“CHALLENGES FACING ARBITRATORS IN AFRICA”

EAST AFRICA INTERNATIONAL ARBITRATION CONFERENCE

THE NORFOLK HOTEL, NAIROBI - JULY 28-29, 2014

PAUL NGOTHO, FCIArbARBITRATOR

A. Introduction

Are the challenges facing arbitrators in Africa different from those faced by arbitrators inEurope, North America and Australia? What of Asia and South America?

Some of the problems facing arbitrators in Africa are Afro-centric while other areuniversal. Even the universal ones are compounded when the occur in Africa.

This is a very broad subject. This paper will just highlight some of the problems facingarbitrators in Africa.

B. Politicisation of Disputes

Disputes related to infrastructural projects, leasing/sale of land, natural resources andexpenditure of public funds easily become political because they affect the livelihoods oflarge number of people.

Those involving oil and gas are particularly political because of the large sums at stakeand the attendant environmental issues.

Land remains a very emotive issue in Africa, with Kenya, Ghana, South Africa, andZimbabwe as the hot spots. The acquisition by foreigners of land tracts of land all overthe continent the last 10 years or so is bound to generate highly politicised disputes.

C. Lack of Professional Interaction: Familiarity breeds Attempt

Arbitration practitioners and advocates need to interact in order to know and appreciateone another.

Travel within Africa is disproportionately expensive and in some cases flights simply notavailable. To fly from Nairobi to Casablanca, one has to first fly Dubai or Europe.

National boundaries in Africa are very restrictive. More significantly, African professionalsand business people have closer links with those in foreign capitals that those inneighbouring countries. Thus Kenyan legal practices have have formed alliances withEuropean legal practices but have no linkages with legal practices in Zambia, Ghana orNigeria. Why would anybody appoint an arbitrator he or she has never heard of?

For example, Nigeria has had a long experience in oil and gas contracts, disputes,arbitration, etc. This should be viewed as a continental resource. The African countrieswhich have just discovered oil have a readily available point of reference.

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African governments typically engage foreign legal firms for representation ininternational arbitrations. Any wonder that African arbitrators are not considered forappointment?

D. Lack of Diversity - The Threatened Species

This is a universal problem. The 3 marginalised groups are: non-lawyers, women and theyounger arbitrators.

Marginalisation of women in ADR. CIArb has had only 3 women as President ofChairman of this worldwide body. Kenya had one female Chartered Arbitrator for manyyears.

There were probably not more than 2 non-lawyers in the LCIA African Users' CouncilSymposium in Kampala recently.

The effect of diminishing actual and relative numbers of non-lawyers in arbitration.Conversion of arbitration into “private courts”. We already have some arbitrations goingon under CPR in Kenya.

A Kenyan lawyer recently challenged a non-lawyer, who was representing a party inarbitration, for “unlawful practice of law” in spite of the clear legal provisions in theArbitration Act allowing non-lawyer representation. The over-enthusiastic lawyer evenreported the non-lawyer to the Law Society of Kenya. The Arbitrator, himself a lawyer,ruled in favour of non-lawyer representation in arbitration, with costs to the non-lawyer.

Many non-lawyer arbitrators in Kenya and elsewhere are eventually studying law in orderto comply with the false notion that an arbitrator must be lawyer.

E. Proliferation of regional arbitration centres – The Quail Eggs

Quail eggs are believed to have medicinal value when consumed raw. Demand sky-rocketed. Many Kenyans became quail egg farmers. As a result, supply exceededdemand and the prices plummeted. The price dropped from Ksh.100 to 10/= per egg inone year.

How many regional arbitrations can Africa support at the moment?

“You can't be a real country unless you have a beer and an airline. It helps if youhave some kind of a football team, or some nuclear weapons, but at the very leastyou need a beer.” Frank Zappa, an American musician who passed away in 1993.If he lived in Africa today, he would have added an intentional arbitration centre tohis list of what makes a nation.

Where exactly is the gate to Africa? Kenya of course! But we respect, or rathersympathise, with the other contenders to the title. Every country on the continentconsiders itself either the gateway or the centre of the continent.

Africa is currently littered with numerous so-called international, regional and national

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arbitration centres. All of them have the same grand visions and each of the is talking toitself rather loudly emphasising how important it is. Examples are: CRCICA (Egypt),Regional Centre for International Commercial Arbitration (Nigeria), Maritime ArbitratorsAssocoation of Nigeria (MAAN), Africa ADR (Southern Africa), MIAC- LCIA, KigaliInternational Arbitration Centre (KIAC), Centre for Alternative Dispute Resolution (CADRof Kenya) and OHADA.

Darwin's law of natural selection will ultimately apply - survival for the fittest and thedying out of the less suitable ones.

F. Language and Territorial Barriers – The Tower of Babel

English is widely spoken in the region and on the continent followed by French but multi-lingual African professionals are very few.

OHADA is the French acronym for "Organisation pour l'Harmonisation en Afrique duDroit des Affaires", which translates into English as "Organisation for the Harmonizationof Business Law in Africa". It was created on October 17, 1993 in Port Louis, Mauritius.It has 17 countries, mainly in Francophone Africa. Its website is in French but it has beenpromising a English version for over a year.

Someone quoted about USD 100 per page for an English-French translation to aprofessional standard in Nairobi. Arbitration documents must be translated to a highstandard. Instantaneous English-French translation (like in oral hearings) is also verycostly.

Swahili is also widely spoken, being the national language in Tanzania and an “officiallanguage” in Kenya. With respect, it is generally a shop-floor, street-level and vegetablemarket language in Kenya, Uganda and Rwanda, as opposed to board room or stockexchange language. It is the default language for use in East Africa when English orFrench will not do for political or other reasons.

The main political reasons against the use of English and French is that they are foreignand colonial languages. But is Swahili an African language? Think again. Or read yourhistory.

English and French will continue being the default languages of arbitration in Africa forcenturies to come.

G. The African Cultural Context – e.g. Disclosure Requirements

Family relationships and social bonds in Africa are deep, wide and complicated. Thedistant cousin is considered a “brother” for all practical purposes in some communities.

IBA Guidelines on Conflicts of Interest in International Arbitration defines a ‘close familymember’ as a spouse, sibling, child, parent or life partner.

Waivable Red List

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2.2.2 A close family member4

of the arbitrator has a significant financialinterest in the outcome of the dispute.

2.2.3 The arbitrator or a close family member of the arbitrator has aclose relationship with a third party who may be liable torecourse on the part of the unsuccessful party in the dispute.

2.3.8 The arbitrator has a close family relationship with one of theparties or with a manager, director or member of the supervisoryboard or any person having a similar controlling influence in oneof the parties or an affiliate of one of the parties or with a counselrepresenting a party.

2.3.9 A close family member of the arbitrator has a significant financialinterest in one of the parties or an affiliate of one of the parties.

Orange List

The Orange List is a non-exhaustive enumeration of specific situations which(depending on the facts of a given case) in the eyes of the parties may give rise tojustifiable doubts as to the arbitrator’s impartiality or independence.

3.3.5 A close family member of the arbitrator is a partner or employeeof the law firm representing one of the parties, but is not assistingwith the dispute.

Chinua Achembe narrates in Things Fall Apart how Ezeudu, the oldest and mostrespected man in the village warned Okonkwo is advance, "That boy calls you father. Donot bear a hand in his death".

Okonkwo ignored the warning because he did not want to be thought weak. Things fellapart when Okonkwo took part in the slaying of Ikemefuna, who was essentially acaptive condemned to die.

An African has many fathers, mothers, brothers and sisters. Those relationships comewith loyalties.

H. Comment on Corruption: The Elephant in the Room

Corruption by states and investors is well documented. Corruption during procurement,performance or termination does not necessarily mean that the arbitrator who gives anaward either way is corrupt, especially if there is no evidence given to him about thecorrupt practice.

What is lacking is anything authoritative on corruption among arbitrators. Yet, corruptionamong arbitrators, as among judges, is extremely difficult to proof because, likearbitration, corruption is also confidential! The unwillingness of parties to pursuearbitrators for disciplinary action through court, professional associations and appointingauthorities does no help.

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Losing parties, finding themselves with a final and binding award and possibly heftycosts must blame somebody. The fact that arbitral proceedings are confidential and areconducted in privacy does not help but perhaps that does not matter since losers willcomplain even when they lose their cases in open court.

Some contracts are fraudulent to the core, with arbitration as a cover for looting publicfunds through “loss of profit” claims.

Stereotyping prevents African arbitrators of high integrity from being given the chance toproof themselves internationally.

Corruption is a human problem, not essentially an African problem. The difference is thatWestern economies (and Rwanda!) punish corruption while third world economies donot. Arbitrator immunity is for actions done in good faith. There is no immunity againstprosecution for corrupt deeds!

A German Company

The following quotation and footnote are in Mohamed Raouf's article, How ShouldArbitrators Tackle Corruption? (ICSID Review, Foreign Investment Law, Vol 24 No. 1,Spring 2009):

A French Example

Consider the case in which the French government removed a commercial disputeinvolving Credit Llonnasi (a state owned bank) from court and conveniently had thematter referred to 3 arbitrators who awarded a Mr Tapie a tidy sum of 400m Euros. MrTapie was a friend of the then-French President Nicolas Sarkozy.

Newspaper comments on the saga:

• Critics have said that the deal was too generous to Mr Tapie at the expense of the

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French state and that the case shouldn’t have gone to a private arbitrationauthority because it involved a state-owned bank. (Washington Times). Mr Tapiewon a much bigger payout than he might have expected in court. (BBC).

• Investigators opened an inquiry in 2011 into possible charges of “complicity toembezzlement of public funds” and “complicity to forgery.” The probe may notresult in a trial. (Washington Times)

• It is seen by many in France as an example of the cosy relationship between bigmoney and big power in France. (BBC)

• Newspaper reports should be taken with a pinch of salt. For example, it does notexplain if an arbitration clause always existed or if a submission agreement wascrafted mischievously while the matter was in court just to defeat ensure that theproceedings were handled in the privacy of arbitration.

The above reports are to do with the circumstances which led to the arbitration, Nothingthere suggests that the arbitrators were corrupt.

Eugenia Levine writes in Amicus Curiae in International Investment Arbitration:The Implications of an Increase in Third-party Participation that,

“The rapid rise to prominence of international investment arbitration in theinternational legal order has been accompanied by a mounting public concernregarding the system’s legitimacy and accountability. The controversy stemsfrom the fact that while arbitration is traditionally a largely confidential and privatedispute resolution mechanism, the involvement of a State in the investmentcontext can lead to arbitral decisions which affect a significantly broader range ofactors than the two parties to the dispute. As one author highlights, “[i]investor-state arbitration involves challenges to governmental measures, sometimesmeasures of general application intended to promote or achieve importantpublic policy goals.” Commentators and civil society groups have called forincreased public involvement in investment arbitration proceedings, in order toincorporate broader policy considerations into the dispute resolution process andadd a measure of transparency. ..

One avenue, which has increasingly been relied on to include broader interests inState-investor arbitration is amicus curiae (or third party) intervention in arbitralproceedings. Arbitrators in investment disputes have over the last decade begunshowing greater willingness to provide third parties with a very limited mandate toparticipate by way of written amicus briefs. In a number of high-profilearbitrations, non-governmental organizations (“NGOs”) have intervened in orderto provide expertise on “thematic” issues of public policy implicated in the dispute.More recently, the range of potential interveners has expanded beyond civilsociety groups.”

In Biwater Gauff (Tanzania) Ltd vs The United Republic of Tanzania, an ICSID arbitrationtribunal gave, in 2009, five NGOs amucis status to make limited written submissions.The NGOs did not take part in the an oral hearing or have access to the evidence. Evenarbitration rules which do not allow amucus curiae have been interpreted in favour on

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involving non-parties.

A Kenyan Example – National Cereals & Produce Boards (NCPB) Vs Erad Suppliers &General Contractors Ltd (Erad)

Not much can be said about this matter because there is a pending application in theCourt of Appeal. In brief,

• Erad was one of 5 firms that were awarded tenders to supply white maize toNCPB in 2004. The 4 other were promptly granted LCs which of the standardoperating procedure in such procurements. Erad was not. It threatened to sue butit withheld action on receipt of a letter form NCPB claiming that NCPB hadinstructed its bankers to issue an LC but then failed to issue the LC once thelitigation threat was over.

• Apparently, the directors of Erad visited the arbitrator in his office with an indecentproposal. The arbitrator disclosed that contact and issued directions expressinghid displeasure with the visit. He advised Erad's advocate to ensure that hisclients did not approach him again.

• NCPD's position in court was that the arbitrator should have resigned the minutehe admitted to having been approached by Erad with an indecent proposal wasuntenable. Was it reasonable for NCPB to expect the arbitrator to resign? Is beingoffered a bribe and rejecting it an offence? And why did NCPB raise the issue onlyafter it lost? The High Court found that the arbitrator had done the right thing.

• The case has many dimensions. The above analysis deals is restricted to theallegation that the arbitrator had been corrupted.

• A Parliamentary commission condemned the arbitrator, without giving him anopportunity to be heard, and recommended that the Law Society of Kenya openan enquiry into the conduct of the arbitrator, who is a member of LSK. Is LSKlikely to make a finding different from that reached by a High Court Judge?

• The claim and award in arbitration was primarily for “loss of profits” following afinding that NCPB had breached the contract. Media reports dwell on thesensational angle of the arbitration award, that the arbitrator had told thegovernment to pay Ksh.500m (USD 4.7m) yet the supplier had not delivered asingle grain of maize.

World Duty Free Company Limited v the Republic of Kenya - ICSID Case No. ARB/00/7

• The claimant alleged, among other things, that the Kenyan government hadexpropriated its two duty free complexes the Nairobi and Mombasa InternationalAirports.

• In response, Kenya alleged that its underlying agreement with claimant wasunenforceable because it had been obtained with a “personal donation” of $2million to the then President, a fact that the claimant had described in detail in itsoriginal submission.

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• Based on its conclusion that bribery was against transnational public policy, thetribunal found the contract was void and dismissed the claimant’s claim.

Corruption, whether in business transactions or among arbitrators thrives in the dark. Yetconfidentiality and privacy are perhaps the greatest benefits parties derive fromarbitration, since cost and flexibility of procedure are, in the writer's view, no longerachieved in arbitration.

I. Experience

“Experience” in arbitration refers to a person's experience as arbitrator and has nothingto do with the person,s age, number of years in the primary profession or years as anadvocate in arbitration. Being a football player and being a referee are differentprofessions. Experience in one field does not count in the other.

Prof Albert Van Den Berg emphasises the importance of good health and of availability.The more experienced arbitrators busy schedules and advanced age compromise theirability to carry out arbitrations quickly and efficiently. The cost implications are obvious.

Prof. Van Den Berg, who is one of the gurus in international arbitration, says, in an articletitled, Qualified Investment Arbitrators?, that the profile for the qualified investmentarbitrator has the following elements:

(a) has knowledge of substantive investment law and international public law;(b) has experience of arbitration proceedings;(c) is impartial and independent;(d) has sufficient time available to conduct the case;(e) is sensitive to economic, social and cultural differences;(f) is capable of dealing with facts;(g) is capable of dealing with numbers;(h) is in good health; and(i) understands that arbitration is a service industry.The presiding arbitrator needs, in my view, a number of additional qualifications:(j) has diplomatic skills; and(k) has case management skills.

Are the international arbitral institutions suggesting that Africa lacks people who fit thatbill?

African professionals are playing an increasing role in the world arena: law, accountancy,business, quantity surveying, top UN jobs, Nobel Prize awards, etc. There is no reasonwhy Arbitrators from the continent cannot be appointed in regional and internationaldisputes.

J. Experience and the Law of Diminishing Returns

Arbitrators from Europe have 100- 500 arbitrations under their belt each while theirAfrican counterparts with 10- 20 are considered gurus.

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The law of diminishing returns (also law of diminishing marginal returns or law ofincreasing relative cost) states that in all productive processes, adding more of onefactor of production, while holding all others constant ("ceteris paribus”), will at somepoint yield lower per-unit returns. The law of diminishing returns does not imply thatadding more of a factor will decrease the total production, a condition known as negativereturns, though in fact this is common. (wikipedia).

The law of diminishing returns (or learning curve) indicates that a person acquires muchnew experience during the initial period and that the amount of learning in subsequentperiods is limited. Thus a driver with 2-5 years of experience has “enough” experienceand in any case not much less than a driver with 40 years of experience. The writersuggests that this analogy is applicable to arbitration experience and that the exclusionof African arbitrators from international arbitrations is, at the very lest, badly misguidedand self-serving.

K. Professional Training & Mentorship of Arbitrators

According to John H . M. Sims,

“There is a failure on the part of everyone concerned - and in this I includeparties, lawyers, experts and arbitrators themselves and the Courts - torecognise that arbitration is, by its very nature, a wholly different method ofdispute resolution from litigation, requiring a wholly different approach from thevery onset.” (The Way Ahead Adapting to Change, The CIArb Arbitration Journal,p. 220, Nov 1990).

Arbitration is a different animal. Different from litigation and from Judge Jude or viojamahakamani. In the absence of mentorship, arbitrators invariably turn arbitration into“private litigation”. To be helpful, mentorship must be structured including:

• Should be for a specified period of time (say 1 year)• Attending hearing, subject to party consent• Preparation of shadow awards and directions• Discussion of mentor and mentee expectations

Training in professional arbitration is expensive. Rwanda offers subsidies to its nationals.No financial assistance in available in Kenya or in the other African countries.

L. Open Bias?

European arbitral organisations (LCIA, ICC, PCA, SCC and ICSID) are viewed asEurocentric: They give European and American arbitrators repeat appointments and veryrarely appoint arbitrators from Africa or from South America, even though those countrieshave qualified arbitrators. None of the Kenya have been appointed since theirappointment some 3 years ago.

Asian arbitral institution are happy to resolve African disputes but are not keen to attractAfrican arbitrators.

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M. Others

• How good is IT? - Reliability, Usage among arbitration practitioners, Cost etc• “Loss” of professional arbitrators to the judiciary. Kenyan experience. This has

advantages and disadvantages.• Lack of statistics – Only CRCICA publishes annual statistics. No other African

arbitral institution does.• Lack of a continental voice on arbitration. Weak local arbitration bodies. CIArb

excellent in training but weak in articulation of African local arbitration issues.• Governments give cautious support because they are, on some occasions, the

Respondents in domestic and international arbitrations.• Dismal trade amongst African states. Disputes arise from business dealings!• Need for specialist arbitrators who do nothing else. Specialisation breeds

excellence.• African arbitrator must get out of their cocoons in order to be seen and heard in

international arbitration for a and in international arbitration journals.• Mystification of Arbitration

O. Suggested Solutions

Structured mentorship. Why? Because arbitration is a different animal. Different fromlitigation and from Judge Jude or vioja mahakamani. In the absence of mentorship,arbitrators invariably turn arbitration into “private litigation”, at best.

Create a continental arbitration body to act as the voice of arbitration in Africa. Itsfunctions would include:• Organising and coordinate arbitration training• Regulate the practice of arbitration?• Making appointments• Organising and coordinating arbitration conferences and networking events.

(There were 4 international arbitration conferences in East Africa in the 4 monthsfrom May to August 2014!)

• Publication of Profiles/CVs of Arbitrators working in Africa.

The need for a practical balance between confidentiality and transparency and thearbitrations in which communities have a vested interest. This might require a review ofthe applicable arbitration laws and rules.

African governments must appoint competent arbitrators to ICSID. Some Africangovernments have not even bothered to fill their slots. Other have appointed people withno interest or experience in arbitration like retired judges, diplomats and politicians.

Affirmative action in favour of the marginalised groups – women, younger arbitrators,non-lawyers and Africans.

© Paul Ngotho July 2014 www.ngotho.co.ke ngothoprop@yahoo.com

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