Major International Investment Arbitration Decision Acknowledges Role of Arguments put Forward by NGOs

August 4, 2008

The importance of submissions by non-governmental organizations was acknowledged by the investor – State arbitration tribunal of the International Centre for Settlement of Investment Disputes (ICSID) in the case of Biwater v. Tanzania. In various passages, the tribunal deemed a brief by NGOs to “provide a very useful initial context for the Arbitral Tribunal’s enquiry”; to “have provided a useful contribution to the proceedings”; and to be ‘relevant’ and ‘useful’ in deciding a multimillion claim regarding a failed water privatization in Dar es Salaam, Tanzania.

Among the “key themes” raised by the NGO arguments that the Tribunal specifically noted are the responsibilities of investors making such investments, including the responsibility to act in good faith and to undertake proper due diligence prior to an investment, the sustainable development and human rights context of this investment in the water sector in a developing country, and the limits to the notion of legitimate expectations of foreign investors when making investments in certain environments. The Tribunal also noted the arguments of the NGOs concerning a potential “renegotiation strategy” of investors in such sectors.

In doing so, the Tribunal acknowledged that investors have not only rights, but also responsibilities when investing abroad. The Tanzanian and international civil society organizations that filed the arguments welcome the findings that underline the importance of civil society involvement in arbitration concerning States and multinational corporations.

At the same time, the NGOs continue to be concerned for the limitations on NGO involvements and the lack of transparency that generally surrounds such international challenges to government actions by foreign investors. For example, the NGOs were constrained by the secret nature of the arguments of Biwater and the Government of Tanzania, which impacted their ability to make more precise and fully informed legal arguments in the case. These written arguments remain secret even though the arbitration is now concluded. The private oral hearings, following Biwater’s refusal to allow public hearings, also restricted civil society knowledge of the case.

The long-awaited decision concerns a controversy between the Tanzanian Government and a British investor on the provision of water services in that country’s capital, Dar es Salaam, from 2003 until 2005. In May 2005, Tanzania announced that it had terminated its contract with the investor because the company had failed to provide clean drinking water to millions of people in its capital. In response, the British investor Biwater sought some $20M from an arbitration tribunal for alleged violations of a UK-Tanzania Bilateral Investment Treaty.

In a submission to the Tribunal, five NGOs argued that Biwater had failed to meet its responsibilities, and that it was its own acts and omissions which caused the investment to fail. In particular, the NGOs said that the investor had submitted a bid that was too low for it to meet the costs of providing the water services it promised. Moreover, its business plan was based on unsustainable assumptions about contractual performance, and it did not carry out proper due diligence to determine the viability of the investment in the pre-establishment phase.

In this decision, the Tribunal specifically took into account the notions advanced by the NGOs. This bolsters other recent developments in international investment law which traditionally has focused almost exclusively on the responsibilities of host states.

In a complex decision, the Tribunal found that Tanzania had violated of some of the investor rights set forth in that treaty. In particular, the findings on the interpretation of the provisions in the treaty on expropriation and the fair and equitable treatment of foreign investors should be of ongoing concern to civil society organizations and government lawyers active in this field. In both cases, one finds expansive interpretations of the obligations of host states. However, in recognition of the conduct of the investor, the Tribunal found on the facts of this case that the losses claimed by the investor had resulted from the investor’s own poor planning rather than the States unlawful conduct.

While the result is appropriate in the view of the involved NGO’s, the legal reasoning used to arrive at that result should be subject to considerable review and scrutiny before it is adopted or repeated elsewhere. Government and civil society lawyers in particular should study this award carefully for what it means for future cases and the negotiation of new treaties, or renegotiation of existing investment treaties.

 

The petitioners:

  • Lawyers’ Environmental Action Team (LEAT)
  • Legal and Human Rights Centre (LHRC)
  • Tanzania Gender Networking Programme (TGNP)
  • Center for International Environmental Law (CIEL)
  • International Institute for Sustainable Development (IISD)

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