UK: 1/3LY Oil & Gas Disputes: Upstream Oil & Gas Disputes In Sub-Saharan Africa

Volatility in energy prices continues to have a particularly strong effect on Sub-Saharan Africa. In many countries in the region there is a unique combination of government reliance on revenue from natural resources, to meet high social needs and other government spending commitments. In times of lower energy prices which increase pressure on margins, there is increased potential for disputes, whether with host governments over licence terms or between industry participants.

Political environment that demands consideration of alternative means of resolving disputes. These include a lack of legal certainty resulting from outdated oil & gas legislation that is not always fit for contemporary use and which is applied by under resourced national courts, in which decisions are not effectively reported.

While investors will inevitably have some involvement with local laws and the local legal system, many disputes can be referred to arbitration. International arbitration seated in the established arbitration centres of London and Paris is a tried and tested route, which has benefits in terms of certainty of process as well as a wide pool of potential arbitrators, and this will very often be the best choice, although other options are available within Sub-Saharan Africa itself.

General arbitration framework

In contrast to other regions, the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention") has not yet been adopted comprehensively across the African continent, and non-signatories include major producers Equatorial Guinea and Angola. Even in signatory jurisdictions, however, those seeking enforcement of foreign arbitration awards through the courts will often find them under-resourced. Speed and reliability of enforcement within the region therefore remain an issue. However it is debatable whether enforcement in Sub-Saharan Africa of arbitrations seated in the region is more effective than arbitrations seated outside the region.

Outdated national arbitration laws have tended to restrict the extent to which such disputes have been arbitrated within the region. While some countries (for example, Mauritius, Nigeria and Kenya) have enacted arbitration laws based on the United Nations Commission on International Trade Law Model Law ("UNCITRAL Model Law") and, therefore, now have legislation in line with international norms respecting the independence of the arbitral process, others still have antiquated laws which often allow for substantive judicial review of arbitral decisions and draw little distinction between domestic and international arbitration. For example, the current Tanzanian Arbitration Act has been updated from time to time and may soon be re-enacted, but at the moment it remains largely based on legislation from 1889. Likewise, South Africa's Arbitration Act is also far out of line with the UNCITRAL Model Law.

Regional initiatives have aimed to develop effective arbitration in the region, and in particular the 1993 Treaty on the Harmonisation of African Business Law in Africa (creating the organisation known as "OHADA") is one such instrument now signed by 17 Sub-Saharan Francophone jurisdictions with the aim of harmonising business and arbitration laws.

The OHADA treaty also established the Common Court of Justice and Arbitration in Abidjan (Ivory Coast) which is a regional arbitration institution with jurisdiction over contractual disputes where one party has its domicile in a member state, or where the contract was executed or is to be fully or partially performed in a member state. As part of the OHADA Treaty, member states also adopted the Uniform Act on Arbitration (based on the UNCITRAL Model Law) which supersedes the member states' national arbitration laws.

Arbitral institutions have been developed in various parts of Africa, in particular in Mauritius, Kigali and Nairobi, with the aim of attracting not only domestic arbitrations but also arbitrations with international parties.

Although the range of arbitration options is increasing, it remains to be seen whether there will be a trend towards arbitrating within the Sub-Saharan region, or whether for the more complex disputes parties will continue to prefer the established arbitral centres of London and Paris. Given the range of options and the potential pitfalls, the drafting of arbitration clauses in Sub-Saharan oil & gas contracts remains a topic that requires particular consideration to be given to the applicable law and seat of the arbitration, and the selection of the arbitral institution.

Investor-state dispute settlement

In addition to the general arbitration framework, there are some specific instruments which relate to investor-state disputes in Sub-Saharan Africa, although recent developments have presented investors with considerable challenges.

While the region's countries are party to almost 600 concluded bilateral investment treaties (BITs), seeking to offer a level of investor protection, over half have not been ratified or are terminated. Further, South Africa has already indicated an intention to terminate or not renew its BITs, replacing them with the Protection of Investment Act 2015.1 Commentators have suggested that this Act significantly reduces investor protections in a number of ways including in relation to expropriation, security and protection and access to independent dispute resolution procedures, all of which may be concerning to upstream oil & gas industry participants.

Regional organisations such as the Southern African Development Community (SADC) and the Common Market for East and Southern Africa (COMESA) are not generally thought to offer at present a reliable level of investor protection.

Membership of the International Centre for the Settlement of Investment Disputes (ICSID), headquartered in Washington DC, is however relatively widespread (South Africa, Angola and Equatorial Guinea being notable exceptions), and this can provide a useful mechanism for investor protection, either through BITs or contractual provisions. Given the pressures discussed above on government revenues from natural resources, the ICSID process and ICSID awards have been open to challenge in Sub-Saharan Africa however, with examples of this occurring in Tanzania and Nigeria.

Looking to the future

Although it remains to be seen how the framework within Africa will develop in the future, there is a current need for industry participants to keep closely in mind the various options available to them to resolve their disputes efficiently and effectively.


1 At the time of writing (June 2016), the Protection of Investment Act awaits President Zuma's proclamation to enter operation.

1/3LY oil & gas disputes: Upstream oil & gas disputes in Sub-Saharan Africa

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