29 September 2023 Nefeli Lamprou  - Efemena Iluezi-Ogbaudu ArbitrationLinks

Kenya-Singapore BIT enters into force

On 20 August 2023, the Kenya-Singapore Bilateral Investment Treaty (the “BIT”) entered into force. The BIT, which was signed on 12 June 2018, is expected to “promote greater investment flows between Singapore and Kenya” and give “greater confidence to investors to take up investment opportunities in either country”, as announced by Singapore’s Ministry of Trade and Industry in a recent press release. The BIT consolidates on existing trade and investment relations between both States, as evidenced by recent statistics: total bilateral trade in goods between the two states amounted to S$212.2 million in 2022 alone, from which S$195.1 million represented exports of goods to Kenya. 

This post examines the main provisions of the BIT, including its scope and protections offered to investors.

Scope 

The BIT applies to all investments “made by investors of one Contracting Party in the territory of the other Contracting Party” including investments made before its entry into force. The BIT, however, precludes investors from seeking remedies for existing claims, or for claims that may arise due to events that occurred before the BIT’s entry into force (Article 2.1). 

Covered Investors and Investments

In Article 1, the BIT defines the terms “investors” and “investments” broadly, similar to older generation treaties. It however attempts to limit its scope in relation to the definition of “investment”. The latter is defined as “every kind of asset, owned or controlled, directly or indirectly, by an investor”, followed by a non-exhaustive list of potential assets qualifying as investments. However, it expressly requires that any such investment must bear certain characteristics, including “commitment of capital, the expectation of gain or profit, or the assumption of risk”. Article 1 expressly excludes (i) debt securities issued by a government or loans issued to a government; (ii) orders or judgments rendered in a judicial or administrative action; and (iii) claims to money that arise solely from commercial contracts for goods or services, or the extension of credit in connection with a commercial transaction. As to the definition of “investor”, Article 1 is less prescriptive as it includes “an enterprise of a Contracting Party” or “a natural person who resides in the territory of a Contracting Party or elsewhere and who under the law of that Contracting Party is a citizen of that Contracting Party” that has made an investment. (Article 1). 

The BIT, however, allows States to deny corporate investors the benefits of the treaty where it can establish that the investor “is owned or controlled by persons of a non-Contracting Party, or of the denying Party, and has no substantive business operations in the territory of the other Contracting Party”. This is, however, subject to prior notification and consultation (Article 23). 

Standards of Protection 

Covered investors enjoy important protections under the BIT, including the right to:

  • be treated in a fair and equitable manner and be accorded full protection and security (Article 3)
  • be treated, and have their investments treated, in a manner no less favourable than investors and investments from a third state (Article 4)
  • not have their investments or assets illegally nationalised or expropriated, directly or indirectly, by the Host State (Article 5)
  • receive compensation for losses suffered by their investments owing to war or other armed conflict, civil disturbances, a state of national emergency, or other similar events in the Host State (Article 6)
  • freely transfer funds relating to their investments (Article 7)
  • resolve any disputes concerning an alleged breach of an obligation under the BIT by arbitration (Chapter III)

Importantly, the BIT contains specific carve-outs to these protections, notably the exclusion of the investor-state dispute settlement (ISDS) provisions to any disputes concerning measures or treatment “in respect of tobacco or tobacco-related products…aimed at protecting or promoting human health” (Article 10.2). It also contains a broad exception that allows States to adopt or enforce measures necessary to inter alia (i) protect human, animal or plant life or health; and (ii) secure compliance with laws or regulations which are consistent with the BIT, and related to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption (Article 26), on the condition that such measures are not applied in an arbitrary or unjustifiably discriminatory manner, or as a disguised restriction on investments. 

Dispute Resolution

Section 1 of Chapter III of the BIT contains detailed ISDS provisions. Notably, it provides that the parties shall initially seek to resolve their disputes amicably within 12 months, failing which the investor may submit the dispute to arbitration under the ICSID, ICSID Additional Facility or UNCITRAL rules (Article 11). It also contains provisions on the composition of the tribunal (including on the qualification of its members) (Article 12), interim measures (Article 15) and consolidation (Article 17). Crucially, it contains provisions that ensure the enforceability of the final award under the New York Convention (Article 11.6 & 13). Section 2 of Chapter III contains similar provisions relating to the resolution of disputes between the States. It, however, excludes provisions on interim measures and enforcement under the New York Convention.

Conclusion

The BIT marks a significant milestone aimed at fostering investment flows between both States. The scope and standards of protection are expected to give businesses greater confidence in investing in either State. The BIT also recognizes the need for balance, as evidenced by the various carve-outs and the general exception to protect public interest. With the BIT now in force, businesses and investors alike are expected to capitalize on the new opportunities it presents.