Africa: The final
investment frontier
 Mitigating the risk in disputes arising
from multi-jurisdictional contracts in
Africa
Roger Wakefield, November 2013
INTRODUCTION
 Countries, including South Africa, are scrambling for African
investment opportunities
 Commercial cross-border disputes are on the increase – cross-border
litigation is risky
 Multijurisdictional contract = South African companies, or their African
subsidiaries, contracting with companies from other African states
 Risks mitigated by properly considered dispute resolution clauses
 Discussion today Choice of law and choice of law clauses;
 Submission to jurisdiction of courts and submission clauses;
 Arbitration vs. litigation and arbitration clauses;
 Failure to agree may lead to years of litigation on these aspects
before the real dispute can be determined. Defendants can exploit to
delay
 Example for the purposes of today’s discussion: SA company
concludes contract in Johannesburg with Nigerian company based in
Lagos to build oil refinery in Angola. Payments to be made by SA
company to the Nigerian company in Lagos
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CHOICE OF LAW
 Most important aspect in multijurisdictional contracts
 Parties may choose any law to govern their contracteven if entirely foreign
 South African court or arbitrator is obliged to apply the
chosen law
 Problems arise when governing law is not expressed in
the contract-
 Each party will contend for the law which best suits their
case;
 Resultant risk: possibly years of litigation on the issue of
which law governs before real dispute can be determined
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HOW A COURT DETERMINES WHICH LAW
GOVERNS WHEN THE PARTIES HAVE FAILED
EXPRESSLY TO AGREE IT
 Court must first determine if there is a tacit choice of
law. Looks at surrounding circumstances, references to
a country’s statutes etc. to gauge intention of parties
 If no tacit choice, court assigns a law to the contract –
“the proper law of the contract”
 Court determines which legal system most closely
connected to the contract – usually of country where
contract concluded or performed
 Difficult process – leads to delay and can be further
exploited by defendant
 Rome 1 Regulation
 Ensure governing law is expressed
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FACTORS TO CONSIDER WHEN AGREEING
CHOICE OF LAW
 Chosen law should have a real connection with the
contract – not a requirement though
 Law of the country where the contract was concluded
(can be difficult to determine if signed in counterparts)
 Most practical choice: law of country where most
performance is to take place
 South African party- should try and choose South
African law
 If counterparty insists on neutral law, agree English
law-similar to South African substantive and procedural
law
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FACTORS TO CONSIDER WHEN AGREEING
CHOICE OF LAW CONT.
 Choice of law not absolute: will not override directly
applicable statutes
 Directly applicable statutes can apply expressly e.g.
Section 47 of the Electronic Communications and
Transactions Act –
 “the protection provided to consumers in [Chapter 7 of the
Act], applies irrespective of the legal system applicable to
the agreement in question”
 They can also apply impliedly: Basic Conditions of
Employment Act – SA employer cannot avoid
obligations under the Act by choosing another law
 Exchange Control Regulations apply impliedly
irrespective of chosen law
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GOVERNING LAW CLAUSE
 “GOVERNING LAW
 This agreement shall in all respects(including its existence,
validity, interpretation, implementation, termination and
enforcement) be governed by the laws of Nigeria which is
applicable to agreements executed and wholly performed
within Nigeria”
 Disputes about the validity of the contract? Add
severability clause-
 “this clause is severable from the other provisions of this
agreement and shall remain in effect notwithstanding the
termination or invalidity for any reason of this agreement”
 Important qualification: “[chosen law] which is applicable
to agreements executed and wholly performed [within the
nominated country’s laws]” - avoids Renvoi
 Choice of law alone does not confer jurisdiction
 Submission to a court does not in itself amount to a choice
of that court’s law
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SUBMISSION TO JURISDICTION OF COURTS
 Jurisdiction = power of a court over litigants and to
adjudicate their dispute
 Residence = important concept in determining jurisdiction
 South African courts have jurisdiction over persons
(including companies) resident in their area or in respect of
causes of action arising in their area
 South African company deemed to reside at its principal
place of business (place of control) or registered office
 Branch office not sufficient to confer jurisdiction
 Foreign companies – deemed resident if principal place of
business in court’s area. If SA not principal place of
business but foreign company conducts some business
here - court has jurisdiction in relation to causes arising
out of local activities
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HOW COURT’S ACQUIRE JURISDICTION OVER
FOREIGN DEFENDANTS WITH NO PRINCIPAL
PLACE OF BUSINESS HERE
 Example: SA company wants to sue Nigerian defendant
in South African court
 To establish jurisdiction SA company required to attach
asset of Nigerian company in South Africa. Attached
asset can be of any value
 If Nigerian company submits in contract – attachment
unnecessary (and impermissible)
 Tactical considerations
 No submission – can be onerous to find asset of foreign
defendant in South Africa, but attachment can secure
claim
 If substantial assets of foreign defendant are known to SA
plaintiff, might be strategically advantageous for latter not
to encourage submission to enable it to attach
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JURISDICTION WHERE BOTH PARTIES ARE
FOREIGNERS
 Example: South African company uses Angolan
subsidiary to contract with Nigerian company
 Submission alone will not confer jurisdiction on SA court
 In addition a linking factor is required (conclusion or
breach of contract in South Africa or performance here)
 In the absence of submission, a linking factor is
required AND foreign plaintiff is required to attach an
asset in South Africa belonging to the foreign defendant
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CONSTITUTION, SECTION 34 – FUNDAMENTAL
RIGHT OF ACCESS TO JUSTICE
 Example: contract between South African company and
Nigerian company contains clause requiring all disputes
between them to be settled by arbitration in Nigeria in
accordance with Nigerian law
 SA company however sues Nigerian company in a South
African court
 SA court has a discretion whether to hear the matter.
Nigerian defendant will have to show why SA court should
stay the matter pending the outcome of the arbitration in
Nigeria
 Heavy onus for defendant to bear – courts will generally
uphold mandatory arbitration clauses
 Factors considered by court in exercising discretion:
location of witnesses and evidence, convenience, the
chosen law, is the court being used as a tactical ploy?
 Submission to “exclusive jurisdiction” of one court will not
oust jurisdiction of another South African court having
jurisdiction
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SUBMISSION TO “EXCLUSIVE JURISDICTION” :
EFFECT
 Parties often agree in arbitration clauses to the
“exclusive jurisdiction of a particular court in urgent
proceedings
 Such agreement does not confer jurisdiction if there is
no linking factor and will not oust the jurisdiction of
another South African court which has jurisdiction
 SA court always has jurisdiction to hear urgent matter
in its area – even where arbitration is mandatory
 Agreeing on exclusive jurisdiction is unnecessary and
confusing
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STANDARD SUBMISSION CLAUSE
 “JURISDICTION
 The parties hereby consent and submit to the jurisdiction
of the South African court in respect of any dispute or
claim arising out of or in connection with this agreement”
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IN SUMMARY:
 Courts require a linking factor – submission alone will not confer
jurisdiction
 Where both plaintiff and defendant are foreign – submission alone
will not confer jurisdiction, linking factor required
 If no submission, in addition to linking factor attachment of asset in
South Africa belonging to foreign defendant is required
 Plaintiff South African, defendant foreign – submission by
defendant sufficient for jurisdiction without need for attachment
of its assets in South Africa
 If no submission – South African plaintiff required to attach asset in
South Africa belonging to foreign defendant (plaintiff’s residence in
South Africa = sufficient linking factor)
 Submission to “exclusive jurisdiction” does not oust jurisdiction of
other SA courts having jurisdiction
 Mandatory arbitration clauses will not always oust the jurisdiction
of courts
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ARBITRATION VS. CONVENTIONAL LITIGATION
 Internationally arbitration is preferred method of dispute
resolution
 Arbitration particularly appropriate for disputes arising
from multijurisdictional contracts
 Parties required to agree to arbitration. Litigation – no
agreement required
 Advantages of arbitration:
 Most Western countries and African states party to New York
Convention – reciprocal recognition of foreign arbitral awards
 Neutrality
 Flexibility
 Cost
 Speed
 Enforceability
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FACTORS TO CONSIDER WHEN AGREEING
ARBITRATION CLAUSE
 Ad hoc vs. institutional arbitration
 Ad hoc arbitration – administered by the parties who
choose arbitrator and agree, venue, arbitrator’s powers,
procedural rules and law
 Institutional arbitration – administered by an institution
such as AFSA or Africa ADR. Rules of the institution
determine venue, procedure, arbitrator’s powers,
applicable law and facilitate appointment of arbitrator
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AD HOC ARBITRATION CLAUSE
 “ARBITRATION
 Any disputes arising from or in connection with this
agreement [it is important that this is stated as broadly as
possible to embrace any conceivable dispute that arises from
the contract] shall if so required by either party by giving
written notice to that effect to the other party, be finally
resolved by arbitration in accordance with the arbitration laws
for the time being in force in the Republic of South Africa. The
hearing of the arbitration shall be in camera. Save to the
extent strictly necessary for the purposes of the arbitration or
for any court proceedings related thereto, neither party shall
disclose or permit to be disclosed to any person any
information concerning the arbitration or award (including the
existence of the arbitration and all process, communications,
documents or evidence submitted or made available in
connection therewith).”
 Party declares dispute and discussions ensue about nomination of
arbitrator, rules, laws and procedures to apply and venue.
Disputes may arise
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AFRICA ADR
 Typical Africa ADR dispute resolution clause –
 “Dispute Resolution
 Any dispute arising out of, or in connection with, this
agreement shall be finally resolved under the Rules of Africa
ADR and under the direction of its secretariat, by one or more
arbitrators appointed according to its Rules”
 Rules of Africa ADR provide for appointment of arbitrator by its
secretariat
 Rules based on UNCITRAL rules – internationally recognised and
applied
 Africa ADR arbitrations administered in Johannesburg but can be
heard anywhere in Africa
 Important requirement of Africa ADR – countries from which
parties come must be party to New York Convention
 Africa ADR recommended for disputes involving entities from
different African countries
 ICC arbitration appropriate for disputes involving African
parties and other non-African parties – can be expensive
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AFSA ADMINISTERED ARBITRATION
 “ARBITRATION
 Any disputes arising from or in connection with this
agreement shall, if required by either party, by giving written
notice to that effect to the other parry, be finally resolved in
accordance with the Rules of the Arbitration Foundation of
Southern Africa (“AFSA”) by an arbitrator or arbitrators
appointed by AFSA. There shall be no [or a] right of appeal as
provided for in Article 22 of the aforesaid Rules”.
 Provision can be made for expedited arbitration by adding “Each party to this agreement-
 Expressly consents to any arbitration in terms of the aforesaid
Rules being conducted as a matter of urgency; and
 Irrevocably authorises the other party to apply, on behalf of
all parties to such dispute, in writing, to the secretariat of
AFSA in terms of Article 23(1) of the aforesaid Rules for any
such arbitration to be conducted on an urgent basis”
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CONCLUSION
 Express choice of law – try for South African law, or
neutral English law
 Institutional arbitration (e.g. Africa ADR) most
appropriate
 If arbitration not agreed, submission to the jurisdiction
of the South African courts is advisable – avoids
attachment
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THANK YOU
Roger Wakefield
November 2013
Legal notice: Nothing in this presentation should be construed as formal legal advice
from any lawyer or this firm. Readers are advised to consult professional legal advisors
for guidance on legislation which may affect their businesses.
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