FORUM: Managing and resolving commercial disputes in Africa
March 2017 | SPECIAL REPORT: EMERGING MARKETS – OPPORTUNITIES AND RISK MANAGEMENT
Financier Worldwide Magazine
FW moderates a discussion on managing and resolving commercial disputes in Africa between Shaparak Saleh at Freshfields Bruckhaus Deringer LLP, Dr Robert Gaitskell QC at Keating Chambers, and Tamara Egbedi at Spectrum Geo Ltd.
FW: How would you describe the commercial dispute resolution landscape in Africa at present? What are the most significant trends and developments to have arisen in recent times?
Saleh: The commercial dispute resolution landscape in Africa is undergoing a transformation, with arbitration emerging as the preeminent dispute resolution mechanism. Further, in the past decade, there has been an increase in arbitration-friendly laws, including the Moroccan Law on Arbitration and Conventional Mediation, the Algerian Law on Arbitration and Alternative Dispute Resolution Mechanisms. Another noticeable trend is the creation of new arbitration centres, with the Kigali International Arbitration Centre in Rwanda and the Casablanca International Mediation and Arbitration Center in Morocco among the new institutions. However, most of these arbitration centres do not yet manage a significant caseload. Additionally, several countries, such as São Tomé and Príncipe, Burundi, the Democratic Republic of the Congo and Comoros, have recently ratified the New York Convention.
Egbedi: I would describe the current landscape as growing, flexible and quite reactive to encourage commercial transactions in African countries. In most African countries, alternative dispute resolution (ADR) mechanisms like multi-door court, negotiation, mediation and conciliation and arbitration have become increasingly popular in resolving commercial disputes, and many are now done in Africa rather than in established arbitration countries such as London.
Gaitskell: The commercial dispute resolution landscape in Africa at present is a patchwork. It is most definitely not a homogeneous consistent whole. From a very high level viewpoint, it is possible to say that the significant trends and developments that have arisen in recent times generally flow from the abundance of natural resources, particularly minerals and oil and gas, which proliferate in the continent. In addition, any useful and sophisticated analysis of the dispute resolution landscape must take account of the fact that, whether judged from the viewpoint of dispute resolution or from a viewpoint concerned with trends and developments, Africa really consists of five quite distinct areas: Southern Africa, Central Africa, West Africa, East Africa and North Africa. South Africa, in particular, has seen a steady stream of significant disputes being dealt with by dispute boards, mediation and arbitration, with many related to important mineral resources and associated power, mining, mineral recovery and transportation projects.
FW: Are you seeing an increase in commercial disputes in Africa? If so, which types of dispute are being seen, what is driving them, and in which sectors and industries are the largest instances of corporate conflict?
Egbedi: Each country in Africa is different, so the type of dispute that is most common will depend on economies, sources of commercial activities and the natural resources that each country has. For example, in Nigeria it is oil and telecommunications, in South Africa it is mining and oil, telecommunications and tourism, and in Angola, oil and diamonds. In Nigeria, five to 10 years ago there was an increase in commercial disputes, mostly in the oil & gas and maritime sectors. This was due to the large investments that were being made in these sectors at that time. Many disputes arose between the Nigerian National Petroleum Corporation (NNPC) and its joint venture partners, oil companies and their subcontractors, as well as disputes over vessel operations in Nigerian waters and oil block allocation.
Gaitskell: The simplistic answer is that there has been a marked increase in commercial disputes in Africa. Again, remaining at a simplistic high level, the types of disputes being generated are largely infrastructure arbitration. These are driven by disputes emanating from mining and oil drilling activities, and ancillary projects concerning power generation and water supply that are funded by the mineral and oil wealth and which produce the electricity, water and other needs of the mining and oil companies. The conflicts ending in arbitration are generally between a major employer, often a parastatal body, able to fund, sometimes with World Bank assistance or using a private finance initiative (PFI) arrangement, huge investments and big international contractors with the expertise to deliver the project, from design through to construction.
Saleh: Africa is experiencing remarkable economic growth and an upsurge in foreign investment, giving rise to an inevitable parallel increase in commercial disputes. In recent years, such disputes mainly related to the fields of energy, mining, infrastructure, construction, sub-contracting, telecommunications and tax. With regard to tax disputes, many arose after the imposition of taxes on exceptional profits, also known as windfall profit taxes, following increases in hydrocarbon prices, such as the Algerian Hydrocarbon Law. Disputes concerning production sharing agreements, association contracts and concessions are particularly frequent, as well as shareholders’ or joint venture disputes, as in other regions of the world.
FW: Broadly speaking, what particular dispute management and resolution techniques are popular in Africa? How would you evaluate the benefits of mediation, arbitration and litigation?
Saleh: In Africa, most domestic disputes are brought before judicial courts. However, in member states of the Organisation for the Harmonisation of Business Law in Africa (OHADA), the situation is gradually shifting as parties increasingly favour arbitration, including for domestic disputes. International disputes are predominantly resolved through arbitration and statistics from the International Chamber of Commerce (ICC) show that ICC arbitrations involving at least one African party are continually growing. 2016 saw an approximate 50 percent increase in the number of parties to ICC arbitrations from North and Sub-Saharan Africa. Mediation is also subject to an increasing number of laws and draft bills, such as the Burkinabe Law on mediation in civil and commercial matters, a draft bill in Cameroon and OHADA’s plan to issue mediation rules. It encourages the amicable settlement of disputes and allows the parties to preserve their commercial relationships. In addition, arbitration encourages foreign investments, as it seeks to guarantee legal certainty and investor confidence.
Gaitskell: By far the most popular dispute management and resolution technique employed for commercial clashes in Africa, involving a non-domestic party, is arbitration. Although the sophisticated South African economy is showing an increased enthusiasm for dispute boards and mediation, this enthusiasm is not replicated in other parts of the continent. For domestic disputes in any particular African country, between two commercial entities entirely located within that country, court litigation may be a viable procedure for dealing with the dispute. However, whenever there is an international party involved, or even a local company in which there is a big outside investment, litigation is unpopular. This is because the outside party will have the perception, whether rightly or wrongly, that the courts of that country are more likely to be sympathetic to the local company rather than to them. Arbitration also has a variety of other important advantages over litigation in such circumstances, including the fact that international enforcement of an award is possible thanks to the New York Convention on the Recognition & Enforcement of Foreign Arbitral Award 1958, and the proceedings can be made entirely confidential.
Egbedi: The most popular technique is litigation, as this is what governments and local companies in Africa trust and prefer. The benefits of litigation are that it is cheaper than arbitration and includes binding precedence and appeal rights. The second most popular resolution technique is arbitration, as ongoing relationships can be maintained, there is confidentiality and neutrality and an overall certainty of a resolution, which is usually arrived at faster than with litigation due to its appeals system. In contrast, the benefits of mediation over both litigation and arbitration are that it is cheaper, settlements are faster as the mediator is experienced in the issues involved, lawyers are unnecessary, the parties themselves participate, amicable termination is an option, compliance rates are higher, outcomes are mutually satisfactory and there is preservation of ongoing relationships. It is also common to have multiple mediations without any disruption to ongoing projects and business.
FW: When considering the available options for resolving a commercial dispute, to what extent are companies operating in Africa more inclined to use arbitration? How would you characterise the level of support provided by arbitration facilities and processes available in Africa, and how much of an issue is the enforcement of arbitration awards across the continent?
Gaitskell: When considering the available options for resolving a commercial dispute in Africa, an outside company is inclined to use arbitration. When parties are drawing up their contract and inserting the dispute resolution clause, the outside party should take great pains to ensure that the ‘seat of arbitration’ identifies a locality with which that company is content. For example, where a foreign construction company is entering into a contract in Zimbabwe, it may well seek to ensure that the identified seat of any arbitration is either Johannesburg or Mauritius. Both of these possibilities may be acceptable to the local Zimbabwean employer, even if it is a parastatal organisation, because South Africa and Mauritius are both in the Southern African Development Community. Similarly, the outside party will want to ensure that the law to be applied for construing the contract, and for governing the arbitration itself, is a legal system with which it is content. In South Africa this is not a problem because the local legal system is commercially well-developed, albeit based on Roman Dutch law rather than English common law.
Egbedi: Companies in Africa are more inclined to use arbitration if there is a large amount of money involved, if there is a threat of nationalisation of the foreign asset, where there has been a near total breakdown of relations especially after all other ADR mechanisms have been exhausted, in situations where technical issues require expert opinion to resolve them, and when enforcement of a judgement is not likely to be respected. There has been tremendous support, including increasing numbers of ADR offices, multi-door courts working alongside the wider justice system, highly knowledgeable and certified arbitration lawyers, and well-known and established arbitration centres in many African countries, such as Nigeria, South Africa and Ghana. African countries want to attract foreign investment and are aware that many companies and investors fear making a commitment due to the large potential for disputes; hence they have been more compliant in enforcing arbitral awards.
Saleh: Award execution is the key driver for the choice of arbitration. Twelve out of 17 OHADA Member States are parties to the New York Convention, and 15 are parties to the International Centre for Settlement of Investment Disputes (ICSID) Convention. Under OHADA, enforcement will be ordered by the competent court upon proof of the existence of the award, provided it is not contrary to the international public policy of Member States. Leave to enforce the award will not be granted if annulment proceedings are pending against the award. Difficulties relating to enforcement may arise when the Member State in which enforcement measures are sought is neither an OHADA Member State, nor a signatory of the New York Convention or any convention on judicial cooperation which addresses the enforcement of arbitral awards. Moreover, the fact that assets belonging to OHADA Member States benefit from immunity from execution may present an additional hurdle.
FW: In your opinion, how important is it for companies to establish a pre-emptive strategy for dealing with a potential dispute? What clauses should companies insert into their commercial contracts to help manage dispute resolution down the line?
Gaitskell: It is most important for companies to establish a pre-emptive strategy for dealing with a potential dispute. For example, when negotiating the dispute resolution clause they should ordinarily aim to have a sophisticated clause that makes available a variety of techniques. For example, the clause could specify that if a dispute arises it should first be discussed by the chief executive officers of the two parties in dispute. If that fails to resolve the problem then mediation should be attempted. If this fails then arbitration becomes necessary. The clause should ordinarily identify a competent administrative and appointing body, such as the ICC Court of International Arbitration based in Paris. This is by far the biggest such body and is highly regarded, and an award produced through its procedures, and having passed through its scrutiny, is very likely to be enforced by any court around the world.
Egbedi: It is vital and key for companies to establish a pre-emptive strategy in their contracts, as it ensures a lasting relationship and continuous progress of the business or project. There should be an arbitration clause or governing law clause which will have a tier system of dispute resolution mechanisms, starting with negotiation between both parties’ senior director. If that fails, the dispute will be decided by mediation or directly to arbitration, depending on the dispute tier system agreed. The seat, governing law, arbitration rules to follow, number of arbitrators and language must be clearly stated.
Saleh: It is vital for companies that conduct business in Africa to establish a pre-emptive strategy for dealing with potential disputes, including clear and unambiguous dispute resolution clauses. Should the parties wish to include an escalation clause, they should ensure the applicable process for notifications is clearly described and set a precise timeframe for the mediation and amicable discussions. Furthermore, companies should use the ICC model arbitration clause and specify the number of arbitrators, as well as the seat and language of the arbitration. The applicable law of the contract should also be clearly stated. Lastly, it is advisable to include efficient stability provisions in contracts with host states or public entities.
FW: What key advice would you offer to companies operating in Africa on managing and resolving commercial disputes in the region? Are there any common aspects that parties tend to overlook or underestimate?
Egbedi: One key piece of advice is to work on relationships. Success in managing disputes largely depends on the level of trust that companies have built over the years. Africa is a continent of many countries and, although there are similarities, there are also considerable differences. Many companies make the same mistake of not taking the time to understand each country – its peculiarities, its people, its culture, its history and its business ethics. Often the same tactics or methods of working used in one African country are applied to another, sometimes with disastrous results. Local partners can provide key information and give advice as to the challenges of doing business in any given country.
Gaitskell: From the moment the contract is being negotiated and the dispute resolution clause is being formulated, companies should be mindful of the special characteristics of that region and should, if necessary, secure the necessary local knowledge from a reputable legal firm practising there. In a sophisticated environment, such as South Africa, obtaining such competent legal advice is straightforward. The common aspects that parties tend to overlook or underestimate are that the local legal system may be significantly different from the legal system with which the outside company is familiar – hence the importance of specifying a satisfactory legal system in the arbitration clause. For example, it is often the case that major contracts made in Africa will specify that English law is to apply and the seat is to be London. Since many of the major economies in Africa, including both South Africa and Nigeria, have histories that are closely linked with England, English law and an English seat are often acceptable to the local party. As Brexit plays out, I would expect UK contractors and equipment suppliers to redouble their efforts to do business with Africa, and when they do they should be astute to ensure that the dispute resolution clause contains no surprises.
Saleh: Our key advice to companies operating in Africa is to pursue arbitration instead of domestic court processes whenever feasible. In relation to the 17 OHADA Member States, the Common Court of Justice and Arbitration (CCJA) provides a preferable alternative to domestic courts. However, should the option be available, investors are advised to refer their disputes to more established arbitral institutions, such as the ICC. Nevertheless, the CCJA Court has in recent years demonstrated willingness to reform. Companies operating in Africa should not underestimate the impact of cultural differences on their projects. Different nationalities will likely have varied attitudes towards the passing of time. Cultural responses to amicable settlement discussions may also be disparate. An additional element that companies should not underestimate is the specificities of domestic law: if the contract is governed by domestic law, it will be crucial to involve local counsel.
FW: How do you envisage the outlook for commercial disputes in Africa over the coming years? What general trends or developments do you expect will unfold?
Saleh: We believe that over the coming years, arbitration will continue to grow and remain the preferred forum to resolve international commercial disputes in Africa. In June 2016, the ICC and OHADA signed a partnership agreement seeking to enhance cooperation between the two organisations and to promote, professionalise and standardise the practice of arbitration. In October 2016, a similar cooperation agreement was signed by OHADA and the United Nations Commission on International Trade Law (UNCITRAL). This is a welcome step and illustrates the efforts undertaken to accelerate the modernisation of OHADA’s dispute settlement system. All eyes are now on OHADA to see whether criticism from the arbitration community will materialise into concrete policy and organisational changes, something the partnership agreements with the ICC and UNCITRAL should hopefully address in due course.
Gaitskell: I envisage the outlook for commercial disputes in Africa over the coming years as going from strength to strength. The last few years has seen a steady increase in the number of disputes that need to be dealt with, and I have seen no sign of this slackening off. As both sides to the disputes, the big local employers and the outside contractors and equipment suppliers, become more familiar with international arbitration in Africa, I expect such disputes to be handled more cost effectively and efficiently than they perhaps are at the moment.
Egbedi: I foresee African arbitration centres, multi-door courts and ADR mechanisms handling the majority of commercial disputes over the coming years. Investors and companies will choose arbitration centres, such as those in Nigeria and South Africa, which are just as sophisticated and qualified as those in London. There is already an increased confidence in the competence of African arbitrators and the enforcement of judgements. This will save on costs for parties and provide a win-win situation. I also expect that, as companies and countries realise that arbitration and litigation is expensive and can be quite rigid with a lot of formal rules, the general trend will increasingly lean toward other ADR mechanisms to resolve commercial disputes.
Shaparak Saleh has been with Freshfields Bruckhaus Deringer LLP’s Paris dispute resolution group since her trainee days in 2004. Avocat à la Cour since 2006, Ms Saleh has built extensive experience and reputation centred around francophone and French-law arbitration, litigation in support of arbitration (including enforcement and annulment proceedings) and disputes in francophone Africa. Her experience also includes disputes in the aeronautics, energy, natural resources, chemicals, construction and post-M&A fields. She can be contacted on +33 1 44 56 44 56 or by email: email@example.com.
Dr Robert Gaitskell QC is a technology, engineering and construction specialist practising from Keating Chambers. Predominantly acting as an arbitrator, adjudicator, dispute board member and mediator, he has an international practice covering disputes in Africa, the Middle East, Russia and South East Asia, among others. Dr Gaitskell is also a professional engineer and editor of the ‘Keating Construction Dispute Resolution Handbook’. He can be contacted on +44 (0)20 7544 2600 or by email: firstname.lastname@example.org
Tamara Egbedi is a lawyer with over eight years’ experience in commercial contracts, corporate law, compliance, dispute resolution, commercial, maritime, energy and local content laws in the oil & gas industry gained in the UK, EAME and Asia Pacific Countries. Ms Egbedi is currently the EAME legal counsel and global contracts manager for Spectrum Geo Ltd, a multi-client seismic data company in the UK. She can be contacted on +44 (0)148 374 2649 or by email: email@example.com.
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