CHOICE OF LAW PROVISIONS IN CONCESSION AND RELATED CONTRACTS

Publication Date01 Nov 1976
DOIhttp://doi.org/10.1111/j.1468-2230.1976.tb01476.x
THE
MODERN
LAW
REVIEW
Volume
39
November
1976
No.
6
CHOICE
OF
LAW PROVISIONS IN CONCESSION
AND RELATED CONTRACTS
PART
A-THE
TREND
IN
CONTRACTUAL. DOCUMENTS:
SOME
EXAMPLES
A
MINING
company contemplating a major investment
in
a
develop-
ing country will always make a careful assessment of the non-com-
mercial
risks.
The possibility that the government might, at some time
in the future, expropriate the investment, and the uncertainty surround-
ing the whole topic of compensation for expropriated assets, are
matters which would normally have to
be
taken into account. However,
no
less
important
in
practice, particularly where there are detailed
stipulations relating to the fiscal rdgime, is the risk that the government
might
in
the future seek to extinguish or modify its contractual
obligations by an exercise of legislative competence. An examination
of
a
number of concession and related agreements made in Common-
wealth countries suggests that the mining companies over the
past
10
to
15
years have been concerned to protect themselves against this
risk by seeking through choice
of
law provisions to establish for their
investments, at least in some measure, an extraterritorial or enclave
status. This objective has resulted in increasingly elaborate provisions
in
clauses purporting to establish the proper law or specifying the
law which arbitrators are to apply. Clauses of this kind give rise to
difficult problems
of
construction, and their meaning and effect
appears to turn on unsettled questions in the borderland where there
is interaction between the principles of public and private international
law.
During the colonial period it may generally bc assumed that the
mining companies treated the selection
of
a proper law to govern the
contract as a matter
of
convenience rather than substance. Significant
1
In this articlc the term
"
proper law of tho contract
''
refers to the legal system
which governs thc con:ract.
''
The
'
proper
'
law
of
thc contract is
a
convenient and
succinct expression to describe
the
law that governs many of thc matters arectlng
a
contract." Cheshire,
Private International
Law
(9th cd.), p.
201
citing
Mount Alberf
Borough Council
v.
Australasian Temperance and General Murual Liie Assurance
Society
[1938]
A.C.
224
where the court deflned thc propcr law
as
"
that
law
which
the English
or
other court is
to
apply in determining the obligations undcr tho
contract."
625
VOL.
39
(6)
1
626
THE MODERN LAW REVIEW
[Vol.
39
investment tended in the first instance to be made by companies in-
corporated in, or controlled from, the metropolitan country. Pro-
vided, therefore, that there was
a
settled system of government, and
courts staffed by competent judges, applying principles
of
law with
which the investors were broadly familiar, there was generally no
significant reason in
a
contract to which a colonial government was a
party, for a mining company to seek to displace the law
of
the
territory from its natural place as the proper law
of
the contract.2
If
the case of Sierra Leone may be taken as typical? the
first
real
indication of some shift in the thinking
of
the mining companies came
in
1961
the year in which Sierra Leone attained independence.
In
that
year an important agreement relating to prospecting for and mining
of aluminium ores was made between the Government and the Sierra
Leone Ore and Metal Company and its parent the Aluminium-Indus-
trie-Aktien-Gesselschaft
of
Switzerland. The agreement.” which was
cast
generally in
terms
which might now be regarded
as
rather
favourable to the Company. provided for the proper law of the con-
tract as follows
:
“Except as may be otherwise herein expressly provided this
agreement shall be construed and the rights of the Government
and the Company thereunder
shall
be determined according to the
laws
of
Sierra Leone.”
The qualifying words at the beginning of this provision are somewhat
puzzling since no other clause in the agreement deals, or purports to
deal, with the proper law of the contract. There
is
however
a
subclause
headed
Limitation on Minerals Ordinance Application
which may
well provide the explanation. It reads as follows:
‘‘
The provisions of the Minerals Ordinance and any amending
Ordinance and Rules made and to be made thereunder including
the provisions of any official forms prescribed by such Rules shall
be binding upon and inure to the benefit of the Company except
such pmvisions thereuf
as
may
be inconsistent with the terms or
provisions of this Agreement. Any inconsistency between a pro-
vision of any such Ordinance or Rule and a provision of this
Agreement shall be resolved by giving effect to the provisions
of
this Agreement.”
In
so
far as
this
subclause relates to inconsistency between the pro-
visions
of
the agreement and legislation which might be enacted in the
future
(ie.
an amending Ordinance or Rules
to be made
”)
it seeks
to create an enclave status for the company by providing that the
agreement will prevail. It was no doubt this aspect which was per-
ceived by the draftsman of the agreement
as
requiring qualifying words
2
The model
oil
mining leases prepared by the Colonial Offlce before the last war
(1938) contain
no
express Drovisions relating
to
choice
of
law.
J
There
is
no reason
to
supposc
it is not typical, and it is certainly convenient.
It
Is
the practice
in
Sierra Leone to ratlfy by legislation all major agreements relat-
ing to the exploitation
of
minerals, and the text
of
the agreements are scheduled
to
the Acts.
4
Laws of
Sierra
Leone, Act
No.
35
of
1962.

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