Abstract

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

THE FACTUAL MATRIX

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

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

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

THE APPLICATION

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

ARTICLE 34

Application for setting aside as exclusive recourse against arbitral award 

….

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

….

(b) the High Court finds, that—

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

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

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

THE APPEAL

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

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

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

THE JUDGMENT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CONCLUSION: THE LACUNA IN THE JUDGMENT

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

(a)it must be a final award;

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

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

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

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

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

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

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

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

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

[2] Emphasis added.

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

[4] Ibid

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

[6] Ibid para 193

[7] Ibid para 194

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

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

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

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

The Commercial and Tax Division of the High Court of Kenya (“Court”) has recently pronounced itself in the case of Easy Properties Limited v Express Connections Limited (Hccmisc /E007/2020) (hereinafter referred to as the 1st application) consolidated with Express Connections Limited v Easy Properties Limited (Hccmisc /E003/2020) (hereinafter referred to as the 2nd application)[1] explained the instances which the court can interfere with arbitral decisions.

Facts

The two applications arose from the same arbitral proceedings which culminated in the final arbitral award dated 22nd October 2019 and the award on costs dated 5th October 2020 rendered by the Arbitrator, Mr. Allen Waiyaki Gichuhi. This was an Ad Hoc Arbitration, the sole arbitrator having been appointed by the Chartered Institute of Arbitrators, Kenya Branch[2]. The point of divergence in the two applications was that HCC ARB/E003/2020 sought an order that the said award be recognized, adopted, and enforced as a judgment of the court, while HCC ARB/E007/2020, sought a raft of prayers among them, an order that the said awards be set aside in their entirety. The 1st Applicant no. (M/s Easy Properties Limited) sought orders that the Final Award and the Award on Costs be set aside in their entirety. It also prayed for an order that the court certifies under Article 165 (4) of the Constitution that the application raised substantial questions of law and refer the matter to his Lordship the Chief Justice to empanel a bench of an uneven number of not less than three judges to hear the matter. Additionally, it prayed for an order that the matter or the relevant parts thereof be heard de- novo before the Environment and Land Court. Lastly, it prayed for orders that the court grants any other or further relief as this court may deem fit to preserve the integrity of law and due process in the Final Award.

The thrust of the application was that; (i) the issues submitted to arbitration being too complex thus incapable of being handled by a sole arbitrator and that the arbitrator exceeded his jurisdiction; (ii)  that the process was unduly influenced because there existed conflict of interest between the representative of the Respondent and an expert relied upon by the Tribunal; (iii) that the Arbitral proceedings were conducted in a manner that did not conform to fundamental concepts of fair hearing, justice and equality; (iv)  that the Arbitrator went against public policy as the decision did not take into account various legal and financial obligations on the subject property by the respondent; and (v) that the award affected rights, obligations and duties of persons and or entities who were not party to the arbitration proceedings.

The 2nd Applicant (M/s Express Connections Limited) filed a Notice of Preliminary objection[3] on the following grounds;

(i)  that the application was filed outside the three (3) months limit contrary to Section 35(3) of the Arbitration Act[4];

(ii) that the court’s jurisdiction to set aside an award is limited to matters provided under Section 35 of the Arbitration Act and any other intervention by the court is expressly prohibited by Section 10 of the Act;[5]

(iii) that the application offended Section 5[6] of the Act to the extent that the applicant proceeded with the arbitration without stating his objection and is therefore deemed to have waived the right to object; and

(iv) that the application offends Rule 36(1) of the Arbitration Rules, 2015.[7]

The 2nd Applicant further stated that the application offended Section 17(2) of the Arbitration Act;[8] that the suit was barred by the doctrine of res judicata as the applicant cited issues which were raised by the applicant in Easy Properties Limited v Express Connections Limited.  Additionally, that the applicant had not sought extension of time, hence, the application offended Sections 35 and 32A of the Arbitration Act.[9] Lastly, that the application was bad in law, fatally and incurably defective and amounted to an abuse of the court process.

The 1st Applicant filed the Replying affidavit in response to the Notice of Preliminary Objection. The affidavit stated that the final award was delivered to its advocates on 17th July 2020, while the award on costs dated 5th October 2020 was delivered on to its advocates on record in October 2020, hence time began to run from the said date. Additionally, that the two awards constitute the final award; hence, the application complies with section 35 of the Arbitration Act. Further, that the Arbitrator compelled them to proceed with the arbitration without their engineer's witness evidence; and that the award went beyond the scope of the arbitration agreement.

The 2nd Application by M/s Express Connections Limited, dated 4th November 2020 prayed that the Final Award delivered by the Arbitrator on 22nd October 2019 be recognized and adopted as a judgment of the court. It also prayed that this court recognizes and adopts the award on costs award made by the Arbitrator, on 5th October 2020. Further, it prayed for leave to enforce the Final Award as a decree of this court and lastly that the costs of the application be borne by the 1st Applicant.

Ruling

The court dismissed the 1st application and allowed the 2nd application. The court ruled that the Arbitration Act confers the Arbitrator exclusive jurisdiction over questions of fact and law which excludes appeals and limits reviews. The court may only be approached as provided by the Act. The Court found that the 1st Applicant had failed to demonstrate any of the grounds provided in Section 35 of the Arbitration Act to enable the court to set aside the arbitral award.   

On the Issue of the application being barred by time, the Court reiterated the time limit for initiating setting-aside proceedings of three (3) months from the date on which the party making that application had received the arbitral award, or if a request had been made under section 34 from the date on which that request had been disposed of by the arbitral award. It follows that the 1st application was filed outside the stipulated period of three (3) months. Further, the Court concurred with the 2nd Applicant that the suit raised issues that were res judicata having been adjudicated and dismissed in the earlier case contrary to Section 7 of the Civil Procedure Act.

For the 2nd Application, the court found no impediment to the application and therefore was merited. It allowed the said application, and the final orders of the court were: - 

(i)  That the application dated 28th December 2020, filed by Easy Properties Limited, i.e. ARB No. E007 of 2020 is hereby dismissed.

(ii) That the application dated 4th November 2020, filed by Express Connections Limited, i.e. ARB No. E003 of 2020 is hereby allowed.

(iii) That Final Award delivered by Hon. Arbitrator, Advocate, Allen Waiyaki Con 22nd day of October 2019 be and is hereby recognized and adopted as a judgment of this court.

(iv) That the award on costs award made by Hon. Arbitrator, Advocate, Allen Waiyaki Gichuhi on 5th day of October, 2020 be and is hereby recognized and adopted as an order of this court.

(v) That Express Connections Limited, be and is hereby granted leave to enforce the Final Award as a decree of this court.

(vi) That Easy Properties Limited shall pay Express Connections Limited the costs of these consolidated applications. 

Analysis

Extent of Court interference in arbitration proceedings

The Court was quick to note, from the outset, that the role and extent of the Court’s intervention in arbitration proceedings in Kenya is provided for by Section 10 of the Arbitration Act which provides that: “except as provided in the Act, no court shall intervene in matters governed by the Act”. The section limits the jurisdiction of the court in absolute terms to only such matters as are provided for by the Act and embodies the recognition of the policy of party’s ‟autonomy” which underlie the arbitration generally and the Act.[10]

The Court, in relying on the Supreme Court decision in Nyutu Agrovet Limited v Airtel Networks Kenya Limited; Chartered Institute of Arbitrators-Kenya Branch (Interested Party) pointed out that the Act cannot reasonably be construed as ousting the inherent power of the court to do justice.[11] The Nyutu Case stated that judicial intervention can only be countenanced in exceptional instances. Even then, the Apex Court underscored the need for adherence to the principle of party autonomy, which requires a high degree of deference to arbitral decisions and minimises the scope for intervention by the courts. Further, Section 10 of the Act was enacted to ensure predictability and certainty of arbitration proceedings by specifically providing instances where a court may intervene. Instances providing for judicial intervention under the Act include applications for setting aside an award, determination of the question of the appointment of an arbitrator, recognition and enforcement of arbitral awards, and other specified grounds such as where the arbitral tribunal rules as a preliminary question that it has jurisdiction. There is however a need for courts when considering applications for confirmation or setting aside of arbitral awards to adhere to the principle of party autonomy.

The circumstances under which the court can intervene are enumerated in section 35 and as the Supreme Court stated in the Nyutu Case stated in exceptional circumstances otherwise the arbitral award is final. Unless the arbitration agreement provides otherwise, an award is only subject to the provisions of the Act, final and not subject to appeal or review and that each party to the reference must abide by and comply with the award in accordance with its terms.

Grounds for setting aside the arbitral award

The Court restated the provisions of Section 35 (2) of the Arbitration Act which sets out the grounds upon which the High Court can set aside an arbitral award. The grounds which the applicant must furnish proof for the arbitral award to be set aside are: (1) incapacity of one of the parties; (2) an invalid arbitration agreement;(3) Lack of proper notice on the appointment of arbitrator, or of the arbitral proceedings or where the applicant was unable to present its case; (4) where the award deals with a dispute not contemplated by or one outside the terms of reference to arbitration or matters beyond the scope of reference; (5) where the composition of the arbitral tribunal or the arbitral procedure was contrary to the agreement of the parties except where such agreement was in conflict with provisions of the Act and the parties cannot derogate from such; or (6) where fraud, undue influence or corruption affected the making of the award.

______________________ 

* Senior Communications & Marketing Officer, Nairobi Centre for International Arbitration 

[1] Easy Properties Limited & another v Express Connections Limited & another (Civil Miscellaneous E007 & E003 (Consolidated) of 2020) [2021] KEHC 39 (KLR) (Commercial and Tax) (7 September 2021) (Ruling),Civil Miscellaneous E007 & E003 (Consolidated) of 2020 - Kenya Law, (accessed on 1st April 2022)

[2] Id

[3]A legal issue based on a point of law raised by any party in a civil case that requires court determination before proceeding to the main case.

[4] Section 35(3), “An application for setting aside the arbitral award may not be made after 3 months have elapsed from the date on which the party making that application had received the arbitral award, or if a request had been made under section 34 from the date on which that request had been disposed of by the arbitral award.”

[5]Section 10, “Except as provided in the Act, no court shall intervene in matters governed by the Act.”

[6]Section 5, “A party who knows that any provision of the Act from which the parties may derogate or any requirement under the arbitration agreement has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time limit is prescribed, within such period of time, is deemed to have waived the right to object.”

[7]Rule 36(1), “if, before the award is made, the parties agree on a settlement of the dispute, the arbitral tribunal shall either issue an order for the termination of the arbitral proceedings or, if requested by the parties and accepted by the arbitral tribunal, record the settlement in the form of an arbitral award on agreed terms. The arbitral tribunal is not obliged to give reasons for such an award.”

[8] Section 17 (2), “A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence, however, a party is not precluded from raising such a plea because he has appointed, or participated in the appointment of, an arbitrator.”

[9] Section 35 on Application to Set aside an Award and Section 32A on the finality of an Award. See,Microsoft Word - Paged_Arbitration Act _No. 4 of 1995_.doc (kenyalaw.org) at Pages 18 and 20, (accessed on 1st April 2022)

[10] Section 10 Arbitration Act, No. 4 of 1995 (Revised 2012)

[11] Nyutu Agrovet Limited v Airtel Networks Kenya Limited; Chartered Institute of Arbitrators-Kenya Branch (Interested Party) [2019] eKLR.,Petition 12 of 2016 - Kenya Law (accessed on 1st April 2022)

CASE SUMMARY

Issue: Termination of arbitration for failure to communicate Statement of Claim (Article 23 as read with Article 25(A) of the Model Law-effect of arbitrator’s decision - whether arbitrator’s decision can be set aside in terms of Article 34.

This is a short commentary on the below judgment by the Harare High court, Zimbabwe after it held that an arbitrator’s decision terminating an arbitration for failure to communicate a statement of claim(article 23 as read with article 25(a)of the Model Law could be set aside in terms of article 34 of the Model Law.         

CASE: REGAL INSURANCE COMPANY (PRIVATE) LTD versus ZIMBABWE POSTS (PRIVATE) LTD HH 28/22(HARARE HIGH COURT)      

This is a short commentary on a judgment by the Harare High court, Zimbabwe after it held that an arbitrator’s decision terminating an arbitration for failure to communicate a statement of claim(article 23 as read with article 25(a)of the Model Law could be set aside in terms of article 34 of the Model Law.        

THE FACTUAL MATRIX

On the 28th April 2016 the applicant and the respondent entered into a commercial agreement in terms of which the applicant would pay the respondent commission in respect of insurance sales at the respondent’s rented counters. Clause 15 of the agreement provided for the resolution of disputes by way of arbitration. A dispute arose between the parties. In 2018 the parties approached an arbitrator for the resolution of the dispute. The arbitrator convened a preliminary meeting at which the parties agreed on the time frames for the filing of pleadings. It was inter alia agreed that the applicant would file its statement of claim by the 13th July 2018.No statement of claim was filed by the applicant. No explanation for this failure was given by the applicant. Following the failure by the applicant to abide by the agreed arbitration road map and in the absence of any explanation, the respondent asked the arbitrator to terminate the proceedings in terms of article 25 of the Model Law which is attached as a schedule to the Arbitration Act (Chapter 7:15).On the 20th September 2018 the arbitrator without affording the applicant an opportunity to explain its default, acceded to the respondent’s request and went on to terminate the proceedings.

THE APPLICATION

Aggrieved by the arbitrator’s aforesaid award, the applicant filed a court application with the High court. The applicant described the application as one in terms of rule 230 of the High court rules as read with section 14 of the High court Act and article 34 subsection (2)(a)(ii), (iii) and subsection (2)(b)(ii) of the Arbitration Act for an order setting aside the arbitral award issued by the arbitral tribunal and directing that the parties be duly afforded the right to have their dispute resolved by a competent arbitrator.

THE RELIEF SOUGHT

The applicant sought an order in the following terms:

IT IS HEREBY ORDERED THAT:

1. The arbitral award by the Honourable Mutangadura dated 20 September 2018 did not delve into agreed terms of reference and consequently was not a final award.

2. Applicant be and is hereby entitled to refer the dispute to another arbitrator for resolution.

3 Each party to bear its own costs.

THE APPLICANT’S CASE

The applicant contended that it failed to abide by the agreed arbitration road map because its legal practitioners renounced agency. It learnt of the award terminating the arbitration proceedings on 20 September 2018.The arbitrator breached the audi alteram partem rule in that she proceeded to terminate the arbitration proceedings without affording the applicant an opportunity to be heard on whether or not it had sufficient cause for its failure to file the statement of claim. The dispute was not determined. It was against public policy to leave the dispute unresolved. The award is not a final award because it does not delve into the agreed terms of reference.

THE RESPONDENT’S CASE

It was the respondent’s case that the applicant neglected the agreed arbitration process in that it did not file a statement of claim. In the absence of an explanation from the applicant, the arbitrator was entitled to terminate the proceedings in terms of article 25. The applicant should have proceeded in terms of article 34 of the Model law.

THE JUDGMENT

The court identified three issues for determination, namely:

(a) Whether or not the arbitration was properly terminated?

(b) As a matter of procedure is article 34 applicable?

(c) The effect of the termination on the rights of the parties.

On the first issue the court held that the audi alteram partem rule connotes that both parties must be heard. Only the respondent was heard before the proceedings were terminated. Article 25 of the Model Law uses the words “without showing sufficient cause”. One cannot be expected to show sufficient cause unless one is afforded the opportunity to do so. Failure to file a statement of claim, on its own, is no proof that one has no sufficient cause. It was even more demanding for the arbitrator to hear the applicant before the proceedings were terminated because the respondent requested the arbitral tribunal to terminate the proceedings. The arbitration was not properly terminated.

On the second issue the court stated that, “whether one calls an award “final” (because it determines terms of reference) or “not final” (because it did not delve into agreed terms of reference) to me, the overall effect is the same in that the arbitration proceedings have been terminated. The court held that a proper case to set aside the award had been made out under article 34 save the relief sought cannot be a declarator.

Vis-à-vis the third issue, the court held that,” Reinstitution of proceedings terminated through article 25(a) as read with article 32 is not allowed as long as the award is extant”.

DISPOSITION

1.The arbitral award by the Honourable Mutangadura dated 20 September 2018 terminating the arbitration proceedings in terms of article 25(a) of the Arbitration Act (Chapter 7:15) be and is hereby set aside

2.The applicant be and is hereby entitled to refer the dispute to another arbitrator of the parties’ choice or in the absence of such agreed choice one who is appointed by the chairperson of the Commercial Arbitration Centre.

3. Each party to bear its costs.

AN ANALYSIS OF THE JUDGMENT

Was the arbitration properly terminated?

Article 25(a) of the Model Law provides that:

Unless otherwise agreed by the parties, if, without showing sufficient cause-

(a)   The claimant fails to communicate his statement of claim in accordance with article 23(1), the arbitral tribunal shall terminate the proceedings.

The communication of a statement of claim is mandatory. Where a claimant fails to file a statement  of claim such failure triggers a duty on the arbitral tribunal to issue an order asking the claimant “ to show cause as to why he failed to submit his claim within the time”[1]established or in accordance with article 23(1).Whilst the court  correctly held that the arbitration was not properly terminated, it is submitted that what made the termination improper was the arbitrator’s failure to comply with article 25(a) in that she did not issue an order asking the claimant to show cause why it failed to file its claim. The termination of arbitration pursuant to a failure to file a statement of claim should only be undertaken where the failure to file the statement of claim was without sufficient cause.[2]

Was article 34 applicable in this matter?

In dealing with this issue the court stated that:

“Whether one calls an award “final” (because it determines terms of reference) or “not the overall effect is the same in that arbitration proceedings have been terminated.

It is submitted that when asked to intervene in arbitration proceedings, a court should bear in mind that:

In matters governed by this Model law, no court shall intervene except where so provided in this Model Law.[3]

Article 5 of the Model Law sets the limits of judicial involvement in arbitration. It is a mandatory provision of the Model Law which helps ensure the efficacy of the arbitral process as a dispute resolution mechanism.

When interpreting the Arbitration Act, courts should be guided by section 2(3)of the Act which provides that:

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

An order to terminate arbitral proceedings is not subject to set-aside proceedings, as is otherwise the case with an arbitral award to the same effect. This is also true in respect of termination under article 25(a) of the Model Law.[4] An arbitration award as envisaged in terms of article 34 must meet one or more of the following criteria:[5]

(a)it must be a final award

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

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

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

(e) finally determines any question of substance or competence

(f) or of procedure

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

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

A final award brings the parties dispute conclusively to an end.[6]

Not all decisions of the arbitrator are awards that enjoin the court to set them aside[7]. An arbitral award is one which finally decides an issue between the parties,[8] whereas procedural orders are those which are made during the arbitration proceedings in order to manage the arbitration– and as such do not have the status of awards.[9] On this distinction, Gary Born in his treatise on international commercial arbitration notes that “[a]n award must set forth the arbitrators’ resolution of a substantive issue in the arbitration. Purely procedural, logistical, or administrative decisions are not awards within the meaning of international arbitration conventions or national legislations.”[10]

The question of whether the arbitral tribunal decision to terminate proceedings on the basis of the claimant’s failure to file the statement of claim amounts to a final award was deliberated upon in an Indian case[11]. The court in that matter was of the view that the decision to terminate the proceedings on the basis of the default  of a party for non-compliance with section 23 of the Act (article 23 of the Model Law)-under section 25 (article 25 of the Model Law)-was more of an order rather than a final award within the meaning of section 32 of the Act which replicates article 32 of the Model Law .In that context, the Indian court opined that an order of termination under section 25 of the Arbitration and Conciliation Act(article 25 of the Model Law)due to failure to file the statement of claim could not entitle  the claimant to benefit from  the setting aside of the award under section 34 of the Act which replicates article 34 of the Model Law. The High court of Singapore in PT Pukuafu Indah and Ors v Newmont Indonesia Ltd and Anor[12]rejected an application to set aside an order made by an arbitral tribunal noting that the categorization of a determination of the tribunal as an “award” has legal consequences, including the jurisdiction of the Singapore courts to set aside the award which is not extended to orders made by the arbitral tribunal.

The arbitrator’s decision terminating the arbitration was not a final award. It was not even an arbitral award. It was an order. Article 32(2) of the Model Law empowers an arbitral tribunal to issue an order terminating arbitral proceedings. The arbitrator’s order could not be set aside in terms of article 34 of the Model Law. The court erred when it said that “A proper case to set aside the award has been made under art 34---” and went on to grant relief which the applicant had not sought.

What was the effect of the termination of the arbitration on the rights of the parties?

Termination of arbitral proceedings pursuant to a claimant’s failure to file a statement of claim does not render the mandate of the arbitral tribunal functus officio. A claimant has a right to be heard by the tribunal after the termination of the proceedings, in order to demonstrate that the quashing was erroneous, or that the proceedings should be recalled on the basis of the existence of a sufficient cause that contributed to his failure to file the statement of claim.[13]The Indian Court in M/S SK and Associates explained that there is a possibility that the claimant could institute the claim afresh in case it was still within the period of limitation of time[14].It is respectfully submitted that the court erred when it said that the reinstitution of proceedings terminated through article 25(a) as read with article 32 is not allowed as long as the award is extant.

It is submitted that the judgment in this matter can be criticized for:

(1)   Allowing the challenge proceedings under article 34 of the Model Law, when no such proceedings are maintainable against an order passed under article 25(a); and

(2)   Holding that reinstitution of proceedings terminated   through article 25(a) as read with article 32 is not allowed as long as the award is extant, which:

(a)   confuses the effects of a procedural order with those of an arbitral award; and

(b)   incorrectly concluded that the applicant was barred from pursuing the proceedings   either by:

(i) approaching the same arbitral tribunal to show that   the applicant had sufficient cause for its default of not filing its statement of claim in time (assuming, following the Indian courts position, that a tribunal is not functus officio after issuing a termination order under article 25(a); or 

(ii) before a new tribunal.

____________________________________________

[1]Srei Infrastructure Finance Ltd v Tuff Drilling Private Ltd, Supreme Court of India, Civil Appellate Jurisdiction, Civil Appeal No 15036/2017,judgment(20 September 2017)(n81),19

[2]Bharat Heavy Electricals Ltd v M/S Jyothi Turbopower Services Pvt. Ltd  and others, High court of Judicature at Madras, delivered on 7 June 2016,para 25

[3] Article 5 of the Model Law

[4] Ilias Bantekas-Termination of Proceedings-UNCITRAL Model Law on International Commercial Arbitration, a commentary-page 838

[5]Zimbabwe Electricity Transmission and Distribution Company(Pvt)Ltd v Tendai Cletos Masawi T/A Masawi and Partners and Retired Justice Mtshiya NO HH 404/20 pages 6-7

[6] Davison Kanokanga, Commercial Arbitration In Zimbabwe, Juta (Pty) Ltd  2020,page 163 para 8.5.7

[7] Ibid ,page 7

[8] Russell on Arbitration, (24th Ed, 2015): “In principle an award is a final determination of a particular issue or claims in the arbitration. It may be contrasted with orders and directions of the tribunal which address the procedural mechanism to be adopted in the reference.” (para. 6-002); See also, Redfern and Hunter on International Arbitration (6th Ed., 2015) (para. 9.10);

[9] Russell on Arbitration, (24th Ed, 2015): “In principle an award is a final determination of a particular issue or claims in the arbitration. It may be contrasted with orders and directions of the tribunal which address the procedural mechanism to be adopted in the reference.” (para. 6-002); See also, Redfern and Hunter on International Arbitration (6th Ed., 2015) (para. 9.10);

10.G. Born, International Commercial Arbitration, (3rd Ed, 2021), p. 3172. 

[11]M/S Anuptech Equipments Private v M/S Ganpati Co-op Housing, AIR 1999 Bom 219,para 11

[12] [2012]SGHC 187

[13]Bharat Heavy Electricals supra

[14]M/S SK and Associates and Another v Indian Farmers and Fertilizers Cooperative  Ltd ,Phoolpur, Allahabad and Another, High Court of Judicature at Allahabad, Civil Miscellaneous Arbitration Petition No73  of 2009,paras 19-20

Abstract

The Protocol on Rules and Procedures on the Settlement of Disputes is one of the three Protocols that have been finalized under the Agreement Establishing the Africa Continental Free Trade Area. The Protocol shall administer the settlement of disputes between State Parties where the disputes arise from the provisions of the AfCFTA Agreement. In so doing, the Protocol provides for three avenues for the resolution of disputes between State Parties: panel and appellate body proceedings overseen by the Dispute Settlement Body, good offices conciliation and mediation, and arbitration. This article discusses the three scenarios in which arbitration arises in the AfCFTA framework as a means of dispute settlement. The three scenarios include: (i) the use of arbitration as a form of dispute adjudication, (ii) arbitration to determine a reasonable time period for implementation of panel decisions, and (iii) arbitration as a means of determining proportionality of the suspension of concessions.

Introduction

The Article 20 of the Agreement Establishing the Africa Continental Free Trade Area (AfCFTA Agreement) establishes a Dispute Settlement Mechanism (the DSM) that will be administered in accordance with the Protocol on Rules and Procedures on the Settlement of Disputes (the Protocol). The Protocol entered into force on 20 May 2019, together with the AfCFTA Agreement, the Protocol on Trade in Goods, and the Protocol on Trade in Services. Notably, the wording of the Protocol borrows heavily from the World Trade Organisation (WTO) Dispute Settlement Understanding.

The DSM is central to providing security and predictability to the African regional trading system.It is limited to disputes between State Parties to the AfCFTA Agreement (State Parties) concerning rights and obligations emanating from the provisions of the AfCFTA Agreement. It is important to note that the AfCFTA Agreement is a single undertaking; therefore, the definition of ‘Agreement’ is construed to include the AfCFTA Agreement, its protocols, its annexes, and its appendices. The significance of this construction is that disputes can arise from an impairment or nullification of the rights and obligations captured in any of these instruments and not just the AfCFTA Agreement. In this way, the DSM aims to preserve the rights and obligations of the State Parties under the AfCFTA Agreement, its protocols, its annexes, and its appendices.

The DSM provides for three avenues for the resolution of disputes between State Parties: (i) the panels and appellate body established and overseen by the Dispute Settlement Body (the DSB) (the Panels and Appellate Body, respectively), (ii) good offices conciliation and mediation, and (iii) arbitration.

Arbitration as a form of dispute adjudication

The Protocol envisages the use of arbitration to adjudicate disputes, determine a reasonable time period for implementation of panel rulings and recommendations, and determine whether the level of suspension of concessions is commensurate with the nullification and impairment caused, respectively. Additionally, the Protocol sets out arbitration as an alternative to dispute resolution proceedings by the Panels and the Appellate Body. Arbitration in this case requires the mutual consent of the State Parties involved in the dispute. This mutual consent differentiates arbitration from the Panel and Appellate Body proceedings which are compulsory once initiated. Furthermore, arbitration appears to be a more flexible form of dispute resolution under the DSM because the State Parties are allowed to select the procedures to be followed during the arbitration. Once State Parties have chosen to refer a dispute to arbitration, they are barred from resorting to the other avenues of dispute resolution.

The agreement to resort to arbitration must be notified to the DSB which comprises representatives of the State Parties. In this way, the notification will serve to inform all AfCFTA State Parties of the decision to arbitrate the dispute. The State Parties have autonomy throughout the arbitration process and third parties may only become party to the proceedings through the mutual agreement of the parties.

The Protocol requires that State Parties that are party to the arbitration abide by the resulting arbitral award. The award will be notified to the DSB for enforcement. Notably, the DSB is not required to approve the arbitral award for it to be effective. This differs from Panel proceedings whereby the recommendations and rulings of the Panels or Appellate Body which are contained in the Panel and Appellate Body reports must be approved by the DSB through adoption. It would also appear that there is no appeal against the arbitral award because appeals to the Appellate Body are restricted to issues of law covered in Panel reports and legal interpretations developed by the Panel. This scope excludes the arbitral awards which implies that these awards are final.

Arbitration to determine a reasonable time period for implementation of Panel rulings and recommendations

The Protocol appears to state that the arbitral award shall be enforced in the same manner as the recommendations and rulings issued by the Panels and Appellate Body. State Parties are required to promptly comply with these recommendations and rulings. The defaulting State Parties may seek an extension on the time required for implementation in cases where it is impracticable to comply immediately. The extension shall represent a reasonable time period to allow for compliance. Such a reasonable time period may be determined through mutual agreement of the parties to the dispute, through a time period proposed by the defaulting State Party that is approved by the DSB, or through binding arbitration within ninety (90) days after the date of adoption of the recommendations and ruling. The third option is the second time arbitration is provided for in the DSM.

Arbitration to determine whether the level of suspension of concessions is commensurate with the nullification and impairment

The Protocol sets out the measures to be taken when a State Party fails to comply with the rulings and recommendations either immediately or within the reasonable period granted when immediate compliance is impracticable. Additionally, the Protocol states that the above will apply to the enforcement of arbitral awards. Consequently, a State Party that fails to comply may provide voluntary compensation to the aggrieved State Party or the aggrieved State Party may seek consent from the DSB to suspend concessions or other obligations towards the defaulting State Party. These measures envisaged are temporary remedies until the defaulting State Party complies with the rulings and recommendations.

A key condition for initiating the suspension of concessions is that the suspension should be commensurate to the negative effects of the nullification or impairment caused by the defaulting State Party. Where a State Party is aggrieved by the level of suspension, it may refer the matter to arbitration. The arbitration proceedings will be limited to determining whether the level of such suspension is equivalent to the level of nullification or impairment. This is the third scenario in which arbitration may be used in the DSM.

Conclusion

The DSM foresees the use of arbitration in three different scenarios: to adjudicate disputes between State Parties, to determine a reasonable time period for implementation of Panel rulings and recommendations, and to determine whether the level of suspension of concessions is commensurate with the nullification and impairment caused. These three uses are interrelated. The result is that arbitral awards issued from arbitral proceedings arising from the mutual agreement of State Parties shall be enforced in a manner similar to the rulings and recommendations of the Panels and the Appellate Body. 

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* Luisa H. Cetina, Director, ALN Kenya | Anjarwalla & Khanna; Kelly Nyaga, Trainee Lawyer, ALN Kenya | Anjarwalla & Khanna; and Jade Makory, Associate, ALN Kenya | Anjarwalla &  Khanna

Zimbabwe now has three arbitral institutions:  

1. The first one is the Commercial Arbitration Centre-Harare (CAC), founded in 1995 by Muchadeyi Ashton Masunda and Ian Donovan. 
2. The second one is the Africa Institute of Mediation and Arbitration (AIMA) which was established by Mr Justice Moses Chinhengo (retired) in 2013.
3. The latest one is the Alternative Dispute Solutions Centre (“The Centre”) (www.adscentre.net) which was established in 2020 by Davison Kanokanga (Zimbabwe) Aaron Peron Ogletree (USA) and Arnold Z Chikazhe (Zimbabwe). 

Why a new institution? 

1. Arbitration in Zimbabwe is fast gaining momentum due to its advantages over litigation, and so the Centre complements the work being done by the other arbitral institutions.
2. No training of ADR practitioners has been taking place in Zimbabwe. Both the CAC and AIMA do not provide training, and so the Centre was established to fill in the aforesaid void. The Centre provides training for current and prospective ADR practitioners in and outside Zimbabwe.
3. A survey recently conducted by the Law Society of Zimbabwe amongst lawyers revealed a massive need for arbitration training. The results of the aforesaid survey led to a collaborative arrangement between the Law Society of Zimbabwe and The Centre for the provision of Alternative dispute resolution (ADR) training to lawyers. The first training is scheduled for November 2021.
4. The Centre has access to the most eminent and experienced  evaluators, arbitrators, mediators and experts from many jurisdictions who resolve business and legal disputes in an efficient, cost-effective and impartial way. For example, for one to be on The Centre’s list of arbitrators, they must have received arbitration training. Both CAC and AIMA do not have this requirement.
5. Unlike The Centre, both CAC and AIMA are not membership-based organisations.
6. The Centre administers international arbitration and mediation, and acts as an impartial appointment and administering body for all forms of alternative dispute resolution, under the UNCITRAL Rules.
7. ADR mechanisms work best where a neutral, efficient, and credible organisation administers the process. Redfern and Hunter observed in 1995 that: [a]n established and well-organised arbitral institution can do much to ensure the smooth progress of an international arbitration even if the parties themselves- or their legal advisers- have little or no practical experience in the field (A. Redfern & M. Hunter, Law and Practice of International Commercial Arbitration 155 (2nd ed., London: Sweet & Maxwell, 1991). Arbitral institutions act as gatekeepers in the arbitral process. With three arbitral institutions to choose from, parties and ADR practitioners are spoilt for choice. 

What to look for in arbitral institutions? 

1. The institution named in the arbitration clause should be genuine, credible, and efficient;
2. The institution should have some permanency or a reasonable guarantee of permanency.  Otherwise, the arbitration clause may prove to be inoperative or incapable of being performed;
3. An arbitral institution should have staff that is conversant with arbitral proceedings;
4. Regard should be had to the role the institution plays in the arbitral process. For example, does it have a hands-on approach to the conduct of arbitrations, or does it leave matters to the arbitral tribunals it appoints whilst keeping an eye on the arbitral process?
5. The services offered by the institution; and
6. What it charges for its services as the charges have a bearing on the total cost of the arbitration. Disputants prefer institutions whose charges are reasonable.

The Centre’s contact details are:

Suite 1 Mizrahi House,33 Robson Manyika Avenue,Harare,Zimbabwe

Telephone:  +263(0)786851768

Email: info@adscentre.net

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* Partner, Kanokanga & Partners Law firm, Harare, Zimbabwe

NB: This article was first published by Thomson Reuters, trading as Sweet & Maxwell, 5 Canada Square, Canary Wharf, London, E14 SAQ, in the International Business Law Journal (IBLJ) 4/2021 and is reproduced by agreement with the publishers. 

INTRODUCTION

Sub-Saharan Africa, including East Africa, is experiencing a rapid growth in population. At the same time, the region suffers from an enormous infrastructure deficit when compared to other parts of the world: quality infrastructure is lacking on many levels, especially for transport, energy production, real estate and communications. This deficit has been recognised as a major obstacle to faster and more stable economic growth, productivity and job creation in Sub-Saharan African economies. For a number of years, therefore, various infrastructure projects have been undertaken throughout the Continent. In light of the existing backlog, this is only the beginning of a long-term development process to create a competitive business environment, promote trade and unleash Africa’s huge productive potential.

Many East African countries have ambitious infrastructure agendas, reaching from the construction of new ports and airports to modern road and railway networks and hydroelectric dams. The major challenge these countries are facing is financing. Several foreign States (especially China, Russia, the US and certain European countries) have seized the investment opportunities and are competing to provide financial aid—often not entirely disinterested, but with a (geo)-political agenda to gain access to resources and influence in emerging markets.

The growing number of complex infrastructure projects across the region, some of which are mentioned in this article, inevitably leads to a growing number of construction disputes. This article describes the landscape regarding major infrastructure projects in East Africa, including the impact of China’s Belt and Road Initiative. It examines how disputes related to such projects are being resolved today and provides a brief overview of the East African arbitration landscape. The article seeks to identify certain trends for the future, including the impact of the COVID-19 pandemic and digitalisation, and closes with an outlook into the future.

INFRASTRUCTURE DEVELOPMENT IN EAST AFRICA

Taking stock of the infrastructure development

East African States have upped the ante on infrastructure development. This is evident not only from regional and national policy documents such as the East African Community Vision 2050, the Tanzania Development Vision 2025 and Kenya’s Vision 2030, all of which prioritise infrastructure development as a core pillar of economic growth, but also from the number of ongoing projects. As of June 2019, there were at least 182 infrastructure projects with a value of USD 50 million and above that had commenced in East Africa. Collectively, these projects were valued at USD 146 billion and accounted for more than a third of the Continent’s infrastructure projects.

However, in what has been termed as “Africa’s Infrastructure Paradox”, the Continent’s track-record in moving projects to financial closure has been poor despite international investors having both the appetite and funds to spend on infrastructure projects in Africa. As of 2020, there were only 46 ongoing projects on the Continent with a value between USD 500 million and 1 billion; the vast majority of projects ranged between USD 50–100 million. This has been attributed to difficulties in structuring, financing, and delivering projects. Several projects fail at the feasibility and business plan stage owing to the insufficient technical capabilities and financial resources being dedicated to design and implement infrastructure projects with commercial potential. Other issues that may lead to failure include short political cycles, which challenge commitments to long-term infrastructure projects, delays in obtaining licences, approvals and permits as well as the inability to obtain guarantees.

Nonetheless, East African States have succeeded in securing funding commitments and increased budgetary allocations for infrastructure projects. In 2018, East Africa reported funding commitments of USD 14.2 billion with state spending ranging between USD 5.6–8.4 billion. While most projects are funded and owned by national governments as facilitators of infrastructure development, China has emerged as the single largest financier of infrastructure projects, surpassing private domestic firms and international development finance institutions. In 2020 alone, China funded 13.6 per cent of East Africa’s infrastructure projects, not counting international consortia. China is also involved in the construction with at least 50 per cent of the projects, primarily in the transportation sector, being built by Chinese firms. This is part of China’s African policy as well as its Belt and Road Initiative (BRI), which is further discussed below.

Despite the increase in financing from China, Africa’s infrastructure finance gap is still very significant. It is estimated that between USD 67.6 billion and USD 107.5 billion is needed annually to alleviate Africa’s current infrastructure deficit. An increasing number of EastAfricanStatesare turning to Public-Private Partnerships (PPPs) in order to finance this gap.

Notable infrastructure projects

Several mega infrastructure projects are underway in East Africa as part of a concerted effort by States to lower the cost of business, attract foreign investment and facilitate economic growth in the region. The transport and energy sectors account for the largest number of projects in the region. 

East African States are investing heavily in modern port, airport, rail and road infrastructure to cater for the increased number of passengers and cargo volumes, while facilitating trade and boosting regional integration. Ports have attracted the most valuable projects in this sector, led by the USD 10 billion Bagamoyo Mega Port in Tanzania, which is set to become Africa’s largest port on the East African coast upon completion, superseding the Kenyan port of Mombasa. The project, which is jointly financed by Oman and China, will include 65 kilometres of railway connecting the port with the Tanzania-Zambia railway. It has however experienced delays after Tanzania’s government demanded the renegotiation of the project contracts.

Kenya is constructing a 32-berth port in Lamu to reduce congestion at the port of Mombasa. The port is part of the USD 25 billion Lamu Port and Lamu–South Sudan–Ethiopia Transport Corridor (LAPSSET), East Africa’s largest integrated infrastructure project that aims to connect countries in the region, including through intraregional highways, railway lines and airports. Djibouti has also built the Doraleh Multipurpose Port for USD 590 million. The port, which came into use in 2015, has been at the centre of a dispute concerning its management.

Railway projects have also drawn a significant amount of investment across the region, the most prominent of which is the construction of the first phase of a standard gauge railway from the port of Mombasa to Nairobi at a cost of USD 3.6 billion. This railway, along with the USD 4 billion Addis Ababa–Djibouti Railway, are being financed using loans from the Exim Bank of China as part of the BRI. The second phase of the railway from Nairobi to the Kenya–Uganda border is facing some obstacles after China decided to withhold USD 4.9 billion needed to complete the project. Tanzania, on the other hand, opted not to rely on Chinese funding for its USD 7.5 billion standard gauge railway system, which will link the country to its landlocked neighbours Rwanda and Uganda; this project has been financed through budgetary allocations and a syndicated loan from a development finance institution.

Spurred on by the discovery of oil and gas deposits in the region, the energy and power sector accounts for the second highest number of projects in East Africa. Tanzania’s USD 30 billion Likong’o–Mchinga Liquefied Natural Gas Project (LMLNGP) is the most valuable energy infrastructure project in the region. The project, which will be undertaken by a consortium of companies in conjunction with the Tanzania Petroleum Development Corporation (TPDC), a state-owned entity, is expected to commence in 2022. Similarly, Djibouti is building a USD 4 billion LNG plant to process and export natural gas from Ethiopia.

In Uganda, the construction of a USD 4.27 billionoil refinery is set to begin following the discovery of an estimated 1.7 billion recoverable barrels of oil in its Lake Albert basin in 2006. Uganda and Tanzania have also signed agreements with France’s Total and China’s CNNOC oil firms, paving the way for the construction of the 1,445 km East African Crude Oil Pipeline (EACOP) from Uganda to the port of Tanga in Tanzania. The project, which is valued at USD 3.5 billion, is touted to be the world’s longest heated pipeline. Several infrastructure projects have also been initiated in the renewable energy sector, including the USD 4.8 billion Grand Ethiopian Renaissance Dam (GERD) project that is expected to produce at least 5,000 MW making it the largest hydro-power project on the Continent, and the construction of a 30 MW solar energy plant in the Grand Bara desert in Djibouti by the French energy group Engie.

The array of mega infrastructure projects in East Africa, some of which are mentioned above, demonstrates a shift towards infrastructure that aims to spur intra-Africa trade. Furthermore, the alignment through regional projects allows the East African economies—particularly the smaller ones—to participate in collective bargaining, making it easier for them to secure funding for infrastructure projects.

While the above overview is by no means intended to be exhaustive, it presents some of East Africa’s most notable infrastructure projects while at the same time demonstrating the financing challenges that are encountered and the increasing prominence of China in the region’s infrastructure development.

China’s Belt and Road Initiative in the East African context

China’s direct investment into African infrastructure projects is nothing new. In the last two decades, it exceeded a cumulated USD 200 billion and peaked at USD 5.5 billion in 2008 alone. That amount of investment has resulted in hundreds of African projects being funded with Chinese capital to date.

The BRI launched by the Chinese government in 2013, originally contemplated only a few African stops. In theory, the only parts of the Continent intended to be concerned with the BRI were the Horn of Africa and the Suez Canal area in Egypt as these territories were to be included in the maritime road aspect of the BRI, and investments were to be focused mainly on port infrastructure.

Seven years into the initiative, however, a significant number of African projects have been tagged as BRI projects, despite not being in close proximity to the original stops. Further, although officially there are only ten African countries involved in the BRI (Angola, Chad, Djibouti, Egypt, Ethiopia, Kenya, Nigeria, Sudan, Uganda and Zimbabwe), several BRI projects either are located, or connected, to countries outside of this official list—the rationale being that the BRI is an adaptable and multidimensional effort that can incorporate projects on an ad hoc basis, as long as they broadly relate to connectivity aspects, which form a key part of the BRI’s underlying motives, and are officially announced as BRI projects by the Chinese authorities.

In 2018, loan and investment commitments of USD 60 billion were announced, with a significant portion geared towards addressing Africa’s infrastructure deficit. As is well documented, and sometimes considered as controversial, these loans are made on a State-to-State basis and/or are resource-backed.

As one of the original stops in the African arm of the BRI, Egypt has so far been one of the biggest recipients of BRI investment. Over 100 Egyptian projects have been financed through BRI funds amounting to just under USD 100 billion. The most significant among these projects is the construction and development of the Suez Canal Economic Zone (SCZone), a free trade zone aimed at facilitating economic and trade cooperation between China and Egypt. This project covers a 461 km2 area and plans to house over 150 Chinese companies of all sectors, for a total investment of over USD 2 billion. Egypt is also home to a second pharaonic BRI project, namely the construction of the country’s new administrative capital city, Wedian, which will be located 45 km east of Cairo.

The development of economic and trade cooperation zones such as the SCZone has in fact been chosen as a key pillar of the BRI investment strategy in Africa. Apart from Egypt, these types of infrastructure have notably been developed in Zambia (Zambia–China Economic & Trade Cooperation Zone), in Nigeria (Lagos Free Zone) and in Ethiopia (Oriental Industrial Park).

At the Horn of Africa, one of the original stops of the BRI in Africa, Djibouti in particular has been a main target of BRI investment. The Doraleh Multipurpose Port has received significant BRI investment with the objective of enlarging its capacities. As discussed further below, these efforts have resulted in major disputes, notably in relation to the decision by the Djibouti authorities to rescind the original operation concession, held by non-Chinese operators, to then allocate it to different operators from China. Additionally, Kenya has also seen significant projects financed and constructed under the BRI label, such as the Mombasa–Nairobi Standard Gauge Railway.

In terms of sectors targeted by African BRI efforts, in addition to the general transport infrastructure (especially maritime and rail), natural resources (with a particular emphasis on mining) and the construction sectors have been key investment recipients.

DISPUTE RESOLUTION PRACTICE

Insights into infrastructure-related disputes in East Africa

Sophisticated operators involved in East African infrastructure projects are also well versed in dispute resolution. International contracts entered into in relation to such projects typically contain dispute resolution mechanisms aimed at ensuring the efficient and quick resolution of disputes to mitigate adverse consequences for the underlying projects, such as a temporary or permanent suspension of the works. In this respect, experience shows that international infrastructure contracts often include multi-tier dispute resolution clauses, blending negotiation, adjudication, expert determination, mediation and arbitration.

A review of the most publicised disputes arising from infrastructure projects in East Africa helps shed light on the specifics of the dispute resolution mechanisms used in the relevant contracts, in particular with regard to the arbitration rules used and the different steps involved in the resolution of these disputes.

One of the most well-known disputes in the region in recent years is the one between DP World and Djibouti in relation to the Doraleh Port. In 2006, DP World, an entity owned by the Government of Dubai, was awarded a 50-year concession to build and operate the Doraleh terminal in Djibouti. In 2014, Djibouti, having failed to persuade DP World to renegotiate the concession terms, unilaterally terminated the agreement and seized control of the terminal. In the meantime, Djibouti had signed an agreement with a subsidiary of Chinese state-owned port operator, China Merchants Group, to build the Djibouti Multipurpose Port, an extension to the site located near a new Chinese military base. 

These circumstances gave rise to two arbitration proceedings under the auspices of the London Court of International Arbitration (LCIA). First, in 2014, Djibouti lodged an arbitration claim against DP World, arguing that the rescission of the concession contract by the Djibouti government was valid as the contract had been procured through corruption. This claim was dismissed by an LCIA tribunal in 2017. In parallel, in 2014, DP World lodged a counterclaim against Djibouti for damages resulting from the State’s breach of the exclusivity clause in the concession contract when it entered into an agreement with China Merchants Group. This damages claim was upheld by the arbitral tribunal and Djibouti was ordered to pay USD 485 million to DP World as compensation. In 2018, DP World launched a further claim against Djibouti in relation to the seizure by the government of parts of the container terminals at the Doraleh Port subsequent to the rescission of the concession. This claim was heard by an LCIA sole arbitrator who held in 2020 that the seizure was unlawful given that it was based upon the invalid rescission of the concession. The sole arbitrator ordered the State to return the seized assets, or alternatively, to pay damages that had been quantified in excess of USD 1 billion.

Contractual disputes such as the one involving DP World are not the only type of disputes brought before arbitration tribunals in relation to East African infrastructure projects. Disputes between foreign investors and States initiated on the basis of international investment treaties (mostly bilateral investment treaties or BITs) have also emerged in the East African context, partly as a result of governmental efforts to assert greater control over natural resources located on a country’s territory, which runs counter to the interests of foreign investors (resource nationalism). For instance, in June 2018, two US companies (Bay View Group and Spalena Company) launched a claim for over USD 95 million against Rwanda over the cancellation of mining concessions. That claim is based on the 2008 US–Rwanda BIT, and is administered by the International Centre for Settlement of Investment Disputes (ICSID). As part of a privatisation program launched in 2005, the claiming investors entered into preliminary agreements (“acquisition contracts”) with the Rwandan government, which would then be turned into long-term contracts necessary for the implementation of their mining project. They invested more than USD 30 million on a new processing plant, upgrading processing and transport lines and establishing a medical clinic. When the State rejected the claimants’ application for long-term concession contracts in 2016, the State took control of the mining operations and seized the investments. As a result, the claimants argue that the State breached its obligations under the US-Rwanda BIT.

The above brief overview shows that the dispute resolution mechanisms in relation to East African projects can be of a contractual nature and treaty based. For commercial disputes, parties have typically agreed to resort to established institutional arbitration institutions such as the ICC and the LCIA, leading to efficient enforcement of contractual rights despite tense and complex factual situations.

A further element worth mentioning relates to potential disputes involving State lending agreements. In relation to the BRI in particular, China, through the Asian Infrastructure Investment Bank (AIIB) or the China EXIM Bank, has loaned significant amounts to African States in order to finance BRI infrastructure projects in these States. While the geopolitical interpretation of these mechanisms is not the topic of this article and the terms of these agreements have not been disclosed to the public, resolution of disputes in connection with these agreements will include specially created arbitration courts and State-to-State mechanisms, in conjunction with traditional diplomatic negotiations.

Whether the latter mechanisms would include alternative dispute resolution tools such as mediation and arbitration remains to be seen. One such mechanism is the China–Africa Joint Arbitration Centre (CAJAC) with offices in Shanghai and Johannesburg. The CAJAC was set up to provide a platform for resolving commercial disputes between Chinese and African parties, aiming to make parties from both sides feel comfortable when selecting the arbitral institution. It is structured to make use of existing arbitral institutions and has entered into partnerships with the Nairobi International Arbitration Centre (NCIA), the Arbitration Foundation of Southern Africa (AFSA), the Shanghai International Arbitration Centre (SHIAC), the Beijing International Arbitration Centre (BIAC), the Shenzhen Court of International Arbitration (SCIA), and the Organization for the Harmonization of Business Law in Africa (OHADA).

Applicable law in construction contracts

Unlike OHADA, which seeks to modernize and harmonize business laws of its member States, there is no common legal framework governing contractual relationships in East Africa. Each State has its own national law that would be applicable depending on the choice of law in the contract. Accordingly, the interpretation and effect given to the terms of a contract will depend on the national law governing the construction contract. The parties’ choice of law is influenced by various factors including their nationality, familiarity with the applicable law, the certainty offered by the law with respect to key aspects of the contract, the place of performance of the project as well as the jurisdiction and forum the parties have selected for dispute resolution. Most African infrastructure projects are contracted under local laws where the employer entity is the State or a state-owned entity, which will seek to make the choice of its own law mandatory.

The choice of law may also be affected by the decision of the project financiers. Contracts involving international finance institutions are often governed by the law of jurisdictions with an established body of law applicable to financing. Lenders often have a clear preference for English and New York Law as opposed to the local law at the location of the infrastructure project, not only because of its “neutrality” but also because it is felt that these legal systems are better equipped to deal with disputes concerning sophisticated project structures and documentation.

Some Development Finance Institutions (DFIs), including the African Development Bank (AfDB), provide that public international law shall be applicable to project finance agreements.

Unlike transactions financed by traditional DFIs, the terms of engagement in contracts financed by China are not clear owing to confidentiality provisions.

The regulatory environment for infrastructure projects is becoming increasingly complex with anti-corruption and bribery legislation emerging in many jurisdictions. In addition to the various anti-corruption regulations existing in East African States, some jurisdictions such as the UK and the US have enacted anti-bribery legislations which have extra-territorial application. Through such laws, investors face scrutiny at home and in the jurisdiction of the investment. Further, where the project is financed by DFIs, there is an additional level of scrutiny.

Overview of the East African arbitration landscape

The growing attractiveness of arbitration as a means of settling commercial and investment disputes in Africa has triggered new developments on various levels.

Importantly, it has led to increased legislative activity and the modernisation of arbitration laws in several countries, introducing overdue changes required by the local arbitration community by incorporating recent developments in arbitration practice. Rwanda passed its Arbitration and Conciliation Act in 2008, Kenya amended its 1995 Arbitration Act in 2009, and Mauritius updated its 2008 International Arbitration Act in 2013—in all three cases, the new acts are based on the UNCITRAL Model Law. In 2020, Tanzania enacted a new Arbitration Act, which is broadly modelled on the English Arbitration Act of 1996and provides a modern and comprehensive set of provisions enhancing clarity and efficiency in arbitration as against the earlier, antiquated act of 2002. The new law also provides for the establishment of the Tanzania Arbitration Centre to act as a regulator of arbitration in Tanzania and to keep a register of approved arbitrators in the country. Similar reforms will likely occur in other East African States whose arbitration laws have not kept pace with changing trends. Apart from responding to the needs of businesses, the legislative changes also serve to position the East African jurisdictions in the competition to emerge as the seat of choice for Africa-related international arbitrations. In early 2021, the African Arbitration Association (AfAA) helpfully introduced its “African Arbitration Atlas”, a free online resource intended to provide a comprehensive overview of the African arbitration legislation landscape.

While several East African States including Kenya, Mauritius, Rwanda, Tanzania and Uganda have for a number of years been contracting States to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), the cornerstone of the global international arbitration system, others have only joined in recent years. Those include Burundi in 2014, Angola in 2017, Sudan in 2018, the Seychelles and Ethiopia in 2020, and Malawi in 2021. Eritrea, Somalia and South Sudan have yet to adhere to the New York Convention. Overall, it has hence become easier to uphold international arbitration agreements and to enforce foreign arbitral awards in this part of the Continent—provided the local judiciary and lawyers alike are trained to adopt an arbitration-friendly approach when applying the New York Convention.

Another change in the dispute resolution landscape in Africa is the creation of new, and the further development of existing, arbitration institutions that provide modern alternative dispute resolution case administration services both domestically and internationally and adhere to accepted international standards of governance. East Africa features the Kigali International Arbitration Centre (KIAC), the Nairobi Centre for International Arbitration (NCIA), the Mauritius International Arbitration Centre (MIAC), the newly established Tanzania International Arbitration Centre (TIAC), and the International Centre for Arbitration and Mediation in Kampala, in Uganda (ICAMEK). The growing sophistication, reputation and caseload of these institutions, which are competing with other arbitral institutions on the Continent, will be crucial in establishing East Africa as a mature and safe place to arbitrate. It will not be long until these local institutions will supersede the non-African arbitration institutions that have for many years dominated the space of international arbitration in Africa, such as the ICC and the LCIA.

The development of a vibrant local arbitration community has yielded several arbitration associations that actively promote the nomination of arbitrators from African countries and provide training and knowledge transfer for African lawyers, in particular for the younger generation. These include the African Arbitration Association (AfAA), the Kenya Branch of the Chartered Institute of Arbitrators, and the Association of Young Arbitration Practitioners in Africa (AYA), which organises a yearly Africa Arbitration Academy for young practitioners. “The African Promise” aims to improve the profile and representation of African arbitrators, especially in arbitrations connected to Africa, a goal that is shared by AfAA’s Directory of African International Arbitrators (DAIA) and the group Racial Equality for Arbitration Lawyers (REAL). This account would be incomplete without mentioning I-Arb Africa, an Africa-focused international arbitration resource platform, and the annual East Africa International Arbitration Conference (EAIAC).

Last but not least, the construction industry and arbitration practitioners will be able to rely on the technical expertise of a growing body of local, sometimes internationally certified experts of African descent who can be appointed in arbitration proceedings. For instance, the Association of Consulting Engineers Tanzania (ACET), a member association of the International Federation of Consulting Engineers (FIDIC), maintains a list of national adjudicators in Tanzania.

TRENDS IN EAST AFRICAN CONSTRUCTION ARBITRATION

There is every indication that domestic and international disputes relating to construction projects in East Africa will increasingly be resolved through arbitration. Given the enactment of modern arbitration-related legislation, the proliferation of arbitral centres across the Continent, and the growing body of skilled local arbitration practitioners, the practice of arbitration in the region will reach fruition. Moreover, Africa-related disputes will increasingly be heard in Africa, before “Africa-focused” arbitration centres, rather than before international centres in distant cities abroad. This also applies to investment arbitration cases involving African States, which have been on the rise in recent years.

As in other regions of the world, the legal profession in Africa is adapting to new technologies entering the market. Law firms in particular are forced to change certain traditional ways of servicing their clients and to respond to their clients’ needs, making use of “legal tech” and competing with providers of new alternative legal solutions. The COVID-19 pandemic has acted as a catalyst for this transformation. Indeed, legal tech presents an opportunity for African legal markets to “leapfrog countries globally in its adoption of technology to improve legal services”. It is noteworthy, for instance, that the African Arbitration Academy was the first to develop, in April 2020, an innovative “Protocol on Virtual Hearings in Africa”, designed to take also into account the specific challenges and circumstances that may arise in relation to remote hearings in Africa. Naturally, the courts are often slower in embracing technological changes and will likely require more time to do the shift towards “remote justice”.

The construction sector will undergo a digital transformation with the adoption of modern technologies for the construction industry such as Building Information Modeling (BIM), a software used to create digital 3D representations of buildings and infrastructure to facilitate planning, designing, and construction. The new international standard ISO 19650, launched in January 2019, will likely pave the way to a more rapid digitisation. Furthermore, resorting to blockchain technology for construction contracts can help safeguard legal certainty and reduce the risk of misuse and corruption, which in turn could significantly enhance efficiency, productiveness and thus competitiveness—and promote foreign direct investment.

As on other continents, the construction industry in Sub-Saharan Africa has been heavily impacted by the COVID-19 pandemic, exacerbating financial difficulties, labor shortages, lack of construction material due to disruptions in the global supply chains, and project suspensions. As governments expand their spending on the health sector to combat the Coronavirus, less funding is available for infrastructure projects. The stalling of project financing in 2020 has been described to result in “an all-time low growth rate” for the construction sector inTanzania. As the pandemic endures, it remains to be seen how resilient the East African economies are. Existing financial difficulties may also result in parties to Africa-related disputes increasingly resorting to third party funding in arbitration proceedings.

Conclusion and Outlook

The multitude of infrastructure and construction projects and related investments throughout East Africa will inevitably lead to numerous disputes, especially where complex financial, operational and political risks materialise. In line with the “Africanisation” of dispute settlement and given the strategic importance of many of the infrastructure projects, disputes will no longer only be settled in traditional arbitral centres outside of the Continent, but increasingly in Sub-Saharan Africa itself. Many East African States are preparing the ground with domestic legislative reforms, capable arbitration institutions and a growing body of sophisticated local arbitration practitioners. The enormous potential can probably best be realised if all involved institutions and organisations take a collaborative approach to reaching this common goal.

Dispute resolution in general, and international arbitration in particular, has an important role to play in ensuring that disputes arising from infrastructure projects can be resolved efficiently and fairly—and thus contribute to successfully closing East Africa’s infrastructure gap and fostering economic growth in a sustainable way.

____________________________ 

* Partner, LALIVE, Geneva, Switzerland

** LL.M. International Dispute Settlement (MIDS) (Graduate Institute of International and Development Studies and the University of Geneva); Arbitration and International Disputes Lawyer; Advocate of the High Court of Kenya. The views expressed in this article are solely those of the authors.

*** Associate, LALIVE, Geneva, Switzerland

The Commercial and Tax Division of the High Court of Kenya (“Court”) has recently pronounced itself in the case of Kenya Medical Women’s Association v. Registered Trustees Gertrude’s Gardens; Paul Ngotho, Arbitrator (Interested Party)[2], regarding the termination of an Arbitrator’s mandate due to lack of impartiality and independence and exceeding the scope of his jurisdiction in his mandate.

 Significantly, the law was clarified, to a certain extent, in three key areas:

1. Whether the High Court’s appellate jurisdiction on an application challenging the mandate of an arbitrator should only be invoked after the said application, in the first instance, has been made before and determined by an arbitral tribunal pursuant to Section  13(3) and 14(2) and (3) of the Arbitration Act[3].

2. Whether an arbitrator’s recommendation for parties to engage in mediation or other ADR processes in an arbitration reference exceeds the scope of his jurisdiction under the Kenyan law.

3. Whether withholding of a ruling by an arbitrator at his own discretion for purposes of securing costs for arbitration is permissible under the Kenyan law.

Facts

On or about May 2012, the applicant, Kenya Medical Women Association (“KMWA/applicant'') and the respondent, Registered Trustees Gertrude’s Gardens (“Gertrude Gardens/respondent”), entered into a formal lease agreement.

A dispute regarding the payment of rent arrears arose between the parties. The applicant sought to have auctioneers auction the respondent’s property. The respondent sought an injunction to stop the injunction process and further sought to have the dispute referred to arbitration pursuant to Clause 3 (F) of the lease agreement.

The court referred the matter to arbitration and Mr. Paul Gathu Ngotho was appointed as arbitrator by the Institution of Surveyors of Kenya (ISK) in 2017 who were the designated appointing authority in the lease agreement between the parties.

The arbitration process commenced on 22nd June 2018 and the arbitrator issued Order for Directions No. 3 following a preliminary meeting held on 23rd May 2018. The Order for Directions No. 3, and particularly paragraph E, which was in contention, ordered that:

“The parties having attempted negotiations previously, are agreeable in principle to mediation, even though that is not a contractual requirement, in order to save time and costs. The parties may seek mediation independently or seek the Tribunal’s help in the appointment of a mediator. While mediation is voluntary, the Tribunal will consider a party’s refusal or failure to cooperative in the apportionment of costs regardless of the outcome in these proceedings”

It is  the above paragraph E in the Order for Directions No. 3 that led to the present contention as to whether: the directions for mediation were mandatory and within the jurisdiction of the arbitrator; the arbitrator’s statement of  “…party’s refusal or failure to cooperative in the apportionment of costs regardless of the outcome in these proceedings” meant that the Tribunal would make an unfavorable order for costs against any party refusing mediation, if so, whether this sanction was within his jurisdiction;  and there was justifiable doubt to the Arbitrator’s impartiality and independence, in the arbitration proceedings.

The applicant, aggrieved by Order for Directions No.3, filed an application to the tribunal for the recusal of the arbitrator. The tribunal required a further deposit of Kshs. 840,000 from the parties and Kshs. 140,000 from the applicant, and interest respectively for his services. The applicant, in protest of the demand, requested the tribunal to deliver the ruling on its application for recusal which the tribunal declined. The applicant contended that the tribunal thereafter withheld the writing of the interlocutory ruling conditional on payment of additional costs without legal justification (i.e., statutory provision, legal precedent or rules governing arbitration). The applicant argues that the imposition of costs overrode statutory objectives requiring affordable resolution of arbitration disputes.

The applicant then sought to invoke the principle of party autonomy to choose their preferred arbitrator, and have the court terminate Mr. Ngotho’s mandate in the arbitration.

In opposition to the applicant’s application, the respondent sought the court’s order that the tribunal’s direction in promoting alternative forms of dispute resolution mechanism, pursuant to Order for Directions no. 3 was in line with the guiding principle set out in Article 159 (1) (c) of the Constitution of Kenya 2010. Also, that the applicants had not advanced justifiable grounds for the disqualification and recusal of the arbitrator from presiding over the arbitral proceedings.

The Court’s Judgment

The Court dismissed the application with costs to the respondent.

The Court observed that, “…an application challenging the mandate of an arbitrator should, in the first instance, be made before a tribunal... before the same can be handled by the High Court in its appellate jurisdiction” pursuant to Section 13(3) and 14 (2) and (3) of the Arbitration Act[4] which reads as follows:

Section 13(3): -

(3) An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality and independence, or if he does not possess qualifications agreed to by the parties or if he is physically or mentally incapable of conducting the proceedings or there are justifiable doubts as to his capacity to do so.

Section 14(2) and (3): -

(2) Failing an agreement under subsection (1), a party who intends to challenge an arbitrator shall, within 15 days after becoming aware of the composition of the arbitral tribunal or after becoming aware of any circumstances referred to in section 13(3), send a written statement of the reasons for the challenge to the arbitral tribunal, and unless the arbitrator who is being challenged withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.

(3) If a challenge under agreed procedure or under subsection (2) is unsuccessful, the challenging party may, within 30 days after being notified of the decision to reject the challenge, apply to the High Court to determine the matter.

The Court held that by the facts presented before it that the tribunal had not made its determination as to the application for recusal, it was clear that the application was premature, and that the applicant had not followed the correct path in invoking the court’s appellate jurisdiction.

As for the Order for Directions No. 3E, the court found that it was not made in favor of any specific party but was a mere attempt by the arbitrator to “prevail upon the parties” to consider mediation as mode of dispute resolution. This, to the court’s mind, did not mean that the arbitrator portrayed bias or that there was any illegality in referring the dispute to mediation. The court premised its thinking to Article 159 (2) of the Constitution of Kenya 2010 which stipulates as follows: -

(2) In exercising judicial authority, the courts and tribunals shall be guided by the following principles— (a) justice shall be done to all, irrespective of status.

(b) justice shall not be delayed.

(c) alternative forms of dispute resolution including reconciliation, 96 Constitution of Kenya, 2010 mediation, arbitration and traditional dispute resolution mechanisms shall be promoted, subject to clause (3).

(d) justice shall be administered without undue regard to procedural technicalities; and (e) the purpose and principles of this Constitution shall be protected and promoted.”

The Courts found that the Constitution of Kenya encourages Courts and Tribunals (i.e., Arbitral Tribunals), in exercising their judicial authority to be guided by the principles of alternative dispute resolution. Thus, the dispute’s referral to arbitration did not preclude the arbitrator from recommending mediation if he deemed it appropriate. The court further finds that the arbitrator in his Order for Directions 3E noted that the mediation is voluntary save that refusal or failure to cooperate in the process would be factored in the apportionment of cost of the arbitration. Therefore, the court concluded that the arbitrator was not biased since he had not made any findings on the substantive disputes before him.

The court did not delve deeply on withholding of a ruling until the arbitrator’s fees are settled, but found that, if the allegations were true, then the court’s decision should be served upon the arbitrator for his attention with the court’s position being that he should conclude the arbitral proceedings in the shortest time and proceed to pursue his fees through the proper channels that are provided for under the Kenyan law. 

Analysis

High Court’s jurisdiction on an application challenging the mandate of an arbitrator

An important takeaway of this case is likely to be the court’s treatment of the question, ‘when is an application challenging the mandate of an arbitrator ripe for the court’s jurisdiction?’. The court reaffirmed the decision in Chania Gardens Limited vs Gilbi Construction Company Ltd & Another [5] that: -

“…The first port of call to challenge the jurisdiction of an Arbitrator is the Arbitral tribunal in line with the principle that is commonly referred to in arbitration parlance in the German phrase, Kompetenz-Kompetenz. Therefore, the jurisdiction of this court on matters of challenge of an Arbitrator is not original in nature...Under Section 14 of the Arbitration Act, 1995 a challenge on an Arbitrator seeking his removal must first be heard by the Arbitrator.”

The court was unequivocal that an application challenging the mandate of an arbitrator should be made to the arbitral tribunal in the first instance and that the court’s jurisdiction is appellate and not original in nature. Further, it is not sufficient that an application for challenge has been filed before an arbitrator, the arbitrator must also decide the application on the merits for the appellate jurisdiction to be invoked.

This is yet another clear indication that the Kenyan courts are friendly towards arbitration and recognize the kompetenz-kompetenz doctrine where an arbitral tribunal has the power and authority to determine its own jurisdiction. By virtue of this decision, Kenyan arbitral tribunals may now be incentivized to expressly pursue their original jurisdiction in determining a challenge on its jurisdiction and acknowledge judiciary’s incontrovertible support.

Arbitrator’s power to recommend Mediation or any other ADR processes

In relation to the court’s observations that the mere fact that a dispute is referred to arbitration does not preclude an arbitrator from recommending mediation if he deems it appropriate, is a bold affirmation and recognition of the essence of Arbitration and all other forms of Alternative Dispute Resolution (ADR) mechanisms. In particular, the court noted that so long as an arbitrator recognizes party autonomy in making such recommendations and there is no evidence of bias, lack of independence or impartiality, then they are Constitutional.

The court, alive to the provision of Article 159 (2) of the Constitution of Kenya, 2010, validates the need for courts and tribunals (arbitral tribunals included) to be guided by the principles of alternative dispute resolution in making their decisions.

Certainly, the court acknowledged that the tribunal's discretion on mediation should not be found to be oppressive or favoring one party. A finding of bias and unfairness to the parties would be the only way such an Order for Direction by an arbitral tribunal may be found to be unconstitutional.

An arbitrator’s withholding of Ruling in order to secure costs

The third observation we make concerns the payment of arbitration costs by the parties. The court in its finding stated that, “…if the allegations are true”, then (i.e., refusal to render a ruling) the arbitrator should conclude the arbitration process within the shortest time possible and pursue his fees through “the proper channels” as provided for under the law.

Unlike the express provision in Section 32B (3) of the Arbitration Act which permits an arbitral tribunal to withhold the delivery of award to the parties until full payment of fees and expenses, there is no similar provision for withholding of a ruling in determination of interlocutory matters. It appears that the Court may have had in mind Section 32B (3) as the only proper mechanism under the Act for exercising lien for fees.

_____________________ 

* Ms. Victoria Kigen is a Case Counsel at the Nairobi Centre for International Arbitration and an Advocate of the High Court of Kenya. She holds an LL.B. from the Catholic University of Eastern Africa(CUEA), (Class of 2012), and a graduate of University of Miami School of Law, White & Case International Arbitration LL.M. (Class of 2017).

[2] Kenya Medical Women’s Association v Registered Trustees Gertrude’s Gardens; Paul Ngotho, Arbitrator(Interested Party) [2021] eKLR

[3] Arbitration Act, No. 4 of 1995 (Revised 2012), Laws of Kenya.

[4] Id.

[5] Chania Gardens Limited vs Gilbi Construction Company Ltd & Another [2015] eKLR

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021[1] 

A.  The importance of inter-African and foreign investment to African development

The economies of African nations, like most countries in the world, are dependent on foreign direct investment (FDI).[2] 

The stability and growth of African economies is intricately intertwined with the ability of African governments to attract investors from outside the continent. As well stated by the International Journal of Financial Studies, “Foreign Direct Investment can bring in much needed capital, particularly to developing countries, help improve manufacturing and trade sectors, bring in more efficient technologies, increase local production and exports, create jobs and develop local skills, and bring about improvements in infrastructure and overall be a contributor to sustainable economic growth.”[3] With this plethora of potential benefits, it is absolutely essential that African nations create favourable environments for foreign investors. At the same time, however, they must ensure that the gains derived from FDI are in fact being used to create sustainable development.

B.  The role of dispute settlement in attracting investment to the continent

While there is a list of other criticisms of this mechanism, both investors and states do agree on one benefit, which is what led to the almost global switch from diplomatic espousal to the Calvo Doctrine in the first place. At the renaissance of Investor-State Dispute Settlement (ISDS), States (both developing and developed) and investors viewed ISDS as stronger in promoting the rule of law than State-to-State Dispute Settlement. The idea behind this was that ISDS allows for investors to put a check on States, most specifically when they are seen as overstepping their bounds. Proponents of this argument argue that ISDS helps bring otherwise hesitant investors to markets they would otherwise avoid because of their poor legal systems. At the same time, at the advent of individual rights taking center stage in international law, ISDS was seen as even further protecting the rights of individual citizens around the globe. 

Existing dispute settlement mechanisms under African investment agreements are, in many cases, not protecting the needs of African nations. Currently, the dispute settlement mechanisms built into investment agreements almost always allow for ISDS. Using ISDS, investors have been quick to challenge proposed local laws or policy decisions that may run contrary to their investment expectations. In most cases, little consideration is given to local needs or objectives. As a result, frustrations are boiling. 

Several African leaders have begun to express concern over a perceived infringement of their sovereign rights and obligations being built directly into existing dispute settlement options. At the same time, African governments have historically argued that international arbitration, investors’ preferred method of dispute settlement, is extremely costly and perceived as biased towards investors, resulting in African nations having to pay large awards that further inhibit their economic growth. What has become clear is that there is diminishing confidence amongst African nations in the current dispute settlement mechanisms. 

II. Investment protection and Africa’s Regional Economic Communities (RECs) 

A.  Overview of existing RECs 

Strength in numbers is considered to be one of Africa’s most direct paths towards progress. For decades now, several regional economic blocs have been making steady progress towards growth and development. Today, Africa has an array of both trade blocs and monetary blocs. These include, among others, eight economic communities recognized as the building blocks of the African Union: the Arab Maghreb Union, the Community of Sahel-Saharan States, the Common Market for Eastern and Southern Africa, the East African Community, the Economic Community of Central African States, the Economic Community of West African States, the Intergovernmental Authority on Development and the Southern African Development Community.[4] 

These economic communities have the principal purpose of integrating economic policy and facilitating the movement of goods and people between countries. Many African nations are either too small or lack the resources (both natural and in terms of capacity) to be economically viable on their own. By combining their collective knowledge and other strengths, these communities have demonstrated success in improving economic conditions in their member countries. 

B.  Example dispute settlement mechanisms utilized by each REC 

Africa is home to a number of Regional Economic Communities (RECs), which hold substantial influence over investment policies on the continent. At the regional level, there are several African regional bodies that have begun putting in place protections against unlimited ISDS. The South African Development Community (SADC), through its Finance and Investment Protocol, for example, has limited the use of ISDS, requiring that disputes be resolved in local courts and tribunals. The East African Community (EAC) Model Investment Treaty specifically includes a provision stipulating no ISDS. Similarly, in the Common Market for Eastern and Southern Africa, the COMESA Common Investment Agreement provides for arbitration under ISDS to be brought to the COMESA Court of Justice. In this case, however, the law also leaves open the possibility that claims between parties not party to COMESA bring cases to African arbitration tribunals or to the international bodies (ICSID or UNCITRAL). This leaves open some doubt as to whether COMESA has in fact limited ISDS, given that countries belonging to different agreements may forum shop as needed. Finally, the ECOWAS Supplementary Investment Act does not provide for ISDS, but rather includes a provision that investors use local remedies to resolve disputes. 

One of the issues with reform under regional bodies, however, is the lack of uniformity between policies pertaining to the same country. States that are party to several agreements are given the ability to somewhat manipulate the process by forum shopping. Larger countries with greater resources are able to select from a larger pool of possible forums and procedures, based on what will most favour them during a particular case. This disadvantages smaller countries with fewer resources and leads to overall confusion over what in fact is the governing principle and in what circumstances ISDS will actually be applied. The SADC, for example, has not made clear in which cases its dispute settlement mechanisms are to be used over the ISDS mechanism existing under overlapping agreements, making the entire system less effective and, often, leaving it ignored all together, particularly given that investors often prefer the ISDS model permitted to them under certain international agreements. As in other regions in Africa (for example, West Africa, where there exists several regional bodies) several members of SADC are also members of the COMESA. This adds to confusion and again diminishes the intention of moving away from ISDS, as investors have the option to search for more favourable forums (treaty shopping). 

III.     The OHADA model

One of Africa’s most successful attempts to attract additional investment and move away from the negative perspectives of the country has been the establishment of OHADA. This intergovernmental organization aims to harmonize investment and business laws in Africa with the purpose of better attracting foreign investment and increasing both intra-African and foreign trade.[5]

To date seventeen countries are parties to the OHADA.[6]

A.  OHADA’s unique system of dispute settlement

i. Uniform system of laws 

Member States developed a uniform set of laws, referred to as the Uniform Acts, which supersede all conflicting domestic provisions. There are currently nine Uniform Acts, which govern: General Commercial Law, Commercial Companies and Economic Interest Groups Law, Organizing Securities, Insolvency Law, Arbitration Law, Organizing Simplified Recovery Procedures and Measures of Execution, Contracts for the Carriage of Goods, Cooperative Companies Law, and Mediation Law.[7] As confirmed by the CCJA on April 30, 2011, and later confirmed by a Paris Court when upholding OHADA law over Cameroonian law,[8] these acts are supranational, rendering domestic laws inapplicable. The intent of each of these acts is to create modern, simple, legal rules that create a favourable economic environment within Member States. At the same time, in adopting these laws, OHADA Member States are looking to promote an independent and efficient judicial system. The acts are updated as necessary to reflect international trends on each subject matter. For example, the General Commercial Act, the Commercial Companies and Economic Interest Group Act, the Securities Act, the Bankruptcy Act and the Arbitration Act have all been updated. Additionally, OHADA most recently adopted the Meditation Act.[9]

As will be further detailed, the CCJA is the court of last resort for judgments rendered and arbitral awards pertaining to the Uniform Acts. This means that it is the court of last resort for all matters of business law that are governed by the acts.[10] Thus, business-related disputes must first be heard in domestic courts, unless it is determined that the competent jurisdiction has not acted on a case within 30 days.[11] This includes any appeals that may be made against a domestic court judgment. The CCJA then acts in the place of domestic supreme courts, serving as the final decision maker in cases falling under the OHADA Uniform Acts.[12] This Court does not hear matters that do not come under those acts; for example, the court does not hear criminal cases.

The Uniform Acts have helped to attract investors by creating consistency and predictability, allowing them to move from one jurisdiction to another with some confidence.[13] Since they are subject to the same set of laws in each country in which they invest within the OHADA region, investors are able to decrease the legal risks associated with investment. Moreover, the OHADA regime strengthens the rule of law by holding its Member States responsible to a supranational law. This in turn means that the protection of an investment is not tied to the stability of an individual country, but rather, to well-established laws that stand regardless of the internal conflicts or political issues that may be impacting one specific country. At the same time, investors are provided the option to have disputes arising from their investments settled by a competent body that is well-versed not only in the laws of OHADA, but also in strong international business practices. All in all, the OHADA system has had a “significant beneficial impact on access to finance, business registration and business cost savings,” according to the World Bank.[14] OHADA’s success in creating a supranational organization with harmonized laws should be applauded, particularly, as will be further explained below, in light of the number of similar attempts on the continent that have fallen short of achieving the same or similar objectives.

ii. The OHADA Common Court for Justice and Arbitration (CCJA) 

One of OHADA’s most attractive accomplishments is not just its uniform laws, as previously discussed, but rather the establishment of its Common Court of Justice and Arbitration (CCJA). This court of thirteen judges provides advice on proposed uniform acts and serves as a court of cassation. This court is seen as superior to national courts in matters pertaining to the Uniform Acts and allows cases to be presented by either party or a national judge. Moreover, the CCJA facilitates and oversees arbitrations on matters related to the uniform acts. This serves to add a greater scrutiny to the impartiality of arbitration tribunals, reducing the possibility of corruption and adding greater legitimacy to dispute resolution. In creating this security, CCJA is building investor confidence that their investments will be protected. This court still has a hill to climb in building its reputation and legitimacy to a point where it is trusted as much as more established centres, such as the ICC and ICSID, but it is making strides in the right direction.[15]

In 2017, the CCJA amended its Arbitration Act, as well as the CCJA rules, making them more attractive and more efficient. These amendments were intended to put the CCJA better in line with its international counterparts, particularly the ICC, allowing it to become more globally competitive. Among other changes, the amended Act now specifically states that an arbitration may be initiated on the basis of an investment-related instrument. This means that disputes arising from the growing number of investment treaties that have been entered into by Member States may be brought to the CCJA, allowing for African settlement of the disputes, rather than international tribunals. Additionally, this new Act puts in place mechanisms for the parties to a dispute to resolve an issue amongst themselves before relying on a formal arbitration proceeding. This amendment puts the tribunal in line with international standards, creates a more effective process and gives parties an opportunity to avoid the costly and time-consuming process that is inherent to any dispute settlement.[16]

IV. Africa and ISDS

Africa has a great reason for being increasingly frustrated with the ISDS system. The continent has been a steady target of disputes brought under the system and States have over and over again seen their domestic policies questioned in front of international arbitrators. Approximately 11% of all arbitration disputes have involved African States.[17] These claims have often led to exorbitant judgments. Total claims against African States since 1993 have totalled $55.5 billion, with investors having claimed over $1 billion in damages on 10 separate occasions.[18] In one circumstance, Egypt was ordered to pay $2 billion to Union Fenosa as the result of what may be considered an exorbitant ruling.[19] Needless to say, these cases have largely contributed to Africa’s distrust of the ISDS system and desire to move away from this mechanism.

The results of growing tensions between African nations and the ISDS system have been mixed. Certain countries have reviewed the BITs to which they are party, to determine whether the ISDS provisions should be modified. Other countries, including South Africa and Tanzania have amended their domestic laws to refer investment disputes to national courts, moving even further away from the traditional ISDS model. Then, at the regional level, there has been an effort to establish regional mechanisms related to investment, as will be discussed below. Moreover, there are certain indications that the continent as a whole may not be ready to fully reject ISDS. 

V.      Proposed continental reforms 

Taking collectively the strengths and weaknesses of each of the existing dispute settlement forums currently being used in African investment and forums that have been established in other regions, there is a strong argument that the African Union should establish a permanent tribunal for investment dispute resolution, located on the African continent. First and foremost, at this pivotal moment in the continent’s history, Africa must demonstrate that it is able to create an amicable environment for investment that will, at the same time, push the continent forward in its development objectives. To do this, when further negotiating the Dispute Resolution Protocol, the State members of AfCFTA must create a forum that will allow for equitable dispute resolution that takes into consideration the needs of States as much as private investors. 

A.  Following the OHADA model - Creating a common system for dispute settlement 

A forum located on the African continent, with knowledge and experience of the local context within which disputes arise will be crucial in gaining the support of African nations. Having the tribunal in Africa would also reduce costs and burden to African governments. To foster accessibility, the African Union could have various satellite courts of the continental tribunal, allowing cases to be heard in a mutually agreed upon, convenient location for the parties. At the same time, there should be one primary seat where the permanent staff and judges of the court should be located on a regular basis. On a continent as big as Africa, geography is crucial in ensuring equitable treatment of parties. Moreover, it is essential that the tribunal be located in a stable, democratically strong country where it is less likely to be impacted by conflict or country turmoil in the host country.

In developing this continental court, the African Union should also take care to make sure the voices of all African nations are heard. Africa is a continent comprising 54 different countries, all at varying levels of economic development and each with its own needs. African Member States must consider this when drafting the rules for procedure for this court. Just as African nations do not want the desires of wealthy investors to overshadow their own needs, nor do smaller, less developed countries want their voices to be silenced by larger, stronger economies on the continent. If the continent is truly to develop collectively, then all countries must have an equal footing when it comes to dispute settlement. Equitable representation in the tribunal must be a top priority.

Judges at the African continental court should be from different countries throughout the continent and should have the business knowledge that foreign investors would expect of a tribunal of such stature. This diversity of judges from varying countries would help reduce the bias and corruption concerns that exist with local courts. It would also better assure that smaller countries be treated equitably when in conflict against larger, wealthier countries. Moreover, foreign investors have historically expressed concern that African courts are not familiar with business transactions and this has turned them away from using local or regional courts. In developing a continental tribunal, it is important to recognize that there are plenty of African nationals with the capacity to consider complex investment disputes that could serve on a continental court, from even the smallest countries with small economies. Utilizing local human capital from across the continent would achieve one of the key purposes of the AfCFTA, namely that local human resources are better utilized to meet local needs.

Perhaps the greatest benefit of having a continental tribunal will be the contextual awareness that is added by having local judges who are familiar with the most pressing issues on the African continent. African-bred judges will have greater concern for the impact investments in the continent are having. African judges will be more likely to consider the social, environmental and labour consequences of investments. This will give them a unique perspective on the reasoning behind why States may take certain policy decisions and allow them to weigh that reasoning with investors’ interests. This will in turn serve the purpose of balancing Africa’s sustainable development goals with investment decisions. With this in mind, judges should be carefully selected from each of the Member States to the AfCFTA. As is provided in the Articles of the current Dispute Settlement Protocol for the DSB process, judges hearing a given case should not be from either of the countries party to the dispute.

Special staffing consideration should be given to types of disputes that may be expected to arise, given the nature of investment in Africa. For example, given the predominance of the extractive industries on the continent, the court should be well-staffed with individuals familiar with these industries, who are able to comprehend the intricacies that may be argued in the event of a dispute. Moreover, staff should be aware of the interlinking between international and domestic law and should have an acute awareness as to when and to what capacity domestic law should govern. Again, it is important to reiterate that human capital is one of Africa’s most untapped or underutilized resources. The continental court, not unlike industries that stand to benefit from the AfCTA, should recognize this and find human resources that will be able to build confidence in investors, as well as State Parties, that the court is competent to resolve even the most complicated business matters.

As has also been suggested under the Dispute Settlement Protocol, the continental tribunal should have an appeals process, which allows parties to challenge decisions based on law or evident misinterpretation of facts. This appellate tribunal should have clearly defined procedures and directives, defined through the negotiation process of the AfCFTA.[20]

B.  Limiting ISDS

In moving forward, African State Parties to the AfCFTA must also decide to what extent ISDS will be utilized to resolve investment disputes. As currently written, the Dispute Settlement Protocol appears to point towards State-to-State dispute settlement, with all language used referring to State Parties, without mention of investors or non-State actors. In considering the current world landscape as it pertains to ISDS, as discussed above, rather than moving completely towards State-to-State, Africa should consider the possibility for a limited, regulated ISDS. The limited approach utilized under the new USMCA and the CPTPP (the predecessor to the TPP Agreement, which is posed to be ratified by the remaining Member States) agreements offers a strong solution to many of the expressed grievances of African States, while at the same time allowing investors to bring legitimate claims for breaches of the Agreement. One limitation that could be put in, for example, as is currently alluded to under the Dispute Settlement Protocol, is a limitation on compensation as a remedy for an aggrieved party. This would alleviate the concerns over overly burdensome judgments, which, as discussed, have been one of the major sticking points in African opposition to ISDS.

The EU model that appears to be taking shape after the Achmea case, wherein the laws of the European Union are taking precedence over the needs of investors can be used as a guide in the African negotiation of the AfCFTA. The final terms of the AfCFTA should specify the supremacy of African continental law and should place clear limits over the cases in which private investors will be able to challenge domestic law. There should be express provisions built into the Agreement that protect individual countries’ right to regulate for the public good.

This said, the AfCFTA dispute settlement provisions should not outwardly exclude State-to-State dispute settlement, but rather, should adapt an either-or approach to ISDS and State-to-State. When considering State-to-State Dispute Settlement in the context of the African continent, there are several key specificities that are important to pause and consider. As has been reiterated several times throughout this book, more than anywhere else in the world, the sustainable development objectives of African nations are essential in assuring a prosperous future for the continent. States are balancing an array of different needs; everything from strengthening the rule of law to food security, from providing health services to creating jobs, must be considered if countries hope to reduce the current level of poverty and, quite frankly, if they wish to better attract foreign investment. Without improved infrastructure, for example, foreign investors will be wary of entering many markets. They will also be hesitant to enter a market that cannot guarantee protection of contracts. The long-term objectives of African States, therefore, must be built into current policies and laws.

While foreign investment will play a key role in creating strong economies that can lift countries from developing to developed, there must also be advances made in local development to assure the same trajectory. By way of example, in the extractive sectors, there is often a reliance on foreign investors to provide the technical assistance necessary to extract natural resources. At the same time, however, the country where the natural resource is located must ensure that the environment is protected, so as to not cause issues with food security or raise health concerns with local populations. There must also exist a strong system of rule of law to protect against illegal extraction and to ensure that the foreign investor is protected against third-party intervention into their projects. To improve the local economy, States must also ensure that the extraction project is involving local workers and creating better job opportunities for surrounding communities. Every project has a long list of different considerations for the State, while oftentimes the sole consideration of investors is profit.

State-to-State Dispute Settlement, the mechanism currently built into AfCFTA under the Dispute Settlement Protocol, for claims brought to the DSB, allows States to better consider their internal needs, without a direct challenge from investors who may view legitimate development objectives as contrary to potential profit. Allowing States to have a voice in arguing their public policy reasoning for certain decisions will protect against infringement on sovereignty and will allow local governments to maintain adequate control over domestic policy. Moreover, State-to-State Dispute resolution carried out on the continent will allow holistic consideration of the needs of not only individual countries, but of those of the continent. This mechanism could contribute to Africa’s intention of becoming more self-reliant.

At the same time, there are certain considerations that must be weighed in relation to State-to-State dispute settlement. For example, the willingness of States to bring a claim on behalf of a national may be hinged on the same problem of costliness that exists under international arbitration and not on the legitimate needs of an investor or on the black-and-white terms of a contractual agreement. Additionally, the capacity of African nations varies tremendously from one state to another. Larger countries with more resources[21] have greater capacity to bring claims and to then be successful in their pursuit than do smaller countries with fewer resources.[22] Moreover, there are varying levels of relationships between different governments on the continent and there is a risk that political interests may boil over into investment dispute settlement. For these reasons, a compromised position, where ISDS is limited, but State-to-State Dispute Settlement may also be used for cases that may have a more widespread impact, rather than a complete move to State-to-State Dispute Settlement is likely the best option for the continent. This would allow investors the opportunity to defend themselves when facing breaches of contract, but will, at the same time, allow governments to maintain their own sovereignty. Of course, the procedural rules built into the AfCFTA must demonstrate that States will maintain certain rights, even when faced with an ISDS claim.

Taking all of this into consideration, it is also important that Africa, as previously mentioned, develop a dispute resolution mechanism that does not create the same issues that exist under the current ISDS dominated system. What that means is that the system developed under AfCFTA should not place small economy countries with fewer resources in a more vulnerable position than their more affluent counterparts. This also means that the system should focus inward, rather than outward. The new AfCFTA dispute settlement system should be focused on the needs of African countries, rather than the desires of foreign investors. The African Union must do better to protect the interests of its Member States, all of its Member States, and must do so through creating a stronger, more equitable dispute settlement mechanism.

__________________________ 

* Partner, GENI & KEBE Member of the ICC Court of Arbitration

[2] FDI is defined as “an investment involving a long-term relationship and reflecting a lasting interest and control by a resident entity in one economy in an enterprise resident in an economy other than that of the foreign direct investor.” See IMF, “Foreign Direct Investment Trends and Statistics: A Summary” <https://www.imf.org/External/np/sta/fdi/eng/2003/102803s1.pdf>

[3] Prince Jaiblai, “International Journal of Financial Studies, Determinants of FDI in Sub-Saharan Economies: A study of DATA from 1990-2017,” available at: https://ideas.repec.org/a/gam/jijfss/v7y2019i3p43-d256918.html.

[4] These regional blocs work in parallel with the African Union in meeting its economic objectives. As stated by the African Union, “The RECs are closely integrated with the AU’s work and serve as its building blocks. The relationship between the AU and the RECs is mandated by the Abuja Treaty and the AU Constitutive Act, and guided by the: 2008 Protocol on Relations between the RECs and the AU; and the Memorandum of Understanding (MoU) on Cooperation in the Area of Peace and Security between the AU, RECs and the Coordinating Mechanisms of the Regional Standby Brigades of Eastern and Northern Africa.” See “Regional Economic Communities,” United Nations Economic Commission for Africa, available at: https://www.uneca.org/oria/pages/regional-economic-communities 

[5] Redaud Beauchard and Mahutodji Jummy Vital Kodo, “Can OHADA Increase Legal Certainty in Africa?” The World Bank (2011), available at: http://documents.worldbank.org/curated/en/266761467990085419/pdf/659890WP00PUBL010Can0OHADA0Increase.pdf

[6] Benin, Burkina Faso, Cameroon, Chad, Central African Republic, Côte d'Ivoire, Congo, Comoros, Gabon, Guinea, Guinea Bissau, Equatorial Guinea, Mali, Niger, the Democratic Republic of Congo (DRC), Senegal, Togo

[7] Organization for the Harmonization of Business Law in Africa, “Organization,” available at: https://www.ohada.org/index.php/en/ohada-in-a-nutshell/history.

[8] CA Paris 16/25484, 20 December 2018. See Thomas Kendra, Thibaud Roujou de Boubee and Ledea Sawadogo-Lewis, “The Paris Court upholds the supranational nature of OHADA law in dismissing annulment application,

14 February 2019, available at https://www.hlarbitrationlaw.com/2019/02/the-paris-court-upholds-the-supranational-nature-of-ohada-law-in-dismissing-annulment-application-ca-paris-16-25484-20-december-2018/.

[9] Gaston Kenfack Douajni, “Recent Developments in OHADA Arbitration,” Global Arbitration Review, 11 April 2019, available at: https://globalarbitrationreview.com/chapter/1190118/recent-developments-in-ohada-arbitration

[10] Alhousseini Mouloul, “Understanding the Organization for the Harmonization of Business Laws in Africa (OHADA), 2nd edition, June 2009, available at: http://www.ohada.com/content/newsletters/1403/Comprendre-l-Ohada-en.pdf.

[11] Mouhamed Kebe, “The Attractiveness of the New OHADA Arbitration Act,” Geni & Kebe SCP, 13 December 2018, available at: https://www.lexology.com/library/detail.aspx?g=680f77e3-1b8c-4327-87c1-183a7abc45f4

[12] Alhousseini Mouloul, “Understanding the Organization for the Harmonization of Business Laws in Africa (OHADA), 2nd edition, June 2009, available at: http://www.ohada.com/content/newsletters/1403/Comprendre-l-Ohada-en.pdf.

[13] Mouhamed Kebe, “How Can OHADA Boost Integration and Investment in Africa?” Geni & Kebe SCP, available at: https://www.hg.org/legal-articles/how-can-ohada-boost-integration-and-investment-in-africa-19603

[14] “An Impact Assessment of OHADA Reforms,” International Finance Corporation’s OHAD Investment Climate Program, 2018, available at: http://www.ohada.com/content/newsletters/4643/rapport-ohada-ifc.pdf

[15] Fagbayibo, Babatunde, “Towards the harmonisation of laws in Africa, is OHADA the way to Go?” The Comparative and International Law Journal of Southern Africa, November 2009, available at: https://www.jstor.org/stable/23253105?seq=1#page_scan_tab_contents

[16] See Mouhamed Kebe, ‘’The attractiveness of the new OHADA Arbitration Act’’https://www.dlapiperafrica.com/fr/senegal/insights/2018/the-attractiveness-of-the-ohada-arbitration-system.html

[17] “Impacts of Investment Arbitration Against African States,” Transnational Institute, October 2019, available at: https://www.tni.org/en/isdsafrica.

[18] Ibid.

[19] Unión Fenosa Gas, S.A. v. Arab Republic of Egypt (ICSID Case No. ARB/14/4)

[20] On the trend and the relevance of having an appellate body in international dispute settlements, see: Noemi Gal-Or

 ‘’The Concept of Appeal in International Dispute Settlement’’ EJIL (2008), Vol. 19 No. 1, 43–65 doi: 10.1093/ejil/chm054, available at: http://ejil.org/pdfs/19/1/177.pdf 

[21]Examples would include South Africa, Kenya, or Nigeria, among others.

[22]Examples would include The Gambia, Gabon, Niger, among others.

Presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021. 

Question from Moderator to Gaston: Much has been said about the Singapore Convention and its future, but a historical analysis is often most instructive in contextualising its purpose. Gaston, I believe that you were a delegate at the negotiation of the Convention. Perhaps you can share some impressions and insights from that process, particularly with regard to the motivation behind the Convention.

Response: The negotiation of this Convention resulted in the updating of the 2002 UNCITRAL Model Law on International Commercial Mediation; therefore, the 2002 version was replaced by the 2018 version.

During the negotiation, it was agreed that States wishing to legislate on mediation have the possibility of adopting either the Singapore Convention itself or drawing inspiration from the 2018 UNCITRAL Model Law on International Commercial Mediation.

It is useful to underline here that Cameroon is an OHADA contracting State and that the OHADA Uniform Act on Mediation adopted in 2017 is inspired by the 2002 UNCITRAL Model Law on International Commercial Mediation.

Even though this OHADA Uniform Act on Mediation aims is to promote mediation in the OHADA contracting parties, it contains a provision according to which amicable agreements concluded by the parties without the assistance of a third (mediator or conciliator) are included in the scope of that Uniform Act.

As a member of the Cameroonian delegation, I must say that the Cameroonian delegation had, during the negotiation of the Singapore Convention, suggested that agreements reached by the parties in dispute without the intervention of a mediator or conciliator should be included in the scope of the Singapore Convention.

The Cameroonian proposal was thus inspired by the aforementioned OHADA Uniform Act on Mediation.

This proposal, supported by other delegations, even not parties to the OHADA Treaty, was not accepted, on the ground that the purpose of the Convention is to promote mediation for the settlement of trade disputes.

However, the concern being to promote not only mediation but also, more generally, the amicable settlement of disputes, it was agreed that the possibility to recognize and grant “exequatur” to amicable agreements reached by the parties themselves without the intervention of a third could be taken into account by those of the States who wish to do so.

For this reason, the 2018 version of the UNCITRAL Model Law on International Commercial Mediation, which amends the 2002 UNCITRAL International Trade Conciliation Model Law, includes a footnote 5 under Section 3, according to which "a State may consider enacting this section to apply to agreements settling a dispute, irrespective of whether they resulted from mediation. Adjustments would then have to be made to relevant articles."

Question from Moderator to Gaston: Are there areas which proved particularly difficult to reach consensus, and how were those addressed?

Response: Concerning areas which provided difficulties to reach consensus, I will focus on article 5 of the Convention that specifies the grounds for refusing exequatur.

This article 5 is one of the longest and more detailed provisions of the Convention.

Indeed, the grounds for refusal are so many because the Delegations of the States negotiating the Convention wanted to be sure that the said Convention is consistent with their public policy and that a Convention in harmony with the public policy of the Contracting States will really help in promoting worldwide mediation as an appropriate instrument or tool for the settlement of commercial dispute.

So, the negotiation of this article 5 and also article 4 was, to my humble opinion, laborious not because there was any intention to block the negotiations but rather because each Delegation participating in these negotiations was keen to come out with an instrument agreeable and acceptable to all.

In this regard, the negotiations took place in a courteous manner and in a spirit of mutual understanding.

Question from Moderator to Panel: In view of the key provisions and purposes of the Convention, does the panel think that the legal profession and disputing parties can derive benefit from the Convention?

Response from Gaston: In any event, mediation appears to be an advantageous means of resolving commercial and/or investment disputes, thanks to its flexibility. 

Furthermore, while mediation or conciliation is a paid service, it still costs less than State justice or arbitration.

Therefore, it seems to me important that lawyers are educated on mediation/conciliation and on its advantages as a method to settle commercial and investment disputes.

This education should begin at the university level.

In my opinion, aiming to promote mediation as an alternative means of dispute resolution, the Singapore Convention of 2019 is intended to be for mediation what the 1958 New York Convention is for arbitration.

It appears that education is really important here; I mean education for lawyers because they have to know what mediation or conciliation is about, in order to be in a position to convince their clients on the advantages and utility of these methods of settlement of commercial and investment disputes.

________________________

* Chairman, Association for thé Promotion of Arbitration in Africa-APAA

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

The Singapore Convention

On 12 September 2020, the United Nations Convention on International Settlement Agreements Resulting from Mediation, the Singapore Convention, entered into force. The overarching purpose of the Convention is to create a mechanism for the enforcement of international settlement agreements resulting from mediation. The convention was described by the Prime Minister of Singapore, Mr. Lee Hsien Loong, as the “missing third piece” in the international dispute resolution enforcement framework. Currently, 53 states have signed the convention, including three states in MENA namely Jordan, Qatar and Saudi Arabia.

Mediation in MENA

Mediation in the Arab Middle Eastern region is rooted in the Islamic tradition of settling disputes with the help of a third party. Against this backdrop, many states in the region continue to promote commercial mediation through legislation and the creation of mediation institutions.

For example, in 2006, Jordan enacted legislation to regulate mediation of civil disputes.  The law provides for mediation by both judges of the court of first instance and private mediators. 

Also in 2006, Qatar established the Qatar International Center for Conciliation and Arbitration. In 2012, it promulgated the QICCA Conciliation Rules, which were largely inspired by the UNCITRAL conciliation rules. The Qatar International Court and Dispute Resolution Centre, established in 2010, also provides mediation services.

In 2009, the Bahrain Chamber for Dispute Resolution, which provides both arbitration and mediation services, was established. In 2019, in anticipation of the Singapore Convention, it adopted mediation rules.

In 2014, Saudi Arabia created the Saudi Centre for Commercial Arbitration. It adopted Arbitration and Mediation Rules together with a Code of Ethics for Mediators. Recently, the Centre also launched the Emergency Mediation Program to assist businesses in financial distress due to the impact of COVID-19 with the resolution of their disputes.

Finally, in the UAE, there are several institutions that provide mediation services. The Centre for Amicable Settlement of Disputes, which was established in Dubai in 2009, is linked to the Dubai courts. Mediation services are also offered by the Dubai International Financial Centre Courts and the DIFC-LCIA Arbitration Centre, which provides mediation services under the LCIA Mediation Rules.

Do Parties in MENA mediate?

There is good legislative and institutional support for parties who wish to mediate in the MENA region. However, statistics from regional institutions that offer mediation and arbitration indicate that commercial mediation remains underused. The Cairo Regional Centre for International Commercial Arbitration registered 13 mediation cases since its inception compared to 1303 arbitration cases. In 2019, the DIFC-LCIA registered 13 mediation cases compared with 67 arbitration cases. Between 2018 and 2020, QICCA administered 11 mediations and 77 arbitrations.

Justice Delayed

There may be many reasons why institutional mediation is still relatively underused by commercial parties in the region. One underlying reason could be the ease with which defendants in certain jurisdictions can delay the resolution of meritorious claims in court through dilatory tactics. These delays are exacerbated where there is a backlog of cases. Moreover, enforcement is complex and protracted in certain jurisdictions especially if sought against, for example, real property.

The World Bank’s Doing Business[1] contract enforcement ranking measures the time and cost for resolving a commercial dispute through a local first-instance court until payment. Egypt is ranked 166 out of 190 ranked countries with an average duration of 1010 days. Jordan is ranked 110 and with an average of 642 days. Qatar is ranked 115 with an average of 570 days. Bahrain is ranked 59 with an average of 635 days. Saudi Arabia is ranked 51st with an average of 575 days. The UAE is ranked 9with an average of 445 days.

In jurisdictions where contract enforcement is difficult and prolonged, there is a further incentive for defendants to engage in delay tactics in the hope that the ‘nuisance value’ created will reduce or offset the value of the claim from the Claimant’s perspective. This, in turn, reduces their incentive to engage in mediation.

Cost Sanctions

Many of the region’s civil procedure codes do not yet provide for Courts to impose cost sanctions on parties who have failed to engage in mediation or good faith settlement discussions of obviously meritorious claims. Because the cost of litigation is relatively low, some businesses may choose to contest meritorious debt claims in court as a means of managing cashflow.  

By contrast, under part 36 of the England and Wales Civil Procedure Rules if a party refuses to settle a meritorious claim it may be penalised in costs. Moreover, in PGF II SA v. OMFS Company the Court of Appeal held that the defendant’s refusal to respond to an invitation by the claimant to mediate was unreasonable, which also led to adverse cost consequences.

Conclusion

If the correct incentives to mediate are not imposed, the Singapore Convention may not have the desired impact in the MENA region, notwithstanding the undoubted benefits of ease of enforcement of mediated settlements. Even if mediation is not compulsory, reform of the civil procedure codes to include penalties for dilatory tactics and to streamline enforcement processes could incentivise mediation and improve contract enforcement.

________________________

* Counsel, Freshfields Bruckhaus Deringer LLP co-authored by Leila Kazimi, DR Intern, Freshfields Bruckhaus Deringer (Dubai) 

[1] Data collected as at May 2019.