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The Middle Eastern and African Arbitration Review 2019

Mozambique

Since 2010 and especially 2013, foreign direct investment has increased in Mozambique. According to the statistics released by World Bank, the net foreign direct investment in Mozambique corresponded to the following amounts.

Year

Foreign direct investment, net inflows
(current balance of payments, US dollar)

2010

1.258 billion

2011

3.664 billion

2012

5.635 billion

2013

6.697 billion

2014

4.999 billion

2015

3.868 billion

2016

3.128 billion

2017

2.319 billion

Mozambique has attracted investment in several industries besides the main sectors of coal, oil, and natural gas, such as real estate, transportation, wood products, food and tobacco, metals, communications, building and construction materials, alternative and renewable energy, financial services and industrial machinery, equipment and tools.

However, the economic and fiscal pressure of the past several years, together with known setbacks in the relationship with the International Monetary Fund, donors and international creditors, has created certain difficulties to the increase of the foreign investment and the economic growth.

In any case, according to African Economic Outlook 2019, Africa’s general economic performance continues to improve, with gross domestic product growth reaching an estimated 3.5 per cent in 2018, about the same as in 2017 and up 1.4 percentage points from the 2.1 per cent in 2016. Looking forward, African economic growth is projected to accelerate to 4 per cent in 2019 and 4.1 per cent in 2020. Mozambique will hopefully follow this trend.

The government of Mozambique and investors have been working to improve the country’s financial and economic landscape and to take advantage from the country’s very significant natural resources, particularly coal and natural gas, with some high-profile investments. The Nacala Corridor Railway and Port Project, to export coal from the Moatize coal mines, and the liquefied natural gas projects in the Rovuma Basin in the north of the country, deserve a special mention. Even at different stages of execution, they are expected to be game changers for the country.

The social and economic development of Mozambique, as well as the intent of maintaining and increasing these levels of foreign direct investment has required the promotion and development of arbitration as a preferred dispute resolution mechanism.

Investors in these relevant projects seek to mitigate the risks, namely the legal risk. In addition to the proper structuring of the investment to benefit from the protection of investment treaties, one possible route is the inclusion of arbitration clauses in key contracts, allowing the resolution of disputes likely arising from the contracts to be more efficient, quick and effective. For that purpose, several factors have been crucial such as the openness of the Mozambican state to include arbitration clauses in important contracts, even with the place of arbitration outside of Mozambique, alongside a relatively modern dispute resolution framework and a progressive familiarity and supportive attitude of judicial courts to arbitration.

The legal framework of arbitration in Mozambique: the plurality of legal sources

Mozambique has a civil law legal system that, for historical reasons, is largely based upon Portuguese Law, particularly in the field of private and commercial law.

Arbitral tribunals are expressly foreseen in the 2004 Constitution of the Republic of Mozambique as being side-by-side with administrative courts, labour courts, tax courts, customs courts, admiralty courts and community courts (article 223(2)).

As in other countries favourable to arbitration, on the one hand, Mozambique is party to key international treaties and, on the other hand, there are several internal sources of legislation regulating the possibility of choosing arbitration, either domestic or international and adopting many of the solutions generally accepted as best practices.

International legal sources of arbitration

Mozambique is a party to the most important international treaties relevant to arbitration.

First, on 11 June 1998, Mozambique ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), which entered into force at 9 September 1998.

Mozambique’s position as a party to the New York Convention entails two different important consequences.

On the one hand, Mozambican courts must recognise and enforce arbitration agreements that meet the necessary requirements under article II of the New York Convention. If legal proceedings concerning a matter subject to such an arbitration agreement are brought before Mozambican courts, the court, at the request of one of the parties, shall decline jurisdiction, unless it finds, on a prima facie judgment, that the arbitration agreement is null and void, inoperative or incapable of being performed. This ‘negative effect’ of the arbitration agreement is also reflected, in similar terms, in article 12 of the Mozambican Arbitration, Conciliation and Mediation Law (Law No. 11/99 of 8 July 1999, the Mozambican Arbitration Law).

On the other hand, subject to the conditions laid down in the New York Convention, Mozambican courts must recognise and enforce arbitral awards rendered in other New York Convention contracting states and, conversely, arbitral awards rendered in Mozambique may also be enforced in other New York Convention contracting states. In this respect, it should be noted that Mozambique, under the terms permitted by the New York Convention, made a reciprocity reservation, in the sense that it reserves the right to apply the Convention only when arbitral awards have been rendered in the territory of another contracting state.

The enforcement of foreign arbitral awards rendered in New York Convention contracting states requires prior recognition proceedings subject to the New York Convention rules and limits and also to article 1094 of the Mozambican Code Civil Procedure (approved by Decree-Law No. 44.129 of 28 December 1961, as amended by Decree-Law No. 1/2009 of 24 April 2009). These proceedings take place before the Supreme Court and, at least in accordance with the law, are very expedited.

Second, and in respect of international investment protection law, Mozambique is a party to the 1965 Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) and has signed 27 bilateral investment treaties (BITs), 20 of which are currently in force.

As a consequence of Mozambique being a party to the ICSID Convention, it may be possible for qualified foreign investors to submit to ICSID arbitration certain disputes, provided that there is consent by the Mozambican state, among other requisites.

In general terms, such consent may arise either from:

  • one of the 20 BITs in force;
  • an arbitration agreement contained in contracts with the Mozambican state (or with other state entities, subject to additional requirements under the ICSID Convention); or
  • Mozambican internal law, especially Investment Law (Law No. 3/93 of June 24 1993, regulated by Decree-Law No. 43/2009 of August 21 2009 and as amended by Decree-Law No. 48/2013 of September 13 2013), discussed below.

Mozambique’s network of BITs in force covers most of the states from where major investment flows come, directly or indirectly, including, in particular, the United States, China, India, United Kingdom, France, Germany, Italy, Mauritius, Netherlands and Portugal. Investors may consider the structuring of their investments in Mozambique so as to attract and maximise the protection afforded by these treaties.

Most of these BITs contain, with slight variations, the usual standards of protection, including, in particular, fair and equitable treatment, compensation for expropriation, national and most favoured nation treatment and non-discrimination. The treaties also generally include Mozambique’s consent to arbitrate investment disputes with protected investors arising out of the treaties typically offering the alternative between ICSID arbitration or ad hoc arbitration (frequently under the UNCITRAL Rules of Arbitration).

It is noteworthy that Mozambique is also a party to the 1981 Agreement on Promotion, Protection and Guarantee of Investments Amongst the Member States of the Organization of the Islamic Conference (the OIC Investment Agreement). The OIC Investment Agreement is a multilateral treaty concluded under the auspices of the Organization of the Islamic Conference and, although it has not attracted much attention until recently, it provides a number of investment protections, including, with some differences to usual standards found in traditional BITs, protection against expropriation and national and most favored nation treatment. Most importantly, article 17 of the OIC Investment Agreement arguably contains a consent from the contracting states to investor-state arbitration. Among many others, contracting states to the OIC Investment Agreement include Algeria, Bahrein, Egypt, Indonesia, Morocco, Nigeria, Qatar, Saudi Arabia, Turkey, United Arab Emirates and Tanzania.

Internal legal sources of arbitration: multiple, general and sectorial legislation ruling arbitration

Internal sources of legislation regarding arbitration are multiple and sometimes conflicting: there are general and sectorial laws, as well as private and administrative.

The Mozambican Arbitration Law

The central piece of the Mozambican arbitration legal framework is the Mozambican Arbitration Law, which allows for the possibility of choosing arbitration as a dispute resolution mechanism and sets forth the main general rules applicable to arbitrations located in Mozambique (article 68).

The Mozambican Arbitration Law is mostly in line with the Model Law on International Commercial Arbitration (Model Law) of UNCITRAL and adopts many of the solutions generally accepted as best practices. The law is peculiar in the sense that it not only regulates arbitration but also conciliation and mediation.

According to the Mozambican Arbitration Law, there are some general principles applicable to all alternative dispute resolution mechanisms, such as the principles of liberty, flexibility, privacy, reputation, celerity, equality and due process. These principles should be respected and conform by the rules regarding arbitration.

In line with other modern arbitration laws, the Mozambican Arbitration Law contains general rules covering

  • the object and scope of arbitration, the matter of arbitrability, the competence of competence of the arbitral tribunal and the exceptional intervention of judicial courts in arbitrations (Chapter I);
  • rules applicable to the arbitration agreement (Chapter II);
  • rules regarding arbitrators and the arbitral tribunal (Chapter III);
  • rules related to arbitral proceedings and the conduct of arbitration (Chapter IV);
  • rules applicable to the arbitral award (Chapter V);
  • rules regarding the challenge of the arbitral award (Chapter VI);
  • rules related to enforcement of the arbitral award (Chapter VII); and
  • rules applicable to international commercial arbitration (Chapter VIII).

The Mozambican Arbitration Law distinguishes two main types of arbitration: domestic arbitration and international commercial arbitration, the latter being governed by special rules (articles 52 to 59 of the Mozambican Arbitration Law) and, in the absence of special rules, by the provisions governing domestic arbitration (article 53 of the Mozambican Arbitration Law).

Pursuant to the terms of article 52, international commercial arbitration is applicable if ‘interests of international trade are at stake’ and, notably, when:

  • parties to an arbitration agreement are domiciled in two different countries at the entering into the arbitration agreement;
  • one of the following places is outside the country where parties are domiciled:
  • the place of arbitration, if such a place is set out or is capable of being determined in the arbitration agreement; or
  • any place where a substantial part of the obligations resulting from commercial relations or the place in which the object of litigation is found to be closely connected; and
  • the parties have expressly agreed that the scope of the arbitration convention has connections with more than one jurisdiction.

Therefore, the parties may expressly characterise an arbitration as international, either by agreement between them or by choosing a place of arbitration located outside of Mozambique.

On the matter of arbitrability, article 5 of the Mozambican Arbitration Law provides for two general restrictions on the validity of arbitration agreements regarding the object of the arbitration:

  • disputes involving non-disposable or non-negotiable rights; and
  • disputes that are exclusively subject by special law to the jurisdiction of a judicial court or a special arbitration law. The Mozambican Arbitration Law is applicable in a subsidiary way to arbitrations subject to special legal frameworks (article 5(3)).

According to article 6(1) of the Mozambican Arbitration Law, the state and other legal persons governed by public law may enter into arbitration agreements only in cases regarding disputes related to ‘private law or contractual relations’ or if there is an ‘authorisation by a legislative act’. Therefore, from the perspective of Mozambican law, if the dispute refers to public law matters, the state and other legal persons governed by public law may only validly submit disputes to arbitration if there is a special legislative authorisation.

The arbitral tribunal may be composed by a sole or several arbitrators, provided that they are in an odd number. Should the parties fail to agree on the number of arbitrators, the arbitral tribunal is composed by three arbitrators (article 16). The parties may choose the arbitrators or the method for their appointment. As a general rule, the appointment of the arbitrators is made by the parties and the arbitrators appointed by the parties designate the remaining arbitrator to complete the constitution of the arbitral tribunal. Whenever the designation of an arbitrator or arbitrators fails, the appointment should be made by the president of the arbitral institution chosen by the parties or by someone in whom the president delegates this power and, in the absence of an agreement in relation to the choice of an arbitral institution, by the judicial court. There is no appeal of this decision (article 18).

The parties may freely choose the procedural rules applicable to the proceedings, as well as the place of arbitration, within the general main principles applicable to arbitration mentioned above. In the absence of the choice of the parties, the arbitral tribunal has the power to decide these matters (article 27).

Unless the parties agree otherwise, the deadline for an arbitral award to be issued is six months from the constitution of the arbitral tribunal (article 35(1) to (3)). In certain circumstances, the deadline may be extended for equal period of time (article 35(4)).

After being deposited in the secretary of the judicial court of the place of arbitration under the terms of article 42 of the Mozambican Arbitration Law, arbitral awards have the same effects of judicial decisions and are final and enforceable under the terms of the Mozambican Code of Civil Procedure.

Arbitral awards may be challenged before judicial courts only on the basis specific grounds laid down in the law, particularly in the case of manifest disregard of procedures with impact on the exercise of the rights of defence and due process and on the basis of the breach of the Mozambican state’s public policy (in accordance with articles 44 to 47). It is possible, however, to directly challenge the merits of the award.

Judicial court intervention is required, or may be necessary, in several circumstances set forth in the Mozambican Arbitration Law. First, after the issuance of an arbitral award, in the stage of enforcement or of setting aside of the decision. Second, according to article 12(4), the parties may request state courts to order interim measures in relation to a dispute covered by an arbitration agreement. Finally, state court intervention may be required during the arbitral proceedings either to appoint one or more arbitrators (if needed), or to assist in taking of evidence. These aspects are crucial and should be considered by the parties when they are choosing the place of arbitration and, consequently, the law applicable to the arbitration.

Regarding the enforcement of foreign arbitral awards, the applicable regime depends on whether the award was rendered in a state party to the New York Convention. If so, the New York Convention applies, supplemented by article 1094 and the Mozambican Code of Civil Procedure, which, as noted above, provides for a recognition procedure before the Supreme Court. If the award was rendered in a state that is not a party to the New York Convention, recognition is subject to the same procedure provided under article 1094, but the grounds that allow the refusal of recognition are wider. For example, if the award to be recognised was rendered against a Mozambican national, recognition is denied if the award breaches Mozambican private law, to the extent that, under Mozambican private international law, the dispute should be governed by Mozambican law.

The Administrative Arbitration Rules

Regarding administrative arbitration, that is, arbitration involving certain state entities acting in that capacity, there is a special legal framework set out in Chapter X of Law 7/2014 of 28 February 2014 (Law No. 7/2014), which, subject to certain conditions, allows the state and other public legal entities to enter into arbitration agreements.

In accordance with article 202 of Law No. 7/2014, an arbitral tribunal may be created to decide on the following matters:

  • administrative contracts; and
  • contractual liability and torts of the public administration.

The rules established in Law No. 7/2014 are similar to the ones found in the Mozambican Arbitration Law regarding domestic arbitrations, with some differences that arise from the administrative nature of the claims, such as:

  • the inexistence of provisions on choice of law for the merits of the claim;
  • the possibility of extending the deadline for the arbitral award is limited to half of its initial duration; and
  • in case of annulment of the decision of the arbitral tribunal, the power of the administrative court of reviewing the merits of the claim.

The Investment Law

Independent of the protection conferred by the ICSID Convention and by BITs, the Investment Law (Law No. 3/93 of 24 June 1993, regulated by Decree-Law No. 43/2009 of 21 August 2009 and as amended by Decree-Law No. 48/2013 of 13 September 2013) expressly provides a certain number of protections and safeguards and foresees a special mechanism for resolution of disputes in relation to certain disputes between the Mozambican state and foreign investors regarding investments authorised and executed in the country. This special mechanism for resolution of disputes applies to disputes connected in the interpretation and application of the mentioned law and that could not be solved by the competent judicial authorities in accordance with the Mozambican legislation.

In particular, the Investment Law, subject to the conditions laid down thereto, provides for the possibility of investor-state arbitration under the ICSID Convention or under the International Chamber of Commerce Rules of Arbitration.

Importantly, the Investment Law expressly does not apply to oil, gas and mining sectors, which are governed by specific rules.

The level of protection granted by the Investment Law is, generally, lower than the protection granted by a typical BIT. The major advantage of the first one is that it applies to all the investors that meet the conditions of the Investment Law, even when they are not covered by the protection of a BIT (for example, because they are not nationals of a contracting state).

The law applicable to public-private partnerships, large-scale projects and business concessions

Law No. 15/2011 of 10 August 2011 (Law No. 15/2011, regulated by Decree No. 16/2012 of 4 June 2012) establishes the guiding rules for the process of contracting, implementing and monitoring undertakings of public-private partnerships (PPP), large-scale projects (LSP) and business concessions (BC). Article 39 of the Law No. 15/2011 expressly recognises the possibility of arbitration in PPP, LSP and BC. In fact, article 39(2) of this law foresees that:

[I]n order to accelerate the resolution of disputes and preserve the dynamics of business economic life, especially for the satisfaction of collective needs, PPP, LSP and BC contracts may privilege the resolution of disputes arising therefrom by resorting to mediation and arbitration under the terms of the law.

The Mining Law

Regarding the mining sector, the Mining Law (Law No. 20/2014 of 18 August 2014) establishes the general principles applicable to the exercise of rights and duties regarding the use and exploitation of mineral resources, including mineral water. The Mining Law does not foresee a special rule applicable to dispute resolution. Consequently, it seems that the rules set forth by the other laws such as Law No. 15/2011 are applicable.

The Petroleum Law

The Petroleum Law (Law No. 21/2014 of 18 August 2014) confirms the possibility of entering into in arbitration agreements, admitting several options.

The Petroleum Law provides that disputes arising from the agreements foreseen in the mentioned law be preferably solved by negotiation. If the dispute is not solved by agreement, it may be submitted to arbitration, to the competent judicial authorities under the terms and conditions set forth in the concession agreement or, if there is no arbitration clause in the concession agreement, to the competent judicial authorities.

Arbitration between the Mozambican state and foreign investors subject to the Petroleum Law may be governed by the following laws:

  • the Mozambican Arbitration Law;
  • the ICSID Convention and Rules;
  • the rules fixed in the Regulation on Additional Facility approved on 27 September 1978 by the ICSID, if the foreign entity does not fulfil the conditions of nationality foreseen in article 26 of the ICSID Convention; and
  • the rules of other international instances of recognised reputation in accordance with the agreement of the parties in the concession agreements foreseen in the Petroleum Law. In this case, it is necessary for an express specification of the conditions for its implementation, including the way of appointing the arbitrators and the deadline to issue an award.

As these rules set forth in the Petroleum Law are special in relation to the rules foreseen in the Law No. 15/2011 of 10 August 2011, the former should prevail over the latter.

The special framework of Rovuma Basin Project

In the specific case of the Rovuma Basin Project, Law No. 25/2014 of 23 September 2014, authorised the government to approve a specific legal and contractual framework for the Rovuma Basin Projects, including express permission to ensure that public sector entities may be subject to international arbitration.

In execution of this legislative authorisation, the government approved Decree-Law No. 2/2014, of 2 December 2014, which contains the specific regime applicable to the Rovuma Basin Project.

According to article 25 of Decree-Law No. 2/2014, disputes not amicably settled within 90 days shall be submitted to arbitration in accordance with the dispute settlement mechanisms provided for in the relevant concession agreements.

These legal texts support the autonomy of the parties to choose a foreign law to be applicable to the merits of the contracts and the possibility of choosing international arbitration (article 3(1)(j) of the Law No. 25/2014 and article 25 of Decree-Law No. 2/2014).

Finally, by Resolution No. 25/2016 of 3 October 2016, the Mozambican government approved and published a Model Concession Agreement to Exploration and Production of Petroleum and a Model Joint Operation Agreement, both containing arbitration agreements.

In accordance with article 26, disputes between the parties should be solved by negotiation of the parties. Should the parties not solve the dispute amicably, the Model Concession Agreement provides for ad hoc arbitration in accordance with the UNCITRAL Arbitration Rules and with the Permanent Court of Arbitration acting as appointing authority. The seat of arbitration is Geneva, the applicable substantive law is Mozambican law and the language of the arbitration is English. It is also established that the arbitrators cannot have the nationality of any of the parties. The arbitration agreement further provides for a wide waiver of sovereign immunity and, in terms that are not entirely clear, of the right to seek the annulment of arbitral awards.

In its turn, the Model Joint Operation Agreement provides for a different solution (article 19.2): ICSID arbitration, with the designation of the Mozambican National Oil company as a constituent subdivision or agency of Mozambique for the purposes of consent for ICSID Convention. Like the Model Concession Agreement, the seat of arbitration is Geneva, the applicable substantive law is Mozambican law and the language of the arbitration is English.

Conclusion

Mozambique has developed arbitration as the preferred dispute resolution mechanism, following other modern arbitral legislation and opening the possibility of choosing this alternative dispute resolution mechanism.

A notable sign of this openness by Mozambique towards arbitration was the ratification of the most relevant international conventions regarding arbitration: the 1958 New York Convention and the 1965 ICSID Convention and the adoption of specific domestic regimes favourable to arbitration.

As demonstrated above, Mozambique’s legal environment and framework is largely favourable to arbitration. The Mozambican state has opened the option to the investors of mitigating the legal risks by choosing arbitration as preferred dispute resolution mechanism and as a means to promote investment and growth.

At the same time, the legal framework specifically applicable to major investments and to arbitration is particularly complex, notably due to the plurality of existing sources, sometimes with overlapping scopes of application and conflicting rules. On the one hand, in certain cases, the plurality of sources of legislation may be considered a challenge to be overcome by interpretation. On the other hand, in relation to the mining sector, there are no specific provisions regarding arbitration such as the provisions set forth in the Petroleum Law.

Considering that foreign investment will continue to play a very significant role in the development and expansion of Mozambique, there are several goals that would be determinant for it and for the future of arbitration in Mozambique, such as the management of political conflicts, the sectorial growth and economic stabilisation, as well as the improvement of the legal framework and its practical promotion and the increasing of active participation and role of the Mozambican arbitral community in the wider arbitration community. The main arbitral institution in Mozambique is the Arbitration, Conciliation and Mediation Centre (CACM). At this stage, CACM has administered mainly domestic arbitrations. In April 2018, CACM organised its first congress with the presence of Mozambican and Portuguese speakers. More recently, there have been some calls for a modernisation of the Mozambican Arbitration Law and there are reports that such reform may occur in the near future, strengthening Mozambican pro-arbitration attitude.