4 August 2018

Djibouti: Arbitration Court Upholds DP World's Concession

Though Djibouti has rebuffed the trial and its outcome, an arbitration tribunal in London upheld the validity of the concession agreement DP World has with the nation to operate the Doraleh Container Terminal. Djibouti claims the agreement is still nullified because it fails "to protect the fundamental interest of the nation."

Djibouti's parliament voted the concession agreement null and void last February. In cancelling the concession, Djibouti's government stated that the agreement violates its sovereignty with a clause that stops it from entering into a concession agreement with another party in any other part of the country for half a century. Djibouti government also alleged misconduct by DP World in operating the terminal.

Djibouti's cancellation and seizure of DP World's concession led lawyers of the company to take the case to an arbitration tribunal in London, where the case has been under review for the past five months. Last Thursday the tribunal, presided over by Zachary Douglas, ruled the concession agreement, which it stated is governed by British law, remains binding and in force, notwithstanding the termination by Djibouti.

However, Djibouti argues that the termination was made following international law, which recognises the right of a sovereign state to unilaterally terminate a contract on the basis of public interest, subject to payments of fair compensation to the other parties. Djibouti's government announced that it does not recognise the arbitration claiming that the country did not participate in due procedure on top ruling content, which qualifies the law of the sovereign state.

"The award disregards the sovereignty of Djibouti and takes no account of public international law," reads a statement from the government.

The dispute between the two began last February when Djibouti's government seized control of the terminal from DP World and awarded the concession to the Singapore-based Pacific International Lines. The concession to Pacific International includes raising the terminal's handling capacity to an additional 300,000 twenty-foot equivalent container units (TEU). Three months after the new deal with the Singaporean firm, the Authority reported the port's capacity was boosted from handling 25 containers a crane per hour to 34.

Though Djibouti suddenly annulled the agreement, the two entities have had a long-standing relationship. They partnered in 2000 to establish a joint venture after DP World was awarded a concession to operate the Port of Djibouti.

The partnership between the two blossomed, and they reached for another ally to construct the Doraleh Container Terminal, in 2006, when DP World was awarded the concession to operate the terminal.

The terminal became operational in 2009 with the capacity to handle 1.2 million TEU annually with its 18m draft and 1,050m quay. It has three berths and 10-15,000 TEU Super-Post-Panamax vessels. The terminal also handles shipments for Ethiopia, which ferries most of its import-export cargo through Djibouti ports. Currently, import freight to Ethiopia stands at 13.5 million tones and export figures are reported at 1.8 million tones a year.

Djibouti started to approach DP World to renegotiate the terms of the agreement but failed to come to terms. The terminal's concession was signed by Abdourahman Boreh, former chairman of Djibouti Ports & Free Zone Authority, who was simultaneously retained by DP World as a consultant. A month ahead of the seizure, the Djibouti government claims that Sultan Ahmed bin Sulayem chairman and CEO of Dp world, made an initial offer to sell the company's share to Djibouti for an agreed amount. After calculating the profit and potential dividends it could have been paid for the 20-year contract.

After cancellation of the concession, Djibouti made another offer, according to officials of the agency. There are reports that Djibouti offered DP World close to half a billion dollars to buy out its 33pc stake in the terminal along with compensation for losses. The proposed amount included 334 million dollars to buy out DP World's stake, while the balance was allotted as compensation. DP World officials stated that they have received no compensation, and even if they had received one, they affirmed that their firm stands against any resolution, except the final ruling of the tribunal.

The final ruling was passed by the tribunal at the end of last week in favour of DP World.

"We are delighted that the court has ruled in our favour, declaring the seizure an illegal act and a clear violation of the government's contractual obligations," the spokesperson of DP World wrote Fortunevia email.

Yet Djibouti declared that it does not recognise the ruling of the tribunal.

However, Yohannes Woldegebriel, a legal practitioner and director of the arbitration tribunal at the Addis Abeba Chamber of Commerce & Sectoral Association, argues that Djibouti will abide by the ruling.

He argues that agreements between parties have articles that declare dispute settlement options, including arbitration courts.

"The ruling of the arbitration trial is binding, whether Djibouti takes part in the procedure or not," said Yohannes, "DP World would step into the execution of the judgement."

Yohannes holds that though Djibouti declared the agreement null and void, the article contained in the concession agreement about conflict resolution remains active until the dispute between the two is settled.

"Even if the contract might be terminated by the Djibouti government, the principle of severability confirms that until disputes are resolved, arbitration clauses shall stand enforceable," he said. "On the other hand, as is the case in French judicial tradition, it is possible that the government can terminate the contract against prompt and fair compensation."

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