1. Assume for the purposes of this question that all jurisdictions named in this question have arbitration legislation based on the UNCITRAL Model Law and are parties to the 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention" or "NYC").
2. Assume also for the purposes of this question that China and Mozambique are parties to the 1965 ICSID Convention; and that there has been a bilateral investment treaty ("BIT") in force between China and Mozambique since late 2014, containing all the usual investor protections, as well as obligations on the part of the investor to comply with local law with regard to environmental protections. The BIT also includes the option to arbitrate disputes at the choice of the investor under: the ICSID Rules of Procedure for Arbitration Proceedings (the "ICSID Arbitration Rules"); the ICSID Additional Facility Arbitration Rules (the "ICSID-AF Rules"); or the UNCITRAL Arbitration Rules.

You are legal adviser to the Mozambique Ministry of Infrastructure ("the Ministry"), which has entered into a contract with the Chinese-incorporated construction company China Build ("CB"), to build what will become Africa's longest suspension bridge connecting the capital Maputo to the peninsula south of Maputo. As part of the contract, CB will also build a road along the coastline from the bridge to the South African border. The Ministry entered into the contract with CB in 2017 and the bridge and coastal highway are nearing completion. The dispute resolution clause in the agreement refers future disputes to the courts of Maputo.

In late 2019, an accident during construction of the bridge caused spillage of polluting chemicals into the harbour of Maputo. CB has been unable to clean up the damage effectively and this has been criticized in the local press. Under pressure to resolve the spillage issue, the Ministry delayed payments due to CB under the terms of the contract. It also failed to renew a permit necessary to import building materials into Mozambique via the port of Maputo. As a result, CB has been forced to source building materials from neighbouring South Africa, transporting them to the building site at great expense. CB has complained to the Ministry about the failure to renew the permit, noting that Dutch investors working on a road construction project north of Maputo did receive the necessary import permit.

 

The late-2019 spillage incident strengthened opposition to the project by local environmental activists, who have been motivating for large parts of the area south of Maputo to be declared a conservation area and arguing that construction of the coastal highway should be halted. In early 2020, activists and local communities organized a protest blocking construction of the highway for several weeks. The Mozambican government (unwilling to be seen to be assisting a foreign investor criticized for having caused environmental damage) did nothing to remove the protestors or resolve the protest.

Questions:

1) Potential claims:

a) What possible claims might CB have in the above circumstances? What obstacles might CB face in pursuing these claims? Against which party and in which forum should they be brought? What, in your view, is the best course of action for CB to take, and why?

b) Would your answer to 1(a) be any different if Mozambique had withdrawn from the ICSID Convention and terminated all its BITs on 1 January 2019? Explain.

c) What possible counterclaims might the Mozambican government have against CB?

2) Assume that CB initiates arbitration under the UNCITRAL Arbitration Rules in July 2020.

a) What role, if any, might environmental activists be able to play in the proceedings?

b) How would the role of environmental activists be different if instead CB had initiated arbitration under the ICSID Arbitration Rules in July 2020?

c) Assume that both China and Mozambique acceded to the UN Convention on Transparency in Treaty-based Investor-State Arbitration (the "Mauritius Convention") in 2018 - how would this affect your answer to 2(a)? (5 marks)

3) Assume that despite your best efforts, CB succeeds in obtaining a successful decision against the Mozambican government in arbitral proceedings.

 

a) Assume that proceedings were conducted under the ICSID Arbitration Rules. Advise the government of Mozambique what remedies it might have against the award, and what, if anything it could do to resist enforcement of the award by CB.

 

b) Assume that instead the decision was obtained in proceedings under the ICSID Additional Facility Rules. Advise Mozambique what remedies it might have against the award and what, if anything, it could do to resist enforcement of the award by CB.

 

c) Advise the Mozambican government in both scenarios (a) and (b) whether it could effectively argue that enforcement of the arbitral award would be a violation of public policy. 

 

4) As a result of your hands-on experience with ISDS proceedings, you have become disillusioned with the current system of ISDS and think it should be reformed. Your government is a delegate to UNCITRAL Working Group III on ISDS reform. Briefly outline which reform solutions you would advise your government to support at Working Group III's next meeting, and why.

Answer rating: 100% (QA)

1 Potential claims a CB might have the following possible claims in the given circumstances Breach of contract due to the Ministrys delay in payments and failure to renew the necessary import permit V... View the full answer