Bilateral investment treaties (BITs) signed prior to the 21st century are problematic. Some countries with BITs signed during this period have since reviewed those BITs and taken action to address the disadvantages the BITs held for the host nation or have either resorted to eradicating some of their BITs. In particular, developing countries that signed BITs with developed nations seem to be disproportionately disadvantaged in these agreements.
This research highlights Kenya's current BIT situation and compares it in light of another developing country, South Africa, with regards to its BIT experience. Given that South Africa has undergone an extensive BIT review process and moves to change some of these BITs, this study compares and contrasts the Kenyan and South African experience. The study highlights the possible lessons that could be learnt from the South African BIT review experience and provides recommendations for the Kenyan government regarding its outdated BITs. The lessons and recommendations benefit not only Kenya but also other countries that are still to review their BITs as it adds to the literature on why it is important for countries with such BITs to revisit them and how they can go about the review mechanism best. In addition, the study is also significant as far as it raises awareness of the use and effects of BITs, thereby enabling countries that enter into such agreements to make informed decisions.
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Chapter 2: Potential legal problems in Kenya's BITs:
This chapter focuses on the four BITs signed by Kenya prior to the 21st Century. These BITs were signed with the Netherlands in 1970, Germany in 1996, Italy in 1996 and the United Kingdom (UK) together with Northern Ireland (hereinafter referred to as the UK BIT) in 1999. Each BIT will be analysed individually with further comprehensive analyses in the context of Kenya's domestic legislative framework or domestic policies. The aim of this analysis is to examine the potential legal problems that may arise from such BITs and how such problems could pose legal challenges for Kenya.
2.1 Brief overview of Kenya's BITs signed prior to the 21st Century:
Kenya's model BIT makes provisions for generally the same terms and does not deviate significantly from the typical modern BIT highlighted in the previous chapter. Allee and Peinhardt point out that there is a fallacy promoted that BITs are uniform when, in fact, each treaty has an internal balance that has been negotiated by the parties. Based on this fact, the four BITs signed by Kenya have minor differences indicating the varying interests or concerns of the parties that negotiated with Kenya. The differences mainly emanate from the manner in which the same provisions are phrased in the different BITs. There is also evidence of certain provisions found in certain Kenyan BITs that are not found in the others. With this in mind, the following section shall focus on analysing the provisions of the four BITs signed prior to the 21st century in order to determine potential problems for the Kenyan government.
2.2 Analyses of Kenya's BITs based on legal interpretation This section will focus on the provisions relating to the definition of terms, the fair and equitable treatment, the protection and security standard, the national treatment and most favoured nation clause, the investor-state dispute resolution provision and the provisions that refer to a contracting party's national legislation particularly focused on the legal interpretation of the BITs. This analysis will search for potential problem areas in Kenya's BITs entered into prior to the 21st century.
2.2.1 Definition of terms The terms defined in Kenya's BITs are not uniformly provided neither are they defined in similar terms. Despite such differences, all four BITs do, however, try to define at least either the term 'investment' or 'investor'. The definition of the terms 'investment' and 'investor' are important because, from the perspective of a capital exporting country, the definition identifies the group of investors whose foreign investment the country is seeking to protect through the agreement, including, in particular, ist system for neutral and depoliticised dispute settlement.9 From the capital importing country's perspective, it identifies the investors and the investments the country wishes to attract and from the investor's perspective, it identifies the way in which the investment might be structured in order to benefit from the agreements' protection.
Only the Netherlands, Germany and Italian BITs define who the investor is.3 These three BITs define investor with reference to the term 'nationals' or 'natural person', and 'company' or 'legal person'. The definition of the term 'national' or 'natural person' in the three treaties merely requires that nationality be determined in terms of the laws of the country that the national claims to be from. This proves problematic in that it results in situations in which foreign investors who are not privy to the original BIT may seek to exploit the shortcomings of this definition by altering their nationality so that they benefit from the rights and protection offered under Kenya's BITs. Examples of such situations have been evident in cases such as that of Waguih Siag v The Arab Republic of Egypt. This case involved a situation in which an Egyptian national, who had investments in Egypt, lost his Egyptian nationality at a time when he had acquired Lebanese and Italian nationality in a manner that appeared to have been devised. The said claimant went on to claim under the BIT that existed between Italy and Egypt as an Italian investor despite the fact that he had been an Egyptian national at the time the investment was made. This indicates that the manner in which the nationality requirement is phrased in Kenya's BITs has loopholes that may allow foreign investors from other countries that do not have BITs with Kenya to nonetheless benefit from Kenya's BITs.
This presents a potential problem that may affect the Kenyan government in the event that investors from countries that do not have a BIT with Kenya devise methods to alter their nationality so that they take advantage of the protection offered by the Kenyan BITs. The UK BIT totally excludes the definition of the term 'investor'. This gives rise to the possibility of a broad range of interpretations of who may be considered as the investor. Without the definition of such a term in the treaty, it would be difficult to prevent investors from expanding the scope of International Investment Agreement's (IIAs) protection beyond that intended by the parties to the treaty.
Article 1 (a) of the UK BIT, Article 1 (1) of the Germany BIT and Article 1 (1) of Italy BIT define the term investment broadly by indicating that the term refers to any kind of asset and further lists the assets that are considered as investments. Such definitions conform to Peterson's view regarding some investment treaties that he claims to have been crafted in deliberately vague language, so as to cover the broadest range of investment situations. All three definitions of the term investment in Kenya's BITs further state that the highlighted list is not exclusive. Malik states that, such a non-exclusive definition was developed by capital exporting states to ensure that a wide variety of their investors' assets were protected in the territories of their capital importing treaty partners. This presents problems in that the nonexclusive list could be interpreted to include anything from foreigners' money in a bank account, a holiday home, a company's goodwill, even contracts for the sale of goods manufactured by the investor in ist home country, or services performed by the investor in ist home country and then sold to consumers in the host country, to mention a few examples. Such assets would have little to no contribution to the host state's economy or sustainable development and yet would still benefit from the heightened rights and protections offered by the investment agreement.
The Italian BIT sought to place a limitation on the interpretation of the definition of investment by highlighting that the investment must be made in conformity with the laws and regulations of a contracting party. Yackee refers to such provisions as 'in accordance to' provisions and he is of the opinion that, relying on such provisions in BITs to provide tribunals with authority to take account of the issues in dispute would pose a number of interpretative and applicative uncertainties.0 He goes on to point out that such provisions typically do not mention which laws and regulations must be complied with. Kenya's Foreign Investment Protection Act (FIPA) is an example of Kenyan legislation that may be used in interpreting the BIT provisions relating to what constitutes an investment in Kenya. This Act provides that, for an investment to be approved it has to promote the economic development of the country or would need to be of benefit to Kenya. The application of this Act in the event of a dispute is not automatic not only because of the fact that it is not specifically mentioned in the treaties but also because of the manner in which tribunals have interpreted the 'in accordance to' provisions in BIT arbitrations.
In the case of Saipem S.p.A v Bangladesh, the tribunal indicated that Article 1 (1) of the BIT in issue that stated that investment had to be made in conformity with the laws and regulations of the host state does not limit the definition of investment under the treaty to investment within the laws and regulations of Bangladesh. In Tokios Tokeles v Ukraine, the tribunal refused the respondent states argument that the technical defects in the restriction of the investment under Ukraine law denied the investment protection of the treaty. The dissenting arbitrator in the case of Fraport v The Republic of Philippines in dealing with the 'in accordance to' provision, indicated that since the claimant's shareholdings constituted an investment covered by the BIT in issue, the requirement that the investment shall be accepted in accordance with the Philippine law could not be interpreted as a jurisdictional bar.
All three of these cases indicate that the tribunal at ICSID may have jurisdiction regarding issues that may not even be considered as an investment in Kenya. This may be the case regardless of the fact that the majority decision in the Fraport case dismissed the case on the grounds that the investment had not been made in accordance with the relevant national laws. There is no rule of binding precedent in international investment law, and as such, tribunals may reach their own conclusions regarding the facts of a case. With such uncertainties, it is a risk for Kenya to maintain the provision in ist current phrasing since it may result in interpretations that may not be in ist favour.
To add to the complexity of such broad definitions or a failure to define the term investment, it is important to highlight that foreign investors often make their investments through subsidiary companies incorporated under the laws of the host state. Without a specific agreement to the contrary, a locally incorporated subsidiary will not be able to bring a treaty claim against the host state. However, the foreign investor shareholder can bring a claim under an applicable treaty for damages with respect to ist shareholdings. This has been evident in a number of cases against Argentina including the case of CMS Gas Transmission Co. V Argentina. In this case, the ICSID Annulment Committee noted that 'the definition in the Argentina-US BIT which provided for "every kind of investment.owned or controlled directly or indirectly.such as equity, debt." was very broad, and confirmed that investments made by minority shareholders are covered by the actual language of the definition as is also recognised by ICSID arbitral tribunals in comparable cases.' The wording in this Argentina-US BIT is almost similar to that found in Kenya's BITs. Argentina argued, in relevant part, that if the tribunals allowed minority or indirect shareholders to bring claims for relief based on damage to the company, host countries would be faced with a multitude of claims from different shareholders, as well as claims by the company itself. The tribunals, however, rejected those arguments in favour of a broad definition of investments and in doing so; they hung their decisions on the observation that there was nothing in the actual text of the governing treaties that imposed such a limitation. This indicates that Argentina had no intention of including minority shareholders as investments in ist BITs and yet due to the phrasing of the definition of investment, the tribunal allowed such minority shareholders to bring a claim against Argentina. Kenya could also be subject to similar situations since Kenya's BITs that define the term investment, provide the same broad definition of the term as that found in the Argentine-US BIT that was at issue in the aforementioned case.
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