in the affected states.

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