OUTLAWED FOREIGN FORAS: THE CONUNDRUM OVER TANZANIA’S INTERNATIONAL INVESTOR DISPUTES RESOLUTION SYSTEM
By Madeline Kimei
The extractives sector’s contribution to foreign direct investment (FDI) in Tanzania has continued to increase since 2017 partly due to radical changes in extractive industry policies, rules and regulations, strategies that plugged the loopholes that hindered the flow of benefits outside of the natural endowments to the country’s citizenry. From 2017, the Tanzanian legislature introduced new laws which outlawed international arbitration in disputes arising from the natural resources or public-private partnerships (PPPs). This came as no surprise during the 5th Phase Government under the rule of Magufuli who was keen about resource nationalization and transparency in Tanzania’s extractive industry. Indeed “resource nationalism” is a popular concept generally used to refer to moves by producer countries to gain greater control of their country’s resources.
The origin of this pushback by the Government of Tanzania (Government) against investor state dispute resolution (ISDS) can be traced back to an unfavourable decision resulting from an investor-state arbitration on the part of the Government. In 2019, the Government received an adverse ICSID Award amounting to $189 billion in favour of Standard Chartered Bank (Hong Kong) for breaching an energy contract of which enjoyed the automatic recognition under the Convention.
Since then, Tanzania became one of the notable African nations to move away from the well-established system of the international investor-state dispute resolution system specifically where such disputes arose from the extractives sector.
These efforts were seen as premature considering that Tanzania was a party to the 1965 International Convention on Settlement of Investment Disputes (ICSID Convention) since 17 June 1992 and the 1927 Geneva Convention on the Execution of Arbitral Awards and its successor, the New York Convention, and the same was enshrined in its national laws. Specifically, Section 23 of the Tanzania Investment Act of 1997 (TIA) domesticated most of the principles in the international regime of international settlement of disputes system. Notably, it has also signed the Convention on Multilateral Investment Guarantee Agency (MIGA).
Tanzania does not have a model BIT that accommodates the policy direction and treatment and has entered 20 BITs with only 12 enforceable and 8 signed but are yet to be enforced. These have triggered 12 different investor-state arbitration proceedings instituted by foreign investors against Tanzania .
Efforts to terminate BITs
In September 2018, Tanzania served a notice of termination in respect of its BIT with Netherlands, thus ensuring that the investment treaty would terminate on 1 April 2019. Pursuant to Article 14 of the BIT, the treaty entered into force for a period of 15 years, and thereafter for consecutive 10-year periods, unless terminated by 6 months’ notice before the date of expiry. By signing BITs, Tanzania has agreed to subject itself to an investor – state arbitration regime, a fundamental cornerstone of which subjects signatories to BITs to enforcement steps in foreign countries. Tanzania is still a party to existing BITs, as the new legislation has not removed the right to international arbitration under the preexisting treaties.
The Natural Wealth and Resources Contracts (Review and Re- negotiation of Unconscionable Terms) Act, 2017 provides that an “unconscionable term” is “any term in the arrangement or agreement on natural wealth and resources which is contrary to good conscience and the enforceability of which jeopardises or is like to jeopardise the interests of the People of the United Republic”. Section 6(2)(i) provides that terms of an arrangement or agreement shall be deemed to be unconscionable and treated as such if it contains “any provision subjecting the State to the jurisdiction of foreign laws and fora”.
The preamble to the Permanent Sovereignty Act 2017 recognizes “the right to assert permanent sovereign right for the purpose of exploring, exploiting and managing is natural resources” and that as a state, Tanzania has “permanent sovereignty over all natural wealth and resources“. Section 3 defines “national jurisdiction” means the authority of judicial system in Tanzania to administer justice over things and persons within Tanzania. Furthermore, Section 11 of this Act states that “permanent sovereignty over natural wealth and resources shall not be a subject of proceedings in any foreign court or tribunal”. And that
“disputes arising from extraction, exploitation or acquisition and use of natural wealth and resources shall be adjudicated by judicial bodies or other organs established in the United Republic and in accordance with laws of Tanzania”. Further requiring that “for the purpose of implementation … judicial bodies or other bodies established in the United Republic and application of laws of Tanzania shall be acknowledged and incorporated in any arrangement or agreement”. The limitation of state powers to regulate has been a controversial subject in the international investment dispute system reform discussion. Tanzania has made a complete 360 by successfully establishing a new framework for disputes resolution in the extractives and public private partnerships arrangements. The intervention by the Government in the form of regulations aims to balance the requirements of investors and the need to ensure that investments make a positive contribution to the sustainable development of the host state.
The Public-Private Partnership policy is recognized as an important instrument for the Government to attract private investment with intentions of providing public services. Section 22 of the Public Private Partnership Act R.E.2017 (“PPP Act”) provides that “any dispute arising during the course of the agreement shall- (a)be resolved through negotiation; or (b)in the case of mediation or arbitration, be adjudicated by judicial bodies or other organs established in the United Republic and in accordance with laws of Tanzania.” The rationale of such amendment is to ensure that the Government is not subject to foreign adjudication forums. As a result, existing PPP arrangement are subjected to review to align with Section 22, including those arrangement which fall in the extractive industry. There is an aspect of enforceability as there is a requirement that the contract be revised in accordance with the new law, for the contract to be enforceable.. This is because this law does not operate retrospectively.
Because of this uncertainty, there have been various hurdles such as those experienced during the construction project of the Ministry of Finance in the government city of Dodoma. At the early stages of construction the design of the building was not taken into account as per the requirement provided. The parties therefore revisited the contract in order for the respective Ministry to avoid contractual disputes that may arise during the execution of such contract which provided for foreign fora for adjudication of disputes.
There was an impact on pending international arbitration proceedings because of Section 22 of the PPP Act meant that the existing Agreements needed to comply with the new requirements of the law to reduce the risk of challenge of the arbitral award arising out of those proceedings by agreeing to amend the seat of the proceedings and the governing law to be Tanzanian.
The new requirement of the PPPs provides if parties do not amicably resolve their dispute within 30 days either party may refer their dispute to a mediator. If parties do not solve their dispute through mediation, then within 60 days from the date the dispute was referred to the Tanzanian mediator, a party may issue a notice of arbitration to another and submit the dispute to arbitration, whereby Arbitration shall be conducted in accordance with the Rules of Arbitration of National Construction Council (NCC).
Despite various amendments and revisions to the current Public Private Partnership (Amendment) Act and Regulations, there are still gaps and areas that need to be improved on to create a solid basis on which the PPP regime can be developed.
The New Arbitration Act
The Tanzania Arbitration Act, 2020 was passed by Parliament on 21 February 2020 and came into operation on 18 January 2021. The Arbitration Act governs all arbitrations both domestic and international. The Act provided for miscellaneous amendments under Part XIII, Sections 100 and Section 102 amending sections 11 and 22 of the Permanent Sovereignty Act, 2017 and the PPP Act, 2018 respectively by removing the word “established” from sections 11 appearing in subsection (2) and (3) and section 22 as the word appears in paragraph (b). The deletion of the words “established” meant that the judicial bodies or other organs would no longer have to be in permanent existence in Tanzania. This would create a much more conducive legislative framework for investment disputes resolution. The previous position made it mandatory for investors to agree to dispute resolution clauses that provided for both the seat and venue to be in Tanzania.
The Arbitration Act, Cap 15 underwent revision immediately after its enactment up to 30 April 2020 and such revised law was enacted on 30 December 2020 and is the one currently in force. The Cap 15 R.E. 2020 has however entirely omitted Part XIII of its forerunner enactment and has therefore deleted the abovementioned section 100 and 102 entirely from the Act. This has sparked debates as there is now uncertainty as to the position. It is unknown as to whether the initial intention of the legislature to remove the word “established” is still the position as it is no longer contained in the revised edition of the Arbitration Act.
The uncertainty is amplified by the fact that Section 6 (2) (i) of the Unconscionable Terms Act, 2017 has not been amended. This means in the case of an international arbitration falling under its ambits such proceedings are to be adjudicated by judicial bodies or tribunals “established” in Tanzania and in accordance with the laws of Tanzania.
These changes affected pending arbitrations and arbitral awards due to its retrospective application and triggered uncertainty amongst investors on the appropriate means to resolve disputes, such as the effect of the seat of arbitration and arbitral institutions accommodative of the regime. There are only two notable existing arbitral institutions which clearly did not have the rigor infrastructural capacity to administer an international investment arbitration. Another looming hurdle is the mandatory accreditation of arbitrators requirement (both local or foreign) in pending or potential arbitrations seated in Tanzania.
Notwithstanding the provisions enacted prohibiting disputes in foreign tribunals, Tanzania has still witnessed investors continue to refer investor-state disputes arising from these affected sectors to arbitration by triggering BITs currently in force, totaling 6 cases in early 2018 with the most being extractive industry-based disputes. The reaction to these cases under the previous regime was non-appearance of representation for Tanzania. However, as the cases progress the Government’s attention has been realized, with the changing wind of the 6th Phase Government and defence teams headed by the Attorney General now appear in these external foras.
By abolishing the investor-state dispute mechanism in foreign tribunals, investors should consider carefully how their investment is structured, and keep appraised of developments further to the Unconscionable Terms and be mindful in assessing and putting measures to reduce the risks associated with such limitations.
 Madeline Kimei is the Principal Director at iResolve™ an arbitration and corporate law practice. She is an Advocate of the High Court of Tanzania, arbitration counsel and acts as an arbitrator, adjudicator and or commercial mediator. She is the current President of the Tanzania Institute of Arbitrators (TIArb) and member of the ICC International Court of Arbitration, a member of the ICC Africa Commission and an ex-officio member of the ICC Commission on Arbitration and ADR.
 During 2016 to 2019, the growth of mining sector has averaged 8% and its contribution to GDP has increased from 4.6% in 2015/16 to 5.9% in 2019/20 – Tanzania’s National 5 Year Development Plan -FYDP III – 2021/22 – 2025/26.
 Earlier in 2017, we observed the saga around the operations of Acacia where a Tanzania citizen alleged that Acacia has broken environmental laws. There were also allegations of unpaid taxes, interest, and penalties for alleged under-declared export revenues and tax liabilities dating back to 2016. The Tax Revenue Appeals Tribunal upheld the assessment issued by the tax authorities for a tax bill amounting to about $ 190 billion [Bulyanhulu Gold Mine & Pangea Minerals (“Acacia Mining”) v. Tanzania – Notice of Arbitration dated 4 July 2017
 ICSID Case No. ARB/15/41 accessible here http://icsidfiles.worldbank.org/icsid/ICSIDBLOBS/OnlineAwards/C4926/DS12957_En.pdf
 The New York Convention on the Recognition and Enforcement of International Arbitral Awards 1958
 Section 23 reads: “23 (1) Where a dispute arises between a foreign investor and the Centre or the Government in respect of a business enterprise, all efforts shall be made to settle the dispute through negotiations for an amicable settlement. (2) A dispute between a foreign investor and the Centre or the Government in respect of a business enterprise which is not settled through negotiations may be submitted to arbitration in accordance with any of the following methods as may be mutually agreed by the parties, that is to say – (a) in accordance with arbitration laws of Tanzania for investors; in accordance with the rules of procedure for arbitration of the International Centre for the Settlement of Investment Disputes (ICSID) and (c) within the framework of any bilateral or multilateral agreement on investment protection agreed to by the Government of the United Republic and the Government of the United Republic and the Government of the Country the investor originates.”
 In commencing these proceedings, the investors respectively invoked a contract, the UK – Tanzania BIT of 1994 -7 and the Sweden –Tanzania BIT of 1999 and notably 2 cases have been concluded and there are also annulment proceedings of the SCB (Hong Kong) Limited v. TANESCO.
 Sunlodges case https://jusmundi.com/en/document/decision/en-sunlodges-ltd-and-sunlodges-t-limited-v-the-united-republic-of-tanzania-order-of-the-ontario-superior-court-of-justice-tuesday-10th-november-2020
 For instance, existing investors may consider bringing an arbitral claim to preclude the Tanzanian government from renegotiating or dissolving an existing mining agreement, or bring an arbitration claim to recover damages after the Tanzanian government has renegotiated an agreement and increased taxes on the investment.
 Section 3 of the Natural Wealth and Resources Contracts (Review and Re- negotiation of Unconscionable Terms) Act, 2017
 Natural Wealth and Resources Contracts (Review and Re- negotiation of Unconscionable Terms) Act, 2017
 Despite these drastic shifts in policy, Tanzania is ranked 141 among 190 economies in the Ease of Doing Business report. According to the latest World Bank annual ratings, Tanzania’s rank shows an improvement from 144 in 2019. The legislative changes that took place in 2017 and 2018 have not had any substantial impact on the FDI. Notably, the retreat from the investment treaties was to align to the new policy adopted and legislations enacted however the move to terminate has not gone further than the Netherlands BIT.
 Cap 103 R.E. 2019 available here https://mof.go.tz/docs/news/PPP%20ACT%20RE%202018.pdf
 Section 16 of the PPP Amendment, 2018 amends by adding Section 25A, “The public private partnership project that relates to natural wealth and resources shall take into account the provisions of the Natural Wealth and Resources (Permanent Sovereignty) Act and the Natural Wealth and Resources Contracts (Review and Re-Negotiation of Unconscionable Terms) Act.”
 Another example was the contract for the project of the refurbishment of the Mwalimu Nyerere Pension’s Tower for the proposed Apollo Clinic which included a dispute resolution clause that contradicted with these new requirements and whereby the provision was that in case a dispute fails to be settled amicably it was to be referred to the Dubai International Arbitration Centre (DIAC).
 Available on www.mondaq.com; Public Private Partnership (Amendment) Act 2018; Annual Performance Evaluation Report Financial Year 2019/2020; Annual Performance Evaluation Report Financial Year 2020/2021
 Cap 15 2020
 Government Notice No. 101 of 15 January 2021
 Section 96 (2) of the Arbitration Act Cap 15 R.E.2020 which reads “Anything done or concluded and the repealed Act or regulations shall be deemed to have been done or concluded under this Act”.
 Tanzania Institute of Arbitrators (www.tiarb.or.tz) and the National Construction Council (https://www.ncc.go.tz). On the positive side, by encouraging resort to national judicial or tribunals (with state-state dispute mechanisms remaining available) could enhance existing legal institutions in unanticipated ways.
 The Reconciliation, Negotiation, Mediation and Arbitration (Practitioners Accreditation), G.N. 147 published on 29 January 2021
Montero Mining and Exploration Ltd v. United Republic of Tanzania; Nachingwea U.K. Limited (UK), Ntaka Nickel Holdings Limited (UK) and Nachingwea Nickel Limited (Tanzania) v. United Republic of Tanzania; Winshear Gold Corp. v. United Republic of Tanzania; Richard N. Westbury, Paul D. Hinks and Symbion Power Tanzania Limited v. United Republic of Tanzania Ayoub-Farid Michel Saab v. United Republic of Tanzania, ICSID Case No. ARB/19/8 (pending) (treaty dispute); Sunlodges Ltd (BVI), 2. Sunlodges (T) Limited (Tanzania) v. The United Republic of Tanzaniaand EcoDevelopment in Europe AB and EcoEnergy Africa AB v. United Republic of Tanzania ICSID Case No. ARB/17/33 (pending) (treaty dispute).