Can’t pay, won’t pay: Enforcing awards against African states

Political risk is a significant concern for mining investors in Africa. Resource nationalism has driven an increase in claims before international tribunals. If a state adopts measures affecting a project that breach its international legal obligations, investors may be awarded damages.

Sometimes a state destroys a project, but no claim is brought. Investors assume that even if they win, they will never collect. African states often have fewer internationalized assets, constrained fiscal reserves and a track record of resisting enforcement efforts. Investors are not interested in a Pyrrhic victory through an award that cannot be monetised.

However, inaction can mean that substantial capital investments yield nothing. Investors should seek to protect their rights through international arbitration. A Pyrrhic victory at the end of the arbitration process can be avoided through a co-ordinated enforcement strategy.

Start by tracking state assets from the outset. Lawyers and asset tracers should operate as a single team. On the legal side, a damages award can be enforced in the courts of most countries, which may permit the seizure of non-immune state assets to facilitate recovery.

London is often a strong choice for enforcement. Its status as a global financial centre means relevant assets, such as bank accounts, commercial properties and bond payment flows, can be easier to locate. Investors should deploy applications strategically designed to uncover further information about a state’s assets and any holdings it may be seeking to conceal.

Recovery should also be pursued outside the courtroom. Enforcement proceedings can provide leverage for settlement, particularly if the assets targeted are politically significant or could cause domestic embarrassment. Court proceedings need not continue all the way to seizure if other avenues to recovery emerge.

Investors should develop a detailed understanding of a state’s particular circumstances. Can it pay? Some awards represent a significant proportion of a state’s GDP. Will it pay? In countries where power is concentrated, payment may be perceived domestically as a sign of weakness. Well-advised investors should closely monitor political developments, as changes in government can create opportunities for settlement.

Political and reputational pressure, particularly when directed at lenders, financial markets and international organisations, can often move the dial faster than formal legal proceedings.

Common pitfalls should be avoided. Do not alert a state without first identifying clear asset targets. Do not engage the wrong decision-makers. Do not pursue seizure for its own sake. Instead, encourage negotiations that facilitate a faster settlement by identifying and exploiting the most effective political pressure points.

* Authored by Markus Burgstaller, Scott Macpherson and Bethany Pedder (from global law firm Hogan Lovells), and Oliver Stern and Helena Bowyer (from independent financial and risk advisory firm Kroll).