Managing Political and Commercial Risks by Means of
Arbitration
2nd Managing Risk in Africa
6 February 2013
Dr. Markus Burianski,
LL.M.
Overview
 Arbitration – basics
 Definition
 Selected advantages
 Stages of arbitration proceedings
 Commercial arbitration
 Definition
 Ad-hoc v. institutional arbitration; international arbitration institutions
 Case study
 Annulment proceedings + enforcement
 Investment arbitration
 Definition
 Dispute Resolution Fora
 Case study
 Recurring issues
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Basics of Arbitration
 What is arbitration?
 Private forum to settle conflicts => requires arbitration agreement
 Investment and commercial arbitration => protection against political and commercial
risks
 Selected advantages of arbitration
 Neutral forum
 Parties may influence settings:
 Arbitrators
 Place
 Language
 Enforceability
 New York Convention 1958 (148 member states)
 ICSID Convention 1965 (147 member states)
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Stages of Arbitration Proceedings
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Commercial Arbitration
 Dispute arising out of a breach of contract
 Basis: contractual arbitration clause between two or more parties
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Ad-hoc v. Institutional Arbitration
 Ad-hoc arbitration
 No administering institution: parties
and tribunal determine all aspects
 Conducted pursuant to rules by parties
or arbitral tribunal
 Institutional arbitration
 specialized institution with permanent
character administers arbitration
 Arbitration conducted pursuant to
comprehensive set of rules of
administering institution
 Cost effective , flexible
 Administrative assistance, physical
- Requires expertise and cooperation
facilities and support service
- Administrative fees, less flexible
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International Arbitration Institutes
 International Chamber of Commerce (ICC)
 The London Court of International Arbitration (LCIA)
 International Centre for Dispute Resolution (ICDR) of the American Arbitration
Association (AAA)
 Cairo Regional Centre for International Commercial Arbitration (CRCICA)
 Lagos Regional Centre for International Commercial Arbitration (LRCICA)
 Arbitration Foundation South Africa (AFSA)
 Influences on choice of arbitration institution
 Neutrality, internationalism
 Reputation and recognition
 Arbitral rules and law governing substance of dispute
 Previous experience of the institution
 Overall cost of service
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Set the Course: Necessary elements of arbitration clause
 Agreement to arbitrate („midnight clauses“ / „Champagnerklausel“)
 Seat of arbitration
 Determines mandatory rules governing the arbitration
 Determines courts with supervisory jurisdiction over the arbitration
 Actual place of hearing must not be at seat
 Applicable law
 Procedural rules guiding dispute
 Substantive law governing contract‘s material terms
 Language
 Limiting pool of potential arbitrators?
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Case Study – Validity of Arbitration Clause
1. Parties arbitration clause provided that
„any dispute“ was to be referred to arbitration in London,
„any other dispute“ to arbitration in Moscow
2. Parties arbitration clause provided for
“Resolution of disputes: arbitration, Paris.”
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Case Study – Applicable Law, ICC Case No. 7262
 Case: Austrian company enters into technical cooperation agreement with
Indian company, requiring Austrian company to provide technical assistance. A
dispute about this assistance arises. Austrian company commences arbitral
proceedings under the ICC rules. Seat of the arbitration is London.
 Austrian company submits into evidence diaries of their employee regarding
the assistance – Indian company objects the admission on basis of the Indian
Evidence Act
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Enforcement of Arbitration Awards
 „New York Convention“ – Convention on the Recognition and Enforcement of
Foreign Arbitral Awards
 Contracting states will recognize and enforce
arbitration awards
 Subject only to enumerated, limited defenses
 Problem: subjective arbitrability
 Adopted by 146 of 193 UNO member states
– but 22 African states have not adopted
the New York Convention
 Example Libya:
 No bilateral treaties with Germany regarding enforcement
of arbitration awards
 Libyan procedural law: analog decisions of foreign state courts;
requirement of reciprocity
 Libya will enforce German awards
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Investment Arbitration
 Arbitration to settle investment-related disputes between a foreign
investor and the host state (or state agency)
 Basis: Bilateral Investment Treaty
 International treaty between two states to promote foreign direct investment
 Creates binding legal obligations for host states vis-à-vis foreign investors
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Investment Arbitration: Substantive Protections
Main obligations
Examples
Expropriation only against fair
compensation
Investment in plant that processes cocoa beans;
subsequent export ban on cocoa beans
Fair and equitable treatment
Host state law guarantees certain prices for
transportation of gas; subsequent enactment of an
emergency law to terminate the guarantee
Full protection and security
Employees of a state entity seize a hotel and the police
authorities do not interfere to protect the investor
Guaranty of free transfer of capital
and exchange currency
Host state freezes funds to stabilize economy
Umbrella clauses: contractual
obligations
Payment obligations under the contract
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Investment Arbitration: Procedure
 BITs drafted after the late 80’s: include an arbitration clause for investors
(e.g. section 11.2 Germany – Botswana BIT)
“If the divergency cannot be settled within six months […], it shall, at request of
the national or company of the other Contracting State, be submitted for
arbitration. Unless the parties in dispute agree otherwise, the divergency shall be
submitted for arbitration under the Convention of 18 March 1965 on the
Settlement of Investment disputes between States and Nationals of Other States.”
 BITs drafted before the late 80’s: only determine substantial law - local
courts have jurisdiction, unless parties agree on arbitration in
investment contracts
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BITs - Overview
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Dispute Resolution Fora
 International Centre for Settlement of Investment Disputes (ICSID)
 Offers dispute settlement mechanism for investment disputes between states and
private investors
 Enforcement directly according to ICSID Rules
 Permanent Court of Arbitration (PCA)
 UCITRAL arbitration rules: designate/act as appointing authority
 Full administrative support under UNCITRAL Arbitration Rules
 But: enforcement according to NY Convention or domestic law
 International Chamber of Commerce (ICC)
 Ad-hoc arbitration
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Case Study – Hamester GmbH & Co KG v. Ghana
 Facts:
 Joint Venture between Hamester GmbH & Co KG and Ghana Cocoa Board,
a commercial company
 Payment dispute
 Legal Issues:
 Investor
 Legal entities (e.g. Hamester GmbH & Co KG)
 Investment
 “Every kind of asset, in particular …” (e.g. Hamester: shares in a company)
 Breach of treaty obligations by host state or host state agency
 Damage
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Recurring Issues
 Investor
 Definition in relevant BIT:
 Shareholder in a company incorparated in the host state?
 Corporation merely indirectly controlled by national of concerned state?
 ICSID Convention: „national of another contracting state“, Art. 25 (2)
 When is a corporation organized under law of host state under foreign control?
 Investment
 ICSID Convention: definition in convention different from definition in BIT?
 Umbrella clause
 „Transformation“ of purely contractual claims into treaty claims?
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Conclusions
 Commercial arbitration can be used to successfully manage commercial
risks in Africa.
 Flexibility of the parties in handling the dispute,
 Neutrality of the decision making body, and
 enforceabilty of arbitral awards.
 Investment arbitration is an internationally accepted and functioning
instrument for the resolution of investor-state disputes and, thus, the
management of political risks.
 Think international when investments are impaired!
 German investments in Africa are protected almost everywhere.
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