The African Continental Free Trade Area or “AfCFTA”, launched last year in terms of the African Continental Free Trade Agreement, created the largest free trade area in the world measured by the number of countries participating, with the potential to unite 1.3-billion people and with a combined GDP valued at USD3.4-trillion, according to the World Economic Forum.
The expansion of foreign and intra-African trade and investment has resulted in the increasing prominence of arbitration as an effective mechanism for resolving cross-border disputes that involve parties, legal representatives and arbitrators from different legal and cultural backgrounds. Arbitration as a dispute resolution mechanism allows the contracting parties to apply neutral practices or norms treating the parties equally, fairly and expeditiously; for example, contracting parties may agree to apply the rules of prominent arbitration institutions not tied to domestic court processes. Foreign arbitral awards are also generally easier to enforce than foreign court judgments, with over 130 countries being signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (“New York Convention”).
Before consenting to arbitration, contracting parties should consider the various nuances of arbitration as a form of dispute resolution mechanism. Uganda’s Parliament was recently up in arms upon discovering that the loan agreement with the Export-Import Bank of China, for the expansion of the Entebbe International Airport, provided for arbitration by the China International Economic and Trade Arbitration Commission and that the agreement and disputes arising would be governed by Chinese law.
The following are certain material aspects for consideration when drafting an arbitration clause in a contract involving a cross-border transaction.
Institutional or ad hoc arbitration
Parties may elect to have their arbitration administered by a recognised arbitral institution or employ an ad hoc procedure in which the parties determine the procedure for conducting their arbitration. In the case of an ad hoc procedure, parties may still agree to apply the rules of a particular arbitral institution. Choosing a particular arbitration institution to administer the arbitration has certain advantages, such as assisting with the selection of arbitrators and handling communication between the parties; however, there are added fees levied by the arbitral institution for administering the arbitration.
The 2020 Arbitration in Africa Survey Report published by the School of Oriental and African Studies University of London, identified the Arbitration Foundation of Southern Africa (South Africa), Cairo Regional Centre for International Commercial Arbitration (Egypt), the Kigali International Arbitration Centre (Rwanda), Lagos Court of Arbitration (Nigeria) and the Nairobi Centre for International Arbitration (Kenya) as the most popular arbitral centres in Africa. Other countries across the continent are at various stages of setting up or cementing the use of their own arbitration centres. For example, Uganda has recently established the International Centre for Arbitration and Mediation in Kampala (ICAMEK), an independent, not-for-profit organisation formed by Uganda Law Society and Uganda Bankers Association to advance Alternative Dispute Resolution in Uganda and across East Africa. In addition, Uganda has the Centre for Arbitration and Dispute Resolution (CADER). Ghana has the Ghana Arbitration Centre, which was established in 1996. There is also the idea of setting up a government-backed alternative dispute resolution centre.
Seat of arbitration and enforcement
The seat of the arbitration will determine the procedural rules that govern the arbitration, including the appointment of an arbitral tribunal, document production, witness testimony and right of appeal.
The seat of the arbitration is also an important factor when it comes to enforcing the arbitral award. Consideration must be given to the relationship between the arbitral tribunal and domestic courts, ie whether the seat is in a country that is party to an international convention such as the New York Convention. Contracting parties should look to identify seats situated in jurisdictions with modern arbitral laws and judicial systems that endorse arbitration as a dispute resolution mechanism. In West Africa, all the countries have adopted the New York Convention, except Togo, Gambia and Guinea Bissau.
The seat of arbitration will not necessarily inform the physical location of the arbitration. The COVID-19 pandemic has seen a rise in the number of virtual hearings; not surprisingly technology stands to be a crucial factor in informing the choice of seat.
Parties must choose the law of the particular jurisdiction that will be applied by the arbitral tribunal to determine the substantive issues in dispute. This will usually be the law specified in the main contract governing the interpretation of the contract itself; if not specified, this may result in a source of substantial disagreement between the parties when a dispute eventually arises.
It is advisable to confirm that the parties have the requisite capacity to enter into an arbitration agreement to begin with.
Again, with the international elements of both free trade areas (including the AfCFTA) as well as international arbitration, it is easy to overlook the fact that national laws remain in force, and that they remain unique and binding (and paramount) in individual states. Not knowing, not getting advice, and not adhering to these national laws can adversely affect arbitral proceedings and the ability to enforce arbitral awards. Thus, it is even more important (with the advent of the AfCFTA) to obtain legal advice when entering into contracts (especially on the choice of governing law). Take Ghana’s law on “International Business Transactions” (IBTs), for example. It is an equal-parts clear and murky mixture of constitutional law and judge-made law. An IBT is a transaction between the Ghanaian state (or an organ of the state) and a foreign entity, that requires the state to pay money for services or works rendered by the foreign entity. The underlying contract is void and “ineffective” without the prior approval of the Ghanaian parliament. Thus, if an IBT leads to a dispute, which in turn leads to arbitration (whether domestic or international), the arbitral award would be unenforceable in Ghana if the underlying IBT was not approved by the Ghanaian Parliament.
Appointment of the arbitral tribunal
Typically an arbitral tribunal is constituted by either a single arbitrator or three arbitrators.
The parties should consider whether the value of contract or complexity of the potential issues in dispute justifies the appointment of three arbitrators – which obviously increases the costs. The parties may decide that it is in the interest of fairness for each party to appoint a single arbitrator, granting the parties’ respective appointed arbitrators the right to agree to the appointment of the third member of the arbitral tribunal.
The nature of the commercial transaction and whether any potential disputes arising therefrom will require determination by an arbitral tribunal with specific expertise or experience should be considered. This is specifically relevant where the contract is of a technical nature, such as construction agreements that incorporate International Federation of Consulting Engineers (FIDIC) contracts. For such technical contracts, the arbitration clause may specify the qualifications of the arbitrators to ensure the tribunal will have the technical competence to determine the issue.
Scope of disputes
Parties should consider whether all disputes potentially arising between them will be subject to arbitration, such as disputes relating to the implementation, interpretation, breach or cancellation of the underlying contract. If the parties intend that all disputes between them should be subject to arbitration, the wording of the arbitration clause should be wide enough to include all possible disputes. Arbitration clauses ambiguous in nature may lead to a challenge by one of the parties to the jurisdiction of the arbitral tribunal at the point of referral of a dispute to arbitration (in the event of a challenge to jurisdiction it helps to have an arbitration institution to administer the arbitration).
Not all legal claims are appropriately dealt with through arbitration proceedings. For example, liquidated money claims may be more efficiently dealt with through an expedited court process such as summary judgment procedure available in many jurisdictions, particularly those with English law foundations.
The doctrine of confidentiality in arbitration proceedings may not necessarily apply, depending on the jurisdiction in which the arbitration proceedings take place. Parties are advised to make express provision in the arbitration clause that the parties agree to keep any arbitration proceedings confidential (if that is what they desire).
Language of arbitration
Commercial transactions on the continent are typically conducted in either English or French, depending on the locality. Parties should consider whether the arbitration in a particular seat of arbitration is conducted in English or French as this will inform whether additional costs will be incurred where documents are required to be translated.
Arbitration clauses in contracts allow for party autonomy in relation to the manner in which disputes between the contracting parties are resolved. Deciding these matters upfront means that the parties may legislate for a dispute resolution process balancing the commercial interests of the parties and the need for an appropriate mechanism to settle any disputes that may arise between the parties in the course of the contractual relationship.
Read the original publication at ENSafrica