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Published online by Cambridge University Press: 20 December 2024
This article proposes that, based on the evolution of international investment law and investment arbitration, umbrella clauses are substantially implicated in the interpretation of Chinese concession loan agreements in Nigeria. So far, the outcome of the oversight functions of the National Assembly of Nigeria indicates that umbrella clauses have not been considered a significant legal issue in the negotiation of these agreements. With the growing use of Chinese concession loan agreements in Nigeria, this article offers a historical analysis that should be a guide to organs of government, policy advisers and others charged with the sourcing and negotiation of concession loans for development projects in Nigeria. The article makes the case that a proper understanding of the evolution of umbrella clauses is germane to the negotiation and interpretation of these agreements, compared to standard immunity clauses that appear to have overtaken in the debate about these loans in Nigeria.
PhD (Aberdeen). Senior lecturer, College of Law, Igbinedion University, Nigeria; attorney and counsellor at law; expert in FDI law and policy, data privacy, cybersecurity and regulatory compliance. Formerly law professor at Salmon P Chase College of Law, Northern Kentucky University, USA. I am grateful to the editors and the peer reviewers for their attention, useful comments and resourcefulness. This article is dedicated to my wife, Ethel, and our children, Fejiro, Iroro, Orunor and Tobor. The views expressed in this article are mine alone.
1 Radi, Y Rules and Practices of International Investment Law and Arbitration (2020, Cambridge University Press)CrossRefGoogle Scholar at 135. See also Okpe, FO “The definition of investment and the ICSID Convention: Matters arising under the Nigerian Investment Promotion Act” (2017) Afe Babalola University Journal of Sustainable Development Law and Policy 133Google Scholar at 134–35. Also see M Solanes and A Jouravlev “Revisiting privatization, foreign investment, international arbitration, and water” (2007), available at: <https://archivo.cepal.org/pdfs/Waterguide/LCL2827e.pdf> (last accessed 10 March 2023).
2 Debt Management Office Nigeria “Revised external and domestic borrowing guidelines for the federal government, state governments, FCT, and their agencies” (12 May 2020), available at: <https://dmo.gov.ng/publications/other-publications/borrowing-guidelines> (last accessed 10 May 2023). The guidelines are a good source for compliance, procedural and regulatory information for foreign investors who want to negotiate international commercial loan agreements with the federal and other levels of government and agencies covered by the guidelines in Nigeria. Based on a press release dated 18 June 2020 from Nigeria's Debt Management Office, an agency in the presidency, as of 31 March 2020, Nigeria has borrowed a total of USD 3.121 billion, negotiated as international concession loans from entities controlled by China. The loan amount accounts for 11.28% of the external debt portfolio of Nigeria. The rates for these loans are pegged at 2.5% pa, with a tenor of 20 years and a grace period of 7 years.
3 L Baiyewu “NASS break: House mega probes may suffer delay” (25 July 2022) The Punch Newspaper (Lagos, Nigeria), available at: <https://punchng.com/nass-break-house-mega-probes-may-suffer-delay/> (last accessed 14 February 2024).
4 Responding on behalf of the federal government, Minister of Transport Rt Hon Rotimi Amaechi, as he then was, stated that there is a difference between international diplomatic immunity, which deals with a country's sovereign immunity, and “commercial immunity which has to do with the commitment to ensure the repayment of loans”. See “Amaechi, Malami correct NASS on sovereign immunity” (4 August 2020) Vanguard Newspaper (Lagos, Nigeria), available at: <https://www.vanguardngr.com/2020/08/amaechi-malami-correct-nass-on-sovereign-immunity/> (last accessed 14 February 2024).
5 The ICSID Convention, 17 UST 1270, was opened for signature 18 March 1965 and entered into force 14 October 1966; it is available at: <https://icsid.worldbank.org/sites/default/files/documents/ICSID%20Convention%20English.pdf> (last accessed 14 February 2024). For a more detailed analysis of the ICSID Convention, see Radicati di Brozolo, LG and Benini, C The ICSID Convention, Regulations and Rules (2020, Oxford University Press)Google Scholar. On Nigeria's offer, see Okpe, FO “Economic development and the utility of local content legislation in the oil and gas industry: Conflicts and effects of Nigeria's Local Content Act in the context of international investment law” (2015) 28 Pacific McGeorge Global Business and Development Law Journal 256Google Scholar at 281.
6 K Yannaca-Small “Interpretation of the umbrella clause in investment agreements”, available at: <https://www.oecd-ilibrary.org/finance-and-investment/interpretation-of-the-umbrella-clause-in-investment-agreements_415453814578> (last accessed 12 September 2024).
7 See A Mbah “Legal framework for international investment arbitration in Nigeria – a critique” (2019), available at: <https://ssrn.com/abstract=3440618> (last accessed 11 October 2024).
8 Ekhator, EO and Anyiwe, L “Foreign direct investment and the law in Nigeria: A legal assessment” (2016) 58/1 International Journal of Law and Management 126CrossRefGoogle Scholar. The authors argue that for FDI to have a significant effect on the Nigerian economy, the regulatory regime should be revised to “reflect current realities”.
9 “China's Belt and Road Initiative will keep testing the West” (7 September 2023) The Economist (London), available at: <https://www.economist.com/leaders/2023/09/07/chinas-belt-and-road-initiative-will-keep-testing-the-west> (last accessed 4 January 2024). For a more detailed analysis of China's OBOR policy in Africa, see Ajibo, CC “Belt and Road Initiative meets Africa: Exploring the state of play, implications, and the imperative for complementarities of interests” (2021) 8/2 Journal of Comparative Law in Africa 1CrossRefGoogle Scholar.
10 Ibrahim, KH and Sari, DW “Nigeria–China: An examination of recent bilateral trade relations” (2019) 1/5 International Journal of Applied Research in Social Sciences 172Google Scholar. See also Xiang, W and Oluduro, O “China's investment in the Nigerian energy sector: A prognosis of the dispute settlement paradigm” (2023) 12/5 Laws 81CrossRefGoogle Scholar. Beyond the use of concession loan agreements by Chinese investors to fund economic projects in developing countries, the authors observe that Nigeria is one of the top five destinations of Chinese FDI in the global energy sector.
11 Ibid.
12 Ofodile, UE “Africa–China bilateral investment treaties: A critique” (2013) 35/1 Michigan Journal of International Law 133Google Scholar at 134 argues that African leaders should pay more attention to the legal tools that form the substratum of China's FDI in Africa.
13 J Chaisse and KF Olaoye “The tired dragon: Casting doubts on China's investment treaty practice” (2020) Berkeley Business Law Journal 136 at 137. See also Y Zheng China's Foreign Investment Legal Regime (2023, Brill Nijhoff) at 124, who states that China's aggressive conclusion of investment treaties in the last four decades “reflects China's approach to participate [sic] in global economic governance and rule-making”.
14 See Zhongshan Fucheng Industrial Investment Co Ltd v The Federal Republic of Nigeria (Investor–State UNCITRAL Arbitration, Final Award of 26 March 2021), available at: <https://jusmundi.com/en/document/decision/en-zhongshan-fucheng-industrial-investment-co-ltd-v-federal-republic-of-nigeria-final-award-monday-1st-march-2021> (last accessed 18 March 2024).
15 Scholars and commentators sometimes refer to the clause as “observance of obligations” provision in a bilateral investment treaty (BIT). For example, see KJ Vandevelde Bilateral Investment Treaties: History, Policy, and Interpretation (2010, Oxford University Press) at 256–60. Vandevelde notes that the observance of obligations clause is referred to as an umbrella clause “because it brings contractual commitments within the coverage, or umbrella, of the BIT”. Other formulations of the umbrella clause include “mirror effect”, “elevator”, “parallel effect”, “respect clause”, etc.
16 L Carroll “What place does an umbrella clause have in the new generation of bilateral investment treaties” (2023) 40/2 Journal of International Arbitration 125.
17 There are different forms of foreign investment contract in international investment law. These include joint venture agreements (JVAs), licensing and transfer of technology agreements, turnkey contracts, concession contracts and production sharing contracts (PSCs). PSCs and JVAs represent the most common forms of foreign investment contracts in Nigeria, particularly in the oil and gas industry. The multinational oil and gas companies operate in partnership with the Nigerian National Petroleum Corporation under PSCs. For a more detailed discussion of the new forms of foreign investment contract in host states, see M Sornarajah The International Law on Foreign Investment (3rd ed, 2020, Cambridge University Press) at 118.
18 In Nigeria the primary FDI legislation is the Nigerian Investment Promotion Act, cap N117 (Decree No 16 of 1995), Laws of the Federation of Nigeria 2004. See also Vandevelde Bilateral Investment Treaties, above at note 15 at 258.
19 This is premised on the notion that ICSID arbitration may internationalize investment disputes, which will in turn impose a responsibility on the host country to guarantee the observance of its contractual obligations towards the foreign investor. See Okpe “Economic development”, above at note 5 at 281; KUK Ekwueme “Nigeria's principal investment laws in the context of international law” (2005) 49 Journal of African Law 177 at 199–200.
20 This is a Latin phrase for a basic principle of international law that means “agreements must be kept”. By analogy, it means states are bound by their commitment and undertaking pursuant to an agreement. For further reading on this principle with reference to international investment law, see JW Yackee “Pacta sunt servanda and state promises to foreign investors before bilateral investment treaties: Myth and reality” (2008) 32/5 Fordham International Law Journal 1550.
21 Abs–Shawcross Draft Convention on Foreign Investment, 1959. A full text of the Convention is reprinted in UNCTAD “International investment instruments: A compendium in United Nations” (vol 5, 2000), 395, available at: <https://unctad.org/publication/international-investment-instruments-compendium-volume-v> (last accessed 11 October 2024). For a more detailed analysis of the origins of the umbrella clause, see AC Sinclair “The origins of the umbrella clause in the international law of investment protection” (2004) 2/4 Arbitration International 411.
22 See HJ Abs “Proposals for improving the protection of private foreign investments”, cited by Sinclair, ibid.
23 Art 4 of the Abs Draft Convention provides that “[i]n so far as better treatment is promised to non-nationals than to nationals either under intergovernmental or other agreements or by administrative decrees of one of the High contracting parties, including most-favored nation clauses, such promises shall prevail”.
24 Art 7 of the Agreement between the Federal Republic of Germany and the Islamic Republic of Pakistan on the Encouragement and Reciprocal Protection of Investments, signed 25 November 1959 (entered into force 28 April 1962), available at: <http://www.unctadxi.org/templates/DocSearch____779.aspx> (last accessed 10 December 2023).
25 TW Wälde “The ‘umbrella clause’ in investment arbitration: A comment on original intentions and recent cases” (2005) 6 Journal of World Investment and Trade 183 at 201.
26 Id at 187.
27 Id at 190.
28 FO Okpe “Foreign direct investment and investment treaty arbitration with reference to Nigeria” (PhD dissertation, University of Aberdeen, 14 August 2014).
29 J Gill, M Gearing and G Brit “Contractual claims and bilateral investment treaties: A comparative review of the SGS cases” (2004) 21/5 Journal of International Arbitration 403; see also L Oppenheim, R Jennings and A Watts Oppenheim International Law (9th ed, 1992, Longman) at 927: “it is doubtful whether a breach by a State of its contractual obligations with aliens constitute per se a breach of an international obligation”.
30 See Sinclair “The origins”, above at note 21 at 415–17.
31 See FJ Gavin “Politics, power, and US policy in Iran, 1950–1953” (1999) 1/1 Journal of Cold War Studies 56.
32 Sinclair “The origins”, above at note 21 at 415. The British lawyer Elihu Lauterpacht was a Queen's Counsel (QC) and a notable legal practitioner in public international law. See E Lauterpacht “International law and private foreign investment” (1997) 4/2 Indiana Journal of Global Legal Studies 259.
33 Wälde “The ‘umbrella clause’”, above at note 25 at 202.
34 Sinclair “The origins”, above at note 21 at 415–16.
35 Id at 417.
36 JB Potts “Stabilizing the role of umbrella clauses in bilateral investment treaties: Intent, reliance, and internationalization” (2011) 51/4 Virginia Journal of International Law 1010.
37 Yannaca-Small “Interpretation”, above at note 6. See also OECD “The future of investment treaties” (2024), available at: <https://www.oecd.org/investment/investment-treaties.htm> (last accessed 18 March 2024). The OECD, referencing a work programme it launched in 2021 on the future of foreign investments, reports that about 2,500 investment treaties are currently in force between most countries of the world.
38 Sweden–Kazakhstan BIT, art 2(4), cited by Vandevelde Bilateral Investment Treaties, above at note 15 at 258.
39 See for example J Wong “Umbrella clauses in bilateral investment treaties: Of breaches of contract, treaty violations, and the divide between developing and developed countries in foreign investment disputes” (2006) 14 George Mason Law Review 135; Yannaca-Small “Interpretation”, above at note 6. See also Gill, Gearing and Brit “Contractual claims”, above at note 29; J Crawford “Treaty and contract in investment arbitration” (2008) 24/3 Arbitration International 351; M Sasson Substantive Law in Investment Treaty Arbitration: The Unsettled Relationship between International Law and Municipal Law (2010, Kluwer International); S Schill “Enabling private ordering: Function, scope and effect of umbrella clauses in international investment treaties” (2009) 18 Minnesota Journal of International Law 1; B Kunoy “Singing in the rain: Development in the interpretation of umbrella clauses” (2006) 7 Journal of World Investments and Trade 275; and B Cremades “Clarifying the relationship between contract and treaty claims in investor–state arbitration” (2003) 3 Business Law International 207.
40 A Mills “The public–private dualities of international investment law and arbitration” in C Brown and K Miles (eds) Evolution in Investment Treaty Law and Arbitration (2011, Cambridge University Press) 105.
41 See SGS Société de Surveillance SA v Islamic Republic of Pakistan (ICSID Case No ARB/01/13, Decision of the Tribunal on Objections to Jurisdiction of 6 August 2003), available at: <https://icsid.worldbank.org/cases> (last accessed 14 June 2023).
42 See SGS Société de Surveillance SA v Republic of the Philippines (ICSID Case No ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction of 29 January 2004), available at: <https://icsid.worldbank.org/cases> (last accessed 14 June 2023).
43 Wong “Umbrella clauses”, above at note 39 at 137.
44 Id at 149.
45 See FA Mann “British treaties for the promotion and protection of investments” (1981) 52 British Yearbook of International Law 241.
46 See A Leiter “Protecting concessionary rights: General principles and the making of international investment law” (2021) 35/1 Leiden Journal of International Law 55–59.
47 Mann “British treaties”, above at note 45 at 246.
48 For example, see J Crawford “Treaty and contract”, above at note 39, and MCG Salias “Do umbrella clauses apply to unilateral undertakings?” in C Binder, U Kriebaum, A Reinisch and S Wittich (eds), International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (2009, Oxford University Press) 490.
49 SGS v Pakistan, above at note 41; SGS v Philippines, above at note 42.
50 Art 11 of the Switzerland–Pakistan BIT provides that “[e]ither Contracting Party shall constantly guarantee the observance of the commitments it has entered into with respect to the investments of the investors of the other Contracting Party”.
51 SGS v Pakistan, above at note 41, paras 1–6.
52 Id, paras 98–99. See also Wong “Umbrella clauses”, above at note 39 at 151.
53 SGS v Pakistan, above at note 41, paras 43–45.
54 Id, paras 160–62.
55 Id, para 162.
56 SGS v Philippines, above at note 42.
57 Id, para 92(b–e). The Switzerland–Philippines BIT, art X(2), provides that “[e]ach Contracting Party shall observe any obligation it has assumed with regard to specific investments in its territory by investors of the other Contracting Party”; available at: <https://oxia.ouplaw.com/display/10.1093/law:iic/bt731.regGroup.01/law-iic-bt731> (last accessed 8 October 2024>.
58 SGS v Philippines, above at note 42, paras 113–29.
59 Id, para 121.
60 Id, para 122.
61 Id, para 126.
62 Id, paras 136–68.
63 Id, para 155.
64 Id, para 34. See also Switzerland–Philippines BIT, art 8, above at note 57.
65 SGS v Philippines, above at note 42, para 137.
66 Id, paras 140–41. The Latin maxim means that specific or detailed provisions of a legal instrument should prevail over more general conflicting provisions. See AX Fellmeth and M Horwitz Guide to Latin in International Law (2011, Oxford University Press).
67 SGS v Philippines, above at note 42, para 141.
68 Ibid.
69 The ICSID Convention, above at note 5, art 26, provides that “[c]onsent of the parties to arbitration under this Convention shall, unless otherwise stated, be deemed consent to such arbitration to the exclusion of any other remedy. A Contracting State may require the exhaustion of local or judicial remedies as a condition of its consent to arbitration under this Convention.”
70 SGS v Philippines, above at note 42, paras 146–48. See C Schreuer The ICSID Convention: A Commentary (2001, Cambridge University Press) at 347.
71 SGS v Philippines, above at note 42, para 149.
72 Id, paras 149–55.
73 Ibid.
74 Id, para 175.
75 For example SA Alexandrov “Breaches of contract and breaches of treaty: The jurisdiction of treaty-based arbitration tribunals to decide breach of contract claims in SGS v Pakistan and SGS v Philippines” (2004) 5 Journal of World Investment and Trade 555.
76 See Wong “Umbrella clauses”, above at note 39 at 137.
77 For example, see Joy Mining Machinery Limited v The Arab Republic of Egypt (ICSID Case No ARB/03/11, Award on Jurisdiction, 6 August 2004), paras 64–99, available at: <https://icsid.worldbank.org/cases> (last accessed 21 July 2023).
78 Compare paras 297–301 of CMS Gas Transmission Company v The Republic of Argentina (ICSID Case No ARB/01/8, Award, 12 May 2005), available at: <http://italaw.com/cases/documents/290> (last accessed 21 July 2022), with Consorzio Groupement LESI–DIPENTA v People's Republic of Algeria (ICSID Case No ARB/03/08, Award, 10 January 2005), para 21(ii) (translation by the Secretariat), cited by Yannaca-Small “Interpretation”, above at note 6. The full English translation of the latter is available at: <http://arbitrationlaw.com/library/consortium-groupement-lesi-dipenta-v-algeria-icsid-case-no-arb0308-algeriaitaly-bit-award> (last accessed 13 March 2021).
79 Wong “Umbrella clauses”, above at note 39 at 162–66.
80 See AFM Maniruzzaman “State contracts in contemporary international law: Monist versus dualist controversies” (2001) 12/2 European Journal of International Law 309.
81 For example, see the umbrella clauses contained in art 2(2) of the Agreement between the Government of the Federal Republic of Nigeria and the Government of the United Kingdom of Great Britain and Northern Ireland, signed 11 December 1990 (entered into force 11 December 1990), available at: <https://investmentpolicy.unctad.org/international-investment-agreements/countries/153/nigeria> (last accessed 8 October 2024), and art 3(4) of the Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Federal Republic of Nigeria, signed 1 February 1994 (entered into force 1 February 1994), available at: <http://www.unctadxi.org/templates/DocSearch____779.aspx> (last accessed 14 March 2023).
82 Nigerian Oil and Gas Industry Content Development Act, Laws of the Federation of Nigeria, 2010. A full text of the Act is available at: <http://www.oandoplc.com/wp-content/uploads/Nigerian%20Content%20Act.pdf> (last accessed 15 March 2024).
83 OA Oniyinde and TE Ayo “The protection of energy investments under umbrella clauses in bilateral investment treaties: A myth or a reality?” (2017) 61 Journal of Law, Policy, and Globalization 161.
84 The China–Nigeria BIT is the Agreement between the Government of the People's Republic of China and the Government of the Federal Republic of Nigeria on the Promotion and Protection of Investment 1997, available at: <https://edit.wti.org/document/show/69f6807c-20bd-4730-8eef-884669e2b2ef> (last accessed 2 January 2024).
85 Zhongshan v Nigeria, above at note 14.
86 Id, paras 21–22.
87 Id, paras 13–15, 39–41.
88 Based on the China–Nigeria BIT, the claimant instituted an investor–state ad-hoc arbitration under the UNCITRAL Arbitration Rules 2013. For further reading on investor–state arbitration under UNCITRAL arbitration rules, see K Loken “Uncitral rules on transparency in treaty-based investor–state arbitration” (2013) 52/6 International Legal Materials 1300, available at: <https://www.cambridge.org/core/journals/international-legal-materials/article/abs/uncitral-rules-on-transparency-in-treatybased-investorstate-arbitration/06313F07402845CC89EB9CC9FFBF2500> (last accessed 3 January 2024).
89 Zhongshan v Nigeria, above at note 14, para 198.
90 For further reading on the unique relationship between special economic zones as a means of FDI, settlement of investment disputes and international investment law, see J Chaisse and KF Olaoye “Zhongshan Fucheng Industrial Investment Co Ltd v The Federal Republic of Nigeria: Special economic zones and investment treaty arbitration at crossroads” (2023) ICSID Review – Foreign Investment Law Journal 1.
91 JJ Lu and B Sanderson “The tale of Zhongshan Fucheng v. Nigeria: How investment treaties help safeguard Chinese investments abroad” (2022), available at: <https://www.dlapiper.com/en-us/insights/publications/2022/06/the-tale-of-zhongshan-fucheng-v-nigeria> (last accessed 30 December 2023).
92 Reciprocal Investment Promotion and Protection Agreement between the Government of the Kingdom of Morocco and the Government of the Federal Republic of Nigeria (Morocco–Nigeria BIT) 2016, available at: <https://edit.wti.org/document/show/bde2bcf4-e20b-4d05-a3f1-5b9eb86d3b3b> (last accessed 30 December 2023). See Ejims, O “The 2016 Morocco–Nigeria bilateral investment treaty: More practical reality in providing a balanced investment treaty?” (2019) 34/1 ICSID Review – Foreign Investment Law Journal 62CrossRefGoogle Scholar at 64–84.
93 Gazzini, T “The 2016 Morocco–Nigeria BIT: An important contribution to the reform of investment treaties” (2017) Journal on Investment Law and Policy from a Sustainable Development Perspective 3Google Scholar.
94 Picherack, JR “The expanding scope of the fair and equitable treatment standard: Have recent tribunals gone too far?” (2008) 9/4 Journal of World Investment and Trade 255Google Scholar. Picherack notes that the fair and equitable treatment standard has been invoked more than any other standard of international investment law as the basis for awarding damages against states, and tribunals are increasingly willing to grant significant damage awards for failure to accord fair and equitable treatment even where they find that no expropriation or discrimination of a foreign investor's investment has occurred. Picherack also observes that the “decisions and reasoning of many recent tribunals as to the standard's scope and content are fragmented, inconsistent and conflicting”. See also JC Boue “Enforcing pacta sunt servanda? Conoco-Phillips and Exxon-Mobil versus the Bolivarian Republic of Venezuela and Petroleos de Venezuela” (2008) (University of Cambridge, Centre of Latin American Studies, Working Paper Series 2, No 1) at 37; available at: <https://www.researchgate.net/publication/274792883_Enforcing_Pacta_Sunt_Servanda_Conoco-Phillips_and_Exxon-Mobil_Versus_the_Bolivarian_Republic_of_Venezuela> (last accessed 8 October 2024). Boue is emphatic when he states that “it is no exaggeration to say that FET [fair and equitable treatment], rather than expropriation proper, has become the heart and soul of investor–state arbitration … FET has proved to be remarkably malleable and elastic and, like beauty, very much in the eyes of the beholder.” However, in contrast to what seems to be the prevailing commentary on the elasticity of FET, in Duke Energy International Peru Investment No 1 Ltd v Republic of Peru (ICSID Case No ARB/03/28, Decision on Jurisdiction of 1 February 2006), available at: <https://icsid.worldbank.org/cases/case-database/case-detail?CaseNo=ARB/03/28> (last accessed 13 March 2022), the arbitral tribunal seems to suggest that an investor should not be allowed to rely on general treaty standards as the basis of its claim against the host state.
95 Wälde “The ‘umbrella clause’”, above at note 25 at 198.
96 NIPC Act, above at note 18, sec 24(c).