In October 2001 the Attorney Gen of Pakistan received a call from the country's Secretary of Law asking about a certain body called ICSID & how it was possible for Pakistan to have been dragged before the body by a Swiss company by the name Société Générale de Surveillance (SGS).
The reason for the call was that the Pakistani Secretary of Law had received a letter from ICSID in Washington DC informing them that SGS had commenced arbitration proceedings against Pakistan in relation to a dispute arising from a contract which SGS had entered into Pakistan.
The claim by SGS against Pakistan was for more than $110 million and had been brought pursuant to a Bilateral Investment Treaty (BIT) entered into between the governments of Switzerland and Pakistan in 1995. The Treaty entered into force in 1996.
Under the BIT, Pakistan and Switzerland had contracted to provide certain guarantees & protections to each other's investors and investments in their respective territory. In particular the BIT enabled an investor whose right had been breached to approach ICSID for resolution.
ICSID is abbreviation for a World Bank institution called the International Centre for the Settlement of Investment Disputes, which is based in Washington and which had been created by a multilateral Convention entered into in 1965.
The Pakistani Attorney General who was at this time one of the most notable international public and commercial law experts in Pakistan told the Secretary of Law the honest truth, that he knew nothing about both ICSID and BITs in general. He promised to get back to the Secretary.
After hanging up, the Attorney General turned to Google and typed in two questions: "What is ICSID?" and "What is a BIT?" That is how he learnt about these two concepts for the first time.
By the time the Attorney General digested the search results he realised there was fire on the mountain. To make matters worse, the Attorney General then tried to find out more about the BIT which his country has signed with Switzerland. Guess what?
There were no files, documents or any trace of any negotiations having taken with Switzerland. Worse still no one could find a copy of the Treaty in the entire country. Pakistan had to request a copy from Switzerland through diplomatic channels.
To the Attorney General's shock, Pakistan had in fact entered into several other BITs with different countries with provisions having far reaching implications. Yet just like the BIT with Switzerland, there were no records of the negotiations with those countries.
Like many developing countries including Nigeria, these BITs had been signed after limited negotiations and
very little thought about the implications of the provisions. The BITs were typically signed as part of activities during bilateral visits. They had now come back to bite.
very little thought about the implications of the provisions. The BITs were typically signed as part of activities during bilateral visits. They had now come back to bite.
Thus it was only after multimillion or even billion dollar claims had been brought by investors against these developing countries that they realised the far reaching implications of the treaties that they entered into.
The Pakistani story [which is a true story] and the bulk of the contents of this thread were drawn from the most impactful book I read in 2019, 'Bounded Rationality and Economic Diplomacy - The Politics of Investment Treaties in Developing Countries' by Lauge Poulsen. 
Between now & midnight I will share how, just like Pakistan, African countries including our beloved Nigeria signed bilateral trade agreements with their developed counterparts with little or no regard to the consequences. In the end I will suggest how we can do better.
It is difficult to discuss the international system for the settlement of disputes between sovereign States and private investors without being technical but I will try the best I can not to overburden you with legalese and history.
Suffice it to note that the system is relatively modern. It was developed to give foreign investors a 'neutral' avenue whereby they could bring their claims against sovereign States. However developing countries were told that signing BITs will guarantee them increased FDI.
In the name of attracting foreign investments developing countries started what looked like a competition on who would sign the highest number of BITs. Between 1990 and 2016, Nigeria signed 30 of these BITs. Other African countries signed as well. But what did they really sign?
1. The BITs contained the right of investors to compensation for a wide range of regulatory conduct by countries e.g. for direct or indirect expropriation and for any measures having the same nature or effect. What this truly meant was vague and liable to any interpretation.
2. Nigeria and others guaranteed to these investors the right to security of their investments such that if due to war, armed conflict, terrorism etc the investors lost their Investments, in whole or in part, Nigeria was liable to paying compensation to them.
3. Nigeria and others promised to accord the investors a fair and equitable treatment which basically meant that Nigeria could not alter the legal framework in place at the time when the investor decided to invest. A change of law which altered the investor's economic position...
... rendered Nigeria liable to paying compensation to these investors for a breach of the fair and equitable treatment standard.
To be fair a number of exceptions have now been recognised by ISDS Tribunals in the course of their interpretation of the BITs.
To be fair a number of exceptions have now been recognised by ISDS Tribunals in the course of their interpretation of the BITs.
4. Nigeria and others guaranteed to these investors that they won't treat them any less than the standard of treatment given to a third country. E.g. if Nigeria gave any treatment to a Ghanaian investor which wasn't available to a British investor = breach + compensation.
5. Above all, Nigeria and others were obliged under the BITs to treat investors from the counterparty country e.g. in the same way as Nigerian investors. A breach of this undertaking also rendered Nigeria liable to paying compensation.
In case there is any doubt about the amount of compensation we are taking about here, Investment tribunals have been known to award billions of dollars as compensation. In Yukos v Russian Federation the amount awarded as compensation was around $50 billion.
Let me explain the implications of the provisions we were signing especially the national treatment protection I mentioned above as No 5.
Recall that at the end of Apartheid in South Africa in 1994, there was need to redistribute wealth/land to the black population. Everyone agreed it was necessary. Indeed it was enshrined in their constitution. Yet in the name of attracting FDIs, SA signed BITs with national...
... treatment provisions which meant that a foreign investor could bring a claim against the SA Govt for compensation for a policy which was clearly designed for the benefit of the historically disadvantaged population but which breached the BIT's national treatment provision.
Indeed this resulted in compensation claim against South Africa to the tune of over $250 million. SA Govt was so pissed that they ultimately withdrew from BITs except with African countries. But things won't have got to that stage if only they critically studied before signing.
A simple analogy was Canada who expressed in their BITs that the national treatment provision did not apply to any preferential treatment or measures provided to Canadian aboriginal people. So Canada wasn't liable to paying compensation for such. I know I am losing you.
Let me give an example that's closer to home. Nigeria will be held to have breached the national treatment provisions in her BITs if she gives any special treatment to a Niger Delta investor because that would be deemed a better treatment than that given to a UK investor. Why?
Because in negotiating our BITs Nigeria did not carve out the exception like Canada did. Why? Lauge Poulsen argues that Nigerian negotiators did not know what implications those provisions they were accepting truly meant. If it is any consolation, it wasn't just Nigeria.
Granada entered into a BIT with the US in 1985, 2 years after the US invaded them. The BIT negotiations were concluded after one hour of discussions with the Granadian Prime Minister while he was receiving medical treatment in a Washington DC hospital.
During the negotiations for a UK - BIT, the Egyptian legal adviser did not know the difference between incorporation and amalgamation or merger. The UK had to tell Singaporean negotiators the effect of one of the provisions they wanted to include which was adverse to Singapore.
The British also had to basically teach their South Korean counterparts during the negotiation for their BIT in a process that could easily have passed for a training session. The same applied to Indonesia and Malaysia. Note however that this was during the 1980s.
For Nigeria, Poulsen writes that we mainly hust signed off whatever our European counterparts presented to us and copy-pasted them into Nigerian BITs. Even after other countries began to be hit with massive adverse awards and learnt their lessons, Nigeria didn't learn from them.
To be fair there has been a massive improvement in the quality of BITs entered into in the last decade or two. Indeed the Morocca - Nigeria BIT entered into in 2016 has been hailed as one of the most progressive BITs anywhere.
But another BIT signed by Nigeria in that same year was not that progressive and contains one of the most annoying provisions you will come across in the BIT world. The Nigeria UAE BIT 2016.
Nigerian negotiators agreed and Nigeria signed an agreement that says that where a dispute arises between an Emirati investor and Nigeria, both parties should try and settle it by negotiation within 3 months, failing which the investor is free to commence ICSID arbitration...
... but where a dispute arises between the UAE and a Nigerian investor, and the parties fail to settle it by negotiation within 3 months, such dispute must first be submitted to a court in the UAE for 6 months before the Nigerian investor can have recourse to ICSID arbitration.
It is gratifying to note that Nigeria now has a dedicated office for trade negotiations in Abuja. If it is not the case already, it is advised that this office, staffed by experts, be exclusively responsible for the first round of negotiations for Nigeria's BIT.
It is also instructive that Nigeria has not signed a new BIT since December 2016. It is hoped that we have or arw using this period to holistically review our BIT policy and possibly renegotiate the old generation BITs. We now know better than we did in the 1990s.
One other key thing we should seriously consider is the need to enact a proper Investment Act. Everyone in the know agrees that the NIPC Act is no longer fit for purpose, if it ever was.
Thanks for coming to my TED talk. Sorry I had to pause to play FIFA with the lads 😬. For more on this, a copy of my LLM Dissertation which dealt with this issue in detail is freely available on my LinkedIn page. Good morning.
