Managing political and commercial risks by means of arbitration & White & Case. 4 th Managing Risk in Africa Dr. Markus Burianski, Mark Goodrich

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1 Managing political and commercial risks by means of arbitration & White & Case 4 th Managing Risk in Africa Dr. Markus Burianski, Mark Goodrich 25 February 2015

2 Africa Botswana: Government fires Chinese firm Sinohydro over delays to Gaborone Airport Expansion project African Aviation Tribune, 27 July

3 Introduction Investment is dramatically increasing Infrastructure is a major focus Ports and airports Roads and rail Natural resources Telecoms Disputes are on the rise Many new cases since last year Why? Lack of experience on major projects Difficulties of doing business in many countries Chinese contractors pursuing projects for political reasons 2

4 Agenda Arbitration - basics Commercial arbitration Definition Definition Selected advantages Ad-hoc vs. institutional arbitration; Stages of arbitration proceedings international arbitration institutions Case study Annulment proceedings and enforcement Investment arbitration Definition Dispute Resolution Fora Case study Recurring issues 3

5 Basics of Arbitration

6 Definition and advantages (1/2) What is arbitration? Private forum to settle conflicts => requires arbitration agreement Investment and commercial arbitration => protection against political and commercial risks 5

7 Definition and advantages (2/2) Selected advantages of arbitration Neutral forum Parties may influence settings: Arbitrators Place Language Enforceability New York Convention 1958 (149 member states) ICSID Convention 1965 (150 member states) 6

8 Stages of Arbitration Proceedings Initiation and proceedings Constitution of the tribunal Examination of the case (jurisdiction, merits, quantum) Depending on the applicable rules: Document production Preliminary hearings Preparations Hearing Post-hearing submissions Rendition of arbitration award 7

9 Commercial Arbitration

10 Commercial Arbitration Dispute arising out of a breach of contract Basis: contractual arbitration clause between two or more parties German Company Joint venture Contract of sale Construction contract African Company DISPUTE African state courts? Other state courts? Commercial arbitration? 9

11 Ad-hoc v. institutional arbitration Ad-hoc arbitration Institutional arbitration No administering institution: parties Specialized institution with permanent and tribunal determine all aspects Character administers arbitration Conducted pursuant to rules by parties or arbitral tribunal Arbitration conducted pursuant to comprehensive set of rules of administering institution Cost effective, flexible - Requires expertise and cooperation Administrative assistance, physical facilities and support service - Administrative fees, less flexible 10

12 International Arbitration Institutes (1/2) International Chamber of Commerce (ICC) The London Court of International Arbitration (LCIA) International Centre for Dispute Resolution (ICDR) of the American Arbitration Association (AAA) Cairo Regional Centre for International Commercial Arbitration (CRCICA) Lagos Regional Centre for International Commercial Arbitration (LRCICA) Arbitration Foundation South Africa (AFSA) 11

13 International Arbitration Institutes (2/2) Influences on choice of arbitration institution Neutrality, internationalism Reputation and recognition Arbitral rules and law governing substance of dispute Previous experience of the institution Overall cost of service 12

14 Set the Course Necessary elements of arbitration clause Agreement to arbitrate ( midnight clauses / Champagnerklausel ) Seat of arbitration Determines mandatory rules governing the arbitration Determines courts with supervisory jurisdiction over the arbitration Actual place of hearing must not be at seat Applicable law Procedural rules guiding dispute Substantive law governing contract s material terms Language Limiting pool of potential arbitrators? 13

15 Case Study Validity of Arbitration Clause Parties arbitration clause provided that any dispute was to be referred to arbitration in London, any other dispute to arbitration in Moscow - Lovelock (EJR) v. Exportles [1968] 1 Ll. Rep. 163 Parties arbitration clause provided for Resolution of disputes: arbitration, Paris. - F.G. Goldman on International Commercial Arbitration, Kluwer Law International 1999, mn

16 Case Study Applicable Law, ICC Case No Case: Austrian company enters into technical cooperation agreement with Indian company, requiring Austrian company to provide technical assistance. A dispute about this assistance arises. Austrian company commences arbitral proceedings under the ICC rules. Seat of the arbitration is London. Austrian company submits into evidence diaries of their employee regarding the assistance Indian company objects the admission on basis of the Indian Evidence Act 15

17 Enforcement of Arbitration Awards (1/2) New York Convention Convention on the Recognition and Enforcement of Foreign Arbitral Awards Contracting states will recognize and enforce arbitration awards Subject only to enumerated, limited defenses Problem: subjective arbitrability 16

18 Enforcement of Arbitration Awards (2/2) Adopted by 147 of 193 UNO member states but 22 African states have not adopted the New York Convention Example Libya: No bilateral treaties with Germany regarding enforcement of arbitration awards Libyan procedural law: analog decisions of foreign state courts; requirement of reciprocity Libya will enforce German awards 17

19 Investment Arbitration

20 Investment Arbitration Arbitration to settle investment-related disputes between a foreign investor and the host state (or state agency) Basis: Bilateral Investment Treaty International treaty between two states to promote foreign direct investment Creates binding legal obligations for host states vis-à-vis foreign investors Country of Origin Customary International Law BIT Host State Investor National Law 19

21 Investment Arbitration - Obligations Substantive protections Main obligations Expropriation only against fair compensation Fair and equitable treatment Full protection and security Guaranty of free transfer of capital and exchange currency Umbrella clauses: contractual obligations Examples Investment in plant that processes cocoa beans; subsequent export ban on cocoa beans Host state law guarantees certain prices for transportation of gas; subsequent enactment of an emergency law to terminate the guarantee Employees of a state entity seize a hotel and the police authorities do not interfere to protect the investor Host state freezes funds to stabilize economy. Payment obligations under the contract 20

22 Investment Arbitration Procedure BITs drafted after the late 80 s: include an arbitration clause for investors (e.g. section 11.2 Germany Botswana BIT) If the divergence cannot be settled within six months [ ], it shall, at request of the national or company of the other Contracting State, be submitted for arbitration. Unless the parties in dispute agree otherwise, the divergence shall be submitted for arbitration under the Convention of 18 March 1965 on the Settlement of Investment disputes between States and Nationals of Other States. BITs drafted before the late 80 s: only determine substantial law - local courts have jurisdiction, unless parties agree on arbitration in investment contracts 21

23 BITs Overview Morocco Cape Verde Burkina Faso Ghana Nigeria Gabon Angola Namibia South Africa Algeria Libya Egypt Mauritania Ethiopia Kenya Burundi Mozambique Zimbabwe Botswana Swaziland Lesotho 22

24 Dispute Resolution Fora International Centre for Settlement of Investment Disputes (ICSID) Offers dispute settlement mechanism for investment disputes between states and private investors Enforcement directly according to ICSID Rules Permanent Court of Arbitration (PCA) UCITRAL arbitration rules: designate/act as appointing authority Full administrative support under UNCITRAL Arbitration Rules But: enforcement according to NY Convention or domestic law International Chamber of Commerce (ICC) Ad-hoc arbitration 23

25 Case Study Hamester GmbH & Co KG v. Ghana Facts: Joint Venture between Hamester GmbH & Co KG and Ghana Cocoa Board, a commercial company Payment dispute Legal Issues: Investor Legal entities (e.g. Hamester GmbH & Co KG) Investment Every kind of asset, in particular (e.g. Hamester: shares in a company) Breach of treaty obligations by host state or host state agency Damage 24

26 Recurring Issues Investor Definition in relevant BIT: Shareholder in a company incorparated in the host state? Corporation merely indirectly controlled by national of concerned state? ICSID Convention: national of another contracting state, Art. 25 (2) When is a corporation organized under law of host state under foreign control? Investment ICSID Convention: definition in convention different from definition in BIT? Umbrella clause Transformation of purely contractual claims into treaty claims? 25

27 Conclusions Commercial arbitration can be used to successfully manage commercial risks in Africa Flexibility of the parties in handling the dispute, Neutrality of the decision making body, and Enforceabilty of arbitral awards. Investment arbitration is an internationally accepted and functioning instrument for the resolution of investor-state disputes and, thus, the management of political risks Think international when investments are impaired! German investments in Africa are protected almost everywhere. 26

28 Questions?

29 Thank you

30 Your contacts Dr. Markus Burianski T E markus.burianski@whitecase.com Mark Goodrich T E mark.goodrich@whitecase.com 29

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