‘Do we believe in Africa?’
06 July 2016 11:19
by James Wood
With economic strife putting pressure on Africa's foreign investments, effective dispute resolution mechanisms are vital. We teamed up with Simmons & Simmons to ask general counsel their experiences of disputes on the continent
As we reported in our dispute resolution Insight 'Clause and effect' last year, Africa has become a disputes hotspot. With a fall in commodities prices leading to abandoned projects, disputes work is becoming even more plentiful.
Discussing dispute resolution in a developing continent comprising 54 disparate jurisdictions can lead to huge generalisations, but when it comes to arbitration there seems to be a case for a pan-African focus. The UNCITRAL Model Law on International Commercial Arbitration has been implemented in a number of African countries, while the Organisation for the Harmonization of Business Law in Africa (OHADA) – covering 17 states in west and central Africa – has created a legal community with unified arbitration legislation and a common arbitration court. There has also been a proliferation of arbitration institutions throughout Africa. However, many of these institutions remain untested and do not have the support of the court system.
With this in mind, we teamed up with Simmons & Simmons to host a debate for corporate counsel to discuss their experience of working on the continent, the uncertainty and the uneven enforcement of local regulations, and how they saw Africa's disputes market evolving.
Talk turned quickly to the geopolitical and economic factors at play currently and the effects they are having on disputes.
James Wood, Legal Business: Have commodity prices led to a noticeable increase in disputes, or at least put stress on contracts?
Katrina White, Acacia Mining: Certainly, not just in the commercial context but also in dealing with governments that are feeling the pinch of reduced revenues.
Robert Gaitskell QC, Keating Chambers: The drop in prices translates very quickly into premature terminations. Right across Africa you can see premature terminations for all sorts of projects, and you can trace it back to commodity prices.
Steve Husbands, SLR Consulting: Commodity price falls means that regret costs have increased a lot, [and put pressure on] historical sale and purchase agreements (SPAs). In a bull market people might ride with it but at the moment they are instructing lawyers to look for reasons to open negotiations. This is not an Africa-specific issue though.
Rob Horne, Simmons & Simmons: It is a global problem that goes beyond commodities. The issue, however, is that many African nations are heavily dependent on very small areas of their economy to drive all of their profitability [and allow them] at a government level to do anything else.
Amol Prabhu, Barclays: The point about government involvement here is key: governments feel compelled from a public policy perspective to get involved and question the commercial arrangement, even though they may not have been in power when the arrangement was made. It puts a lot of pressure not only on that particular arrangement, but also on your wider business franchise in that country.
Tim Tapper, Turner & Townsend: It is wider than the natural resources market as well. The money coming out of the natural resources market means that companies are no longer investing in countries in Africa. The impact of international contractors has had a big effect, Africa is being built by international contractors – a lot of Chinese, but also a lot of European contractors, particularly Spanish and French. Those guys are suffering the same issues. They are also bringing their dispute practices to the market.
Katrina White: There is a heavy reliance on donor funding, and with the global prices that we have, that is drying up and it is also becoming far more conditional. Donor governments have, essentially, got sick of corruption issues, and have pulled funding in many cases. It really is a perfect storm of government and commercial pressures.
James Wood: What would you advise to mitigate that risk, or is it a risk you cannot easily protect against?
Katrina White: It leads people to focus far more heavily on the dispute resolution processes in each of the jurisdictions. Certainly I have had more discussions with arbitration and disputes counsel in the last six to 12 months than in the previous five years. Making sure you have the networks and contacts in all of those jurisdictions has also become a priority. You have to be able to move if you do need to go into an arbitration or adjudication in a hurry.
Amol Prabhu: Conversations with external counsel are critical in terms of understanding not only the day-one risks, but also, if things are going wrong, what your rights are: what have you negotiated, what have you agreed to and, importantly, what is the arbitration forum? It is also important to recognise that beautifully drafted and negotiated contractual documentation will only get you so far. You need be forensic, do your homework on the different countries you are looking to operate in. Yes, there are the 'unknown unknowns' that you just have to deal with but you can certainly protect yourself to a certain level by having robust legal documentation and well-balanced legal advice.
‘You need to diversify your contracts. If you say it worked in Angola you will be shocked if it doesn’t work in Mozambique.’
Tamara Egbedi, Spectrum Geo
The other key factor is your relationship with the government. In many African countries, the decision-making for resolving an arbitration or trying to find a workable solution is often in the hands of only a few people, so you need to identify who those people are, whether you can get access to them and should things go wrong, whether you have the ability to talk to them. The flipside is political risk – governments can change very quickly, so how well do you know the key stakeholders in the majority opposition party?
Eric Pietrac, Walgreens Boots Alliance: We have to think about what the bet we have in Africa is. Is it a long-term bet? Do we believe in Africa? If the answer is yes, it has a big consequence on what we do today: on the arbitration, on whether [we] try to get the best offers and deals and move away, or on whether we try to stay and keep the partnership we have already built in Africa. For me, this is the million-dollar question. Do we believe in Africa in the coming ten, 20, 50 years? If so, we will ask our lawyers to manage it smoothly. If we do not believe in Africa, we just say, 'Take the money and leave it.'
‘The Chinese have decided it is worth being in Africa. When you leave Kampala airport, you are wished goodbye in Mandarin.’
Robert Gaitskell QC, Keating Chambers
Tim Tapper: We do not want to get too negative. There is an awful lot of investment still in Africa. There are disputes, but there is an awful lot of work going on.
Robert Gaitskell QC: The Chinese have already taken a decision that it is worth being in Africa. I am encountering Chinese counterparties all the time. They are there for the long term; they are absolutely not hitting and running; and they are deeply involved in setting up lots of infrastructure. When you leave Kampala airport, you are wished goodbye in Mandarin – this tells you something.
James Wood: Is the influx of Chinese and Indian money into Africa changing disputes?
Philip Norman, Simmons & Simmons: The question is more fundamental than that, which is to what extent do international participants going into African countries bring experiences from their home jurisdiction, or from their work in other parts of the world, to bear on what their expectations are about the arbitration process and method of resolving disputes in a more prudential way rather than going to court?
Participants might have different views about how much cash flow they are willing to commit to it hoping that things will go right. There could be contractors or suppliers from certain countries who will be absolutely committed above all else to delivering the job they had promised to deliver, and they will suffer that $100m-worth of loss as a contractor, because they are hoping it will turn out right.
Rob Horne: Is it not the case that one of the key parts of the decision-making process is where the money is coming from? I am really interested in whether banks are getting drawn in.
Where contracts are coming to an end, or they are suddenly in distress, are the parties themselves coming back to the banks and saying: 'We need more money. We need to change what we have done on the financing?' Because you are already in for a lot of money, you have to do something to maintain your investment, so how do you resolve that?
Amol Prabhu: Yes, it does happen, in two ways: one is through lending, where we have lent to a specific client for their general corporate purposes or on a particular project. Particularly in the latter case, we are often focused on the revenues from that project to be repaid. Should signs of distress start to show, you enter into discussions often as one of a syndicate of banks. Banks generally will look to restructure for the betterment of the deal with a view of being repaid over a longer period of time.
The other is through an 'advisory' role, where we advise clients who are obtaining financing from the international investor community. That is more of a challenge because you are dealing with international investors rather than three or four other banks. While banks may have different credit appetites for different products, we think very similarly and it is easier to manage than a numerous and disparate group of international investors.
James Wood: Are there situations where arbitration is necessary?
Mitzi Berberi, Fox International Channels: We have been looking at backing ourselves contractually – putting in place hybrid clauses, which, depending on the type of conflict, will determine whether we go to arbitration, because we want a panel of experts to come in and judge, or perhaps have that flexibility of negotiation, or whether we go straight to the court system. It depends on the type of dispute.
We are taking into consideration different avenues. We have done a study to see whether we would prefer international arbitration because it is not influenced locally. We have not made that call though.
Tamara Egbedi, Spectrum Geo: I insist on inserting a negotiation clause in the international contracts I work on. Should there be a breakdown, there should be negotiation between the managing directors first. If there is no agreement then we go to dispute, but it needs to be tried before we think about going to arbitration.
‘Do we believe in Africa? If the answer is yes, it has a big consequence on what we do today. This is the million-dollar question.’
Eric Pietrac, Walgreens Boots Alliance
Katrina White: The 'one size fits all' approach really just cannot be done, and you do find examples where you get down to a local contractor, which is just a mum-and-dad contractor, and you find an agreement in place that requires international arbitration. How could this have happened? Obviously, big companies have a particular standard approach, and that has to be addressed.
There needs to be a conscious decision over what level you are going to use certain types of dispute resolution for and a more general risk assessment in terms of where different types of dispute resolutions fit.
Philip Norman: Being culturally aware is so fundamentally important to international dispute resolution, and we as lawyers sitting in London, Dubai, or wherever else in the world, have to realise that we cannot march in and say, 'This is how we do it in the High Court in London,' because it just does not work; secondly, negotiation is by far the best way forward for the parties.
Mike Walsh, Delonex Energy: But assuming that negotiation is key, assuming that one had taken all the right steps – was fully culturally aware, had worked hard to reach a solution but was left no option, ultimately, but to go to arbitration – would that represent a fundamental breakdown in your relationship with the government in Africa, or are they sophisticated enough to understand that there are some scenarios where it is best for both parties to put it out to arbitration?
‘We even go into the detail of looking at the backlog in the courts. We look into the country and see the specifics.’
Mitzi Berberi, Fox International Channels
Philip Norman: Parties tend to want to resolve problems, fundamentally, rather than just be difficult about things. Sometimes, however, you have to fight – you cannot help it.
Amol Prabhu: In the end you probably have to [fight], but you should establish how long that might last and whether you have the resources. Even if you win – what does winning actually look like? If you obtain an arbitral award, how and where are you going to enforce it? Arbitration itself is not a panacea.
Mike Walsh: I guess it is really a point about the maturity of the government and the extent to which you can maintain your relationship when you have not been able to resolve a dispute. I have had arbitrations against governments and there is one extreme where as soon as you even threaten an arbitration there is a fundamental breakdown and you are on your way out of the country.
There is another extreme where we cannot resolve a dispute and both parties recognise it is in their interests to stop negotiating.
Rob Horne: That is true, particularly when you have a change in government. It allows the parties to agree it is no-one's fault.
Eric Pietrac: The best advice a lawyer can give is to invest time in building the relationships before any problem arises, because a problem will arise. In any contract, you will find an issue. If we have built the relationship before, if we know the guys in front of us, we can avoid dispute. If we do not know them, then we will be left to do the work in an emergency or crisis mode, and then it will not work.
Jayne Bentham, Simmons & Simmons: That works from a commercial perspective but when you are dealing with governments it is entirely different because the turnover of people is extremely rapid.
Nobody will ever, ever take a decision in a government because of the audit trail, the responsibility that comes with it, and the uncertainty of their jobs. That is where instituting any form of proceedings is very helpful for them.
Tamara Egbedi: That is why relationships matter. In my experience, governments and their agencies are often happy to resolve issues either in court or arbitration because a decision made by a judge or an independent arbitrator is binding on all parties. That takes the responsibility of making a decision away from them. Funnily enough, it made our relationship better because a binding decision was made on behalf of both parties.
Robert Gaitskell: A solution to this problem is to have a very finely tiered resolution clause, so you start with: 'There must be negotiations between the managing directors,' then you try mediation, then you try early neutral evaluation, and then you finally have arbitration. The particular element I would recommend is the early neutral, because you can come out of that with a third party who will give you their view on what would happen if you spend $10m each fighting each other to death in an arbitration. They will write that down and it can be used by the civil service to cover themselves, and you have avoided arbitration.
Rob Horne: I do not like tiered resolution processes. What seemed like a really good idea at the contract outset can actually get in the way because everyone has to mechanically go through the steps. The way I always teach arbitration is that it, or any other step in your contract, is a right, not an obligation. You can negotiate, you can mediate, and you can use early neutral evaluation any time you like as long as the other party agrees.
If I have a problem with the government and it has no cash I do not really want to go through a whole host of steps in dispute resolution because that is going to cost me more money, and it is completely pointless.
Winning has to be about recovering some financial benefit. You need to start off any process by looking at the end game and whether you can enforce locally.
‘Focus on the end game at the beginning, whatever the end game might be. You have to know what your exit is before you start.’
Rob Horne, Simmons & Simmons
Mitzi Berberi: You need the lawyers at the beginning to make sure that the contract represents what the parties need, protects each party for a specific litigant – a future litigant or not – from any claims, identifies clearly the risks involved for each country where you are going to be doing business, and then separates out the ones that need the level of negotiation – perhaps the length of time to negotiate – from the ones that are more straightforward.
Amol Prabhu: I would agree with that. It is important that all parties are appropriately advised and informed of the risk positions they are taking. It then makes it a lot harder later in the process for either party to claim ignorance and suggest that they were not aware of certain risks.
Tim Tapper: The disputes I have been involved in that have been successful have needed both local and international expertise. You need the local knowledge, but also people who are genuine experts in dispute resolution.
Jennifer Choi, Standard Chartered Bank: Even when you have the best expert and the best lawyer in a certain country, the procedural laws and the framework may not be there, or be fuzzy or open to interpretation. There may be no framework for a certain type of action, for example a class action, but it may still go ahead. You have to make sure you have the best advisers/local experts, but you can be faced with uncertainty.
‘Beautifully drafted documentation will only get you so far – you need do your homework on the countries you want to operate in.’
Amol Prabhu, Barclays
Tamara Egbedi: Africa is a continent, but there are huge differences, even within a country. Nigeria has 36 states, 500 languages and 300 tribes. For big companies, it is very tough. You cannot use a big sledgehammer for a very local company. One piece of advice is that you need to diversify your contracts. One size can never fit all. If you keep saying that it worked in Angola, you will be shocked if it does not work in Mozambique.
Mitzi Berberi: We even go into the detail of looking at the backlog in the courts, because even though it is a straightforward process and it is a payment clause that needs to be done, if it is going to take forever, we would prefer to go to court to get it done. However, there are some countries in Africa that have a backlog where you will sit there for two years, so that is the level of detail we are starting to look at – look into the country and see the specifics. We also tailor the clauses in the contracts to those specifics.
Rob Horne: All our points are on the same thing: focus on the end game at the beginning, whatever the end game might be. You have to know what your exit is before you start. LB
- Jayne Bentham Partner, Simmons & Simmons
- Mitzi Berberi Vice president and deputy general counsel, Fox International Channels
- Jennifer Choi Group legal counsel – dispute resolution, Standard Chartered Bank
- Tamara Egbedi Legal counsel and contracts manager for Africa, Middle East, Mediterranean, and Europe, Spectrum Geo
- Robert Gaitskell QC Keating Chambers
- Rob Horne Partner, Simmons & Simmons
- Steve Husbands Principal commercial adviser, oil and gas, SLR Consulting
- Caroline Jan In-house counsel, Lycamobile Group
- Philip Norman Partner, Simmons & Simmons
- Eric Pietrac SVP human resources Africa, Southern Europe, Middle East, and Asia-Pacific, Walgreens Boots Alliance
- Amol Prabhu Head of EMEA emerging markets banking legal, Barclays
- Tim Tapper Director of contract services, Turner & Townsend
- Mike Walsh General counsel, Delonex Energy
- Katrina White General counsel and company secretary, Acacia Mining
- James Wood Research editor, Legal Business