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A review of recent efforts to modernise commercial arbitration practice in Africa

Wednesday 24 November 2021

Kamal Shah

Stephenson Harwood, London

kamal.shah@shlegal.com

Jide Adesokan

Stephenson Harwood, London

jide.adesokan@shlegal.com

Afolarin Awosika

Stephenson Harwood, London

afolarin.awosika@shlegal.com

In recent years, several African governments, domestic arbitral centres and local practitioners have taken significant strides to strengthen arbitration practice domestically. There have been two main objectives in mind: boosting foreign investment and portraying their countries as pro-arbitration – and therefore an attractive seat for arbitration.

In some instances, that has necessitated a complete overhaul of often decades-old arbitration laws, and a realignment to ensure that the national law is consistent with international best practices. This article will analyse the new arbitration laws in Ethiopia and Tanzania, both of which came into force in 2021, and both of which make some improvements to the previous regimes, while retaining some problematic features. It seeks to highlight that, despite the many promising developments, there is still some way to go to fully liberalise national arbitration laws in Africa.

With the recent entry into force of the Africa Continental Free Trade Area agreement (AfCFTA), African countries have a unique opportunity to market themselves as attractive venues for international arbitration. According to a World Bank study, AfCFTA will increase Africa’s exports by 29 per cent (US$560bn) relative to business as usual by 2035, while the removal of 97 per cent of tariffs on intra-AfCFTA trade will increase Africa’s exports by 81 per cent.[1] The huge proliferation in intra-Africa trade and the relatively large increase in external trade will inevitably lead to an increase in disputes; AfCFTA therefore represents an opportunity for African countries to host more locally seated international arbitrations. This article will briefly review recent developments in prominent African arbitration institutions that have been introduced to ensure that those institutions are capable of administering complex, cross-border arbitrations.

Statutory reform

Countries with arbitration laws that reflect international best practices are perceived by potential foreign investors as more reliable investment environments. A recent study published in The Journal of Law and Economics, which examined various arbitration regimes and economic models tied to foreign direct investment (FDI), found that improvements in arbitration regimes tend to stimulate FDI investments. In addition, the positive shock to countries’ arbitration regimes from joining the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) increases the level of bilateral FDI.[2]

It is partly for this reason that both the Ethiopian and Tanzanian governments recently introduced new arbitration legislation to attract foreign investment.

Ethiopia

Prime Minister Abiy Ahmed took office in April 2018 promising comprehensive political and economic reform and a departure from Ethiopia’s state-oriented development model. Part of his reform agenda included modernising alternative dispute resolution methods which, along with sweeping market liberalisation, was intended to attract more FDI.

In addition to piecemeal legislative reforms through the inclusion of arbitration provisions in various laws,[3] the Ethiopian parliament ratified the New York Convention on 13 February 2020 and formally acceded to it on 22 November 2020. Meanwhile, Ethiopian legislators were working on reforming the existing arbitration law that derived primarily from the Civil Code and the Civil Procedure Code, which were enacted in 1960 and 1965 respectively.[4] It is no surprise that these provisions were no longer suitable to deal with the complexities of modern commercial international arbitration, and were either silent or ambiguous as to some of the key principles of modern arbitration practice.

For instance, Article 351 of the CPC provided a list of grounds upon which parties could appeal arbitral awards to the national courts (in addition to the procedure for setting aside an award which is common under internationally accepted standards). It even went as far as allowing the appellate court to vary an arbitral award, or remand some or all of an award back to the tribunal for reconsideration in light of the broad grounds of appeal.[5] Although parties could agree not to apply these provisions[6], the presumption that arbitral awards were appealable directly conflicted with the key principle of the finality of arbitral awards and the deferential approach to arbitration that is to be expected in arbitration-friendly national courts.

Further, Article 3330(3) of the Civil Code, which states that arbitrators cannot determine the validity of an arbitral submission, conflicts somewhat with the principle of kompetenz–kompetenz because any jurisdictional objections raised concerning the validity of an arbitral submission could only be decided by the court rather than the tribunal. Article 3329 of the Civil Code also provides that ‘[t]he provisions of the arbitral submission relating to the jurisdictions of the arbitrators [is to] be interpreted restrictively’.

The Arbitration and Conciliation Working Procedure Proclamation No. 1237/2021 (the Proclamation) sought to change that by making improvements in key areas.

Article 19 of the Proclamation codifies the arbitral tribunal’s power to rule upon its own jurisdiction, thereby reversing the anti-arbitration provisions in Articles 3329 and 3330 of the Civil Code. It also enshrines the doctrine of separability of an arbitration agreement.

Moreover, the Proclamation sets out a robust framework of powers that the tribunal can utilise to facilitate the conduct of an arbitration. Article 20 provides a non-exhaustive list of interim measures, which mirrors the corresponding provisions in the UNCITRAL Model Law on International Commercial Arbitration,[7] while Article 22 allows tribunals to make precautionary orders to prevent a party from obstructing the implementation of a contemplated interim order.

Under the previous framework, administrative contracts[8] were non-arbitrable (Article 315(2) of the Civil Procedure Code). Historically, this feature of the arbitration law has allowed Ethiopian government agencies to successfully challenge the enforcement of foreign arbitration awards on the basis that the underlying contracts were administrative in nature and therefore not capable of being arbitrated.[9] However, since the Civil Code and Civil Procedure Code entered into force, several laws were enacted which expressly provided that disputes could be arbitrated in relation to contracts that were ostensibly administrative in nature. For instance, government entities can enter into arbitration agreements in relation to foreign investments,[10] public-private partnerships,[11] mining operations,[12] and petroleum operations.[13]

Despite the apparent inconsistency between these laws and Article 315(2) of the Civil Procedure Code, the Federal Supreme Court had been willing to uphold the validity of arbitration agreements which were concluded in relation to those types of contracts, as they had been expressly permitted by law. While administrative contracts remain prima facie non-arbitrable under Article 7(7) of the Proclamation, there is an important exception for administrative contracts that are arbitrable under other laws. Essentially, the Proclamation ‘caught up’ with the prevailing approach to the non-arbitrability of administrative contracts under Federal Supreme Court jurisprudence.

While the Proclamation is a significant step in the right direction, it also contains some provisions that may negatively affect arbitration practice. One such example is Article 12(4) of the Proclamation, which entitles one of the parties to unilaterally terminate an arbitration agreement if the other party fails to respond to the notice of arbitration or denies the existence of an arbitration agreement.

Another example is Article 52(2)(a). A close reading of this provision indicates that (in the absence of the parties’ agreement) the applicable law to determine the validity of an arbitration agreement when assessing an objection to the enforcement of the arbitral award is Ethiopian law. This contradicts with Article V(1)(a) of the New York Convention, which provides that the applicable law in those instances is the law of the seat.

Although the Proclamation and the accession to the New York Convention are the major recent pro-arbitration developments in Ethiopia, there are other legislative reforms that should positively affect the development of arbitration practice. For instance, the Civil Societies Proclamation No. 1113/2019 lifted a prohibition on non-profit organisations that receive more than 10 per cent of their income from abroad from participating in dispute settlement activities. The Ethiopian Conciliation and Arbitration Centre was closed due to that prohibition but following the entry into force of this law, the Ethiopian Mediation and Arbitration Centre, has been established.

Tanzania

Tanzania’s path to reforming its arbitration regime has been less straightforward. In 2017 and 2018, Tanzania enacted a series of legislative changes which were viewed as regressive restrictions on the use of arbitration.[14] The purpose of these legislative changes was to limit the use of international arbitration as a method of dispute resolution where the underlying contract involved matters of natural resources. For instance, Section 14 of the Public Private Partnership (Amendment) Act (which amended Section 22 of the principal Act) prohibited the use of international arbitration in investor-state disputes.[15] Section 11 of the Permanent Sovereignty Act provided that disputes arising from the use of natural wealth and resources shall be adjudicated by judicial bodies established in Tanzania, and in accordance with the laws of Tanzania.[16]

The Arbitration Act, 2020 (the Act) came into force on 18 January 2021; four supplementary regulations were approved on 5 January 2021.[17] These pieces of legislation collectively sought to redress some of the problematic provisions that existed under the previous regime.

For example, the Act has expanded the powers that the tribunal may exercise in conducting arbitral proceedings (unless the parties agree to exclude those powers from the tribunal’s arsenal) (Section 40 (1) of the Act). Although it does not go as far as the Proclamation in Ethiopia (which resembles more closely the Model Law provisions), the Act provides that tribunals have the power to: order security for costs, give directions in relation to any property which is the subject of the proceedings and make orders for the preservation of evidence. It is unclear whether this is an exhaustive list, and recent case law from the High Court of Tanzania indicates that any areas of uncertainty in the legislation will be resolved by reference to English jurisprudence.[18]

One of the key features of the Act was the establishment of the Tanzania Arbitration Centre (TAC). The TAC is designed to oversee the conduct and management of arbitrations in Tanzania, as well as maintain a register of accredited arbitrators and advise the government generally on arbitration policy. One of the most important functions of the TAC is to provide education for Tanzanian arbitrators which, if implemented properly, will assist in the professional development of local practitioners.

The Act also introduced more stringent regulations aimed at certain practitioners and introduced criminal sanctions for individuals in breach of those regulations. In particular, Section 98 of the Act (which amended Sections 64B-D of the Criminal Procedure Act) requires all reconciliators, negotiators, mediator or arbitrators to be accredited by the Registrar, who in turn must be appointed in accordance with Section 64(c) of the Act. The amended Sections 64C(2) and (3) now provide that no person shall practice for a fee in any of those roles without being accredited, and provides that it is a criminal offence for them to do so.

Despite some positive changes, the TAA appears to retain arguably the most problematic provision for foreign investors. Under the Natural Wealth and Resources (Permanent Sovereignty) Act (NWRA), Cap. 449 and the Public Private Partnership Act (PPP Act), disputes relating to the use of natural wealth and/or public-private partnership arrangements had to be adjudicated by judicial bodies or organs or other organs established in Tanzania, in accordance with the laws of Tanzania. While Sections 100 (amending Section 11 of the NWRA) and 102 (amending the PPP Act) dispose of the requirement for those judicial bodies or organs to be ‘established’ in Tanzania, disputes are still required to be adjudicated by judicial bodies or organs in Tanzania and in accordance with Tanzanian law. It remains to be seen whether the removal of the word ‘established’ from the relevant provisions will result in any material difference in the way that these provisions are applied in practice.

Other developments

New signatories to the New York Convention

The New York Convention was once described by Renaud Sorieul, the Secretary of UNCITRAL, as the ‘cornerstone of the international arbitration system’. The World Bank study referred to above concluded that acceding to the New York Convention boosts bilateral FDI, so it is no surprise that there has been a recent wave of African countries acceding to the New York Convention with a view to attracting foreign investors.

Malawi acceded to the New York Convention on 4 March 2021, and it entered into force on 2 June 2021. It joined Sierra Leone, who acceded to the New York Convention on 28 October 2020, with the Convention entering into force on 26 January 2021. Both states opted to include the reservation with regards to retroactive application of the New York Convention. Other recent African signatories include Sudan and Cape Verde, which both ratified the Convention in March 2018, and Angola, which ratified the Convention in 2017.

Nigeria’s National Arbitration Policy

In October 2020, the Attorney General of Nigeria, Abubakar Malami, established the National Arbitration Policy. He also inaugurated the members of the National Arbitration Committee (NAC), which are tasked with formulating a comprehensive arbitration policy which will address several areas of arbitration practice in Nigeria. In a press release, Malami stated that one of the outcomes of the new policy would be to ensure that ‘arbitration agreements in respect of all disputes arising from governmental contracts, especially with foreign entities, will have Nigeria as the seat of arbitration.’[19] This has been met with some criticism from arbitration practitioners, who view this as a potential encroachment on the fundamental principle of party autonomy and over-regulation of arbitration practice.

In March 2021, a group of stakeholders in the Nigerian arbitration community issued a memorandum. While this commended the efforts to develop a transformative policy framework for addressing issues arising from arbitration process and agreements in or concerning Nigeria, it also expressed concern about the potential for infringing on the principles of party autonomy and laissez faire in commercial relations.[20]

The NAC is consulting widely on the various areas for improvement. As to mandatory seat selection, the NAC leadership has stated categorically that party autonomy will prevail in any future policy even if government entities are encouraged to elect for Nigerian-seated arbitrations.

In the aftermath of recent landmark rulings in the P&ID saga, which is still ongoing, it is not surprising that the Nigerian government is seeking to insulate itself from future significant liabilities. However, it must weigh up taking what it views to be necessary steps in the national interest with taking an excessively interventionist approach to arbitration policy – which risks alienating foreign investors.

Arbitration centres in Africa

Most economic forecasts predict a massive increase in intra-Africa trade in the years following the coming into force of AfCFTA. While parties in key African economies such as Nigeria have historically preferred to opt for ad hoc rather than institutional, rules-based arbitration,[21] the increase in cross-border trade is likely to result in a greater need for rules-based arbitrations administered by arbitration centres that are capable of overseeing complex, cross-border disputes.

In recent years, there has been a proliferation of arbitration centres and institutions in Africa. A recent study by SOAS found that there are now more than 90 arbitration centres or organisations operating on the continent.[22]

In response to some of the recent developments and the anticipated increase in demand for institutional arbitration, some well-established arbitral institutions have introduced initiatives intended to present themselves as market-leading institutions that can handle high value, complex international arbitrations. For instance, the Lagos Court of Arbitration (LCA) recently established an arbitration committee. Its responsibility includes reviewing various rules relating to key areas including:

  • the appointment of, and challenges to arbitrators;
  • the scrutiny of arbitral awards and control of costs in arbitral proceedings;
  • the rules in general; and
  • the composition of the LCA Board of Directors.

Similarly, the Arbitration Foundation of Southern Africa (AFSA) – which was recognised in the SOAS study as one of the leading arbitration centres in Africa – recently launched its new rules in an attempt to consolidate its reputation and to accommodate for recent changes in arbitration practice. For example, it:

  • established a new court intended to oversee the administration of arbitrations;
  • introduced a new expedited procedure;
  • introduced a procedure to appoint an emergency arbitrator; and
  • most importantly in light of the Covid-19 pandemic, introduced a procedure to allow parties to conduct hearings using modern technology.

It remains to be seen whether African parties will begin to refer more arbitrations to institutions on the continent rather than the more established institutions abroad. As stated in the SOAS report, there are several benefits in doing so, including convenience and often significant cost savings. Recent developments, including the above examples, are a promising indication that arbitral institutions in Africa are increasingly well equipped to administer complex, cross-border disputes.

Conclusion

In recent years, Africa has seen many promising developments that are likely to encourage arbitration practice and have a positive effect on investment on the continent. The various legislative changes are a step in the right direction, although it will depend on the attitudes adopted by the national courts as to whether the desired effect is achieved. It also remains to be seen whether some of the protectionist provisions in the Ethiopian and Tanzanian national laws, and the proposed reforms in Nigerian arbitration policy, diminish the benefits that are likely to derive from the positive legislative changes.

On the advent of what many expect to be an increase in intra-Africa trade – and therefore disputes – the hope is that more parties will opt for Africa-seated arbitrations and/or refer disputes to African arbitral institutions. If that is the case, it will provide significant opportunities for arbitration practitioners in Africa, and help develop arbitration practice on the continent as a whole.

Thank you to Madeline Kimei, founder of iResolve and President of the Tanzania Institute of Arbitrators (TIArb), for her contribution to this article.

Thank you to Gidey Belay, Senior Associate at ZeeLaw and ALG LLP for his contribution to this article.

 

[1] ‘The African Continental Free Trade Area: Economic and Distributional Effects’ (World Bank, 2020), see https://openknowledge.worldbank.org/bitstream/handle/10986/34139/9781464815591.pdf, accessed 6 November 2021.

[2] Andrew Myburgh and Jordi Paniagua, ‘Does International Commercial Arbitration Promote Foreign Direct Investment?’ (August 2016), 59(3), The Journal of Law and Economics, 597-627. See www.inteco.uji.es/wp-content/uploads/Myburgh_Paniagua_2016_JLE_Does_arbitration_promote_FDIAOM.pdf.

[3] For example, the Labor Proclamation No, 1156/2019, the Investment Proclamation No.1180/2020 and the Public Private Partnership Proclamation No. 1076/2018 contain provisions allowing parties to settle their disputes through arbitration.

[4] There are arbitration-related provisions in other laws, including: Petroleum Operations Proclamation No. 295/1986; Technology Transfer Regulation No. 121/1993; Cooperative Societies Proclamation No. 985/2012; Water Resource Management Proclamation No. 197/2000; Chamber of Commerce Establishment Proclamation No. 341/2004; Ethiopian Commodity Exchange Establishment Proclamation No. 550/2006; Mining Operations Proclamation No. 678/2010. The arbitration provisions in these laws they specifically to the topic of the law in which they are included.

[5] CPC, Art 353.

[6] This agreement was only valid if made with full knowledge of the circumstance. In Dragados J & P Joint Venture Vs. Saba Construction PLC (Federal Supreme Court Cassation Bench, File No. 37678, 2008), the Bench held that a finality clause included in the agreed institutional rules were not agreed with full knowledge of the circumstances.

[7] The Proclamation, Art 20; the Model Law, Arts 9 and 17.

[8] Defined in Art 3132 of the Civil Code as a contract that is ‘connected with an activity of the public service and implies a permanent participation of the party contracting with the administrative authorities in the execution of such service’.

[9] See, for instance, Water Supply and Sewage Authority v. Kundan Singh Construction Limited, Addis Ababa High Court, Civil File No. 688/79, in which the High Court refused the enforcement of an international arbitral award issued in favour of an Indian company.

[10] Investment Proclamation No. 1180/2020, Art 28(2).

[11] Public-Private Partnership Proclamation No. 1076/2018, Art 61(2).

[12] Mining Operations Proclamation No.678/2010, Art 76,

[13] Petroleum Operations Proclamation No. 295/1986, Art 25,

[14] See The Natural Wealth and Resources (Review and Re-Negotiation of Unconscionable Terms) Act, No. 6 of 2017, The Natural Wealth and Resources (Permanent Sovereignty) Act, No. 3 of 2017, and Public Private Partnership (Amendment) Act, No. 9 of 2018

[17] The supplementary regulations are as follows and came into force as noted on the dates on which they were published: (1) Arbitration (Rules of Procedure) Regulations, 2021, G.N 146 published on 29/1/2021; (2) Tanzania Arbitration Centre (Management and Operations) Regulations, 2021- G.N.149 published on 29/1/2021; (3) Code of Conduct and Practice for Reconciliators, Negotiators, Mediators and Arbitrators – G.N. 148 (Contd) Notice No -148 Published on 29/1/2021; and (4) Reconciliation, Negotiation, Mediation and Arbitration (Practitioners Accreditation) – G. N. 147 Published on 29/1/ 2021.

[18] See Consolidated Commercial Cause No. 4 & No.9 of 2020, The Registered Trustees of the Diocese of Central Tanganyika v Afriq Engineering & Construction Company Limited, 20, 39

[19] ‘Malami Inaugurates Committee On National Arbitration Policy’ (Federal Ministry of Information & Culture, 14 October 2020), see https://fmic.gov.ng/malami-inaugurates-committee-on-national-arbitration-policy/.

[20] ‘Memorandum on the National Arbitration Policy’ (Lagos Court of Arbitration, 19 March 2021), see www.lca.org.ng/wp-content/uploads/2021/03/Memo-on-the-National-Arbitration-Policy-2021-Final.pdf

[21] Emilia Onyema, 2020 Arbitration in Africa Survey Report (SOAS, 30 June 2020), 14, see https://eprints.soas.ac.uk/33162/1/2020%t20Arbitration%20in%20Africa%20Survey%20Report%2030.06.2020.pdf.

[22] Ibid; not all of these entities carry out all of the normal functions of an arbitration institution.