Legal Week | 26/10/2006-16/11/2006
Africa: Arbitration Nation
A number of African governments have made efforts to encourage investment in the continent by entering into bilateral investment treaties and adopting arbitration legislation. Matthew Coleman and Gabriel Meyer report
Investment in Africa is often made against a background of perceived, if not actual, political risk. This includes the perception that domestic courts in Africa lack the commercial focus, propriety and efficiency that investors are ordinarily used to; fears that decisions of African courts may not be enforceable in other jurisdictions; and the perception that African host states sometimes act in an unpredictable and/or arbitrary fashion.
Consider, for example, Algeria’s recent reversal of its hydrocarbons law and Zimbabwe’s expropriation of its agricultural industry — a matter which is currently before the World Bank arbitration forum, the International Centre for Settlement of Investment Disputes (ICSID).
African governments have attempted to alleviate such concerns by entering into bilateral investment treaties and adopting arbitration legislation which respects party autonomy in accordance with the United Nations Commission on International Trade Law (UNCITRAL) model law on international commercial arbitration.
The procedural law governing an arbitration (other than delocalised arbitration) will be that of the state where the arbitration has its legal place or ‘seat’ and the mandatory laws of procedure of any other state in which the parties choose to hold hearings, even though this latter state is not the seat of the arbitration.
Therefore, if the parties choose the seat of the arbitration to be in an African state, or hold hearings in an African state, they should be familiar with the applicable procedural laws of arbitration. In particular, they should be aware of the degree to which local courts will be able to intervene in the arbitration process.
States that have adopted the model law generally provide a regime whereby interference in the arbitration by courts is limited and in line with modern commercial arbitration practices. Nevertheless, investors should check with local counsel the degree to which the model law is subject to other domestic laws of the host state which may present a possibility for court intervention.
Three of the largest economies in Africa — South Africa, Nigeria and Egypt — have each taken different approaches, with varying degrees of success, to introducing and applying modern arbitration legislation.
Local arbitration legislation in Nigeria and South Africa gives the courts wide powers to interfere in arbitration proceedings on grounds beyond the limited grounds stipulated in the model law, which effectively discourages arbitration.
Egyptian arbitration law recognises international arbitration awards that can only be challenged in court by means of a specific annulment action based on a limited number of grounds (all relating to procedure or due process) in accordance with the model law. The Egyptian judiciary has also cooperated with and supported arbitration proceedings in the past.
Although Nigeria has adopted the model law, the local courts may, on the application of a party to an arbitration agreement, set aside the award if the arbitrator has ‘misconducted’ himself. In the past, the local courts have inter-fered in arbitration proceedings by interpreting this ground as being wider than the grounds specified in the model law. Arbitration proceedings in Nigeria can also be delayed by a party challenging an arbitration tribunal’s jurisdiction in court during which time the arbitration proceedings may be suspended.
South Africa has not adopted the model law and its arbitration legislation dates back to 1965. The legislation has three particular areas of concern. First, the courts may at any time on application of a party to an arbitration agreement on ‘good cause’ set aside an arbitration agreement; ‘good cause’ has been interpreted widely to include disputes that primarily relate to questions of law and disputes where it would be inconvenient or unnecessarily expensive for a dispute to be resolved in accordance with the relevant arbitration agreement.
Second, the courts "may" stay court proceedings if there is "no sufficient reason" for the matter not to be referred to arbitration and, third, there are provisions for the courts to rule on any question of law by way of a stated case procedure. Nevertheless, an increasing number of South Africans are resorting to South African arbitration for the resolution of their commercial disputes.
As in the rest of the world, arbitration in Africa can be held ad hoc or under an institutional arbitration body. The main recognised institutional arbitration centres in Africa are the Cairo Regional Centre for International Commercial Arbitration (CRCICA), the Lagos Regional Centre for International Commercial Arbitration (LRCICA) and the Arbitration Foundation of South Africa (AFSA), all of which are recognised in their respective regions of influence.
Although the CRCICA and the LRCICA have an international personality, like ICSID, tribunals sitting under the auspices of these institutions are, unlike ICSID, still subject to the procedural laws of the state in which the seat of the arbitration is located.
The arbitration rules for the CRCICA and the LRCICA are modified versions of the UNCITRAL arbitration rules, whereas AFSA’s arbitration rules draw inspiration from a number of sources and are also subject to the constraints of the local arbitration legislation.
Arbitration awards are enforced under the New York Convention, which has been ratified by the majority of African states, including Egypt, Nigeria and South Africa. However, a significant number have not ratified the convention to date. Of those African states that have ratified the New York Convention, many have made the permitted reservations as to reciprocity and commercial relationships.
The reciprocity issue means it is essential to consider enforcement issues if choosing the seat in Africa. Egypt and South Africa have no reservations, while Nigeria has reservations as to both reciprocity and commercial relationships.
Considerable resources may have to be expended before the execution of the award is possible. It is therefore always advisable to consider the procedural law of the enforcement country prior to enforcing an award.
Investors can minimise the political risk of investing in Africa by ensuring their investments are covered by bilateral investment treaties. Such treaties are signed between states which provide that nationals of each state, when investing in the other state, will be accorded rights such as fair and equitable treatment, no expropriation without compensation and the right to submit disputes with the host state to binding international arbitration.
Breach of a bilateral investment treaty entitles damages.
Bilateral investment treaties involving African states usually provide for the arbitration to be at the ICSID pursuant to the Washington Convention or the additional facility rules, or ad hoc arbitration pursuant to the UNCITRAL arbitration rules.
Arbitration at the ICSID pursuant to the Washington Convention is particularly appealing because such arbitrations are not subject to the procedural laws of any state and the awards of such tribunals are enforceable in the 140-plus states that have ratified the Washington Convention as if they were a final judgment of the courts of that state, subject to the state’s laws of sovereign immunity.
Arbitration under the Washington Convention is not possible for those nationals whose states have not ratified it, including South Africa. In such cases, arbitration will usually be ICSID arbitration pursuant to the additional facility rules or ad hoc UNCITRAL Arbitration (in such instances enforcement is through the New York Convention).
Foreign investors are increasingly channelling their investments through companies established in jurisdictions that have ratified a bilateral investment treaty with the host state in which the investment is made, combining such planning with their tax structuring. Some African governments are waking up to their obligations under such treaties, including Ghana which has recently committed to reviewing its bilateral investment treaties.
Many non-African investors are unwilling to submit to arbitration in Africa with the seat of the arbitration in Africa, yet the African counter-parties are generally reluctant to incur the expense associated with international arbitration institutions, which is often perceived to require travel to the northern hemisphere.
A compromise commonly negotiated is to agree to arbitration under the auspices of one of the international institutions with the seat of the arbitration in the northern hemisphere, but to expressly provide that the hearings for the arbitration will be held in the relevant African host state - provided the mandatory laws of procedure of such host state do not interfere in arbitration proceedings.
Matthew Coleman is a consultant to Africa Legal, based in England, and Gabriel Meyer is an associate at Africa Legal.