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Guide to Regional Arbitration (volume 5 - 2017)

White List: Middle East & Africa

02 November 2016

In 1997, Judge Charles Brower published a piece in The American Journal of International Law describing the "three phases" of arbitration in the Middle East.

The first phase, stretching from World War II to the 1970s, saw cases ending badly for the Arab side, usually a state. (Petroleum Development (Trucial Coast) Ltd v Sheikh of Abu Dhabi is a particularly good example of just how badly some of those cases went.) European arbitrators gave short shrift to arguments deriving from shariah law. The second phase was a turning away from arbitration.

But only briefly. The concept of private dispute resolution is in fact a strong part of Arab culture. The Bahraini Minster of Justice, Sheikh Khalid bin Ali Al Khalifa, once said, "Arbitration harmonises with an Arab's psychological make-up – which is imbued with sentimentalism and which is more at home with a spirit of peace, goodwill and conciliatory brotherhood."

So after a "winter", the third phase has seen a flowering of local arbitration providers. Things have reached the point where, as Reza Mohtashami (a GAR editorial board member and Freshfields partner) noted, speaking at a GAR Live conference in Istanbul, "The tiny island of Bahrain is in fact home to three arbitral centres."

Almost 20 years after Brower's article ran, this third phase is still in full bloom – 2014 saw a Saudi Arabian resolution to establish a new commercial arbitration centre in Riyadh while authorities in Dubai are to set up a maritime arbitration centre for the UAE. Whether or not we are entering a possible fourth phase – in which local providers expand their caseloads, successfully atomise the market and trump the big international centres as the first choice for investors – is open to debate.

A key recent development that colours this discussion is the rise in investment treaty disputes across the Middle East and North Africa.

Traditionally, the region has generated more commercial disputes than investment treaty cases, perhaps because much investment in the region has been in sectors of the economy where the state has a presence, enabling aggrieved investors to sue under contracts rather than treaties.

The rise in treaty cases doubtlessly owes something to the political sea change of the Arab Spring and the consequent reassessment of contracts that comes with new regimes. But that's not the whole story: increasing awareness of the treaty process among governments and rises in outgoing investment were both highlighted by speakers at GAR Live Dubai in 2014.

So what are the options for investors, and are they worth using?

Sadly, it's not quite that simple. The courts across the Middle East are the weak link, rather than the arbitration providers. According to highly respected local arbitration figure Essam Al Tamimi, the problem is "a persistent lack of certainty" from the courts. "You will bring the same case you brought last year – and which got a good result – [then] put it back in the same pipeline and get a bad judgment, different from the previous one."

He added that, with arbitration recently becoming a compulsory part of the legal syllabus in the Arab League, "90 per cent of judges will be properly trained in it, not just 10 per cent like now."

States are also finding ways to take their courts out of the equation: by creating special financial zones with their own "common" law borrowed from the wider world (the DIFC in the UAE and the QIFC in Qatar). Some use the concept of "the virtual seat" (you can nominate the law from anywhere in the world to apply). The presence of those zones, with their own courts staffed by judges from elsewhere is expected to improve the standard of courts around the region.

So the region's future, as a seat, is brighter. But for now parties with options might decide not to risk the region.

Nassib Ziadé – the Chilean–Lebanese CEO of the Bahrain Chamber for Dispute Resolution (BCDR-AAA) and a former acting secretary general of ICSID, speaking at GAR Live Dubai – meanwhile advised Arab investors seeking redress from a state in the region to opt for administered rather than ad hoc arbitration proceedings overseen by a well-known institution that would ensure "a public perception of legitimacy".

So far, ICSID has been a major beneficiary of the treaty case rise, posting a 4 per cent rise in new matters from the MENA region from 2013–2014; more than twice the volume of traditional treaty hotspot Latin America.

However, the region has also attracted joint ventures between a Middle Eastern state and an international arbitral brand name (such as the AAA-ICDR or the LCIA), more of which may be announced in the future.

Home-grown institutions are also gaining greater market share. The Cairo Regional Centre for International Commercial Arbitration (CRCICA) is named as a possible administrator of investment arbitration proceedings in a number of inter-Arab treaties, and was the inaugural winner of GAR's up-and-coming regional centre award in 2014.

So in time, the Middle East may be seen as a more dependable place to go for arbitration.

That's not to say things are quiet. Thanks to the courts' shortcomings and a downturn in the local economy a few years back, arbitration providers are more than busy. According to Al Tamimi, a "veritable army" of lawyers, arbitrators, experts and support services are at work on disputes in the region. One source recently estimated that there are 750 arbitrations a year in the UAE alone (a combination of domestic and "foreign-related" work).

Institutions in Sub-Saharan Africa, while less prominent than their neighbours to the north, have their own momentum. For example, Mozambique didn't have an independent legal profession until 1990, meaning that its entire judicial system had to be built from scratch following the constitutional reforms of that year. Currently, the country has one lawyer for every 20,000 people. But 2001 saw the arrival of an arbitration institution – the Centro de Arbitragem, Concilição e Mediação – buoyed by Mozambique's attractiveness as a foreign investment destination (among the top six in the region) as well as a proactive legal fraternity willing to take the market seriously; the centre has around 200 arbitrators on its panel.

Similar ingredients are currently at play in Djibouti, which is home to one of Africa's largest ports, and where an international team of big name academics and practitioners plans to launch an international arbitration centre in 2016. "Big name" here isn't just a throwaway term; Columbia Law School professor George Bermann, French professor of international law at Sciences Po Jean Yves Gontier, former White House legal adviser Ian Bassin, former ambassador of Djibouti to France and UNESCO Rachad Farah, IGAD executive secretary Mahboub Maalim, and president of the Djibouti Chamber of Commerce Youssouf Moussa Dawaleh are all working on the development of the International Arbitration and Amicable Dispute Resolution Centre.

Here is our pick of the best institutions across the Middle East and Africa.

CAIRO REGIONAL CENTRE FOR INTERNATIONAL COMMERCIAL ARBITRATION (CRCICA)

Why is it on the White List?

The CRCICA is the "granddaddy" of arbitration in the region, to quote one source. It's been operating for 35 years, during which time it has administered more than 1,000 cases, many with an international element. Other local organisations look to it for inspiration.

Who set it up?

The CRCICA was founded by the Asian-African Legal Consultative Organisation (which has since founded four other regional arbitration centres (the Kuala Lumpur Regional Centre for Arbitration (KLRCA); the Lagos Regional Centre (RCICAL); the Tehran Regional Centre (TRAC); and the Nairobi Regional Centre). But out of all of those, Kuala Lumpur and Cairo are the best known.

What are Cairo's strengths?

It's been operating for long enough to have encountered most situations at least once. It's also well managed. Together these factors see it described as "the current class of the field" in the Middle East.

Who got it to this point?

The CRCICA has had a string of highly respected directors. For many years it was led by Mohamed Aboul-Enein, a former judge and law professor. His charisma, and willingness to travel and engage around the world, made him and the centre early arbitration celebrities.

Following Aboul-Enein's tragic death in a car accident in 2008, en route to an IFCAI meeting, Nabil Elraby (an ex-diplomat and international judge) took over. Now leadership of the CRCICA has passed to Mohamed Abdel Raouf, who was a protégé of Aboul-Enein.

He has been promoting the centre just as vigorously abroad as either of his predecessors, and was appointed a vice president of the International Council for Commercial Arbitration (ICCA) in 2014.

What sorts of cases go to Cairo?

Case sizes vary – they aren't earth-shattering, but there have been matters (in oil and gas, and telecoms) worth billions of Egyptian pounds. They're pretty diverse in terms of origin too.

Where do its cases tend to come from?

In 2015, the top non-Egyptian users were from Saudi Arabia, the US, the British Virgin Islands, Lebanon and Turkey. This represents something of a change from recent years, when European companies were the major users of the centre, and a return to its more traditional, regional user base.

And who gets appointed as arbitrator?

Arbitrators also tend to be from around the region. There is some suggestion that this is changing thanks to better rates of pay, but it's early days. Parties have full autonomy over whom they appoint under the rules: there's no list system and no need for approval from the centre either.

Who's suggested it is getting easier to appoint internationals?

Caline Mouawad and Rocio Digon, two French lawyers, performed a critical assessment of CRCICA's latest rules for the International Journal of Arab Arbitration. The rules changed the available rates of pay. The pair concluded that this development will "certainly persuade more arbitrators to accept appointments, which, in the medium and long term, will help the centre's image and reputation".

How ambitious is it?

It wants to be the "foremost administrator of cases relating to the Arab world". One area it is trying to get into is sports disputes. In 2012, it signed an agreement with the Court of Arbitration for Sport in Lausanne (CAS) to host CAS cases. The centre's 2014 figures listed one sports case on its books.

In 2014, CRCICA entered into a further cooperation agreement with the Arbitration and Mediation Centre of the Chamber of Commerce Brazil–Canada, with an eye to exchanging information, recommending arbitrators and mediators and providing technical assistance.

Does it run any educational programmes?

It's been partnering with part of the ABA on a series of programmes aimed at newly qualified lawyers since 2009. More recently, it has started a series of four courses, one on each phase of an arbitration, working with the Cairo branch of the CIArb.

What sort of cases are particularly suitable to send there?

If administrative fees are an issue (not that common admittedly) it may be worth consideration. A survey in 2010 (published in GAR) by Louis Flannery and Benjamin Garel of Stephenson Harwood found it to be the most affordable of six arbitral institutions on fees. It did well when the survey was updated a few years later too.

There's also a small enforcement advantage – at least locally. More significantly perhaps, its rules contain some useful elements that help to counteract local "worst practice".

What sorts of worst practice?

Article 8/5 anticipates a common problem: the arbitrator who for whatever reason is bent on delaying the process. The Centre can reject a proposed appointee for a "past failure to comply with duties", among other things – i.e., a bad track record.

The flipside of this is article 12. This allows the Centre to remove an arbitrator who is failing to act, or has become incapacitated. Both rules require at least one oral hearing to be held following any such substitution.

The Centre is also very proud of how carefully the rules translate the UNCITRAL model law into Arabic.

How do we know?

The centre has gone so far as to describe its work as "an original version" of the UNCITRAL package, because it has been so accurately translated.

Is it an IFCAI member?

Yes.

Does its model clause make any default choices that should be highlighted?

No.

How responsive is it as a case administrator?

It has a dedicated dispute management department. The staff can work in English, Arabic and French.

Has it been affected by the turbulence in Egyptian politics in the past few years?

The centre would say not, and the numbers seem to back this up: CRCICA registered 150 new cases over the Morsi years, many of which were entirely international. Since the new government took over the pace hasn't slowed, with 54 new cases in 2015 alone.

What's it working on now?

The centre is getting ready for its 40th birthday in 2019, and preparing a French version of its rules. It is also considering adding provisions on emergency arbiratators and consolidation to its current set. 2015 also saw the centre welcome two renowned members to its board: Nigeria's Olufunke Adekoya and the Somalian vice-president of the International Court of Justice, Abdulqawi Ahmed Yusuf. It also added three new members to its advisory body: Mohamed Gomaa, of counsel at Zaki Hashem & Partners in Cairo; Ismail Selim, head of dispute resolution at Al Tamimi & Company in Cairo; and Samaa Haridi at Hogan Lovells in New York. The trio will serve on the committee from 2016 to 2020.

DIFC–LCIA

When was it founded?

In 2008, but it's fair to say it didn't go full steam from the start.

Why was that?

Another Dubai arbitral institution began taking shots at it in the press, or rather some members of its board. One of them in particular queried the legal infrastructure on which enforcing some DIFC–LCIA awards depends.

What infrastructure is that?

The DIFC–LCIA is part of the Dubai International Financial Centre, which is an autonomous jurisdiction with its own commercial laws.

What happened?

The DIFC–LCIA was relaunched this year, on a firmer statutory footing (it is now independent from the DIFC's courts). There was one positive to the protracted incident: it did help to highlight a rather unique element of the DIFC–LCIA.

What's the unique element?

Essentially, it sits in a bubble of common law, overseen by the DIFC court, staffed by leading foreign judges from around the world, including Michael Hwang SC from Singapore and the deputy chief justice Sir John Chadwick from the UK.

If there is a common law court open for business in Dubai, why does anyone need arbitration?

The courts are public, whereas DIFC–LCIA arbitration (and other types of arbitration) are not.

Is it all running successfully now?

Even the most prominent critics – among them Habib Al Mulla – agree the legal framework now makes sense. As far as cases go, well, the centre already had a fair number under way. The big difference is it can do the bulk of the administration in Dubai now (previously it was routing the key decisions through London to avoid any problems). It can also finally have its own, locally based registrar. The new registrar is Mohamed ElGhatit, formerly a senior associate at Hogan Lovells.

In October 2016 it revised its rules for the first time, including new provisions on emergency arbitrators and multiparty disputes, as well as sanctions against counsel for conduct that unnecessarily delays proceedings. The rules echo similar changes made by its parent organisation the LCIA.

What's the link between the LCIA and the DIFC–LCIA?

The two organisations – parent and offspring – share DNA; the DIFC–LCIA rules also mirror the LCIA's, with a similar light touch when administrating, and the same payment of arbitrators (by the hour worked).  The LCIA's illustrious court serves both.

Why not go straight to the parent in London?

Convenience. There's also – on some occasions – an enforcement advantage. If enforcement is envisaged in greater Dubai (or another emirate), the DIFC–LCIA takes a slight shortcut. At the risk of oversimplifying, it can be enforced as a judgment of the DIFC court (which its Dubai counterparts will recognise directly). It thereby skips the possibility of an "against public policy" challenge, which would be a risk with a standard New York Convention enforcement.

Has that been demonstrated to work?

Yes.

Are there any other benefits?

If an arbitration is seated in the DIFC, it avoids the need for the arbitrators to be physically present in the Emirate to sign the award. Of course, it doesn't have to be a DIFC–LCIA arbitration. Anyone who wants can nominate the DIFC as seat (see recent developments at the DIAC; below).

Who uses it?

Most cases feature an Emirati and international (ie, non-UAE) party.

Who can I appoint as arbitrator?

Anyone, subject to an LCIA rule that he or she has certain qualifications. But in keeping with the LCIA's light-touch philosophy, parties can waive that rule. If it's making the appointment itself, the DIFC-LCIA has the LCIA's vast reservoir of experience (and databases) to draw on.

Are there any pitfalls or default selections to watch out for?

Pitfalls, no. The model clause makes a few choices you might want to adjust: one arbitrator, DIFC seat, use of English, and so on.

How many cases does it get per year?

In 2015 it received 12, double its 2014 total.