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Towards a Model Investment
Contract
Making Agricultural Investment Work for Africa, 4-5 October
2012, Cotonou, Benin
Henrique Suzy Nikiema and Carin Smaller, IISD
[email protected] and [email protected]
Agenda
• Introduction:
• Contracts in context: The relationship
between the sources of applicable law
• The problematique in a “pyramid”
• Good contracts: The scope of issues
• Implications and recommendations
Introduction
• Move towards comprehensive national laws that will
make investment contracts unnecessary
• IISD not trying to promote investment contracts or
bad investments
• BUT… facing reality:
 Frequent use of contracts in developing countries
 2000-2009: 1,217 projects covering 83 million ha of land
• Scope of the study: 60 investment contracts, including
58 from Africa (most are problematic)
• IISD objective: Improve the quality of contracts
Three Relevant Sources of Law
• Domestic law of host state
• Investment contract
• Investment treaty
Domestic law
• Laws, regulations, constitutions
• Common law/civil law/tribal and community
custom/Islamic law
• Enforced in domestic courts or other
proceedings
Investment Contracts
• State owns farmland in most developing countries,
although some important exceptions, including in West
Africa
• Investment contract is therefore an international
contract between the government and the foreign
investors, not a private contract
• Can be governed by law of host state or by law of
another state or by international law
• Often has international arbitration provision now
• Frequent use of stabilization provisions
Stabilization Provisions
–Def’n: a provision that freezes all or part of the domestic
laws for the duration of the contract
–Consequences: changes to existing laws or introduction of
new laws is either forbidden or investor must be
compensated for any additional costs
Two types:
–Fiscal issues: only fiscal laws are frozen (e.g. taxes and
royalties). Often tolerated!
–General issues: Any law that effects the investment is
frozen (Environmental, worker health and safety, human
health, etc…). Unacceptable!
Investment Treaties
• Over 2700 exist today
• Characteristic: treaty signed by two or more States…but
the direct beneficiaries are foreign investors
• Typical provisions:
• Non-discrimination (national treatment and most-favoured
nation treatment)
• Expropriation
• Fair and equitable treatment
• Investment liberalization (performance requirement
prohibitions
• Investor-State arbitration
The Problematique: Relationship between the
three sources of law, the right way
Treaties
Contracts
Domestic law
Relationship between the three sources of law,
the wrong way
Treaties
Contracts
Domestic
law
The Problematique: Treaties and Contracts
can prevail
• Domestic law is generally not comprehensive in this field in
developing countries
– Land rights; water rights; environmental; health and safety; labour
rights; indigenous rights; investment rights, incentives, taxation;
community rights and benefits; food and water security policies
• Therefore, both treaties and contracts can:
– Guarantee right to all resources necessary to fulfill investment
goals
– Restrict scope of changes that can be made to domestic law
applicable to the investment
GOOD CONTRACTS
PRINCIPLES:
• Use global and regional initiatives as a benchmark
• Must relate to all issues
• Must be inclusive of all actors in process
• Must interact carefully with domestic law in host
State; set floors, not ceilings for obligations
• Example: Model Mining Development Agreement,
International Bar Association, Mining Law
Committee, April 2011 (www.mmdaproject.org)
Good Contracts
SCOPE:
• Pre-contractual/pre-operational obligations of
investors
– Impact assessments (resulting conditions form part of
contract)
• Environmental impacts and management plan
• Social impact
• Human rights impact
– Business feasibility study and plan
– Community agreement (free, prior and informed
consent)
SCOPE:
• Land tenure
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–
–
–
Good Contracts
Identification of land, time period
Purchase or lease rates
Payments to landholders/users/communities
Does not extend to subsurface rights to minerals,
petroleum, gas, etc.
• Taxation and other fiscal provisions
Good Contracts
SCOPE:
• Common obligations
–
–
–
–
Anti-corruption
Transparency of contracts and payments
Limitations on rights to export foods during shortages
Possible requirements for constant sale of local
production in host State
Good Contracts
SCOPE:
• Water rights for investor
– Domestic water laws versus investment treaties and
contracts
– Periodic reviews of water rights and allocations,
including obligation to reduce water use
– Water fees and levies
– No stabilization provision for water laws and
regulations
Good Contracts
SCOPE:
• Economic and social obligations of investor
– Transform principles to specific obligations; legally
binding and annual reporting
– Minimum levels of local employment and skills training
– Local economic linkages: goods and services suppliers,
value-added industries
– Technology transfer
– Contribution to local community
– Gender and indigenous peoples issues
Good Contracts
IMPLEMENTATION:
–
–
–
–
Capacity building for negotiations
Evaluation and monitoring needs
Community engagement and review
Transparency of contracts and annual reporting
Implications/Recommendations
1. Not every situation can create a win-win; not every
investment is a good investment
2. Good investment contracts for development in
developing countries must reflect all issues and actors,
not just private law tenure objectives of investors
3. Achieving development benefits happens by design,
not by accident:

The design MUST be in the contracts and domestic law
Helpful resources
• IISD, Model Investment Treaty
• UN Special Representative, Principles for
Responsible Contracts
• International Bar Association, Model
Mining Development Agreement
• For contracts: Liberia, Grain
• For treaties: UNCTAD
BUT…no perfect model or blueprint—
depends on domestic context, laws and
regulations