This issue explores the mining industry and presents a goldmine of information based on data available on Jus Mundi and Jus Connect as of February 2023. Discover updated insights into mining arbitration and exclusive statistics & rankings, as well as in-depth global and regional perspectives on mining projects, disputes, & arbitration from leading lawyers, arbitrators, experts, and in-house counsel.
Jonathan Ripley-Evans, Partner at Herbert Smith Freehills
Mining operations produce complex problems requiring specialist and at times, tailor-made solutions. Disputes which are not properly resolved present a major risk to the sustainability of a mining project.
It is no surprise that arbitration quickly emerged as the obvious choice for dispute resolution within the mining sector, particularly for international disputes. But it is becoming clear that arbitration is not the panacea for all disputes arising out of a mining project.
Arbitration was designed to provide an efficient, independent and neutral form of dispute resolution. In the West, its origins lie with merchants practicing international trade. Importantly, it was those initial users of arbitration that contributed, on an equal footing to the development of Western arbitration.
Western arbitration was later introduced, as a final product, into other jurisdictions which created a perception of the process having been «imposed». That is not to suggest that there is deficiency in the process; but it is important to understand the historical context of arbitration in Africa in order to understand why buy-in and thus the legitimacy of the Western arbitral system process is open to challenge in the region.
In some senses, this position is similar to that of civil litigation on the African continent. Civil litigation is available in almost every African jurisdiction, but faces legitimacy challenges because it was imported from, or imposed by, foreign «developed» nations. The process of civil litigation was not designed to suit the needs and context of the African region. This does not mean that the needs of the region cannot be met through a suitably adapted model of civil litigation; it simply means that, as things stand, the process was adopted without contribution to its design from local stakeholders.
The adoption of Western arbitration in Africa occurred under somewhat different circumstances and at a later point in history compared to civil litigation (which was often directly imposed by colonial powers). Nevertheless it also suffers from a similar legitimacy challenge because of its ties to colonial powers and the lack of African input in its development, notwithstanding the fact that the practice is not entirely foreign to African society where early forms of arbitration were integral to many African communities long before the colonial era.
This background then leads to one of the biggest challenges to mining projects in Africa – cultural tension. This tension manifests in disputes with governments and with communities in regions surrounding mining developments. In both instances there is often a lack of agreement on the appropriate procedure for the resolution of disputes. This tension is not unique to Africa, but it is certainly evident across the continent.
Government Disputes and Arbitration
In South Africa, the Foresti case presented as a symptom of the underlying problem. The key issue was the South African government’s right to enact a local law aimed at addressing inequality caused by the policies of the Apartheid government, leading to parties (in this case, foreign investors) losing certain mining rights. The matter was referred to ICSID but was settled before final determination. More important that the outcome, though, was what South Africa did after being taken to an international tribunal on this sensitive issue.
In the years that followed, South Africa terminated (or did not renew) certain Bilateral Investment Treaties. In 2015, as a purported replacement for these terminated BITs South Africa passed the Protection of Investment Act, aimed at protecting the rights of investors.
Under the Protection of Investment Act, mediation was offered as the preferred and recommended substitute for the arbitration of investment disputes, confirming the long-held concern that investment arbitration was not universally accepted as the best way to resolve investment disputes.
South Africa is not alone in opposing investment arbitration. Many other African and Asian countries have also questioned the purpose and power balance in investment arbitrations. This has now led to a global debate on the future of investment disputes. For this debate to yield any meaningful outcome, input from those previously excluded from the design of the old investment arbitration system must be taken into account. Importantly, it seems that mediation or conciliation must be included in the process for resolving investment disputes.
Local Communities and Arbitration
Cultural tension also appears in disputes with local communities surrounding mining developments. A distrust of formal mechanisms (including court litigation) is evidenced by a high number of «repeat disputes» which re-appear after purportedly having been resolved. Reliance on an arbitral award (or court order) in defence of claims from communities hardly ever brings the issue to an end, with disgruntled community members instead resorting to creative means to obtain relief.
This tension is heightened by the fact that, as the South African Human Rights Commission has pointed out, «many mining-affected communities continue to experience significant levels of poverty and systemic inequality, which reinforces the notion that the benefits of mining operations disproportionately favour mining companies and the State, and are often to the detriment of local communities». Getting community buy-in on the resolution of disputes is critical to a mine’s social license to operate and the affected communities’ feeling that they are valued stakeholders who are working hand in hand with the mine in their area, rather than under thumb of the mine.
In both investment disputes (with governments) and those on the ground (with local communities), we see evidence of clear distrust in the formal systems of resolving disputes. That distrust translates into a direct challenge against the legitimacy of formal arbitration processes in the region.
The question is then how do we address this distrust? Do we try enhancing trust in the existing system through a process of engagement, development and training? Or do we develop an entirely new system which enjoys the meaningful buy-in from all stakeholders?
The answer might lie somewhere in-between. The global arbitral community needs to be mindful of the question of legitimacy and enhance its efforts to create awareness, knowledge, and participation in the development of the practice which must address the particular needs of developing regions. If development occurs with meaningful participation from those who might question the legitimacy of the process, we stand a better chance of achieving broader stakeholder support.
Until we have a system that is truly supported by all stakeholders, parties seeking to resolve disputes must remain open-minded and creative in their approach to dispute resolution but one can never simply assume that obtaining an arbitral award will finally resolve a dispute.
ABOUT THE AUTHOR:
Jonathan Ripley-Evans is a Partner based in the Johannesburg office and heads up the South African Disputes practice. Jonathan has extensive experience in alternative dispute resolution and general commercial litigation. He has also acted as mediator and as advisor/representative in both mediations and arbitrations, domestic and international.
Jonathan is a Vice President of the AFSA International Court and is also a member of the LACIAC Court. He is an accredited Fellow and a member of the Chartered Institute of Arbitrators (South African branch).
Find more data-backed insights in our 2023 Mining Arbitration Report