Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th – 16th April 2021

Executive Summary

Through the course of arbitral proceedings, practitioners can use an array of different technological tools to assist and facilitate their work. These range from tools to more efficiently sort documents through predictive coding, to artificial intelligence services which can predict costs and even outcomes of cases. New types of contracts such as smart contracts also utilize new types of arbitration proceedings such as Blockchain arbitration. 

Modern technology has played and will continue to play a key role in the reform and innovation of the international arbitration practice. We have long grown accustomed to the ubiquitous use of e-mails, online legal research platforms and digital file storage. However, while modern technology has much more to offer, the arbitration community has historically been hesitant to explore and incorporate new technological developments into its daily practice.

This article follows up on the panel discussion during the African Arbitration Associations’ second Annual International Arbitration Conference (14 – 16 April 2021). It aims to provide a brief introduction on how technology is used in arbitration and give an outlook on technologies which may reform the international arbitration practice in the future.

Predictive Coding to Process Documents

At the outset of arbitral proceedings or prior to their initiation, parties may wish to use predictive coding to review large sets of documents and to determine the evidentiary base for their case.

The process of predictive coding starts by setting parameters and identifying documents which will form the sample set of documents to be reviewed. Each sample is coded as “relevant” or “not relevant” by a lawyer with good knowledge of the case, which in turn trains a predictive formula (algorithm). The algorithm is then applied to review the entire set of documents and can be further improved by human review of additional sample documents. The use of predictive coding aims to increase efficiency and achieve a higher level of consistency of relevant documents.[1]

Predictive coding is also used to identify documents during the document production phase to automate the process of identifying documents falling under the document production request. However, it may be disputed whether the use of predictive coding in this context is accurate enough to be appropriate. Therefore, the use of predictive coding should be disclosed to enable both the tribunal and the other party to ask questions to satisfy themselves that predictive coding was used in an appropriate manner. This can help avoid procedural irregularities which may give grounds for a challenge.[2]

The extent to which predictive coding is currently used in arbitration is unclear. As of 2018, only 5% of the respondents to the Queen Mary Survey on the Evolution of International Arbitration indicated that they frequently use artificial intelligence, including data analytics and technology-assisted document review.[3]

Artificial Intelligence to Predict the Outcome of a Case

Once parties have established the evidentiary base of their case (e.g. with the help of predictive coding), they may again turn to Artificial Intelligence (AI) tools to gauge their chances of success prior to filing the case.

At its core, AI is a branch of computer science focused on replicating or simulating human intelligence in machines in order for them to think like humans and mimic their actions.[4] Predictive analytics as an AI tool are increasingly used to predict the outcome of disputes. These tools are particularly attractive to litigation funders, which aim to achieve a competitive advantage in their risk assessment. One example for an AI tool used by litigation funders is Legalist, which claims to use data from millions of court records to support the case assessment.[5]

In the arbitration context, Arbilex, founded in 2018, uses AI and predictive analytics to assess the likelihood of success of arbitration cases, as well as the likely costs.[6] However, the data set of available court cases is generally significantly larger than for awards, which impacts the accuracy of these AI tools. It remains to be seen whether arbitral institutions will allow AI platforms access to their awards.[7]

While the prediction of the outcome of a case generated by AI can be appealing to funders and practitioners alike, one must carefully assess the risk of bias embedded in AI. Since AI software is trained on large-scale data, if such data includes racial biases, these are incorporated into the training data. For example, the US program COMPAS assesses the likelihood of recidivism in defendants who are up for parole. While the algorithm makes no reference to ethnicity or race, a study has shown that the COMPAS assessment is biased against African Americans.[8] Thus, if predictive analytics and AI are to be used more widespread in arbitration it is paramount that the arbitral community institutes safeguarding mechanisms and checks to minimize the impact of bias of AI technologies.[9]

Online Case Management Platforms

Once a party decides to proceed to arbitration, be it because AI tools predicted a high chance of success or at its own accord, the party will face different levels of digitalisation depending on the arbitral rules applicable to its case.

First, a party will need to determine whether an arbitration can be commenced by filing the claim electronically rather than in hardcopy. Many institutions have now switched written submissions and communications to be predominantly electronic. Arbitral institutions also differ in whether they (for internal purposes) use fully electronic case management systems such as the Vienna International Arbitral Centre (VIAC) and the Stockholm Chamber of Commerce (SCC). However, a more recent development and a step towards fully digitalizing the administrative aspects of arbitration is the adoption of online case management platforms to which also the arbitrators and parties have access. The SCC and VIAC now also provide such online case management platforms.[10]   

Chinese arbitral institutions such as Shenzhen Court of International Arbitration (SCIA) and Guangzhou Arbitration Commission (GZAC) have also invested in digital platforms, which not only allow for online filing and processing payments but also offers a remote hearing platform. As a special feature of these platforms, the voice-to-text technology automatically generates and displays a transcript of the hearing synchronously during the hearing.[11]

Remote Hearings

The travel restrictions and social distancing rules imposed in many countries in reaction to the COVID-19 pandemic triggered a re-evaluation in the arbitration community of remote arbitral hearings. Several other procedural aspects were already regularly conducted remotely, such as organisational conferences and submissions via e-mail, but most hearings were still held as physical in-person hearings.

In general, national arbitration laws rarely address the question whether hearings can be held remotely, even if one party objects. Many modern and flexible institutional rules either expressly or implicitly allow hearings to be conducted remotely, such as Vienna International Arbitral Centre (VIAC) and London Court of International Arbitration (LCIA). It is then within the discretion of the arbitrators to evaluate whether a remote hearing can safeguard the parties’ right to be heard and the right to fair and equal treatment.[12]

It is increasingly accepted among arbitration practitioners that an oral and synchronous exchange of arguments or evidence in a remote hearing can, in principle, satisfy a party’s right to a hearing.[13] Conversely, not holding the hearing remotely when one or more parties cannot attend in-person for an extended period of time may violate the parties’ right to a hearing and the arbitrators’ obligation to conduct the proceedings efficiently and expeditiously.[14]

Experience gained, especially over the last year, has shown that well-organised remote hearings which properly adhere to recommended protocols and guidelines can be an efficient and comparatively low-cost method of conducting arbitrations.[15]

The increased use of semi- and fully remote hearings, where appropriate, could remedy the growing criticism of arbitration as being too expensive and too long. Furthermore, the use of remote hearings can address concerns of the environmental impact of international arbitral proceedings and foster an increase in diversity of arbitrators.[16]

Blockchain Arbitration

A comparatively new technology used for online dispute resolution is so called blockchain or “on chain” arbitration which has been developed primarily for disputes arising out of smart contracts.

Blockchain is a specific type of database, which differs from a typical database in the way data is stored. It is an incorruptible digital ledger of transactions which can be programmed to record not only financial transactions but almost anything which is of value to be recorded. The data is not stored in a single location but spread across a network of millions of computers simultaneously.[17] Blockchain is mostly used in connection with cryptocurrencies such as Bitcoin, but have numerous other applications.[18]

Smart contracts have arisen from blockchain technology and, unlike regular contracts, are not written in a specific language such as English but completely in code. Based on blockchain technology, smart contracts are self-executing, and transactions are trackable and irreversible.[19]

To serve disputes arising from smart contracts, blockchain arbitration was developed. Blockchain arbitration is structured as an automatic dispute resolution system, which is combined into a digital asset system. Arbitrators are provided with the ability to implement decisions directly on the blockchain or within the system, without the need for a paper award. The UK Jurisdiction Taskforce recently published draft rules for such dispute resolution mechanisms, expressly aimed at resolving disputes arising from new technologies such as cryptoassets, - currencies, smart contracts etc.[20]

One example for a blockchain arbitration system is the online dispute resolution platform Kleros, which was founded in 2017.[21] Kleros is a decentralized arbitration process relying on crowdsourced adjudicators, or “jurors”, who are randomly assigned to a case. After assessing the evidence, jurors commit their vote to one of the contractually specified options. The option with the most votes is the winning one. Each juror who is coherent with the final decision will then be paid a specified fee while the arbitrable smart contract defines which party has to pay the arbitration fee.[22] Jurors are financially incentivised to decide coherently. However, since deciding “coherently” is defined as deciding in line with the majority, it can be debated whether this incentivises correct decisions or rather a bet on how the majority would rule even if this is contrary to the individual juror’s evaluation, which may be based on special expertise.

Conclusion

The COVID-19 pandemic has forced the arbitral world to reconsider its scepticism towards technology and adapt quickly in order to continue serving its clients and secure the continuation of pending and new arbitral proceedings. Most notably, many practitioners and arbitral institutions were forced to predominantly work remotely – often for the first time.

It remains to be seen whether the momentum gained from the pandemic with regard to some technologies – such as online hearing platforms – will increase the acceptance of other technologies as well.

___________________________ 

*Attorney at Law, Binder Grösswang

[1] Claire Morel de Westgaver & Olivia Turner, Artificial Intelligence, A Drive for Efficiency In International Arbitration – How Predictive Coding Can Change Document Production, Kluwer Arbitration Blog (Feb 23, 2020), http://arbitrationblog.kluwerarbitration.com/2020/02/23/artificial-intelligence-a-driver-for-efficiency-in-international-arbitration-how-predictive-coding-can-change-document-production/.

[2] Claire Morel de Westgaver & Olivia Turner, supra.

[3] 2018 International Arbitration Survey: The Evolution of International Arbitration, Queen Mary University of London, http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2018-International-Arbitration-Survey---The-Evolution-of-International-Arbitration-(2).PDF.

[4] Jake Frankenfield, Artificial Intelligence (AI), Investopedia (Mar 8, 2021), https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp.

[5] https://www.legalist.com/philosophy.

[6] http://www.arbilex.co/welcome.

[7] Eric Chang, A Roundup of Tech and Dispute Resolution News, Kluwer Arbitration Blog (Apr 14, 2021), http://arbitrationblog.kluwerarbitration.com/2021/03/09/a-roundup-of-tech-and-dispute-resolution-news/..

[8] Id.

[9] Brand Rosen, Global Experts Keep it Real in Webinar Exploring Artificial Intelligence and its Role in Arbitrations and Legal Practice, Kluwer Arbitration Blog (Dec 12, 2020), http://arbitrationblog.kluwerarbitration.com/2020/12/12/global-experts-keep-it-real-in-webinar-exploring-artificial-intelligence-and-its-role-in-arbitrations-and-legal-practice/.

[10] Allison Goh, Digital Readiness Index for Arbitration Institutions: Challenges and Implications for Dispute Resolution under the Belt and Road Initiative, 38 J. Intl. Arb. 253, at 256-259 (2021).

[11] Id.

[12] Alice Fremuth-Wolf, Ingeborg Edel & Anna Förstel, How the COVID-19 pandemic may shape the future of international arbitral proceedings, IBA, Arbitration Committee Publications (Nov. 25, 2020), https://www.ibanet.org/Article/NewDetail.aspx?ArticleUid=A7F75D89-2CFD-4386-96B9-53341D0A55DA.

[13] Compare Maxi Scherer, Remote Hearings in International Arbitration: An Analytical Framework, 37 J. Intl. Arb. 407 (2020).

[14] Compare Kun Fan, The Impact of COVID-19 on the Administration of Justice, Kluwer Arbitration Blog (Jul 10, 2020),http://arbitrationblog.kluwerarbitration.com/2020/07/10/the-impact-of-covid-19-on-the-administration-of-justice.

[15] Id.

[16] Compare Lucy Greenwood & Kabir Duggal, The Green Pledge: No Talk, More Action, Kluwer Arbitration Blog (Mar 20, 2020), http://arbitrationblog.kluwerarbitration.com/2020/03/20/the-green-pledge-no-talk-more-action; Alice Fremuth-Wolf, Ingeborg Edel &Anna Förstel, supra.

[17] Derric Yeoh, Is Online Dispute Resolution The Future of Alternative Dispute Resolution?, Kluwer Arbitration Blog (Mar 29, 2018), http://arbitrationblog.kluwerarbitration.com/2018/03/29/online-dispute-resolution-future-alternative-dispute-resolution/.

[18] Luke Conway, Blockchain Explained, Investopedia (Nov 17, 2020), https://www.investopedia.com/terms/b/blockchain.asp.

[19] Jake Frankenfield, Smart Contracts, Investopedia (Mar 25, 2021), https://www.investopedia.com/terms/s/smart-contracts.asp.

[20] Eric Chang, supra.

[21] https.//kleros.io/.

[22] Clement Lesaege, Federico Ast & William George, Kleros, Short Paper v1.0.7, Sep. 2019, at 1 ff.

For a cross-border system of dispute resolution that frequently involves participants from different countries, the challenge posed by COVID-19 to international arbitration is grave. However, given that arbitration is a flexible and consensual process, it is well positioned to respond swiftly to these challenges. Indeed, in a short space of time there has been a significant and collaborative response from the international arbitration community, led by the major arbitral institutions, to find ways to maintain access to justice in a timely and efficient manner.

The primary reason for introducing arbitrations into the dispute resolution system was to lessen the burden on courts. International Arbitral Institutions have been established all over the world to aid and assist the parties in resolving their disputes. Especially in the current scenario, arbitration being a private process has an unarguable edge over the traditional litigation in courts. In order to function efficiently, the Arbitral Institutions have brought about certain changes in their operation amidst these trying times. Majority of these interim changes are buttressed by technology and the internet. Institutions have placed a never before reliance on Video Conferencing, e-filings, virtual hearings etc. But the question that arises is, would these changes suffice the need of the hour and most importantly the needs of the parties to the dispute?

Arbitral institutions are at the forefront of the international arbitration community’s response to COVID-19. Commendably, many institutions have largely remained fully operational while implementing remote working practices and virtual hearings. In April 2020, 13 arbitral institutions issued a joint statement “Collaboration is particularly important as each of our institutions looks to ensure that we make the best use of digital technologies for working remotely.” The statement calls for solidarity, cooperation and collaboration in response to COVID-19. The statement emphasized the joint ambition of the institutions to “support international arbitration’s ability to contribute to stability and foreseeability in a highly unstable environment, including by ensuring that pending cases may continue and that parties may have their cases heard without undue delay.”

The ambition to see cases continue has led to a focus on the use of digital technologies, including virtual hearings. Online dispute resolution is not a new phenomenon. However, the global measures taken in response to COVID-19 have meant that the use of digital technologies to facilitate case preparation, management and hearings is no longer optional – particularly where parties are unwilling or unable to wait until the current crisis passes. This reality has prompted a number of institutions to issue specific guidance to parties and tribunals grappling with how to convert physical in-person hearings into a virtual environment.

When to use virtual hearings

A threshold question confronting parties and tribunals is whether a particular case is appropriate for virtual hearing. Clearly, the ability of all participants to access the necessary technology, software and equipment and a reliable high-quality internet connection is a prerequisite to a virtual hearing. Additionally, time zone differences may make it more difficult to convene a full day virtual hearing, so adjustments will need to be made to the hearing timetable.

Where time zone differences cannot be easily accommodated, parties and tribunals may consider an asynchronous virtual hearing as suggested by Michael Hwang S.C. during a recent SIAC webinar. This can be useful for oral openings / closings, or jurisdiction challenges, though unsuitable for cross-examination. For an asynchronous virtual hearing to take place, one party appears before the arbitral tribunal and makes its oral submissions, the recording and transcript of which will be uploaded to a secure online platform for the other party to review. The second party then appears before the tribunal and makes its oral submissions and the recording and transcript of which will be uploaded to the same platform. The parties will then convene with the tribunal for a final virtual hearing during which any outstanding issues are dealt with. This is a possible method of convening a virtual hearing while ensuring that parties have a reasonable opportunity to be heard.

NCIA Virtual Rules

The Nairobi Centre for International Arbitration (NCIA) has published a Guidance Note on Facilities Booking Conditions and Use during the COVID-19 Period. These notes provide guidance to parties, counsel, tribunals and users on possible measures to be considered in mitigating the adverse effects of the COVID-19 pandemic on arbitrations, mediations and meetings held at the NCIA facilities. The guidance note applies in addition to the extra steps the Centre has taken to streamline its internal processes in the wake of the COVID-19 pandemic. NCIA has also adopted the Nairobi Centre for International Arbitration (Virtual Hearings) Rules, 2020. Parties and the Arbitral Tribunal are required to agree in advance on the procedures, schedules and deadlines to be followed during the virtual hearings and also the virtual platform to be used during the hearings. Further, NCIA has adopted a Model Nairobi Centre for International Arbitration, Arbitration Clause (including Virtual Hearing Option) and Model Nairobi Centre or International Arbitration Virtual Hearing Agreement to be signed by parties in order to facilitate virtual hearings.

Conclusion

Prior to COVID-19, certain pre-hearing steps in the arbitral process—such as initial case management conferences and pre-hearing conferences with the tribunal—were often held by teleconference or videoconference, particularly when the parties and their counsel were in different jurisdictions. In addition, it was not unusual, pre-COVID-19, for certain witnesses to appear at hearings via video in instances where physical attendance was not possible due to health or visa issues, or other circumstances

What is new in the post-COVID-19 world is that parties, counsel and arbitrators are now accustomed to, and generally skilled at, using Zoom, Webex and other video platforms to conduct meetings, conferences and even hearings in a virtual format. By necessity, the “barriers to entry” for these technologies in the international arbitration world appear largely to have been overcome. Whereas, before COVID-19, there was often a resistance by some counsel and arbitrators to the use of videoconference technology—due to concerns about whether it would function properly and a general reluctance to spend the time necessary to learn how to use it—counsel and arbitrators have now been forced to adopt and become familiar with these technologies

The pandemic has changed the way in which international arbitrations are conducted in fundamental ways. By necessity, international arbitrations in the age of COVID-19 are being conducted entirely (or almost entirely) virtually. There is obviously no way to know with certainty what the future will bring, but a reflection on the ways in which international arbitration, and the arbitration community, already have changed in the age of COVID-19 permits some predictions.

Arbitrators and practitioners are already used to remote processes, and the Rules of various arbitral institutions give a wide discretion to tribunals as to the conduct of arbitrations. Additionally, most of the major international arbitration institutions have issued Guidelines on the conduct of remote proceedings. As to the future, it seems reasonably certain that more use will be made of virtual hearings, both purely virtual and hybrid.

________________________

*Sarah Mutheu, Senior Communication & Marketing Officer-NCIA

The social and economic impact of the 2019 novel coronavirus disease (COVID-19) outbreak will likely continue to have legal and access-to-justice implications for some time, giving rise to new disputes and delaying the progress of existing disputes before the courts. The depth of this crisis creates a need for parties and their legal representatives to consider focusing on rebuilding their business relationship, re-negotiating their existing contract, and finding alternative paths to resolving their conflicts, rather than insisting on strict enforcement of contractual terms. This may lead to more demand for arbitration, mediation, conciliation and other amicable methods of dispute resolution, as well as a combination of different dispute resolution processes.

The Coronavirus lockdown and social distancing measures which are in place in most countries around the world have affected our personal and working lives in one way or another and are exerting greater pressure on the arbitration community to find innovative ways to adapt through greater use of technology. In this regard, the Nairobi Center for International Arbitration (NCIA)  has made great strides and has applied a Business Continuity Plan  that gives priority to the safety and health of the NCIA staff and their families while servicing operations and containing the spread of the virus amid the pandemic. Measures in place include a minimal on-site function. In addition,  respective tribunals, arbitrators, mediators or adjudicators with ongoing cases have been urged to consider applicable provisions of the NCIA Arbitration Rules (NCIA Rules) and to engage parties for possible remote e-enabled procedures, enlargement or extensions of time.[1]  

Administration of Disputes

Notwithstanding the pandemic, the NCIA has continued to administer nineteen (19) disputes and has panel-listed an additional seventeen (17) arbitrators and mediators with multiple skills for conducting arbitrations and mediations under the NCIA’s Rules. Furthermore, the NCIA has, together with a network of China-Africa Joint Arbitration Centres (CAJAC), developed and finalized a Constitution and Rules for arbitration of disputes of Sino-African origin registered with any of CAJAC’s five affiliate centers; the centres are in Johannesburg, Shanghai, Beijing, Shenzhen and Nairobi. The CAJAC Constitution and Rules are up for adoption by CAJAC’s five affiliate centres and are destined to have a formidable impact on arbitration practices in the future.

Arbitration and Alternative Dispute Resolution Conferences & Events

On the national front, just before the world was hit by the Covid-19 storm, the NCIA held its 2nd International Arbitration and ADR Conference in March 2020 under the theme “Tracking Africa’s Arbitration and Alternative Dispute Resolution (ADR) Mechanisms: It is Business Unusual”. The conference brought together speakers and participants from across the globe with the aim of tracking the progress made in arbitration and use of ADR mechanisms in Africa. Shortly thereafter, in an effort to adapt to the new normal, the NCIA began a monthly webinar series that has seen growth and participation by attendees and panelists from around the globe.

Development of a National Alternative Dispute Resolution (ADR) Policy

The NCIA commenced the process of developing a National ADR Policy in conjunction with the Kenyan Judiciary and the International Development Law Organization (IDLO). To this end, a zero draft National ADR Policy was developed and deliberated on by over 600 stakeholders.[2]  The zero draft National Alternative Dispute Resolution Policy was refined with input from the forums to produce the National Alternative Dispute Resolution Policy which was thereafter subjected to a national validation forum with wide representation stakeholders.[3] The draft policy is currently before a National Steering Committee appointed by the Hon Attorney General to provide guidance and oversee the formulation of a national policy and institutional framework on ADR and propose appropriate reforms to the legal and institutional framework with a view to harmonizing the practices, standards of accreditation, training and provision of alternative dispute resolution services in Kenya.[4]   

International ranking

The 2020 Arbitration in Africa Survey Report of top African arbitral centres and seats ranked the NCIA among the top five best arbitral centres in Africa in regard to the quality of support facilities and administrative staff. The NCIA ranked 8th among the top ten arbitral centres in Africa based on the number of arbitration cases administered and Memorandums of Understanding (MoUs) concluded with other arbitration centres. The report also ranked NCIA among the top five arbitral centres in Africa that users indicated they would recommend.

Training

The NCIA has developed a training curriculum for both mediation and arbitration to increase capacity, skills and competences to mediators and arbitrators to enable them to provide a fair and efficient process. The calendar, which can be accessed by clicking here, highlights some of the courses offered at the NCIA.

Conclusion

The impact of COVID-19 is reaching far beyond what anyone has seen in recent years. Of paramount importance is the health and public safety impact the pandemic has had and will likely have in the future. Everyone has a duty to take recommended precautions to prevent the spread of the virus. As this duty also extends to those organizing and conducting arbitral proceedings, careful consideration of the impact of the virus on arbitration, and the measures which can be taken to halt its rapid spread, remain necessary. Going forward, we may see the drafting of notices, submissions, correspondence, pleadings, statements, and applications—which are traditionally document-only tasks being made electronic. Arbitral institutions may now deem it necessary to amend their rules and procedural regulations to align, complement and augment public health safety. It is now clear that any arbitration that is currently in progress will be impacted in some way by the Coronavirus pandemic. It is for disputing parties, their attorneys, and their respective arbitral tribunals to work together to sensibly try and identify and resolve those issues in an efficient and fair way that reflects the extraordinary situation the world finds itself in.

___________________________

§ Nairobi Center for International Arbitration; Co-operative Bank House, 8th Floor, Haile Selassie Avenue, Nairobi Kenya.  See:

[1] See, The Nairobi Center for International Arbitration (Arbitration) Rules 2015,  available here (accessed August 14, 2020).

[2] Alternative Dispute Resolution Policy (Zero Draft), available at here (accessed August 14, 2020).

[3] Alternative Dispute Resolution Policy (Draft), October 2019, available here (assessed August 14, 2020).

[4] See, The National Steering Committee for Formulation of the Alternative Dispute Resolution Policy—Appointment, The Kenya Gazette, Vol. CXXII —No. 21, 31st January, 2020, available here

On 3 June 2020, the Cairo Court of Appeal (the “Court”) ordered the annulment of the arbitral award in the case of Mohamed Abdulmohsen Al-Kharafi & Sons Co. v. Libya and others (“Al-Kharafi v. Libya”),[1] where the tribunal (the “Tribunal”) had granted Al-Kharafi nearly US$ 1 Billion in damages for Libya’s breach of its obligations to protect Al-Kharafi’s investments. The Court’s judgment left many arbitration practitioners wondering about the actual grounds of annulment and questioning whether such grounds are valid under Egypt’s Arbitration Law (the “Arbitration Law”).

The Facts:

In 2006, Al-Kharafi leased land (the “Land”) from the Libyan government to develop a tourism project in Libya to be executed within 7.5 years (the “Project”). Al-Kharafi would also benefit from usufructuary rights on the Project for 90 years starting from the day it receives the Land. Al-Kharafi was responsible for financing and operating the Project, which included a 5 Star Hotel, a shopping mall, apartment hotels, and restaurants.

The contract signed with Libya (the “Contract”) stipulated that the Libyan Government would give the Land to Al-Kharafi free of any liens, incumbrances, or any physical or legal obstacles that could preclude Al-Kharafi from benefiting from its 90-year investment.

The Court notes that, upon signing the Contract, Al-Kharafi was surprised to find that the Land was subject to legal and physical incumbrances that the Libyan authorities were unable to remove, which precluded Al-Kharafi from enjoying its quiet possession of the Land.

In January 2009, Libya offered Al-Kharafi alternative locations for the execution of the Project. Al-Kharafi refused the offer, insisted on implementing the Project according to the terms of the Contract (i.e., on the Land), and requested the Libyan authorities to remove the physical and legal impediments that prevented Al-Kharafi from enjoying its peaceful possession of the Land. The parties failed to reach an agreement.

In May 2010, and without any warning, the Libyan Minister of Economy cancelled the Project and revoked the investment license granted to Al-Kharafi. Al-Kharafi objected stating that Libya’s actions were abusive. It further emphasized that it was willing to perform its obligations under the Contract provided Libya remove the physical and legal obstacles so that Al-Kharafi may enjoy quiet possession of the Land.

Al-Kharafi argued that it incurred economic and moral damages as a result of Libya’s actions, which allegedly breach the Contract as well as domestic and international investment laws applicable in Libya (notably the Unified Agreement for the Investment of Arab Capital in the Arab States (1980)) (the “Arab Investment Treaty”)).

Following the constitution of Tribunal, the Parties reportedly agreed to subject their dispute to Libyan law.

On 22 March 2013, the Tribunal ruled that:

a.The Contract was not an administrative contract. Rather, it was a BOT contract subject to the rules applicable to civil contracts, including the Arab Investment Treaty;

b.Al-Kharafi exhausted all amicable means to resolve the dispute before initiating the arbitration;

c.Al-Kharafi’s inability to proceed with the Project was caused by Libya’s failure to deliver the Land free of any physical or legal incumbrances, and as a result;

d.Libya should not have rescinded the Contract or revoked the investment license.

e.The Tribunal found that Al-Kharafi’s investment was terminated in an abusive manner, triggering Libya’s responsibility for the pecuniary (including lost profit) and moral damages sustained by Al-Kharafi.

In the dispositive of the award, the Tribunal ordered that Al-Kharafi be awarded:

                        i.        US$ 30 Million in moral damages;

                       ii.        US$ 5 Million for losses and expenses actually incurred;

                      iii.        US$ 900 Million for lost profit; and

                     iv.        US$ 1,940,000 in arbitration fees and expenses.

(i.e., a total of US$ 936,940,000) in addition to 4% interest annual interest on the awarded amount. 

The Court’s analysis:

The Court did not summarize the parties’ arguments[2] but began its analysis by explaining that while an arbitral tribunal’s error in calculating damages is not subject to review by the Court of Appeal, arbitration may not operate in isolation from general legal principles. Therefore, in the Court’s opinion, if an arbitral tribunal exceeds or breaches fundamental principles of justice or “distances itself from the behavioral duties that [a tribunal] must uphold”, the award it renders must be annulled.

Guided by the foregoing, the Court found that proportionality between the awarded damages and the harm sustained by a claimant is a principle of public policy, whose breach empowers the Court to annul the award if the disproportionality between the harm and damages is found to be egregious, highly unjust, and unjustifiable.

The Court criticized the Tribunal’s reasoning by noting that it based its calculation of damages on theoretical assumptions and abstract principles that were not supported by the facts of the case. Furthermore, it found Al-Kharafi’s behavior vexatious, as it noted that at Al-Kharafi was initially willing to settle the dispute for approximately US$ 5 Million, yet kept increasing the amount it claimed throughout the proceedings until it exceeded US$ 2.05 Billion.

The Court was also concerned by the Tribunal’s suggestion that the “lost profit” portion of the damages sustained by Al-Kharafi exceeded US$ 2 Billion (even if Al-Kharafi claimed less than this amount as lost profit) before reducing the damages for lost profit to US$ 900 Million (plus interest). The Court explained that a distinction needed to be made between (i) damages for lost profit, which are a form of direct damages that will inevitably occur in the future; and (ii) compensation for lost opportunity (whose existence is uncertain in the future, thus requiring a conservative examination of the facts to determine if it warrants compensation for “lost hope”). The Court found that the Tribunal conflated both types of restitution and failed to approach the evidence with caution, leading the Tribunal to award Al-Kharafi “excessive” damages.

To reach this conclusion, the Court examined the expert evidence submitted by Al-Kharafi before holding that it was based on flawed assumptions, exaggerated the losses, and ignored the fact that the Project was never implemented. It was, what the Court coined, a “Project on paper”. The Court added that the foregoing, coupled with the political situation in Libya following the Contract’s execution (implicitly referring to the instability that led to the removal of Colonel Ghaddafi), proves that it was unrealistic for Al-Kharafi to expect to make any profit. In other words, the Court found that the revocation of the license protected Al-Kharafi’s investment from an ill-fated future in Libya!

Against this background, the Court concluded that the Tribunal erred in its reasoning and acted in an abusive and discriminatory manner that breached fundamental principles of law and justice which mandates that its award be annulled on public policy grounds.

Initial Thoughts:

This case raises several questions that should be addressed by the Egyptian Court of Cassation, ranging from potential errors of law, to defining the scope of public policy. For example, the Court appears to have applied principles of Egyptian law in matters of damages and compensation to a dispute subject to Libyan law when it examined the difference between inevitable lost profit and possible lost opportunity. Notwithstanding the substantial similarity between the Egyptian and Libyan legal systems, the Court effectively stated how it would approach the case on the merits if it were in the Tribunal’s shoes. Unless this approach can be linked to a ground of annulment, the Court would have exceeded its powers under Egypt’s Arbitration Law, even if its substantive analysis were correct. Moreover, the Court made certain statements that suggest that its analysis on damages may have been incorrect under Egyptian law as well. For instance, its affirmation that the deteriorating situation in Libya following Libya’s revocation of the Contract saved Al-Kharafi additional losses (since the Project would have stalled) is irrelevant to the calculation of lost profit under Egyptian law. What matters for the purpose of this exercise is what Al-Kharafi objectively expected to gain at the time it executed the Contract but for Libya’s subsequent breach.[3] The facts taking place following Libya’s reported breach should have no bearing on the damages owed to Al-Kharafi.

Notwithstanding the Court’s apparent ultra vires actions, its analysis appears to have been affected by two factors, namely (i) Al-Kharafi’s refusal to accept Libya’s offer to construct the Project on another land (i.e. its failure to mitigate its losses); and its (ii) alleged failure to take serious steps to implement the Project before the rescission of the Contract and revocation of the investment license. Put differently, it did not sit well with the Court that the Tribunal could award damages nearing US$ 1 Billion when Al-Kharafi’s actual damages were in the neighborhood of US$ 5 Million, and knowing that Al-Kharafi (i) failed to take serious steps to implement the Project; and (ii) refused offers to construct the Project on another land to mitigate its damages.

The Court held that the award of damages that are disproportionately higher than the harm incurred (or one that would certainly take place in the future) breaches public policy, which would justify annulment under Article 53(2) of the Arbitration Law and VI(2)(b) of the New York Convention. No precedent was relied on by the Court, leaving practitioners wondering whether this is an uncontested principle of Egyptian law. Assuming it is, reaching this conclusion would necessarily require a reassessment of the case on the merits to decide whether the Tribunal applied the test to determine damages correctly. The limits of this analysis have yet to be defined by precedent.

Equally unclear is the reason for the Court’s abstention from explaining what constitutes proportionate compensation that complies with Egyptian public policy, since doing so would have allowed the Court to enforce the part of the award that meets acceptable public policy limits. Partial annulment is exercised by Egyptian courts, as several awards were annulled “in part” on public policy grounds when tribunals awarded delay interest rates that exceeded the statutory cap. The Court missed the opportunity to set a precedent by seeking guidance from jurisprudence on what Egyptian law deems to amount to usura vorax.[4] However, unlike the reduction of awarded delay interest rates that are clearly stated in Egyptian legislation,[5] the determination of what represents proportionate compensation inevitably involves an analysis of the merits that may force the Court of Appeal to exceed its statutory powers. The Court of Cassation will need to answer this question by determining the limits of this examination; or even more, to confirm whether such an examination is permissible in the first place.

Conclusion:

The Cairo Court of Appeal was offered a golden opportunity to set a ground-breaking precedent that could have put an end to the longstanding Al-Kharafi v. Libya saga.  Instead, it raised important yet unarticulated legal questions to the dismay of arbitration practitioners. One hopes that the Egyptian Court of Cassation will clarify these questions by determining the scope of Egyptian public policy and the limits, if any, of a court’s involvement in the determination of damages, which is an issue that traditionally falls within the discretionary purview of an arbitral tribunal.

§ Partner, Shahid Law Firm, Cairo.

[1] Mohamed Abdulmohsen Al-Kharafi & Sons Co. v. Libya and others, award available athttps://www.italaw.com/cases/2185.

[2] The parties had exchanged swords before the Court of Appeal and Cassation on other grounds before the case made its way back to the Court for determination of the award’s compliance with Egyptian public policy.

[3] Court of Cassation, Case No. 45/36 JY, judgment dated 31 March 1970.

[4] Court of Cassation, Case No. 282/89 JY, judgment dated 9 January 2020.

[5] Egyptian Civil Code, Art. 227.

Katherine Simpson of Simpson Dispute Resolution in collaboration with Nancy M. Thevenin of  Thevenin Arbitration & ADR have created a list of arbitration professionals of African descent[1].

The  process of creating such a list began in February 2020 and was initially to comprise a list of African-American arbitrators, in response to their perceived absence on arbitration panels.  The project was later expanded to comprise individuals who were a "person of African descent" and "with an international ADR practice that touches or will touch the US."   

Requests for participation in the list were sent to various organisations and bodies, including the American Bar Association ("ABA"), Blacks of the American Society of International Law ("BASIL"), as well as different international dispute resolution email list-serves.  Peer recommendation or referral was also used and each nominee to the List prepared his or her own short "bio" for publication. Updating the list with more names is a continuous and ongoing process.

It is envisaged that the “New List” will make these professionals more visible and accessible to institutions and law firms seeking individuals of colour to appoint as arbitrators, mediators, potential hires, conference speakers, or co-authors.   

Many individuals on the list have an extensive international dispute resolution practice and are on the panels of several arbitral institutions. These individuals have been recognized for their dispute resolution experience in various jurisdictions including the United States.

With expertise in international arbitration ranging from labor and employment to tax and finance, the list is a reminder of the wealth of experience arbitrators of African descent can bring to international dispute resolution.  

_________________________________

*Funke Adekoya, SAN, Partner, ǼLEX

[1] A New List: Arbitrators of African Descent

Introduction

This article has the main purpose of giving a general overview of the legal framework for international arbitration in Angola. With this short study, we intend to give a general but precise view of how the international arbitration proceedings work in Angola.

Background

Angola is one of the fastest-growing economies in the world, being now positioned to become an active member of the global economic community, since it has a privileged geographic location on the coast of the Atlantic Ocean, and abundant natural and human resources.  Angola’s economic development policies are focused on private investment, so Angola is perfectly placed to provide interested investors with financial incentives that increase potential for return on capital. According to the World Bank statistics, Angola has made substantial economic and political progress since the end of the war in 2002. . In the last few years, Angola has been undertaking deep legal reforms in order to modernise its legal system so it can foster investment projects in the country. For instance, a reform to the Voluntary Arbitration Law is being studied, and in 2016 Angola ratified the New York Convention.  Given the evolving process of political and economic opening-up of Angola, it has become necessary to provide more security, certainty and juridical predictability in regard to the resolution of eventual conflicts arising from internal and external relations. According to the World Bank, foreign direct investments in Angola reached their peak in 2015 with US$9.2 billion, compared to US$1.7 billion in 2002 when the civil war ended.

Since Angola is experiencing exponential economic growth and an increase in international transactions and foreign direct investments involving Angola and/or Angolan parties, the practice of international arbitration in Angola is also growing.  Given the reforms of the last few years, it is expected that the use of arbitration for domestic cases with a foreign element will increase (i.e., where a party has foreign shareholders).  Also, there are an increasing number of arbitrations relating to Angolan parties where recognition and enforcement in Angola are important issues to consider, while an increasing number of investment arbitration cases relating to Angola or Angolan parties can be seen as well.

Currently, Arbitration in Angola is regulated by Law no. 16/03, of 25 July 2003, the “Voluntary Arbitration Law” (VAL). This law does not strictly follow the UNCITRAL Model Law (Model Law); however, it includes many solutions that are common to the ones found in that Model Law.  In contrast to the Model Law, we can point out the following aspects:

the VAL contains no provision on definitions;

• it does not provide for rules on interpretation;

• it adopts the disposable rights criteria regarding arbitrability;

• it does not address the issue of preliminary decisions;

• it does not distinguish between different types of awards; and

• it permits appeal on the merits in domestic arbitrations, unless the parties have agreed otherwise.

Regarding institutions and centers for arbitration, Decree no. 4/06, of 27 February 2006, has the purpose of promoting institutional arbitration in Angola, and deals with the licensing procedures for the incorporation of arbitration centres.  The Ministry of Justice is the entity empowered to authorise the incorporation of arbitration centres in Angola. To date, the Ministry of Justice has authorised the creation of the following arbitration centres:

• Harmonia – Centro Integrado de Estudos e Resolução de Conflitos;

• Arbitral Juris;

• CAAL – Centro Angolano de Arbitagem de Litígios;

• Centre of Mediation and Arbitration of Angola,

• CEFA’s Arbitration Centre;

• CREL – Centro de Resolução Extrajudicial de Litígios; and

• CAAIA - Centro de Arbitragem da Associação Industrial de Angola.

Arbitration is also foreseen in other legislation, namely the following:

• Private Investment Law (Law no. 14/15, of 11 August 2015);

• the Mobile Values Law (Law no. 22/15, of 31 August 2015);

• the Petroleum Activities Law (Law no. 10/04, of 12 November 2004); and

• the Public Procurement Law (Law no. 20/10, of 7 September 2010).

In 2016, Angola took another major step to improve participation in international arbitration, by signing the New York Convention on the Recognition of Foreign Arbitral Awards (New York Convention).  On 6 March 2017, Angola deposited its instrument of accession to the New York Convention with the UN Secretary General.  Under Article XII (2), the Convention entered into force in Angola on 4 June 2017, 90 days after the deposit of its instrument of accession. 

Presently, the majority of arbitration cases conducted in Angola are ad hoc. Normally, the Angolan state and companies in the public sector accept, without any complaints, the use of arbitration to resolve disputes with foreign investors.

Arbitration Agreement

According to Article 1 of the VAL, parties may opt to use arbitration for disputes regarding disposable rights (that being those rights that the parties can construct and extinguish by act of will and those which parties can renounce).  The VAL generally admits the arbitrability of disputes pertaining to disposable rights, provided that these disputes are not subject, by special law, to the exclusive jurisdiction of judicial courts or to mandatory arbitration. Regarding any disputes involving the state or other legal persons of public law, the VAL establishes that these entities may enter into arbitration agreements when the relevant dispute concerns a private law relationship, in administrative contracts or in other cases specifically provided by law (article 1 of the VAL). Only the disputes reserved by law to the State courts or to some other type of proceedings cannot be submitted to arbitration. Therefore, all commercial disputes can be subject to arbitration.

In order to resort to arbitration, the parties must establish an arbitration clause (in the contract or in the form of a separate agreement for future disputes arising from a defined legal relationship) or an arbitration agreement (signed by the parties to resolve an immediate dispute), which states that any dispute must be resolved using arbitration, instead of seeking judicial courts. To be valid and effective, an arbitration agreement must comply with several requirements.  The arbitration agreement will be void if:

• it is not made in writing;

• it goes against the provisions stated in article 1 of the VAL; or

• the object of the arbitration is not specified and there is no other way to specify it.

The VAL only includes rules on the expiration of the arbitration agreement, and does not include rules on the modification and revocation of the arbitration agreement. Thus, the arbitration agreement and the arbitration clause expire when:

• any of the arbitrators dies, is excused, becomes disabled for the exercise of the arbitration and is not replaced;

• a majority cannot be reached in the deliberations (in cases where the arbitration is collective); and

• the award is not rendered by the established deadlines.

However, according to section 4 of article 2 of the VAL, the arbitral clause or convention is not automatically void when the contract where it is inserted is void, if it is clear that the will of the parties is to have an arbitral clause or convention regardless of the validity of the contract.

Regarding the competence of the arbitral tribunal, article 31 states that the arbitral tribunal may decide on its own jurisdiction (the principle of competence-competence).  This decision can only be syndicated in impugnation or opposition to the execution of the arbitral award. This means that the award of the arbitral tribunal by which it rules on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement can only be appreciated by the judicial court after the arbitral tribunal has rendered the award. This legal provision gives a letter of law to the fundamental principle of arbitration, the principle of competence-competence: that the arbitral tribunal has full competence to resolve all questions raised in the arbitral proceedings relating to it, whether of a substantive nature relating to the merits of the case, or of a procedural nature. The principle of competence-competence preserves the autonomy of the arbitral tribunal in relation to the jurisdiction of the state courts.

Arbitration Procedure

The parties are free to agree on the procedural rules (directly or by reference to an institution). In the absence of agreement, the tribunal will have the power to determine those rules (article 16). The same reasoning applies to the place of arbitration (article 17). Arbitration begins when the request for submission of the dispute to arbitration is received by the Respondent – if nothing otherwise is stipulated by Agreement of the parties. This request for submission of the dispute to arbitration is generally named “notice to arbitration”. The notification can be made by any means, as long as it is possible to prove its receipt by the other party. The notification must contain:

• the identification of the parties;

• the indication that they wish to submit the conflict to arbitration;

• the indication of the Arbitration Agreement; and

• the subject of the conflict, if that isn’t already stated in the Arbitration Agreement.

Also, if the parties are due to nominate the arbitrators, the claimant must indicate the arbitrator chosen by them in the notice to arbitration, and must invite the other party to indicate their arbitrator. If the arbitration procedure is to be commanded by a single arbitrator, the notifying party must suggest an arbitrator, and invite the other party to accept that suggestion. However, the nomination can also be made by a third party. If that happens, the notifying party must also notify that third party to appoint and communicate the appointment of the arbitrator to both parties.

As stated previously, article 16 of the VAL states that the parties can agree about the rules of the arbitration. However, if those rules aren’t defined until the acceptance of the first arbitrator, the arbitrators must define the rules of the arbitration. The seat of the arbitration is also determined by agreement of the parties in the Arbitration Agreement or later. In common with the rules of arbitration, if the parties do not agree on the seat of the arbitration until the acceptance of the first arbitrator, the seat of arbitration must also be chosen by the arbitrators.

According to the VAL, and in line with most arbitration laws, the arbitration proceedings are subject to fundamental principles of due process, including the principle of equality of the parties and the adversarial principle (article 18 of the VAL). Indeed, the arbitration procedure must respect the following principles and rules:

• the principle of equal treatment of the parties;

• the right to response must be granted in all phases of the procedure; and

• both parties must be heard, orally or by writing, before the rendering of the award. 

These are the fundamental principles and rules that must be respected in any procedure.  The breach of these principles and rules may lead to the setting-aside of an award.

The VAL stipulates that parties to an arbitration must be represented by a constituted lawyer (i.e. an Angolan lawyer).  The National Council of the Angolan Bar Association decided on 31 March 2014 that only lawyers with valid registration may intervene as lawyers in arbitration proceedings.

According to article 24 of the VAL, in national arbitration, the arbitral court must decide in accordance with the national law, unless the parties establish that the conflict is to be solved by referring to equity. However, if the parties agree on the decision by the rules of equity, they automatically renounce the ability to appeal the award. On the other hand, in international arbitration, the parties are free to designate the applicable law, and may do so by referring to a specific national law or state legal system.  If the parties do not agree in this matter, the arbitral court must decide what substantive law to apply, resorting to the conflict rule which it considers applicable to the dispute.

Regarding the production of proof, in arbitration all means of proof allowed by law are accepted.  There is no specific rule in Angolan law establishing limits to the permissible scope of disclosure or discovery.  If the proof depends on a third party and that third party refuses to collaborate, the parties or the arbitral court can request the judicial court to carry out the procedure so that proof is produced.

The arbitration procedure ends when the award is deposited or after the award becomes definitive, if a withdrawal happens, since the withdrawal is free at any time of the procedure. If the arbitral award is not rendered within the applicable time limit or if for some reason the tribunal becomes incomplete and a new arbitrator is not appointed, the proceedings will not be dismissed, but the arbitral agreement itself will be deemed to have lost its validity - for that specific dispute - article 5 of the VAL.

The VAL allows the parties to agree on a time limit to render the award, but if nothing is said until the acceptance of the first arbitrator, the said time limit will be of six months and will only be extended by agreement of the parties (article 25 of the VAL).  Instead of agreeing on a specific limit, the parties may refer the dispute to institutional arbitration (providing that the rules of the institution contemplate the extension of the time limit to render the award). After all the diligence on the process is made, the arbitrators must decide and render an award, which is to be notified to the parties and deposited in the secretariat of the Provincial Court of the place of arbitration.

Arbitrators

An arbitral tribunal may be composed by a single arbitrator or several, but there must always be an odd number of arbitrators (article 6, paragraph 1, of the VAL).

Appointment

Arbitrators are appointed by the parties in the arbitration agreement or in posterior writing. However, the VAL establishes supplementary criteria to be used in the cases where the parties have not established the means of designating a single or several arbitrators. Indeed, if the parties do not agree on the designation of the arbitrators, or on the way they are to appoint the arbitrators, each of the parties appoints one arbitrator, and the arbitrators appoint the third arbitrator, which completes the composition of the arbitral court (article 8, paragraph 1 of the VAL). The VAL is silent as to the means of constituting an arbitral tribunal in the case of multiple parties.

Requirements

Arbitrators must be singular persons who have the full enjoyment and exercise of their civil capacity (article 9, paragraph 3 of the VAL). Arbitrators must be independent and impartial. Arbitrators are free to reject their designation but, once accepted, the excuse of functions is only admissible if it is justified by a supervening cause that makes it impossible for the arbitrator to exercise its functions.

Any person invited to exercise the functions of arbitrator has to reveal immediately all circumstances that may cause doubts about their impartiality and independence.  If any circumstance causes a founded doubt of the impartiality and independence of the arbitrator, they may be refused the right to arbitrate.  However, the party that appoints the arbitrator can only refuse the designation if the motive is subsequent to the appointment.

In the case of failure to appoint one arbitrator, and unless the parties have agreed on another appointing authority, the missing arbitrator will be nominated by the president of the local State Court (article 14 of the VAL).

Replacement

An arbitrator can be replaced in case of death, refusal, permanent disability for the performance of its duties, or if the appointment becomes void.  The motives for the replacement are very similar to the ones established by the UNCITRAL Law. They are contemplated in article 10 of the VAL. The VAL addresses the matter of challenging the arbitrator when there is reasonable doubt about his or her impartiality or independence, or when he or she manifestly does not possess the qualifications that were previously agreed upon by the parties (article 10, paragraph 2 of the VAL). If the arbitrators do not step down, the decision on this is made by the Tribunal, with appeal to the State Courts (article 10 of the VAL).

Interim Relief

Interim relief may be granted in arbitration, unless otherwise stated by the parties. Any of the parties may require that the court orders interim measures, related to the object of the conflict, namely the provision of guarantees that it considers necessary. Interim relief is stated in article 22 of the VAL, which is inspired by article 17 of the UNCITRAL Model Law. However, it does not specify what kind of measures are admitted. This does not prevent the parties from requesting from the court, in accordance with the Civil Procedure rules, any procedure they deem necessary to prevent or protect the injury of rights. It is essential that the petitioner alleges and proves two requirements: the periculum in mora and the fumus bonus iuris.

Arbitration Award

The VAL contains a considerable number of provisions regarding the award and its preparation (articles 24 to 33 of the VAL). 

Unless the parties agree otherwise, under article 25 of the VAL, the Arbitration Award must be rendered in the timeline of six months after the acceptance of the last arbitrator. Any extension to that timeline must be agreed by the parties and cannot be decided unilaterally by the arbitrators. There is also the possibility for the parties to agree that, if any instruction measure is necessary, the timeline can be suspended during that period of time for which the instruction is in course. The decision must be rendered with the presence of all of the arbitrators, by simple majority, except if the parties have stipulated a larger majority. The parties can also establish that, if the arbitrators cannot reach an agreement, the decision can be made by the president of the court.

Under article 27 of the VAL, the arbitration award must be made in writing and must contain the following information:

• the identification of the parties;

• reference to the Arbitration Agreement;

• the object of the conflict;

• the seat of arbitration;

• the location and date on which the award was rendered;

• the decision and justification for the decision;

• signature of the arbitrators; and

• indication of the expenses associated with the process and their distribution between the parties.

The statement of a decision given in accordance with the rules of equity is sufficient, with a statement of the facts that are considered proved.  If any arbitrator disagrees with the decision, the reasons for the disagreement must also be stated in the decision.

Under article 23 of the VAL, the fees and costs of the process and their division between the parties must be agreed by the parties, unless this decision results from regulations of arbitration chosen under article 16 of the VAL. The decision is to be notified to the parties, who can ask for the correction of material errors, obscurities or clarification of doubts, within 10 days. The court has 30 days to respond to such requests. Throughout the process, the parties can also reach an agreement regarding the subject of the conflict.  Under article 28 of the VAL, the agreement must be submitted to the court for homologation.

According to paragraph 4 of article 20 of the VAL, in the course of the process, the withdrawal by any of the parties is also admitted, as long as the opposing party agrees with it,.  The withdrawal must be homologated by the court.

Challenge of the Arbitration Award

For domestic arbitrations, the arbitration award can be challenged in two ways: annulment of the award and appeal of the award. Appeal can be waived by the parties, but not their right to request the award to be set aside.  Annulment of an award can occur in the following cases:

• when the conflict is not sought to be solved through arbitration;

• when the court that rendered the award is incompetent;

• when the arbitral agreement has expired;

• when the arbitral court has been irregularly constituted;

• when the decision doesn’t contain the justification;

• when the decision has violated the principles of equality of response and that fact has influenced the resolution of the conflict; when the court has decided on questions that were not to be decided or when it did not decide on questions that it should decide; or

• when the arbitral court, in cases where it decides through equity and custom, did not comply with the public order or with the Angolan legal order.

The arguments of incompetence of the court and irregularity of the constitution of the court can only be invoked if, during the process, the exception of incompetence of the court or irregularity of its constitution have been also invoked and the court declared itself competent to resolve the conflict, or if the irregularity had influence on the final decision.

If an award does not decide on a certain subject that was brought to the court’s attention, the omission can be admitted, if it is demonstrated that the lack of decision on a certain question or issue was determinative of the final decision.       

A request for annulment must be addressed to the Supreme Court and the deadline to submit the annulment is 20 days from the date of notification of the arbitral award.  The right to request the annulment of an award cannot be waived.

An award can be appealed in the same way that a judicial award can be appealed.  Appeal petition must be addressed to the Supreme Court and the deadline to submit the appeal is 15 days from the date of notification of the arbitral award.  There is a slight difference in the law when it comes to international and domestic arbitration. With international arbitration, the non-appeal principle (as stated in article 44 of the VAL) applies, except when the possibility of appeal is expressly agreed by the parties.  With domestic arbitration, the principle is of the admissibility of the appeal, except if the parties expressly renounce that right (as stated in article 36 of the VAL).

Enforcement of the Arbitration Award

National awards

Article 33 of the VAL states that the award has to be fulfilled in 30 days. If this does not happen, the non-lacking party may coercively execute/enforce the award. Awards rendered in Angola (i.e., awards rendered within domestic arbitrations and awards rendered in Angola, within international arbitrations) are enforceable exactly as if they were decisions rendered by a state court (article 37 of the VAL). If the deadline given by the court to voluntarily accomplish the award is over, or if such deadline isn’t fixed by the court, the interested party has 30 days after the notification of the award to enforce it before the Provincial Court, in the terms stated in the Angolan Civil Procedure Code.

The requirement for the enforcement must be accompanied by the arbitral award, its rectification or clarification, and the proof of notification and deposit of the award. The summoned party has the right to  oppose the enforcement of an arbitral award, stating one or more of the grounds mentioned in articles 813 and 814 of the Angolan Civil Procedure Code:[1]

• unenforceability of the award;

• falseness of the process or transfer or infidelity of the latter, when one or the other influences in terms of the enforcement;

• illegality of the claimant;

• illegality of the defendant;

• undue accumulation of executions;

• unlawful coalition of claimants;

• fault or nullity of the first summons to the action, when the defendant has not intervened in the proceedings;

• uncertainty, illiquidity or unenforceability of the obligation;

• res judicata prior to the sentence that is to be enforced;

• any fact that extinguishes or modifies the obligation, provided that it is after the close of the discussion in the declaration process, and is proved by a document.  The prescription of the right or obligation can be proven by any means; or

• any fundament that is sufficient to annul the award.

Opposition to enforcement of an award must be filed within eight days from the date the defendant is notified of the enforcement process.  The decision on the opposition to the enforcement is not appealable.

International awards

Angola has ratified the New York Convention via Resolution no. 38/2016, which was published in the Official Gazette of the State on 12 August 2016.  Angola made a reservation pursuant to which the New York Convention will only apply to the recognition and enforcement of awards issued in the territory of another contracting state.

Since Angola has ratified the New York Convention, article 1096 of the Angolan Civil Procedure Code – which states the requirements necessary to recognize an award in the Angolan judicial system - will no longer be applicable to arbitral awards. When the New York Convention is in force in Angola, its articles IV and V will be applicable.

To provide certainty that foreign arbitral awards are practically enforceable in the country, Angola may need to harmonise both the provisions of the VAL and the Angolan Civil Procedure Code with its obligations under the New York Convention.

Investment Arbitration

Investment arbitration is not specifically regulated under Angolan law. Therefore, unless more favourable rules have been adopted in international instruments, the VAL applies to investment arbitration.

The New Private Investment Law of Angola prescribes, under paragraph 2 of article 15, that conflicts and their interpretation can be resolved by arbitration[2]. This law also has the aim to foresee the main guarantees granted to foreign investors in the scope of public international law or established by the international jurisprudence of the most various arbitration institutions, namely:

• the Angolan State must ensure, irrespective of the origin of capital, fair, non-arbitrarily discriminatory and equitable treatment of incorporated companies and companies and the foreign investor’s assets;

• payment of a fair compensation, prompt and effective in the case of expropriation or requisition for weighty and justified reasons;

• protection of intellectual and industrial property rights;

• protection of acquired rights over possession;

• non-interference in the management of private companies, except in cases expressly provided for by law; and

• non-cancellation of licences without judicial or administrative proceedings.

Additionally, bilateral investment treaties (BITs) provide for the authorisation or consent of the Angolan State to arbitration in terms that allow the foreign investor immediate recourse to international arbitration, without the need to enter into any subsequent arbitration agreement. Some of the BITs involving Angola provide that an arbitral tribunal shall consist of three arbitrators, each party being responsible for choosing one arbitrator and the third arbitrator being the arbitrator-president chosen by agreement between the other two.  In the absence of an agreement for the choice of the third arbitrator, the latter, under the most diverse investment contracts, shall be appointed by one of the following entities:

1. the General Secretariat of the Paris International Chamber of Commerce (ICC);

2. a designation authority appointed by the Secretary General of the Permanent Court of Arbitration at The Hague, under the UNCITRAL Regulation; and

3. the President of the Provincial Court of Luanda, at the request of either party.

Some BITs involving Angola refer to the arbitration of disputes by the International Centre for the Settlement of Investment Disputes (ICSID), the Complementary Mechanism for the Administration of Conciliation, Arbitration and Inquiry Procedures (CIRDI), as well as for the Arbitral Tribunal of the International Chamber of Commerce (ICC), or even for an international arbitrator or tribunal to be designated by special agreement or established in accordance with the UNCITRAL Rules of Arbitration.

In summary, it can be said that Angola does indeed protect foreign investments through arbitration, namely in the private investment sector, and has taken steps to reduce bureaucracy and facilitate international arbitration and investment arbitration; namely and most importantly, by ratifying one of the most important arbitration conventions that was missing from the Angolan legal system, the New York Convention.

Third-party funding

No regulation on third-party funding of arbitration exists in Angola. Given the fact that there is no regulation on third-party funding, it would seem prudent for arbitration agreements to include certain provisions to ensure less uncertainty in potential claims, and in particular:

1)     the obligation to disclose the existence of funding agreements in the event of disputes, and the content to be disclosed; and

2)     acknowledgment by the parties that, as a security measure to avoid a potential annulment of the award or refusal of its recognition and enforcement under the 1958 New York Convention, the funder’s eventual uplift should not comprise any recovery of costs or indemnity due to the prevailing party in the arbitration or litigation.

Conclusion

In conclusion, one can say that Angola has travelled a long path in the arbitration journey, but a lot is yet to be done. We believe that since arbitration has a growing place in alternative dispute resolution, more and more steps will be made in the near future.

_______________________________________________

* Founding Partner, N-Advogados & CM Advogados

** Head and Main Partner, N-Advogados & CM Advogados

*** Attorney, N-Advogados & CM Advogados

[1] Article 813 (reasons for opposition to the execution based on sentence): the opposition to the execution of a sentence can only have the following reasons: a) unenforceability of the title; b) falsity of the process or transfer, whenever it influences the terms of the execution; c) illegitimacy of the applicant or the defendant or tis representation; d) undue cumulation of executions or illegal coalition of applicants; e) fault or nullity of the first notification for the action, when the defendant didn’t intervene in the process; f) uncertainty, illiquidity or unenforceability of the obligation; g) res judicata prior to the sentence that is trying to be enforced; h) any extinctive or modifying fact of the obligation, since it is posterior to the closing of the discussion in  the declarative process and proven by document. The prescription of the right or obligation can be proven by any means.

Article 814 (execution based on an arbitral award): 1. There are reasons for the execution based on an arbitral award, not only the foreseen in the precedent article, but also those in which an annulment of the decision can be based. 2. The court rejects the request for execution when it recognizes that the dispute can’t be put to the arbitrators’ decision, for being submitted to special law, exclusively to judicial courts or to mandatory arbitration, or if the right is indisposable.

[2] Article 15, paragraph 2: Within the scope of the present law, the conflicts that eventually arise regarding disposable rights can be solved throughout the alternative means of dispute resolution, such as negotiation, conciliation and arbitration, since by special law they are not committed to judicial courts or to mandatory arbitration.

The recent promulgation of two new laws, the Consumer Protection Act [Chapter 14:44] and the Zimbabwe Investment and Development Agency Act [Chapter 14:37], represents far-reaching changes to domestic and international arbitration in Zimbabwe. This article addresses key elements of each law in turn.

The Consumer Protection Act [Chapter 14:44] and its impact on the Arbitration Act [Chapter 7:15]

On 10 December 2019, the Zimbabwe government promulgated the Consumer Protection Act [Chapter 14:44]. The Act seeks to:

(a)   protect the consumer of goods and services by ensuring a fair, efficient, sustainable and transparent marketplace for consumers and business;

(b)  provide for the establishment of the Consumer Protection Commission and its functions;

(c)   provide for the regulation of Consumer Advocacy Organisations

(d)  provide for alternative dispute resolution

(e)   repeal the Consumer Contracts Act [Chapter 8:03]

(f)   provide for matters connected therewith or incidental thereto

The repeal of the Consumer Contracts Act [Chapter 8:03] removes the prior prohibition of the arbitration of disputes between consumers and suppliers that had been established under the Arbitration Act [Chapter 7: 15]. Section 4 (2) of thelatter provides that the following matters shall not be capable of determination by arbitration:

(a)   an agreement that is contrary to public policy; or

(b)  a dispute which, in terms of any law, may not be determined by arbitration; or

(c)   a criminal case; or

(d)  a matrimonial cause or a matter relating to status, unless the High Court gives leave for it to be determined by arbitration; or

(e)   a matter concerning a consumer contract as defined in the Consumer Contracts Act [Chapter 8:03] unless the consumer has by separate agreement agreed thereto.

By repealing the Consumer Contracts Act [Chapter 8:03], the Consumer Protection Act [Chapter 14:44] impliedly amended Section 4 (2) (e) of the Arbitration Act [Chapter 7:15] by deleting the same. Consequently, disputes between consumers and suppliers or services providers are now arbitrable. Moreover, Section 60 (1) of the Consumer Protection Act [Chapter 14:44] expressly provides that the Arbitration Act [Chapter 7:15] shall apply to any such disputes that are referred to arbitration, while Section 60 (7) establishes that an arbitrator shall have the same powers as the court in hearing and resolving any such dispute.[1]

The Zimbabwe Investment and Development Agency Act [Chapter 14:37]

The Zimbabwe Investment and Development Agency Act was promulgated on 7 February 2020. Before its promulgation, the laws governing investment in Zimbabwe were disjointed and uncoordinated.

The Zimbabwe Investment Development Agency Act helps address the inconveniences suffered by investors as follows:

(a)   it repeals the Zimbabwe Investment Authority Act; the Special Economic Zones Act and the Joint Ventures Act

(b)  it replaces the aforesaid pieces of legislation with one piece of legislation, the Zimbabwe Investment and Development Agency Act.

(c)   It provides for the One Stop Investment Services Centre

(d)  It provides for the promotion, entry, protection and facilitation of investment

(e)   It provides for the establishment of the Zimbabwe Investment and Development Agency

New Investment Institutions

The functions of the Zimbabwe Investment and Development Agency are, inter alia:[2]

(a)   To promote, plan and implement investment promotion strategies for the purpose of encouraging investment by domestic and foreign investors

(b)  To promote the decentralisation of investment activities

(c)   To implement and coordinate investment programmes and investment related activities

(d)  To facilitate entry and implementation of investment projects

(e)   To assist investors in all appropriate investment related support that may be required

The One stop Investment Services Centre facilitates the prompt processing of investment enquiries through relevant desks. There are approximately fifteen desks from departments or ministries that process investment enquiries within the Centre. [3]

Dispute Settlement

The Zimbabwe Investment and Development Agency Act [Chapter 14:37] provides that every dispute concerning an investment within the scope of the Act shall be governed by and construed in accordance with the laws of Zimbabwe, including where applicable:

(a)   Domestic arbitration as provided in the Arbitration Act, 1996; or

(b)  Any other International arbitration referred to by mutual agreement of the parties.[4]

In the case of foreign investors, the dispute may also be submitted to dispute settlement mechanisms provided for in any treaty or agreements on the promotion and protection of investments between Zimbabwe and the country from which the foreign investor originates.[5]

Every investor is entitled to equal access to the law and the protection of investments.[6]

Registration Requirement for Bilateral Investment Agreement Protection

A foreigner who established his or her investment in Zimbabwe before 7 February 2020 and claims to be protected by a Bilateral Investment Protection and Promotion Agreement concluded before 7 February 2020 must register their investment with the Agency no later than twelve months after such date.[7]

A foreigner who establishes his or her investment in Zimbabwe after 7 February 2020 and claims to be protected by a Bilateral Investment Protection and Promotion Agreement concluded before or after 7 February 2020 must register their investment with the Agency no later than ninety (90) days after such date.[8]

An investor who fails to register the investment within the period specified under the Act shall be deemed to have waived the protection of the Bilateral Investment Protection and Protection Agreements in question, with the result that any dispute in relation thereto can only be settled by a domestic court or domestic arbitration.[9]

___________________________

* Partner, Kanokanga and Partners

[1] Section 60 (7) of the Consumer Protection Act [Chapter 14:44]

[2] Section 4 of the Zimbabwe Investment and Development Act [Chapter 14:37]

[3] Section 5 of the Zimbabwe Investment and Development Act [Chapter 14:37]

[4] Section 38 (1) of the Zimbabwe Investment and Development Agency Act [Chapter 14:37]

[5] Section 38 (2) of the Zimbabwe Investment and Development Agency Act [Chapter 14:37]

[6] Section 16 (2) (a) and (b) of the Zimbabwe Investment and Development Agency Act [Chapter 14:37]

[7] Section 38 (3) of the Zimbabwe Investment and Development Agency Act [Chapter 14:37]

[8] Section 38 (6) of the Zimbabwe Investment and Development Agency Act [Chapter 14:37]

One of the reasons why Mauritius is considered as a pro-arbitration jurisdiction is because of its courts’ effective supervision of – but non-interference in – the arbitral process. Almost systematically, the Mauritius courts decline to hear a dispute when a defendant claims that it is governed by an arbitration clause. However, for understandable reasons, a party may consider that a particular dispute should not be determined by an arbitral tribunal, for example where it is contended that the arbitration agreement is not valid or the dispute in question is not arbitrable. From that perspective, there is a considerable risk that if an arbitral tribunal determines a dispute and the relevant courts subsequently annul the arbitral award or refuse to enforce it on the ground that the arbitral tribunal lacked jurisdiction to do so, the parties will already have incurred significant costs, wasted considerable time and disclosed confidential information and documents to each other in the arbitral process, which cannot be recovered. An attempt to mitigate such prejudice by asking the tribunal to determine its jurisdiction as a preliminary issue is often unsuccessful, especially when the tribunal considers that the jurisdiction or arbitrability issue is interlinked with the substantive issues in the case and that it is better to determine all issues together.

The sacrosanct principle on which the Mauritius courts consistently rely is that of competence-competence, i.e. it is for the arbitral tribunal to determine whether it has jurisdiction to determine a dispute. This principle was well established in the Mauritius caselaw even before it was expressly laid down in the International Arbitration Act. Of course, the arbitral tribunal’s decision is in principle subject to a subsequent review by the courts. The practical commercial difficulty of waiting for that review is self-evident and explained above.

There are nevertheless limits to the scope of application of the principle of competence-competence. In exceptional circumstances, parties can ask the court to intervene at the outset in order to restrain the opposing party from proceeding with an arbitration.

One such exception is found in section 5(1) of the International Arbitration Act, which provides that on the relevant application being made, the Court should refer the parties to arbitration “unless a party shows, on a prima facie basis, that there is a very strong probability that the arbitration agreement may be null and void, inoperative or incapable of being performed”. Commenting on this provision, in UBS AG v The Mauritius Commercial Bank Ltd [2016 SCJ 43] the Court held that “[t]he burden put in this way means that the hurdle has been set high since the objecting party has to satisfy, on a prima facie basis, the very high threshold imposed by the “very strong probability” standard”.

That said, it is not only in the circumstances of an application under section 5(1) of the International Arbitration Act that the courts may determine whether it is appropriate to restrain a party from referring a matter to arbitration. In that respect, the English Court of Appeal in Sabbagh v Khoury & Others [2019] EWCA Civ 1219 upheld the principle that the statutory power of an English court to grant an injunction – which may be exercised not only to protect legal and equitable rights but also to prohibit vexatious and oppressive conduct – can be exercised to restrain arbitral proceedings, even where the arbitration is seated abroad. In particular, the Court held that the principle enshrined in section 1(c) of the English Arbitration Act 1996 that a court should not intervene in arbitral proceedings except as provided in statute does not per se prohibit an anti-arbitration injunction but it “implies a need for caution, rather than an absolute prohibition”. Hence, the court’s power to grant such injunctive relief should only be exercised in exceptional circumstances, such as when the commencement or continuation of the arbitration proceedings would be oppressive and vexatious. Although the Court’s analysis is premised on an interpretation of the applicable English legislation, it is expected that the Supreme Court of Mauritius will at least take guidance from the principles developed therein, especially as the provision in section 1(c) of the English Arbitration Act 1996 is derived from article 5 of the UNCITRAL Model Law on International Commercial Arbitration, which is mirrored in the Mauritius International Arbitration Act.

Although it is not possible to identify exhaustively the “exceptional” circumstances in which an arbitration will or should be considered as oppressive and vexatious, in Sabbagh (supra), the English Court of Appeal considered that it was justified to grant an anti-arbitration injunction in respect of a claim which had been found, by virtue of an earlier determination of an English court, to be outside the scope of the arbitration agreement between the parties. Similarly, the English courts have previously restrained arbitration proceedings on the basis that it would be oppressive and vexatious for the party pursuing them to ignore an earlier determination that the arbitration agreement in question was invalid. However, the case for an anti-arbitration injunction may be made out even without a prior ruling on the scope or validity of the relevant arbitration agreement, for instance where such a determination is in the process of being made. In Minister of Finance v IPIC [2019] EWCA Civ 2080, the English Court of Appeal restrained arbitrations that had been commenced while court applications were on foot challenging a previous award under sections 67 and 68 of the English Arbitration Act 1996. Staying the court applications and allowing the arbitrations to continue – as the court of first instance had ruled – infringed the challenging parties' rights to invoke the supervisory jurisdiction of the court. The arbitrations were also vexatious[1] in that any decision by the arbitrators as to their own jurisdiction (under the doctrine of competence-competence) would be provisional only, as the court would need to make a final determination in response to the applications. The Court considered these circumstances exceptional and restrained the arbitrations accordingly.

So far, the Supreme Court of Mauritius has not made any pronouncement on the exceptional circumstances that may lead to an anti-arbitration injunction. To our knowledge, the Court has however had the opportunity to analyse the issue on at least two occasions. In an unreported matter earlier this year, the Judge in Chambers refused an ex parte application for an anti-arbitration injunction on the ground that in accordance with the competence-competence principle, the arbitral tribunal should first determine whether the dispute is arbitrable under Mauritius law; the Judge further refused to cause the matter to be called inter partes for submissions on the merits of the injunction application. Hence, in our view, the Judge’s dismissal of the anti-arbitration injunction by relying solely on the competence-competence concept shows a more, and in our view unduly, stringent application of that principle. A similar approach is observed in Flashbird Limited v Compagnie de Sécurité Privée et Industrielle SARL [2018 SCJ 402], where the Court was asked to either set aside an award issued in a MARC arbitration or stay the enforcement of that award pending the determination by an ICC tribunal as to whether the latter, as opposed to the MARC arbitrator, had jurisdiction to determine the dispute between the parties. Allowing the ICC tribunal to make that determination would arguably be consistent with the competence-competence principle (notwithstanding that it might also undermine the finality of the MARC award). However, while the Court declined to set aside the MARC award, it did not go on to consider the merits of the alternative application to stay the enforcement of the award (i.e. injunct the award creditor from enforcing it) on the basis of the competence-competence principle.

The purpose of this article is not to review the Mauritian decisions above. Suffice to say that they are missed opportunities to establish the position that would apply under Mauritius law as regards the exceptions to the competence-competence principle, irrespective of whether those exceptions would be successfully established in those cases. The courts’ pro-arbitration approach certainly benefits the development of Mauritius as a seat of arbitration, but they must also embrace the sophistication of the non-interventionist principle, which is not absolute.

___________________________________

*Barrister at 5 Fifteen Barristers, Mauritius

**Partner, Hogan Lovells

[1] While in Sabbagh the Court considered whether arbitration would be "vexatious and oppressive",  in Minister of Finance it considered whether arbitration would be "vexatious, oppressive or unconscionable".

Over 30 cases adjudicated by the International Centre for Settlement of Investment Disputes (“ICSID”) alone involve Egypt. While Egypt was able to win a few notable cases, the scale may soon tip in favor of investors, however, as several new cases are currently being disputed before ICSID. 

The primary question, though, lies not in the improvement of Egypt’s record, which is largely due to its ability to select competent counsel, but in the reasons that caused such a high number of cases to be filed in the first place. In other words, Egypt should focus on conflict prevention rather than conflict resolution.  There are several reasons for the surge in cases against Egypt in recent years, [2] four of which stand out:

I.                 THE DANGERS OF CONFLICTING LEGISLATION

In 2000, East Mediterranean Gas (“EMG”) was established as a free zone company for the purpose of exporting gas to neighboring States. EMG’s free zones status attracted investors from several jurisdictions, including the USA and Poland. However, in 2008, EMG’s free zones status was unexpectedly revoked, which led to the imposition of a 20% corporate tax on the company. With negotiations failing, Polish and US investors brought investment claims against Egypt under the applicable bilateral investment treaties (“BITs”) for creeping expropriation resulting from the withdrawal of the tax breaks and other breaches. ICSID and UNCITRAL tribunals sided with the claimants, costing Egypt both time and money (see Ampal v. Egypt, ICSID Case No. ARB/12/11 (“Ampal”); and Maiman and others v. Egypt, PCA Case No. 2012/26 (“Maiman”)).[3] This could have been avoided but for the hasty decision to suddenly and unexpectedly withdraw the tax benefits granted to EMG.

The EMG cases bring to light the classical tension between a State’s freedom to legislate and an investor’s right to a safe, secure, and predictable investment. While an analysis of this dichotomy is beyond the scope of this article, the fact remains that by failing to consider the investors’ interests, the haphazard manner in which members of parliament (“MPs”) and other officials proceeded with legislating without assessing the impact of their actions on investors put the country at risk of facing claims by disgruntled investors.

An important area to be cautious is the Law on Special Economic Zones. This law was promulgated in 2002 to offer incentives and tax breaks to industrial projects operating within designated special economic zones. This naturally attracted foreign investors to these industrial zones, where they established impressive industrial projects, including Africa’s largest manufacturer of fiberglass pipes. However, ten years later, the Income Tax Act (a completely different law) was amended to specifically impose a 20% withholding tax on short-term loans repaid by projects within the zone.[4] Admittedly, while this withholding tax did not appear to affect projects within special economic zones (special economic zones have proved to be a success thus far), in 2016 Egyptian legislators spiced things up a little by enacting a Value Added Tax Law to “override any conflicting provision under a different law” including the Law on Special Economic Zones. There is a need to be vigilant and to avoid situations of legal uncertainty that can fuel future investment disputes against Egypt.

While investors have successfully brought claims against Egypt under various BITs, we have yet to witness a case challenging the gradual withdrawal of incentives offered by the Law on Special Economic Zones. For this reason, it is essential for Egyptian legislators to learn from the lessons of the past and avoid, in their keenness to legislate, creating to domestic conflicts of laws.

II.               LAWS DO NOT ALWAYS REFLECT ACTUAL PRACTICE

As in the case of economic and investment laws, Egyptian MPs must also consider the impact of non-economic laws on investors. To this end, and in line with the importance of ensuring predictability for both States and investors, States must ensure that their laws reflect actual practice, otherwise the risk of successful investor claims increases.

The first case that comes to mind is the oft-cited Waguih Elie George Siag and Clorinda Vecchi v. Egypt, ICSID Case No. ARB/05/15 (“Siag”), which turned on the tribunal’s approach to interpreting a provision of Egypt’s Citizenship Law which, in practice, was not applied. The facts, as outlined by the award on jurisdiction, suggest that Mr. Siag, an Egyptian by birth, owned a tourist development project in Egypt. In March 1990, he applied for Lebanese citizenship, which he acquired in June 1990.  Three years later, in May 1993, he obtained Italian citizenship through his marriage to Clorinda Vecchi, the co-claimant.

Mr. Siag’s project faced certain difficulties that ultimately led him to initiate an ICSID claim against Egypt under the Italy-Egypt BIT despite the fact that he appeared to consider himself Egyptian following his acquisition of Lebanese and Italian citizenship, which should have precluded the tribunal from hearing the case.[5] However, Mr. Siag’s lawyers relied on a provision of Egypt’s Citizenship Law (Article 10(3)) that is rarely -if ever- applied, to argue that he had lost Egyptian citizenship by the force of law in 1991, one year after his acquisition of Lebanese citizenship since he did not notify the Egyptian authorities of his wish to retain Egyptian citizenship following naturalization.

In his support was an expert opinion by Professor Fouad Riad, the leading authority on Egyptian citizenship law at the time, and a High Administrative Court judgment, although a reading of the judgment reveals that it dealt with a different question, and that the Court’s relevant remark was clearly obiter dictum. In other words, there was no precedent supporting Mr. Siag’s claim. The tribunal indulged, notwithstanding Egypt's legitimate claim that the claimant’s interpretation of the Article in question was not supported by jurisprudence or practice. In other words, Egypt maintained that Article 10(3) of the Citizenship Law was for all intents and purposes a dead-letter law.

The tribunal also ignored the fact that following his acquisition of Lebanese citizenship, the trinational residing in Egypt (i) acted before the commencement of his investment (and thereafter) as an Egyptian citizen; (ii) was provided by the government with numerous Egyptian nationality certificates between 1991 and 1997; and (iii) made several declarations concerning his nationality status to the Egyptian authorities for the purpose of his project (i.e. represented himself as an Egyptian before Egyptian regulatory bodies).

Mr. Siag won based on a provision of the Citizenship Law that was not applied in practice (at least at the time the cases were disputes). Leaving any comments on the tribunal’s reading of the Citizenship Law aside, the Siag arbitration raises an important question of significant relevance to investment arbitration; that of the gap between what the law says on paper, and how it is applied in practice. The tribunal applied the letter of the law, disregarding how it's interpreted and applied in practice. 

In the absence of a consistent approach by tribunals as to how to deal with the gap between law and practice, both investors and States risk being penalized due to unpredictability. In Siag, had the tribunal deferred to the State’s application of its own law, the outcome would have been very different. While such unpredictability, which is at odds with both the investors’ and States’ legitimate expectations, is a result of the inconsistent approach by tribunals towards this issue, fundamentally, it can be avoided if States ensure their laws reflect practice. 

III.              THE ATTRIBUTION CONUNDRUM

Understanding the rules of attribution is fundamental to determining whether the acts of third parties can be ascribed to a State for the purpose of defining its responsibility for wrongful acts. When domestic laws do not clearly outline the relationship between entities, confusion ensues, and so does the risk of liability.  Here is a brief explanation. 

It is common for the Egyptian government to contract with investors through government-owned statutory bodies that were converted from “public authorities created in the public interest” to authorities acting as commercial entities (e.g., the Suez Canal Authority (“SCA”) or the “Authority”) or referred to as corporations or companies (e.g., the Egyptian General Petroleum Corporation (“EGPC”), the Egyptian Natural Gas Holding Company (“EGAS”)). 

While for purposes of attribution to the State these institutions may arguably be considered independent from the State (since they appear to take the form of corporations), the challenge with this argument is that the constitutive statutes of these so-called corporations send mixed signals to investors and tribunals regarding these entities’ real nature. For example, the SCA’s constitutive statute provides that the Authority “has an independent budget” a fact that suggests it is separate from the State, before adding in the same Article that such a budget is to be “subject to the supervision of the Accountability State Authority” and “ratified by Presidential decree”.[6] An investor must wonder if the SCA is genuinely independent, why is it regulated by law and not governed by a corporate bylaw? Why is its budget subject to the supervision of the government? And why does the President have to burden himself every year with issuing a decree ratifying that budget? Despite the foregoing, the tribunal in Jan de Nul N.V., Dredging International v. Egypt, ICSID Case No. ARB/04/13 (“Jan de Nul”) found that the acts of the SCA could not be attributed to the State, a conclusion that was made easier by the fact that in this specific dispute, the SCA’s impugned acts were purely commercial. Does this mean that if such acts were not purely commercial, the tribunal would have ruled otherwise? The answer is not entirely clear, and the confusing manner in which the SCA’s constitutive statute is drafted does not provide any concrete answer either. 

In the absence of clear boundaries between the State and statutory bodies acting on its behalf, investors will not shy away from filing Investor-State arbitrations in the hope of having tribunals determine that a connection with the State can be established. Armed with local counsel that can provide rational and contextual explanations of such cryptic constitutive statutes in light of applicable domestic jurisprudence, the investors’ chances of success will increase, which is exactly what happened in arbitrations involving EGPC, another government-controlled entity, whose opponents were represented by a team of international and local counsel familiar with the intricacies of Egyptian administrative law, the domestic law governing attribution matters. While EGPC is referred to in English as a “corporation”, which suggests that it is an independent corporate entity, the claimants in Maiman and Ampal demonstrated that it is a corporation in name only, since an examination of EGPC’s constitutive statues revealed that it is:

§   An entity that has no shareholders, partners, or quota holders;

§   its structure does not contain a general assembly;

§   the Board of Directors is not subject to the oversight of a general assembly (as is typical of corporations); but is subordinate to the Minister of Petroleum; and

§   its board of directors is mostly composed of Government officers acting in their official capacities.

The clear control of the government over EGPC has cost Egypt at least two recent Investor-State arbitrations involving EGPC and its subordinate entities (Ampal and Maiman). 

The problem with attribution is not limited to the SCA and EGPC. Similarly structured entities exist in several other industries including mining, rail transport, telecommunications, and aviation and airport affairs to name but a few. With investments increasing in these sectors, and as the relationship between these statutory bodies and the State remains ambiguous, one would expect more arbitrations in the future, more uncertainty, and more money spent on lawyers and arbitrators.  

IV.             INEFFECTIVE BLOCKING LEGISLATION

To engage in business in Egypt, foreign investors must set up a local entity, which can take the form of an incorporated special purpose vehicle (“SPV”). These local SPVs often execute administrative contracts that contain arbitration clauses. However, Egypt has enacted blocking legislation amending the Arbitration Act to subject the initiation of commercial arbitrations involving administrative contracts to the approval of the concerned Minister. This is a public policy norm.[7]  Without such an approval, Egyptian administrative courts would have automatic jurisdiction. The Minister will rarely grant such an approval absent higher national interests.

An administrative contract under Egyptian law is a contract that is:

§   Executed by or on behalf of a public law person;

§   In relation to the management or functioning of public utility; and

§   that contains exorbitant clauses (e.g., discretion to amend terms, termination in public interest, amend prices following a regular review process).

This means that most supply and infrastructure-project-agreements concluded with the government will be deemed administrative contracts that may not be resolved by means of commercial arbitration unless the Minister deems otherwise.

While such blocking legislation may preclude SPVs from filing commercial arbitration against the State, it does not prevent these SPVs’ shareholders from initiating Investor-State arbitrations since their activities in Egypt (including owning shares in a local SPV) qualify as an “investment” under most applicable BITs. It follows that while under a build operate and transfer (“BOT”) contract for the construction of a refinery, airport, or similar structure, the SPV contracting with the government may fail to secure the Minister’s approval to exchange swords in commercial arbitration, the SPV’s shareholders will not be precluded from soliciting the ISDS mechanism.

Needless to say that many claimants resorting to ICSID recognize that it has greater benefits than commercial arbitration, chief among which are publicity of the cases and easier enforcement procedures. The blocking legislation, therefore, may not be so effective after all, and may actually be more counterproductive. This calls for a careful reconsideration of the efficacy and need for such blocking legislation.

CONCLUSION

Egypt is an investor-friendly State that strives to offer investors significant opportunities for growth. Yet despite having an active Ministry of Investment, it has struggled with a large number of ICSID and other Investor-State claims which could have been avoided but for structural legislative challenges. Absent legislative amendments, the risk of investor claims will persist. There is therefore an urgent need to address the rising trend of investment disputes through a dispute prevention lens that addresses the structural roots of the problem to guarantee Egypt’s continued ability to attract foreign investors.

[1] Partner, Shahid Law Firm, Egypt. The views expressed in this article are those of the author only and do not constitute legal advice. Tarek Badawy can be reached by email at tarek.badawy@shahidlaw.com.

[2] While the number of arbitrations filed against Egypt increased following the 2011 Revolution, this article addresses structural problems which also exist in times of political and economic stability.

[3] While Ampal and Maiman were initiated after the 2011 Revolution, the revocation of EMG’s free zones statues took place in 2008.

[4] Income Tax Act (as amended), Art. 56.

[5] Article 25 of the ICSID Convention precludes citizens from suing their State under the ICSID Convention.

[6] Law No. 30 of 1975 on the Suez Canal Authority, Art. 4.

[7] Court of Cassation, Cases No. 13313, 13460 / 80 JY, judgment dated 12 May 2015.

Introduction

Recently, the Supreme Court in Mauritius invoked its powers under section 39(b)(ii) of the Mauritius International Arbitration Act 2008,[1] to set aside an arbitration award on the ground that the enforcement of the underlying contract was in flagrant and concrete  breach of the Mauritius Public Procurement Act therefore, the award was a violation of the Mauritius public policy.[2]

This article will attempt to address whether the Nigerian courts would hold a similar view as the Supreme Court in Mauritius, that a breach of the Nigerian Public Procurement Act should be held as so fundamental as to amount to a breach of the public policy of Nigeria warranting the refusal of the enforcement of an award arising from such a breach.

Background Facts of the Mauritius Supreme Court Decision

Betamax, a shipping company had entered into a contract with the Mauritius State Trading Company for the freight of petroleum product from India to Mauritius. Subsequently, the contract was terminated by the Mauritius government on the basis that the contract was entered into in breach of the Public Procurement Act of Mauritius. Betamax commenced arbitration against the government of Mauritius for breach of contract, and the tribunal decided in favour of Betamax. Betamax thereafter sought to enforce the award in Mauritius. However, the Mauritius government challenged the enforcement and also applied to set aside the award on the basis that the contract was illegally concluded. Therefore, the enforcement of the award will be in breach of the country’s public policy. The Supreme Court set aside the award after holding that the contract would violate the fundamental legal order of Mauritius because it was “in flagrant and concrete breach of public procurement legislation enacted to secure the protection of good governance of public funds”. The Court added that “such a violation breaks through the ceiling of the high threshold which may be imposed by any restrictive notion of public policy”.

Refusal to Enforce an Award on Grounds of Public Policy under Nigerian Law

The concept of public policy is quite broad and does not have any statutory definition in Nigeria. However, judicial decisions exist where attempts were made to define the term, public policy. For instance, in Okonkwo v. Okagbue,[3] the Supreme Court viewed the term as the ideals which for the time being prevails in any community as to the conditions necessary to ensure its welfare, so that anything is treated as against public policy if it is generally injurious to the public interest.  Furthermore, in Total Nigeria Plc. v. Ajayi,[4] the Court of Appeal stated that “the principle of public policy is to protect public interest by which the courts would not sanction what is injurious to public welfare or against the public good. The phrase public policy, therefore, means that policy of the law of not sanctioning an act which is against the public interest in the sense that it is injurious to public welfare or public good.”

The nebulous feature of the notion was also recognized by the Supreme Court in Sonnar Ltd. v. Nordwind,[5] where Eso, J.S.C. said “Surely, public policy is an unruly horse and judges are not such masters of equestrian ability to take on such experience”.

The above decisions of the Supreme Court and the Court of Appeal reveal that when courts are confronted with the issue of public policy as a defence against the enforcement of an arbitral award, the courts usually take a restrictive approach in its interpretation of the concept. In Agro-Allied Development Ent. Limited. v. United Shipping Trading Co. Inc.,[6] the Court of Appeal upheld a High Court decision which made a recognition and enforcement of an award order despite the argument of the appellant that the award was against the public policy of Nigeria. The Court considered that there was no perversity in the judgment of the High Court and that the award is not contrary to any public policy in Nigeria. Furthermore, in Nigerian National Petroleum Corporation (NNPC) v. Lutin Investment Limited & Anor[7], the appellant argued that the arbitrator be removed because he had acted against public policy by moving the seat of arbitration to London at the expense of the parties when the agreement was governed by Nigerian law. The Supreme Court unanimously dismissed the appeal and recognized the power or discretion of the arbitrator to go abroad to hear evidence from witnesses.

Notwithstanding the nebulous nature of the term “public policy”, courts have held that illegal contracts are against public policy. In effect, where an arbitration agreement is classified by a court as an illegal contract, the court is likely to find that an award made on the basis of that arbitration agreement is unenforceable for being a product of an illegal contract. So, if the arbitration agreement is prohibited by statute, an award from it may not have favourable recognition from courts. In Fasel Services Ltd & Anor. v. NPA & Anor,[8] the Supreme Court stated that “without getting unduly enmeshed in the controversy regarding the definition or classification of that term (illegal contract), it will be enough to say that contracts which are prohibited by statute or at common law, coupled with provisions for sanction (such as fine or imprisonment) in the event of its contravention are said to be illegal.” Furthermore, in Oguntuwase v. Jegede[9] the Court of Appeal stated that “the general principle of the law that an illegal contract will not be upheld and enforced by the Court is founded on the public policy embodied in the maxim,in pari delicto, potior est conditio defendentis and ex-trupi causa non orituractio, that is, a party who is himself guilty of an action, does not have a right to enforce performance of an agreement founded on a consideration that is contrary to public interest or policy”.  Therefore, an award arising from an illegal contract may be set aside on the grounds of public policy.

Breach of the Public Procurement Act and the Public Policy Ground for Refusal of Enforcement

The Public Procurement Act 2007 (‘the PPA’) was enacted to ensure a fair, competitive and transparent standard for the procurement and disposal of public assets. It governs the manner in which public funds are used to purchase public goods and services. Therefore, provisions of the PPA impacts on public policy because a flagrant violation of the PPA could result in the award of a major procurement contract to an unqualified contractor or the purchase of substandard goods or services, which would be injurious to public welfare and interest.

It may be argued that not every violation of the PPA should be treated as a breach of public policy, and that some provisions should be treated as directory, as the Court of Appeal in Revenue Mobilization, Allocation and Fiscal Commission v. Onwuekweikpe Esq.,[10] has muted: “it is not every non-compliance with the provisions of a statute that is fatal. A breach of mandatory enactment renders what has been done null and void. But if the statute is merely directory, it is immaterial, so far as it relates to the validity of the thing done, whether the provisions of the statute are accurately followed out or not.” However, section 58 of the PPA makes it a punishable offence for natural or legal persons to contravene “any provision of this Act”. This section connotes that the provisions of the PPA cannot be treated as merely directory.

The effect of a contract which breached statutory provision is aptly stated by the Supreme Court in Corporate Ideal Insurance Ltd v. Ajaokuta Steel Company Ltd & Ors[11]  albeit in relation to the Insurance Act 2003. The Apex court stated that “A contract which violently violates the provisions of a statute as in this case, with the sole aim of circumventing the intendment of the law maker is, to all intents and purpose, illegal, null and void and unenforceable. Such a contract or agreement is against public policy and makes nonsense of legislative efforts to streamline the ways and means of business relations”. It is opined therefore, that the PPA, which affects public interest is not just a directory statute, but a mandatory enactment which contravention will render a contract based thereon, illegal and against public policy.

In context of a challenge to the enforcement of an award on the public policy ground, the courts would have to consider the alleged breach in juxtaposition with the provisions of the PPA and determine whether there has indeed been a violation of the PPA. Where it determines that the PPA was violated in awarding the contract, the court may align with the position of the Mauritius Supreme Court by setting aside or refusing recognition of an arbitral award arising from the contract.

Conclusion

From the provisions of Nigerian case law on public policy, it has been established that the Nigerian courts adopt a restrictive approach in applying the public policy ground for setting aside or refusing the enforcement of an arbitral award. However, it is also established that illegal contracts are contrary to public policy, and that a contract is illegal where it violates mandatory provisions of statute.  Due to the mandatory nature of the PPA, which was enacted to protect public interest in the procurement of goods and services and which sanctions the contravention of its provisions, it is believed that the Nigerian courts would consider a contract executed in breach of its provisions in a similar manner as the Mauritius Supreme Court in the Betamax case and set aside or refuse the enforcement or an award arising from such a contract on the public policy ground.

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[1] Similar to Section 48(b)(ii) of the Nigerian Arbitration and Conciliation Act CAP A18, LFN 2004 and Article 34(2)(b)(2) of the UNCITRAL Model Law 1985, amended in 2006.

[2] Paray N.B, Dabee, S and Maxime, S.P (2019). The Supreme Court of Mauritius sets aside award on grounds of breach of domestic public policy [online]. Lexology. Available from:https://www.lexology.com/library/detail.aspx?g=dbac875b-12f7-44d9-b921-f2fd0e8fe677 [accessed 6 June 2019].

[3] (1994) 9 NWLR (Pt. 368)

[4] (2003) LPELR-6174(CA)

[5] (1987) 4 NWLR (Pt. 66) 520

[6] [2011] 9 NWLR (Pt. 1252) 258

[7] (2006) 2 CLRN 1 (SC)

[8] (2009) LPELR-1245(SC)

[9] (2015) LPELR-24826(CA)

[10] (2008) LPELR-8398(CA)

[11] (2014) LPELR-22255(SC)