Algeria’s move to cut trade with Spain – in response to Spain’s green light to the Morocco-backed Western Sahara autonomy plan – has generated uncertainty for Spanish companies operating in Algeria. The execution of existing import/export contracts as well as the repatriation of profits could be seriously affected. Furthermore, although the measure does not apply, in principle, to gas supply contracts, the situation could well have a negative impact on ongoing or future negotiations or price review processes, and on other other aspects of long-term gas contracts.
In addition to all available contractual remedies, which may suspend or terminate contractual agreements to mitigate disruption, Spanish companies should also carefully consider investment treaty protection options. In particular, the bilateral investment treaty between Spain and Algeria grants Spanish companies international law protections, including the right to sue the Algerian government directly through arbitration. international. In our experience of similar crisis situations such as this, it is essential that companies are aware of their international treaty rights, in order to maximize their position in all discussions with government and state entities, and to ensure that these rights are not inadvertently waived or surrendered. more difficult to apply.
Algeria cuts trade with Spain
Earlier this month, Spain’s recognition of Morocco’s proposed Western Sahara autonomy plan heightened diplomatic tensions between Spain and Algeria. On June 8, 2022, Algeria suspended the treaty of friendship and good neighborliness with Spain signed in 2002. Although this official announcement did not involve the formal denunciation of the treaty, trade between the two states has already been negatively affected.
The following day, the Algerian Professional Association of Banks and Financial Institutions (the ABEF) – established under the auspices of the Central Bank of Algeria – announced the freezing of all transactions related to foreign trade operations to and from Spain as of June 9, 2022. Since all import transactions /export of goods and services to/from Algeria require direct debit at an Algerian bank, the ABEF measure essentially makes any export activity from Spain to Algeria impossible. In addition to the disruption of business activities, this freeze also causes significant financial damage to Spanish companies with investments in Algeria. The ABEF freeze also appears to have hampered the free movement of capital between Spain and Algeria, as well as the repatriation of profits.
In this context, the European Commission warned that “Algerian actions, including the instruction given to financial institutions to stop transactions between the two countries, […] appear to violate the EU-Algeria Association Agreement, particularly in the area of trade and investment”. Tension escalated until the dismissal of the Algerian finance minister on June 14, 2022. Additionally, on June 20, 2022, Algerian authorities reportedly issued a note urging Algerian travel agencies to suspend all working relationships with their Spanish counterparts.
What legal remedies are available to Spanish companies?
Algeria’s actions, including the freezing instruction given to financial institutions, could render certain contracts unenforceable and the repatriation of profits impossible. In these circumstances, the Spanish companies concerned may have recourse to:
- Contractual and statutory remedies. Contractual and statutory provisions (under the law applicable to the contract) may provide remedies to assist the parties when the performance of their contracts has become excessively difficult or impossible due to circumstances beyond their control. Several contractual provisions generally allow the parties to suspend or terminate their contractual arrangements in these circumstances. Typical examples include force majeure and hardship clauses. Legal provisions may further provide additional grounds, such as frustration or a fundamental change in circumstances.
- Investment treaty protection. Spanish companies affected by the Algerian measures can also avail themselves of the protection offered by the bilateral investment treaty between Spain and Algeria (the BIT). The BIT establishes specific international law protection standards for the benefit of investors, including, among others, protection against unfair, arbitrary or discriminatory treatment, expropriation without compensation and the right to repatriation of profits. In the past, investor-state tribunals have held that similar countermeasures taken by one state to retaliate against another, and thereby targeting investors of the latter’s nationality, violate investment treaty protections ( see Corn Products vs. Mexico, Cargill against Mexico and ADM against Mexico). More importantly, in the event of a violation of investor rights, the BIT provides an opportunity for Spanish nationals and companies to seek damages directly against the Algerian government through international arbitration in a neutral forum, rather than in Algerian courts.
What should Spanish companies with interests in Algeria monitor?
Spanish companies must act proactively to protect their interests and mitigate the risks involved:
- Contract management. Spanish companies should carefully review their contracts related to Algerian activities as they may require them to take certain actions before suspension or termination can take place. These may include the obligation to inform the contractual counterparty or to take mitigating measures. Similar requirements may also arise from the law applicable to the contract. It is essential to be aware of – and to comply with – these procedural requirements in order to avoid any loss of rights through delay or inaction. Because the effect of available remedies may vary, companies are strongly encouraged to consult with an attorney before resorting to any particular remedy.
- Safeguarding investment protection rights.Spanish companies should also consider strategies to preserve their rights under the BIT and take into account:
- Notification requirements. The BIT requires Spanish investors to notify the Algerian government of the existence of a dispute under the BIT; it is only six months after the service of this notification that arbitration can be initiated. This six-month period also offers a good opportunity to try to reach an amicable settlement. Moreover, even before formally notifying a dispute under the BIT, it can be invoked in a more gentle and informal way to strengthen the position of the investor in any negotiation or discussion with State authorities.
- Documentary files. Investment treaty disputes are usually very fact-driven. It is therefore of paramount importance to keep a detailed record of any documentary evidence showing the difficult circumstances of mining in Algeria. In addition to copies of relevant contracts, licenses or authorizations, investors should also keep copies of correspondence attesting to the impossibility of carrying out banking operations, the loss of business opportunities and the assurances and undertakings that the Algerian authorities have been able to give them over the years. Documents showing capital contributions and losses incurred are also essential.
- Substantive examination. Spanish companies affected by the Algerian measures must assess the merits of a potential claim under the BIT in light of the specific circumstances and available documentary evidence.
- Constant monitoring. Given the political and diplomatic nature of the conflict, the situation is evolving and may change in the future. The situation must therefore be constantly monitored, and the legal strategy regularly adapted to meet business objectives.
This is not an exhaustive list of preventive measures that investors should consider in this type of situation, and it is important that proper legal advice be sought on all such matters.