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The Middle Eastern and African Arbitration Review 2017

Construction Arbitration in East Africa

Introduction

It would be erroneous to assume that East Africa is a homogeneous region from the perspective of international construction arbitration. It can be as diverse in this respect as in currency, language, politics and cuisine. However, a number of generalised trends relevant to major construction projects and the resolution of disputes can be seen across the countries making up East Africa.1

Relevant foreign investment and economic trends in East Africa

The prevalence of international construction arbitration self-evidently depends on two key ingredients: international investment and construction projects. East Africa is brimming with both.

In recent times, East Africa, as a region, has benefited from significant foreign direct investment inflows, and this trend is set to continue into 2017.2 It is no coincidence that gross domestic product growth in the region has been generally stable since 2007 and has outstripped other regions in Africa since 2013, which is also expected to continue in 2017. That gross domestic product growth is widespread across East Africa, particularly in Djibouti, Ethiopia, Kenya, Rwanda, Tanzania and Uganda.3 According to the OECD, that growth was often driven by construction.4

Specifically in relation to construction, in the period 2013-2016, 15 per cent of the major construction projects in Africa were in East Africa.5 In fact, construction has been a focus for both the public and private sectors in East Africa. This is evident from the average spend on gross fixed capital formation as a percentage of gross domestic product, which is seen as indicative of infrastructure spend. According to Deloitte, the region has seen an average gross fixed capital formation of over 20 per cent since 2005.6 Ethiopia is a standout performer against this metric, having spent the equivalent of 32.8 per cent of its gross domestic product on infrastructure in the past decade, which is one of the highest levels globally.7

Consistent with the rest of Africa, most recent major construction projects have been in the energy, power and transport sectors (over 72 per cent in 2016).8 This is a product of the growing urbanisation of Africa and the focus on the provision of power to its people. That will continue. After all, over 620 million people in sub-Saharan Africa still do not have access to power.9

So who is involved in major construction projects in East Africa? In 2016, the vast bulk were government-owned projects and about 50 per cent were funded by African or international development finance institutions.10 That means greater rigour through the operation of procurement rules – as well as the opportunity for challenging contract awards, which can lead to disputes. Particularly noteworthy is the continuing rise of Chinese investments in major construction projects. In 2016, nearly a quarter of East African major projects received Chinese funding, and over 40 per cent were being built by Chinese contractors.11

There is significant foreign investment associated with major construction projects. The scale of the projects and the involvement of international players means that East Africa is a region ripe for disputes. Any disputes between project participants need to be resolved, and the mechanism commonly agreed between parties in this regard is international arbitration for the reasons explained below. As gross domestic product in East Africa has grown, so too is the prevalence of international construction arbitration expected to grow.

Key factors on construction projects that commonly lead to disputes

It is nearly inevitable that there will be disputes arising out of major construction projects – that is why dispute resolution provisions have an uncontroversial home in commercial contracts relating to major projects. Some of those disputes are escalated through the dispute resolution process, ending up in arbitration for a final and binding determination. This is a long-standing global phenomenon that applies equally to East African projects.

Factors that commonly lead to disputes on international construction projects – and in turn to international arbitration – are also similar across the world, and again East Africa is no exception. This section considers three key factors that commonly lead to disputes on construction projects, including in East Africa. These concern local conditions, access to funding and record keeping.

Local conditions

Foreign project participants often lack an in-depth understanding of local conditions impacting the project, particularly where the project site is remote or in a location that represents a new frontier for the foreign party. As a result, some contractors make various assumptions relevant to jurisdictions with which they are more familiar when developing budgets and prices, procurement strategies, work methodologies and programmes. Those assumptions may bear little resemblance to the local conditions they then face.

This factor concerns a host of local conditions, including the following:

  • the supply chain – the availability of competent, financially robust and technically qualified organisations and their likely cost;
  • the productivity rates of locally sourced organisations in the supply chain, including labour providers, suppliers and subcontractors;
  • local regulations for permitting and licensing as applicable;
  • transportation and logistics for accessing the site and any necessary lay-down areas;
  • geographical and climatic conditions; and
  • politics, at all levels, with changes in government potentially leading to changes in policy that impact upon the project (possibly including the future of the project altogether).

Erroneous assumptions regarding the above local conditions can lead to significant impacts on budgets and the feasibility of programmes.

Access to money

At the heart of major construction projects is money and, in particular, cash flow. After all, it is commonly recognised that ‘cash flow is the life blood of building industry’.12 This highlights the importance of the payment of money when it is needed or falls due, and in the relevant currency. This is an acute issue for all project participants at every stage of the project life cycle and at every level of the supply chain during the design and construction stages. Payers may feel incentivised to withhold payment for as long as possible, which creates tension with the payee. This is particularly so for government projects, where the available funds are dependent upon the health of the government’s budget and often subject to various bureaucratic requirements to secure the release of funds – particularly in circumstances where projects are running over their approved budgets. In resource-rich countries, the state of relevant commodities prices may have a significant impact.

This issue is compounded by two particular challenges: the value of the local currency and any local restrictions on access to foreign currency. As to the first point, major construction projects may have been economically feasible for a project participant when the relevant contract was signed; however, radical fluctuations in local currency can quickly alter the equation. For example, in 2015, the Zambian kwacha dropped over 50 per cent in value against the US dollar, largely because of a fall in the copper price.13 To insulate themselves against the risks associated with local currencies, foreign project participants typically seek payment of the bulk of the contract price in a more stable foreign currency, often the US dollar. However, that strategy is underpinned by an assumption that the payer has access to sufficient stores of that foreign currency to pay. That is not always the case, which is where the second challenge arises. For example, in 2016, Zimbabwe faced a crippling shortage of US dollars and so introduced ‘bond notes’ said to be equivalent in value to US dollars.14 Some countries in East Africa have introduced foreign exchange controls to manage their store of foreign currency and the value of the local currency, which can add complications to the ability of a foreign investor to extract profit from a major construction project in East Africa. For example, in November 2015, the Central Bank of Mozambique introduced limitations on the utilisation of foreign currency in domestic transactions. That made it impossible to transfer from a local foreign currency account to another local foreign currency account held by a corporation. Instead, the payment needed to be first converted into local currency, the metical, which exposed the payee to fluctuations in the local currency.15

Record keeping

Inadequate record keeping on construction projects is a well-trodden path towards disputes and arbitration. The lack of substantiation can lead to the rejection of claims for want of demonstration of entitlement, causation and quantification. For example, daily site reports consisting of a brief weather report alone (‘sunny’ or ‘afternoon rain’) are ineffective in demonstrating the consequences of disruption events in terms of productivity and, in turn, cost. Further, an owner (or a contractor in relation to a subcontractor or supplier) might seek to rely upon the contractor’s failure to provide timely notice of circumstances that have an impact on time or cost to reject claims, asserting that the lack of notice has prejudiced the ability to take mitigation measures to its detriment.

The need for adequate records is particularly pertinent to government and development finance institution projects, where stringent procurement rules often prevent the acceptance of claims absent comprehensive, contemporaneous records that can withstand audit scrutiny. Given the prevalence of such projects in East Africa, this ought to be a focus for project participants in the region from the outset.

Enforcement of international arbitral awards in East Africa

As indicated above, around the world, international arbitration remains the preferred method of final dispute resolution where counterparties from different countries contract.16 The key reason for this is the increased likelihood of enforcement of arbitral awards given the prolific ratification of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention),17 as well as foreign participants’ preference to avoid local courts. International arbitration provides commercial parties with a greater degree of certainty regarding the outcome of any future disputes; and that there will be a final and enforceable decision. This is a crucial factor for a foreign investor in deciding where to invest across the globe.

Of course, it is important to check whether the country in which enforcement is likely to be sought (ie, where the counterparty’s assets are located) has ratified the New York Convention and has (if necessary) implemented domestic legislation to effect its terms. Many countries within East Africa have done so, starting with Madagascar in 1962. Since then other countries in the region have followed suit: Burundi, Comoros, Djibouti, Kenya, Mauritius, Mozambique, Rwanda, Tanzania, Uganda, Zambia and Zimbabwe. Countries in East Africa that have not signed the Convention, as at the time of writing, are Eritrea, Ethiopia, Somalia, Malawi, Seychelles and South Sudan. Somalia is, however, exploring an accession to the New York Convention, having established a New York Convention Taskforce with this objective, as part of its attempts to attract foreign investment following a period of civil war.18

In terms of enforcement in East Africa, while generalisations across this heterogeneous region are difficult to make, in large part, the national courts of East African countries tend to take a pro-arbitration stance when considering the recognition and enforcement of international arbitral awards. That is not without exception, however. Set out below is a summary of recent case law in some of the jurisdictions that have ratified the New York Convention.

Kenya

In 1989, Kenya acceded to the New York Convention and subsequently implemented the Kenyan Arbitration Act,20 the country’s primary arbitration law. Enforcement of arbitral awards is within the jurisdiction of the High Court. A party seeking enforcement must submit an application to the High Court providing both the award and the arbitration agreement.

Kenya has had a mixed record when it comes to enforcing international arbitral awards. There have been a number of instances where the High Court has refused enforcement on public policy grounds.21 Highlighting this is Tanzania National Roads Agency v Kundan Singh Construction Limited.22 The parties in this case entered into a contract for the construction of a nationally significant road. Tanzania National Roads Agency (TanRoads) received a favourable Stockholm Chamber of Commerce award and applied for enforcement against the Kenyan contractor before the High Court of Kenya. The High Court refused enforcement, however, citing public policy concerns. Specifically, the High Court determined that in rendering its award, the tribunal did not apply Tanzanian law (the contract’s governing law) and instead applied English law, albeit that both parties had accepted the applicability of English precedents in the proceedings. Due to this perceived error, the ‘award was arrived at in breach of the express terms of the agreement between the parties’.23 Enforcing the award, the High Court reasoned, would permit the Kenyan courts to be used to circumvent the governing law and that would constitute a violation of public policy. TanRoads was subsequently unsuccessful in its attempt to appeal the decision on jurisdictional grounds24 and, before its request for permission to appeal to the Supreme Court was heard, its counterparty was placed in receivership.

Conversely, there are more recent cases where the High Court has enforced arbitral awards. Two years after TanRoads, the High Court was faced with a public policy issue in Mohamed Salim v Trishcon Construction.25 There, the defendant objected to the enforcement of an arbitral award on grounds of public policy. Citing TanRoads, the defendant alleged that when deciding the case, the tribunal applied different legal principles than those envisaged by the parties, leading it to award the plaintiff excessive sums of money. However, unlike in TanRoads, the High Court rejected the defendant’s public policy objections, holding that public policy in fact compelled the court to enforce, rather than vacate the award.

Mauritius

Mauritius acceded to the New York Convention in 1996. The enforcement of foreign awards is governed by the Convention on the Recognition and Enforcement of Arbitral Awards Act 2001,26 which was most recently updated in 2013.27

In 2014 the Supreme Court rendered its first award addressing the enforcement of foreign arbitral awards under the new legislative regime. Cruz City 1 Mauritius Holdings v Unitech Limited28 concerned the enforcement of two LCIA awards. The underlying dispute concerned a contract for the development of housing in Mumbai between Cruz City, a Mauritian company and Unitech, an Indian company. After receiving favourable LCIA awards, Cruz City applied for enforcement before the Mauritius Supreme Court. Unitech, among other objections, argued that the 2001 Mauritius Arbitration Act unconstitutionally restricted the Supreme Court’s discretion over whether to enforce an award. It also claimed that enforcement of the award would violate international public policy due to an alleged fundamental error in the assessment of damages by the tribunal. The Supreme Court enforced the awards, rejecting Unitech’s challenges. In doing so the Court emphasised that its role was not to review the award on the merits, but instead only to evaluate if refusal is warranted under the narrow circumstances set out in the Arbitration Act, which equate to article V of the New York Convention.

Rwanda

In 2008, Rwanda acceded to the New York Convention.

The courts of Rwanda appear to support the enforcement of arbitral awards. For example, in a recent decision concerning an objection to enforcement on the basis of the expiration of the time limit for the tribunal making its award as set out in the terms of reference, the courts rejected the objection and enforced the award. This was on the basis that the objecting party had continued to participate in the arbitration after the expiration of the time limit without complaint, thereby, the court said, tacitly agreeing to an extension of the deadline.29

Zimbabwe

Zimbabwe acceded to the New York Convention in 1994.

The courts of Zimbabwe also appear to promote arbitration and support the enforcement of arbitral awards. For example, the courts have held that where parties have entered into an agreement containing a broad arbitration clause, the courts ‘should not be astute in trying to reduce the ambit of the arbitration clause’.30

The courts have also indicated a willingness to interpret arbitral awards flexibly in order to ensure that they are not unenforceable on public policy grounds. In one case, the Zimbabwe courts noted that public policy would render an award unenforceable if it provided for interest greater than the capital sum owing (the in duplum rule). However, in that case the court held that although the literal interpretation of the award would fall afoul of public policy, the award was capable of being interpreted as being impliedly subject to the in duplum rule, and that the award should be recognised and enforced accordingly.31

In a separate case, the Zimbabwe courts noted that a mere factual error would not render an award unenforceable on the grounds that it conflicts with public policy. In reaching that conclusion, the court held that the public policy defence to enforceability would apply restrictively and ‘only if some fundamental principle of the law or morality or justice is violated’, such that the award constituted:32

a palpable inequity that is so far reaching and outrageous in its defiance of logic or accepted moral standards that a sensible and fair minded person would consider that the conception of justice in Zimbabwe would be intolerably hurt by the award….

This high threshold was determined to have been reached where the arbitrator had accepted the figures sought by the claimant, without any evidence, on the basis the respondent did not suggest alternative figures.33

The reluctance of the courts to interfere with arbitral awards again has been confirmed more recently when the Harare High Court stated that: ‘[t]his court will be loath to interfere with the findings of arbitrator unless there is a very good reason to do so’.34

Sanctity of arbitral awards in East Africa

The greater degree of certainty regarding the outcome of disputes between contracting parties that is brought about by international arbitration is also dependent upon the sanctity of the award; that it will not be set aside by the national courts at the seat of the arbitration without very fixed (and internationally recognised) measures.

The UNCITRAL Model Law on International Commercial Arbitration (the Model Law), adopted by the United Nations Commission on International Trade Law in June 1985, provides a template arbitration law which bestows on national courts only narrow grounds for setting aside an award - which grounds mirror those for refusing enforcement under the New York Convention. That is not to say that countries that have not adopted the Model Law necessarily permit their national courts a wide-ranging discretion to set aside arbitral awards. While the arbitration law in each jurisdiction requires individual consideration, those East African countries that have adopted the Model Law have accepted that there should be very limited grounds for setting aside arbitral awards.

Countries with arbitration laws based on the Model Law in East Africa are Comoros,35 Kenya,36 Madagascar,37 Mauritius,38 Rwanda,39 Uganda,40 Zambia41 and Zimbabwe.42 Although Mozambique has not fully adopted the Model Law, its legislation has many similarities.43 Several countries that have not adopted the Model Law have arbitration laws that predate it. For example, Malawi’s Arbitration Act has been in existence since 1967,44 and the Civil Code provisions that govern arbitration in Somalia have been effective since 1974.45

The following table summarises those countries in East Africa that have adopted legislation based on the Model Law.

Comoros

Uniform Arbitration Act of 11 March 1999

Kenya

Arbitration Act No.4 of 1995, amended by Arbitration Act No.11 in 2009

Madagascar

Arbitration law of 11 November 1998

Mauritius

International Arbitration Act No.37 of 2008

Rwanda

Arbitration Law No.005/2008 of 14 December 2008

Uganda

Arbitration and Conciliation Act of 31 December 2000

Zambia

Arbitration Act No.19 of 2000

Zimbabwe

Arbitration Act No.6 of 1996

By way of contrast, set out below is a summary of the laws in three East African countries that have not adopted the Model Law, and the attitude of their national courts to setting aside arbitral awards. There is also a summary of the position in Uganda, which has adopted the Model Law but with key differences.

Ethiopia

The current Ethiopian arbitration legislation46 is not based on the Model Law. It is unclear whether the Ethiopian legislation applies to international arbitration or is confined to domestic arbitration, as, for the most part, the legislation does not distinguish between the two.

One of the key characteristics of the law is that there are multiple grounds on which an award may be appealed or set aside.

First, under Ethiopian arbitration law, an award can be appealed in any of the following circumstances:47

  • It is inconsistent, uncertain or ambiguous, or is wrong in law or fact. In National Mineral Corp v Danni Drilling,48 the Cassation Bench determined that the tribunal had erred in law. It was therefore open to the Bench to review the tribunal’s decision despite the existence of a contractual waiver of the parties’ right to appeal.
  • The arbitrator failed to decide matters referred to him.
  • Procedural irregularities have occurred, particularly where: (i) the arbitrator failed to inform the parties of hearing details; or (ii) the arbitrator refused to hear the evidence of a material witness or heard evidence in the absence of one of the parties.
  • The arbitrator has been guilty of misconduct, for example: (i) the parties were not given an equal opportunity to be heard; (ii) the arbitrator was unduly influenced by one of the parties; or (iii) the arbitrator had a conflict of interest.

Therefore, particularly as a result of the first ground of appeal, the parties to an international arbitration seated in Ethiopia regarding a major construction project may have concerns regarding the finality of an international arbitral award.

Second, an award can be set aside in the following circumstances:49

  • the arbitrator decided matters not referred to him, or the award was made pursuant to an invalid submission;
  • if the reference was to two or more arbitrators, the arbitrators did not act together; or
  • the arbitrator delegated part of his or her authority.

Under the Model Law, an award can only be set aside in a number of limited circumstances. These grounds are: (i) invalidity of the arbitration agreement; (ii) lack of proper notice or inability to present one’s case; (iii) the dispute is outside the submission to arbitration; (iv) incorrect composition of the tribunal; (v) the subject matter of the dispute is not arbitrable; and (vi) the award conflicts with the state’s public policy.50 As can be seen from the above, the grounds for setting aside under Ethiopian law are different, and wider in scope, than the grounds under the Model Law. Most importantly, the Model Law does not permit a review of the merits of an award, in contrast to the position in Ethiopia regarding the appeal of awards.

Malawi

The primary source of arbitration legislation in Malawi is the Arbitration Act of 1967. The Arbitration Act preceded the Model Law and differs from it in a number of ways. For example, the Arbitration Act does not expressly provide for separability of the arbitration agreement,51 and the courts have expanded powers, including the ability to appoint arbitrators in the absence of the parties’ agreement.52

The grounds for setting aside an arbitral award are also more vague, and arguably wider, under the Malawi Arbitration Act than the Model Law. Under the former, the courts can set an award aside if the arbitrator has engaged in misconduct, or the arbitration or award has been improperly procured.53 In Pillane v Commercial Union Assurance Company plc,54 the Supreme Court of Appeal held that an error of law (there, failing to consider amendments to an insurance policy) justified setting aside an arbitral award, as that constituted ‘misconduct’ on the part of the arbitrator. This means that awards issued out of Malawi are potentially subject to a merits review by the Malawian courts.

Otherwise, despite having not adopted the Model Law (or the New York Convention), the policy of Malawian courts has typically been to encourage arbitration and to stay litigation commenced in contravention of an arbitration agreement.55

Tanzania

The Tanzania Arbitration Act regulates arbitration in Tanzania, though it is not based on the Model Law.56 Despite the different genesis of the Tanzania Arbitration Act, it does in fact bestow only limited grounds on the national courts to set aside an international arbitral award. Specifically, an award may be set aside on grounds that the arbitrator misconducted the arbitration,57 or where the award was improperly procured.58 The national courts have respected that narrow position. This is illustrated by the following two example cases.

In Dowans Holdings SA (Costa Rica) and Dowans Tanzania Limited (Tanzania) v Tanzania Electric Supply Company Limited,59 the High Court of Tanzania dismissed a petition to set aside an ICC arbitration award. The Court declared that:60

[I]t would not be proper for this court to interfere with the findings of the ICC’s Arbitral Tribunal, for, in doing so, it would amount to re-opening and re-arguing of the issues of fact and issue of law that the parties, by their own agreement, submitted to the ICC Tribunal for its consideration and decisions.

In Tanzania National Roads Agency v Kundan Singh Construction Ltd,61 the High Court of Tanzania rejected an application to set aside an arbitral award on the grounds that the petitioner had not complied with the mandatory procedural steps to present and file the final arbitral award with the Court before challenging the arbitral award.

Uganda

Uganda adopted the Model Law through the Arbitration and Conciliation Act 2000.62 However, that legislation contains key differences from the Model Law, for example: (i) the parties may affirm, through a written agreement, the right to lodge an appeal on questions of law arising either from domestic arbitral proceedings or the awards;63 (ii) the parties have limited rights with respect to interim measures of protection;64 and (iii) the time limits to request a correction or interpretation of an award, or an additional award, are shorter.65

Having said that, consistent with the Model Law, there are still only limited grounds available to the national courts for setting aside international arbitral awards in commercial and construction arbitration matters.66

For example, in Roko Construction Ltd v Mohammed Mohammed Hamid, the High Court of Uganda set aside an arbitral award of the Centre for Arbitration and Dispute Resolution on a finding that the arbitration clause had been excluded from the contract. The Court of Appeal reversed the High Court decision. On an appeal in 2013, the Supreme Court of Uganda found that the Court of Appeal bench had not been properly constituted and referred the matter back to the High Court. In 2015, the High Court of Uganda reinstated the arbitral award, finding that the arbitration clause had not been excluded from the parties’ agreement.67

Investment arbitration in East Africa

Investor arbitration is as relevant to major construction projects as it is to other sectors or areas of commerce. Given the prevalence of government-owned major construction projects in East Africa and foreign project participants, the latter ought to be aware of the potential availability of this avenue of dispute resolution – against the state directly. Foreign project participants would be wise to consider structuring their investments in major construction projects to take advantage of available investment treaty protection – as an insurance policy should that investment later be prejudiced because of unreasonable action taken (or reasonable action not being taken) by the state. That requires consideration of whether there is both a breach of an obligation owed by the state to the investor and an available forum to determine any dispute regarding that breach.

As to the first requirement, the grounds for a claim against a state might arise under bilateral or multilateral investment treaties, domestic legislation or by way of contract, such as investment agreements. Regarding bilateral investment treaties (BITs), Kenya, for example, has entered into 17 BITs,68 of which six are in force,69 whereas Eritrea has only one BIT in force,70 out of four that have been signed.71 As a point of comparison, the Netherlands has 90 BITs in force at present and the United Kingdom has 96 BITs in force.72 This comparison indicates that East African countries are behind the curve when it comes to bilateral investment treaties,73 although as explained above, this does not appear to have dampened enthusiasm for foreign investment in the region.

There is also a vast difference between the number of intra- and extra-East Africa BITs: 16 versus 231. This reflects the general trend across Africa to enter into bilateral treaties outside of the continent, a continuation of the historical tendency for colonial countries to enter into agreements with their former sovereigns upon gaining independence.74 However, African countries are gradually signing more investment treaties with each other, and are increasingly entering ‘South-South’ agreements with countries such as China and India as those latter countries seek to invest in the continent.75

The case of Biwater Gauff (Tanzania) Ltd v United Republic of Tanzania76 demonstrates how investment protection may aid a foreign investor in relation to a major construction project. The relevant project in that case concerned repairs, upgrades and an expansion of Dar es Salaam’s water and sewerage infrastructure. The investor brought claims against Tanzania under the United Kingdom-Tanzania BIT and the Tanzanian Investment Act, arguing that its interest in the project had been expropriated. The tribunal determined that the cumulative effect of the acts of the state (as distinct from the contractual steps taken by the investor’s counterparty), including the withdrawal of a VAT exemption on purchases, the occupation of the investor’s facilities and usurpation of management control and deportation of management staff, constituted expropriation.77

As to the second requirement of an available forum, the most common is the International Centre for Settlement of Investment Disputes (ICSID), being a neutral forum created pursuant to a treaty (the ICSID Convention). Since its inception, the ICSID has been popular in East Africa. Burundi, Kenya, Malawi, Madagascar, Mauritius, Somalia and Uganda all ratified and entered the ICSID Convention in the 1960s. Comoros, Mozambique, Rwanda, Seychelles, Tanzania,78 Zambia and Zimbabwe followed suit in subsequent decades. At the time of writing, the most recent newcomer in the region is South Sudan, which became party to the ICSID Convention in 2012. Further, although Ethiopia signed the ICSID Convention in 1965, it has yet to ratify it. The only countries in East Africa not to have signed the ICSID Convention are Djibouti and Eritrea.79

Conclusion

East Africa is a heterogeneous region and it is difficult to generalise across the various jurisdictions when it comes to international construction arbitration.

However, a number of general themes are evident across the 18 countries making up East Africa. The first is that, as a region, this is an area of growth in terms of gross domestic product and, importantly for this book, construction and infrastructure investment. A second is that foreign investment has played a critical role in that growth. Inevitably, disputes will arise, and that creates the opportunity for international arbitration to assist parties in resolving those disputes. A third theme – which is not without exception as between or within individual countries – is that East African countries generally recognise and support international arbitration. There are well-developed arbitration laws, consistent with international norms, in many jurisdictions and, on numerous occasions, the national courts of various countries in East Africa have demonstrated their support of international arbitration through limiting their interference in the sanctity of awards and promoting enforcement except on limited grounds. That approach provides foreign investors with a degree of comfort that there will be certainty and finality to their chosen mechanism for dispute resolution involving projects in or project participants from East Africa, even when the arbitration is locally seated – and that in turn promotes foreign investment in the region.

Notes

  1. For the purposes of this chapter, East Africa is constituted by: Burundi, Comoros, Djibouti, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Mozambique, Rwanda, Seychelles, Somalia, South Sudan, Tanzania, Uganda, Zambia and Zimbabwe.
  2.  African Economic Outlook 2016, Sustainable Cities and Structural Transformation, African Development Bank Group, OECD Development Centre and UNDP.
  3.  African Economic Outlook 2016, Sustainable Cities and Structural Transformation, African Development Bank Group, OECD Development Centre and UNDP.
  4. African Economic Outlook 2016, Sustainable Cities and Structural Transformation, African Development Bank Group, OECD Development Centre and UNDP.
  5. Africa’s changing infrastructure landscape, Africa Construction Trends Report, Deloitte 2016.
  6. Africa’s changing infrastructure landscape, Africa Construction Trends Report, Deloitte 2016.
  7. Africa’s changing infrastructure landscape, Africa Construction Trends Report, Deloitte 2016.
  8. Africa’s changing infrastructure landscape, Africa Construction Trends Report, Deloitte 2016.
  9.  World Energy Outlook 2016 Electricity Access Database, available here: www.worldenergyoutlook.org/resources/energydevelopment/energyaccessdatabase/. This database, published in 2016, provides statistics as of 2014.
  10.  Africa’s changing infrastructure landscape, Africa Construction Trends Report, Deloitte 2016.
  11.  Africa’s changing infrastructure landscape, Africa Construction Trends Report, Deloitte 2016.
  12. See Dawnays Ltd v F G Minter Ltd and Trollope and Colls Ltd (1971) 1 W.L.R. 1205. In this case, Lord Denning emphasised how important cash flow is to the success, or failure of construction projects. This fact was acknowledged by later English courts including in Modern Engineering (Bristol) Ltd v Gilbert-Ash (Northern) Ltd (1974) A.C. 689.
  13. Matthew Hill, Zambia Debt Ratio Soaring As Kwacha Loses 51% of Its Value Against The Dollar, World Bank Says, 6 November 2015, available at: http://mgafrica.com/article/2015-11-06-zambia-debt-ratio-soaring-as-currency-plunges-world-bank-says (last accessed on 3 March 2017).
  14. Connor Gaffey, Zimbabwe’s New ‘Currency’: What You Should Know About Bond Notes, 28 November 2016, available at: http://europe.newsweek.com/what-you-should-know-about-bond-notes-zimbabwes-new-currency-526003?rm=eu (last accessed 3 March 2017).
        South Sudan has faced similar issues with a shortage of US dollars given it is an import economy that relies on more stable foreign currency to make foreign purchases. See: Anna Cavell, US Dollars Shortage Cripples South Sudan Industries, 24 January 2016, available at www.aljazeera.com/indepth/features/2016/01/dollars-shortage-cripples-south-sudan-industries-160124053046112.html (last accessed 3 March 2017).
  15. Ernst & Young, Mozambique Central Bank Introduces Exchange Control Measures, 9 December 2015, available at: www.ey.com/Publication/vwLUAssets/Mozambique_Central_Bank_introduces_exchange_control_measures/$FILE/2015G_CM6037_Mozambique%20Central%20Bank%20introduces%20exchange%20control%20measures.pdf (last accessed 3 March, 2017).
  16. Queen Mary University, 2015 International Arbitration Survey, available at: www.arbitration.qmul.ac.uk/docs/164761.pdf (last accessed 3 March 2017).
  17. Queen Mary University, 2015 International Arbitration Survey, available at: www.arbitration.qmul.ac.uk/docs/164761.pdf (last accessed 3 March 2017).
  18. Alison Ross, Somalia Plans Reforms To Arbitration Framework, 3 June 2016, available at: https://globalarbitrationreview.com/article/1036344/somalia-plans-reforms-to-arbitration-framework (last accessed 3 March 2017); Global Arbitration Review, Nairobi/Mogadishu: Reintegrating Somalia, 3 June 2016, available at: https://globalarbitrationreview.com/article/1036381/nairobi-mogadishu-reintegrating-somalia (last accessed 3 March 2017); I-Arb Africa, Somalia, on the Road to Ratifying the New York Convention, 2016, available at: www.iarbafrica.com/news-list/178-somalia-on-the-road-to-ratifying-the-new-york-convention (last accessed 3 March 2017).
  19. For a complete list of countries party to the New York Convention see the New York Convention website at: www.newyorkconvention.org/countries.
  20. Arbitration Act, Law No. 4 of 1995, amended by Arbitration Act No. 11 in 2009.
  21. See for example Foxtrot Charlie Inc v Afrika Aviation Handlers Limited & Another (High Court of Kenya, Civil Suit 557 of 2004, 29 May 2012), available at: http://kenyalaw.org/caselaw/cases/view/80285/. The High Court refused a Panamanian company’s application to enforce two ICC awards rendered in Switzerland. The dispute underlying the awards concerned a contract for the purchase of capacity on cargo aircrafts operating between Africa and Europe. The High Court agreed with the respondent, a Kenyan company, that the tribunal both exceeded its jurisdiction and improperly applied the governing law and relevant contractual provisions. As such, the High Court held it ‘to be manifestly clear that the awards go against Kenya’s public policy’, para. 63; see also Glencore Grain v TSS Grain Millers (High Court of Kenya, Civil Suit 388 of 2000, 5 July 2002), available at: www.kluwerarbitration.com/CommonUI/document.aspx?id=kli-ka-1015159-n. This case concerned an award rendered in London pursuant to the arbitration rules of the Grain and Feed Trade Association. The High Court refused to enforce the award (partially) due to public policy concerns stating: ‘But in issues concerning public policy of Kenya, this court will in addition to what has been held hereinabove, examine the award even at the stage of enforcement to determine whether or not the arbitral tribunal had jurisdiction in respect of the disputes relating to the underlying contract’ para. 53.
  22. Tanzania National Roads Agency v Kundan Singh Construction Limited (High Court of Kenya, Misc. Civil Application No. 171 of 2012, 15 August 2013), available at: http://kenyalaw.org/caselaw/cases/view/90194/.
  23. Tanzania National Roads Agency v Kundan Singh Construction Limited (High Court of Kenya, Misc. Civil Application No. 171 of 2012, 15 August 2013), p 10.
  24. Tanzania National Roads Agency v Kundan Singh Construction Limited (Court of Appeal, Civil Appeal 38 of 2013, 14 November 2014), available at: http://kenyalaw.org/caselaw/cases/view/103656/.
  25. Mohamed Salim v Trishcon Construction, Decision (High Court of Kenya, Civil Case 200 of 2007, 1 May 2015), available at: http://kenyalaw.org/caselaw/cases/view/110204/.
  26.  Convention on the Recognition and Enforcement of Arbitral Awards Act, Act 8 of 2001.
  27. The International Arbitration (Miscellaneous Provisions) Act, Law No. 8 of 2013.
  28. Cruz City 1 Mauritius Holdings v Unitech Limited (Supreme Court of Mauritius, Record No. 107966 and Record No. 107967, 28 March 2014), available at: www.kluwerarbitration.com/CommonUI/document.aspx?id=kli-ka-1441048-n.
  29. Hydrobatel Ltd v Karekezi (Rwanda Supreme Court, RCOMA 0007/13/CS, 6 February 2015).
  30. Bitumat Ltd v Multicom Ltd (Harare High Court, HH 144-2000, 31 May 2000).
  31. Conforce (Pvt) Limited v The City of Harare (Harare High Court, HH 71-2000, 5 April 2000).
  32. Zimbabwe Electricity Supply Commission v Genius Joel Maposa (Supreme Court of Zimbabwe, S.C. 114/99, 21 December 1999). On the facts of the case the Court found that this high threshold had been met where the arbitrator found in favour of the claimant on the basis that the respondent had failed to follow its internal procedure as required, failing to consider that the respondent had been prevented from following its procedure by a court order obtained by the claimant.
  33. Pilime & Ors v Midriver Enterprises (Pvt) Ltd (Harare High Court, HH-367-14, 23 July 2014).
  34. Tendai G Karonga v Zimbabwe Leaf Tobacco Company (Harare High Court, HC 2055/14, 20 January 2016, p. 5.
  35. Uniform Arbitration Act of 11 March 1999.
  36. Arbitration Act, Law No. 4 of 1995, amended by Arbitration Act No. 11 in 2009.
  37. Arbitration Act, Law No. 98-019 of 1998.
  38. International Arbitration Act, Law No. 37 of 2008.
  39. Law on Arbitration and Conciliation in Commercial Matters, Law No. 005 of 2008.
  40. Arbitration and Conciliation Act of 31 December 2000.
  41. Arbitration Act, Law No. 19 of 2000.
  42. Arbitration Act, Law No. 6 of 1996.
  43. Law on Arbitration, Conciliation and Mediation, Law No. 11 of 1999.
  44. Arbitration Act, Law 26 of 1967.
  45. Somali Civil Procedure Code, Law No. 19 of 27 July 1974.
  46. The primary source of arbitration legislation in Ethiopia is the Civil Code of the Empire of Ethiopia, Proclamation No. 165 of 1960. Chapter 2 of Title XX (Articles 3325-3346) relates specifically to arbitration and covers substantive points such as the arbitration agreement. The Civil Procedure Code of the Empire of Ethiopia, Decree No. 52 of 1965 also contains provisions on arbitration in Book IV (Articles 315-319) and Book V (Articles 350-357), which relates to the form and setting aside of arbitral awards. Finally, Article 461 of the Code on Execution Decrees sets out the conditions for enforcement of arbitral awards.
  47. Article 351 of the Civil Procedure Code of the Empire of Ethiopia, Decree No. 52 of 1965. Under Article 352, the appeal is to a court that would have had appellate jurisdiction had the matter been referred to litigation.
  48. National Mineral Corp Pvt Ltd Co v Danni Drilling Pvt Ltd Co (Federal Supreme Court, Cassation Bench, Civil Case No. 42239, 18 November 2010). In this case, the Cassation Bench set aside a portion of the award as there was no legal basis for such compensation. See also Deragados J&P Joint Venture v Saba Construction PLC (Federal Supreme Court, Cassation Bench, Civil Case No. 37678, 27 November 2008), where the Cassation Bench held that an agreement to arbitrate according to institutional rules, which provided for the finality of arbitral awards, and subsequent participation in the proceedings was not sufficient to amount to waiver. The matter was remitted to the Federal Supreme Court to make a determination on the legitimacy of the award.
  49. Article 356 of the Civil Procedure Code of the Empire of Ethiopia, Decree No. 52 of 1965. Article 355 sets out the procedure for setting aside an award.
  50. Article 34(2) of the Model Law.
  51. Note however that the principle of separability has been recognised in case law: see eg, Access Communications Ltd v Fags Investment Ltd (High Court of Malawi, Commercial Case No. 142 of 2012), p. 4.
  52. Section 12 of the Arbitration Act. The High Court also has power to remove an arbitrator for misconduct under section 24(1), and has additional powers under section 26 when an arbitrator is removed.
  53. Section 24(2) of the Arbitration Act.
  54.  Pillane v Commercial Union Assurance Company PLC [1994] MLR 263, pp. 270-271.
  55. Section 6 of the Arbitration Act. See also, for example, Access Communications Ltd v Fags Investments Ltd (High Court of Malawi, Commercial Case No. 142 of 2012), p. 5, where the Court determined that litigation commenced in violation of an arbitration clause should be stayed. The Court held that Malawian courts are required to promote alternative dispute resolution and, in any event, they ultimately retain the power to enforce or review commercial arbitration awards.
  56.  Arbitration Act, Revised Edition 2002. This closely follows its predecessor, which was amended in 1971, and refers to the Geneva Protocol on Arbitration Clauses 1932 and to the Geneva Convention on the Execution of Foreign Arbitral Awards.
  57. The Court in Dowans Holdings SA (Costa Rica) and Dowans Tanzania Limited (Tanzania) v Tanzania Electric Supply Company Limited (High Court of Tanzania, Misc. Civil Application No. 8 of 2011, 28 September 2011) identified that the Arbitration Act does not define the term ‘misconduct’, nor do any of the other Tanzanian statues. It was noted that therefore the Tanzanian courts have looked at the definitions applied by other common law jurisdictions, particularly England (p. 37). In this regard, the court accepted the English definition that ‘misconduct is an irregularity in the course of conducting an arbitration and if it is capable of affecting the results of the proceedings, then intervention by the court is not only justified but also necessary’, noting that the main ground of misconduct is a mistake of law or by fact on the face of the award (p 38-39).
  58. Arbitration Act, Revised Edition 2002, s 16.
  59. Dowans Holdings SA (Costa Rica) and Dowans Tanzania Limited (Tanzania) v Tanzania Electric Supply Company Limited (High Court of Tanzania, Misc. Civil Application No. 8 of 2011, 28 September 2011).
  60. Dowans Holdings SA (Costa Rica) and Dowans Tanzania Limited (Tanzania) v Tanzania Electric Supply Company Limited (High Court of Tanzania, Misc. Civil Application No. 8 of 2011, 28 September 2011), p 88.
  61. Tanzania National Roads Agency v Kundan Singh Construction Ltd (High Court of Tanzania, Misc. Civil Cause No. 11 of 2012).
  62. Arbitration and Conciliation Act, as amended by the Arbitration and Conciliation (Amendment) Act of 2008.
  63. Arbitration and Conciliation Act, section 39.
  64. Arbitration and Conciliation Act, section 7. Under section 7, the parties must seek interim relief from the courts. In contrast, Article 17 of the 1985 Model Law gives the tribunal express power to grant interim relief, although article 9 provides that recourse to the courts for interim relief is permissible.
  65. Arbitration and Conciliation Act, section 34. Under section 34(1), the parties have 14 days to request a correction or interpretation, in contrast to 30 days under article 33(1) of the Model Law. Furthermore, any extension is time for the tribunal to fulfil the relevant request is limited to an additional 14 days under section 34(6) of the Arbitration and Conciliation Act (Article 33(4) of the Model Law does not expressly limit the extension).
  66. Arbitration and Conciliation Act, section 35. See Deox Tibeingana v Vijay Ready and Visare Uganda Ltd (High Court of Uganda, Misc. Cause No. 10 of 2016, 21 December 2016); Mbale Resort Hotel v Babcon Uganda Ltd (High Court of Uganda, 3 May 2011).
  67. Roko Construction v Hamid (Court of Appeal of Uganda, 2015), pp. 4-6 summarising the earlier proceedings.
  68. These are with Burundi, China, Finland, France, Germany, Iran, Italy, Japan, Kuwait, Libya, Mauritius, the Netherlands, Slovakia, South Korea, Switzerland, Turkey and the UK: United Nations Conference on Trade and Development, ‘Investment Policy Hub: Kenya’, available at http://investmentpolicyhub.unctad.org/ (last accessed 2 March 2017).
  69. These are the treaties with France (entered into force on 26 May 2009), Germany (7 December 2000), Italy (4 August 1999), the Netherlands (11 September 1979), Switzerland (on 10 July 2009) and the UK (13 September 1999): United Nations Conference on Trade and Development, ‘Investment Policy Hub: Kenya’, available at http://investmentpolicyhub.unctad.org/ (last accessed 2 March 2017).
  70. This is the treaty with Italy (entered into force 14 July 2003): United Nations Conference on Trade and Development, ‘Investment Policy Hub: Eritrea’, available at http://investmentpolicyhub.unctad.org/ (last accessed 11 March 2017).
  71. Eritrea has entered into bilateral investment treaties with Italy, Netherlands, Qatar and Uganda. The ones with Netherlands, Qatar and Uganda have been signed but have not entered into force: United Nations Conference on Trade and Development, ‘Investment Policy Hub: Eritrea’, available at http://investmentpolicyhub.unctad.org/ (last accessed 11 March 2017).
  72. United Nations Conference on Trade and Development, ‘Investment Policy Hub: Netherlands’ and ‘Investment Policy Hub: United Kingdom’, available at http://investmentpolicyhub.unctad.org/ (last accessed 11 March 2017).
  73. There are 231 bilateral investment treaties entered into between an East African country and an extra-continental party. Of these, 129 are in force. Similarly, there are 16 intra-East African BITs but only four are in force. These are the Mauritius-Tanzania BIT (entered into force 2 March 2013), Madagascar-Mauritius BIT (entered into force 29 December 2005), Burundi-Mauritius BIT (entered into force 22 November 2009) and Mauritius-Zimbabwe BIT (entered into force 26 May 2003): United Nations Conference on Trade and Development, ‘Investment Policy Hub’, available at http://investmentpolicyhub.unctad.org/ (last accessed 2 March 2017).
  74. United Nations Economic Commission for Africa, Investment Policies and Bilateral Investment Treaties in Africa: Implications for Regional Integration (2016), p. 17.
  75. United Nations Economic Commission for Africa, Investment Policies and Bilateral Investment Treaties in Africa: Implications for Regional Integration (2016), p. 18.
  76. Biwater Gauff (Tanzania) Ltd v United Republic of Tanzania (ICSID Case No ARB/05/22) Award, 24 July 2008.
  77. However, given it was also found that the investor had not sustained any loss or damage as a result of these violations the claims for compensation were dismissed.
  78. The claims advanced in the Biwater Gauff (Tanzania) Ltd v United Republic of Tanzania case were determined by an ICSID tribunal.
  79. For a complete list of countries party to the ICSID Convention see the World Bank, available at: https://icsid.worldbank.org/en/Pages/about/Database-of-Member-States.aspx.