In this briefing, we examine the current legal environment in relation to agreements between international entities (whether directly or indirectly through a Ghana-incorporated subsidiary) and the Ghanaian Government, and the arbitrability of such disputes.

Requirement for approval of all “international business transactions” by Parliament

In our last commentary of May 2012 on the case of Attorney General v (1) Balkan Energy Ghana Ltd (“BEG”) (2) Balkan Energy LLC and (3) Mr Philip David Elders1, we examined the Supreme Court of Ghana’s decision that the power purchase agreement (the “PPA”) entered into between the Government of Ghana and BEG was an “international business transaction” under Article 181(5) of the Ghanaian Constitution and therefore void as it had not been approved by the Parliament.

Article 181 of the Constitution provides as follows:

  1. “Parliament may, by a resolution supported by the votes of a majority of all the members of Parliament, authorise the Government to enter into an agreement for the granting of a loan out of any public fund or public account.
  2. An agreement entered into under clause (1) of this article shall be laid before Parliament and shall not come into operation unless it is approved by a resolution of Parliament.
  3. No loan shall be raised by the Government on behalf of itself or any other public institution or authority otherwise than by or under the authority of an Act of Parliament.
  4. An Act of Parliament enacted in accordance with clause (3) of this article shall provide:
  5. (a) that the terms and conditions of a loan shall be laid before Parliament and shall not come into operation unless they have been approved by a resolution of Parliament; and (b) that any moneys received in respect of that loan shall be paid into the Consolidated Fund and form part of that Fund or into some other public fund of Ghana either existing or created for the purposes of the loan.
  6. This Article shall, with the necessary modifications by Parliament apply to an international business or economic transaction to which the Government is a party as it applies to a loan.”


BEG entered into the PPA with the Government of Ghana (the “Government”) on 27 July 2007, under which BEG committed to making the Osagyefo power barge (the “Barge”) operational within 90 days.

At the expiry of 90 days the Barge was not operational and as the parties were unable to come to an agreement, on 23 December 2009 BEG served a notice of commencement of arbitration in the Hague under the United Nations Commission on International Trade Law (“UNCITRAL”) rules pursuant to an arbitration agreement contained within the PPA.

On 26 February 2010, a court in the Netherlands made an attachment order against the assets of the Government. The Government then applied to the Ghanaian High Court for an interim injunction to prevent BEG from carrying on with the arbitration, while BEG responded with an application for a stay of the High Court proceedings pending completion of the arbitration.

The international arbitration

The Permanent Court of Arbitration in the Hague (the “PCA”) has now ruled that the PPA was valid, though not properly performed by BEG and that it had been terminated by Ghana. The PCA awarded BEG $12 million in damages for work done under the PPA, although it rejected BEG’s $3 billion dollar claim under the PPA’s multi decade tolling fee provisions as well as its claim for $40 million for unjust enrichment. The PCA also granted $300,000 to the Government in damages, for the time the Barge spent out of action during the arbitration.

Conflict between Ghanaian court and PCA decisions

In both the Ghanaian courts and the arbitration, the “arbitrability” of the dispute, i.e. whether or not the arbitration tribunal had jurisdiction to hear the dispute in the first place, was in issue.

As discussed in our previous article, the Ghanaian courts took the view that the PPA was void because it was an international transaction within the meaning of Article 181(5).

The Ghanaian courts have therefore adopted the position that:

  1. the PPA was void for lack of approval by Parliament, and
  2. the dispute was not arbitrable,

whilst the international tribunal has decided that

  1. the dispute was arbitrable and
  2. the PPA was valid.

The Ghanaian Alternative Dispute Resolution Act

The Ghanaian Alternative Dispute Resolution Act 2010 (“Act 798”) was brought into force in order to bring domestic legislation up to date with international arbitration law and practices. The Act authorises parties to a written agreement which is or includes an arbitration agreement to provide for arbitration.

Arbitrability is for the tribunal in question to decide.

Section 24 states:

24. “Unless otherwise agreed by the parties, the arbitral tribunal may rule on its own jurisdiction particularly in respect of

  1. the existence, scope or validity of the arbitration agreement;
  2. the existence or validity of the agreement to which the arbitration agreement relates;
  3. whether the matters submitted to arbitration are in accordance with the arbitration agreement.”

However, in certain circumstances, Act 798 will not apply and the subject matter of the dispute will thereby not be arbitrable.

Section 1 states:

  1.  “This Act applies to matters other than those that relate to
  1. the national or public interest;
  2. the environment;
  3. the enforcement and interpretation of the Constitution; or
  4. any other matter that by law cannot be settled by an alternative dispute resolution method.”

In the Balkan dispute, in addition to the argument that the arbitration agreement in the PPA was void for lack of Parliamentary approval as a separate international business transaction (this was rejected by the Ghanaian courts, as discussed in our last briefing), the Government also contended that the dispute fell outside the remit of the arbitration tribunal as a matter of interpretation of the Constitution pursuant to section 1(c) of Act 798.

The High Court granted the Government’s stay of proceedings on 6 September 2010, holding that matters relating to the Ghanaian Constitution were outside the competency of the PCA tribunal. However, rather than relying on s1 of Act 798, the Judge reached this decision on the basis of domestic civil procedure rules on injunctions, namely that the Government could suffer irreversible losses if the stay of arbitration was not granted, as the domestic court had no control over the arbitration process.

The arbitration tribunal stated that it did not consider its jurisdiction was affected by the High Court’s stay of proceedings and went on to hear the dispute, as set out above. It also apparently reached the conclusion that the PPA was not invalidated by the lack of parliamentary pre-approval. Unfortunately, the confidentiality of the award means that the reasoning of the tribunal in reaching this conclusion is not available.

It remains to be seen whether further issues will arise at the time of application for recognition and enforcement of the award in Ghana.

Section 53(1) of Act 798 provides:

“The Court shall set aside an arbitral award where it finds that the subject-matter of the dispute is incapable of being settled by arbitration or the arbitral award was induced by fraud or corruption.”

Given the Government’s argument that the Balkan case turned on a question of constitutional interpretation and the lack of clarification on this point, it is potentially still open to question whether the dispute was “incapable of being settled by arbitration”.

Proposed clarification of international business transactions

Proposals to clarify the scope of Article 181(5) of the Ghanaian Constitution were prepared by the Cabinet for submission to Parliament by the Attorney General and Minister of Justice as a result of the Balkan case.

Under the proposals, the following international business transactions would require approval by Parliament:

  • those supported by a loan;
  • those where Government funds could be used to service the loan element;
  • those where contingent liability could be put on the Government;
  • those which are defined as such by law; and
  • those provided for in the budget but above a certain amount (amount to be agreed).

Under the proposals, the following transactions would be exempt from approval by Parliament:

  • international business transactions involving state-owned enterprises (however, there should be no sovereign guarantee for such transactions);
  • subsidiary agreements to international business transactions where the master agreement has been approved by Parliament; and
  • international business transactions provided for in the budget.

According to the Ghanaian court which was considering the Balkan dispute, international business transactions which are not “major” transactions (such as transactions of “ordinary commerce”) are also exempt from the need for approval by Parliament. However, the court offered no definition of “major”. Some further clarification may be offered in a current dispute between a consortium of international companies, led by Bankswitch Ghana (“Bankswitch”), and the Government. At the PCA, Bankswitch claimed 853 million Ghanaian cedis for termination of a contract to provide software to be used in Ghanaian ports and was awarded 197 million cedis (about $71 million at the time of writing).

A suit has since been filed by the Government requesting the Ghanaian Supreme Court to declare the contract with Bankswitch void as an international business transaction which was not approved by Parliament.

The Bankswitch case throws into further relief the tension between the right of international investors to refer disputes to international tribunals and the wish of governments to reserve certain issues for decision by their courts. It also highlights the need for clarity on transactions which will qualify as international business transactions under Article 181(5) of the Constitution.

Proposals to date are far from comprehensive, so, for an international party to maximise its chances of a contract avoiding challenges, there can be no substitute for Parliamentary approval in any large scale transactions involving the Government.

In seeking to address disputes with the Government through arbitration, Parliamentary approval should also help to guard against arguments against arbitrability on grounds of section 1(c), relating to “the enforcement and interpretation of the Constitution” of Act 798. However, it would seem that any large scale agreement with the Government is likely to engage arguments that it relates to at least one of “the national or public interest”, “the environment” and “any other matter that by law cannot be settled by an alternative dispute resolution method” and is therefore non-arbitrable from the perspective of the Ghanaian government and courts.

Even if, as in the Balkan and Bankswitch cases, the relevant arbitration tribunal claims jurisdiction, and rules in favour of the international party, successful parties may still face issues with recognition and enforcement of their awards in Ghana.

International parties may wish to mitigate these arbitrability and enforcement risks by (1) choosing a seat for arbitration outside Ghana, and (2) contracting under the laws of a state other than Ghana, both in relation to the principal agreement with the Government and also in relation to the arbitration agreement, where separate, but are still likely to face challenges.