Arbitration is fast becoming the dispute mechanism of choice in Africa, says Dr Stuart Dutson, Lucy Webster and Timothy Smith.

Arbitration is fast becoming the dispute mechanism of choice in Africa, says Dr Stuart Dutson, Lucy Webster and Timothy Smith of Eversheds.

Economic advances in Africa have come at an astonishing pace in recent years. According to the IMF, four of the six fastest growing economies in the world in 2014 will be in Sub-Saharan Africa. Foreign direct investment has also increased dramatically over the last decade, from US$11Bn in 2002 to over US$ 56.3Bn in 2013. Excluding Libya, Africa’s growth is projected to accelerate to 5.3 per cent in 2014. Drivers for growth include oil production, mining, agriculture, services and domestic demand.

Africa’s vast linguistic and jurisdictional diversity can seem challenging to those looking to invest. The law in Africa is a diverse mix of common, civil, customary and religious law; Common law being the system of judge made case law, whereas Civil law being the codified collection of written statutes. Religious and customary laws play a large part in African society, and are only law to the extent that they are recognized by the state. Alongside the manifold legal framework, there are over 700 (known) languages in Africa, but working languages include English, Arabic, Portuguese and French.

Efficient way to resolve disputes

As Africa has developed economically, so too has the demand for effective and efficient means to resolve disputes between contracting parties and to protect investments. This article explores some of the main considerations regarding dispute resolution for parties doing business in Africa and focuses particularly on the growing use of arbitration, which is fast becoming the dispute resolution mechanism of choice across the continent.

Litigation or Arbitration?

A major factor in the rise of arbitration in Africa is the general reluctance of foreign investors to submit disputes to the local courts of an African country. Largely, the concerns are:

  • Lack of impartiality – will a particular African court favour the interests of a party from that same country, or an entity owned by that state, over those of a foreign investor?
  • Corruption – is this sufficiently guarded against in the local courts? This is a particular concern where investors are subject to onerous, far-reaching legislation from their own State, for example the UK Bribery Act 2010 or the USA’s Foreign Corrupt Practices Act 1977, whilst local parties are not subject to such rigorous anti-corruption regimes.
  • Political instability and civil unrest – what will be the effect of any instability on court proceedings?
  • Length of proceedings – in Nigeria for instance, cases can take up to 10 years to get through the commercial courts.

Arbitration on the other hand offers a number of advantages:

  • Relative ease of enforcement internationally under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) and other international instruments.
  • Perceived neutrality of arbitrators and the arbitral process.
  • Control over the process – parties can, for instance, often select their own arbitrators to hear the dispute and dictate the procedures to be employed.
  • Minimised involvement of local courts, which can only be invoked in specific circumstances under the relevant arbitral law being used.
  • Parties can choose a neutral or familiar law or set of rules to govern their arbitration, which may also take into account public international law principles.

For all these reasons, international arbitration is becoming the preferred dispute resolution mechanism for international parties doing business in Africa.

Practical considerations for arbitration in Africa

Choice of seat

A fundamental choice that contracting parties must make in relation to arbitration at the outset is where the seat of that arbitration will be, i.e. which country’s laws will govern the procedure of the arbitration and which country’s courts will oversee it.

There are a number of reasons why parties might choose a seat in an African jurisdiction. It may for instance be more cost effective to resolve disputes close to where the parties are doing business, particularly if there are likely to be many witnesses based there, or an African party may insist that an arbitration is seated in Africa. However, it should be borne in mind that, despite the growth of arbitration across Africa, some African states have been slow to adopt modern arbitration legislation. Accordingly, it is vital that parties weigh up the options carefully before choosing a seat, taking account of all the circumstances. Some of the key questions to ask are as follows.

Should the seat of the arbitration be the country where the parties are doing business?

There is some advantage to selecting the country where the parties are doing business as the seat of the arbitration. For instance, the relevant witnesses may be based in that country, therefore making managing any proceedings logistically easier and more cost-effective than if witnesses were required to travel oversees to provide their evidence. It is also the jurisdiction in which most relevant documents are likely to be located, thus avoiding potential complications around removing those documents from that country. Conversely, having an arbitration seated in an African party’s home state carries the risk in some jurisdictions that the local courts will favour the local entity when ancillary relief is sought. In addition, because arbitration is relatively new to some jurisdictions, the local courts may not be as favourable towards the arbitral process as others, and may seek to hinder it. If this is perceived to the case, a compromise might be still to seat the arbitration in Africa, but in a neutral jurisdiction instead.

What is the applicable arbitral law in the African state?

A key issue in determining the applicable arbitral law is what, if any, arbitration law is in force in the country of seat. An international investor may for instance prefer a state whose arbitration law follows the international norms to which there are accustomed, for example, the United Nations Commission on International Trade Law (“UNCITRAL”) Model Law on International Commercial Arbitration (the “Model Law”), or the Uniform Act adopted by members of the Organisation pour l'Harmonisation en Afrique du Droit des Affaires (“OHADA”).

(i) The UNCITRAL Model Arbitration Law

The Model Law is a standard arbitration law prepared and adopted by UNCITRAL that seeks to harmonise arbitration regimes worldwide. In order for it to apply in a particular state, it must be incorporated by a State into its own laws. The Model Law has been adopted in 10 African jurisdictions to date (Tunisia, Egypt, Kenya, Uganda, Rwanda, Nigeria, Zambia, Zimbabwe, Madagascar and Mauritius). The Model Law provides a number of useful features, for example:

  • parties are free to agree the procedure for appointing arbitrators;
  • the procedure for arbitrators to conduct an arbitration must be just and fair from the outset until conclusion;
  • local Courts can assist in the arbitration proceedings on a limited basis and as required; and
  • it provides for effective enforcement of an arbitral award - the courts can only refuse to enforce an award in limited circumstances.

(ii) OHADA

OHADA is an organisation of 17 African countries, the majority of which are francophone. The OHADA Uniform Act on Arbitration (the “Uniform Act”) will be directly applicable in countries that are OHADA member states and will supersede any domestic arbitration legislation. Enforcement of awards under OHADA is only possible for awards from OHADA members. If you are seeking to enforce an award from a non-OHADA state in an OHADA state or vice versa, you will have to rely on the local laws of the country of enforcement, or relevant international instruments, such as the New York Convention. The Uniform Act is less comprehensive than the Model Law, but shares many of its features, eg parties can choose the procedure for appointing arbitrators, each party must be treated equally and given the opportunity to present its case and an award may only be set aside or enforcement of it refused on certain limited grounds. Unlike under the Model Law however, arbitrators have no express power to award interim measures. However, the Uniform Act is subject to any rules of an arbitration institution that the parties may choose and many of these sets of rules give arbitrators the power to award interim measures.

(iii) Countries that have not adopted the Model Law and are not OHADA members

If a country has not adopted the Model Law and is not a member of OHADA, the arbitration will be subject to the local arbitration law of that state. Most African countries have some form of arbitration law, but their content and application may vary greatly. In this regard, some jurisdictions may be considered “pro” arbitration, whereas others may be seen as arbitration un-friendly, or a bit of both. In Ghana, for instance, the Ghanaian courts have the power to initiate or recommend a referral to arbitration where the judge is “of the view that the action or a part of the action can be resolved through arbitration” (section 7(1) of the Ghana Alternative Dispute Resolution Act 2010). However, despite its apparently pro-arbitration law, the resolution of disputes involving the national or public interest, the environment, or the enforcement and interpretation of the constitution by arbitration is prohibited. Accordingly, parties should consider the governing arbitration law very carefully before committing to a particular jurisdiction.

Where can an award be enforced?

It is vital that an award granted in an arbitration is capable of being enforced in the relevant jurisdictions – particularly if the other party has assets globally. Accordingly, another primary consideration when deciding whether to seat an arbitration in an African State is whether that State has acceded to any treaty or convention which provides reciprocal arrangements for the enforcement of arbitral awards, such as the New York Convention or OHADA. 32 of the 54 African states have acceded to the New York Convention. This means that an arbitral award granted in arbitrations seated in those states can be enforced in other states that have also acceded to the New York Convention. The Courts of the country where enforcement is sought have only limited grounds on which to reject enforcement, namely if:

  • “the agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law where the award was made.” (Article V(1)(a)); or
  • “the recognition or enforcement of the award would be contrary to the public policy of that country.” (Article V(2)(b)).

Other key considerations

Other considerations for parties when choosing the seat of arbitration include:

  • Whether judges in a State’s courts are trained in the practice and procedure of arbitration, so that they support the arbitration process and enforce arbitration agreements and awards.
  • Anti-arbitration injunctions should only be granted in exceptional cases that warrant the making of such orders, and must deal expeditiously with proceedings involving arbitrations.
  • Recognition and enforcement of arbitral awards must be the norm, with refusal only to be made in the circumstances set out in Article V of the New York Convention.
  • Security, political stability and corruption (whether real or perceived) should be evaluated.
  • The procedure for enforcement of or challenges to arbitral awards should be relatively simple and expeditious. By way of example, in Nigeria, except for ICSID awards, which are enforced directly by the Supreme Court as the court of first instance, arbitration cases take between four and 10 years to reach the Supreme Court before a final decision is issued in favour of enforcement of the award, or confirming the arbitrability of the subject matter of the dispute.

Selecting a key arbitration centre

Africa has a number of established arbitration centres. These centres are an attractive alternative to the more traditional arbitration centres of London or Paris, and may well be less costly. Key examples include:

  • Mauritius: The London Court of International Arbitration – Mauritian International Arbitration Centre (“LCIA-MIAC”) was formed as a joint venture between the LCIA and Mauritius in 2012, following the enactment of arbitration legislation in Mauritius. The LCIA-MIAC has its own set of rules which are based largely on the LCIA Rules and so may suit those parties who are familiar with arbitrating through the LCIA but want to resolve any disputes in Africa.
  • Egypt: The Cairo Regional Centre for International Commercial Arbitration (“CRCICA”) was established in 1979 and its rules are based on the UNCITRAL Arbitration rules (as revised in 2010), with minor variations relating mainly to the CRCICA’s role as an arbitral institution and an appointing authority. The CRCICA has four branches within Egypt, including one dedicated to specialist maritime arbitration.
  • Côte d'Ivoire: If one of the parties is resident in an OHADA state or the business carried out under the contract is performed wholly or partially in an OHADA state, the Uniform Act provides for arbitration administered by the Common Court of Justice and Arbitration (“CCJA”) in Abidjan.
  • Rwanda: The Kigali International Arbitration Centre was launched in 2012. Its rules place an emphasis on reducing costs for parties and include measures similar to the recently amended rules of the International Chamber of Commerce (“ICC”), such as the availability of an emergency arbitrator to provide urgent interim relief prior to the constitution of the arbitral tribunal.

Choosing another international arbitration centre or seat

Some parties will prefer to use more traditional arbitration centres such as the LCIA in London or the ICC in Paris. For instance, in 2012, 5.5 per cent of referrals to the LCIA were made by African parties (including two per cent from Nigeria), an increase from 4.5 per cent in 2011.

However, a popular alternative for international investors in Africa is now the Dubai International Finance Centre (the “DIFC”). Dubai is a convenient geographical location for African parties, with frequent direct flights to and from Africa and also enjoys a status as an international commercial hub. The DIFC has reported a threefold increase in enquiries received from African parties in the last year, showing that as the popularity of arbitration has risen in Africa, so too has the demand from African arbitrating parties to arbitrate in Dubai.

Another key attraction of the Middle East for parties contracting in Africa is the availability of enforcement under the Riyadh Convention. Eight out of the 20 Riyadh Convention member states are African countries. These are largely Islamic countries. Five of these states (Algeria, Djibouti, Mauritania, Morocco and Tunisia) have also acceded to the New York Convention, so parties arbitrating in these countries may have multiple options for enforcing an award. Selecting a Riyadh Convention state may be particularly appropriate where a party is an Islamic entity. Crucially, however, under the Riyadh Convention, enforcement of an award can be refused if the judgment or award is contrary to Shari’a law or the constitution, public policy or good morals of the country where a party is seeking enforcement.

Bilateral Investment Treaties (“BITs”)

An important consideration for international investors in Africa is whether any BIT is applicable to their investment. A BIT is an international treaty between two countries which protects investments by parties from those states, made in each other’s states. BITs generally provide protection from expropriation and guarantee fair and equal treatment, as well as providing for international arbitration as the method for resolving any disputes. BIT disputes are often dealt with by the International Centre for the Settlement of Investment Disputes (“ICSID”), which was set up by the World Bank in Washington DC and can provide protection where states are parties to the ICSID Convention - which 48 African States are. Investors and host states must have agreed to submit disputes to ICSID, and this can be done by way of a BIT or contract between parties. Currently there are around 760 BITs in place in Africa, for the most part entered between African states and non-African states. Egypt for example has entered over 100 BITs.

In contrast, South Africa has recently sent notices of termination of its BITs to Belgium, Luxembourg, Germany, Spain, Switzerland and The Netherlands, which appears to buck the growing trend of international arbitration across the African continent. Once the relevant notice periods expire, new investments from these countries will no longer be protected under the BITs and disputes will not automatically be resolved by international arbitration. South Africa intends eventually to replace all its BITs with domestic legislation. The Promotion and Protection of Investment Bill (the “Investment Bill”) will apply to all foreign investments. The Investment Bill provides for a narrower definition of expropriation than that contained in existing BITs and does not make any mention of “fair and equal treatment” of investments by the host State, which is guaranteed by most BITs. The Investment Bill also denies investors the right to have disputes resolved by international arbitration, unless otherwise agreed. Instead, disputes must ordinarily be submitted to the South African courts or domestic arbitration or mediation. At the time of writing, there was no publicly available information about when the Investment Bill might come into force, but a period of public consultation on the Investment Bill ended on 31 January 2014.

Recent developments

As a result of the economic boom in Africa, dispute resolution solutions, and particularly international arbitration, are constantly evolving. Key recent developments include:

  • The Democratic Republic of the Congo (“DRC”) adopted the New York Convention in June 2013, but has made four reservations to its adoption. Two of those reservations are particularly significant. First, enforcement will only be available in the DRC where awards post-date the DRC’s accession. Second, immovable property situated in the DRC is excluded from the application of the New York Convention, thereby excluding mining rights from its ambit. Notwithstanding those points, it is likely that the adoption of the New York Convention will increase the attraction of the DRC as an arbitration destination.
  • A number of new arbitration centres are expected to open soon. In Kenya, the Nairobi International Arbitration Centre is expected to start receiving cases at some stage this year. The International Chamber of Commerce has also recently announced that it plans to establish an arbitration centre in Ghana.
  • In a recent decision, the Nigerian Court of Appeal in Nigerian National Petroleum Corporation v. Statoil (Nigeria) Limited and Others refused to grant an injunction to halt arbitral proceedings, as to do so would undermine the parties’ agreement to submit the dispute to arbitration. This has been welcomed as evidence to show that courts in Africa are supportive, rather than obstructive to the arbitral process.

Africa as an arbitration destination

Hand in hand with the increasing opportunity in Africa for foreign investors is the need for there to be a means of resolving disputes that is both neutral and cost effective. International arbitration in Africa is starting to fulfil this need. Investors should be encouraged by this trend, but must be wary of the important considerations when choosing a jurisdiction in which to seat an arbitration.

The increasing number of arbitration centres in Africa shows that countries are seeking to attract foreign investment, while at the same time providing easy access to an independent arbitral forum. States are also, generally, showing a greater willingness to accede to internationally recognised enforcement regimes and the local courts are becoming increasingly familiar with arbitration as a valid method of resolving disputes. If the 21st Century is indeed to be “Africa’s century”, the development of international arbitration in Africa must be a key part of this.