An Appraisal of the Legal Framework for the Protection of Foreign Direct Investment in Nigeria by Mrs ‘Funke Adekoya SAN*

Paper presented at the 2015 Annual Conference of the Chartered Institute of Arbitrators [Nigerian Branch] [1]

Introduction

An appraisal of the legal framework for the protection of foreign direct investment requires an agreement as to what constitutes foreign direct investment or FDI as it is commonly referred to. There is no universally accepted definition of what constitutes ‘foreign direct investment’ or FDI, but it is generally agreed that FDI refers to a commercial act whereby a person or entity from one country deploys substantial resources from that country to another country in order to establish commercial operations or acquire income-generating tangible assets, or take effective control or have a significant degree of influence over the management of such operations or assets with the expectation of obtaining a return on such investment.

The international arbitral community has generally accepted that the characteristics of what constitutes foreign direct investment were laid down in the case of Salini v. Morocco[2] (the Salini test). For a venture to be classified as an FDI, there must be the expectation of a relationship of a certain length of time between the foreign investor and the state, the regularity of profits and returns, assumption of risks by one or both parties, and a substantial commitment by the investing party in a venture or project that would normally have significance for the development of the host state.

Having agreed on what FDI is, in order to review Nigeria’s investor protection framework, we need to ascertain what investor protection concepts exist internationally, against which Nigeria’s legal framework can be judged.

The Legitimate Acts of a Host Government That Require Investor Protection

To understand what protection of foreign investment entails, we must first understand the actions that host countries can legitimately take in the exercise of their sovereignty which will have the effect of depriving foreign investors of the fruits of their investment, interfere with their ownership and management of such investments, or negatively impact the realisable expectations of the investors.

Historically, the two host government actions that were recognised by customary international law as endangering foreign investments are ‘nationalisation’ and ‘expropriation’. Nationalisation is the act of a government taking control of a private enterprise and converting it to state or public ownership, while expropriation on the other hand is the act of a government taking possession of or otherwise interfering with privately held assets or property for the use and benefit of the public, or in the public interest.

Most nationalisations and expropriations occurred between the middle and the later parts of the 20th century when a number of states gained independence from colonial rule and sought to take charge of the ownership and management of vital sectors of their economies such as public utilities, financial institutions and high revenue-generating enterprises. However, with the realisation of most governments of the importance of foreign direct investment to the economic development of their states, and with the growth and expansion of international business relationships as well as the opportunity for foreign investors to seek compensation or diplomatic protection for such acts, the spate of nationalisation and expropriations abated.

Expropriation may be direct or ‘creeping’. Creeping expropriation is used to describe a series of cumulative or indirect steps taken by the government of a state which eventually culminate to an expropriatory deprivation of a foreign investor’s asset or property.[3] Recent decisions of investment arbitration tribunals have shown that the concept of expropriation has shifted from the physical and actual taking of an investor’s assets, to the legislative and administrative acts of the government that, while not depriving a foreign investor of the ownership of an asset, is capable of significantly reducing its value or effectively neutralising the benefit of the property for the foreign owner.[4] A typical example of such an act is the arbitrary revocation of a license, permit or a concession after the investor has made the requisite investments.

In the case of Siemens v Argentina,[5] the Argentine government entered into a 6-year contract with Siemens for the implementation of electronic immigration control, data processing, printing and delivery of identity cards and other related services. However, after the company had deployed its resources to provide the services, the government suspended the printing of the cards, and then the immigration processing. It eventually passed the 2000 Emergency Law which enabled the government to review all public service contracts, and acting under the law, the contract with Siemens was terminated. In its decision, the arbitral panel ruled that the several successive acts amounted to creeping expropriation which deprived Siemens of its rights under the contract.

Investor Protection Concepts

Certain concepts have crystallised in International economic law as the basic requirements against which national investor protection laws are judged.

  1. Fair and Equitable Treatment

Fair and equitable treatment is a standard incorporated into investment treaties and contracts and is subjectively interpreted according to the wording of the respective instrument. It was introduced as a standard of treatment for transnational corporations by the United Nations in its 1983 Code of Conduct on Transnational Corporations, and was adopted by the World Bank and the IMF in the Guidelines on Treatment of Foreign Direct Investment. The standard is broad, and what is considered fair and equitable will be determined by the facts and circumstances of each case.

In MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile[6], the tribunal held as follows:

Hence, in terms of the BIT, fair and equitable treatment should be understood to be treatment in an even-handed and just manner, conducive to fostering the promotion of foreign investment. Its terms are framed as a pro-active statement –“to promote”, “to create”, “to stimulate”- rather than prescriptions for a passive behaviour of the State or avoidance of prejudicial conduct to the investors

Some examples of the breach of the ‘fair and equitable treatment’ principle are: in Metalclad Corporation v. United Mexican States[7], the tribunal held that a refusal of the a municipal government to grant building permits for the construction of a hazardous waste landfill, and a subsequent declaration of the area encompassing the site as a Natural Area for the protection of rare cactus by the Mexican government interfered with the operation of the landfill by the investors, and was unfair and inequitable treatment. Other actions held not to be fair and equitable as decided by various arbitral tribunals include the revocation of a banking licence[8] and the takeover of a bank by a competitor which had the financial backing of the state.[9]

Full Protection and Security

This standard requires the host government to take active measures to protect the foreign investor from any adverse effect that may result from the actions of the government, its organs or its constituent governments. This includes protection against physical violence and harassment from the employees of the state, against violent public demonstrations by the public, and extends beyond physical security to the creation of a secure investment environment.

The Umbrella Clause

An umbrella clause is a provision in investment treaties whereby the contracting states provide specific undertakings to foreign investors by guaranteeing compliance with investment contracts within the framework of the treaty, a violation of which becomes a violation of the treaty itself. The effect of an umbrella clause is to bring obligations or commitments that the host state entered into in connection with a foreign investment under the protective “umbrella” of the BIT, which are then enforceable through international arbitration. It functions as a catch-all provision to pursue claims even when a host state’s actions do not otherwise breach the investment treaty. Umbrella clauses are usually broadly written to cover every conceivable obligation of the host state.

By providing that a violation of an investment contract is a violation of an investment treaty, umbrella clauses elevate a contract claim to a treaty claim and gives foreign investors the opportunity to avoid the dispute resolution provisions in the contract which give may exclusive jurisdiction to domestic courts or domestic arbitration, and bring a claim before an international arbitral body, such as the ICSID.

Access to Justice, Fair Procedure and Denial of Justice

This standard of protection relates to the stages of a judicial process – access to an appropriate dispute resolution forum, the right to bring a claim, fair treatment of both parties during the proceedings, a non-malicious application of the law, and a right to an appropriate judicial decision.[10] In other words, the host state shall not, either by omission or commission, prevent, restrict or hamper the rights of foreign investor to fully partake in a judicial proceeding for the settlement or determination of a claim arising out of the investment. The host state is under an obligation to establish a legal system that allows foreign investors to freely exercise their rights to seek judicial redress.

Arbitrary or Discriminatory Measures

The International Court of Justice in 1989[11] defined arbitrary measures as actions done in wilful disregard of the due process of law, ‘an act which shocks, or at least surprises, a sense of judicial propriety.’ The arbitration tribunal in CMS Gas Transmission Company v Argentina [12] in determining if a foreign investment had been subjected to arbitrary or discriminatory measures held that such measures are founded on prejudice or preference, rather than by fact or reason.

Discriminatory measures on the other hand are prejudicial actions that are taken against a foreign investor on the basis of its nationality, race, gender, religion, political affiliation or disability, whether it is done in violation of the domestic law of the host state or not.

Most Favoured Nation Treatment

The Most Favoured Nation Treatment imposes an obligation on the state to ensure that it treats a foreign investment made pursuant to such undertaking in a manner as favourable as it would treat any other third party investment. A contracting state is required under this provision to extend any benefits conferred on other enterprises to the foreign investor, and not to impose any disadvantage on the foreign investor that it has not imposed on other enterprises.

National Treatment

National Treatment is a similar to the Most Favoured Nation Treatment, except that under this standard, the host state must treat foreign investors in the same way it treats its own domestic investors. The effect of this protection is to put foreign investors on the same pedestal as domestic enterprises, and to ensure that they do not suffer any disadvantage or negative differentiation on the basis of nationality.

Transfer of Funds

Lastly, it has become a standard requirement that foreign investors who have imported capital for investment purposes be given the opportunity and system to repatriate returns from the investment (such as profits, dividends, proceeds from sale or liquidation of capital or proceeds from debt servicing) out of the host country in freely convertible currency.

So how has Nigeria fared in providing these protections to potential investors? This requires a review of Nigeria’s domestic legislation and investment treaties which collectively make up the legal framework for foreign investment protection.

The Domestic Legal Framework

The notable investment legislation in Nigeria is the Nigeria Investment Promotion Commission Act, CAP N117 Laws of the Federation of Nigeria (“NIPC Act”). The NIPC Act repeals the Industrial Development Co-ordination Committee Act, and provides for the establishment of the Nigeria Investment Promotion Commission as the Federal Government body charged with the responsibility of encouraging, promoting and coordinating investment in the Nigerian economy.

The NIPC Act provides the basic and acceptable legal framework for the protection of foreign investors. Part 5 of the NIPC Act provides that subject to certain exceptions contained in the Act, a foreigner may invest and participate in any enterprise in Nigeria.[13] Under the NIPC Act, foreign investors are guaranteed unconditional transfer of funds attributable to the investment such as dividends, profits, payments in respect of loan servicing, and the remittance of proceeds obtained from the sale or liquidation of assets or any interest in the investment.[14] This fund transfer will be done through an authorised dealer in freely convertible currency.

The NIPC Act expressly provides for guarantees against expropriation, nationalisation, and the requirement for any investor to surrender his capital, except if such action is done in the national interest or for public purpose and under a law which provides for the prompt payment of fair and adequate compensation. The Act gives a right of access to investors to apply to the courts for a determination of their interest and the amount of compensation to be paid. Where such compensation is required to be paid, there shall be issued an authorisation for its repatriation in convertible currency.[15]

Section 25 of the NIPC Act unequivocally provides that no enterprise shall be expropriated or nationalised without payment of prompt compensation, however an investor whose claim is based on creeping expropriation would have to establish that the acts complained of are tantamount to expropriation, or which would have expropriatory effects.

Lastly, the NIPC Act provides that disputes between a foreign investor and any government in Nigeria arising out of an investment shall be submitted to arbitration within the framework of any investment treaty entered into between the government of Nigeria and any state of which the foreign investor is a national, or in accordance with any other international machinery for the settlement of investment disputes as agreed upon. It further provides that where there is a disagreement between the Nigerian government and the foreign investor on the mode of dispute settlement, the dispute shall be submitted to ICSID for arbitration.[16]

This provision does not include a ‘fork-in-the-road’ provision which generally limits an investor to selecting only one out of a number of agreed dispute resolution forums. For example, if an investor submits its dispute to the local courts, then a fork-in-the-road provision would prevent the investor from also pursuing other dispute resolution procedures under the BIT, such as international arbitration. In the absence of a fork-in-the-road provision, submission of a dispute to local courts will not preclude the investor from pursuing other dispute resolution options.Consequently, a foreign investor is at liberty to institute arbitration proceedings against a government in Nigeria even after bringing a claim or counterclaim against the government in a court or domestic arbitration. The resort to ICSID as the arbitration institution the parties shall submit any dispute to in the event of a disagreement provides some assurance to investors as ICSID arbitrators would be able to apply customary international law in settlement of such disputes.

The NIPC Act however does not make provisions for further standards of protection as discussed earlier such as Free and Equitable Treatment, Most Favoured Nation status, national treatment, discriminatory and arbitrary measures, and full protection and security.

Another domestic legislation that provides protection to foreign investors is the Foreign Exchange (Monitoring and Miscellaneous Provisions Act) CAP F34, Laws of the Federation of Nigeria. Section 15 of this Act provides that any person may invest in any enterprise with foreign currency or capital imported into Nigeria through an authorised dealer who will issue a Certificate of Capital Importation to the foreign investor. Sub-section (4) of the same section further guarantees unconditional transferability of funds in freely convertible currency of any such monies arising from an investment made in Nigeria with foreign currency, including dividends and profits, payments in respect of loan servicing, and remittances of the proceeds of sale or liquidation of assets.

A similar provision on repatriation is also found in Section 18 of the Nigeria Export Processing Zones Act, CAPN107, Laws of the Federation of Nigeria (“NEPZA Act”). Section 18 of the NEPZA Act provides that foreign investors who invest in approved enterprises within an export zone shall be entitled to remit dividends and profits earned in the zone and repatriate foreign capital investment at any time with capital appreciation of the investments.   The NEPZA Act does not provide any further investment protection to foreign investors who invest in free trade zones.

The Arbitration and Conciliation Act Cap A18 Laws of the Federation of Nigeria can also be considered as part of the legal framework that provides protection for foreign investment.

In addition to providing a framework for domestic arbitration, the Arbitration and Conciliation Act also makes provisions[17] for international commercial arbitration which is more desirable to foreign investors. Section 56(2)(d) defines ‘international arbitration’   to include any arbitration that the parties have expressly agreed in the arbitration agreement to treat as international arbitration. The Act provides that every arbitration award is capable of enforcement under the New York Convention.

In a bid to provide more avenues for settlement of commercial disputes, the Lagos State government in 2009 enacted the Lagos State Arbitration Law which established the Lagos Court of Arbitration as a regional hub for the settlement of international commercial disputes.

While the arbitration regimes established by the Arbitration and Conciliation Act and the Lagos State government gives foreign investors the opportunity to determine the mode of settling disputes that may arise out of their investments without resort to litigation in domestic courts, with the expectation that such arbitration will reliably and efficiently protect and enforce the rights of foreign investors and their investments, it does not provide any further investment protection to foreign investors and does not incorporate any of the protection standards established by customary investment law.

International Conventions and Investment Treaties

International Conventions

Nigeria is a signatory to a number of Conventions which have been entered into for the purposes of protecting foreign direct investment. The most significant convention in this regard is the ‘Convention for the Settlement of Investment Disputes between States and Nationals of Other States’ (ICSID Convention), which primarily provides for the settlement of investment disputes between investors and sovereign host states. Nigeria signed the ICSID Convention on the 13th July, 1965, and it came into force on the 14th October, 1966. It has also taken the necessary legislative measures to make the Convention effective in Nigeria by enacting it as a domestic legislature[18] – the International Centre for Settlement of Investment Disputes (Enforcement of Awards) Decree No. 49 of 1967[19].

This Convention, an initiative of the International Bank for Reconstruction and Development (the World Bank), is the most significant international investment protection instrument because it established the International Centre for the Settlement of Investment Disputes (ICSID) as an arbitral institution under the World Bank Group. ICSID is a fully integrated, self-contained arbitration institution that provides standard arbitration clauses, arbitration proceedings rules, arrangements for venues, financial arrangements and administrative supporting including the appointment of arbitrators to parties.

ICSID has become the preferred and most widely used arbitration institution for settling investor-state disputes for the following reasons:

  1. The ICSID Convention has been ratified by 150 Contracting states[20] which gives it the highest level of acceptance in the world;
  2. ICSID Convention requires that the both parties must have consented to its jurisdiction before proceedings can be instituted. However this consent is given not just through investment contracts but also through bilateral investment treaties, multilateral treaties and domestic investment legislation. Of the 538 arbitral cases instituted at ICSID, only 90 were brought under the invocation of investment contracts.[21]
  3. ICSID proceedings are not threatened by the refusal of a party to cooperate – where such instances occur, the proceedings will continue nonetheless. Where a party refuses to appoint an arbitrator, one would be appointed on its behalf by the Centre;
  4. ICSID arbitral awards are not subject to the jurisdiction of domestic courts and cannot be reviewed, set aside or varied by such courts. Similarly, only the arbitral tribunal can determine if it has jurisdiction in any particular case.
  5. The ICSID Convention has an effective system of enforcement or arbitral awards, and the investor’s country of nationality have a right to invoke diplomatic protection against the host country in the event of non-compliance with the ICSID arbitral award.[22]
  6. Because ICSID is part of the World Bank Group, a host country’s failure to comply with the award may jeopardise the country’s access to World Bank funding or international credit in general.

However, for a foreign investor to bring a claim against Nigeria at ICSID, it must have invested in the country pursuant to a contract with a government in Nigeria, under the NIPC Act or under an existing investment treaty entered into with the home country of the foreign investor.

Since the coming into effect of the ICSID Convention, Nigeria has been a Respondent to only 3 different ICSID arbitration proceedings instituted by foreign investors.[23] In commencing these proceedings, the investors respectively invoked a contract, the Nigeria Investment Promotion Commission Act of 1995, and the Netherlands – Nigeria BIT of 1992 – two of the cases eventually being settled and one still pending.[24]

Another significant investment protection convention Nigeria has entered into is the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as ‘New York Convention.’ The New York Convention was adopted by the United Nations in June, 1958 and it mandates domestic courts in signatory countries to give effect to arbitration agreements, and to also recognise and enforce valid arbitral awards given in other signatory states. The New York Convention is particularly significant for the enforcement of arbitral awards resulting from non-ICSID investment arbitration proceedings.

Nigeria ratified the New York Convention on the 17th March, 1970 and it came into force on the 15th June, 1970. The Convention is also applicable domestically by virtue of its incorporation in Section 54(1) and Schedule 2 of the Arbitration and Conciliation Act, CAP A18, Laws of the Federation of Nigeria.

Investment Treaties

It is argued that in spite of the provisions of §12 of the Nigerian Constitution, these investment treaties are binding on, and enforceable against Nigeria upon ratification under the principle of ‘pacta sunt servanda’, and by a literal application of Article 31 of the Vienna Convention on the Law of Treaties which provides that a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty.[25]

Bilateral Investment Treaties

Bilateral Investment Treaties (BITs) are agreements entered into between two countries whereby they mutually undertake to protect the investment of persons and corporations from one country which is made in the other country. A common provision of BITs is that the parties provide reciprocal protection and create favourable conditions for investments by investors of either contracting state. The BITs provide a definition of what would be construed as an investment, and the reciprocal standards of protection investors from one contracting state will be entitled to in the other contracting state. Common standard investment protection found in BITs include undertakings that investments would enjoy national treatment, most-favoured nation provisions, fair and equitable treatment, free and unrestricted transfer of returns out of the host country, and that such investments will not be directly or indirectly expropriated or nationalised without the payment of adequate compensation.

BITs also often contain provisions that disputes concerning investments between a contracting state and an investor from the other contracting state be resolved through arbitration. These dispute resolution provisions are often invoked by investors to institute arbitral proceedings against host states at the International Centre for Settlement of Investment Disputes (ISCID) or by way of international commercial arbitration.

Nigeria entered into its first BIT with Germany in 1979, and it came into force in 1986. To date, Nigeria has entered into 28 BITs of which 13 are currently in force, 14 signed and 1 repealed.[26] The BITs currently in force are the ones entered into with Finland, France, Germany, Italy, Netherlands, Romania, Serbia, Spain, South Korea, Sweden, Switzerland, Taiwan, and United Kingdom.[27] The 14 BITs which have been signed by Nigeria but are yet to enter into force were signed as far as back as 1996.

The Nigeria – United Kingdom BIT in addition to the usual investment protection standards provides that a contracting state shall not impair by unreasonable or discriminatory means the management, maintenance, enjoyment or disposal of investment in its territory of nationals or companies of the other Contracting Party, and the same compensation or indemnification for losses suffered due to a security event made to a domestic investor shall be accorded to the investor from the other contracting state. Similar provisions are found in the BITs entered into with The Netherlands, South Korea, Germany, and Italy. These BITs also provide for the right of subrogation, which allows foreign investors to obtain appropriate investment insurance and for these investment insurance providers to seek remedy in their stead from Nigeria.

The BITs that are currently in force have also made sufficient provisions for the usual investment protection standards including fair and equitable treatment, most favoured nation status, national treatment, umbrella clauses, obligations against arbitrary and discriminatory measures, and security and protection. While the investment protection provided for in the BITs are fairly adequate for contemporary foreign investors, these investment protection measures are limited to only the investors who are nationalities of the 13 countries whose BITs with Nigeria are currently in force.

Multi-lateral Investment Treaties

Multilateral Investment Treaties are international investment agreements which are entered into collectively by more than two states. MITs are similar to BITs except that parties have obligations among themselves inter se, to the extent that they have made reservations.

ECOWAS Treaty: The foremost MIT Nigeria entered into is the ECOWAS treaty which was signed on 28th May 1975, and entered into force on the 20th June, 1975. The treaty currently has 15 signatories[28] who are member states of ECOWAS. Article 2 of the Treaty gives ‘Community Enterprise’ status to enterprises whose equity capital is owned by two or more member states, and citizens or institutions of the Community subject to fulfilling certain conditions in the Treaty. Article 16 of the Treaty provides that Community Enterprise shall be accorded favourable treatment with regards to incentives and advantages, and shall not be nationalised or expropriated by the government of any member state except for valid reasons of public interest, and subject to the payment of prompt and adequate compensation. The ECOWAS Supplementary Protocol A/SP.2/5/90 further provides in Article 7 that assets and capital of ECOWAS citizens shall not be expropriated on a discriminatory basis by the government of a contracting state.

The qualification that an enterprise should be owned by two or more member states to be eligible for admittance as a Community Enterprise limits the number of enterprises that can apply for this status, as it excludes all potential investors who are natural persons and entities that only have one member state as a shareholder. The ECOWAS treaty also does not make any provisions for indirect expropriation, umbrella clause, protection and security, and other investment protection standards.

Nonetheless, the ECOWAS Treaty gives the Community Enterprises the right to institute arbitral proceedings against any member state at ICSID for any dispute arising out of its investment under the Treaty in its Dispute Resolution provisions.

Since the entry into force of the ECOWAS Treaty, the member states have agreed to three different protocols including the ECOWAS Energy Protocol signed on the 31st January, 2003. This protocol provides a framework for the encouragement and protection of investment in the energy sector in the ECOWAS member states. The Protocol defines an investor as any natural person having the citizenship or nationality, or resides in or establishes an office in the area of a contracting member state, or a corporation registered under and in accordance with the law applicable in any contracting member state. The Protocol further defines an economic activity in the energy sector as ‘an economic activity concerning the exploration, extraction, refining, production, storage, land transport, transmission, distribution, trade, marketing, or sale of Energy Materials and Products except those included in Annex B, or concerning the distribution of heat to multiple premises.’

This protocol, though limited to investments in the energy sector, seeks to remedy the shortcomings in the ECOWAS Treaty by extending investment protection to all persons or entities who are either nationals or registered in an ECOWAS member state and by providing more robust investment protection standards. Under the Protocol, a corporate investor which has the nationality of the host state shall be considered as a national of another contracting member state if it is controlled by investors of another contracting member state. There is no requirement for such an enterprise to be owned by two or more members of ECOWAS or their nationals.

Chapter 10 of the Protocol imposes an obligation on contracting member states to accord fair and equitable treatment to such investments, to ensure investors enjoy constant protection and security, and to ensure that the member state shall not impair the management, maintenance, use, enjoyment or disposal of such investments by unreasonable or discriminatory measures. Article 26 of the Protocol gives investors the option of submitting disputes arising out of their investments in the energy sector and the contracting states’ obligations under the Protocol to international arbitration[29] and each member state that assents to the Protocol is deemed to have given its unconditional consent to the submission of the dispute to international arbitration.

Unfortunately, this Protocol is yet to come into force, and investors are not able to take advantage of the investment protection provisions therein.

OIC Investment Treaty: Another MIT Nigeria has entered into in relation to foreign investments is the Agreement on Promotion, Protection and Guarantee of Investments among Member States of the Organisation of the Islamic Conference, which came into force in September, 1986. Chapter 2 of the Treaty mandates all member states of the Organisation of Islamic Countries to provide adequate security and protection to the invested capital of an investor who is a national of another contracting member state, including the enjoyment of equal treatment, undertaking not to adopt measures that may directly or indirectly affect the ownership of the investor’s capital or investment and not to expropriate any investment except it is in the public interest and on prompt payment of adequate compensation. Host states are further obligated to guarantee free repatriation of any capital and returns due to an investor.

The OIC Investment Treaty defines an investor as the government of a contracting state or a natural or corporate person who is a national of a contracting state, and invests in the territory of another contracting state. The treaty expands the scope of expropriation to include measures that directly or indirectly affect ownership of assets, and requires the contracting states to accord national treatment and most favoured nation status to such investors.

The treaty gives an investor the right to institute dispute resolution, either by litigation in the domestic courts of the host country or through arbitration, against ‘measures adopted by its authorities against it, or to complain against the non-adoption by the host state of a certain measure which is in the interest of the investor, and which the state should have adopted, irrespective of whether the complaint is related, or otherwise, to the implementation of the provisions of the Agreement to the relationship between the investor and the host state’. The treaty however does not make specific provision for a particular arbitration institution or arbitral rules to be complied with. The investment protection standards provided in the OIC Treaty are limited to investors from the 56 other members of the organisation.

It is worthy of note that while Nigerian law requires that all treaties must be adopted by the National Assembly in Nigeria and incorporated as a domestic legislation, it nonetheless binds Nigeria to its obligations to other signatories to the treaties, and often provides foreign investors with an avenue to seek remedy in forums outside the administrative control of the country, and so form part of the legal framework for foreign investment protection. The provisions of the various investment treaties further gives foreign investors the grounds on which an arbitration can be brought, once the investors’ home country is a counter-party to any investment treaty Nigeria has entered into.

Judicial Approach to Foreign Direct Investment

An appraisal of the legal framework for foreign investment protection in Nigeria will not be complete without an analysis of the approach taken by courts in Nigeria in cases relation to foreign investment and the right to seek judicial remedy, as shown through judicial pronouncements.

Abiding by the principle of pacta sunt servanda, Nigerian courts have often shown a predisposition towards upholding contractual obligations between parties in an international transaction. One of these provisions that feature frequently in international commercial transactions is the ‘foreign jurisdiction clause.’ This clause specifies that in the event of a dispute arising out of the contract, it will be submitted to a particular forum in a particular country and will be subject to the application of a particular foreign law. This clause is commonly found in investment contracts between foreign investors and their Nigerian counterparts, irrespective of the fact that the investment will be in Nigeria.

In the past, Nigerian courts strictly enforced foreign jurisdiction and choice of law clauses in international commercial contracts by refusing to assume jurisdiction over disputes arising out of the contract. However, that trend changed with the Supreme Court’s decision in the Nordwind Case[30] where the court held that Nigerian courts have the discretion to enforce foreign jurisdiction clauses in a contract. In exercising this discretion, courts are enjoined to consider a number of factors (“The Brandon Test”) including where the evidence on the issues of fact in the case is situated or more readily available, countries where the parties come from, whether either of the parties genuinely desire a trial or is seeking procedural advantages, and whether either of the parties would be prejudiced by enforcement of the clause. Such clauses must also be genuine, real, bonafide, legal and reasonable, and not capricious and absurd.[31] This case has in effect stated that courts will not treat foreign jurisdiction clauses as sacrosanct. Each case will be considered on its merits.

Nigerian courts have also sought to preserve the sanctity of arbitration by granting orders of injunctions on matters that have been or would be submitted to arbitration. Article 26(3) of the Arbitration Rules, as contained in the Arbitration and Conciliation Act empowers Nigerian courts to grant interim measures in a case that has been submitted to arbitration, and it shall not be incompatible with the agreement to arbitrate. Similar provisions are also found in Section 13 of the Federal High Court Act. In Owners of the MV Lupex v. N.O.C.S Ltd (2003) 6 S.C. (Pt. II) 62 at 73, the Supreme Court held that any party to an arbitration can apply to a court for injunctive reliefs pending the outcome of the arbitration, if there is a strong, compelling and justifiable reason. This is useful in cases or situations where it is necessary to preserve the res, the subject matter of the dispute until an arbitral decision has been given.

Conclusion

Nigeria’s entry into these investment treaties and its enactment of the Conventions into domestic legislation have made the protection mechanism part of Nigeria’s legal framework. Nigeria’s many MITs, BITs and the duo of the ICSID Convention and the New York Convention together with its domestic legislation provides a robust framework for the international protection of foreign investments. The legal framework gives investors an avenue to seek remedy outside the domestic courts of the host states, and against the acts of government that have had a negative impact on their investments.

This paper has sought to give an assessment of the standards of protection afforded to foreign investors in Nigeria primarily through the provisions of the various investment treaties and domestic legislation.

While the various investment protection treaties Nigeria has entered into have adequately provided for standard investment protection, the countries Nigeria has entered such relationship with via the BITs currently in force, the ECOWAS treaty and the OIC Investment Treaty are comparatively few in number and exclude major economies with a high number of potential investors such as the United States, China, South Africa and India.

The Nigeria government also needs to do everything that is necessary for the entry into force of all investment protection treaties that it is signed. It is further recommended that Nigeria upgrades its observer status of the Energy Charter Treaty to full membership so as to open up opportunities to investors from the member states to invest in Nigeria under the prevailing investment protection provisions of the ECT.

Even though Nigeria in exercise of its sovereignty can derogate from any of these investment protection guarantees, the ultimate form of protection under Nigeria’s legal framework is the possibility of foreign investors instituting arbitration proceedings against the Nigerian government, its agencies and bodies, and its constituent governments to seek compensation for acts of the government or its organs which were done in contravention of the assurances in place at the time the investments were made. By ratifying and domesticating the ICSID Convention, Nigeria has given foreign investors the opportunity to submit disputes arising out of the investments to settlement outside the ambit of the domestic courts, something which all foreign investors regard as paramount.

_______________________

*Partner at ǼLEX, Lagos

[1] The author acknowledges the assistance of Mr Ishaya Amazu, an associate at ǼLEX in assisting with the research for this paper.

[2] Salini Costruttori S.p.A. and Italstrade S.p.A. v. Morocco (ICSID Case No. ARB/00/4), Decision on Jurisdiction of 23 July 2001. 42 ILM 609 (2003)

[3] Dolzier, R., and Schreuer, C., Principles of International Investment Law, (2008) Oxford University Press: New York, United States. Page 114

[4] See decisions of the arbitration tribunals in Metalclad v United Mexican States, 40 ILM (ICSID 2000), CME v Czech Republic (Partial Award) Transnational Dispute Management (TDM), Vol. 1, No. 2. (2004)

[5] Siemens A.G. v. Argentine Republic (ICSID Case No. ARB/02/8), award given 6th February, 2007. Available on ICSID website: https://icsid.worldbank.org (last visited 17th October, 2015)

[6] ICSID Case No. ARB/01/7 (available on ICSID website)

[7] ICSID Case No. ARB(AF)/97/1. Decision awarded on August 30, 2000, 16 ICSID Rev.—FILJ 168 (2001)

[8] Alex Genin, Eastern Credit Limited, Inc. and A.S. Baltoil v The Republic of Estonia, ICSID case no. ARB/99/2 (Available on ICSID website)

[9] Saluka Investments BV v Czech Republic (Partial Award), IIC 210 (2006), 17th March 2006, Permanent Court of Arbitration [PCA]

[10] Dolzier, R., and Schreuer, C., (supra). Page 163. See also Azinian v Mexico. Award, 1 November 1999, 5 ICSID Reports 269.

[11] Case Concerning Elettronica Sicula (ELSI), 20th July, 1989 ICJ Reports 1989

[12] Case No. ARB/01/8 TDM 3 (2005), Available on www.transnational-dispute-management.com (last visited 16th October, 2015)

[13] Section 17, NIPC Act

[14] Section 24, NIPC Act

[15] Section 25, NIPC Act.

[16] Section 26, NIPC Act.

[17] Part 3 of the Arbitration and Conciliation Act

[18] This is also in compliance with Section 12(1) of the Constitution of the Federal Republic of Nigeria which provides that no treaty between Nigeria and any other country shall have effect except to the extent to which such treaty has been enacted into law by the National Assembly. See also the Supreme Court’s decision in The Registered Trustees of National Association of Community Health Practitioners of Nigeria & Ors v. Medical and Health Workers Union of Nigeria [2008] 2 NWLR (Pt 1075) p 575.

[19] Page A225 of the Official Gazette Extraordinary No. 105, Vol. 54 of 1967

[20] ICSID website. https://icsid.worldbank.org/apps/ICSIDWEB/cases (last visited 14th October, 2015).

[21] Ibid.

[22] Dolzier, R., and Schreuer, C., (supra) Page 224.

[23] ICSID website – https://icsid.worldbank.org/apps/ICSIDWEB/cases (last assessed 15th November, 2015)

[24] Interocean Oil Development Company and Interocean Oil Exploration Company v. Federal Republic of Nigeria (ICSID Case No. ARB/13/20), registered on 9th September, 2013

[25] Dolzier, R., and Schreuer, C., (supra). Page 31.

[26] United Nations Conference on Trade and Development website: http://investmentpolicyhub.unctad.org/IIA (last assessed 13th October, 2015). The countries Nigeria has entered into BITs with to date are Algeria, Austria, Bulgaria, Canada, China, Egypt, Ethiopia, Finland, France, Germany, Italy, Jamaica, South Korea, Kuwait, Netherlands, Romania, Russian Federation, Serbia, Spain, Sweden, Switzerland, Taiwan, Turkey, Uganda and the United Kingdom.

[27] Ibid.

[28] Benin, Burkina Faso, Cape Verde, Côte d’Ivoire, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo

[29] The Protocol gives investors the options of instituting arbitral proceedings under ICSID, the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules, the Arbitration Institute of the Stockholm Chamber of Commerce, and the Organization for the Harmonization of Trade Laws in Africa (OHADA).

[30] Sonnar Nig Ltd & Anor v Partenreedim M. S. Norwind, Owners of the ship M. V. Nordwind & Anor (1987) 4 NWLR Part 66, 520

[31] Ibid.

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