Challenges and criticisms: evaluation of the legitimacy, accessibility, and effectiveness of international commercial courts – an African perspective

Edward Nathan Sonnenbergs, Johannesburg

jferrazcardoso@ensafrica.com
 

Investment in Africa remains highly attractive to foreign investors, with EY reporting that:

‘Foreign direct investment led to the creation of 194,000 jobs across Africa in 2023. The total capital investment reached US$162b, a 135% increase over the pre-pandemic levels of 2019, while the number of projects, at 797, rose by 9% from the previous year.’[1]

While most business operations – domestic or international – are vulnerable to disputes, international operations are unique in that some foreign entities may have internal processes regulating contractual dispute resolution mechanisms, or be uncomfortable with litigating in unfamiliar local courts or forums. Such entities may prefer to litigate in international forums instead, possibly assuming their reliability and effectiveness. Local practitioners, however, have differing views on this approach.

Below, we consider perspectives on international commercial courts from South African, Kenyan, Ghanian and Mauritian legal practitioners.

South Africa

Although South Africa has a robust and independent court system, in recent years, certain courts have become overburdened and, as a result, lead times for hearing dates (particularly trials) have become extensive. This has resulted in a marked increase in private arbitrations, both local and international, as a means to resolve disputes on an expedited basis.

As a result, there is a decently sized pool of highly qualified senior and junior counsel who are accredited arbitrators. This means that litigants have access to high quality arbitrators who are experts in South African law and offer market-related rates for their services, thus making domestic arbitrations a competitive and, for some, favourable option.

South Africa has several well-established local private arbitration forums, such as the Arbitration Foundation of Southern Africa (AFSA) and the Association of Arbitrators. From a cost perspective, local forums typically require an upfront fee, payable by each of the parties, and pre-determined depending on the quantum claimed in the arbitration. For example, in an AFSA arbitration relating to a claim of between ZAR 3m and ZAR 35.6m, the arbitration fee payable would be ZAR 27,750 per party plus 0.125 per cent of the amount over ZAR 3m.

In addition, the parties would be required to pay the arbitrator’s fees, typically charged at a pre-agreed hourly rate, with this cost generally being borne by the unsuccessful party.

By contrast, an arbitration administered by the International Commercial Court would require the parties to pay an upfront non-refundable filing fee of US$5,000 (approximately ZAR 92,000). The claimant would also be required to pay an advance on costs, the quantum of which is based on the principal claim/s in the matter. In a claim of ZAR 3m, the advance on costs is estimated at approximately US$20,411 (ie, approximately ZAR 375,000), and the arbitrator’s fees are estimated at a further US$20,636 (ie, approximately ZAR 375,000).

As is evident from the above, there is a significant difference in the costs associated with domestic and international arbitrations. Importantly, the above estimates do not account for the arbitrator’s travel arrangements. In an international arbitration, given that either the arbitrator or the parties are likely to be required to travel either to the agreed venue for the arbitration or the seat of the arbitration forum, there may be the further cost of international travel and accommodation. In domestic arbitrations, the travel costs would be significantly lower because the parties have the option to appoint an arbitrator based in the same city, thereby drastically curtailing costs (in any event, local travel is significantly cheaper).

The cost associated with an international arbitration may, in certain instances, render international forums inaccessible to local litigants. This is an important factor to consider when parties are concluding commercial agreements. Often, international forums are viewed as more reliable and legitimate than local forums and therefore, accepted by default. However, not only does this overlook the sometimes prohibitive cost of utilising an international commercial court, it also disregards the strength of local institutions.

South Africa has a strong legal system and highly skilled practitioners, which result in private arbitrations being conducted to a high standard. Local forums are therefore not only more cost effective, but also equally reliable and effective in resolving disputes. 

Ghana

In Ghana, the costs of an arbitration (domestic or commercial) depend on a variety of factors, including the charge-out rate of the law firms involved, claim amount, complexity of the dispute, arbitrators involved, and the arbitral institution involved.

In addition, the costs in a domestic arbitration (particularly with regards to arbitrators’ fees) are usually not significantly different from the costs in an international arbitration. In some instances, arbitrators charge higher rates in domestic arbitrations for relatively straightforward disputes, which may have incurred lower arbitrators’ fees had the proceedings been conducted internationally.

Of course, international arbitrations often incur the added cost of travel expenses and, in some cases, foreign law experts, this rendering them less competitive on pricing.

Costs being more or less equal, the overall experience litigating in international versus domestic arbitrations may be the distinguishing factor.

Some practitioners feel that international forums offer more advanced and effective administration – for example, secretariat services, arbitration process management and even stenographers – which facilitate a more efficient process overall. In addition, the pool of arbitrators is often larger, thus ensuring that arbitrator fees remain competitive and do not become excessive. However, a potential drawback lies in the powers granted to arbitrators. Some legal counsel may find that international arbitrators exercise too much control over the arbitral process, which, in turn, impacts on the strategy and approach for the client.

In contrast, some practitioners sometimes feel that local arbitrators may not conduct themselves as professionally as international arbitrators, potentially disregarding the importance of their impartiality and independence, or charging excessive and unchecked fees.

In Ghana, therefore, it appears that international commercial courts may be favoured over their domestic equivalents.

Kenya

In Kenya, the costs for international and domestic arbitrations depend on the individual circumstances of the matter. However, on the whole, local arbitrations remain the more affordable option, with international arbitrations potentially costing three to four times as much as domestic arbitrations. That being said, certain international arbitration forums do regulate arbitrators’ fees, which can keep the costs from being excessive.

An illustration of just how high costs of foreign arbitrations can become lies in the recent decision of the Kenya High Court (per the Honourable Mabeya J) in Ongata Works vs Tatu City, wherein the court set aside a costs order awarding the successful party US$842,512.72 in costs, in a matter wherein the aggregate damages amounted to US$166,861,526. The court found that this was excessive and contrary to public policy. Notably, these costs had been computed by an arbitrator under ICC Rules.

Costs aside, one potential impediment to using international courts is the logistical challenge: litigants and their legal representatives would need to travel and stay for an extended period in London or Paris with physical files. Although tedious, this is not necessarily prohibitive, and this dynamic has also shifted in recent years with proceedings increasingly being held virtually and electronic bundles being utilised.

In addition, there are unfortunately occurrences of corruption in Kenya, including within the legal landscape, which has infiltrated the arbitration space. In light of this, some practitioners are increasingly opting to avoid arbitration altogether, seeking rather to utilise the judicial system, which is more open in comparison to private arbitrations, and provides a wider scope to challenge problematic decisions on appeal.

However, a clear advantage of international arbitration forums is the availability of experienced arbitrators, and those who are experts in highly specialised areas of law. It must be noted that, in the long term, continuous reliance on this expertise may end up perpetuating a trend which excludes local arbitrators for want of requisite experience, while simultaneously denying them the opportunity to acquire such expertise. This could have long-term implications for the legal system and its practitioners.

Mauritius

For some practitioners in Mauritius, the use of domestic arbitration as a dispute resolution system has proven to be unsatisfactory, as the rules for domestic arbitrations have become outdated. As such, litigants tend to import into the domestic arbitration process mechanisms used in litigation before domestic courts. This can result in a lengthier arbitration process, which some view as defeating the purpose of arbitration as an efficient dispute resolution mechanism.

On the other hand, it appears that African litigants have become more accustomed with using institutional rules, as evidenced by the figures published in caseload reports from some of the main international arbitration institutions, including the London Court of International Arbitration (LCIA), Singapore International Arbitration Centre (SIAC) and ICC, which show that African parties are increasingly using those rules.

The challenge, it would appear, lies with practitioners across the continent to grow confidence and their presence in those fora.

Conclusion

The legitimacy, effectiveness and accessibility of international commercial courts appears to depend heavily on jurisdiction – certainly in South Africa, Ghana, Kenya and Mauritius. On the whole, international arbitrations are seemingly attractive because of the access they provide to specialised and experienced arbitrators, as well as the administrative processes in place. Unsurprisingly, the costs can become prohibitive, and, in some jurisdictions, the independence of such forums is not always guaranteed.

Acknowledgments

Kenya: Walter Amoko, ENS Kenya

Ghana: David A. Asideu, David Adu-Tutu Jr and Joseph Konadu, ENS Ghana

Mauritius: Shrivan Dabee, ENS Mauritius