Symposium on Decoding Maldives’ Foreign Investment and Arbitration Law Regime: Consent to Investor-State Arbitration Through Municipal Law – Conceptualizing A Model Provision for Maldives

Maldives’ tryst with international investment law is intriguing. Despite its ample reliance on foreign investment, Maldives is neither party to the ICSID Convention nor signatory to any bilateral (BIT) or multilateral investment treaty (MIT). Although it signed its first BIT in 2017, with the UAE, the treaty is not yet in force. Thus, international law has minimal role to perform in the protection of foreign investment in Maldives. This is unsurprising given the legitimacy crisis of the international investment law regime, and its failure to regain the trust of its sovereign stakeholders, especially from the Global South that bore the brunt of the colonial encounter. However, this does not imply that Maldives does not have a legal framework for the protection of foreign investment. 

Instead of resorting to international law, Maldives protects its foreign investment primarily through its municipal legislation, i.e., Act No. 25 / 79 (“Investment Law”), supplemented by its Foreign Direct Investment Policy (“FDI Policy”). This approach is not isolated. It is shared by multiple Global South States, such as Venezuela, Gambia, and Nigeria, and was reportedly considered by India too. Its benefits are equally obvious. Unlike BITs or MITs, a municipal legislation for protection of foreign investment empowers a State to unilaterally decide the standards of protection it can commit to, without any direct influence by another negotiating State. This allows a State greater autonomy to shape its own investment protection regime in accordance with its historical experiences and socio-economic goals.

For instance, Maldives’ Investment Law does not prescribe substantive standards for the protection of foreign investment. Instead, it requires each investor to conclude an agreement with the Ministry of Tourism, or the Ministry of Trade and Industries, as the case may be. This agreement then “shall set out the terms and conditions and the manner of implementation of the investment scheme and programme.” Consequently, the precise standards of investment protection remain the subject-matter of negotiations between each investor and the State. Predictably, such a framework is rarely found in a BIT or an MIT. Consistent with their historical objectives, investment treaties commonly contain multiple substantive standards, such as those obligating a contracting State to provide Fair and Equitable Treatment (“FET”) to its foreign investments. And to ensure enforceability of these standards, these treaties also codify the States’ standing offer to arbitrate a dispute raised by an investor in this regard. It is, thus, unlikely that Maldives would have been able to adopt a similar framework in the form of a BIT or an MIT. 

In this backdrop, Maldives’ case-by-case approach merits appreciation; especially because it allows it to potentially shield itself from the inconsistent interpretations of investment protection obligations, such as the FET standard. However, the approach can nonetheless benefit from certain adaptations.

Presently, neither the Investment Law nor the FDI Policy provides a mechanism for the settlement of investor-State disputes. Section 15 of the Investment Law states that a “disagreement on any matter in regard to the investment made under this Law”, if not resolved through discussion, “shall be dealt with in accordance with the agreement.” While this gives flexibility to the State to craft an appropriate mechanism on a case-by-case basis, it also enables a chaotic approach where the fate of an investment claim against Maldives is scattered across different jurisdictions and fora. This dampens the thread of jurisprudential predictability, and hinders the State’s ability to defend its interests in a cohesive manner. Indeed, in recent years, Maldives has participated in investor-State arbitral proceeding under the aegis of institutions such as SIAC and AIAC, or in accordance with the UNCITRAL Arbitration Rules. Each proceeding was also likely seated in different jurisdictions.

The silence of the Investment Law leaves sizable room to develop a uniform approach towards the settlement of investor-State disputes. Given Maldives’ proclivity towards arbitration, evidenced by its 2019 accession to the New York Convention, time is ripe to replace Section 15 with a standing offer to arbitrate disputes relating to the obligations in the Investment Law or an agreement concluded pursuant thereto. The suggested provision may also designate the seat of arbitration (within or outside Maldives), and the institutional rules according to which the proceedings must be conducted. This will inform both foreign investors and the Maldivian Government about their dispute resolution framework, and enhance its clarity and predictability. 

Unfortunately, this is not the end of the road. The interpretation of arbitration provisions contained in municipal legislations has its own convolutions, which makes the drafting of such provisions riddled with obstacles. Accordingly, one must rightly question how these obstacles can be avoided to arrive at a model arbitration provision for the Maldivian Investment Law. 

To the author, the answer to this question is, at minimum, three-fold. 

Firstly, consent is the bedrock of arbitration. This principle attains further sanctity in investor-State disputes since a State’s consent to subject itself to the jurisdiction of a judicial fora other than its own courts must be “voluntary and indisputable”. Or as noted by investment tribunals, such consent must be “clear and unambiguous”, and “expressed in a manner that leaves no doubt”. Therefore, while drafting an arbitration provision, it is necessary to avoid vague language, such as in Article 22 of the Venezuelan Law on the Promotion and Protection of Investments, which is capable of being interpreted differently and could prolong litigation. For these reasons, the suggested provision ought to be articulated in clear and mandatory terms (“shall”), and avoid inconclusive language (“may”). This is particularly so since the latter category of provisions, which are only declaratory and require further consent by a State, are not uncommon either in municipal legislations (e.g., Section 23 of the Tanzanian Investment Act 1997) or investment treaties (e.g. Article 6 of the Malaysia-Sweden BIT 1979).

Secondly, there exists a relationship between the scope of consent granted by a State and the subject-matter jurisdiction of the resultant arbitral tribunal. An arbitral tribunal is competent to adjudicate only those claims that the parties have consented to. This implies that “to invoke the arbitration jurisdiction provided in the Investment Law, there must be a claim with substantive grounds in said law.” However, certain investment tribunals hold differently. Notwithstanding the scope of the parties’ consent or their choice of applicable law, they also consider themselves competent to decide claims that solely allege a breach of a customary international law obligation, and not the instrument invoked. To these tribunals, “customary international law exists and may be applied independently of any choice of law.” This view is problematic for it creates a potentially unlimited adjudicatory jurisdiction, in which an investor, upon accessing arbitral jurisdiction, may advance claims alleging a breach of any international law obligation excluded from the municipal law or the parties’ negotiated agreement. And while this generally impacts all States, it is particularly detrimental to the sovereign autonomy of former colonies that “did not have the opportunity to contest prior CIL rules.” Therefore, it is necessary for the suggested provision to also clarify that the jurisdiction of an arbitral tribunal is limited to adjudication of claims that allege a breach of the Investment Law or any agreement concluded pursuant thereto; nothing more. 

Thirdly, a unique characteristic of the Investment Law is its codification of investors’ obligations, which is indicative of its objects and purpose. The law imposes statutory obligations upon each investor to comply with Maldivian laws on foreign investment (Section 5), not indulge in activities detrimental to the country’s security (Sections 6 and 7), use local raw materials to the extent possible (Section 10), primarily employ Maldivian nationals (Section 11), and market a pre-agreed proportion of the produced items locally (Section 12). This creates the possibility of an investment dispute based on the breach of an obligation by an investor, and not the State. Therefore, the suggested provision ought not to foreclose the possibility of the Maldivian Government bringing a claim (or a counterclaim) in case of a breach of an investor’s obligations under the Investment Law. This requires the avoidance of any articulation that confines the right to commence an arbitration to an investor. Indeed, absent such permissive language, investment tribunals often regard the State’s counterclaims as outside the scope of the parties’ consent

In this light, the suggested arbitration provision in the Investment Law could be articulated on the following terms: 

Any dispute between the Parties relating solely to a breach of any obligation under this Law, or under any agreement concluded pursuant to this Law, shall be amicably resolved through mutual discussion. If such amicable resolution is not reached within a period of six (6) months from the date of request for mutual discussion, the dispute shall be submitted to arbitration in accordance with the [Arbitration Rules]. The seat of arbitration shall be in [Seat of Arbitration].” 

Such a provision is expected to provide each stakeholder a uniform avenue to resolve investor-State disputes, without diluting Maldives’ municipal-law-centric approach towards the protection of foreign investment. 

Harshad Pathak is PhD. Candidate in International Investment Law and Arbitration, University of Geneva