As foreign investment into Sub-Saharan Africa continues to grow, inevitably, so does the risk of disputes arising between commercial parties. The potential benefits of arbitration in settling a commercial dispute, including procedural flexibility and neutrality, are well known (read more from the ICC here). This post provides an introduction to the relevance of arbitration to investors considering entering into commercial contracts in Sub-Saharan African states and/or with Sub-Saharan African counterparties.

International parties and legal practitioners have historically demonstrated a reluctance to commence proceedings before African institutions, or to seat arbitral proceedings in Sub-Saharan jurisdictions. However, statistics published by the ICC Court of Arbitration earlier this year, demonstrate an increase in the commencement of arbitrations in Sub-Saharan Africa in 2013, involving parties of 29 nationalities, arbitrators of 11 nationalities and proceedings seated in 8 different countries in the region. This said, untested national legislation and unfamiliarity with the approach of some national courts to arbitral proceedings and the relative inexperience of some institutions and judiciaries with complex international commercial arbitration, still necessitate a degree of caution approaching arbitrations with an African nexus.

An introduction to strategies for overcoming potential challenges surrounding arbitration

1. Pre-investment stage: drafting a suitable arbitration agreement

Ensuring clear, well drafted arbitration agreements at the investment stage of African-orientated transactions and investments should encourage effective and efficient arbitration proceedings should dispute resolution prove necessary at a later stage.

There is no “one model” for an arbitration agreement, although many international arbitration institutions do provide model clauses that can be utilised. The content of an arbitration agreement will generally require an analysis based on each particular investment or transaction, as well as the requirements of the parties concerning their desired dispute resolution mechanism. When drafting arbitration agreements, investors must carefully consider various factors which could later play into the success of any arbitral proceedings, including whether to opt for an institutional or ad hoc arbitration and the seat and venue for the arbitration.

Arbitral Tribunal

An arbitral institution may be either institutional (formed under the auspices of an arbitration centre) or ad hoc (formed independently from any institution by agreement between the parties). If institutional arbitration is preferred, parties have a plethora of institutions to choose from. Many parties still opt for long standing institutions, such as the ICC. Several regional institutions have been established in recent decades such as Sub Saharan African arbitration centres, including the Arbitration Foundation of Southern Africa (AFSA), the London Court of International Arbitration and Mauritius International Arbitration Centre (LCIA-MIAC), and the Common Court of Justice and Arbitration (CCJA).

The establishment of the LCIA-MIAC Arbitration Centre in 2011, has drawn particular interest. The centre is set up under a similar model to the highly successful DIFC LCIA Arbitration Centre in Dubai and is well-positioned in Mauritius, at the heart of Africa’s offshore financial businesses. The LCIA-MIAC framework is innovative, not least because the Permanent Court of Arbitration (in The Hague), rather than the national courts, is the default appointing authority behind the institution and the PCA has a permanent representative at the LCIA-MIAC. It is early days, but the LCIA-MIAC is anticipated to become a preferred arbitration centre for Africa-related disputes.

Seat of the Arbitration

The law of the seat may be different to the law governing the substance of the dispute and is a key component of the arbitration agreement as it often governs both internal procedural matters relating to the arbitration and the interaction national courts will have in the arbitration proceedings. Where transactions and investments are Africa-related , parties may opt to seat the arbitration within the African state at the centre of the dispute or outside the relevant African jurisdiction.

When selecting the arbitral seat, one must consider a state’s national laws. While some states’ national arbitration laws are based on or incorporate the UNCITRAL “Model Law”, other states have adopted their own arbitration statutes, some of which are virtually silent on the general powers of the arbitral tribunal. Investors should be careful not to seat an arbitration in a state whose arbitration laws are unsettled or vague.

Venue for Proceedings

It is open to the parties to agree on a venue for holding meetings and hearings during any ongoing arbitral proceedings that is mutually convenient for the parties, the arbitrators and legal representatives. As the venue can be an alternative location to the seat of the arbitration, this can potentially provide time and cost savings for those involved in the proceedings, while allowing the parties to agree on a seat of arbitration that provides the most attractive procedural advantages for the parties.

2. Enforcement Stage

In the event that an arbitral award is not voluntarily complied with, a party may need to seek to enforce an award before national courts in the region. Enforcement success in Sub-Saharan Africa, as in other regions, hinges on the approach of the particular national courts.

To enforce an arbitral award in a state that has ratified the New York Convention on the Recognition and Enforcement of Arbitral Awards (the New York Convention) should, in theory, be relatively straightforward. The New York Convention is a pro-enforcement mechanism under which contracting states are required to recognise and enforce foreign arbitral awards, except in limited circumstances. In recent years, a number of new Sub-Saharan African states have acceded to the New York Convention. Burundi, for example, became the 34th African state to become signatory to the New York Convention earlier this year.  However, even in contracting states, approaches taken by national courts to the interpretation of provisions of the New York Convention vary.

There are other regional arrangements in place regarding enforcement of awards. For example, the regional Organisation pour l’Harmonisation en Afrique du Droit des Affairs (OHADA) Treaty, entered into by 17 West and Central African states, provide an enforcement mechanism among its signatory states. Under the OHADA Treaty, signatory states are generally required to enforce foreign arbitral awards rendered in other signatory states.

While national courts have, at times demonstrated a pro-arbitration approach to the enforcement of awards, the case law is inconsistent and a complex array of factors play into whether enforcement is effective.  Covington has released a separate guide on the enforcement of arbitral awards in Sub-Saharan Africa (read here).

Author Jeremy Wilson is a partner in Covington’s arbitration team and contact for the London office. Co-author Catherine Karia is an associate in Covington’s arbitration team and Co-author Hannah Edmonds is a trainee.