Afriwise Blog

Ghana: Governing law and jurisdiction clauses in cross-border facility agreements

Written by ENSafrica | 16/03/2022

Local entities are increasingly relying on foreign banks for debt financing to meet the capital requirements of their business. In lending to local entities, foreign lenders consistently require a response to the question: how can a lending arrangement with a foreign entity be enforced?

 

With enforceability being a key consideration for foreign lenders, it is important to highlight two aspects of the query: the selection of foreign law as the governing law of finance documents and submission to foreign courts; and the enforcement of foreign judgments in Ghana.  

 

Typically, lenders desire their facility agreements to be governed by a law that is either familiar to them or convenient for their commercial objectives. As a result, English law is popular amongst foreign lenders. Generally, Ghanaian courts will enforce the governing law provisions in an agreement. However, if a dispute arises in a Ghanaian court in respect of a document governed by foreign law, foreign law will need to be proved as a matter of fact (including by expert opinion).

 

In selecting a dispute resolution mechanism and forum under the finance documents, the aim of lenders is generally to select the most appropriate and convenient forum to settle disputes and to avoid litigation in an unfavourable jurisdiction or under hostile circumstances. Ideally, lenders prefer exclusive jurisdiction clauses in favour of a foreign court.

 

In Ghana, such exclusive jurisdiction clauses would be ineffective as the courts do not permit their jurisdiction to be ousted by parties to an agreement. Thus, a Ghanaian court will entertain a dispute brought before it, in spite of the express provisions of the agreement, if the subject matter is closely connected with Ghana (such as where the borrower is Ghanaian).

 

To mitigate this risk, lenders are increasingly choosing arbitration as the dispute resolution mechanism. Under Ghanaian law, a court is required to stay proceedings in a matter where parties have, by their agreement, selected arbitration as the dispute resolution mechanism. Notably, the arbitral award must be from a country which is party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention), and must satisfy certain requirements to be enforceable in Ghana.

 

What happens after the judgment is obtained?

 

Final and conclusive judgments from countries with reciprocal agreements may be enforced in Ghana upon registration in the High Court. However, only ten countries have such reciprocal agreements with Ghana, including France, Italy and the United Kingdom. Judgments from other countries may not be enforced directly in Ghana without the institution of fresh proceedings in a Ghanaian court. However, lenders may rely on the foreign judgment as evidence of the liability of the borrower/security provider in such proceedings.

 

Conclusion

 

In Ghana, lending arrangements can be governed by foreign law and parties can agree to submit to foreign courts. Whilst not all foreign judgments are enforceable, they may be relied on as evidence in fresh proceedings.

 

 

 

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Read the original publication at ENSafrica.