1 November 2010 | By James Swift
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Like all emerging jurisdictions, Africa comes with inherent risks, and with increasing inward investment the continent is seeing a rise in arbitration.
At the London Court of Inter- national Arbitration (LCIA), disputes arising out of Africa made up around 6 per cent of cases in 2009. This is not a huge number and, according to the court’s registrar and deputy director general James Clanchy, this year it looks set to be a little lower.
But he hastens to add that this “does not indicate a trend”.
Anecdotal evidence from lawyers in-volved in African disputes also contradicts the figures.
“Africa’s time is coming,’ says Norton Rose’s head of international arbitration in London Joseph Tirado. “There have been peaks where we’ve seen a significant amount of arbitration. Nigeria is the best example because of the amount of oil and gas activity, but we’re seeing an increase in French-speaking Africa and we have cases in the Democratic Republic of Congo too. One arbitration we’ve seen is as high as $500m (£312m).”
Statistics from the ICC Court of Arbitration in Paris, unlike London, support this. According to a spokesperson for the court, the number of parties from North Africa turning to arbitration rose by 65 per cent in 2009 and “the spread of nationalities [applying to the court] in sub-Saharan Africa was wider than in recent years, with 23 countries represented in the cases filed in 2009”.
It is not that working in Africa is likely to lead to a dispute - no more than any other emerging jurisdiction, anyway. Rather, the rise in arbitration is a natural corollary to the rise in investment in the continent.
“There’s no doubt that arbitration is a hot topic,” says Clyde & Co partner Stephen Tricks. “There’s a lot of new money and interest in trade and project work in Africa and that generates commercial business so, obviously there are going to be disputes.”
That said, as in almost every emerging jurisdiction there are inherent risks, and leaving matters up to the courts is not a route favoured by investors or advised by lawyers.
“Africa poses a lot of risks, as emerging jurisdictions often do,” says Akin Gump Strauss Hauer & Feld partner Michael Stepek. “Certain areas of the continent don’t have a functioning legal system and corruption is endemic, and just from the size of the projects themselves, you get a lot of risk.”
“The thing that you still see is that politics plays a role,” says SNR Denton arbitration co-head Elizabeth Tout, who also stresses that risks in Africa are no higher than other emerging markets. “We’ve seen a fair amount of mining and natural resources deals where, after they’re done, they’re considered too favourable to the Western company, and there’s backtracking.
“We’ve also seen governments trying to get popular support by saying they’re getting tough on companies coming here and taking wealth. But in those sorts of fights we are starting to see the African entity eventually backing down; it’s quite interesting to see they’re not willing to be complete pariahs.”
Making things tougher, it seems that firms and investors are not always as alive to the risks of arbitration as they should be.
“You might have one firm acting with a local firm taking the lead on the onshore component of the deal and putting in one kind of arbitration clause, or even court clauses, and an international firm doing something else,” says Stepek. “It can be very frustrating and it’s something that I do come across fairly often.”
“Generally it’s not that good but it’s getting better,” adds Tirado. “Most people admit these [arbitration] clauses tend to be ’back of the envelope’ inherited clauses when, in reality, a properly drafted dispute resolution clause can save years by minimising the spurious claims that can come from poorly drafted clauses.”
What’s more, there is sometimes a feeling of resentment, particularly in South Africa, when it comes to international arbitration.
“The attitude towards international arbitration isn’t always great,” says one partner at an international law firm. “It can be pretty suspicious at best and hostile at worst. There are political reasons for this that go back to apartheid, in that inter-national arbitration might be seen as white man’s justice, and there’s also a feeling of - ’what’s wrong with our courts? When they were filled with white judges it was okay to use them but now most of the judiciary is black they’re no longer good enough’.”
But instances of African entities insisting on local law being used in arbitrations is on the rise, particularly in Nigeria where the wealth of natural resources gives the country a lot of leverage in transactions. In 2009 Nigeria established the Lagos Court of Arbitration, and Mauritius is trying to turn itself into an arbitration hub like Singapore.
But these courts have yet to take off in a big way, and the biggest shot in the arm for arbitration in Africa has been the entry of the Chinese as investors on the continent.
“We’ve found ourselves in a whole series of disputes coming out of the fact that Chinese companies have gone into Africa seeking security of supply of resources, and that has an impact on existing agreements,” says DLA Piper joint head of arbitration Matthew Saunders. “For example, Chinese parties are coming in and seeking to obtain mining rights for sectors that have previously been awarded to other states but who chose not to act on those rights, and now the African states are torn between a new attractive outsider and incumbents.”
“The appetite that China has for new oil blocks across the world means that the country is looking at blocks in Africa and Dubai,” adds Clifford Chance partner Audley Sheppard. “The previous owners of these blocks are disputing whether they really were free to be re-sold.”