This issue explores the construction industry and presents a goldmine of information based on data available on Jus Mundi and Jus Connect as of May 2023. Discover updated insights into construction arbitration and exclusive statistics & rankings, as well as in-depth global and regional perspectives on construction projects, disputes, & arbitration from leading lawyers, arbitrators, experts, arbitral institutions, and in-house counsel.
Khurram Khan, Partner at ALN UAE | Anjarwalla Collins & Haidermota
Natalia Mouzoula, Associate at ALN UAE | Anjarwalla Collins & Haidermota
Zeb Khan, Associate at ALN UAE | Anjarwalla Collins & Haidermota
In recent years, Africa has become a hotspot for construction projects, with a current estimated pipeline of USD 521 billion worth of infrastructure projects under development (See, Umran Chowdhury, 2022 SOAS and AAA Surveys on Arbitration in Africa, Kluwer Arbitration Blog, 19 January 2023). The vast majority of projects are owned by governments, which have established national and regional infrastructure development plans, especially in East Africa. As African countries strive to promote economic growth and attract more investment, modernizing their arbitration laws has become a key priority.
This article focuses, first, on the legislative revolution of African countries’ arbitration laws, with a particular focus on the arbitration regimes of Ethiopia, Nigeria, and Tanzania. Second, this article discusses insights from recent disputes arising out of major construction projects and involving African parties or African States.
Legislative Revolution: Transforming the Arbitration Framework of African States
As the largest economy in East Africa and the headquarters of the African Union, Ethiopia has taken a proactive approach to modernize its arbitration laws. The recent enactment of the Arbitration and Conciliation Proclamation No. 1237/2021 (the “Proclamation”) is a significant step towards establishing a robust legal framework for arbitration in the country.
The Proclamation aligns itself with the United Nations Commission on International Trade Law (“UNCITRAL”) Model Law, demonstrating the country’s commitment to international best practices in arbitration. The Proclamation applies to both domestic and international arbitration seated in Ethiopia as well as national conciliation proceedings (See, Section 3).
An important innovation of the Proclamation concerns the establishment of arbitration centers. Prior to the issuance of the Proclamation, the existing arbitration centers were established by various laws as non-profit institutions. Unlike under the old regime, Section 18 of the Proclamation allows private organizations to establish arbitration centers. The introduction of this provision opens doors for the emergence of independent international arbitration centers in Ethiopia, bolstering its status as a hub for arbitration.
Further, Section 39 of the Proclamation emphasizes the importance of confidentiality, requiring that arbitral proceedings and awards shall remain confidential unless otherwise provided by law or agreement.
Nigeria has taken a significant stride in transforming its arbitration and mediation framework through the Arbitration and Mediation Bill, which was passed in May 2022 (the “Bill”) and repealed the Arbitration and Conciliation Act 1988 (the “ACA”). The Bill has brought about substantial changes that enhance the efficiency and effectiveness of dispute resolution processes in the country. Some of the novel provisions of the Bill concern third-party funding and interim measures.
For instance, unlike the ACA, Section 61 of the Bill makes elaborate provisions for third-party funding in arbitration, paving the way for increased access to funding for parties involved in arbitration proceedings. Further, while under the ACA parties could make an application for interim measures only to the tribunal, Section 19 of the Bill extends this power to the Nigerian Courts.
In an effort to modernize its arbitration framework, Tanzania enacted a new Arbitration Act, 2020 (the “Act”), which came into effect in January 2021 and repealed the previous Arbitration Act, 1931. Under Section 5, the provisions of the Act are founded on the following principles:
(i) the object of arbitration is to “obtain the fair resolution of disputes by an impartial arbitral tribunal” and “promote consistency between domestic and international arbitration”;
(ii) the parties are “free to agree how their dispute are resolved, subject only to such safeguards as are necessary in the public interest”; and
(iii) in matters governed by the Act, the Courts’ intervention shall be limited.
Moreover, the Act incorporates new provisions aligned with international standards regarding the constitution of tribunals, emphasizing the importance of their independence and impartiality. Under Section 28 of the Act, parties may apply to the Court to disqualify an arbitrator when justifiable doubts are in place of impartiality or competence. On the other hand, the Act also provides the arbitrator with protections, which could increase the likelihood of appointments in Tanzania. The Act further provides immunity of arbitrators from any liability associated with their actions unless it can be proven that said actions were done in bad faith or professional negligence.
A key departure from international standards under Tanzanian law, however, is that foreign arbitration in respect of natural wealth and resources is prohibited under the Natural Wealth and Resources (Permanent Sovereignty) Act 2017 (the “Natural Wealth and Resources Act”). Section 11 of the Natural Wealth and Resources Act provides that the adjudication of natural wealth and resources disputes are limited to bodies or other organs in Tanzania and in accordance with the laws of Tanzania. The implication is that the law permits the use of foreign arbitral bodies only if the seat of arbitration is in Tanzania and arbitral proceedings governed by the laws of Tanzania.
Insights From Recent Arbitrations in the Construction Sector Involving African Parties Or States
Major construction projects often lead to commercial arbitration disputes for reasons including the complexity of contracts, changes to the original plans and orders, delays, disagreement over payment amounts, and quality and performance issues. Regarding investor’s claims against State actors, recent disputes within the construction sector involve not only the more typical claims but also allegations of corruption and harassment, as well as claims related to political instability. Recent disputes involving African parties or African States include the following.
In 2020, a dispute concerning a solar project valued at EUR 100 Million, Frazer Solar GmbH v. The Kingdom of Lesotho, was resolved by an ad hoc Tribunal. The arbitration took place in Johannesburg, with the law of South Africa being applicable. Frazer Solar GmbH claimed that the Government of Lesotho violated the Supply Agreement by failing to ensure timely payment according to the agreed drawdown schedule. Consequently, Frazer Solar sought liquidated damages. The Tribunal sided with Frazer Solar’s argument and ordered the Government of Lesotho to pay EUR 50 million as liquidated damages.
Gabon has also recently faced several claims from investors in construction-related matters (See, Gabon v. Santullo Sericom, and Webcor v. Gabon). In Santullo Sericom v. Gabon, which was decided in 2019 by an ICC Tribunal, Gabon was ordered to pay damages on the basis that enforcement of the award would uphold contracts procured through corruption. In 2022, the Paris Court of Appeal dismissed the appeal filed by Gabon.
A recent example of an investor-State arbitration against an African State is the dispute of Zhongshan Fucheng Industrial Investment Co. Ltd. v. Federal Republic of Nigeria, which was decided in 2021 in favor of the investor. This was the first ever win of a Chinese investor against an African country.
In brief, in 2010, Zhongshan acquired rights to develop infrastructure including roads and power networks in a substantial area of land in the Ogun State in Nigeria and, to this end, Zhongshan set up a local Nigerian entity. In 2016, the Ogun State took a series of actions against some employees of the Nigerian entity including arrest warrants for senior managers and threats of prosecution and prison sentence. In August 2018, Zhongshan commenced an UNCITRAL investment treaty arbitration against Nigeria under the Bilateral Investment Treaty between the People’s Republic of China and Nigeria (the “China-Nigeria BIT”). The Tribunal issued its Final Award in March 2021, finding Nigeria in breach of its obligations for non-discrimination, fair and equitable treatment, and lawful expropriation under the China-Nigeria BIT and awarding Zhongshan compensation of around USD70 million.
The increasing prominence of construction projects in Africa has necessitated the modernization of arbitration laws in various African countries. Ethiopia, Nigeria, and Tanzania have exemplified this legislative revolution by enacting new arbitration laws that align with international best practices and promote a pro-arbitration approach. The dedication of African countries to modernize their arbitration laws reflects their commitment to establishing an attractive destination for investment and dispute resolution destination.
Recent arbitrations in the construction sector involving African parties or States have once again confirmed the complexities of major construction projects. Disputes often arise due to contract complexities, changes in plans, delays, payment disagreements, and quality or performance issues. Investor-State arbitrations have also emerged against African countries, with the additional factors of corruption allegations and political instability impacting investment projects.
The volume of construction projects and the involvement of African and international players along with the efforts of African countries to modernize their arbitration laws mean that Africa is a region ripe for disputes. With the continuing development of major construction projects in Africa, an increase in international arbitration disputes in the construction sector is also anticipated.
ABOUT THE AUTHORS:
Khurram Khan is a Partner within the Dispute Resolution team at ALN UAE | Anjarwalla Collins & Haidermota. His focus areas include commercial disputes; finance, shareholder, and M&A disputes; and disputes under trade, manufacturing, infrastructure and technology sectors. Khurram is a US-qualified commercial litigator and international arbitration specialist, with over a decade of experience.
Natalia Mouzoula is an Associate within the Dispute Resolution team at ALN UAE | Anjarwalla Collins & Haidermota. Her experience covers commercial and investment-treaty arbitrations in the financial services, mining, oil and gas, gaming, and life sciences sectors. Natalia is an EU-qualified lawyer in the Athens Bar Association. She holds an LL.M. in International Dispute Settlement from the University of Geneva and the Graduate Institute of International Development Studies, and an LL.M. in Public International Law and an LL.B. from the University of Athens. She also has a Minor Degree in Finance. Prior to AC&H, Natalia gained experience in international arbitration and public international law at other law firms including Sidley Austin LLP (Geneva), Three Crowns LLP (Paris), and Quinn Emanuel Urquhart & Sullivan (Zurich).
Zeb Khan is an Associate within the Dispute Resolution team at ALN UAE | Anjarwalla Collins & Haidermota. Her experience covers commercial arbitrations in oil and gas, telecommunications, financial services, as well as investigations and local litigation. Zeb is a US qualified lawyer with a New York State Bar. She holds a Juris Doctorate from Case Western Reserve University in Ohio. Prior to AC&H, Zeb worked for two private companies in the roles of Director of Operations and Director of Business Development, in parallel to her role as the Legal Manager. She also served as an Assigned Counsel for the New York State 8th Judicial District on criminal ligation matters.
Find more data-backed insights in our 2023 Construction Arbitration Report