The BIT is not in force: Mozambique prevails on jurisdiction in case against South African investor

Oded Besserglik v. Mozambique, ICSID Case No. ARB(AF)/14/2

On October 28, 2019, a tribunal constituted under the ICSID Additional Facility dismissed the claims brought by Oded Besserglik (OB), a national of South Africa, against Mozambique on the grounds that the South Africa–Mozambique BIT never entered into force.

Background

In the late 1990s, OB and a business partner purchased shares in Natal Ocean Trawling (NOT), a South African company having an ongoing partnership for the fishing of prawns with Mozambican state-owned enterprises Emopesca and its subsidiary Sulpesca. NOT then purchased 40% of Sulpesca’s shares against a consideration payable in instalments. NOT regularly paid two of the instalments due, with the remaining amount being guaranteed by a lien on the fishing vessels owned by OB and used by Sulpesca for the performance of fishing activities.

Following the fishing vessels’ hijacking by one of NOT’s managers and the persistent lack of payment of the consideration for the purchase of Sulpesca’s shares, Emopesca first obtained a judicial seizure of the vessels. It subsequently proceeded to transfer Sulpesca’s shares—including those sold to NOT but never fully paid for—to a third company. As a consequence, OB commenced arbitration against Mozambique, claiming that the latter unlawfully expropriated the vessels and NOT’s shares in Sulpesca and failed to afford OB FET and full protection and security.

Tribunal evaluates the timeliness of the jurisdictional objection

As a preliminary matter, the tribunal ruled on the admissibility of Mozambique’s jurisdictional objection, based on the allegation that the BIT on which OB’s claims rested never entered into force. The tribunal noted that Article 45(2) of the Additional Facility Rules sets out a clear obligation to file objections without delay and, as far as possible, immediately after the constitution of the tribunal. It is only when the objection rests on facts that were unknown at this time that the party may file the objection at a later stage, and in any case no later than the time limit set for the submission of the counter-memorial. The tribunal noted that the latter represents the “outer limit” for raising a jurisdictional objection and cannot be subject to further extensions (para. 267).

In this case, Mozambique filed the jurisdictional objection three years after the constitution of the tribunal, well after the time limit under Article 45(2). Moreover, the tribunal stated that it was impossible for Mozambique not to have reasonably known that the BIT was not in force already at the time of the constitution of the tribunal, given that a simple examination of its own records would have sufficed to gain such knowledge. Thus, the tribunal held that Mozambique failed to meet the time limits set under Article 45(2) for the filing of the jurisdictional objection.

Regardless of the delay, the tribunal must rule on its own competence

Despite Mozambique’s delay in filing the jurisdictional objection, the tribunal ultimately held that it had the obligation to independently consider its jurisdiction pursuant to Article 45(3) of the Additional Facility Rules. Indeed, since the objection concerned the BIT’s lack of entry into force, it affected the very possibility of initiating arbitration, as it signalled the potential nonexistence of Mozambique’s consent to arbitrate. Hence, the tribunal could not refuse to consider an objection of such a fundamental nature once it had been brought to its attention.

The tribunal also noted that, while Article 45(3) states that it “may” on its own initiative decide if the dispute is within its own competence, the use of this verb only grants the power to consider issues of competence even if not raised by the parties. However, according to the tribunal, it does not give it power to disregard issues of competence merely because the relevant objection was raised too late.

To determine whether there was consent to arbitration, the tribunal looks at the BIT’s entry into force

The tribunal then examined the four elements advanced by Mozambique to prove that the BIT was not in force. First, it analyzed the allegation that the procedure for entry into force set out under BIT Article 12 was never completed. This article required not only the treaty’s ratification but also a notification from each party to the other that their own internal ratification processes had been completed. In this sense, ratification was only “a step toward the entering into force of the BIT” (para. 341). Since the evidence provided by OB could not conclusively demonstrate that the notification required under BIT Article 12 was ever provided by either Mozambique or South Africa, the tribunal could not conclude that the BIT was in force.

This conclusion was further validated by Mozambique’s second argument, concerning an exchange of diplomatic notes between Mozambique and South Africa whereby both states confirmed that the BIT was indeed not in force. Taken together, these two elements were deemed conclusive on the matter. Thus, the tribunal did not need to examine Mozambique’s third and fourth allegations, relating to, respectively, the circumstances that South Africa never completed the BIT’s internal ratification process of the BIT and that the BIT was never registered with the UN Secretariat under Article 102 of the UN Charter.

The finding that the BIT never entered into force meant that the two bases of jurisdiction grounding OB’s claims, one being the BIT itself and the other being Mozambique’s Investment Law, did not exist. Indeed, the Investment Law required the parties’ express agreement to submit the dispute to arbitration. However, OB identified such express agreement in the BIT itself, thus also linking the claims brought under the Investment Law to the BIT’s entry into force.

Claimant’s last plea for estoppel is also dismissed

Lastly, the tribunal examined OB’s argument that, even if the BIT was not in force, Mozambique should be estopped from raising this circumstance in light of Mozambique’s representations to foreign investors that the BIT was indeed in force. In other words, according to OB, the tribunal should have found that Mozambique implicitly consented to jurisdiction through its words, conduct or silence.

The tribunal, however, held that the requirements under BIT Article 12 could not be presumed met by invoking the doctrine of estoppel, as a treaty’s entry into force was purely a matter of law. Moreover, it clarified that to apply the doctrine of estoppel, OB would have needed to show that it had relied in good faith on Mozambique’s representations prior to the making of the investment, but no such proof was ever provided to the tribunal.

Based on the above, the tribunal dismissed the case on the basis of lack of jurisdiction. It further held that each party was to bear its own legal costs, while administrative costs of the proceeding (USD 489,929.26 USD) were to be shared equally.

Notes: The tribunal was composed of Makhdoom Ali Khan (president appointed by the Chairman of ICSID’s Administrative Council, Pakistani national), L. Yves Fortier (claimant’s appointee, Canadian national) and Claus von Wobeser (respondent’s appointee, Mexican national). The award is available at https://www.italaw.com/cases/7663

Alessandra Mistura is a Ph.D. Candidate in International Law at the Graduate Institute of Geneva.