Foreign investors must observe domestic laws

Kenya recently set a precedent in arbitrating of global investment disputes at the International Centre For Settlement Of Investment Disputes (ICSID).

Cortec Mining filed an arbitration case against the Kenyan Government, a suit that would have seen Kenya lose approximately Sh200 billion. Fortunately, Kenya won the case and was awarded $3.23 million against Cortec.

The litigation history of the dispute began in Kenya when Cortec filed several cases against the Government due to a mining licence dispute. Cortec had applied for a prospecting licence under the Mining Act.

It has all along been Cortec’s case that it spent a lot of money on feasibility tests as well as putting up infrastructure ahead of the prospecting. Cortec’s dreams were cut short when the Government revoked the licence. This is what drove Cortec to court.

The Kenyan Government’s response was interesting as it argued that Cortec had not even yet been incorporated at the time of the alleged grant and therefore had no capacity to undertake prospecting.

Furthermore, the Government argued that Cortec did not meet the operational, procedural and regulatory requirements that have been set out for such a project.

For example, the physical location of the project was such that regulatory approval by the Museums of Kenya and the Forestry Department were required. The Government argued that these compulsory provisions in the law had not been met hence leading to revocation of the licence.

Cortec filed case number ELC 195 OF 2014 setting out the above. It also filed judicial review application arguing that the Cabinet Secretary had erred in revoking the licence. Some of the arguments put forth were that the Minister had acted arbitrarily and unfairly.

The company lost this case and filed an appeal on the same which it lost. Undeterred, the firm filed an application on a global level putting forth similar facts. One of the main issues the international tribunal had to decide is whether it had jurisdiction to entertain the claim. Under international law principles, it did have jurisdiction to hear the matter.

The dispute between the Government and Cortec are what are known as investor-state contracts where a lot of international law principles apply. A major issue in consideration is the “choice of law” clause whereby if the State and investor disagree then they may opt to choose a foreign jurisdiction to entertain the matter.

At the international level, Cortec claimed that its project was “nationalised” despite its heavy investment in preparation for implementation of the project. The Kenyan Government stuck to its guns arguing the licence was null and void as procedure had not been met.

Cortec claimed that the Government’s bureaucracy frustrated the project but the tribunal found that its concern was limited to legalities and not the political interference.

This case is precedent- setting not only for its magnitude, but also as it adds to the wealth of jurisprudence at the international investment disputes level.

However the new jurisprudence I pick from the award is that political interference and bureaucracy cannot be used by an international investors as excuses to expunge domestic law.

In this case, Cortec argued that Government bureaucracy frustrated the project, which argument failed, as it had an obligation to observe the law.