Clifford Chance partner Paul Sandosham and senior associate Sam Luttrell co-delivered a keynote presentation at Mines and Money Hong Kong yesterday, with a focus on securing rights to mining investments by staying out of the local courts in high-risk countries and being prepared with legal options.
“Be aware of the rights offered under bilateral investment treaties (BIT),” Sandosham said.
“To be fair, nobody ever thinks about them when they’re structuring a deal. There are thousands in force and many of you might now be aware that you’re entitled to protection too.”
Sandosham said multilateral investment treaties offered less protection due to countries having wised up from the early days of such treaty negotiations, resulting in less favourable deals.
These treaties, however, can offer more long-term protection than BITs because it can be harder for a state to pull out of a multilateral arrangement.
“Think about the structure you want to adopt before you invest in a foreign state,” Sandosham said.
“Which country has a BIT with the host country you plan to invest in?
“You may want to incorporate your vehicle in that country, which has the rights you can call on in the event of any dispute for your own protection.”
Luttrell described investment treaties as part of the due diligence process that was best served by early structuring between lender and borrower.
Protection under such treaties includes provisions to restrict discrimination against foreign players in a given country, as well as rules against unlawful expropriation and rules allowing companies the right to claim benefits available to nationals of other countries.
He added that the requirements for qualifying for protection and the semantics of the treaties themselves offered some advantages for miners.
“The definition of ‘investment’ is usually very broad, including things like rights under contracts, concessions and permits to explore for and exploit natural resources, intellectual property, shares, bonds, debentures – these kinds of instruments are covered,” he said.
Establishing an arrangement that allows for international arbitration was also highlighted as a key consideration.
“The last place you want to end up in a fight is in the domestic courts, because there’s always this fear of home ground advantage. You fear that the courts or the judges will favour the local party,” Sandosham.
