Resolving ESG disputes in African jurisdictions through arbitration

In recent years, our society has experienced an improvement in ethical standards on Environmental, Social and Governance (ESG) issues and a growing awareness of the systemic and financial consequences of climate change and environmental damage.

This has prompted corporate stakeholders to pressurise businesses in many sectors and jurisdictions to be transparent about ESG due diligence, risk management and reporting. Consequently, regulators have promulgated a suite of legislative interventions to promote ESG in their environments and markets.

Naturally, these demands are generating new forms of risk that businesses need to grapple with in their operations and contractual relationships. These risks will continue to result in disputes.

African countries are no stranger to disputes on ESG principles. In a continent that is rich in natural resources and serves as a hub for cross-border and investor-state projects, there have been many disputes in construction, engineering, manufacturing, energy, mining, oil, and gas projects over humane labour practices, climate change and environmental damage. To cite one well-known example, in January 2021, after a 13-year long legal battle, the Dutch Appeal Court ruled that the Nigerian subsidiary of Royal Dutch Shell had to pay compensation for oil spills affecting two villages in Nigeria.

In that context, we consider whether arbitration in South Africa (and other African jurisdictions) can play a role in resolving ESG-related disputes.

ESG-related disputes and litigation in South Africa

South Africa is on the long road to net zero and has also been enacting ESG-related regulations and legislation requiring organisations to engage with policy change.

Several claims related to ESG principles have already been resolved in South African courts. In the 2021 judgment of MEJCON-SA & Others v Uthaka Energy (Pty) Ltd & Others ((11761/2021) [2021] ZAGPPHC 195 (30 March 2021)), the High Court of Pretoria granted the Mining and Environmental Justice Community Network of South Africa's urgent relief for an interdict against Uthaka Energy (Pty) Ltd (Uthaka) to prohibit the commencement of mining activities on properties which fell within the Mabola Protected Environment. In November 2021, the Constitutional Court dismissed an application by Uthaka for leave to appeal the interdict order.

Various other ESG-related disputes have been bought before courts across the continent. Some have revolved around environmental impact assessments (EIAs), often for the construction of coal-fired plants. This was the case in Save Lamu et al v National Environmental Management Authority & Amu Power Co Ltd (Tribunal Appeal No. Net 196 of 2016), where Kenya’s National Environmental Tribunal set aside the issuing of a licence to Amu Power Company for the construction of the Lamu Coal-fired Power Plant. The Tribunal found that the EIA Licence had been granted without Amu Power Company conducting proper and meaningful public participation.

Obviously, the disputes mentioned above relate to administrative law, so they are not suitable for arbitration. It will therefore be interesting to see how, as the ESG regulatory and reporting landscape in South Africa and other African jurisdictions develops and shapes commercial and investment imperatives, this will increase the potential for ESG-related disputes to be decided by commercial arbitrations.

ESG and Arbitration

ESG disputes may arise from commercial contracts, investment treaties and financial redress for climate change and sustainability damages. For years, arbitration has been a principal and preferred means of resolving commercial disputes, both local and cross-border. ESG disputes in this context should be no different.

The 2020 Annual Report of Statistics on Dispute Resolution of the International Chamber of Commerce (ICC), published in 2021, said that construction, engineering and energy disputes represented, historically, the highest number of ICC cases. These areas, by their nature, have ESG components because of their ties with climate change, environmental protection and human rights. A well-known ESG issue which was litigated by way of arbitration was the claims related to the safe production of readymade garments in Bangladesh, following the 2013 Rana Plaza garment factory collapse in Dhaka.

Arbitration in South Africa is well suited to resolving ESG-related disputes, especially in light of new developments such as the issue by the Arbitration Foundation of Southern Africa NPC (AFSA)’s of International Arbitration Rules, which came into force on 1 June 2021 (the International Rules).

The International Rules provide for expedited procedures (article 10), the appointment of an emergency arbitrator (article 11), the appointment of tribunal experts to report on specific issues in the arbitration (articles 23), and arbitrating concurrent claims arising from multiple contracts (article 28).

Similarly, in the context of investments in Africa, specifically the surge in Chinese investment in African mining projects over the past decade, the China-Africa Joint Arbitration Centre (CAJAC) may be instrumental in resolving ESG disputes by way of arbitration. The CAJAC Arbitration rules also provide for claims between multiple parties and joinder of additional parties (articles 18 and 19), the independence and impartiality of arbitrators (article 23), investigations by the Arbitration Tribunal (article 41) and the appointment of experts for the appraisal, audit, evaluation, or testing of any issue requiring an expert report (article 42).

We have already seen ESG disputes being launched by way of arbitration in Tanzania. In 2017, South Africa’s AngloGold Ashanti filed an UNCITRAL claim in 2017 over a set of Tanzanian mining reforms which left Tanzania vulnerable to claims under investment treaties, such as unlawful expropriation or fair and equitable treatment.

As ESG disputes can often be highly sensitive in nature, arbitration also carries the potential attraction of allowing proceedings to be conducted confidentially.

Clearly, Africa does have the arbitration institutions and mechanisms to resolve ESG disputes efficiently and effectively, due to independent and neutral forums, procedural flexibility, high levels of specialization and the ability to select the arbitrator and call for experts. The ability to enforce arbitration orders worldwide under the New York Convention also offers considerable advantages.