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  • 18 Sep 2023 9:27 AM | Anonymous

    Introduction  

    This is a short commentary on the judgment of the Supreme Court of Zimbabwe in Jimbata (Pvt) Ltd v Zimbabwe Mining Development & Kamativi Tin Mines (Pvt) Ltd SC 2-23  after it held that where an agreement has been found to be null and void, the whole agreement, including the arbitration clause, is a nullity.

    Factual Matrix

    The parties entered into a joint venture agreement (the agreement) for the purpose of processing the Kamativi tailings dump to extract lithium and other minerals. They agreed to incorporate a joint venture company (JVC) to implement the project. The agreement suffered a stillbirth as the parties failed to fulfil some conditions precedent to its performance. Chief among them was s13(1) of the Joint Ventures Act [Chapter 22:22]1 (the Act) which provides as follows: “Subject to subsection (2) and section 8(4), no contracting authority shall award a project or sign a joint venture agreement relating to a project unless the joint venture agreement has been approved by the Cabinet in accordance with this Act and any agreement required to be so approved that is purported to be concluded without such approval shall be a nullity.” The respondents sought and obtained in the High Court an order declaring the joint venture agreement (JV Agreement) between the parties a nullity. The appellant appealed to the Supreme Court against the order.

    APPELLANT’S CASE

    The Appellant contended that since the parties JV agreement had an arbitration clause, the court a quo should have deferred to the arbitration process and stayed the proceedings pending arbitration.2 Furthermore, the arbitration agreement within the JV agreement which the parties concluded was severable from the main agreement and was enforceable regardless of the fate of the main agreement.

    RESPONDENT'S CASE

    It was the Respondent's contention that firstly, the arbitration clause does not make it mandatory that the parties proceed to arbitration for purposes of dispute resolution. Secondly, the JV agreement was null and void for want of compliance with section 13(1) of the Act and therefore the question of referral to arbitration falls away.

    THE JUDGMENT

    The parties failed to seek and obtain the necessary Cabinet Approval as required by s 13(1) of the Act thus rendering the JV a nullity3. Article 8(1) of the Arbitration Act provides: “A court before which proceedings are brought in the matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.” The agreement has been found to be null and void ab initio. In other words, it never existed. The whole agreement, including the arbitration clause, is a nullity. There is nothing to sever or save.4

    AN ANALYSIS OF THE SUPREME COURT JUDGMENT

    What agreement is referred to in Article 8(1)?

    Is it the primary or main contract concerning the commercial obligations of the parties or the secondary contract containing the parties obligation to resolve any disputes arising from their commercial relationship by arbitration? Commenting on Article 8(1) of the Arbitration Act, the court remarked that, the court a quo found that the agreement was null and void and therefore the question of referral to arbitration falls away.5 The words “unless it finds the agreement is null and void, inoperative or incapable of being performed” were interpreted by the Supreme Court as referring to the main contract which the court held to be null and void. By so doing, the Supreme Court erred. Article 8(1) of the Arbitration Act has nothing to do with the main contract. It relates to the arbitration agreement. What should be null and void, inoperative or incapable of being performed is the arbitration agreement and not the main contract. Thus, the agreement referred to in Article 8(1) of the Arbitration Act is not the main contract but the arbitration agreement. For instance, an arbitration agreement will be null and void if the parties never entered into it6or in cases in which the arbitration agreement is found to be void ab initio.7 One of the cornerstone principles of arbitration, is the severability8 of an arbitration agreement.9 The principles of separability10 and Kompetenz-Kompetenz are widely celebrated principles of arbitration as they render ‘arbitration efficacious and independent of the state.’11

    Leading commentators have noted that:

    The doctrine of separability requires that the arbitration agreement be treated as a separate contractual undertaking, that is, the agreement to arbitrate disputes arising out of a contract is distinct from the main contract, such that disputes as to the scope or even the existence of the main contract can be arbitrated.12

    Does an arbitration agreement contained in a main contract which is null and void also become null and void?

    Whilst accepting that an arbitration agreement is a separate and independent agreement from the terms of the underlying contract in which it may be included,13 the Supreme Court held that because the agreement (main contract) had been found to be null and void for want of compliance with s 13 (1) of the Act, the whole agreement, including the arbitration clause is a nullity.

    By so doing, the court erred. Article 16(1) of the Model Law provides that:

    “The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.”

    It is clear from article 16(1) of the Arbitration Act that, in instances in which the main contract between the parties is considered to be null and void, an arbitration agreement is not affected because it is regarded as a stand-alone agreement between the parties regarding the resolution of any disputes between the parties.14 How the Arbitration Act should be interpreted is set out in s 2(3) of the Act which provides that:

    “The material to which an arbitral tribunal or a court may refer in interpreting this Act includes the documents relating to the Model Law and originating from the United Nations Commission on International Trade Law ,or its working group for the preparation of the Model Law, that is to say the travaux préparatoires to the Model Law, and, in interpreting the Model Law, regard shall be had to its international origin and the desirability of achieving international uniformity in its interpretation and application.”

    The illegality or invalidity of the underlying contract has no bearing on the arbitration clause itself.15 Where the main contract is not concluded (null) or does not come into effect after conclusion (void), it will not influence the effect of the arbitration clause agreed by the parties, as the arbitration clause is completely separate from the main contract.16

    As one commentator put it:

    An arbitration agreement between the parties is separable from the main contract. The arbitration agreement, as a rule is a procedural law contract. In contrast, the main contract is a substantive law contract. These two contracts are different from each other. Therefore, the fate of an arbitration agreement is not tied to the fate of main contract. At the same time, the fate of main contract does not depend on the fate of the arbitration agreement.17

    CONCLUSION

    The Supreme Court of Zimbabwe wrongly interpreted Article 8(1) of the Arbitration Act by construing the words, unless it finds that the agreement is null and void, inoperative or incapable of being performed, as referring to the main contract when they in fact refer to the arbitration agreement. The court’s understanding and interpretation of the doctrine of separability is inconsistent with its international interpretation and application, so is its understanding and interpretation of Article 8(1) of the Arbitration Act. Such errors in interpretation by the Supreme Court bring confusion in the practice of arbitration and undermine the development of Zimbabwe’s arbitration jurisprudence.

    _______________________________________________

    *

    1 The Zimbabwe Investment and Development Agency Act [Chapter 14:37] on the 07th February 2020 repealed the Joint Ventures Act [Chapter 22:22], the Zimbabwe Investment Authority Act [Chapter 14:30] and the Special Economic Zones Act [Chapter 14:34].

    2 K Böckstiegel, ‘The Role of Arbitration within Today’s Challenges to the World Community and to International Law’ (2006) 22 (1) Arbitration International 165 – 178.

    3 SC 2-23 at p8.

    4 SC 2-23 at p8.

    5 SC 2/23 at p7.

    6 D St John Sutton, J Gill & M Gearing, Russell on Arbitration (23 ed, Sweet & Maxwell, 2007) 7-46.

    7 Sun Life Assurance Co of Canada v CX Reinsurance Co Ltd [2003] EWCA Civ 283.

    8 Heyman & Another v Darwins Ltd [1942] 1 All ER 337 (HL).

    9 SM Schwebel, L Sobota & R Manton, International Arbitration: Three Salient Problems (Cambridge University Press, 2020) 1 – 64.

    10 JA Rosen, 'Arbitration Under Private International Law: The Doctrines of Separability and Competence de la Competence' (1993) 17 (3) Fordham International Law Journal 559 -666; A Mustafayeva, 'Doctrine of separability in International Commercial Arbitration' (2015) 1 Baku State University Law Review 93 – 98; S Camilleri, 'Sense and Separability' (2023) 72 (2) International & Comparative Law Quarterly 509 – 525.

    11 P Landolt, 'The Inconvenience of Principle: Separability and Kompetenz-Kompetenz' (2013) 30 (5) Journal of International Arbitration 511, 512.

    12 J Delaney & K Lewis, 'The Presumptive Approach to the Construction of Arbitration Agreements and the Principle of Separability - English Law Post Fiona Trust and Australia Law Contrasted' (2008) 31 (1) UNSWL Law Journal 341, 347.

    13 ZETDC v Tendai Masawi t/a Masawi & Partners & Another HH 404-20.

    14 Davison Kanokanga & Prince Kanokanga, UNCITRAL Model Law on International Commercial Arbitration: A Commentary on the Zimbabwean Arbitration Act [Chapter 7:15] (Juta &Co, 2022) p67.

    15 National Agricultural Coop Mktg Federation India v Gains Trading Ltd 2007 (5) SCC 692.

    16 Interpretation on Certain Issues Relating to the Application of the PRC Arbitration Law, Supreme People’s Court,23 August 2006: Jiangsu Materials Group Light Industry and Weaving Co v Hong Kong Top-Capital Holdings Ltd (Canada) Prince Development Ltd (the Yuyicase) Supreme People’s Court, 1998.

    17 S Özmumcu, 'The Principle of Separability and Competence - Competence in Turkish Civil Procedure Code No. 6100' (2013) 45 (62) Annales 263, 266.

  • 13 Dec 2022 8:15 PM | Anonymous

    Paper presented at the AfAA 3rd Annual International Arbitration Conference, 3rd - 5th November 2022.   

    1. Introduction

    Developments in the energy sector are fast-moving, particularly at this time of accelerated rates of change. I will start with a quick overview of available statistics on African energy disputes from the recent past, speak a bit about energy developments from the African union, and then focus on a few countries that should be of interest to African practitioners in general and the conference participants in particular.

    2. Recent Published Statistics

    Looking back over the past five years (2017 – date), available statistics from three African arbitral institutions indicate that disputes in the energy sector continue to arise but are not a dominant part of the caseload.

    The Cairo Regional Centre for International Commercial Arbitration (CRCICA) reported each year a number of disputes in the energy sector (Oil &Gas  and electricity).

    •   2018 – 8%
    •   2019 – 30%
    •   2020 – 7%
    •   2021 – 11% ( up to the end of Q3)

    The Kigali International Arbitration Centre (KIAC) reported no cases in the energy sector since 2017, although 2 such cases had been reported previous to 2017.

    The Nairobi Centre for International Arbitration (NCIA) reported energy disputes in only two of the five reporting years, with Oil&Gas and Electricity Transmission being the relevant sectors.

    •   2017 – 67%
    •   2022 – 9%

    On the international front, regular statistics published by the International Chamber of Commerce (ICC) provided information on Africa-related disputes and energy disputes, but there was no breakdown available for African energy disputes. However, the trends in both these areas are worth sharing:

    Year

    No. of new Cases

    No of cases with African Claimant or Respondent

    No. of cases in energy sector

    2017

    810

    208

    155

    2018

    842

    182

    109

    2019

    869

    188

    140

    Although the statistics cannot tell us specifically about African energy disputes, it is significant that energy is the second most frequent sector for all disputes registered with the ICC.

    As to investor state disputes submitted to the International Centre for the Settlement of Investment Disputes (ICSID), around Africa, there have been energy cases involving Egypt, Senegal, The Gambia, Nigeria and Equatorial Guinea.

    3.An African Union View - Energy projects in the pipeline

    Energy is a foundational resource on which all social and economic development relies.  The importance of the energy sector for Africa’s development has been articulated by the Energy Division of the African Union (AU)[1] which has big ambitions, with specific targeted interventions including:

    •   Hydropower – 8 projects
    •   Petroleum/Gas Pipeline – 3 projects
    •   Power Interconnectors – 43 projects

    The focus on power interconnectors come as no surprise with the integration mandate of the AU. It may be useful as arbitration practitioners to pause and think for a moment about energy security risks and the structuring of the bilateral and sometimes multilateral agreements necessary to ensure that the interconnectors provide the availability required - will we see disputes arising here?

    The other initiatives which are the focus of the AU energy division are:

    • “Operationalisation and Implementation of the Africa Renewable Energy Initiative (AREI) adopted at the COP21 in Paris, December 2015;
    •  Facilitation of Sustainable Energy for All (SE4ALL) Initiative Implementation adopted by the Conference of Energy Ministers of Africa (CEMA), in November 2012;
    •  Facilitation and advocacy for the implementation of the Africa Bioenergy Policy Framework and Guidelines adopted by the CEMA in November 2012 and Heads of State and Government in January 2013;
    • Elaboration of a Continental Harmonized Regulatory Framework for the Energy Sector;
    • Implementation of the Africa-EU Energy Partnership launched at the Africa-EU Summit in Lisbon, Portugal in 2007;
    •  Implementation of the Regional Geothermal Programme and Geothermal Risk Mitigation Facility;
    • Implementation of the Hydropower 2020 Initiative to promote the development of Africa’s hydropower potential; and
    • Facilitation and advocacy for the development of Grand Inga Hydropower project as one of AU Agenda 2063 flagship projects.”[2]

    It is encouraging that renewables ( bio-energy, hydropower and geothermal) get specific mention. Energy transition, regrettably, has not been specifically articulated. I think it is safe to say that the oil and gas sector will continue to develop in Africa. However, the sustainability agenda is driving those economies with more fiscal space to do so to start to talk very specifically about transitions.

    4. Some county-specific information

    I thought I would first talk about countries that don’t usually make the headlines in our African arbitration conferences, not in the context of actual disputes, but as a way of thinking about where dispute resolution, or perhaps more importantly, dispute avoidance practitioners, might want to get more exposure to. I will then speak about the hot prospects and more familiar countries.

    4.1 Equatorial Guinea

    With a population of less than 2 Million, this OHADA member state on the west coast of Africa has been extracting oil for many years, and is now trying to position itself as a regional gas hub. In 2020, a program to drive investment in gas resulted in the signing of memorandums of understanding with 53 companies in 17 bids.

    A project to prepare a Gas Master Plan was awarded in May 2020. In November 2020, a contract was awarded Italy’s Saipem to build a 70 km pipeline from the Alen field to the Punta Europa complex, which hosts a methanol and LNG complex. Marathon Oil and Chevron both feed gas to this complex from the Alba and Alen-Aseng fields. In 2022, Nigeria and Equatorial Guinea signed a MoU to see Nigerian gas transported to Punta Europa for processing.

    In terms of potential disputes, the usual types of disputes we see in oil and gas sector internationally are gas-price review arbitrations from market shifts. In turbulent times, the triggering of request for price-review by either party can be anticipated. To the extent that parties fail to agree, specialist arbitrators in this space could be quite busy – and we need more African expertise here.

    It was interesting to observe that Equatorial Guinea has had two ICSID cases[3] from the oil and gas sector under the Additional Facility Conciliation rules, one in which Equatorial Guinea was claimant.

    In terms of renewables, there is not much happening in the county. Only 10% of the energy supply is from hydropower, although there is still untapped capacity. There has been no legislation enabling Independent Power Producers enacted yet.

    4.2 Namibia

    Staying on the Atlantic coast of Africa, but in the Southern Hemisphere, Namibia also has a small population of less than 3 Million people. Although the country is large, with an area of more than 800,000 sq.km, much of it is desert.

    Namibia produces less than 40% of the energy it consumes, so it is at present an energy importer. The state utility is the generator as well as the sole buyer of electricity. It is therefore seeking additional power generation sources.

    The oil and gas industry is still at a very early stage of development, with prospecting continuing onshore and offshore.

    According to the Namibia’s Ministry of Industrialisation and Trade, “renewable energies, especially wind energy along the southern coast, have great potential in Namibia while solar radiation maps indicate that the country has proven solar resources and are particularly suited for solar energy projects such as concentrated solar power (CSP)”[4].

    In order for independent power producers (IPP’s) to participate in the renewable sub-sector, in the Namibian market which operates under a single-buyer model, a Renewable Feed-in Tariff (REFIT) scheme has been formulated. Currently, there is a program to acquire 70MW of renewable energy (solar PV, wind and biomass) from 14 IPPs under 5MW generation licenses[5].

    American interest in the solar potential of Namibia has seen the involvement of USAID in its Mega Solar initiative[6], “a commitment to large-scale solar development collaboration between Power Africa, the Governments of Botswana and Namibia, the African Development Bank, the African Union Development Agency (AUDA-NEPAD), the International Bank for Reconstruction and Development, and the International Finance Corporation”. This multi-phased procurement program envisions up to 5 gigawatts of renewable solar energy, to be sold regionally when inter-connections are available.

    Perhaps the most exciting news out of Namibia in recent years has been the signing of the Belgium -Namibia MoU on green hydrogen during the COP26 in Glasgow. Namibia will produce hydrogen from solar energy which will be sold to Belgium to produce electricity, thereby reducing Belgium’s carbon footprint as no green-house gases (GHG’s) are produced from the combustion of hydrogen - only water vapour.

    In terms of Namibia’s record of international energy disputes, neither the ICSID register nor the Permanent Court of Arbitration (PCA) register revealed any cases. However, looking at the active and enforceable BIT’s that Namibia has, which are mostly older generation types, many of the potential investors are coming from those (European) countries. The risk therefore remains of exposure to claims if and when the State considers it necessary to make regulatory changes.

    4.3 Mozambique

    When we look at the Indian Ocean side of the continent, Mozambique is the new hot market prospect for oil and gas. With an area of almost 800,000 sq km, it is similar in size to Namibia, but is has a population of more than 31 Million people.

    Mozambique’s 2022 Economic Update (World Bank)[7] notes “growth is expected to accelerate in the medium term, averaging 5.7% between 2022 and 2024, as demand recovers further and the economy benefits from the start of LNG production in 2022 and anticipates the resumption of larger LNG projects”.

    Mozambique holds 100 trillion cubic feet (Tcf) of proven gas reserves as of 2017, ranking 14th in the world and accounting for about 1% of the world's total natural gas reserves of 6,923 Tcf. (Nigeria is 9th place and Algeria is 11th. Egypt ranks 16th.[8])

    The big news from Mozambique is in the northern sector and the Rovuma basin in particular, after significant discoveries in 2010. All the majors are in Mozambique now including ExxonMobil, Andarko, Eni, Total and Shell. The Total project is notable for the $20 billion Final Investment Decision for an LNG project taken in 2019[9].

    The security situation in 2021 in the north of the Cabo Delagdo Province in Mozambique led Total Energies to withdraw all LNG project personnel from their Afungi site and to declare force majeure[10].

    For now, we will have to wait and see how the relationship develops. It has been reported that ENI has shipped the first consignment of LNG from Mozambique to Europe in November 2022.

    4.4 Tanzania

    For arbitration practitioners in the energy sector, Tanzania has had some interesting cases. In the sphere of investors bringing claims in different fora arising out of the same transaction, we have two disputes brought by Symbion power against Tanzania from  a transaction involving the acquisition of 120 MW natural gas-fired power plant in Ubungo, Dar es Salaam. First there was an ICC case in 2016, alleging contractual claims against the state-owned power company TANESCO, and then there was an ICSID dispute[11] registered in 2019 invoking theUnited Republic of Tanzania - United Kingdom BIT (1994). The ICSID case has now been discontinued. For African practitioners, it is really important to think about how one would address these “parallel claims”. The approach of applying abuse of process considerations, following the RSM v Grenada ICSID case[12], and the subsequent Orascom v Algeria[13] ICSID case may be gaining traction.

    4.5 Ghana

    With Ghana hosting the 2022 Africa Arbitration Association conference, it is only fitting to talk about energy disputes in Ghana. Two current disputes are worth following, one arising from a tax assessment and the other from a unitisation order.

    The tax dispute is with Tullow. According to Tullow Ghana Limited (TGL)[14], in August 2018 it received a direct tax assessment from the Ghana Revenue Authority (GRA) for the financial years 2014 to 2016 which it considers breaches “TGL’s rights under its petroleum agreements, applicable Ghanaian law and double taxation treaties, and, in some cases, have arisen as the result of the errors in the GRA’s calculations”. Following a Notice of Dispute lodged by TGL with the Ministry of Energy (MoE), and a revised final tax audit report from MoE in September 2021, TGL filed a Request for Arbitration with the International Chamber of Commerce (ICC) in October 2021 disputing aspects of the tax assessment. The Parties have agreed a procedural timetable for the arbitration under which hearing will commence in October 2023.

    The second Ghanaian dispute arose out of an order for the Unitisation of Eni and Springfield blocks[15] by the Minister of Energy. This has resulted in a notice of arbitration being filed at the Stockholm Chamber of Commerce by ENI and its joint venture partner Vitol Upstream Ghana Limited against Ghana and the Ghana National Petroleum Corporation (GNPC). The unitisation order was addressed to ENI and Springfield Exploration and Production Limited, as data analysis presented to the Minister by GNPC indicated an overlap in the resource fields in the contract areas awarded to the two companies. ENI is resisting the unitisation, and court processes have been brought by Springfield to enforce the Minister’s order. The matter has worked its way up to the Supreme Court, which has upheld lower courts decisions that ENI should place 30% of its revenue in an escrow account until the matter is finally determined.

    In the arbitration, “ the Claimants are seeking, among other things:

    • a declaration that certain directives of the minister and steps taken to implement those orders are a breach of the Offshore Cape Three Points petroleum agreement;

    • an order that the respondents take no further action to unitise the Sankofa field and the Afina discovery; and

    • an order for damages arising from breach of the Offshore Cape Three Points petroleum agreement, Ghanaian law and international law, on a joint and several basis.”[16]

    __________________________________

    *Director, Rankin Engineering Consultants

    [1]https://au.int/en/directorates/energy, accessed October 2022

    [2] Ibid

    [3] Hess Equatorial Guinea, Inc. and Tullow Equatorial Guinea Limited v. Republic of Equatorial Guinea (ICSID Case No. CONC(AF)/12/1) and Republic of Equatorial Guinea v. CMS Energy Corporation and others (ICSID Case No. CONC(AF)/12/2).

    [4]https://mit.gov.na/energy-sector, accessed 3 October 2022.

    [5] Ibid

    [6]https://www.usaid.gov/powerafrica/mega-solar, accessed October 2022

    [7]https://www.worldbank.org/en/country/mozambique/overview, accessed October 2022

    [8]https://www.worldometers.info/gas/gas-reserves-by-country/, accessed October 2022

    [9]https://mzlng.totalenergies.co.mz/en, accessed October 2022

    [10] Ibid

    [11] Richard N. Westbury, Paul D. Hinks and Symbion Power Tanzania Limited v. United Republic of Tanzania (ICSID Case No. ARB/19/17

    [12] RSM Production Corporation and others v. Grenada (ICSID Case No. ARB/10/6)

    [13] Orascom TMT Investments S.à r.l. v. People's Democratic Republic of Algeria (ICSID Case No. ARB/12/35)

    [14] https://www.tullowoil.com/application/files/8216/4680/8084/Tullow_FY_Results_2021_FINAL.pdf

    [15]https://thelawreviews.co.uk/title/the-oil-and-gas-law-review/ghana, accessed October 2022

    [16] Ibid

  • 13 Dec 2022 9:44 AM | Anonymous

    Paper presented at the AfAA 3rd Annual International Arbitration Conference, 3rd - 5th November 2022.  

    I. What is meant by the Africanisation of the Dispute Settlement Clause?

    Africanisation is explainable from two angles: reflecting on the international investment agreements’ background and illustrating the implications of africanisation.

    Historically, the principal toolkit for protecting developed countries’ foreign investments was to make international investment agreements. Accordingly, developed countries offered drafts of IIAs, mainly in the form of BITs, to developing countries who, while reluctant at the outset to sign, concluded these IIAs.

    African countries host foreign direct investment (‘FDI’) more than they export elsewhere, outside Africa. They mulled over signing IIAs as a guaranteed factor for increasing the inward FDI, so they competed to sign BITs with the developed countries. In the 1990s, due to an eagerness for a good impression from international donors, developing countries noticeably started signing BITs with each other and sustained by utterly political motives for the BITs spree. Unaware of the developed-developing structure of its typical BIT, African countries, mostly, I am afraid, started replicating these models. The quintessential developed-developing model contained loose scope of protection for foreign investments and zero liability for foreign investors. For instance, some BITs incorporated unfettered transfer-of-fund clauses.

    Moving to define the Africanisation of ISDS, Africanisation entices African countries to agree on a shared vision for settling investment disputes. It implies having a modus operandi for concluding international investment agreements rather than copying drafts designed for a North-South partnership. Otherwise, it is simply synonyms with the Latin-Americanisation of ISDS, where Latin-American countries unify their position vis-à-vis the principles of investment protection, which investment tribunals examine through the lens of dispute settlement clauses. For instance, most Latin-American countries did not agree to incorporate the national treatment principle, a pivotal component of the first-ever US model BIT in the early 1980s. Since they fabricated the Calvo doctrine, Latin American countries joined the community of international investment law as a rule-maker rather than a rule-taker. While what fits Latin-American countries would not necessarily work for African countries, American countries share many circumstances with African countries that should motivate the latter to learn and cooperate with the former.

    II. Why is it intrinsic to africanise the investor-State disputes?

    The African Union performed a Study on drafting a Pan African Investment Code (“PAIC”) to improve the continent’s investment climate.[1] The Study found, inter alia, that IIAs aim to protect investors whilst raising the potential legal responsibility of the host State.[2] African countries are members of over 881 IIAs,[3] and they appeared in approximately 25% of the cases before ICSID.[4] The Gordian Knot magnifies in countries with dozens of BITs while lacking a modus operandi. Civil society activists expressed concerns about the imbalance of ISDS between indebted States against well-funded investors.[5]   

    Host developing countries realised the cost of being hyper-active in concluding BITs after facing investment claims. For instance, South Africa reviewed its IIAs programme, admitted the ineptness of its negotiators and lack of knowledge about international investment law, and pursued a comprehensive reform of its foreign investment programme. This was not limited to African countries. The US changed its vision vis-à-vis IIAs after being hit with investment claims. Investor-State claims contest the host State’s compliance with its commitments under the respective BITs. Therefore, it is unsurprising to downward the ratio of FDI inward to the individual respondent State, as potential investors become speculative about its commitment to its international obligations.

    A UNCITRAL Report in 2018 found that each disputing party endure approximately 8 million USD before investment tribunals, which the representatives of, for instance, Angola, Burkina Faso, and Kenya, to the UN in Vienna, underpinned in respect to the pending discussions on the ISDS reform, in addition to the culminated damages on the taxpayers. Recently, third-party funding gradually existed as an expectable method for financially aiding disputing parties, likely to exceed the number of cases before investment tribunals and under the AfCFTA Investment Protocol.

    III. How to Africanise the investor-State dispute settlement clause?

    During the UNCITRAL Working Group on the Reform of the investor-State dispute settlement regime, the African countries expressed their concern vis-à-vis the backlashes of investment arbitration. Equally, the AfCFTA Secretariat participated in the meetings of the UNCITRAL Working Group; hence, underpinned during the 2021 Africa Forum that: ‘(…) the work of UNCITRAL would be instrumental while the AfCFTA was developing the Protocols on Investment and Digital Trade.’ 

    Specifically, the member States of the African Union are participants in these meetings. The pitfalls of ISDS are non-contested, but the purported reforms are. Either developed or developing countries have concerns vis-à-vis accepting the European Union’s proposal of the multilateral investment court (“MIC”). For instance, South Africa contested whether the potential MIC would squash the backlashes of ISDS. At the same time, it proposed classical reform proposals to the pending investment arbitration regime, while Algeria stressed fostering a code of conduct for adjudicators of investor-State disputes.

    Most of the participant countries in the UNCITRAL Working Group approached the MIC and investment arbitration as alternatives that do not fit together. However, the 1980 Unified Arab Investment Agreement (“Arab Investment Agreement”) had a different vantage point. The Arab Investment Agreement provided the Arab Investment Court as the principal mechanism for resolving investor-State disputes, while investment arbitration worked perfectly as an alternative mechanism. Arab countries triggered both mechanisms alternatively.

    Developing countries refuted the Havana Charter in the 1940s to organise international investment and trade under a sole aegis. Then, during the 1990s, they objected to extending the scope of the WTO agenda to incorporate investment and trade. In parallel, they failed the OECD multilateral investment agreement in the mid-1990s. Concisely, they were against the multilateralisation of investment agreements. Incorporating the MFN clause under BITs led unexpectedly to the multilaterlisation of investment protection where the investor import any favourable clause from the BITs concluded by the host State.

    Furthermore, the incorporation of the MFN clause within the dispute settlement clause entailed foreign investors a favourable settlement mechanism, which was understood to apply to BITs until recently. However, the arbitral tribunal in Al-Warraqi vs Indonesia, a dispute under the OIC Investment Agreement, a plurilateral investment agreement between Islamic countries, interpreted the MFN to extend to BITs concluded by Indonesia. Hence, member States of the African Union should be mindful of whether they opt to extend the MFN clause to the dispute settlement clause. In addition, many economic blocs are considering replacing intra-BITs with plurilateral investment agreements. Thus, deciding on the scope of MFN is one of the facet issues to be addressed under the AfCFTA. For example, a group of North African countries are members of the Arab Investment Agreement and the OIC Investment Agreement; these two economic blocs are considering replacing the intra-Arab BITs with a plurilateral investment agreement and mutatis mutandis the intra-Islamic BITs. An indefinite MFN clause might be understood as importing favourable treatment from other plurilateral investment agreements, which might extend to settling investment disputes.

    Then, the entrenching amicable dispute settlement mechanisms would minimise appearing before international investment courts and tribunals. Therefore, the adjudicators shall consider whether each disputing party acted in bona fida before amicable mechanisms when deciding the damage and costs of proceedings.

    While the COVID aftermath harnessed processing investment arbitration via online procedures, it worked out nicely. Hence, holding virtual hearings and circulating submissions via online platforms is likely to drastically decrease the cost of defending investment disputes before international courts and tribunals.

    In the same vein, UNCTAD qualified the fork-in-the Road clause as a presumed intrinsic compart of the South-South investment agreements. Therefore, the incorporation of it in the AfCFTA Investment Protocol would decrease frivolous claims and reduce the taxpayers’ incurred burden from disputes.[6]

    Third-Party funding gradually exists as a foreseen source for financing disputes. Therefore, it is advisable to consider a failure to disclose it as a reason for annulment. Furthermore, investors shall make submission of insurance, as some respondent States failed to collect awarded counterclaims or expenses from investors. For instance, Under the 2021 Canada Model BIT: a tribunal may order security for costs “if there are reasonable grounds to believe that there is a risk the disputing party may not be able to honour a potential costs award against it.” In so doing, the tribunal “may take into account evidence of third party funding,” and the claimant is obliged to disclose the existence of a third-party funding arrangement and the funder’s name and address.

    IV. Conclusion

    The significant issue here is not to exhaust our resources debating the lexicon of the investment protocol but instead stick to the lexicon and embracing it in the individual BITs that member countries conclude with third countries. Some African countries have model BITs, while they have not negotiate their BITs according thereto. Therefore, they shall have a modus operandi for concluding IIAs, which implies an expectation of its implications. Certainly, africanisation shall not be limited to the investor-State dispute settlement, as the latter is connected with the principles of investment protection.

    Hence, africanisation, broadly, rather than in the context of dispute settlement, implies making international investment agreements without imitating an authentically tailored approach for developed countries. Africanisation underpins the regulatory power of host States while maintaining authentic incentives for African investors in a balanced regime, where the African countries are fully aware of the implications of the stimuli, and committed to complying with, this investment-friendly process.

    __________________________________

    *Counsellor, Egyptian State Lawsuits Authority

    [1] United Nation Commission for Africa (2016), Investment Policies and Bilateral Investment Treaties in Africa: Implications for Regional Integration, (Economic Commission for Africa, Addis Ababa 206) X: XI.

    [2] Ibid.

    [3] Makane Moise Mbengue & Stefanie Schacherer, The “Africanisation” of International Investment Law: The Pan-African Investment Code and the Reform of the International Investment Regime, 18 J. WORLD INV. & TRADE 414, 414 (2017) 416.

    [4] ICSID, The ICSID Caseload – Statistics (Issue 2018-1), 11.

    [5]Dr. Markus Burianski andDr. Federico Parise Kuhnle, Arbitration in Africa: Managing risk in a growing market, 11 SEP 2017, available onhttps://www.whitecase.com/publications/insight/africa-focus-2017-arbitration-africa (accessed on 8 Sep 2022)

    [6] UNCTAD (2005), South-South Cooperation in International Investment Agreements, 31, 42.

  • 13 Dec 2022 9:08 AM | Anonymous

    Paper presented at the AfAA 3rd Annual International Arbitration Conference, 3rd - 5th November 2022.  

    Introduction

    Conflicts of interest between the developed and developing economies in international relations, be it commercial or otherwise, still exist as conflicting goals and divergent views.[1] Although these conflicts have resulted in some convoluted strategies and policies which are antithetical to international dispute resolution mechanisms, international arbitration remains the generally preferred means of resolving cross-border disputes.[2]

    Not many people today may know that, in the 1960s, the newly independent African countries were among the countries at the forefront of canvassing a dispute resolution regime for international investment disputes. African countries were well-represented during the negotiation of the Convention for the Settlement of Investment Disputes between States and Nationals of other States in 1964,[3] and they subsequently enacted municipal laws dealing with international commercial arbitration and foreign investments.[4] These African countries and their counterparts in Latin America actively contributed to the present investor-State dispute settlement (ISDS) system. They successfully overturned the United Nations (UN) general consensual Resolution 1803(XVII) of 14 December 1962, ‘Permanent Sovereignty over Natural Resources’, which provided a balanced way to codify the principle of permanent sovereignty over natural resources.[5] To replace Resolution 1803(XVII), these developing countries secured a ‘big win’ when the United Nations General Assembly (UNGA) adopted Resolution 3281 (XXIX) containing the ‘Charter of Economic Rights and Duties of States’ on 12 December 1974, by 115 votes to 6, with 10 abstentions.[6]

    The Charter of Economic Rights and Duties of States was first proposed by President Luis Echeverría of Mexico, at the third session of the United Nations Conference on Trade and Development (UNCTAD) held in Santiago, Chile, from 13 April to 21 May 1972.[7] The Charter aimed at strengthening the economic independence of developing countries and establishing and promoting international economic relations, taking into account the agreed differences in the development of developing countries and their specific needs.[8] The then capital-exporting countries viewed the new international economic order that evolved as inadequate to protect their nationals that were investing or may wish to invest in developing countries. This feeling resulted in negotiations that brought about the present BIT system, which has become a legal bother.[9] Old-generation BITs contain clauses that limit the host State’s right to approach the requisite adjudicatory body in the event of a dispute but grant the investor unfettered access to seek remedy from these bodies.[10]

    What Does Africanisation Mean?

    To Africanise means to make African or, in a broader sense, to succeed in making African interest and perspective influence a system. Africanisation of international dispute resolution, for me, therefore, implies that international dispute resolution should take Africa’s priorities and aspirations into consideration.[11] We should not view the Africanisation of international dispute resolution as we view Africanising educational curricula or local legislation. We must remember that an international dispute resolution system can only be international if founded on cooperation and compromise.[12] Having defined the concept of Africanisation, I will now examine it as a movement that has continuously influenced international dispute resolution.

    A sure Movement

    The Africanisation of international dispute resolution has always been a movement. This movement began with the contribution of African nations in establishing the ISDS system in the 1960s and has cascaded into the current contribution of the Pan-African Investment Code (PAIC) to international investment law. The PAIC aims to demolish the traditional investment perspectives enshrined in BITs.[13] Within this movement, some African countries, notably South Africa and Tanzania, have taken a radical position, changing the current ISDS narrative. Having been badly hit by excessive damage awards handed down by ISDS tribunals, many African countries are actively clamouring for reforms to the system.[14]

    The PAIC is a model investment treaty that, unlike the traditional BITs, creates rights and obligations for both the State and the investor.[15] It was adopted by the African Union (AU) to emphasise its member states’ interest in ensuring sustainable development,[16] which the current legalistic approach to investor-State arbitration (ISA) seems unable to assure. Like the Norway Model BIT 2015,[17] the PAIC seeks to achieve an overall balance of the rights and obligations between the Member States and investors,[18] thereby bringing the African perspective, once again, to bear on the ISDS system and protecting the economies of capital-importing African nations. The instrument contains some key and specific provisions that focus on the African States in a typical Afro-centric manner and excludes fair and equitable treatment (FET) provision.[19]

    On its part, the African Continental Free Trade Area (AfCFTA) agreement focuses on two broad issues: first, on the liberalisation of trade in goods and services and, second, on regulatory matters concerning investment, competition policy, and intellectual property.[20]The AfCFTA dispute settlement mechanism (DSM), which is modelled after the World Trade Organisation (WTO) Dispute Settlement Understanding (DSU), is only accessible to states, either as parties to the dispute or as third parties.[21] Thus, only States Parties have standing and the right of direct participation in its dispute resolution process. The DSM reflects African governments’ preference for state-to-state dispute settlement, from which an investor may benefit only through diplomatic protection,[22] as against the current ISDS system that has produced prohibitive damage awards in favour of foreign investors.[23] The DSM also signals African governments’ preference for a judicialised trade and investment dispute system that promotes certainty, predictability, and rule-based decisions, in contrast to what obtains under the current ISDS system.[24]

    Article 20(1) of the AfCFTA agreement establishes the DSM. The Protocol on Rules and Procedures on Settlement of Disputes goes further to establish the Dispute Settlement Body (DSB) under article 5 of the protocol. The protocol on dispute settlement is one of the most outstanding AfCFTA Protocols. It espouses rules and procedures for the settlement of disputes within the AfCFTA. Unlike the rules and procedures of the majority of the African Regional Economic Communities, such as the Economic Community of West African States (ECOWAS), Community of Sahel-Saharan States (CEN-SAD), Intergovernmental Authority on Development (IGAD), Economic Community of Central African States (ECCAS), which were modelled after the Court of Justice of the European Union, the DSM was modelled after the DSU.[25] The AfCFTA agreement signals to the international investment community that Africa is open for business based on a single rule book for trade and investment.[26]

    Steps to take to realise the Objectives of Africanisation

    While there is already a movement that attempts to galvanise African interest, it is apposite to examine factors that could wane the flow of Africanisation of international dispute resolution and make suggestions. There has always been concern about African cities not being chosen as international arbitration venues and African arbitrators not having commensurate international appointments.[27] This concern does not negate the fact of a movement but a lack of strategy and development of an attractive arbitration environment and an arbitration-friendly legal system. Unless disputants see a marked difference between arbitration and litigation within a legal system, that country will hardly be a venue of choice.

    Since the last decade, the judiciary of the most populous country in Africa, Nigeria, has been very supportive of arbitration and other ADR mechanisms, thereby laying a solid foundation that could turn Nigeria into a venue of choice if other variables are in place.  The School of Oriental and African Studies (SOAS) Arbitration in Africa 2020 Survey reveals that parties are increasingly using top African arbitration institutions to resolve their disputes.[28] The Mauritius Chamber of Commerce and Industry (MCCI) Arbitration and Mediation Center (MARC), the alternative dispute resolution arm of the MCCI, has remained a high-profile centre for the resolution of international arbitration.[29]Since its inception in 2012, the Kigali International Arbitration Centre (KIAC) has administered 89 arbitration cases involving parties from the United States, Italy, South Africa, Kenya, South Korea, Turkey, Burundi, Nigeria, Pakistan, Senegal, Spain, Switzerland, Singapore, France, Zambia, Uganda, India, China, and the African Union.[30]

    In addition, several African countries, including Uganda, Malawi, and Nigeria, on the one hand, are currently reviewing their laws in an attempt to modernise arbitration procedures.[31] Other countries, including South Africa and Tanzania, are reforming their laws to register their dissatisfaction with the current ISDS system and imprint the growing African philosophy on international dispute resolution.[32] South Africa and Tanzania have legislatively abolished ISA. South Africa has replaced ISA with two local remedies, namely, mediation under the auspices of its Department of Trade and Industry, and litigation or other forms of adjudication within South Africa.[33] Similarly, in Tanzania, the natural wealth and resources of the country can no longer be subject to proceedings in any foreign court or tribunal;[34] disputes on the extraction, exploitation, or acquisition and use of Tanzania’s natural wealth and resources must now be adjudicated by judicial bodies or other organs established in Tanzania; and the application of the laws of Tanzania shall be acknowledged and incorporated in all arrangements or agreements in that regard.[35]

    Two key issues stem from the above observations. First, there is a need for African practitioners, institutions, and governments to develop a capacity and reputation for international dispute resolution.[36] We must abandon the ‘turn by turn’ mentality and cultivate institutional excellence and capability.[37] Anyone who visits the Regional Centre for International Commercial Arbitration, Lagos (RCICAL) today, for instance, will see the need for us Africans and our governments to step up our game if we must benefit from our contributions to the development of international dispute resolution. Singapore has twice demonstrated that a nation or continent can take its destiny into its hands. Silently working behind the curtain, Singapore transformed itself from a third-world country to a first-world against all prognoses.[38] Again, Singapore, without the world paying attention to what was going on there, has transformed itself into an international arbitration hub[39] and now hosting the signing of international conventions and regular international conferences and meetings on alternative dispute resolution (ADR). It is time for Africa and Africans to walk the talk.[40]

    The second issue is that the African States must formulate and implement appropriate national arbitration policies. This is the surest way to benefit from the movement and cement the Africanisation of international dispute resolution. Africa generates enough international arbitration to make it an arbitration hub. But because of ineffective national arbitration policies and a lack of institutional facilities, most international arbitrations relating to African disputes are exported abroad,[41] with the International Chamber of Commerce (ICC) and the London Court of International Arbitration (LCIA) dominating international arbitration in Africa.[42] Thus, while we are laboring to promote ADR and making frantic efforts to bring the African perspective to bear on international law and international dispute resolution, the benefits go elsewhere. Karel Daele reports that, often, it is the African party that chooses the European arbitral centre, even if only for personal or logistical reasons.[43]

    However, in recent times, stakeholders in African arbitration, notably, African governments and arbitration practitioners, have been clamouring for the arbitration of disputes emanating from Africa to be heard in Africa; the clamour itself has become a movement.[44] But this movement must be well supported lest it veers off course as most African endeavours in the past.[45] AfCFTA’s guiding principle of boosting intra-African trade must become our joint commitment to rewrite the deplorably low intra-African trade when compared to external African trade.[46] Boosting intra-African trade is tantamount to boosting international dispute resolution within Africa, which will further engender Africanisation. As a document, the AfCFTA agreement will not achieve much unless positive measures are put in place to actualise its goals.[47]

    Conclusion

    Impressively, Africa has continually demanded that its perspective on international dispute resolution should be taken into account. African scholars and governments have pushed for reforms that reflect Africa’s expectations. But all this is not enough. Africa must adopt strategies that would translate the African position into benefits for the continent. It is time to walk the talk. It is time to strengthen our arbitration institutions across Africa and develop policies that would act as a foundation and building blocks for an inviting, inevitable, and enduring arbitration culture.[48] It is time to follow in the footsteps of Singapore and encourage Mauritius and Rwanda not to relent in their efforts to become arbitration destinations in Africa. All other African countries should also follow suit.

    Africa is not lacking in good initiatives and vocal assertions aimed at protecting its interests. What the continent lacks is the political will to sustain momentum and support its enviable initiatives.[49] The movement of Africanising international dispute resolution has been on since the 1960s. But it has not been a smooth sail for Africa, especially as the resultant BIT system from the early stages of the movement became an albatross to many unprepared African governments. This movement has now metamorphosed into seeking reform to the ISDS system, especially the BIT system, which has troubled virtually all capital-importing countries without regard to their development status. The PAIC presents a viable platform for this new movement as it encapsulates the priorities and aspirations of Africa. What is left is for African governments and the relevant AU organs to commit to implementing of the PAIC.[50]

     _________________________________

    *Member of Faculty, Nigerian Institute of Chartered Arbitrators

    [1] See Amazu A. Asouzu, International Commercial Arbitration and African States: Practice, Participation and Institutional Development (Cambridge Press 2001) 1.

    [2]Robert Wheal, Elizabeth Oger-Gross, Tolu Obamuroh and Opeyemi Longe, ‘Institutional Arbitration in Africa: Opportunities and Challenges’ (September 2020) <www.whitecase.com/insight-our-thinking/institutional-arbitration-africa-opportunities-and-challenges> accessed 10 October 2022.

    [3] Paul-Jean Le Cannu, ‘Foundation and Innovation: The Participation of African States in the ICSID Dispute Resolution System’ (2018) 33(2) ICSID Rev 456. 

    [4] Asouzu (n 1).

    [5] Asha Kaushal, ‘Revisiting History: How the Past Matters for the Present Backlash against the Foreign Investment Regime’ (2009) 50 Harv Intl LJ 491, 499-501. 

    [6] Audiovisual Library of International Law Historical Archives <https://legal.un.org/avl/ha/cerds/cerds.html#:~:text=The%20adoption%20of%20a%20Charter,April%20to%2021%20May%201972> accessed 12 August 2022.

    [7] ibid.

    [8] Charter of Economic Rights and Duties of States, pmbl.

    [9] See Sanjeet Malik, ‘BIT of Legal Bother’ (Business Today, May 2012) <www.businesstoday.in/magazine/columns/india-planning-to-exclude-arbitration-clauses-from-bits/story/24684.html> accessed 17 March 2020

    [10] Victor Oluwatomiwa Adenekan, ‘The Pan-African Investment Code and the Investment Protocol to the African Continental Free Trade Agreement: Are we Building the right House on a Weak Foundation?’ (2021) 5 <https://www.researchgate.net/publication/355465973_THE_PAN-AFRICAN_INVESTMENT_CODE_AND_THE_INVESTMENT_PROTOCOL_TO_THE_AFRICAN_CONTINENTAL_FREE_TRADE_AGREEMENT_ARE_WE_BUILDING_THE_RIGHT_HOUSE_ON_A_WEAK_FOUNDATION/link/617170c2750da711ac64ed64/download> accessed 12 October 2022 citing Nicolette Butler and Surya Subedi, 'The Future of International Investment Regulation: Towards a World Investment Organisation' (2017) 64 Netherlands International Law Review 43.

    [11] See ibid 12-13.

    [12] See Malcolm Langford, Daniel Behn and Ole Kristian Fauchald, ‘Backlash and State Strategies in International Investment Law’ (2017) 2. <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2704344> accessed 5 October 2022.

    [13] Adenekan (n 10) 7.

    [14] Magalie Masamba, ‘Government Regulatory Space in the Shadow of BITs: The Case of Tanzania’s Natural Resource Regulatory Reform’ (21 December 2017) IISD Investment Treaty News <https://www.iisd.org/itn/en/2017/12/21/governmentregulatory-space-in-the-shadow-of-bits-the-case-of-tanzanias-natural-resource-regulatory-reform-magalie-masamba/ > accessed 2 August 2021, where the author correctly states that African countries concluded BITs ‘aiming to attract foreign investors’ but are now confronted with what they did not expect.

    [15] Adenekan (n 10) 7.

    [16] ibid; Ignacio Torterola and Bethel Kassa, ‘Investor-State Disputes in Africa’ (7 August 2019) African L and Business <https://iclg.com/alb/9936-investor-state-disputes-in-africa> accessed 2 January 2021.

    [17] Norway Model BIT 2015 (“Agreement between The Kingdom of Norway and …”).

    [18] See Pan-African Investment Code, 2016, pmbl and art 2.

    [19] See PAIC, arts 11(2) and 12(1) relating to its innovation respecting expropriation and compensation; see also Adenekan (n 10) 7

    [20] Adenekan (n 10) 3.

    [21] See Agreement Establishing the African Continental Free Trade Area, arts 20(1) and 1(w).

    [22] See Gregory Shaffer, ‘What’s New in EU Trade Dispute Settlement? Judicialization, Public-Private Networks and the WTO Legal Order’ (2006) 13 J of European Public Policy 832.

    [23]  See, for example, the recent arbitration case of Process and Industrial Developments Limited v Ministry of Petroleum Resources of the Federal Republic ofNigeria (P&ID v Nigeria), Case No 1:18-cv-00594 (ad hoc arbitration), where the majority of the arbitral tribunal awarded US$6.6billion against the respondent State for an alleged investment of an estimated amount of US$40 million.

    [24] See Adenekan (n 10) 14; see also James Thuo Gathii, 'Evaluating the Dispute Settlement Mechanism of the African Continental Free Trade Agreement' <https://www.afronomicslaw.org/2019/04/10/evaluating-the-dispute-settlement-mechanism-of-the-african-continental-free-trade-agreement> accessed 12 October 2022; see also The Law Suite, ‘Tasks before the AfCFTA Dispute Settlement Body’ (March 2022) <https://thelawsuite.legal/tasks-before-the-afcfta-dispute-settlement-body/> accessed 12 October 2022.

    [25] James T. Gathii, ‘Evaluating the Dispute Settlement Mechanism of the African Continental Free trade Agreement, (Afronomics Law, April 2019) <www.afronomicslaw.org/2019/04/10/evaluatingthe-dispute-settlement-mechanism-of-the-african-continental-free-trade-agreement/> accessed 10October 2022; see also Karen J. Alter, ‘The Global Spread of European Style International Courts’ (2012) <http://scholarlycommons.law.northwestern.edu/cgi/viewcontent.cgi?article+1006&context+facultyworkingpapers> accessed 10 October 2022

    [26] World Bank Group, ‘Making the Most of the African Continental Free Trade Area’ (June 2022) <www.worldbank.org/en/topic/trade/publication/free-trade-deal-boosts-africa-economic-development> accessed 10 October 2022

    [27] Asouzu (n 1).

    [28]Wheal, Oger-Gross, Obamuroh and Longe (n 2).

    [29]ibid.

    [30] ibid.

    [31] Sandy Bhadara, ‘Africa Arbitration: Building Bridges’ (2021) <https://iclg.com/alb/16451-africa-arbitration-building-bridges> accessed 11 October 2022.

    [32] See, for example, the Permanent Sovereignty Act, Act Supplement No 5 of 2017 in the Gazette of the United Republic of Tanzania No 27 Vol 98 dated 7 July 2017 and the Protection of Investment Act 2015 (South Africa); see also Adenekan (n 10) 12.

    [33] Protection of Investment Act 2015 (South Africa), s 13.

    [34] Permanent Sovereignty Act, s 11(1).

    [35] ibid, s 11(2).

    [36] Asouzu (n 1) 2

    [37] See Adenekan (n 10) 6.

    [38] See, generally, Lee Kuan Yew, From Third World to First – The Singapore Story: 1965-2000 (Harper Collins Publishers 2000).

    [39] See Wheal, Oger-Gross, Obamuroh and Longe (n 2).

    [40] See Nahanga Verter, ‘International Trade: Position of Africa in Global Merchandise Trade’ in Emerging Issues in Economics and Development Musa Ibrahim (Ed.) (Books on Demand, Germany, 2017), where the author posits that the actions taken by African countries do not reflect their ideologies and aspirations for an integrated African economy.

    [41] See Andrew Mizner, ‘African Adversity in International Arbitration’ (2018) <https://iclg.com/alb/7968-african-adversity-in-international-arbitration> accessed 11 October 2022.

    [42]Wheal, Oger-Gross, Obamuroh and Longe (n 2).

    [43] Mizner (n 41).

    [44] See Michael Ostrove, Ben Sanderson and Andrea Lapunzina, ‘Developments in African Arbitration’ (DLA Piper, May 2018) <https://globalarbitrationreview.com/review/the-middle-eastern-and-african-arbitration-review/2017/article/developments-in-african-arbitration> accessed 11 October 2022.

    [45] See Regis Yann Simo, ‘Non-Exclusivity and an Ocean of Possibilities: The AfCFTA Jurisdictional Lex Specialis’ (2021) Transnational Dispute Management Journal <https://www.transnational-dispute-management.com/journal-advance-Publication-article.asp?key=1896> accessed 13 October 2022.

    [46] See Adenekan, (n 10) 2.

    [47] ibid 6.

    [48] See ibid.

    [49] See Olabisi D. Akinkugbe, ‘Dispute Settlement System under the African Continental Free Trade Area Agreement: A Preliminary Assessment’ (2020) 2) African J of Intl Comparative L 156-157.

    [50] See Adenekan (n 10) 15.

  • 12 Dec 2022 1:22 PM | Anonymous

    Paper presented at the AfAA 3rd Annual International Arbitration Conference, 3rd - 5th November 2022.  

    Introduction

    My paper is a brief introduction to three dispute resolution alternatives to international arbitration. Although AFAA exists to promote international arbitration, I urge you to bear in mind these three alternatives, and to remember them when your client’s interests may be better served by using them than by international arbitration itself.

    1. Expert determination

    So, first of all, what is expert determination? It is the resolution of a dispute by an expert in the particular subject or industry in dispute. It is not suitable for a dispute involving complex issues of legal interpretation or the use of legal systems from different countries. However, it is ideally suited to technical disputes where the issues involved are really not legal ones and are ones that lawyers may find it hard to understand or to deal with succinctly.

    So, three examples are Post M&A disputes, where the purchase price for an acquisition depends on the balance sheet of the company being acquired on the acquisition date; or a Valuation dispute; or Construction disputes. In the UK, the majority of expert determinations are undertaken by chartered accountants or chartered surveyors/members of the Royal Institution of Chartered Surveyors.

    The benefits of the process, from the perspective of the client, include:

    • It relies on a knowledgeable expert, and saves the need to educate lawyers into all the issues involved. For example, if the issue in dispute is an accounting issue, these may be readily understood by the client’s accounts department, but less so by the legal team;
    • ·It is generally a lot quicker than arbitration or litigation; and
    • ·It is generally final. Whilst the legal framework may vary from country to country, in the UK an expert determination cannot be challenged, save in the case of fraud or manifest error by the expert.

    Typical expert determination process

    So, what is the typical expert determination process? One of the advantages of expert determination is that it remains a very flexible process, far less regimented than arbitration, and the expert can determine the process the parties must follow.

    However, a typical process is:

    • ·Written opening submissions from each party – these tend to be simultaneous. They may be prepared by an in-house team, or with the assistance of an external professional in the same industry as the expert, or with the assistance of lawyers;
    • ·Written response submissions from each party – maybe 15 working days later;
    • ·Then, a process of questions by the expert to each party or both parties – to improve the expert’s understanding of the issues in dispute, or to request disclosure of a key document, or to ask for the parties’ submissions on a particular issue or point of law. There may be one or more exchanges of questions;
    • ·There is usually a provision for an Oral hearing – but in practice, these are rare – everything is normally done in writing;
    • ·Consideration by the expert of all the submissions; and
    • ·The issue of the determination by the expert. In the UK, this is typically without reasons or with very limited reasons – in order to save cost and to reduce the possibility of appeal. But in other jurisdictions, it may be more in the form of an international arbitration award, although shorter. Lawyers may or may not be involved in drafting the submissions from each side.

    Typical areas of dispute in an accounting expert determination

    As I am an accountant, I wanted to give a few examples of typical areas of dispute in an accounting dispute. These might include:

    • IFRS / GAAP / OHADA accounting policies disputes;
    • Valuation of assets and liabilities in a Completion Balance Sheet;
    • Recognition of tax liabilities;
    • Recognition of liabilities and contingent liabilities;
    • Estimation of future income; and
    • Discount rates.

    So, just to show you how this is relevant to Africa, I have been involved in two expert determinations in Africa, both in relation to Post M&A disputes, the first in 16 African countries and the second in Tanzania.

    The first was the sale by an oil major of its downstream assets in 16 African countries nearly ten years ago now. My accountancy firm was involved in negotiating the completion balance sheets for each country, first with accountants on the other side, which was represented by a Big Six accounting firm, and then with the expert determiner, who we selected who was from another Big Six accounting firm.

    Examples of two of the issues we had to determine were:

    • The recoverability of receivables. The higher the amount of receivables, the more my client, the purchaser had to pay. We needed to review whether the provision against receivables at the balance sheet date was reasonable, taking account of all the evidence at the time, and particularly of whether the amount had actually ever been paid by the debtor.
    • The recognition of tax liabilities in the balance sheet. The higher the amount of tax liabilities, the less my client had to pay. Some African tax authorities had levied very large tax bills – which we said had to be taken into account in the balance sheet, whilst the seller said they should not be because in practice these tax demands were often negotiated away so the company only paid a small percentage of the original demand. The expert had to take a decision on what was a reasonable provision.

    2. Court/Tribunal-appointed experts

    The second type of alternative dispute resolution I wanted to highlight is not really an alternative to international arbitration – because it is provided for in all the Rules of the international arbitration bodies, such as the IBA Rules, and so will be known in theory – but it is rarely used in practice – and we may want to discuss why that is.

    So what are the principal benefits and complaints about such an alternative to the party appointed expert?

    The benefits:

    • A tribunal-appointed expert is likely to be more genuinely independent than a party-appointed expert;
    • They may be able to teach or advise the Tribunal in confidence;
    • They may advise the Tribunal on questions to ask the parties or the party-appointed experts; and
    • They may remove the tendency of party-appointed experts to adopt extreme positions. Whilst party-appointed experts are meant to be independent, they are inevitably part of the adversarial process – and some of my fellow quantum experts put forward extreme numbers in their first reports, only to reduce them as the hearing gets closer.

    Complaints about Tribunal-appointed experts:

    • Counsel for the parties complain that they lose control of the expert witness and the arbitration process;
    • The Tribunal-appointed expert may effectively become a fourth member of the Tribunal, who the Tribunal feels obligated to follow; and
    • They may add cost to the process – particularly if the parties also have their own party-appointed experts.

    The ICJ case of DR Congo v Uganda

    However, I want to bring to your attention what I personally consider to be an effective use of Court appointed experts in Africa – by the International Court of Justice in the case of DR Congo v Uganda, in relation to the war between 1998 and 1993, on which judgment was given in February 2022.

    The ICJ had made an award on liability, in favour of the DR Congo, in 2005, but by 2020 the parties had still not been able to agree on the monetary amount of any award, so the Court took back the quantum issue and appointed four Court-appointed experts on the subjects of:

    • The number of deaths and injuries;
    • The numbers of excess deaths;
    • The value of deaths and injuries and of property damage; and
    • The value of natural resources unlawfully exploited by Uganda.

    The four experts prepared an initial report; both parties commented on that report; the four experts produced a supplementary report; and then the Court held a hearing and the experts were cross-examined.  The entire process was completed in just over six months.

    There are four comments I want to make on the process:

    1. The Court relied on the experts’ detailed calculations. For example, the Court said “The Court is of the view that the methodological approach taken by the expert report is convincing overall. The Court notes that the methodology adopted by the expert appropriately differs slightly depending on the resource in question and on the respective degree of reliability of the data on which he bases his estimates. The expert report is also transparent about its own limitations.” [Judgment, para 277]

    2. The Court did not accept all the conclusions of the experts without weighing them up. It also relied on all the other evidence on the Court file. For example, it said “one of the Court-appointed experts, [  ], did not analyse the prevailing practice of Congolese courts, as stipulated in the Court’s terms of reference” [Judgment, para 139] and “The Court does not consider that the expert has sufficiently substantiated the variable “evidentiary discount factors” he proposes to apply” [Judgment, para 248];

    3. There were parallels with investment treaty arbitration. However, the calculation of quantum ultimately adopted by the Court was more broad-brush than is common in today’s international arbitration awards and were global sums for each head of loss; and

    4.  The process was relatively speedy.

    • The experts were appointed on 12 October 2021;
    • There were then two reports by each expert and comments by both parties;
    • The Oral hearing was held on 20 – 30 April 2021; and
    • The judgment was handed down on 9 February 2022.

    3. Independent Panels of experts

    Finally, I want to commend to you the use of what I have called Independent Panels of Experts. This is partly because I think these can be highly effective when there are large numbers of similar disputes to be resolved, and again when the legal issues involved are not particularly complicated or have already been resolved. But also because in the ICJ case between DR Congo and Uganda, considerably reference was made to the UNCC/United Nations Compensation Scheme, , and because the idea of a similar scheme has been put forward by some as a mechanism for reparations arising from the current invasion of Ukraine by Russia.

    Such panels may be used primarily for compensating individuals who have suffered loss or damage. This is probably why an independent panel was not the appropriate mechanism in the ICJ case of DR Congo v Uganda or in the Eritrea-Ethiopia Claims Commission.

    UNCC was set up following the first Gulf War, and dealt with millions of claims by individuals and hundreds of bigger claims by companies for losses arising out of the invasion of Kuwait by Iraq in the early 1990s.

    So, briefly, typical mechanics might be:

    • Applicants submit claims in writing;
    • There is a secretariat which deals with administration with the applicants, and makes the payments;
    • Relevant experts (such as forensic accountants, loss adjusters, chartered surveyors or lawyers) prepare the claims for submission to the Panel (usually with a recommendation);
    • There is a 3 person Panel – comprising a leading lawyer, a forensic accountant and a chartered surveyor (in the case of UNCC). The Panel reviews all the evidence, and makes an award – which is then paid by the secretariat, subject to any review or appeals process and to the availability of funds to make the award.

    Such Independent Panels may be used for mass claims – so, for example, in the case of UNCC, the Panel awarded a set amount for death and injury, with little evidence required and a higher amount where more evidence was provided.

    The lawyers on the Panels can work with the Secretariat to determine the legal principles to be followed. For example, many of the precedents of UNCC have been followed in other similar situations of loss - and one of the experts in the ICJ case of DR Congo v Uganda recommended following the UNCC amounts for loss per life, appropriately adjusted for a later time period and different levels of income in the relevant countries.

    A key issue is always likely to be how much evidence is required to substantiate a claim. But the Panels can set principles for this, based on how much evidence is available and how much is reasonable – for example, one would expect more evidence to support a claim for the destruction of a house in Ukraine today than one twenty years ago in DR Congo.

    The respondent should normally have the opportunity to present a defence, in accordance with the rules of natural justice.

    Finally, and very importantly in the case of Russia and Ukraine, there is the need for a fund which can pay successful awards to the applicant.

    Conclusion

    This is an introduction to three alternative forms of dispute resolution, each of which may be relevant for your clients in Africa in particular circumstances, and which should be considered in situations where international arbitration may not be the most appropriate or cost-effective form of dispute resolution.

    _________________________

    *Andrew Maclay

  • 12 Dec 2022 8:23 AM | Anonymous

    Paper presented at the AfAA 3rd Annual International Arbitration Conference, 3rd - 5th November 2022.  

    Conflicts and ineffective means of resolving them lead to wasted resources, social instability, reduced investment, underdevelopment, and in extreme cases, loss of life. Over the years, it has become evident that effective negotiation, joint problem-solving, intervention by neutrals, alternative dispute resolution (ADR) mechanisms and dispute management skills help parties with differing interests, values and cultures, assuage brewing tensions and foster a wide range of social, legal, commercial and political goals.

    This paper presents a comparative analysis of major forms of dispute resolution mechanisms and highlights key thematic areas impacting ADR. It answers the question of where we are, with the status of ADR in Africa, why ADR mechanisms proffer effective resolutions to disputes and what needs to be done to propel the use of ADR.

    Finally, the author will argue that the call to action for the African continent is to develop a pan-African ADR framework which accommodates the nuances of the diverse sub-regions in Africa but creates harmonized ADR standards which will ultimately foster ADR in Africa. Important recommendations such as enabling Africa as an attractive seat for ADR mechanisms, re-positioning ADR institutions, capacity building and the continued collaboration between the bench, bar, ADR practitioners and users, amongst others will be canvassed as viable options for advancing ADR. 

    Status Of ADR In Africa

    The resolution of disputes outside of courts is not new; societies world-over have long used quasi-judicial and indigenous methods to resolve conflicts. These have since evolved to more formalized ADR mechanisms, to wit, arbitration, adjudication, conciliation, mediation, negotiation, early neutral evaluation, expert determination, amongst others. These ADR mechanisms are useful for conflict avoidance, conflict management and conflict resolution, they encourage party autonomy and increase access to justice when harnessed appropriately.

    Within the African continent and amongst ADR practitioners, arbitration is the preferred ADR mechanism but there has been a rise in the use of mediation and dispute boards. Importantly, there are nearly 100 arbitration/ADR institutions in Africa. Historically, Africa-related international commercial disputes are arbitrated in London for English-speaking African parties or Paris for French-speaking African parties.  

    According to the 2020 SOAS University of London Survey in Africa[1], the top five arbitral centers in Africa are African Foundation of Southern Africa (AFSA), Cairo Regional Centre for International Commercial Arbitration (CRCICA) Kigali International Arbitration Centre (KIAC), Lagos Court of Arbitration (LCA) and Nairobi Centre for International Arbitration (NCIA). However, these institutions do not take up top positions on a global stage[2]. This disadvantaged perception is also seen in the position of African countries as favored seats for arbitration globally. The top five preferred seats globally are London, Singapore, Hong Kong, Paris and Geneva[3] while the top five seats in Africa to wit, South Africa, Nigeria, Egypt, Rwanda, Cote d’Ivoire[4] are not well-positioned/favored by global ADR users.

    The ADR laws in Africa are also quite fragmented. International conventions such as the New York Convention 1986 which has been signed by 42 out of the 54 African countries[5], still remains the convention on private disputes/arbitration with the greatest number of African signatories. Its counterpart for mediation and settled agreement, the Singapore Convention on Mediation 2019, has only been signed by 10 African countries. The UNCITRAL Model Law on Arbitration has been signed by 11 African countries while the UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation 2018 (UNICTRAL Model Law on Mediation) has been signed by 16 African countries. Albeit this, ADR mechanisms are practiced throughout the continent in one form or the other, with different levels of regulation and development.

    Interestingly, different sub-regions have treaties with dispute resolution mechanisms which are unfortunately only applicable to a certain bloc of countries. The Treaty on the Harmonization of Business Law in Africa[6] which established Organization for the Harmonization of Business Law in Africa (OHADA), the Uniform Acts on Arbitration and Mediation and Common Court of Justice and Arbitration Centre (CCJA) is applicable to only 17 West and Central African States.

    There are 836 Bilateral Investment treaties from Africa with provisions on dispute settlement.[7] The Investment Agreement for Common Market for Eastern and Southern Africa (COMESA), Southern African Development Community (SADC) Organisation of Islamic Cooperation (OIC), East African Community (EAC) and Tripartite Free Trade Agreement (TFTA) contain dispute settlement mechanisms, but they are only applicable to Contracting States and not widespread throughout Africa.  Taking a leaf from the extensive acceptance of the African Continental Free Trade Agreement (AfCFTA) and its Dispute Protocol, signed by 54 African countries, for the settlement of disputes between Contracting States, there is a need to develop a pan-African ADR framework for the settlement of private disputes between legal persons.

    Africa is certainly a well-diverse continent with different legal systems ranging from common law to civil law, African customary law and Islamic law. Unfortunately, the status in this rich continent has been legal balkanization, judicial insecurity and political instability. It is author’s view that the goals of African countries should be to harmonize economic laws and legal practices, improve judicial systems, restore investor confidence, facilitate cross-border trade and investment, guarantee security and encourage a vibrant private sector so as to achieve economic growth, development and globalization.

    The Significance Of ADR Mechanisms

    In achieving these important economic goals and wide-spread development in Africa, diverse forms of dispute resolution should be harnessed and promoted. It is believed that the dispute and/or parties involved should inform the ADR mechanism utilized. It is therefore important to expound the diverse ADR mechanisms and highlight their nuances and uses.

    Arbitration provides increased access to justice through a cost and time effective mechanism which is confidential and enforceable. Party autonomy seats at the bedrock of this mechanism as the consent of parties to the process is sacrosanct to its commencement. Importantly, it is a formalized process that culminates in an award on merits which can be enforced in multiple applicable jurisdictions using the benefits of the New York Convention on reciprocity of enforcement of awards. The grounds for challenging and refusing enforcement of the arbitral awards are also limited and arbitration is typically encouraged by local courts.

    Conciliation facilitates communication and settlement which essentially leads to a non-binding conciliation agreement by neutrals. It is a favored mechanism in the AfCFTA Dispute Protocol and is to be used by the Dispute Settlement Body, Panels and Appellate Body. It is keenly related to mediation[8]  but it is usually a more formal process where the conciliator can make a decision or proffer a solution outside of the settlement of parties.

    Mediation also involves a settlement process which facilitates resolution of disputes through a mediator. However, a settlement agreement is achieved only with the consent and cooperation of the parties. Thankfully, with the introduction of Singapore Convention, settlement agreements are now enforceable in Contracting States.

    Negotiation is usually the first ADR mechanism deplored when a dispute arises, as parties attempt by themselves to seek out the best solution for the dispute. It does not require a written consent of parties and it is an informal and flexible process which does not involve third party neutrals or administrative charges. It can be used in diverse types of disputes and by multiple parties.

    Early Neutral Evaluation (ENE) is a non-binding assessment of the merits of a case by a neutral and this assessment is typically without prejudice and can be used as a basis for settlement negotiations leading to a Calderbank offer.[9] The neutral is usually appointed to answer legal, evidential, factual or technical questions. It is an important mechanism when the parties have reached an impasse on an issue, there is a great disparity between the position of parties, or they require confidentiality in achieving a common ground. It has been encouraged by the English courts[10], expressly provided in the English Civil Procedure Rules (CPR)[11] and offered in the Chancery Division, Commercial Court and the Technology and Construction Court[12]. The Stockholm Chamber of Commerce (SCC) Rules for Express Dispute Assessment also provide for the appointment of a neutral assessor to evaluate one or several issues.

    These ADR mechanisms, amongst many others like adjudication and expert determination have over the years evolved and become very instrumental to the resolution of many disputes.

    Key Recommendations

    In recognizing the advantages of diverse ADR mechanisms, it becomes important to foster their reach in Africa by ensuring that African cities become attractive/favoured seats and the use of African ADR institutions is promoted. The key recommendations for promoting Africa as an attractive seat are as follows:

    ·Promote legal and political stability, judiciary support and enforcement of ADR outcomes as well as neutrality and impartiality of local legal systems.

    ·Develop harmonized laws and regulations which take cognizance of, and allow for, important concepts such as third-party funding, emergency or expedited ADR proceedings, interim measures, multi-party proceedings, express service or evaluation, remote hearings, electronic signatures, amongst others.

    ·Promote the use of ADR mechanisms for diverse types of disputes such as disputes with ESG elements, human rights disputes, family and estate disputes, smart contracts and technology disputes, crypto disputes and non-commercial disputes, amongst others.

    ·Encourage the use of, and provide rules for, other ADR mechanisms such as early neutral evaluation, adjudication and expert determination so it becomes mainstream.

    ·Establish sectoral workshops and legislations for specific industry disputes like technology, travel, communication, amongst others.

    It is important to acknowledge that there are many ADR institutions in Africa. However, expanding the reach of these institutions so as to draw from a larger pool of potential users should be encouraged. Key recommendations to achieve this, include:

    ·Continued collaboration and resource sharing between ADR institutions.

    ·Proliferation of arbitration and mediation centers attached to courts.

    ·Establish walk-in ADR houses with increased accessibility to ADR users.

    ·Actively promote civic engagement, stakeholder sensitization and awareness campaigns on the existence, availability and advantages of the diverse ADR mechanisms. This can be done through signposting, behavioral nudges, public consultation and trust building using social media, print, broadcasting media and public assemblies. Focused education of the legal and business community on ADR.

    ·Support capacity building by ADR entities through grants to these institutions.

    ·Encourage third party funding, alternative financing options or access to funds so as to increase access to ADR mechanisms for users. These funding options for ADR mechanisms should be encouraged by legislative action and policies.

    ·Create outcome-related fees and costs structures for ADR mechanisms[13].

    ·Facilitate capacity building for ADR practitioners, judges and court personnel through funding for trainings, facilities and technology development.

    ·Widespread education on ADR mechanisms. Given that Africa has a significant youth population, the introduction of ADR mechanisms, their uses and advantages at an early stage of the educational system should be promoted.

    ·Drawing from the lessons of the COVID-19 period, the continued use of technology as an enabler for error-free, expeditious and effective ADR processes should be harnessed.

    Ultimately, the coordination of the ADR rules and practices in Africa through a pan-African framework for the different ADR mechanisms will be a step in the right direction.

    Call To Action

    ADR is the means of settling a compliant out of court with the assistance of an impartial dispute resolution process. ADR can effectively bridge the gap between formal legal systems and traditional modes of African justice.

    It is therefore recommended that a pan-African Treaty/Directive on ADR and Online Dispute Resolution (ODR) is developed and widely accepted in Africa for increased effectiveness. This treaty should be a horizontal legislative framework for ADR and ODR in Africa. It should provide for uniform adoption and minimum standards as seen in the European Union (EU) Directive 2013/11/EU on ADR[14] and EU Regulation No 524/2013 on ODR for Consumer Disputes[15] for EU countries as well as the ASEAN ADR Guidelines for Consumer Protection 2021[16] for ASEAN countries and OHADAC on Arbitration, Mediation and Conciliation for Caribbean countries[17].

    The proposed Treaty should assess different approaches to ADR, the implementation in each member state and steps to establish and apply ADR mechanisms effectively. It should take into consideration international and African best practices in ADR. In order to achieve desired results, this Treaty should be available for contracting states to consult and review their existing ADR legislation to ensure it adequately implements agreed principles. The principles for the ADR framework should include National Policies, Access to Justice (website, online and offline, domestic and cross-border), Expertise, Independence and Impartiality, Transparency, Effectiveness, Fairness and Due Process, Legality, Efficiency, Party Autonomy and Enforcement. Guidance on the appropriate types of disputes, costs, language, ADR clause, forum selection, bias and neutrality should also be provided. This will present useful guidance for a harmonized legislative framework throughout Africa. These principles should also be binding quality requirements for ADR entities, the ADR procedures operated by them and – to a lesser degree – the substantive standards from which the outcome of the ADR procedure is derived.

    Participation from different stakeholders, from ADR entities/institutions, national authorities, consumer centers, academia, representatives of Member States, amongst other key stakeholders, in consultations for the establishment of this ADR framework/Treaty will be important. A successful ADR framework should be fair, accessible, easy, affordable include a human element and be faster and much cheaper than courts to resolve disputes.

    Importantly, robust and uniformed national ADR policies/legislations should be enacted. Then progress and implementation must be measured and monitored. Reform should be a continuum so as to align with best practices and the needs of stakeholders. An Africa-wide ADR Assembly should be established to promote ADR and ODR, this Assembly will monitor the progress of the Treaty and implement changes that incorporate African peculiarities based on diversity of culture and legal systems. There should also be a list of certified ADR institutions, akin to the over 430 ADR entities in the EU and EEA, on an ADR platform which is accessible to all. Any effective ADR system must have a flexible design structure that is rooted in satisfying the interests of the parties in dispute and professionally administers fair justice in a dynamic yet culturally appropriate manner.

    The provision and access to grants for ADR institutions would also aid capacity building in the form of facilities, technology and well-trained personnel. Stakeholder tax incentives as introduced in Macau[18], amongst other stakeholder incentives will also encourage the use of ADR. The introduction of the use of ADR for class actions as recently discussed in South Korea[19] could also be a welcomed innovation for ADR. Essentially, it would be important to reduce ADR costs, streamline ADR processes, reduce the barrier to entry for practitioners and users, promote reciprocal enforcement of ADR outcomes (be it settlement agreements or arbitral awards), encourage third party funding or financing options and ultimately build an appetite for ADR.

    Finally, to facilitate judiciary collaboration, special courts for ADR – related matters (challenges, enforcement, interim measures, neutral appointment) should be established and equipped with judges and court personnel that are knowledgeable in ADR. There should be continuous training of the judiciary in ADR practice and procedure so they can provide the needed support for the process and enforce ADR outcomes effectively. Essentially, ADR should be seen as complementary to the judicial process and not a threat. These imperatives are geared towards achieving the same goal of promoting increased access to justice and effective dispute resolution mechanisms which will prepare the right foundation for increased investment, trade and development.

    Conclusion

    It is important to create an appetite for ADR so as to develop a sustainable market for ADR within Africa for intra-Africa disputes and ultimately for international disputes. Viable routes to achieving this would signal the development of a pan-African ADR framework with a unified and harmonized approach to ADR as well as uniform adoption of minimum standards across Africa. This would create an integrated legal space conducive for a viable economic industry. The promotion of African cities as an attractive seat for ADR mechanisms and re-positioning of ADR institutions in Africa coupled with capacity building, judiciary collaboration, stakeholder sensitization and civic engagement would be pivotal to the advancement of ADR, especially on the African continent.

    _______________________

    *Oluwaseun Oloruntimehin is a dual-licensed lawyer in New York, USA and Nigeria, an arbitrator, negotiator, chartered secretary and governance professional qualified in the United Kingdom and Nigeria. She is a dispute resolution specialist with a bias for international commercial arbitration and a successful track record of strategically advising and representing clients across a wide range of industries, in high value and complex domestic and international disputes. She primarily sits as an arbitrator in adhoc and institutional arbitrations and is a member of the Panel of Neutrals for arbitral institutions including the LCA and CIArb-LCA MSME Scheme. She is a fellow of the CIArb and editor-in-chief for the LCA. She has written several papers and is a favored speaker at international conferences. As an approved faculty member and tutor of the CIArb, Oluwaseun also enjoys teaching international arbitration. As an advocate for justice, Oluwaseun is passionate about law, ADR, education and social change.

    [1]https://eprints.soas.ac.uk/33162/1/2020%20Arbitration%20in%20Africa%20Survey%20Report%2030.06.2020.pdf (last accessed on 28 November 2022).

    [2] The 2021 International Arbitration Survey by Queen Mary University indicates that the five most preferred arbitral institutions for African parties are the International Chamber of Commerce (ICC) - (79%), London Court of International Arbitration (LCIA) – (57%), Singapore International Arbitration Center (SIAC) – (39%), International Centre for Settlement of Investment Disputes (ICSID) – (21%) and Hong Kong International Arbitration Center (HKIAC)- (14%).https://arbitration.qmul.ac.uk/media/arbitration/docs/LON0320037-QMUL-International-Arbitration-Survey-2021_19_WEB.pdf (last accessed on 28 November 2022).

    According to SIAC Report 2021, 2.7% of SIAC cases had African parties. The 2021 LCIA Report indicates that 6.6% of reported cases had African parties. According to ICC Report 2020, 7% of ICC cases had African parties. The ICSID Report 2021 evidences that 15% of the cases had Sub-Saharan Africa parties and 9% had North Africa and Middle East parties.

    [3] According to the 2021 International Arbitration Survey by Queen Mary University, London is tied in first place with Singapore with 54% of practitioners indicating London and Singapore as their favored seat of arbitration. London is more favored for African practitioners as 69% rank London as their number one preferred seat. Hong Kong is the third preferred seat for arbitration, as 50% of practitioners indicated it as a preferred seat. While Paris is the fourth favored seat globally, it ranks very high amongst African practitioners with 67% indicating Paris as a favored seat. This is particularly true for practitioners/users in French-speaking African countries. Geneva is also a top ranked city for arbitration as 12% of practitioners and users indicate it as their preferred seat.

    https://arbitration.qmul.ac.uk/media/arbitration/docs/LON0320037-QMUL-International-Arbitration-Survey-2021_19_WEB.pdf (last accessed on 28 November 2022).

    [4] According to the 2020 SOAS Survey in Africa, the top five African countries that are used as a seat for arbitration are South Africa, Nigeria, Egypt, Rwanda and Cote d’Ivoire.

    [5]https://iclg.com/alb/17761-african-arbitration-centres-on-the-rise (last accessed on 28 November 2022).

    [6] This Treaty which was signed on October 17, 1993 in Port-Loius established the OHADA.

    [7]https://www.whitecase.com/insight-our-thinking/arbitration-africa (last accessed on 28 November 2022).

    [8] The Nigerian Arbitration and Conciliation (ACA) Bill refers to mediation as opposed to conciliation which is used in the extant ACA Act. The UNCITRAL Model Law on International Commercial Conciliation 2002 has also been replaced with the UNCITRAL Model Law on Mediation 2018.

    [9] A Calderbank offer is a settlement offer made on a “without prejudice save as to costs” basis.

    [10] ENE was strongly endorsed by the United Kingdom Court of Appeal in Lomax v Lomax [2019] EWHC 1467 where the court held that pursuant to the CPR, the court had the power to schedule an ENE hearing to help parties settle the case so courts can hear an early neutral evaluation. This upturned the earlier position in Halsey v Milton Keynes [2004] EWCA Civ 576 where the court held that ADR was not a compulsion and unwilling parties cannot be compelled to mediate.

    [11] By Rule 3.1 (2) (m) of CPR in an appropriate case, the court may provide for an Early Neutral Evaluation hearing for the purposes of assisting parties to settle the case.

    [12]https://www.ashurst.com/en/news-and-insights/legal-updates/quickguide---early-neutral-evaluation/ (last accessed on 28 November 2022).

    [13] Hong Kong has enacted a new set of Arbitration (Outcome Related Fee Structures for Arbitration) Rules which is to come into operation on 16 December 2022. These Rules allow for the use of various outcome-related fee structures (ORFS) in arbitration proceedings.  These include Conditional Fee Agreement, Damages Based Agreement and Hybrid Damages Based Agreement.https://www.lexology.com/library/detail.aspx?g=791c4da5-1645-4c6a-ae94-6df4e8a08825 (last accessed on 28 November 2022). 

    [14]https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:165:0063:0079:EN:PDF (last accessed on 28 November 2022).

    [15]https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:165:0001:0012:EN:PDF (last accessed on 28 November 2022).

    [16]http://aadcp2.org/the-asean-alternative-dispute-resolution-adr-guidelines-for-consumer-protection/ (last accessed on 28 November 2022).

    [17] Other relevant regulations include the United Kingdom’s ADR for Consumer Disputes (Competent Authorities and Information) Regulations 2021 which is a new residual ADR Scheme for consumer disputes that appoints a principal authority to certify and monitor relevant ADR providers. The UNCTAD Manual on Consumer Protection, Customer Dispute Resolution and Redress and ECD Recommendation Consumer Dispute Resolution and Redress are also useful regulations.

    [18] In 2021, Macau enacted a provision for tax reduction (50% tax reduction in stamp duty) for documents with an arbitration clause.

    [19] The South Korean bill (the proposed Class Action Act) permits class action lawsuits in any area of law so there are now open discussions for permitting class action arbitrations in South Korea.

  • 4 Dec 2022 6:00 AM | Anonymous

    Abstract

    The enforcement of an arbitral award is a streamlined procedure that is supposed to be completed in a short period of time. This is because all the parties' rights, obligations, claims, and defenses are deemed to have been evaluated and unequivocally resolved by the arbitral tribunal in a final award. Accordingly, the New York Convention clearly restricts the grounds on which the enforcement actions may be resisted or challenged by a losing party, and the requirements that a court must evaluate before an award is accepted, enforced, or refused by a losing party.

    This article examines whether a losing party may attempt to contest the execution or confirmation of an arbitral award by bringing a counterclaim or a set-off against the awarding party. There has been a long dispute about why courts of enforcement should allow or dismiss a counterclaim or set-off in an enforcement process, and the reasons for doing so. It has been noticed, however, that the decision on whether or not to accept or refuse admissibility of a counterclaim or set-off in an enforcement of arbitral award proceeding varies on the jurisdiction in which the enforcement or confirmation of the award is sought.

    Keywords: "arbitral", "award", “convention”, "counterclaim," “decision” "enforcement", “grounds”, "jurisdiction", "set-off”, and “summary.

    1. Introduction

    A proceeding to enforce or confirm an arbitral award is summary in nature[2]. The New York Convention on the recognition and enforcement of foreign arbitral awards 1958 "the NYC" permits only restrictive attack against an arbitral award within the confines of the NYC. The rationale for limiting the grounds to oppose enforcement proceedings is because enforcement or confirmation proceedings of an award is tantamount to a post-judgment proceeding that does not require trial or evidentiary hearing[3]. It is assumed to be brief in character as all the rights, obligations, claims, and defenses are deemed to have all been reviewed and resolved by the arbitral tribunal in a final award. Hence, seeking the confirmation or enforcement of the award is expected to be summarily decided. It is for the above reason that NYC specifically circumscribed the grounds[4] on which the enforcement proceedings may be opposed by a losing party or conditions the court would consider before the award is recognized, enforced, or refused.

    It has, however, been observed that in enforcement proceedings, losing parties in seeking to oppose or challenge the proceedings present a counterclaim or a defense of set-off. Interestingly, different courts in the signatory states have reached different conclusions on whether a losing party to a convention award may set off or counterclaim against the enforcement of a Convention award.[5]  From the various courts' decisions in the Contracting States, it appears that the decision to allow a counterclaim or set-off in enforcement proceedings varies with the jurisdiction where the award is sought to be enforced, or the nature of the counterclaim or set-off presented. In other words, the decision to consider the set-off or counterclaim by enforcement court primarily depends on the jurisdiction of the enforcement court and the procedural law of the state of enforcement.[6]

    This memorandum will review certain decisions of contracting states where a set-off or counterclaim in the proceedings for enforcement or confirmation of a convention award were considered.

    2. Admissibility of a counterclaim or set-off in enforcement proceedings of an arbitral award?

    Under the NYC, a party who seeks to oppose or challenge enforcement of a convention award is expected by law to present its arguments within the ambit of Article 111 of the NYC. The grounds were exhaustively stated as follows: a) incapacity of the parties, or invalidity of the agreement; or (b) improper notice of the appointment of the Arbitrator or party was unable to present his case; or (c) the award contains decisions on matters beyond the scope of the submission to arbitration; or (d) irregularity in the composition of the arbitral tribunal; or (e) the award is not yet binding on the parties or has been set aside or suspended by a competent authority or (f) arbitrability of the dispute; or (g) it would be contrary to the public policy to enforce the award. So, whatever process a losing party must file in resisting the enforcement or confirmation of the award, it is expected to be made within any of the listed grounds.

    However, it has been witnessed that responding parties to enforcement proceedings of an arbitral award have presented either a counterclaim or a set-off defense. Thus, it becomes relevant to review the decisions of various courts in some jurisdictions where counterclaim and set-off defense have been considered.

     2.01 Counterclaim:

    “[T]he Black's Law Dictionary defines a counterclaim as a claim for relief asserted against an opposing party after an original claim has been made; esp., a defendant's claim in opposition to or as a set-off against the plaintiff's claim.—Also termed counteraction; countersuit; cross-demand. In other words, a defendant does not "institute" an action when he asserts a counterclaim.”[7] By its very nature, a counterclaim is considered a separate and independent action and may continue or be granted even when the original claim is dismissed or granted. Therefore, it is typically submitted at the beginning of arbitral proceedings after the Claimant has submitted its original claim.[8]

    In Fertilizer Corp. of India[9], the Southern District Court of Ohio, a U.S. court in considering a Petition for confirmation of an arbitral award, held that "a confirmation proceeding is not an original action; it is, rather, in the nature of a post-judgment enforcement proceeding. In such a proceeding, a counterclaim is clearly inappropriate." [10] In Selevision Saudi Company v. Bein Media Group LLC[11], the English court, in reviewing a similar contention on whether a counterclaim may be permitted in the enforcement of an arbitral award under the NYC, enunciated that "[e]nforcement proceedings are clearly intended to be, in the absence of a challenge by award debtor, highly summary and essentially quasi-administrative proceedings. Therefore, to permit counterclaims or other additional claims is likely to thwart or complicate enforcement." The court in denying the counterclaim reasoned that allowing the counterclaim "risks the practical inhibition on the enforcement of such award and it would transform the character of the proceedings which would then require full procedures for significantly contested claim including statements of case, disclosure, witness statements and probably expert evidence."[12] Similarly, in an old English decision of Margulies Bros Ltd v Dafnis Thomaides & Co (U.K.) Ltd.[13] Diplock J. pronounced that “[n]o authority has been cited to me in which the existence of a counterclaim has been held to be a good reason for refusing to allow an award to be enforced as a judgment. I do not think that the existence of a counterclaim is a good reason." 

    Conversely, in Federal Commerce & Navigation Co Ltd v Molena Alpha Inc.,[14] the English court held that “[i]t is not every crossclaim which can be deducted. It is only crossclaims that arise out of the same transaction or are closely connected with it. And it is only crossclaims which go directly to impeach the [Claimant's] demands, that are so closely connected with his demands that it would be materially unjust to allow him to enforce payment without taking into account the crossclaim".[15] Similarly, in Whyte and Mackay Ltd v. Blyth & Blyth Consulting Engineers Ltd[16], a Scottish commercial court was stretchy to allow a counterclaim in an enforcement of award proceeding involving declaration on the authenticity of an award.

    In a South African case, Industrius D.O.O v IDS Industry Service and Plant Construction South Africa (Pty) Ltd[17], the High Court affirmed that initiating an unsuccessful counterclaim through action procedures before a court constitutes "proverbial flogging a dead horse" and cannot be used as an excuse to postpone the enforcement of the arbitral ruling[18]. The court found that a party's attempt to set off a proven debt under the arbitral award against an untested counterclaim in unconnected proceedings is likewise in violation of the statute and Model Law and that postponing the enforcement of an international arbitral award in either of the latter cases would be contrary to the spirit of the Model Law in South Africa[19]. The court determined that the Respondent failed to allege or prove any of the grounds outlined in section 18 of the South African arbitration law- International Arbitration Act to persuade the court to deny the application to have the arbitration judgement become an order of court.[20]

    In my respectful view, counterclaim in Nigeria is classified as a pleading that requires to be proven through trial and evidence[21] and may not constitute a viable basis to resist a proceeding for an enforcement of an arbitral award. This is because enforcement proceeding of an arbitral award in Nigeria is considered summary in nature.

    It follows from the above decisions that a Respondent seeking to oppose an enforcement or confirmation of an arbitral award may be given a fair opportunity to submit a counterclaim depending on the jurisdiction where the enforcement proceedings are pending.

    2.02 Set-off:

    Set-off is a “[m]ode of defense by which the defendant acknowledges the justice of the plaintiff’s demand but sets up a demand of his own against the plaintiff to counter-balance it either in whole or in part.”[22] Setting off a claim against a Claimant's right to money results in the reciprocal extinguishment of both claims, whether in whole or in part, and it is used to defend the entire or a percentage of a claim.[23]. The impact of the set-off is that the losing party acknowledges the validity of the decision but claims that the award should be reduced or that the reward is less than the set-off amount.[24]

    However, it does appear that it is not in all cases during enforcement or confirmation of arbitral award that set-off is admissible or permissible. Again, like in counterclaim, it all depends on the jurisdiction of the court of enforcement save that in some circumstances, how the set-off arose is usually considered by the enforcement court.

    In Germany, the Federal Court of Justice (BGH), Germany's highest court with statutory jurisdiction to resolve arbitration-related disputes, held[25] “[t]hat in enforcement proceedings in German courts relating to a domestic or foreign arbitral award, the losing party may request for a set-off if it did not arise from an arbitration agreement.”[26] The Berlin Higher Regional Court upheld the award and dismissed the set-off claim in that decision. The court ruled that the set-off was contrary to the enforcement proceedings and lacked jurisdiction. The Respondent then appealed to the Federal Court of Justice (BGH). The Federal Court of Justice held that substantive objections to arbitral award claims in the form of set-off are acceptable in enforcement actions. But, according to the court, the fundamental grounds for the objection must have developed after the arbitration hearings ended. "[T]he court added that the situation is different when the claim on which the set-off is sought falls within the scope of an arbitration agreement, in which case the arbitral tribunal, rather than a court has jurisdiction.”[27]

    According to the above German case, it is remarkable and appears to be quite rational to note that for set-off to be considered, it must not have existed during the arbitration process; otherwise, it falls within the competence of an arbitral tribunal. Hence, the set-off is permissible if the debtor wants to set off a claim that occurred either after the arbitration proceedings were completed or outside the arbitration agreement. The decision clarifies that set-off, which is a type of substantive objection, can be admissible during enforcement. The only time this doesn't apply is if the objection itself is covered by an arbitration agreement. Then the arbitrators make the decisions and, not a court of law during enforcement of the award.[28]

    Similarly, in Uganda Telecom Limited v. Hi-Tech Telecom Pty Ltd[29], a Federal Court of Australia in a proceeding seeking to enforce a Ugandan award rejected “Hi-Tech’s request to defer enforcement of the award pending determination of its claim for set-off, reasoning that there is no basis under the International Arbitration Act for refusing to enforce a foreign award or for delaying or deferring the enforcement of a foreign award because the party liable under the award has a set-off claim against the other party.” In R & C Electrical Engineers Ltd v. Shaylor Construction Ltd[30] the court held that "there was a contractual right of set-off against an award of a sum that was not yet due for payment."[31]

    In contrast, the English court in Workspace Management v. YJL London Limited[32], held that set-off is admissible when the court found that the Claimant owed the Defendant £56,143.35 as a result of an Adjudicator's decision and that the Defendant owed the Claimant the same sum as a result of the Arbitrator's award involving the same parties, same contract. Therefore, relying on the principle of "equitable set-off," the court explained that it was a case of mutual set-off of debts. The court reasoned that, based on the above premise, “[i]t would be manifestly unjust to allow the Claimant to enforce payment without taking into account the set-off based on Adjudication Decision 3”. Therefore, the court held that the principles of equitable set-off applied in that case.

    3. Conclusion

    What emanates from the foregoing considerations is that a Respondent is generally not permitted to bring a counterclaim or set-off in order to oppose a claim to enforce an arbitral award except the court of enforcement allows it. This is because Article 111 of the NYC extensively lists the reasons for opposing or challenging an arbitral award. The rationale for restricting the grounds for enforcement of a convention award is because arbitral award enforcement proceedings is largely analogous to post-judgment actions that do not entail a trial or evidentiary hearing. Additionally, it is considered as having a short duration, as the arbitral tribunal is believed to have examined and resolved all the parties' rights, responsibilities, claims, and defenses in a final judgment.

    The Contracting States seemed to have created exception as the decision on whether or not to admit a counterclaim or set-off in an enforcement proceeding is solely within the exclusive province of the court, which must take into consideration the procedural law of the Contracting State that sets out the requirements for either the admissibility or denial of the counterclaim or set-off in the enforcement proceeding.

    In my considered opinion, courts in all Contracting States should exercise caution when deciding whether to accept or deny a counterclaim or set-off in enforcing a convention award if doing so may result in the reopening of proceedings, which invariably necessitates an evidentiary hearing or discovery requests. Otherwise, admitting counterclaim or set-off in all enforcement proceeding of a convention award will inevitably modify the brevity of the proceeding.

    _______________________________

     *Young ICCA Scholar. A Fellow of Chartered Institute of Arbitrators, U.K.; Prime Dispute U.K.; Arbitrators’ and Mediators’ Institute of New Zealand; and Malaysian Institute of Arbitrators. He earned his Master of Laws (LL.M.) degree in International Arbitration at the University of Miami, School of Law, Florida, United States of America.

    [2] Imperial Ethiopian Gov't v. Baruch-Foster Corp., 535 F.2d 334, 335 (5th Cir. 1976).

    [3] Fertilizer Corp. of India v. IDI Management, Inc., 517 F. Supp. 948 (S.D.Ohio 1981).

    [4] Article 3 of the New York Convention on the recognition and enforcement of foreign arbitral awards 1958.

    [5] A.J. van den Berg, “New York Convention of 1958- Annotated List of Topics (2013).”

    [6] Mathias Scherer and Sam Moss, ‘Resisting Enforcement of a Foreign Arbitral Award under the New York Convention.” IPBA Journal No. 51, September 2008.

    [7] In re Am. Home Mortg. Assets Trust 2007-5, 2019 Minn. App. Unpub. LEXIS 267 2019 WL 1431923.

    [8] Id.

    [9] 517 F. Supp. 948 at 949.

    [10] Id. at 963

    [11](2021) EWHC 2802 Comm. https://jusmundi.com/en/document/pdf/decision/en-selevision-saudi-company-v-bein-media-group-llc-judgment-of-the-high-court-of-justice-of-england-and-wales-2021-ewhc-2802-friday-22nd-october-2021.

    [12] Id.

    [13] [1958] 1 Lloyds Rep 250: Christopher Hill and Steve Abraham, Norton Rose, “Adjudication and Arbitration Set-Off” Lexology (2006).

    [14] (1978) 1 QB 927

    [15] Id.

    [16] (2012) CSOH 79; 2012 G.W.D. 17-3433.

    [17] (2020/15862) [2021] ZAGPJHC 350 (20 August 2021)

    [18] Id.

    [19] Andrew Fawcett, “South African court reaffirms stance on enforcement of arbitral awards.” 23 September 2021.

    [20] (2020/15862) [2021] ZAGPJHC 350 (20 August 2021)

    [21] Elder P.E. Biko & Anor. v. Sir. Uche Amaechi (2018) LPELR-45069 (CA)

    [22] Bryan A. Garner, “Black’s Law Dictionary, 11th Edition, 2019.”

    [23] Alexis Mourre, “The Set-off paradox in International Arbitration.” Arbitration International, Volume 24, Issue 3, 1 September 2008, Pages 387–404.

    [24] Vladimir Pavic, “Counterclaim and Set-Off in International Commercial Arbitration.” Annals, International Edition pp. 101-116 (2006).

    [25] 28 July 2005- Court of Appeal [Oberlandersgericht] Koblenz in Albert Jan van den Berg (ed) Yearbook Commercial Arbitration 2011- Vol. XXXI, (Kluwer Law International 2006) pp. 673-678.

    [26] Stephan Wilske and Claudia Krapfl, Gleiss Lutz, “Federal Court of Justice on set-off in enforcement proceedings.” Germany International- 28 September 2010. 

    [27] Germany No. 138, Seller v. Buyer, Bundesgerichtshof, 30 Sept. 2010 in Albert Jan Van Den Berg (ed), Yearbook Commercial Arbitration 2011- Vol. XXXVI, Vol. 36, Kluwer Law Int’l; ICCA & Kluwer Law Int’l 2011 pp. 279-281.

    [28] Stephan Wilske and Claudia Krapfl, Gleiss Lutz; “Set-off in enforcement proceedings possible if claims not subject to arbitration.” Thomson Reuters Practical Law.

    [29] Australia No. 36 Federal Court of Australia, New South Wales District Registry, General Division, 22 February 2011 in Albert Jan van den Berg (ed) Yearbook Commercial Arbitration 2011- Vol. XXXVI, (Kluwer Law International 2011) pp. 252-255.

    [30] (2012) EWHC 1254 TCC:

    [31] Kenneth T. Salmon, “The International Journal of Arbitration, Mediation and Dispute Management.” (2012)

    [32] (2009) EWHC 2017 (TCC): See also Georgia Corporation v. Gavino Supplies (UAE) Fze [2016] DIFC ARB 005.

  • 4 Dec 2022 4:43 AM | Anonymous
    Abstract

    Arbitration clauses constitute one of the salient dispute resolution clauses in legal agreements. One of the well-known essences of having such clauses in agreements —apart from amicable resolution of grievances—is to foster business relationships without the need of proceeding to the regular court system, thereby circumventing uncertainties as to time.

    This article focuses on the importance of properly drafted arbitration clauses and how best to generally avoid early litigation costs arising from improperly drafted arbitration clauses. Various Nigerian court decisions emanating from contentions of refusing parties to arbitration were reviewed. The court decisions demonstrated how refusing parties sought to use improperly drafted arbitration clauses as a legal reason to avoid proceeding with arbitral proceedings or to set aside unfavourable arbitral awards under the guise that the clauses were ill-drafted.

    The litmus test adopted by the courts in determining whether an arbitration clause was improperly drafted was to determine whether there is any intent shown by the parties to resort to arbitration in the first instance once a dispute is declared.  In those decisions, once the court confirms an existence of such intent, the court always compels arbitration. Interestingly, some of the Nigerian courts relied on a plethora of U.S. court decisions to order parties to arbitrate. This study frowns at the position of the refusing parties in opting for court proceedings rather than resorting to arbitration as agreed.

    Introduction

    The success or otherwise of an effectual commencement of an arbitration proceeding largely depends on the arbitration clause or the agreement. If it was poorly drafted, it will create ambiguity on how the arbitration proceedings would be commenced, ranging from request for arbitration, the appointment of arbitrators, and the place of arbitration and exchange of pleadings for the parties. Conversely, if the clauses were well thought after and properly drafted, the parties to the dispute would have no difficulties setting the proceedings in motion. 

    Therefore, it is highly recommended that parties should take time to effectively negotiate arbitration clauses in their agreements precisely the same way other fundamental provisions in their contracts are negotiated. This is to avoid exposing the parties to early significant time and costs at the preliminary stage of disputes or to enforce an arbitral award.

    Conceivably, once a dispute crystallises, the opportunity to discuss the logistics surrounding the arbitral process freezes and the parties are concerned with how best to protect their various rights and shift obligations in respect of the terms of the agreement. Parties are then confronted with the tussle over preliminary procedural issues like the appointment of Arbitrator (s), the seat of arbitration, and forum non-conveniens. This is because the seat of arbitration is of fundamental importance in arbitral proceedings since the Court of the seat of arbitration is the primary jurisdiction where the award is likely to be challenged by an aggrieved party. The concepts mentioned above are, amongst others, some of the basic background principles that guide the interpretation and enforcement of awards, and for that reason, the arbitration clauses are of paramount importance.

    It will be inchoate to discuss or understand the importance of well-drafted arbitration clauses without reviewing vital considerations in drafting arbitration clauses. Therefore, this memorandum will examine the key considerations in drafting arbitration clauses and the importance of well-drafted Arbitration clauses with the relevant cases involving Nigerian parties or entities where arbitration clauses may have been adjudged as pathological but enforced by the Courts.  

    Basic Requirements of Arbitration Clauses in Nigeria

    The principal law regulating domestic arbitral proceedings in Nigeria is the Arbitration and Conciliation Act.[1] ‘The Act”. It is a federal statute. It is substantially a mirror reflection of UNCITRAL[2] model law.

    The Act recommends the prerequisites for a valid and enforceable arbitration clause. The various requirements as circumscribed under the Act for enforceable arbitration clauses are as follows: First, the arbitration agreement must be written[3]; verbal agreements are not binding. A standalone arbitration agreement or an arbitration clause in a contract can make up a written arbitration agreement. Second, arbitrability is required for the types of disputes involved.[4]. For example, parties cannot arbitrate tax disputes.[5]; and any allegation of fraud does not admit of settlement by arbitration. This is because these issues are a matter of public concern, and it is contrary to public policy to compromise such disputes.[6] Third, even though it is not a requirement of the Act, parties often stipulate that a specific action or steps must be taken before arbitration, like negotiation or mediation talks by typical corporate representatives of the parties. However, there is a split amongst Nigerian scholars on whether this is a condition precedent before further steps could be taken. Therefore, it is unclear whether the dispute resolution clause is only desired before the arbitration or essential to start the process. Fourth, it must show that parties are within their contractual legal capacity to arbitrate in the arbitration agreement. For example, an infant or a party less than 18 years does not have the legal capacity to contract. Furthermore, an unregistered entity cannot contract or corporate body in liquidation, or an insane person cannot contract, and for that reason, the parties cannot arbitrate.

    Key considerations in drafting Arbitration Clauses

    In drafting arbitration clauses, it is relevant to note that there is no universally applicable model or all-purpose arbitration clause. It is highly recommended that each arbitration clause must be circumspectly adapted to the contract's circumstances and the parties' needs. Regrettably, arbitration clauses are frequently neglected or one of the last contractual elements to be discussed; the clauses are sometimes included at the last minute, with the parties relying solely on form clauses or precedents by "copying and pasting." By practical experience, it is observed that failure to customize the arbitration clause to the unique contract's requirements, and by the desires of the parties, it can result in repercussions like a waste of significant time and resources on the procedure for the appointment of the arbitrators[7] and scope of dispute to be subject to arbitration.

    Therefore, the wordings may, of course, directly or by implication limit what would otherwise be the clause's full scope or, conversely, extend it even further beyond the scope of parties’ expectations and what the parties intended.[8] In some salient situations, where there is a dispute, much to the consternation of the parties and lawyers, the parties' representatives would raise eyebrows that the parties never subjectively intended the contents of the arbitration clause or agreement.

    The key considerations of well-drafted arbitration clauses in comparative analysis of the various reported Nigerian cases or cases involving Nigerian parties are discussed hereunder:

    Operative words must be clear, "Shall" and not "May."

    It is highly advised that in reducing in writing the parties’ intention to proceed to arbitration, the operative word to be used on what parties should do once a dispute arises is "shall" and not "may." This is to avoid contentious objections in seeking a court interpretation on whether it is mandatory to proceed to arbitration or not by using the word "may."

    It has been observed that several refusing parties who do not wish to proceed to arbitration once a dispute is declared had contended before Courts that by the use of the word “may," it is discretionary and optional for parties to proceed to arbitration. The case of Travelport Global Distribution Systems B.V. v. Bellview Airlines Ltd[9] is very illustrative. In the distribution agreement signed between Travelport, a Dutch corporation, and Belview, a Nigerian company, parties agreed their dispute "[m]ay be submitted to arbitration in the United States under UNCITRAL Arbitration rules in force at the date of reference." However, when the dispute crystallised, Bellview filed a lawsuit at the Nigerian Federal High Court and contended that the arbitration clause was ineffective, and it was not mandatory since the word used was "may" and not “shall." Bellview concluded that the use of the permissive phrase "may" is discretionary, and on that ground, the arbitration agreement was invalid. The Court held that the mere fact that parties had arbitration clause in their agreement and also used the word “may” showed clear intent of the parties to arbitrate and therefore, compelled parties to arbitrate.

    Similarly, in Sino-Afric Agriculture & Ind Company Ltd & Ors v. Ministry of Finance Incorporation & Anor.[10], parties agreed that any “[d]ispute, difference, or question, may be referred to arbitration by either party under the provision of the Arbitration and Conciliation Law (Cap. 19) Laws of the Federation 1990.” Thereafter, a dispute arose, and the Ministry initiated an action in Court and contended that the use of the word "may" in the agreement indicates that parties have the discretion to arbitrate or proceed to Court. Sino-Afric filed an application seeking a stay pending arbitration. The trial Court dismissed the Sino-Afric's application for stay and assumed jurisdiction. It held that because the word used was "may," proceeding to arbitration was optional. On appeal, the Nigerian Court of Appeal set aside the trial Court’s decision and relied on decisions of the U.S. Court[11] to interpret the word "may" as being mandatory. Hence, the application for stay of proceedings pending Arbitration was granted.

    It has been recognized that by decided cases, the typical line of reasoning that the word “may” as used in the agreement is discretionary is no longer the trend in the context of arbitration provisions. Nevertheless, it is to be noted that despite the attitude of the Nigerian appellate Courts in this regard, recalcitrant parties still find such contentions as a basis to delay the commencement of arbitral proceedings under the guise that the operative word "may" is discretionary and not mandatory.

    Appointing Authority must be defined and should be in existence

    This is also an essential consideration for parties to ensure that appointing authority for Arbitrators is appropriately stated, and it was in existence when the agreement was made. In some situations, the name of the appointing authority may not be stated correctly. It could be misspelled, or nomenclature is different from what they are called. This was the same line of argument made in the Travelport[12] case. In that case, one of the contentions of Bellview was that since the appointing authority "United States Council of Arbitration" is a non-existent institution, the arbitration clause is inoperable and invalid. Hence, parties should ventilate their grievance in a regular Court. Interestingly, the U.S. Court, in jettisoning the Bellview’s line of argument, held that whether or not the appointing authority "United States Council of Arbitration" is a non-existent institution, the UNCITRAL rule agreed to by the parties prescribed on how the arbitrators should be appointed.

    In Mr. Charles Mekwunye v. Mr. Christian Imoukhuede [13], the parties’ tenancy agreement stated that “[a]ny conflict and disagreement arising out of these presents shall be referred to a Sole Arbitrator that shall be appointed by the President of the Chartered Institute of Arbitrators, London, Nigerian Chapter.” Mr. Imoukhuede contended that the clause referred to a non-existent body by using the word "President" instead of “Chairman” and argued that the sole Arbitrator's appointment was invalid. The High Court of Lagos State affirmed the arbitral award as valid and subsisting. However, the award was set aside on appeal by the Nigerian Court of Appeal, Lagos, based on the Mr. Imoukhuede’s contention. On appeal to the Nigerian Supreme Court, the apex Court affirmed the decision of the trial Court reinstating the arbitral award and upturned the decision of the Court of Appeal. The Nigerian Supreme Court held that the difference between “Chairman and President” is a matter of title, and it is the person in charge of the Arbitral institution in Nigeria that the parties intended to designate as their appointing authority. Therefore, the Arbitrator's appointment was valid because despite the error in nomenclature "President or Chairman," there was nothing before the Court to suggest that the Respondent was misled or that he was in doubt as to who the appointing authority was.

    Appointment procedure must be spelled out in the Arbitration Clause and adhered to strictly

    This is typically necessary to avoid delays in Arbitrators' appointments and allow parties to exercise their right in choosing who should preside and determine their dispute as the cornerstone of arbitration remains consent. It is pertinent to state that if the Arbitrators are not appointed under the procedure or rule as agreed to by the parties, it may also constitute a valid legal basis for setting aside an award.[14]

    In Celtel Nigeria BV V. Econet Wireless Limited & Ors [15], the parties agreed in their shareholders’ agreement that the Arbitrators to their dispute “[s]hall be appointed by the Chief Judge of the Federal High Court of Nigeria.” Relying on the above provision, the 1st Respondent wrote to the then Chief Judge of the Federal High Court (Ukeje, CJ) to appoint arbitrators. Ukeje, C.J., declined to make the appointment. The 1st Respondent then commenced an action at the High Court of Lagos State seeking a selection of Arbitrators. Before the Court could make the appointment, the 1st Respondent re-applied to the Chief Judge of the Federal High Court (Mustapha, C.J.), who had replaced Ukeje, C.J., in office to constitute an arbitral tribunal to determine the dispute. The new Chief Judge of the Federal High Court (Mustapha, C.J.) acceded to the request and appointed three arbitrators to arbitrate the dispute. Some of the Respondents at the arbitration, including the Appellant, objected to the mode of appointment of the arbitrators by Mustapha, C.J. The Arbitrators heard and dismissed the objections. The arbitral proceedings then proceeded to finality.

    Thereafter, the Appellant commenced an action seeking for setting aside of the arbitral award which was predicated, amongst others, that the written refusal of Ukeje C.J., to appoint arbitrators under the Shareholders Agreement foreclosed re-application to Mustapha C.J., as the refusal by Ukeje, C.J., to make the appointment had exhausted the arbitration clause on the appointment of arbitrators. The trial Court dismissed the action. The Appellant further appealed to the Nigerian Court of Appeal. In dismissing the appeal, the Nigerian Court of Appeal held that the refusal of Ukeje, C.J., to appoint Arbitrators did not tie the hands of the successor-in-office, Mustapha C.J., to consider or review the new request for the appointment of Arbitrators because the application to the Chief Judge of the Federal High Court was to fulfill the contractual clause binding on the parties in which the role of the Chief Judge of the Federal High Court was to facilitate the process by appointing Arbitrators within the contractual arrangement of the parties.

    From the above decision, it appears that institutional-based arbitration may be preferable to ad hoc-based arbitration. This is because the parties had wasted time and resources to ensure that the appointment of arbitrators was validly made, particularly where the former C.J. of the Federal High Court had refused to appoint Arbitrators despite parties' agreement in that regard.

    The Forum or Place of Arbitration must be specified, and the place must be where parties intended

    Sometimes, parties copy and paste arbitration clauses without altering the place of arbitration, and when a dispute ensues, parties would observe that they had agreed to arbitrate in a location/place different from where they would have ordinarily considered. This is majorly because of the costs involved in conducting the arbitration hearing abroad.[16] While in some circumstances, the entire contract containing the arbitration clause is made in unilateral form without allowing the other party to review and make amendments, i.e., take it or leave it the basis.[17]

    In Sacoil (Nig) Ltd & Anor -v- Transnational Corporation of (Nig) Plc [18], a dispute arose between the parties’ Farm-Out and Participation Agreement ("F.O.P.A."). The agreement had an arbitration clause that specifically stated that "[t]he place of Arbitration shall be London, England.” However, when a dispute ensued, the Respondent commenced an action in Court and contended that the agreement, if enforced, would oust the jurisdiction of the Court in Nigeria since the parties by the agreement covenanted to have the place of arbitration in London. The Respondent claimed that the effect of the clause is that only the courts in London (as the seat of arbitration) would have jurisdiction over the commencement of arbitral proceedings and enforcement of an arbitral award. The trial Court upheld the contention of the Respondent. The Appellant appealed to the Nigerian Court of Appeal, and the appeal was allowed, and for that reason, a stay pending arbitration was granted. The Court of Appeal premised its decision in allowing the request on the ground that parties are bound to arbitrate and cannot use the fact that the arbitral proceedings are to be held in London as a basis to opt-out of the arbitration agreement.

    Similarly, in Sonnar (Nig) Ltd & Anor vs. Partenreedri M.S. Nordwind (Owners of the Ship M) & Anor [19] The Plaintiffs, Sonnar Nig. Ltd. and Public Impex traders entered into an agreement[20] (which is evidenced by a bill of lading) with the Defendants [Partenreedric Norwind (the ship owners who are based in Germany and the issuer of the Bills of Lading) and, Bandridge Shipping Company (based in Liberia)] and Chaiyapon rice company based in Thailand. The bill of lading had an arbitration clause that specified that any dispute arising under the bill of lading shall be decided “where the ‘carrier’ has his principal place of business, and the law of such country shall apply except as provided elsewhere herein.” The carrier is the 1st Defendant, Partenreedric M. S. Norwind of Germany. A dispute arose for the non-delivery of 25,322 parboiled long grain rice bags. The Plaintiffs brought a suit at the regular Court claiming damages for the breach on April 23, 1980. The Defendants contended that the forum for litigation regarding the action was west Germany, not Nigeria. The trial Court (Federal High Court), after hearing evidence, granted a stay of proceedings pending arbitration. The Nigerian Court of Appeal affirmed the decision of the trial Court. Dissatisfied, the Appellant appealed to the Nigerian Supreme Court. The Supreme Court, on November 13, 1986, allowed the appeal and dismissed the application for stay of proceeding on the ground that if a stay is granted, the party would not have the opportunity to bring an action in the German Court since the cause of action would be statute-barred by limitation. Hence, the apex court ordered that the matter be heard and determined conclusively at the trial Court.

    It is interesting to note that if the parties' arbitration clause were worded and appropriately negotiated by the parties in the above cases by stating in clear terms that the arbitral proceedings should be conducted in Nigeria, they would not have wasted in prosecuting the matter at the regular Courts. Therefore, the need to negotiate the arbitration clauses is highly recommended.

    Importance of well-drafted Arbitration clauses

    It will be readily observed that the importance of well-drafted Arbitration clauses has been aptly demonstrated in the various Nigerian case laws cited above. What reverberates in the cited Nigerian cases is the fact that Arbitration clauses should be properly negotiated, and this point cannot be overemphasized. Therefore, well-drafted Arbitration clauses will help to reduce the following risks:

    i.    Risk of Delay: It is without a doubt that once parties do not define their material terms in the Arbitration clauses, this will result in delays in kickstarting the process, particularly on the appointment of arbitrators, place of arbitration, and rule of conduct of arbitral proceedings. Hence, sometimes parties will resort to conducting preliminary meetings and deciding how best to proceed. Admittedly, this delays the process and wastes significant time that parties could have used in commencing and completing the arbitral process. Once the Arbitration clause is well drafted it would ensure a quick commencement and conclusion of the process.
     
    ii.   Risk of early Costs: It is clear from the various Nigerian cases considered in this memorandum that parties incurred early costs in seeking to interpret the legal effects of what the parties agreed and their intentions. Therefore, parties incur the initial expenses of engaging lawyers to make legal representations in Courts. Whereas, if the clauses were properly drafted, parties would proceed with the arbitral proceedings and reserve their high costs for conducting the proceedings and enforcing an award or defending the award as the case may be. Unarguably, the respective parties where the clauses are not adequately covered,  exert considerable time and resources either to commence the arbitral proceedings or for enforcement of the award.
     
    iii.  Risk of Court interference: It will be recalled that one of the reasons that parties may have opted for arbitral proceedings is that their proceedings are private and confidential. However, this will be defeated when parties resort to Court to appoint their Arbitrators or resolve whether their arbitration clause is enforceable or not. Therefore, once the parties proceed in and out of the Court, they face the risk of the Court interfering in their supposedly private affairs and the processes filed in Court become public documents that members of the public may have access to such confidential documents. This should not have been the case if the parties Arbitration clauses are properly negotiated and well-drafted.

    iv.   Risk of litigation fatigue: A review of some cases disclosed that after parties had exerted their resources, time, and energy in determining whether their Arbitration clauses were enforceable or not, some ended up compromising their claims and whilst some also ended up being decided by the regular Court due to statute of limitation. An average trial court proceedings in Nigeria usually exceed two years or three. Eventually, the aggrieved party may challenge the trial court's decision as gleaned in some of the proceedings from the trial Court to the Court of Appeal and then to the Supreme Court. As a result of the protracted litigation, in some cases, parties experienced litigation fatigue, and on that premise, the parties compromised their dispute or the award on a lesser sum than what they would have made if the parties had negotiated and worded their arbitration clauses properly.

    It is, however, a welcome development that the recurrent and common feature in all these cases is that despite the extensive contentions of the respective aggrieved parties, the Nigerian appellate Courts consistently maintained the stance that once parties have agreed to arbitrate in their agreements, they must be referred to arbitration despite the pathological clauses.  The rationale is premised on the principle that parties cannot be permitted to resile from their agreements to arbitrate under the guise of a pathological clause.

    Conclusion

    Parties are encouraged to adopt a conservative approach by engaging lawyers specially skilled in the field of arbitration in drafting and negotiating their arbitration clauses in detail before signing arbitration clauses or agreements.

    Therefore, defining clearly all the relevant terms in an arbitration clause like the scope of the dispute, place of arbitration, appointing authority, procedural law, and making arbitration mandatory where there is a dispute will undoubtedly help to clearly describe all the main aspects of a legal arbitration agreement in a way that parties intended. The above approach will minimize court intervention in resolving preliminary potential hazards with attendant costs and time and as a result put an end to an era of pathological clauses.

    _____________________________

    * Fellow of Chartered Institute of Arbitrators, Prime Dispute U.K., Arbitrators’ and Mediators’ Institute of New Zealand, and Malaysian Institute of Arbitrators. He earned his Master of Laws (LL.M.) degree in White & Case International Arbitration in University of Miami, School of Law, Florida, United States of America.

    [1] Chapter 18, Laws of Federation of Nigeria 2004.

    [2] United Nations Commission on International Trade Law

    [3] Section 1 of the Act.

    [4] Sections 48 (b) (i) & (ii) and 52 (2) (ii) of the Act provide that even when an award has been procured, and it becomes clear that an agreement on which the arbitral award was premised on arose from an invalid contract or the subject matter of the dispute is not capable of settlement or is contrary to public policy, such an award is bound to be set aside.

    [5] The Nigerian Court of Appeal has held two decisions in Esso Petroleum and Production Nigeria Ltd & Anor. (S.N.E.P.C.O.) vs. N.N.P.C. unreported Appeal No. CA/A/507/2012; delivered on July 22, 2016, and Shell (Nig.) Exploration and Production Ltd & 3 others vs. Federal Inland Revenue Service unreported Appeal No. CA/A/208/2012; delivered on August 31, 2016, that tax disputes arising from a Production Sharing Contract (P.S.C.) are not arbitrable because the subject matter of the conflict is within the exclusive jurisdiction of the Federal High Court

    [6] Kano State Urban Development Board V. Fanz Construction Ltd. (1990) 4 N.W.L.R. (PT.142) 1 at 32-33.

    [7] Celtel Nigeria B.V. V. Econet Wireless Limited & Ors (CA/L/895/2012) [2014] N.G.C.A. 28.

    [8] Heyman v. Darwins Ltd (1942) A.C. 356; (1942) 1 All E.R. 337

    [9] Travelport Glob. Distribution Sys. B.V. v. Bellview Airlines Ltd., No. 12 CIV. 3483 DLC, 2012 WL 3925856, at *1 (S.D.N.Y. September 10, 2012)

    [10] (2013) LPELR-22370 (CA).

    [11] Conex Florida Corp. v. Astrium Ltd., 499 F. Supp. 2d 1287 (M.D Fla. 2007); Hirschenson v. Spaccio, 800 50. 2d 670 (Fla. 5th D.C.A. 2001); Moses H. Cone v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).

    [12] Travelport Global Distribution Systems B.V., (S.D.N.Y. September 10, 2012).

    [13] (2019) LPELR-48996 (SC), (2019) 13 NWLR (1690) 439 S.C.

    [14] Section 52 (2) of the Arbitration and Conciliation Act

    [15] (CA/L/895/2012)[2014] N.G.C.A. 28.

    [16] Sacoil 281 (Nig) Ltd & Anor -v- Transnational Corporation of (Nig) Plc (2020) LPELR-49761(CA).

    [17] Sonnar (Nig) Ltd & Anor vs. Partenreedri M.S. Nordwind (Onwers of the Ship M) & Anor (1987) LPELR-3494(SC).

    [18] (2020) LPELR-49761(C.A.)

    [19] (1987) LPELR-3494 (SC).

    [20] The agreement was to ship 25,322 bags of parboiled long-grain rice from Thailand to Nigeria.

  • 4 Sep 2022 8:58 PM | Anonymous

    This is a short commentary on the below-named judgment by the Harare High Court, Zimbabwe, after it held that an arbitrator’s positive ruling on jurisdiction made as a preliminary question is an award that can be set aside in terms of Article 34 of the Model Law.   

    CaseBekimpilo Gumbo v The Gas Boys (Pvt) Ltd and The Honourable Mr David Whatman; HH 194/22       

    THE FACTUAL MATRIX 

    In May 2019, the applicant and the first respondent signed a commercial agreement in which the first respondent leased haulage trucks to the applicant. The applicant failed to meet his part of the bargain resulting in a dispute between the parties, which was referred to arbitration in terms of the parties' agreement. The second respondent was appointed as the arbitrator. In response to the first respondent’s claim, the applicant, in his statement of defence, raised preliminary objections challenging the jurisdiction of the arbitrator on the basis that the agreement between the parties was unlawful. The alleged unlawfulness of the contract was that it was denominated in South African Rand in contravention of the laws of Zimbabwe. The first respondent countered by contending that there is no law in Zimbabwe that prohibits the denomination of contractual obligations in foreign currency or the receipt of payments in foreign currency. 

    The arbitrator directed the parties to file legal arguments. After considering the parties' submissions, the arbitrator ruled that the preliminary challenge must fail. As such, it is so ruled[1] 

    THE APPLICATION 

    Aggrieved by the arbitrator’s aforesaid award, the applicant filed a court application with the High court in terms of Article 34(2)(b)(ii) of the Model Law, which is an annexure to the Arbitration Act (Chapter 7:15) 

    Article 34(2) of the Model Law provides that: 

    (2) An arbitral award may be set aside by the High Court only if- 

    (b) the High Court finds, that—

    (i)---or

    (ii) the award is in conflict with the public policy of Zimbabwe 

    THE APPLICANT’S CASE 

    The applicant contended that the arbitrator had issued an award that is not only a contravention of statute but is also shocking, palpably iniquitous, and manifestly injurious to the public policy of Zimbabwe. He sought the setting aside of the award. 

    THE FIRST RESPONDENT’S CASE 

    The first respondent opposed the application. It raised a preliminary objection that the arbitrator had not issued an award as contemplated by the Arbitration Act (Chapter 7:15). Because the arbitrator’s decision does not constitute an arbitral award, the High court had no jurisdiction under article 34 of the Model Law. 

    THE JUDGMENT 

    The issue which loomed large in the preliminary objection was whether the second respondent sitting as an arbitrator made an arbitral award that would entitle the High court to review its decision[2]. In the present case, the applicant attached to his application as annexure F a document titled" Adjudication and Ruling in terms of Article 16(3) of the Model Law-Preliminary objection to Jurisdiction". That document purports to deal with the objection to the second respondent’s jurisdiction, which was raised by the respondent applicant in the arbitral proceedings. After discussing various issues, the second respondent, in the penultimate paragraph of the ruling, proceeded to state in unequivocal terms that: 

    Accordingly, the preliminary challenge must fail. As such, it is so ruled.[3] 

    As already indicated, the substance of the second respondent’s decision is that he ruled on the dispute as a preliminary question and made the determination that he had the jurisdiction to preside over the proceedings.[4] 

    The learned Judge also stated that therefore, my comprehension is that the existence of a dispute is central in establishing whether an award has been made in arbitral proceedings. If there is a dispute and the arbitrator makes a formal pronouncement on resolving that dispute, that decision constitutes an award.[5] 

    DISPOSITION 

    When all is said and done, it is apparent that the applicant seeks for the court to emasculate the arbitrator of his power and competence to rule on issues to do with his jurisdiction. Yet the arbitrator is within his powers to decide on his own jurisdiction. An arbitration agreement is not unlawful even where the remainder of the agreement may be declared unlawful. It is up to the arbitrator to decide those issues. The parties must go back to enable the second respondent to continue the proceedings. 

    Accordingly, it is ordered that the application be and is hereby dismissed.[6] 

    AN ANALYSIS OF THE JUDGMENT 

    Was Article 34 applicable in this matter? 

    The court stated that the substance of the second respondent’s decision is that he ruled on the dispute as a preliminary question and made the determination that he had the jurisdiction to preside over the proceedings[7].The arbitrator’s decision was made in terms of Article 16(3) of the Model Law, which provides as follows: 

    (1) The arbitral tribunal may rule on its jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause that forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. 

    (2)  A plea that the arbitral tribunal does not have jurisdiction shall be raised no later than the submission of the statement of defence. A party is not precluded from raising such a plea by the fact that he has appointed or participated in, the appointment of an arbitrator. A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. The arbitral tribunal may, in either case, admit a later plea if it considers the delay justified. 

    (3)   The arbitral tribunal may rule on a plea referred to in paragraph (2) of this article either as a preliminary question or in an award on the merits. If the arbitral tribunal rules on such a plea as a preliminary question, any party may request, within thirty days after having received notice of that ruling, the High Court to decide the matter, which decision shall be subject to no appeal; while such a request is pending, the arbitral tribunal may continue the arbitral proceedings and make an award. 

    The court handed down its judgment on 25th March 2022. A month before, on the 24th February 2022, the Supreme Court of Zimbabwe had handed down judgment in a similar matter. It stated that the article distinguishes between a ruling and an award by pointing out that the arbitral tribunal can make the ruling on the preliminary question or make such a ruling in its award on the merits. It is, therefore, clear that the ruling is not an award as it can be made on the merits and that while the issue of the ruling is pending in the High Court, the Arbitrator can continue with the proceedings and make an award. A ruling on jurisdiction is, therefore, distinct and different from an award.[8]A reading of Articles 16(3), 31(7), 32(1), 33, and 34 establishes that rulings on the arbitral tribunal’s jurisdiction and the existence of arbitral agreements are not awards.[9] 

    The High Court being subordinate to the Supreme Court is bound by Supreme Court judgments. The judgment in question flies in the face of a Supreme Court judgment. To that extent, it is erroneous. 

    Even without the aforesaid Supreme court judgment, the court having correctly stated that the arbitrator had ruled on the dispute as a preliminary question and made the determination that he had jurisdiction to preside over the proceedings, should have seen that Article16(3) lays out a path to challenge such a ruling. Recourse against such a ruling is in terms of Article 16(3) and not article 34. 

    Article 16(3) also presents a question of whether, after a tribunal rules that it has jurisdiction, the party contesting the jurisdiction must immediately challenge that ruling under Article 16(3).  Or whether it can wait until a final award is made and raise the argument when seeking to set aside or annul the award under article 34. The majority view is that a party must challenge the tribunal’s jurisdictional ruling within the thirty-day limit allowed under article 16(3), and that if it fails, it will be precluded from doing so in an annulment or setting-aside action under article 34.[10] 

    Commentators maintain that by laying out a path to challenge the arbitrator's positive jurisdictional ruling, Article 16(3) requires the challenge to be raised within the requisite time period. If one does not raise the challenge under Article 16(3), the ruling becomes binding[11] 

    Based on the aforesaid, the judgment in question can be criticized for: 

    (1)  Contradicting a judgment of the Supreme Court of Zimbabwe when the High Court of Zimbabwe is subordinate to the Supreme Court of Zimbabwe.

    (2)  Confusing a ruling with an award. The Supreme Court stated that Article 16(3) consistently refers to the arbitrator’s decision on jurisdiction as a ruling, and in the end, distinguishes it from a decision made at the termination of the proceedings, which it refers to as an award.[12]

    (3)  Allowing the challenge proceedings under article 34 of the Model Law -when no such proceedings are maintainable against a positive jurisdictional ruling made as a preliminary question in terms of Article 16(3) of the Model Law.

    (4) Ignoring the path to challenge an arbitrator’s positive jurisdictional ruling, which is set out in Article 16(3) 

    _______________________

    *Partner, Kanokanga & Partners Law Firm. Harare, Zimbabwe.

    [1] HH 194/22 at page 4

    [2] HH 192/22 at page 3

    [3] HH192/22 at page 4

    [4] HH 192/22 at page 5

    [5] HH 194/22 at page 4

    [6] HH 194/22 at page  12

    [7] HH 194/22 at page 5

    [8] Riozim Limited  and RM Enterprises(Pvt)Ltd v Maranatha Ferrochrome(Pvt)Ltd  and Justice November Tafuma Mtshiya SC 30/22 at pages 9-10

    [9] Ibid at page 13

    [10] Michael Polkinghorne, Alvaro Peralta, Hazel Levent and Gwen Wackwitz-Competence  of Arbitral Tribunal To Rule on Its Jurisdiction-Uncitral Model Law On International Commercial Arbitration-A Commentary-page 310 at para 4.3

    [11] See Born, International Commercial Arbitration(Kluwer,2014)(n.61)p1105

    [12] Riozim Limited  supra at page 9



  • 20 Jun 2022 4:48 PM | Anonymous

    Abstract

    This is a short commentary on a judgment by the Supreme Court of Zimbabwe which held that reference to an award in Article 34 of the First Schedule to the Arbitration Act (Chapter 7:15) [hereinafter “Model Law”] is generic and does not only refer to the setting aside of final awards.[1] The decision raises a critical question: What awards can be set aside in terms of article 34 of the Model Law? 

    THE FACTUAL MATRIX

    RM Enterprises (Pvt) Ltd. (the second appellant) is a wholly-owned subsidiary of Rio-Zim Ltd (the first appellant). On the 19th January 2010, the first appellant and Maranatha Ferrochrome (Pvt) Ltd (the first respondent) entered into a Shareholders Agreement (the “Agreement”). In terms of the agreement, the first appellant was to ensure that 40% of issued shares in the second appellant would be transferred without cost to the first respondent so that the shareholding between the parties would be, Rio-Zim 60% and Maranatha 40%.

    On the 29th January 2017, the first respondent wrote to the first appellant informing it of its breach of clause 1.1 of the agreement as it had failed to transfer chrome claims as agreed between the parties. The first respondent gave the first appellant notice that it would refer the dispute to an arbitrator if the first appellant failed to fulfill its obligations within thirty (30) days, pursuant to clause 30 of the agreement.

    The parties agreed to refer the dispute to arbitration before the second respondent. Before the Arbitrator, the first appellant raised preliminary points objecting to the second respondent’s jurisdiction, questioning the validity of the agreement and arguing that the first respondent’s claim had prescribed because the cause on which the first respondent sued arose in 2010 and as such 3 years had lapsed. The second respondent ruled that he had jurisdiction to preside over the dispute and that the first respondent’s cause of action had not prescribed.

    THE APPLICATION

    Aggrieved by the second respondent’s decision, the appellants applied to the High Court (the court a quo) for an order setting aside the second respondent’s interim award in terms of Article 34(2) (b)(ii) of the Model Law which provides as follows:

    ARTICLE 34

    Application for setting aside as exclusive recourse against arbitral award 

    ….

    (2) An arbitral award may be set aside by the High Court only if—

    ….

    (b) the High Court finds, that—

    (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of Zimbabwe; or

    (ii) the award is in conflict with the public policy of Zimbabwe.[2] 

    The first respondent opposed the application and raised two preliminary points to the effect that the appellants could not seek to set aside an interim award after a period of 30 days. It was argued that in terms of Article 16 (3), a party requesting the High Court to determine a matter of jurisdiction had thirty (30) days within which to apply for a determination of the arbitrator’s ruling. It was further submitted that the appellants had filed their application out of time. The court a quo upheld the preliminary points and dismissed the appellants’ application on that basis. It held that Article 34 was a procedure for the setting aside of a final award and not an interim award. It was further held that the award made by the second respondent was an interim award dismissing the first appellant’s Special Pleas and that such an award could not be set aside as it had not terminated the arbitral proceedings.

    THE APPEAL

    Aggrieved by the decision of the court a quo, the appellants appealed to the Supreme Court. The only issue for determination on appeal was whether or not the court a quo erred in dismissing the appellant’s application to set aside an arbitral award in terms of Article 34.

    The appellants argued that the interim award made by the second respondent could be challenged on the basis of Article 34 as the interim award was final on the determination of the preliminary points raised by the appellants. The appellants also argued that they could not challenge the interim award in two applications, one under Article 16 on the point of jurisdiction and another under Article 34 on the point of prescription. They contended that the correct procedure was to bring one application under Article 34 to challenge both points and question whether or not the award was contrary to public policy.

    Counsel for the first respondent argued that the wording of Article 34 does not extend to interim awards. He further argued that the appellants ought to have challenged the preliminary point under Article 16 (3) within thirty (30) days and that when they failed to do so, they sought to have a second bite of the cherry by employing the wrong procedure under Article 34.

    THE JUDGMENT

    WHETHER THE COURT A QUO ERRED IN DISMISSING THE APPELLANTS’ APPLICATION TO SET ASIDE AN ARBITRAL AWARD IN TERMS OF ARTICLE 34 OF THE MODEL LAW ON THE BASIS THAT THE APPLICATION HAD NOT BEEN PROPERLY PLACED BEFORE IT.

    In determining this issue, the Supreme Court quite rightly referred to S 2 (3) of the Arbitration Act [Chapter 7:15] which provides that:

    “The material to which an arbitral tribunal or a court may refer in interpreting this Act includes the documents relating to the Model law and originating from the United Nations Commission on International Trade Law, or its working group for the preparation of the Model Law, that is to say the travaux preparatoires to the Model Law, and, in interpreting the Model Law, regard shall be had to its international origin and to the desirability of achieving international uniformity in its interpretation  and application.”

    Vis-à-vis the issue of jurisdiction and the validity of the arbitration agreement, the Supreme Court correctly noted that Article 16 (3) of the Model Law provides that an arbitral tribunal may rule on its jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. The said Article 16 (3) refers to an arbitrator’s preliminary decision on jurisdiction as a ruling which it distinguished from a decision made at the termination of the proceedings which it refers to as an award. The arbitrator’s ruling is not an award.

    The court correctly ruled that in challenging a ruling, the aggrieved party is entitled to approach the High Court in terms of Article 16 (3) within a period of thirty (30) days. Failure to do so within the stipulated time leaves the aggrieved party without any other recourse to the courts as Article 34 of the Model Law does not provide for the setting aside of the arbitrator’s ruling on jurisdiction. The Supreme Court’s finding on this point is in line with the internationally accepted overall interpretation adopted by other courts which have held that:

    If a party fails to appeal or decides not to appeal an award on jurisdiction, the award will be treated as final between the parties and the hearing on the merits will proceed on the basis (and not simply the assumption) that the tribunal has jurisdiction. Challenging such an award on jurisdictional grounds is thus excluded from the grounds which a party may invoke at the setting aside or enforcement stage if the party has chosen not to bring an appeal under Art 16(3) of the Model Law.”[3]

    The Supreme Court correctly held that the application for setting aside of the arbitrator’s ruling on jurisdiction and the existence and validity of the arbitral agreement was a nullity. On the issue of prescription, the Supreme Court held that:

    the arbitrator’s finding on prescription can be classified as an interlocutory, interim or partial award. The court also held that the use of the word “award” in Article 34 is generic and accommodates all types of awards. The choice of the word” award” in Article 34 which is repeated in various parts of the article instead of the restrictive words” “final award” means the intention was to allow applications for the setting aside of other types of awards in terms of Article 34. The court a quo therefore erred when it held that only final awards can be set aside in terms of Article 34.”[4]

    The Supreme Courtruled that the application for the setting aside of the arbitrator’s interlocutory award on prescription shall proceed to a hearing on the merits. It then remitted the case to the court a quo for it to hear and determine the application for the setting aside of the arbitrator’s interlocutory award on prescription on the merits.

    CRITIQUE OF THE COURT’S FINDING ON AWARDS THAT CAN BE SET ASIDE IN TERMS OF ARTICLE 34 OF THE MODEL LAW

    Section 2 (3) of the Arbitration Act [Chapter 7:15] provides that:

    The material to which an arbitral tribunal or a court may refer in interpreting this Act includes the documents relating to the Model Law and originating  from the United Nations Commission on International Trade Law, or its working group for the preparation of the Model Law, that is to say the travaux preparatoires  to  the Model Law, and, in interpreting the Model Law, regard should be had  to its international origin and to the desirability of achieving international uniformity in its interpretation and application.”

    Whilst the Supreme Court was alive to the aforesaid, it did not in its judgment refer to the documents originating from the Working Group of the United Nations Commission on International Trade Law (“Working Group”). Had it done so, it would have noted that the Working Group was in agreement that it was desirable for the Model Law to define the term arbitral “award”, in particular for purposes of determining which kinds of decisions would be subject to recourse under Article 34. The Working Group considered the following proposal:

    “award” means a final award which disposes of all issues submitted to the arbitral tribunal and any other decision of the arbitral tribunal which finally determine any question of substance or the question of its competence or any other question or procedure, but in the later case, only if the arbitral tribunal terms its decision an award.[5]

    While there were wide support for the first part of the proposed definition, i.e. up to the word “substance,” serious concerns were expressed as regards the latter part, in particular the last portion referring to decisions on questions of procedure.[6] The Working Group noted that that a definition of “award” had important implications to a number of provisions of the Model Law and was of special relevance to the issues dealt with in Articles 34 and 16. Ultimately, the Working Group decided not to include a definition in the Model Law to be adopted by it given that there was not sufficient time for considering  these complex questions in depth. Nevertheless, the Working Group invited the Commission to consider the matter further.[7]

    Had the Supreme Court given any consideration to the travaux preparatoire of the Working Group, the aforesaid, it would have noted that the Working Group was in agreement regarding the finality of an arbitral award. The Working Group agreed that an award is a final award which disposes of all issues submitted to the arbitral tribunal and any other decision of the arbitral tribunal which finally determines any question.

    In sum, the word “award” in Article 34 is not generic and does not accommodate all types of awards – which are not final. An award is dispositive of all or some substantive issue(s) and is restricted to awards that are final in nature. As regards the meaning and nature of an ‘award’, Redfern and Hunter note that “[a]n arbitral tribunal pronounces numerous decisions during the course of its proceedings. These decisions are mainly divided into two categories: “Orders” and “Awards”. While an award deals with substantive issues which resolve the issues in dispute, an order resolves the procedural issues in dispute which play a secondary role in the arbitral process”[8] Other commentators have noted that, “[t]he widely accepted meaning of “award” is that it is the final decision by the arbitrators, dispositive of the issues in the case. Tribunals may issue “partial awards” or “interim awards’’ which also may be final and binding on the parties.”[9]

    In conclusion, a “partial” or “interim” award will be “final” if it is dispositive of the issues it deals with. It is unfortunate that the Supreme Court, despite having the opportunity to do so, did not define the word “award”. This, coupled with the court’s finding that other types of awards which are not final awards can be set aside in terms of Article 34 will lead to confusion. Litigants are now likely to challenge any arbitral decision labelled as an “award” when in fact not every arbitral decision labelled as an “award” is actually an “award.” The French Supreme defines “award” as “decisions which are made by arbitrators which resolve in a definitive manner all or part of the dispute that is submitted to them on the merits, jurisdiction or a procedural matter which leads them to put an end to the proceedings.”[10] The Indian Supreme Court explained the characteristics of an award without defining the term. According to the Indian Supreme Court, an award has the following four characteristics: (i) An award is made by the arbitrators; (ii) An award resolves a dispute; (iii) An award is a binding decision; and (iv) An award may be partial.[11]

    It is submitted that what made the Arbitrator’s decision on the issue of prescription susceptible to an Article 34 challenge was that while it was a partial award, it was also a final award on the issues it disposed of. It was the Arbitrator’s final determination on the issue of prescription and was dispositive of the issue. Partial awards or interim awards may be final and binding on the parties. An interim award is a temporary award that is granted until such time as the arbitral tribunal has rendered its final decision.[12] An interim award can also be final in as much as it decides on an issue finally. A partial award settles some elements of a dispute, or only part of the claims or cross claims which have been brought, while the parties have to continue arbitrating on the remaining issues. Significant consequences flow from a final award.  A final award is challengeable by the losing party, which may attempt to have it annulled or vacated under the law of the seat of arbitration.[13]

    CONCLUSION: THE LACUNA IN THE JUDGMENT

    As already noted, the Working Group attempted to define the term “award” but was unsuccessful.  While there was wide support for the first part of the proposed definition up to the word “substance,” serious concerns were raised as regards the latter part with the result that the term “award” was left undefined. Ultimately, the role of defining what an award is or is not was left to national courts. The High Court has held that an award as envisaged in Article 34 of the Model Law must meet one or more of the following criteria:[14]

    (a)it must be a final award;

    (b)   be the instrument by which the tribunal records its decision on arbitration;

    (c)be a final settlement of the matters contained in it;

    (d)   considers and disposes of all the issues submitted for arbitration;

    (e)finally determines any question of substance or of competence or of procedure;

    (f)in the case of procedural questions, the arbitrator must term it an award and;

    (g)   the award must have the effect of res judicata in respect of what is contained in it

    The Supreme Court should have given guidance on what an award is for purposes of Article 34. It should have done so with reference to the deliberations of the Working Group as well as international decisions from other relevant jurisdictions. The High Court, arbitration practitioners, academics and law students need this guidance. The Supreme Court did not help matters by holding that the word “award” is generic and accommodates all types of awards. It also did not help matters by holding that Article 34 allows for the setting aside of not just final awards but other types of awards. Ultimately, it is submitted that the Supreme Court should have made it clear that the term award should generally be reserved for decisions that finally determine the substantive issues with which they deal.[15]

    _______________________________

    * Partner, Kanokanga & Partners Law Firm. Harare, Zimbabwe.

    [1] Arbitration Act (Chapter 7:15), available at: https://www.law.co.zw/download/1656/

    [2] Emphasis added.

    [3] Astro Nusantara International BV v PT Ayunda Prima Mitra [2012] SGHC 212 para 151

    [4] Ibid

    [5] A/CN.9/246 para 192.

    [6] Ibid para 193

    [7] Ibid para 194

    [8] N Blackaby et al, Redfern and Hunter on International Arbitration (6 ed) (Oxford, 2015) 501-68.

    [9] ML Moses, The Principles and Practice of International Commercial Arbitration (2 ed) (Cambridge University Press, 2013) 189. 

    [10] Group Antoine Tabet v Republic du Congo [2102] Rev Arb.

    [11] M/S Centrotrade Minerals and Metal Inc v. Hindustan Copper Ltd., AIR 2017 SC 185, para 11.

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