New resource to help Commonwealth countries avoid foreign investment pitfalls

An important resource to help countries maximise the sustainable development benefits from foreign investment contracts and avoid large losses has been published by the Commonwealth Secretariat.

The new guide focuses on environmental, social and economic development matters to achieve the most gains and minimise the costs to government and citizens.

It is designed to sit on the desks of all government lawyers in the Commonwealth and anyone else involved in negotiating, drafting or reviewing contracts for large-scale projects.

There is recognition that sound investment contracts between foreign investors and host states can help countries meet the Sustainable Development Goals (SDGs), and ensure valuable benefits for society and the environment.

But many investment relationships lack fairness and balance, which can create poor outcomes for governments and communities, trigger disputes and lead to financial loss shouldered by the people in the host state.

Launch of the new Commonwealth guide

The Commonwealth guide sets out how these positive benefits can be achieved and the damaging consequences avoided.

Co-author Motoko Aizawa, President of the Observatory for Sustainable Infrastructure, thanked the Commonwealth Secretariat for having the foresight to champion this publication.

Speaking at a webinar to launch the guide, she said: “One of the things that really surprised us is how little there is out there on this topic. Whether we’re talking about practical guidance, or academic or empirical studies, we found very little on this topic and so we hope that this resource can be helpful to everybody.”

The resource includes guidance on climate change provision and incorporating human rights obligations – two areas the authors were surprised to see no mention of when they looked at around 120 contracts spanning 30 countries during their research.

Motoko Aizawa added: “I think that tells us something about what might be needed going forward.”

Co-author Howard Mann, an international lawyer specialising in international investment law and sustainable development, spoke on the importance of prioritising domestic laws in relationships between states and investors.

He said: “What we see in many cases is investment contracts essentially declaring that they prevail over any contrary domestic law. It’s absolutely critical that the governing law of the host state be the law of the contract.

“Otherwise you end up in a negotiation that essentially creates a bespoke legal regime for each investment and that is really the antithesis of any notion of the rule of law applying equally to all investors and businesses.”

Tafadzwa Pasipanodya, a lawyer who advises sovereign states on resolution of disputes arising out of investment contracts, said: “I can definitely attest to the fact that incorporation of some of these provisions and considerations in the book, in certain investment contracts that I have come across, could have saved states expensive arbitrations and tough losses.”

Office for Criminal and Civil Justice Reform (OCCJR)

The project to create this new guide began in 2019 after consultation with Commonwealth government lawyers highlighted the need for such a resource.

It was led by the Commonwealth Secretariat’s Office for Criminal and Civil Justice Reform (OCCJR).

Francisca Pretorius, Adviser and Head of the OCCJR, said: “A comprehensive treatment of environmental, social and economic development aspects in investment contracts is necessary to help the contracting parties achieve a relationship that minimises harm and maximises benefits to the host state, people and the environment.”

Matthew Moorhead, Legal Adviser in OCCJR and the person who spearheaded the project, said: “This is an important and sorely-needed resource that we want to ensure is on the desk of every government lawyer in the Commonwealth who needs it.”

Watch the full webinar