Lexology-27 June 2022
Algerian trade cut off with Spain: Spanish companies with interests in Algeria should take measures to manage their risks
Algeria’s measure to cut off trade with Spain – in response to Spain’s green light to the Morocco-backed autonomy plan for Western Sahara – has generated uncertainties for Spanish companies operating in Algeria. Performance of existing import/export contracts as well as profit repatriation may be severely affected. Further, while the measure does not, in principle, apply to gas supply contracts, the situation may well impact negatively on any ongoing or future price negotiations or review processes, and other aspects of long-term gas contracts.
Together with all available contractual remedies, apt to suspend or terminate contractual arrangements in order to mitigate disruptions, 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 bring legal actions directly against the government of Algeria through international arbitration. In our experience of similar crises situations like this, it is key for companies to be aware of their international treaty rights, in order to maximise their position in any discussions with the government and State entities, and ensure those rights are not inadvertently waived or rendered more difficult to enforce.
Algeria cuts off trade with Spain
Earlier this month, Spain’s recognition of the autonomy plan for Western Sahara proposed by Morocco escalated diplomatic tensions between Spain and Algeria. On 8 June 2022, Algeria in fact suspended the treaty of friendship and good neighbour relations with Spain signed in 2002. Even if this official announcement did not imply the formal denunciation of the treaty, trade between both States has already been adversely affected.
The following day the Algerian Professional Association of Banks and Financial Institutions (the ABEF) – established under the auspices of Algeria’s central bank – announced the freeze of all transactions related to foreign trade operations to and from Spain with effect from 9 June 2022. Since all import/export transactions of goods and services to/from Algeria require direct debit in an Algerian bank, ABEF’s measure essentially makes all export activities from Spain to Algeria impossible. Besides the disruption to trade activities, this freeze is also causing significant financial damages to Spanish companies with investments in Algeria. ABEF’s freeze appears to have also impaired the free movement of capital between Spain and Algeria, as well as profits repatriation.
In this context, the European Commission warned that “Algerian actions, including the instruction given to the financial institutions to stop transactions between the two countries, […] appear to be in violation of the EU-Algeria Association Agreement, in particular in the area of trade and investment”. Tension escalated up to the dismissal of Algeria’s Minister of Finance on 14 June 2022. Moreover, on 20 June 2022 Algerian authorities reportedly issued a note urging Algerian travel agencies to suspend all working relations with their Spanish counterparties.
What legal remedies are available to Spanish companies?
Algeria’s actions, including the freeze instruction given to financial institutions, may render some contracts incapable of being performed and repatriation of profits impossible. In the circumstances, affected Spanish companies may have recourse to:
Contractual and statutory remedies. Contractual and statutory provisions (under the law applicable to the contract) can provide remedies to assist parties where the performance of their contracts has become excessively difficult or impossible due to circumstances out of their control. Several contractual provisions generally allow parties to suspend or terminate their contractual agreements in these circumstances.
Typical examples include force majeure and “hardship” clauses. Statutory provisions may further provide additional grounds, such as frustration or fundamental change of circumstances.
Investment treaty protection. Spanish companies affected by Algeria’s measures may 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 inequitable, arbitrary or discriminatory treatment, expropriation without compensation and the right to profit repatriation.
In the past, investor-State tribunals held that similar countermeasures taken by a State to retaliate against another, and thus targeting investors of the nationality of the latter, breach investment treaty protection (see Corn Products v Mexico, Cargill v Mexico and ADM v Mexico). Most importantly, in case of violations of the investors’ rights, the BIT gives the opportunity to Spanish nationals and companies to seek compensation for damages directly against the Algerian government via international arbitration in a neutral forum, rather than before Algerian courts.
What should Spanish companies with interests in Algeria keep an eye on?
Spanish companies should act proactively in order to safeguard their interests and mitigate the relevant risks:
Contract management. Spanish companies should carefully review their Algerian activities-related contracts as they may require them to undertake certain steps before suspension or termination can take place. These may include the requirement to notify the contractual counterparty or to undertake mitigation steps. Similar requirements may also stem from the law applicable to the contract. It is crucial to be aware of – and comply with – such procedural requirements in order to avoid any loss of rights through delay or inaction.
Since the effect of available remedies may vary, companies are strongly encouraged to seek legal advice before relying on 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 government of Algeria the existence of a dispute under the BIT; only six months after such notification has been served can arbitration be initiated. This six-month period also provides a good opportunity to attempt to reach an amicable settlement. In addition, even before formally notifying a dispute under the BIT, this can be invoked in a more soft and informal manner to reinforce the investor’s position in any negotiations or discussions with State authorities.
Documentary records. Investment treaty disputes are generally very fact-dependent. It is therefore of paramount importance to keep a detailed record of any documentary evidence showing the challenging circumstances of operating in Algeria. Besides copies of relevant contracts, licenses or authorizations, investors should also keep copies of correspondence evidencing the impossibility to carry out banking operations, the loss of business opportunities and the assurances and commitments that Algerian authorities may have given them over the years. Documents showing capital contributions and losses suffered are also key.
Merits review. Spanish companies affected by Algeria’s measures should assess the merit-worthiness of a potential claim under the BIT in light of the specific circumstances and the documentary evidence available.
Constant monitoring. Considering the political and diplomatic nature of the conflict, the situation is unfolding and might change in the future. The situation must therefore be constantly monitored, and the legal strategy regularly adapted to meet the 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 appropriate legal advice is sought with regard to all these issues.