Arbitration disputes

Zimbabwe: update on disputes under the Chinese, Dutch and Swiss investment treaties

Investment Arbitration Reporter

Mar 08, 2016 | by Luke Eric Peterson and Zoe Williams

Apart from a pair of land expropriation cases that are currently wending through the ICSID annulment process – and whose previously-confidential arbitral awards were discussed in great detail here – the government of Zimbabwe is also facing other foreign investment disputes.

As we note below, at least one Chinese investor is invoking international treaty rights in relation to mining assets in the country. Meanwhile, we also offer a brief update – confirming that no request for arbitration has yet been lodged – in relation to an ongoing dispute where foreign telecoms investors had earlier notified Zimbabwe of disputes under the Swiss and Dutch treaties.

Chinese investor in diamond venture invokes BIT rights in domestic legal action

A Chinese-owned diamond mining company operating in Zimbabwe has reportedly invoked its rights under the China-Zimbabwe Agreement on the Encouragement and Reciprocal Protection of Investments in the course of a domestic court case brought against the government on March 2, 2016.

On February 22 2016, Zimbabwe’s minister of Mines and Mining Development, Walter Chidhakwa, announced that seven foreign-owned diamond mines were ordered to cease operations in the Marange diamond field. The companies had been operating in joint-ventures with the state-owned Zimbabwe Mining Development Corporation (ZMDC), but the government alleged that they had let their licences expire and were operating without authorization. Mr. Chidhakwa emphasized that the government was not engaged in expropriation, as any mining concession “vests in the state,” and investors were encouraged to remove their equipment and other assets from the sites. The government plans for all mining operations in the Marange area to be run by the recently formed state-owned Zimbabwe Consolidated Diamond Company (ZCDC).

Chinese-owned Anjin Investments (Pvt.) Ltd. has filed an application at the Zimbabwe High Court, reportedly arguing that its eviction from the Marange fields violates the investment agreement signed between China and Zimbabwe which prohibits expropriation without compensation. The company additionally noted, employing language that recalls arbitral proceedings, that its decision to invest in Zimbabwe was based on representations made by the government which encouraged the expectation its mining concession would remain valid for the duration of its operational life. A second company, Mauritian-owned Mbada Diamonds (Pvt.) Ltd. also challenged the decision in domestic courts last week.

Both China and Mauritius have signed investment treaties with Zimbabwe according to data compiled by UNCTAD, although UNCTAD also reports that the Mauritius treaty appears not to have been ratified. However, recourse to domestic court cases may be seen as the less politically divisive, and cheaper, option at this early stage in the conflict. There is some precedent for invoking investment treaty protections in domestic court cases in Southern Africa, including disputes related to land expropriation. For example, in Kessel v. Namibia, German landowners attempted to challenge the Namibian government’s program of land reform on the basis that it violated the Germany-Namibia BIT by targeting foreign-owned farms.

It is unclear whether the possibility exists for the other investors in the Marange fields to invoke treaty rights against the Zimbabwe government. The companies affected by this measure are owned by South African, Russian, Ghanaian and Dubai-based investors. UNCTAD lists Zimbabwe’s BITs with South Africa and Ghana as not in force, and it does not appear to have signed investment agreements with Russia or the UAE.

Zimbabwe’s move to nationalize the diamond fields takes place in the context of falling mining revenues. The government had earlier proposed that the companies operating in the Marange field merge, and allow the government a 50% stake in the new operation. This proposal was rejected by the companies whose licences have since been declared expired.

Update on dispute over telecoms indigenisation

As we reported last year, a foreign investor Global Telecom Holdings had put Zimbabwe on notice of a potential claim arising out of the government’s pressing the GTH’s local subsidiary to acquiesce to cede a majority of the company to local ownership interests under the country’s so-called indigenisation policies. GTH had reportedly agreed to cede a minority interest, but frictions centered on demands by authorities for a larger, majority stake.

We’ve confirmed independently that notices of dispute were indeed filed – as had been reported last year by local media – under the Swiss and Dutch treaties.

However, to date, we’ve also confirmed that there have been no arbitration requests filed in relation to the dispute, with the relevant parties apparently continuing to talk about the dispute