August 2018

Doraleh: an inconsequential ruling

By Cherif Ouazani
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Since 22 February 2018, the commercial and strategic dispute between the Government of Djibouti and Emirati company DP World has apparently rebounded with the award handed down on 31 July 2018 by the London International Court of Arbitration (LCIA), after a complaint lodged by DP World. The sole arbitrator concluded that the concession contract terminated by the Government of the Republic of Djibouti is still in force. It is no surprise that the Djiboutian authorities, who challenged and refused to participate in the arbitration procedure, rejected the verdict which “seems to consider that the stipulations of the concession contract concluded between the Port of Djibouti and DP World are above Djiboutian law. This decision makes no mention of the sovereignty of the Republic of Djibouti and does not take into account the rules of international law,” says a communiqué issued by the Presidency of the Republic of Djibouti on 3 August 2018. This statement emphasises that “according to the arbitration award, a sovereign State would not have the right to terminate a contract whose performance it considers contrary to its fundamental interests, but would instead authorise its co-contractor (in this case, DP World, Ed.) to terminate the said contract to protect its commercial interests. In other words, a contract would have a higher value than a law adopted in the name of a sovereign people.” The legal battle has thus taken a new turn with a tug-of-war between commercial law and international law, which is in the interest of the company against the sovereignty of States.
 
The publication of an article on 10 August by Lloyd's List, a prestigious specialist maritime law and business journal, not usually suspected of antipathy towards major international private groups, backed the Djiboutian authorities' approach and, in a way, called upon DP World to be realistic. Having covered the subject regularly since the beginning of the dispute, the magazine considers that DP World's “victory” before the LCIA will have little impact and cannot force Djibouti to reverse the termination of the concession contract. Founded in 1882 and based in London, the LCIA is not strictly speaking part of the British legal system. “The term Court is inappropriate,” the magazine says, “because it has no jurisdiction to go to the Supreme Court.” This confirms what Hassan Issa Sultan, Inspector General of the State of Djibouti, said in May 2018. “The LCIA does not make the law; it arbitrates according to the clauses of a commercial contract between two partners. It merely follows the terms of a contract contrary to the fundamental interests of the Republic of Djibouti. The decision to terminate the concession is based on a national law. The Law is, without question, on our side.”
 
Following the rejection of the arbitration decision by the Republic of Djibouti, the Emirati company issued a communiqué calling into question the very substance of Djibouti's defence, arguments of fundamental interests, by considering that the terms of the contract “are fair and impartial”. “Fair and impartial” agreements that included particularly restrictive exclusivity clauses and that made any port development operation in the territory of the Republic of Djibouti subject to the prior agreement of the minority partner, DP World. Hassan Issa Sultan explains: “How can it be said that this concession does not hinder the country’s interests when it puts it under obligation to submit to the authorisation of a foreign company to build a new port or a new free zone on its territory? In Djibouti, as in any other country in the world, the port sector and free zones are highly strategic sectors and the government cannot depend on the goodwill of a private partner to ensure the country’s development. Like Egypt in the past, with the Suez Canal affair, Saudi Arabia with the manoeuvres around the national oil group Aramco, or the USA, which in 2006 cancelled the concession of several ports granted to DP World, Djibouti has used its prerogatives as a sovereign State. No one can say that Djibouti's law is illegal or that the concession remains in force. Our arguments are well founded and if an arbitration court’s decision could be imposed on a sovereign state, the Suez Canal would today be an English company and Aramco American.” 
In fact, as David Pilling, Africa editor of the prestigious Financial Times, pointed out last March, whatever the circumstances, international companies investing in sovereign states have every interest in constantly seeking a “fair deal”.
 
After ten years of the concession agreement being implemented, and months of conflict over the content of the contract, the Djibouti authorities were firmly convinced that there was no “fair deal”.  In addition to exclusivity issues, DP World's performance was also found lacking to say the least. According to Aboubaker Omar Hadi, Chairman of the Djibouti Ports and Free Zones Authority (DFPZA), “it was clear that DP World was not acting in favour of the development of port activity, discouraging shipowners and carriers from choosing our facilities over its home port, Djebel Ali.” And in fact, four months after the termination of the concession, the Doraleh container terminal is handling 34 TEUs per hour per crane, compared to 23 previously, one of the highest rates in Africa with productivity rates up 32% over the last five months due to the new management. These observations were not made by a Djiboutian official but by experts from the World Bank. A Bretton Woods Institution report establishing the annual Logistics Performance Index (LPI) has pushed Djibouti up 44 places in the world ranking (from 104th to 60th place), thanks to the entry into service of two new port areas (Tadjourah and Goubet) and the new electric railway line between Djibouti and Addis Ababa, as well as a significant improvement in the business climate.
 
The World Bank report confirms the validity of Djibouti's approach, prompting Lloyd's List to quote a British maritime affairs law specialist, who said, “What can DP World do with its victory in the arbitration procedure?” The only solution: fair and equitable compensation. This was already proposed by the presidential decree of 22 February 2018, which terminated the concession agreement. According to Lloyd's List, Aboubaker Omar Hadi reaffirmed Djibouti's willingness to pay fair compensation calculated in accordance with international law. Negotiated compensation therefore appears to be the only possible solution to this conflict, and the two former partners would do well to engage in the process as quickly as possible. And an indemnity which concerns both DP World and the Port of Djibouti (PDSA), both shareholders of DCT Doraleh Container Terminal (DCT), the company which operated the concession.
 
Pending this solution, on 27 July the Djibouti authorities terminated the joint venture agreement between the two shareholders of DCT Doraleh Container Terminal (DCT), 66.64% owned by the Port of Djibouti (PDSA) and 33.33% by DP World Djibouti. This joint venture agreement effectively ceded all powers to the minority shareholder and transformed the majority shareholder into a mere observer. Aboubaker Omar Hadi, in his capacity as Chairman of the Board of Directors of the Port of Djibouti (PDSA), majority shareholder of DCT, has convened a general meeting of shareholders of the company Doraleh Container Terminal (DCT) for 9 September 2018. As we can imagine, DCT is destined to be dissolved.
 
On the ground, while major manoeuvres are being stepped up in the region to control maritime flows, SGTD, a public company with the State of Djibouti as its sole shareholder, has taken over the operation of the Doraleh container port.
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