Editor’s Note: This is the second of two articles on recent developments related to expropriations in Zimbabwe. This article deals with new legislation concerning the nationalization of the diamond mining industry, while the first article, by Andy Moody and Richard Allen, covers a recently leaked ICSID award concerning Zimbabwean land reforms.
Within the last few weeks, the Government of Zimbabwe under President Robert Mugabe announced that it would nationalize the entirety of Zimbabwe’s diamond mining industry and in ninety days time would assume full control over the mines operated by various foreign mining companies in the country. The nationalization appears primarily to have taken the form of the Zimbabwean government’s immediate cancellation of the mining concessions held by at least nine companies, four of which are known to be owned or otherwise controlled by foreign entities from China (in two cases), South Africa, and Russia. These companies previously operated the mines in conjunction with the state-owned Zimbabwe Mining Development Corporation. Now, the foreign investors are being forced to give up their ownership interests as part of the Zimbabwean government’s decision to move all diamond mining activities under the auspices of the newly-created, state-owned Zimbabwe Consolidated Diamond Company. There are some reports, though accounts conflict, that the Zimbabwean government could be assuming ownership over valuable heavy equipment located at the mining sites.
Foreign investors impacted by this nationalization may have the option of pursuing recovery against Zimbabwe based on the country’s bilateral investment treaties (BITs), assuming the investor qualifies under the terms of a relevant BIT. Zimbabwe is a party to six active BITs. Each of these BITs contains clauses requiring compensation in the event of expropriation, including: the China-Zimbabwe BIT (Article 4), the Denmark-Zimbabwe BIT (Article 5), the Germany-Zimbabwe BIT (Article 4), the Iran-Zimbabwe BIT (Article 4), the Netherlands-Zimbabwe BIT (Article 6), and the Switzerland-Zimbabwe BIT (Article 6).
Of particular interest is the China-Zimbabwe BIT given the substantial role played by Chinese investors in Zimbabwe’s diamond mining industry and economy at large. Article 1(e) of the BIT specifically defines investments to include “business concessions conferred by law, including concessions to search for or exploit natural resources.” As a result, it is possible that the diamond concessions held by Chinese foreign investors could be treated as “investments” under this BIT, assuming the treaty’s other requirements are met. It should be noted that the definition of “investment” stretches even more broadly to include “every kind of asset invested by investors of one Contracting Party in accordance with the laws of the other Contracting Party in the territory of the other Contracting Party.”
Article 4 of the China-Zimbabwe BIT covers expropriation, and provides at sub-part (1) that “Neither Contracting Party shall expropriate, nationalise or take similar measures (hereinafter referred to as ‘expropriation’) against investors of the other Contracting Party” unless such measures are: “(a) for the public interest; (b) under domestic legal procedure; (c) without discrimination; and (d) against compensation.” The BIT at Article 4(2) defines compensation in part as “equivalent to the genuine value of the expropriated investment immediately before the date on which the actual or impending expropriation becomes publicly known.” Compensation must be “paid without delay” and carries “the usual commercial interest until the date of payment and shall be effectively realisable and freely transferable.”
One of the unique features of the China-Zimbabwe BIT is the treaty’s dispute resolution provision at Article 9. This article sets out a six month negotiation period, followed by a fork-in-the-road clause at subparts (2) and (3) allowing an investor to submit a dispute either to the local courts or to an ad hoc international arbitral tribunal. The language of Article 9(3) specifically states that it applies to “dispute[s] involving the amount of compensation for expropriation[.]” The BIT avoids relying on any of the well-known international institutions for administering investor-state arbitrations, and provides at Article 9(5) that “[t]he tribunal shall determine its own procedure.” ICSID only makes an appearance as an appointing authority of last resort at Article 9(3), with the BIT stating at Article 9(7) that although they are non-binding, the arbitral tribunal may take the ICSID arbitration rules “as guidance.”
Zimbabwe is also a party to the Protocol on Finance and Investment of the Southern African Development Community (SADC), a multi-lateral agreement with thirteen other African states, including South Africa. Annex 1 to the SADC Protocol contains provisions dealing with co-operation on investment that set forth various protections for foreign investors. For instance, Article 5 states that “[i]nvestments shall not be nationalised or expropriated in the territory of any State Party except for a public purpose, under due process of law, on a non-discriminatory basis and subject to the payment of prompt, adequate and effective compensation.” Article 28 gives “investors” a right to commence international arbitration six months after sending a written notice of claim if the SADC Protocol’s investment protections have been violated. The investor and Zimbabwe may agree for the dispute to be administered by either the SADC’s own Tribunal, ICSID or the ICSID Additional Facility, or as an ad hoc proceeding under the UNCITRAL rules. Article 28(3) provides that if Zimbabwe and the foreign investor cannot agree upon an administering body and set of rules within three months after the written claim notice has been sent, then the UNCITRAL Rules shall govern and the proceeding shall take the form of a non-administered ad hoc arbitration.
Interestingly, the SADC Protocol at Article 1 defines “investor” to mean “a person that has been admitted to make or has made an investment.” The term “investment” is defined to include “rights conferred by law or under contract, including licenses to search for, cultivate, extract or exploit natural resources.” As a result, it would seem that foreign investors from even non-SADC countries may be able to commence an arbitration against Zimbabwe seeking compensation under the SADC Protocol.
In the event that investors decide to pursue investor-state claims against Zimbabwe for its recent decision to nationalize the diamond mining industry, it would not be the first time that the country has been forced to arbitrate the claims of foreign investors. Last year, an ICSID arbitral tribunal chaired by Yves Fortier awarded $196 million to German and Swiss investors whose farmland in Zimbabwe was seized and redistributed in the 2000s, in Von Pezold et al. v. Republic of Zimbabwe, ICSID Case No. ARB/10/15 (July 28, 2015).