Clauses between foreign investors and host states - Limiting the risks of the investor
Clauses between foreign investors and host states:
Introduction
Foreign investments play an important role in the
global economy and contribute significantly to the development and advancement
of the economies of the countries. Therefore, most countries seek to encourage
and attract foreign investments and work to compete to attract the largest
amount of such investments. These investments provide several benefits to the
countries in which they operate for example these benefits:
A - The ability to finance many projects through the
transfer of foreign capital, especially for countries that do not have the
funds to finance their economy.
B - Creating new job opportunities for employment in
the State.
C - Transfer
the modern technology that leads to increased production and quality.
However, foreign investments face challenges and risks
that may affect the decision of the foreign investor to agree to enter into a new
investment in another State. One of the most important of these risks is the
legal legislation and the applied laws that may affect the foreign investor,
cause losses, or create obstacles to the continuation of his business.
Therefore, countries seek to amend their laws or to have special laws for
foreign investments to protect foreign investors' funds and investments, as
well as to give confidence in the national economy, which will lead to the
inflow of more new foreign investments and keep the current investment in the
country.
The foreign investor is also keen to include some
special clauses in their contracts concluded with States on conditions that
provide some form of legal protection. Examples of such contractual conditions include
renegotiation clauses, stabilization clauses, arbitration clauses,
Choice-of-law clauses, force majeure clauses, hardship clauses, and umbrella
clauses.
Arbitration clauses
Arbitration is an exceptional way to resolve disputes
related to commercial contracts by avoiding regular and ordinary litigation
before the courts and relying on a judgment issued by a neutral arbitrator.
Often, the arbitrator is not a judge but a specialized arbitration expert.
Some of the legal alternatives available for dispute
resolution are conciliation, commercial arbitration, conciliation, or
mediation. It is noticed that the commercial parties in general and the foreign
investors especially began to address these alternatives, and it became clear
from the statistics that resorting to arbitral dispute settlement steadily
increased, which indicates the integrity and the efficiency of recourse to
arbitration.
Usually, foreign investors adopt the arbitration
clause in their contracts with other States to benefit from the many advantages
provided by the arbitration clause, for example:
1) Ensure that the parties of the dispute are subject
to legal rules that differ from the rules applied in the courts of the state,
which provides equal opportunities and does not give the State an additional
advantage to benefit from its legal system against the foreign investor who is
considered stranger than this legal system.
2) Ease and simplify procedures, which shortens the
time of the dispute.
Adding the "arbitration clauses" in the
contracts requires several substantive points that are needed to clarify the
conditions of the arbitration. Points like whether arbitration is
"individual" or "institutional" arbitration, the law that
has been agreed to settle the dispute, the language of arbitration, the place
of the arbitration procedure, and the agreed times for the arbitration
procedure.
Example for Arbitration clause as per Dubai
International Arbitration Centre (DIAC): “Any dispute arising out of the
formation, performance, interpretation, nullification, termination or
invalidation of this agreement or arising therefrom or related thereto in any
manner whatsoever. That is not to be solved/settled amicably within thirty (30)
days from the dispute date, shall be settled by arbitration by the provisions
set forth under the DIAC Arbitration Rules (“the Rules”), by one or more
arbitrators appointed in compliance with the Rules.”
The Arbitration Act 1996 sets out the rules for
arbitration including the Definition of the arbitration agreement, the general
duties in an arbitration, the arbitrator’s powers, and the procedure.
The Arbitration Act 1996 has extended the power of the
courts to stay legal proceedings brought in contravention of a pre-existing
agreement to arbitrate. The parties in the commercial contracts supported by
the courts who have signed a written arbitration agreement to arbitrate their
disputes through the courts to stay of proceedings where a matter should be
referred to arbitration (Section 9) or freezing or anti-suit injunction
(Section 44).
Section 9 “Stay of legal proceedings.
(1) A party to an arbitration agreement against whom
legal proceedings are brought(whether by way of claim or counterclaim) in
respect of a matter which under the agreement is to be referred to arbitration
may (upon notice to the other parties to the proceedings) apply to the court in
which the proceedings have been brought to stay the proceedings so far as they
concern that matter…….”
Section 44” Court powers exercisable in support of
arbitral proceedings.
(1) Unless otherwise agreed by the parties, the court
has for and about arbitral proceedings the same power of making orders about
the matters listed below as it has for and concerning legal proceedings….”
Renegotiation clauses
International commercial contracts are often executed
and performed for long periods, which may expose foreign investment to certain
circumstances and events that may affect the ability of the parties to fulfill
their obligations. Such circumstances may be a result of changes in the local
legislation and laws, political changes, or changes imposed by other social or
economic circumstances that directly affect the parties of the contract.
Because of the circumstances and nature of
international trade relations, new concepts have emerged to match the nature of
those circumstances, which has made the various legal rules and systems in
national legislation change and evolve to be able to cope with developments at
the level of international trade. Among these solutions are renegotiation
clauses that enable parties to review the terms of a contract by renegotiating
in case there is a change in the circumstances that may affect or cause damages
to any of the parties.
Renegotiation clauses are included by the parties to
the contract for renegotiation of the terms and conditions of the contract when
certain events that would change the balance in the relationship between the
parties of the contract and seriously cause loss to one of the parties.
The strength and effectiveness of the renegotiation
clause require good drafting and wording for the clause so that the text
includes a clear description and definition of the cases in which renegotiation
is sought, the parts of the contract or the articles that can be renegotiated,
the rights of each party to accept or reject the renegotiation.
Example: Article 34.12 of Model
Exploration & Production Sharing Agreement of Qatar of 1994:
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