Putting in Place an Arbitration System in Africa - Research Paper Example

Running Head: PUTTING IN PLACE AN ARBITRATION SYSTEM IN AFRICA 1 THE ADVANTAGES OF PUTTING IN PLACE AN ARBITRATION SYSTEM IN AFRICA Name Professor Course Date 1. Introduction International commercial arbitration is an alternative means to a court action that transnational parties can resort to in resolving conflicts arising from commercial transactions. It involves a third party, called the arbitrator or arbitrators, sitting with the parties to resolve their business differences. The arbitration agreement is usually integrated into the contract as an arbitration clause, which implies that arbitration is necessarily pre-agreed to by the parties on their own volition at the time they entered into a contract. In brief, arbitration can be characterized as follows: it is a mechanism for the settlement of disputes; it is consensual; it is a private process, and; its goal is to reach a final and binding determination of the rights and obligations of parties (White Y Cases 2012, p. 5). The availability of international commercial arbitration mechanism is important especially in regions where the judicial system does not inspire confidence and on the contrary evokes distrust perhaps because it is perceived as inexperienced and incapable of dealing with international commercial issues or is seen as corrupt and untrustworthy. This is the case of Africa, a continent many of the comprising states do not have stable and reliable judicial system and for which the need for an international commercial arbitration has never been as urgent as in the present owing to new developments in investments and transnational commerce. In the case of Africa, there is some truth to the claim that an international commercial arbitration mechanism is suitable to skip its judicial system from taking over transnational commercial disputes. 2. Background: International Commercial Arbitration 2.1 History The roots of international commercial arbitration in resolving conflicts began as early as the 17th century. Its primary aim then was to avoid delays and litigations costs. Its use, however, was met with an air of distrust, especially in England, the Netherlands and the US colonies, but was extensively used in Germany. In the 20th century, however, there was a perceptive turn of the tide in the attitude of the business world towards international commercial arbitration. This was attributed to the various factors that collectively validated the importance of the practice: the adoption of international arbitration conventions; national arbitration legislations, and; the support of national courts in developed countries. All of these were materialised at the urgings of the international business community (Born 2009, pp. 58-59). 2.2 Arbitration Treaties, Agreements and Conventions Although there were international treaties and conventions on arbitration prior to the 1920s, such as the Montevideo Convention of 1889, the Hague Convention of 1899 on the Pacific Settlement of Disputes and the Hague Convention of 1907, it was the 1923 Geneva Protocol on Arbitration Clauses in Commercial Matters that paved the way for pervasive use of arbitration in international commercial conflicts (Born 2009, pp. 58-59). The relative success of the 1923 Geneva Protocol stemmed from the fact that it was adopted by a significant number of states that are members of the League of Nation. In addition, it was able to solve a problem in arbitration confronting many transnational businesses. The treaty was ratified by many states that were engaged in international trading such as the UK, Germany, France, Japan, India, Brazil, and many more although the US chose not to join these ratifying states. One of the problems that hounded the international trading community, which was remedied by the Protocol, was the existence of compromis, a law in some trading countries that prohibited an arbitration agreement ahead or in anticipation of a future conflict. The Protocol, thus, included a provision that made arbitration clauses valid even before a conflict actually arises. In 1927, the League of Nations adopted the Geneva Convention for the Execution of Foreign Arbitral Awards. The salient point of this agreement was that it led to the solution of a problem besetting international arbitration, which is the recognition of arbitration decisions and their enforcement. Here, the member countries agreed that they will recognize and enforce arbitral awards rendered by international arbitrators. Subsequently, treaties were developed that provided for the general rules of procedure for arbitration proceedings. In 1938, the Amsterdam Rules was adopted by the International Law Association. It set down, amongst others, the constitution of arbitration tribunals, the powers of arbitrators, evidence administration and several other provisions pertaining arbitration. After the WWII, there was a move to unite the provisions of the 1923 Protocol and the 1927 agreement as well as lay down some amendments to improve arbitration proceedings. It resulted in the adoption of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which is also called the New York Convention for short, in 1958. A salient development in the post-WWII arbitration agreement was a provision which solved the “double exequateur” requirement where a party enforcing an award needed to have it recognized in the country where the arbitration took place so that other jurisdictions will also recognize it. The New York Convention provided that the proof of any arbitral award is the award itself and no other (Bergsten 2005, p. 22-24. As of today, 148 states have ratified the Convention with Cook Island as the latest ratifying state in 2009 (UNCITRAL 1958- 2013), 28 of which come from the African continent (see Table 1). The 1961 European Convention on International Commercial Arbitration signaled the coming of age of international arbitration as it was the first agreement on arbitration that specifically used the term “international commercial arbitration.” In 1966, both the United Nations Economic Commission for Europe (ECE) and the United Nations Economic Commission for Asia and the Far East (ECAFE) adopted the rules of ad hoc arbitration whilst the Council of Europe adopted the European Convention Providing a Uniform Law on Arbitration. In 1976, the UNCITRAL adopted the Arbitration Rules to govern ad hoc common/civil arbitrations. It was subsequently endorsed by the Asian-African Legal Consultative Committee (AALCC), an organization with a significant number of developing countries as members. In 1985, UNCITRAL adopted the Model Law, which provides for all aspects of arbitration from the arbitration agreement to the enforcement of the arbitral award. Its creation and adoption was reflective of a worldwide consensus on the key practices of arbitration. A significant number of countries and states in the US have adopted their respective Model Law in consonance with the UNCITRAL Model Law (UNCITRAL Model Law 2013) 2.1 Types of Arbitration Arbitration can either be ad hoc or institutional. An ad hoc arbitration refers to arbitration in which the parties determine the person or persons who will sit as arbitrators in the event that a conflict will arise between them. The rules to be followed in the event of such conflict resolution are also determined by the parties and their attorneys beforehand. On the other hand, institutional arbitration is one in which the parties agree to submit themselves to arbitration in the event of a conflict to any of the arbitration institutions around the world. Opting for an institution to arbitrate them implies that they are also submitting to the arbitral rules followed by such institution. An example of an arbitral institution is the International Court of Arbitration (ICC hereafter) (Miccoili 2013). Other arbitration institutions include, amongst others: the London Court of International Arbitration (LCIA); the International Centre for Dispute Resolution established by the American Association Arbitration (AAA/ICDR); the Singapore International Arbitration Centre (SIAC); the Japan Commercial Arbitration Centre (JCAC), and; the Hong Kong International Arbitration Centre (HKIAC). All in all, the Kluwer Arbitration Services listed 200 arbitration systems in the world, 9 of which are based in Africa, including OHADA (Onyema 2008, p. 2). Parties usually choose arbitration institutions according to a set of preferences, which they consider important in resolving international conflicts. In a survey made on international corporations, it was established that parties choose arbitration bodies that are neutral and has an international perspective as opposed to a regionalist one. Other factors that also figured the most are the arbitral rules and the governing law employed by the institution, experience, overall cost of the service and the ability to administer arbitration globally (White and Case 2012). 3. Arbitration in Africa 3.1 History: The Evolution of the African Legal System The prevalent mode of settling disputes in Africa is traditionally through negotiated settlement. As the West began to impose itself on the continent though the process of colonisation, it also established state-controlled dispute resolution mechanism and the traditional way of negotiated settlement is relegated as an informal system or adopted by the lower courts in the state’s judicial system (Ajayi & Rosario 2009, p. 2). This, however, is a generalisation because the continent of Africa is composed of 53 countries that each has a history, legal or otherwise of its own. There are countries, for example, whose legal structure is based on the Islam faith and those who were once colonised and have inherited their colonisers legal systems, such as the English-speaking states that were once British colonies and thus, follow the common law system and the French-speaking states that were once the colonies of France or Belgium and thus, abide by the civil law system (Onyema 2008, p. 1). The implication of this varied legal system of African states that arbitration law in the continent may vary depending on the system of law of the country involved. A significant number of African states were colonised by France, and these states were governed by French law that were specially extended to it by an enactment of the colonial legislator. Thus, not all French laws were automatically imposed on French colonies in Africa, but only those that the colonial legislator personally chose to implement in his colony. In Francophone Africa, this principle of selective imposition of French law on a colony is called ‘legislative speciality’ (Amoussou-Guenou 1997, p. 2). Three kinds of French law were extended to its colonies in Africa, all of which did not did not enable arbitration in these colonies. The French have extended their Code of Civil Procedure, Code of Commerce and Administrative Law to their African colonies. However, although the Code of Commerce had a provision that made mention of arbitration, this aspect was advertently omitted from the Code of Civil Procedure. Hence, its inclusion in the Code of Commerce was futile because there was no procedure laid down for its implementation. On the other hand, the Administrative Code’s prohibition of using arbitration in settling disputes of public bodies was reproduced in the special order to extend the Code to its African colonies. This contrasted with the case of British colonies in Africa where British laws were fully reproduced in the latter including laws on arbitration as was in the case of Kenya. This difference was believed to have stemmed from the way these two colonisers ruled on their African colonies. While the British ruled indirectly, the French ruled directly. The idea of arbitration where the parties are given the power to determine for themselves how their conflicts are to be resolved was not in accord with the concept of direct rule. Thus, despite the fact that the French Civil Code was extended to its colonies in Africa, the provisions on arbitration were not included. The extension of French laws to its colonies in Africa was not systematic or automatic and took place, in the event it took place, only after sometime after their enactment. The absence of arbitration laws in many states in Africa, which were once French colonies, was a cause of insecurity and lack of stability of many transnational businesses operating in the continent (Amoussou-Guenou 1997, pp. 2-4). 3.2 Current State of Arbitration in Africa After colonies in the African continent were liberated from their colonisers, some had chosen to stick to their legal inheritance whilst some chose to develop their own legal system independent of what they inherited from their colonisers. Former French colonies that kept the legal system established by their French coloniser and therefore, have no arbitration system in place are Benin (18), Burkina Faso, Central African Republic, Gabon, Guinea, Mali, Mauritania and Niger. On the other hand, the following African states that were once French colonies and have chosen to adopt a legal system that provide for arbitration are the following: Cameroon; Congo; Senegal; Chad, and; Zaire (now called Democratic Republic of Congo). Cameroon is influenced by both French and English laws and has in place the French Code of Civil Procedure and Commercial Procedure. In addition, it enacted its own arbitration law. For its part, Congo has a law in place called the Code of Civil, Commercial, Administrative and Financial Procedure, which included a provision on arbitration that states, in effect, that arbitration awards may be granted exequatur and enforced. Although this is the sole provision on arbitration and arbitration is not regulated, this provision is an implicit acknowledgment of Congo’s acceptance of arbitration proceedings and decisions. As of today, however, Congo remains formally uncommitted to the New York Convention, its ratification still missing from UNCITRAL’s website. Senegal was a French colony and it abides by the French Civil Code, which omitted in extending it to its French colony the provision on arbitration. Senegal, however, has passed a law on arbitration ((Amoussou-Guenou 1997, p. 5). It has also acceded to the New York Convention (UNCITRAL 1958 2013). As a former French colony, Chad is also governed by the French Code of Civil Procedure, but to supplement it has passed Ordinance of 28th July 1967, which governs arbitration proceedings. The Democratic Republic of Congo was once colonised by Belgium, also a French-speaking country. It has enacted the Judicial Code of 1960 which provides for and regulates arbitration (Amoussou-Guenou 1997, pp. 5-6). Only three African states have explicitly provided for international commercial arbitration and these are the states of Djibouti, Ivory Coast and Togo. Djibouti passed its own Djiboutian Code of International Commercial arbitration in 1984, a law which was influenced by the French Code of Civil Procedure, which was structured in accordance with modern instruments of international arbitration such as the Geneva Convention of 1961 and the Model Law of UNCITRAL. A Regional Arbitration Centre was also established in the state by the Preferential Trade Area for Eastern and Southern African States and thus, Djibouti is expected to play a significant role in arbitration in the future (Amoussou-Guenou 1997, p. 6). It has also succeeded to the New York Convention as of 1983 (UNCITRAL Status-1958). Another African state that has enacted an international commercial arbitration law is the Ivory Coast. It was the country’s Supreme Court that originally upheld the validity of arbitration because of the absence of a corresponding law and the conflicting decisions of the lower courts in the matter. Subsequently, the legislative branch took the cue from the SC and enacted a law that specifically governs international commercial arbitration. Finally, the state of Togo has two laws governing arbitration. The first is influenced by the French Code of Civil Procedure and the other established a Court of International Arbitration modelled after the ICC for the purpose of endorsing international commercial arbitration in the country (Amoussou-Guenou 1997, p. 7). Realising the incoherence and lack of harmony in their arbitration laws, several states in the African continent banded together to find a way to harmonise their arbitration laws. This was realised in 1993 with the drafting and subsequent signing of member states to the Treaty of Harmonisation of Business Laws. At present, there are 16 signatories to this treaty and is open to other states. The signatory states include the following: Benin, Burkina Faso, Cameroon, Central African Republic, Comoros, Congo, Côte d'Ivoire, Gabon, Guinea, Guinea Bissau, Equatorial Guinea, Mali, Niger, Senegal, Chad and Togo (OHADA 2000). One of its salient features is the creation of OHADA or the Organisation for Harmonisation of Business Laws, which is tasked to realise the aims of the agreement the foremost of which is the drafting of the Uniform Acts, which is the legislative text of the treaty and mandatory in nature with respect to all member states. To date, eight Uniform Acts have been drafted and adopted by the member states, which means that these member states are now governed by this Uniform Acts. The Uniform Acts are: Uniform Act Relating to General Commercial Law; Uniform Act Relating to Commercial Companies and Economic Interest Group; Uniform Act Organizing Securities; Uniform Act Organizing simplified recovery Procedures and Measures of Execution; Uniform Act Organizing Collective Proceedings for Wiping Off Debts; niform Act on the Arbitration Law Within the Framework of OHADA Treaty; Uniform Act organizing and harmonizing Company Accounting Systems, and; Uniform Act on Contracts for the Carriage of Goods by Road. The treaty has also established the Joint Court of Justice and Arbitration (OHADA 2000). In South Africa, an arbitration law exists, but it does not distinguish between domestic arbitration and international arbitration. The governing law is the Arbitration Act 42 of 1965 and is not based on UNCITRAL’s model law. As can be seen from Fig. 1, South Africa has acceded to the New York Convention since 1976. In the case of Telecordia Technologies Inc v Telkom SA Ltd 2007 (3) SA 266 (SCA), the Supreme Court validated the judicial system’s support for international commercial arbitration and held that in such a case the courts should intervene as less as possible (Ash 2011, p. 2). 4. Discussion: Advantages of Arbitration in Settling Conflicts in Africa As earlier discussed, Africa is a very diverse continent owing to the historical diversity of the states comprising it. The legal framework underpinning each state depends upon the colonising power that had once ruled over that state. The legal systems of these states are often characterised by immaturity and backwardness because they did not evolve in consonance with the social, economic and political conditions of the states, but were plucked out from systems that were entirely different from their own. When the colonisers left and liberated these states, the legal systems halted and did not keep up with the times. The states were left on their own struggling to deal with their own problems bereft of experience and used to being ruled by a foreign power whose main agenda was to exploit their resources rather than look after their welfare. The problems plaguing Africa brought about by being under foreign domination for centuries have made it unattractive to foreign investments. Today, with increased interest being generated by the continent and the promise of unprecedented growth, there is a need to improve the continent’s legal systems structures, including its arbitration system, to adapt to this newfound economic opportunity. The World Bank, for example, has reported that sub-Saharan Africa is expected to generate growth that will go beyond the global average (BBC 2013). It is reported, however, that African states do not generally welcome the idea of international commercial arbitration due to trust issues. First, there is insecurity against MNEs and as a result, enforcement of arbitral awards is difficult in these countries exacerbating African judicial image of being corrupt and partial. In addition, there is a perspective that jurists in these countries are antagonistic towards international law. All these may stem from lack of knowledge or inaccurate grasp of the international law, which does not add to the image of African judicial system as backward. In addition, charges of corruption hound even the national courts in Africa and this adds to the perception of the inability and unsuitability of arbitration as a means of settling dispute. National courts are important in the enforcement of arbitral awards because of their supervisory function over domestic courts (Hippolyte p. 20). In this sense, courts are very important in arbitration process especially when it comes to enforcement of arbitral awards. The advantages of arbitration are most applicable in the African case because of the doubts and suspicions of incompetence, corruption and inexperience that are charged against many its courts. An international commercial arbitration mechanism will partly solve this problem because of the inherent privity of the selection process of dispute resolution involved. Here, it is the parties themselves that choose the third party or parties who will act as arbitrators, which means that the parties are in a position to select the best arbitrators who they think have the knowledge and expertise to handle their case. This self-determination inspires confidence in the process and therefore, higher probability of compliance with the decision of the arbitrator/s. This contrasts significantly with resort to a judicial process in which the parties have no control over the court or courts who will preside over the resolution of their cases. In fact, resorting to a judicial system may give rise to some feeling of distrust by one or some of the parties to a conflict stemming primarily from unfamiliarity with certain foreign legal and judicial and processes. In addition, judicial processes are generally longer, more costly and time-consuming and the worst scenario after going through the hassle of submitting to a court’s jurisdiction, its decision may turn out to be unenforceable in another jurisdiction. Arbitral decisions, however, are internationally recognized by more than 140 countries in accordance with the New York Convention also known as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (Miccoili 2013). 5. Conclusion An international commercial arbitration system is suitable in the resolution of disputes of international commercial transactions because it allows parties to skip the jurisdiction of courts over their cases. The judicial system of Africa states are not perceived well and this is damaging to the present economic upward growth of the continent because it can dissuade or discouraged investors from investing. Charges of incompetence, lack of internationalism and corruption have hounded the African judicial system and only an international commercial arbitration system can give investors enough to confidence to come into the continent and give the continent economic boost it has so long needed. References: AOA ( ). To administer or not to administer – that is the question. Association of Arbitrators, Southern Africa. Ajayi, O. and Rosario, P. (2009). Investments in Sub Saharan Africa: The role of international arbitration in dispute settlement. Available at SSRN: http://ssrn.com/abstract=1426823 Amoussou-Guenou, R. (1997). The Evolution of Arbitration Laws in Francophone Africa. http://www.wgzarbitration.com Asouzu, A. ( ). 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