Protect your rights in Algeria: a roadmap for Spanish investors

Spanish investors in Algeria need to take steps to protect their rights under international law. Algeria’s latest move to block trade with Spain is not only a force majeure event affecting contracts, but also a likely breach of the bilateral treaty protecting the investments of Spanish investors in Algeria. In addition to preserving their contractual rights, investors need to consider how to avail themselves fully of this separate protection available under international law. This article will set out the key political and economic developments, the position under international law and the steps investors should be taking now to protect their interests.

Algeria’s unprecedented action

On 8 June 2022, the Algerian government announced the suspension of the Treaty of Friendship, Good Neighbourliness and Cooperation with Spain. This move followed recent diplomatic tensions between the two states regarding Spain’s recognition of the autonomy plan for Western Sahara proposed by Morocco. In conjunction with the suspension, the Algerian Association of Banks and Financial Institutions (ABEF) requested that all banks and other financial institutions freeze all transactions relating to the export of goods and services from or to Spain with effect from 9 June 2022. The measures likely constitute a force majeure under existing contractual arrangements which are now incapable of being performed.

This unprecedented move by the Algerian government will cause significant financial damage to Spanish companies not only with investments in Algeria, but also to those with a significant trading relationship with the country. Banks and other professional services may also be hit hard.

Rights under international law

Spain and Algeria are parties to a bilateral treaty that protects investments and provides a remedy for damage caused by unlawful state interference¹.

In particular, the BIT protects against:

• Expropriation. Algeria is not permitted to expropriate an investment without paying adequate compensation. A violation of this obligation can be said to take place where the State has acted in a manner that has deprived the investor of the value of its investment, without paying appropriate and fair compensation. Expropriation can be direct – which is a deliberate formal act of taking that typically involves the transfer of some essential component of property rights to a different beneficiary, in particular the State; or indirect – which typically consists of a State measure that has the effect of substantially depriving the investor of the economic value of its investment. To bring an expropriation claim, an investor will have to identify the relevant measures taken by Algeria, prove substantial deprivation of its enjoyment of the investment, and show that Algeria has failed to pay appropriate and prompt compensation.
• A failure to provide each investor fair and equitable treatment (FET). This obligation has been interpreted as requiring the State to act consistently, transparently, reasonably, without ambiguity, arbitrariness or discrimination, and in an even-handed manner to ensure due process in decision-making and (importantly in this context) to respect investors’ legitimate expectations.
• A failure to provide full protection and security. Such obligation covers any physical protection and security of the investor or its investment and would apply against actions (and inactions) attributable to the State and private parties, for example in the context of civil unrest and use of physical force.
• A failure to provide treatment no less favorable than it gives to local investor (national treatment), and no less favorable that it gives to other foreign investors (most favored nation treatment).

Although each claim will turn on its facts, investors have a strong case that Algeria is in breach of a number of these obligations.

The BIT allows aggrieved investors to commence international arbitration before a neutral forum to seek damages for Algeria’s breach. This can offer a significant advantage as many of contracts may be subject to the jurisdiction of the Algerian courts which investors would no doubt prefer to avoid given the current political climate.

Protecting your rights – what steps to take?

Spanish investors affected by Algeria’s latest announcement will face challenging circumstances, and trade with the two countries has been paralysed. Where possible, investors should try to preserve documentary records (physical and electronic) which could be key the success of any claim against Algeria. In particular, investors should seek to preserve copies of the following categories of documents:

• Documents relating to the making of the investment (capital contributions etc.) or relevant contracts.
• Copies of any licenses or other authorizations granted by the Algerian State.
• Documents evidencing any commitments given by the Algerian State (copies of contracts, correspondence setting out any assurances etc.).
• Documents showing the financial performance of the investment or contract (annual and management accounts, budget forecasts etc.).

Additionally, force majeure notices may need to be served in respect of contracts which have been affected by these measures in order to minimise potential exposure under those contracts.

Investors should seek advice on how to preserve and assert their rights under the BIT, and how to avoid taking steps which could prejudice the prospects of success of any future claim.

We would be happy to discuss any aspect of this update with you further.

This article is also available in Spanish.