SPECIAL REPORT ON INTERNATIONAL ARBITRATION IN KENYA

Transcription

1 SPECIAL REPORT ON INTERNATIONAL ARBITRATION IN KENYA

2 Special Report on International Arbitration in Kenya July 2017 By GBS Africa To: Kenya s Attorney General Chambers Office of the President Ministry of Energy Ministry of Mining and Ministry of Foreign Affairs 2

3 Note from the Authors Following H.E President Uhuru Kenyatta s Private meeting with some of the largest UK investors to Kenya in May 2017, the state of International Arbitration in Kenya and its importance to give investors confidence was highlighted. We are therefore pleased to present a report which we hope will be valuable to key Government departments, including The AG Chambers, Ministries of Energy, Ministries of Mining and PPP unit. This Report aims to analyse the state of international arbitration in Kenya. Kenya is the largest economy in the East Africa Community (EAC) comprising of Burundi, Kenya, Rwanda, Tanzania and Uganda 3. It is one of the fastest growing economies in Africa, and largely recognized as an investment gateway into the continent 4. Under Kenya s Vision 2030 development blueprint, Kenya aims to be a middle income economy by This requires a substantial amount of foreign investment. Disputes are at times an inevitable result of investment contracting, and Kenya is not a stranger to investment disputes. In disputes, aside from amicable settlement, conciliation or mediation, parties have to choose between either court litigation or arbitration. Arbitration is usually preferred in commercial and investment disputes. In this Report, we review the state of investment in Kenya, including enablers to investment, such as legislation and international treaties in investment and tax. We explain the relevance of international arbitration in promotion of investment, and discuss the state of the arbitration laws in Kenya, international conventions, the government s recognition of arbitration and its track record in cases. We also discuss the rise of international arbitration institutions in Kenya, including the Nairobi Centre for International Arbitration (NCIA) and the new International Chamber of Commerce (ICC) regional centre established in Nairobi in The report also analyses the development of Kenyan arbitrators and practitioners expertise in international arbitration, and discusses what can be done to improve the country s future outlook in international arbitration. We are privileged to issue this Report, and hope that you will find it insightful. Our track record means we are positioned to provide immediate external legal assistance to any of the governments departments, we hope to explore a wider capacity building proposal that provides specialist technical support for your legal teams. We also take this opportunity to invite you to the 5th Annual East Africa International Arbitration Conference in Kigali, Rwanda on 28th and 29th September 2017, and to future conferences. Further details are available on Should you have any queries, please do not hesitate to contact us. Yours sincerely, Agnes Gitau Partner, GBS Africa agnes@gbsafrica.co.uk Wairimu Karanja Consultant, GBS Africa karanja.wairimu@gmail.com

4 Ms. Wairimu Karanja Authors Profiles Wairimu is a corporate, energy and disputes legal consultant with EnVantage Law. She is finalising a Post-Graduate (Masters) Degree in Energy Law and Policy at the University of Dundee s CEPMLP. Wairimu was previously a Director at JMiles & Co, a Secondee at Stephenson Harwood LLP and a principal associate at Anjarwalla & Khanna Advocates. Wairimu has advised on energy and natural resources (ENR) projects, commercial and investment arbitration disputes and corporate and M&A work. She has represented clients before tribunals of the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA), UNCITRAL and commodities arbitrations. Wairimu is a member of the Law Society of Kenya, Power Africa s Women in African Power (WIAP), the China-Africa Legal Exchange Research Group and LABFA (Legal and Business Women for Africa). She has spoken at conferences on African investment and disputes in Kenya, Uganda, Tanzania, South Africa, Morocco, Mauritius, the UAE, China, the UK and the US.. Wairimu can be reached on: karanja.wairimu@gmail.com. Ms. Agnes Gitau A partner at GBS Africa, Agnes is an experienced trade & Investment Advisor. She sits on the East Africa International Arbitration Conference Committee (EAIAC) and she is one of the founding members of the legal & Business Women Network (LABFA) which is a multi-jurisdictional network of women transactional lawyers and women in Business. Agnes sits on the advisory board of the Intra Common Wealth SME Association, a board member of Courteville Business Solutions. Prior to joining GBS Africa, Agnes worked as a director for global operations for the East Africa Business Network and the East Africa Economic chambers of Commerce where she worked closely with East Africa Investment agencies, development authorities to promote East Africa s competitiveness as an investment Destination. Agnes has also worked closely with several African governments, helping to raise the profile of investment opportunities in their respective countries in order to boost the countries FDI inflows. Agnes contributes to Africa s economic debate on various international media platforms and has been interviewed on among others: BBC Business Edition, Bloomberg, Reuters, Business Daily, Arabian Business, KTN Business, Al Jazeera s News Hour, Head to Head, Inside Story and Press TV. Agnes can be reached on: agnes@gbsafrica.co.uk. About GBS Africa Limited GBS Africa is a boutique Africa Advisory firm focusing on connecting global pools of capital and new pockets of opportunity with our continually growing emerging market across Africa. What epitomizes us best is our global reach, Africa market knowledge and network, uncompromising commitment to excellence, relentless focus on bringing sustainable value to our clients and speed in delivery of results. We provide a wide range of specialized and sophisticated trade & investment advisory services, international Arbitration services to a substantial client base that include; governments, banks, large and medium sized businesses across all sectors of the Economy. 4

5 Special Report on International Arbitration in Kenya 1. Why international arbitration: the state of investment in Kenya Under Kenya s Vision 2030, the country has existing and planned infrastructure and development projects in the main economic pillars of infrastructure, tourism, agriculture, trade, manufacturing, information technology and financial services, as well as in the social pillars of health, education and security. 3 Kenya s development projects require substantial financing, and most has been and will continue to be in the form of foreign direct investment (FDI). Kenya s FDI track record is impressive. In 2015, Kenya had the highest rate of green-field investments globally, according to the Financial Times FDi Intelligence 4. In FDi Intelligence s FDi Report 2016, 71 companies invested in Kenya, the highest number of investing companies to date, with a combined capital expenditure of $2.55bn. Kenya attracted 96 projects in 2015, an increase from To facilitate international investment into Kenya, the country has 9 bilateral investment treaties (BITs) which are presently in force, with Burundi, Finland, France, Germany, Italy, Kuwait, Netherlands, Switzerland and the United Kingdom. Kenya has also signed BITs with China, Iran, Japan, Korea, Libya, Mauritius, Slovakia, Qatar, Turkey, and the UAE, but these are not in force yet. 6 Kenya also has in place a Foreign Investment Protection Act (Cap 518) and an Investment Promotion Act (of 2004). Tax is a concern for investors, and the country has entered into various double tax arrangements. There are 8 double tax treaties which are ratified and in force, with Zambia, Norway, Denmark, the UK, Germany, Canada and India. DTTs with Italy, Uganda and Tanzania have been signed, but not in force. DTTs with France, Thailand, India and Tanzania and Uganda are in draft and under negotiation. The country also has drafts for negotiation with Seychelles, Nigeria, South Africa, Mauritius, Finland, Russia, UAE and Iran. 7 In international investment, some of the main concerns for investors are protection of the investment, and whether disputes will be effectively resolved when they occur. Under the World Bank Group s Doing Business Reports, enforcing contracts is one of the themes for ranking a country s ease of doing business, alongside starting a business, construction permits, electricity, property registration, obtaining credit, minority protection, taxation, cross-border trading and resolving insolvency. 8 International arbitration is globally recognized as a more preferred dispute resolution mechanism in trade and investment, as compared to court litigation. Arbitration has the benefits of being faster, confidential and ensure party autonomy. It is therefore an effective tool for dispute resolution in FDI. 2. Kenya s Arbitration laws and international conventions Kenyan law is historically based on English Common Law, and business and court processes are in the English language. These are key ingredients in the legal system that foster international arbitration. Kenya s Arbitration Act of 1995 (as amended in 2009 and 2010), 9 is progressive, and based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration 1985 (as amended in 2006). 10 Kenya s Arbitration Act differentiates between domestic and international arbitration. The definition of international arbitration (s.3 (3)) is largely in line with that in the UNCITRAL Model Law (Art.1 (3)), and it is: (a) where the parties have their places of business in different states; or (b) the juridical seat of the arbitration or the place for performance of a substantial part of the commercial obligations are in another state; or (c) the parties have expressly agreed that the subject matter relates to more than one state. Some of its main provisions include among others: requirement of an arbitration agreement to be in writing (s.4); waiver of a party s right to object to arbitration (s.5); stay of court proceedings (s.6); limitation of court intervention (s.10); composition and jurisdiction of the arbitral tribunal (Part III); immunity of the arbitrators (s.16b); kompetenz-kompetenz (s.17); and rules on the conduct of arbitral proceedings (Part IV). The Act is binding on the Government (s.41). An arbitration award once made, is final and binding on the parties and not subject to appeal (s.32a). There are limited grounds for setting aside of an arbitral award in s.35, or refusal of recognition of an arbitral award in s.37. These include: party incapacity; invalid arbitration agreement; lack of proper notice of proceedings or that a party unable to present his case; the dispute was not contemplated under the terms of reference; the composition of the tribunal was not as per the parties agreement or the Act; there was fraud, bribery, undue influence or corruption; the subject-matter of the dispute is not capable of settlement by arbitration under the law of Kenya; or the award is in conflict with the public policy of Kenya. Kenya has been a member of the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards 1957 (the New York Convention) 11 since The application of the New York Convention is recognized under s. 36 of Kenya s Arbitration Act. The provisions of Article V of the New York Convention on refusal of recognition of a foreign arbitral award would therefore apply in Kenya. In investment arbitration, Kenya is a member of the International Centre for Settlement of Investment Disputes (ICSID) Convention of 1966, 12 and has domesticated its provisions under an Act of Parliament the Investment Disputes Convention Act (Cap 522) http:// 12https://icsid.worldbank.org/en/Pages/icsiddocs/ICSID-Convention.aspx 5

6 Kenya is also a member of the Permanent Court of Arbitration (PCA), having acceded to the 1907 PCA Convention in Regionally, Kenya is a member of the East African Community (EAC). The East African Court of Justice (EACJ), which is created under Art. 9 of the Treaty for the establishment of the EAC, has in place arbitration rules for the hearing of disputes under Art. 32 of the Treaty (related to commercial contracts or disputes with states or between states). 14 Kenya is also a member of the Common Market for Eastern and Southern Africa (COMESA). The COMESA Court of Justice has in place arbitration rules for the determination of disputes which fall under Art. 28 of the COMESA Treaty (arising from an arbitration clause contained in a contract which confers such jurisdiction to which the COMESA or any of its institutions is a party). The COMESA arbitration rules were formulated in 2003, and COMESA plans to review them by end of Recognition of International Arbitration in Government Contracting When it comes to government contracting, international arbitration is recognized under statute, BITs and also in some of the government s model investment contracts. Under Kenya s new Mining Act of 2016, s.117, which relates to the contents of mineral agreements, provides that a mineral agreement should among others, provide for resolution of disputes through international arbitration or a sole expert. 16 Kenya has in place a Model Production Sharing Contract promulgated under the Petroleum (Exploration and Production) Act (Cap. 308) and the Petroleum (Exploration and Production) Regulations of Clause 41 of the Model PSC provides that all disputes are to be resolved through arbitration under the UNCITRAL Rules. 17 Kenya s BITs mostly provide for either arbitration under ICSID, or arbitration under the UNCITRAL Rules. For instance: under Kenya s BIT with the UK, Art. 8 provide for investment arbitration under ICSID; 18 the BIT with Burundi provides for ICSID arbitration, and also ad hoc arbitration under UNCITRAL; 19 and the BIT with Germany provides for ad hoc arbitration or arbitration under ICSID Track record: international arbitrations involving the Kenyan government The Kenyan government has been involved in both international commercial arbitrations and investment arbitrations. In ICSID, Kenya has had 3 investment arbitrations, as follows: The World Duty Free Arbitration, 21 which was registered in 2000 and concluded in It involved a duty free concession in the services and trade sectors. The government was successful, and the tribunal refused jurisdiction because the concession had been procured by corruption; The WalAm Energy case, which was registered in February 2015 and is pending. 22 The case involved alleged wrongful termination of a geothermal concession; and The Cortec Mining case, which was registered in July 2015 and is also pending. 23 It relates to alleged wrongful termination of a mining concession. Kenya has to date not had cases before the PCA. Although international commercial arbitration cases are not publically available due to confidentiality, some have been publicized in the media, and these include: An international arbitration commenced by Vanoil Energy (a Canadian company) in 2014, relating to oil concessions. 24 It was also reported in 2016 that Kinangop Wind Power (a Virgin Islands Company) had lodged a case before the International Chamber of Commerce (ICC) against the Kenyan government in relation to a wind power. 25 There have also been a few highly publicized arbitration enforcement cases involving the Kenyan government, most notably, enforcement cases in the UK, Switzerland, the Hague and New York, which had threatened the issuance of Kenya s Eurobond in Institutional, Arbitrator and Practitioner expertise World Duty Free Company Limited v. Republic of Kenya (ICSID Case No. ARB/00/7) available at aspx?caseno=arb/00/7 22 WalAm Energy Inc. v. Republic of Kenya (ICSID Case No. ARB/15/7) available at 23 Cortec Mining Kenya Limited, Cortec (Pty) Limited and Stirling Capital Limited v. Republic of Kenya (ICSID Case No. ARB/15/29) available at worldbank.org/en/pages/cases/casedetail.aspx?caseno=arb/15/ Government-Of-Kenya

7 Following on from its status as an investment hub, Kenya has made great strides in marking itself as an international arbitration hub in Africa. The country has established and up-coming international arbitration centres, good infrastructure (including ICT, hotels and conference facilities), and international transport connectivity with daily flights from and to most countries. There is also arbitrator and practitioner expertise. There is still room for improvement. The Chartered Institute of Arbitrators Kenya Branch, has been in existence since 1984, and has provided arbitration training courses, accreditation, and dealt with arbitrations under its CIArb Arbitration Rules. 27 Involvement has mostly been in domestic arbitration, although international arbitration is developing. In 2013, the Nairobi Centre for International Arbitration (NCIA) was established under an Act of Parliament, the NCIA Act of The centre is still in its infancy, and there are presently no registered cases before it. The NCIA had issued its Arbitration Rules 28 and Mediation Rules 29 in December The centre has a successful conference for its launch in December 2016, and is presently advertising enrolment into its panel of arbitrators and mediators. Because it is at its infancy, the NCIA receives a fair amount of government support, as have other international institutions in the past. The Centre was established under an Act of Parliament; the Registrar and the Secretariat are comprised of former state counsel at the Attorney General s Chambers; 31 and Kenya s Deputy Solicitor General and Registrar of the Judiciary are members of the Board of Directors. 32 Government support for new international arbitration institutions is not unusual, as seen with CIMAC, LCIA-MIAC, among others. It is expected that with time, government support to the NCIA will be cut back, in order for the centre to continue to develop its legitimacy and neutral reputation. The NCIA is competing for relevance with other up and coming African international arbitration centres like the Kigali International Arbitration Centre (KIAC) 33, the Lagos Court of Arbitration in Nigeria, 34 the Djibouti International Arbitration Centre, 35 the LCIA-MIAC in Mauritius, 36 the Cairo Regional Centre for International Commercial Arbitration, 37 The Casablanca International Mediation and Arbitration Center, 38 and the Arbitration Foundation of Southern Africa (AFSA). 39 There was also established in 2015 a China-Africa Joint Arbitration Centre Johannesburg (CAJAC) between AFSA and the Shanghai International Trade Arbitration Centre. 40 Further, in June 2017, the ICC launched its Kenya regional office, ICC-Kenya. It is anticipated that in future, ICC-Kenya will among others, provide arbitration and other alternative dispute resolution services. 41 It may well be that other international institutions follow suit. Kenya has experienced international arbitrators. However, the pool is not large, and even so, there is not enough case involvement and publicity to generate interest. Kenya has designated 8 Kenyan arbitrators to the ICSID panel as follows: Ms. Njeri Kariuki; Mr. Githu Muigai; Mr. Phillip Murgor; Mr. Amos Wako; Ms. Jaqueline Kamau; Mr. Farooq Khan; Dr. Ken Kiplagat; and Mr. Norman Muiruri. 42 CIArb Kenya maintains a list of recommended arbitrators. The LCIA has a database of arbitrators which is not publicly available. I-Arb Africa, an information database for arbitration in Africa has established a list of recommended arbitrators called Africa s 100, which is arranged in country format, and contains a list of Kenyan arbitrators. 43 Kenyan law firms are growing and getting more involved in international arbitration. This has historically not been the case, and both foreign investors and the Kenya government would opt for legal services from international firms largely based in London, Washington or New York. For instance, in the World Duty Free ICSID case, the government was represented by Freshfields Bruckhaus Deringer based in Paris. Interestingly, the claimant was represented by international counsel, and also by a Kenyan lawyer, Paul Muite. 44 Recent years have seen a representation partnership between international firms and Kenyan firms for both claimants and the Kenya government before ICSID. For instance, in the WalAm Energy case, the claimants are represented by Gibson Dunn of London and Oraro & Company Advocates of Kenya, and the government is represented by Freshfields Bruckhaus Deringer based of Paris and Coulson Harney Advocates of Kenya. 45 In the Cortec Mining case, the claimants are represented by Clifford Chance of London, and the government is

8 represented by DLA Piper of London, and Iseme Kamau and Maema Advocates of Kenya. 46 There are also other top tier Kenyan firms 47 and international consultancies 48 with experience in international arbitration. With more experience and capacity building, it may well be that Kenyan practitioners will be taking on international arbitration cases without international law firm partnership. 6. Support to arbitration: the state of the courts Although arbitration is designed to dispense with court involvement in disputes, the support of the courts is required to give effect to the arbitration process and to enforce arbitration awards. During the arbitration process, support is required in enforcement of an arbitration agreement and adjudication of any challenges related to this, and the constitution of the tribunal. Assistance is also required in the collecting of evidence, and in the granting of interim measures. When an arbitral award is issued, in order to be enforceable, it is required to be recognized as a decree of the court, through a filing and recognition process. A dissatisfied party can also apply for setting aside of the arbitral award under limited circumstances, either under Kenya s Arbitration Act, or under the New York Convention. Kenyan courts are generally supportive of arbitration. There have been some cases where the support has wavered, calling for better awareness and training of judges on the synergy between arbitration and litigation. However, the greatest challenge to the success of international arbitration in Kenya can be said to be the backlog and time inefficiencies which plague Kenyan courts. Under the 2017 World Bank Doing Business Report, Kenya was ranked at position 87 out of 190 in enforcing contracts, a drop from position 85 in On average, it was found that court cases took more than a year to resolve (on average, 465 days), and the quality of judgments was ranked at 9 against a top mark of There is need for greater improvement of court support, especially for Kenya to gain momentum as a seat of arbitration and an international arbitration hub. 7. Capacity Building and Training As discussed there is still room for improvement in fostering international arbitration in Kenya, and training and capacity building for judges, practitioners and arbitrators will go a long way to achieve this. CIArb-Kenya Branch has an established arbitrator training and accreditation courses. 50 The International Council for Commercial Arbitration (ICCA) also provide arbitration training courses and roadshows for Africa. 51 There are trainings under EAC and COMESA, and one-onone trainings by international law firms and local and regional firms. For practical experience, secondments and internships to international entities are a good option, and one resource for this is the International Lawyers for Africa (ILFA) secondment programmes. 52 Further, GBS Africa, along with several partners has for the past 5 years hosted the East Africa International Arbitration Conference (EAIAC), which aims to promote international arbitration in East Africa. EAIAC brings together international and regional experts in international arbitration for trainings, and provides a platform for promoting African centres, such as the NCIA and CIArb-Kenya. 53 GBS Africa also arranges for tailor-made trainings where required. 8. Conclusion: The future of international arbitration in Kenya This report has provided a comprehensive overview of international arbitration in Kenya and discussed the burgeoning rate of foreign investment in Kenya, and why international arbitration is important in promoting this. Kenya has conducive laws, infrastructure, global connectivity and expertise to foster international arbitration. We have discussed the state of the Kenyan legal system and international conventions as they relate to arbitration, and found that Kenya s Arbitration Act (which is based on the UNCITRAL Model Law) and commitment to international treaties (New York Convention, ICSID and the PCA), and regional treaties (COMESA and EAC) are up to date and still very relevant. Kenya is developing international arbitration institutions such as the NCIA, CIArb and ICC-Kenya. With the NCIA, challenges lie in the future, including competition from established international centres and developing African centres. The NCIA requires determined marketing and profiling, capacity building and the eventual cutting out of government support in order to establish itself as a leading institution. With regard to Kenyan arbitrators and practitioners in international arbitration, these are well established, but there needs to be greater profiling and training, and support through government appointments in cases. The Report has also found that although the courts are generally supportive of arbitration, there are still challenges arising in relation to general timelines for court cases, and judges awareness of their arbitration support obligations. This Reports concludes that Kenya is well positioned as an international arbitration hub in Africa, and the improvements and recommendations in this Report will play a part in further cementing Kenya s status as an international arbitration and investment hub. For any queries or further information, please do not hesitate to contact the Authors. Thank you