The government of Djibouti cannot
terminate the contract granting control of its strategically important
Doraleh port to Dubai-owned DP World, says a London arbitration
tribunal.
terminate the contract granting control of its strategically important
Doraleh port to Dubai-owned DP World, says a London arbitration
tribunal.
Djibouti cannot terminate DP World’s contract to
operate the Doraleh Container Terminal, despite the government having
seized control of the facility from the company in February this year,
according to a London arbitration tribunal.
operate the Doraleh Container Terminal, despite the government having
seized control of the facility from the company in February this year,
according to a London arbitration tribunal.
The dispute between the government of President Ismaïl Omar Guelleh
and the Dubai state-owned port operator goes back several years and is
complicated by political angles including Djibouti’s increasingly close
relationship with China.
and the Dubai state-owned port operator goes back several years and is
complicated by political angles including Djibouti’s increasingly close
relationship with China.
The case was brought at the London Court of International Arbitration (LCIA) as provided for under the concession contract, which is governed by English law. Sitting as a sole arbitrator, Zachary Douglas QC of Matrix Chambers
made a partial final award that Djibouti could not terminate the
contract, which “remains valid and binding notwithstanding Law 202 and
the 2018 Decrees”. Those pieces of legislation gave the government the
power to renegotiate contracts relating to strategic infrastructure.
made a partial final award that Djibouti could not terminate the
contract, which “remains valid and binding notwithstanding Law 202 and
the 2018 Decrees”. Those pieces of legislation gave the government the
power to renegotiate contracts relating to strategic infrastructure.
However, sources familiar with the case argue that this was not a
genuine attempt to renegotiate, rather an ultimatum to hand over the
terminal.
genuine attempt to renegotiate, rather an ultimatum to hand over the
terminal.
Djibouti refused to engage with the arbitral process and was not
represented in the case, and has subsequently stated that it does not
recognise the award.
represented in the case, and has subsequently stated that it does not
recognise the award.
A statement from the Dubai government said the award “confirmed the
illegitimacy of the Government of Djibouti’s action of seizing control
of the Doraleh Container Terminal from DP World”.
illegitimacy of the Government of Djibouti’s action of seizing control
of the Doraleh Container Terminal from DP World”.
The statement continued: “Law 202 and the referenced decrees were
devices enacted by Djibouti to seek to evade Djibouti’s contractual
obligations, and these have been found to be ineffective in law.”
devices enacted by Djibouti to seek to evade Djibouti’s contractual
obligations, and these have been found to be ineffective in law.”
DP World won the concession to design, build and operate the terminal
in 2006, which it says is the biggest source of revenue in the country.
The government seized control of the terminal on 23 February this year,
after which DP World immediately filed the LCIA case.
in 2006, which it says is the biggest source of revenue in the country.
The government seized control of the terminal on 23 February this year,
after which DP World immediately filed the LCIA case.
Djibouti Ports & Free Trade Zones Authority (DPFZA) has argued,
among other things that Djibouti’s monopoly within the country was
hindering competition and development, that the concession contained
governance irregularities, the port under-performed and that DP World
excluded the government from decision-making and monitoring.
among other things that Djibouti’s monopoly within the country was
hindering competition and development, that the concession contained
governance irregularities, the port under-performed and that DP World
excluded the government from decision-making and monitoring.
GEOPOLITICAL ANGLE
Djibouti is strategically sited, at the entrance to the Red Sea,
providing access to the Suez Canal and also to land-locked Ethiopia, and
as such is an important foothold for parties seeking to trade with
Africa.
providing access to the Suez Canal and also to land-locked Ethiopia, and
as such is an important foothold for parties seeking to trade with
Africa.
In hearings earlier this year, Untied States political and military
figures expressed concerns that China would be gifted control of the
port by the Djiboutian government, possibly as repayment for loans,
which they said could threaten US interests in Africa. Djibouti is home
to the only permanent Chinese and US military bases on the continent and
is part of China’s ambitious and expansive One Belt, One Road (OBOR) infrastructure initiative. State-owned corporation China Merchants already has an indirect 15% stake in the port.
figures expressed concerns that China would be gifted control of the
port by the Djiboutian government, possibly as repayment for loans,
which they said could threaten US interests in Africa. Djibouti is home
to the only permanent Chinese and US military bases on the continent and
is part of China’s ambitious and expansive One Belt, One Road (OBOR) infrastructure initiative. State-owned corporation China Merchants already has an indirect 15% stake in the port.
In July, DP World issued a statement alleging that the launch of
Djibouti’s Chinese-built International Free Trade Zone, was in violation
of its exclusive management rights, a DP World spokesperson saying:
“This is yet another clear example by the Djiboutian Government of
violating its contractual obligations and the rights of foreign
investors.”
Djibouti’s Chinese-built International Free Trade Zone, was in violation
of its exclusive management rights, a DP World spokesperson saying:
“This is yet another clear example by the Djiboutian Government of
violating its contractual obligations and the rights of foreign
investors.”
That accusation was angrily rejected by DPFZA as “unfounded”.
A previous LCIA arbitration is still ongoing between the parties, overseen by Sir Richard Aikens, Lord Hoffman and Peter Leaver QC,
relating to a 2014 attempt by Djibouti to rescind DP World’s
concession. Last year, that tribunal dismissed accusations by the
government that DP World had won the concession through bribery of Abdourahman Boreh, a businessman and former head of DPFZA.
relating to a 2014 attempt by Djibouti to rescind DP World’s
concession. Last year, that tribunal dismissed accusations by the
government that DP World had won the concession through bribery of Abdourahman Boreh, a businessman and former head of DPFZA.
Boreh, a former ally of Guelleh, has since gone into exile. In 2016, London’s Commercial Court decided a civil fraud case in favour of Boreh, with Mr Justice Flaux rejecting all of the government’s accusations of bribery and corruption.
“A party to a contract, even if they are a sovereign, can’t just get
themselves out of an English law contract by passing laws,” says the
source, adding: “This is an example of English law contracts and London
dispute settlement processes confirming the rule of law.”
themselves out of an English law contract by passing laws,” says the
source, adding: “This is an example of English law contracts and London
dispute settlement processes confirming the rule of law.”
The source says the government could have engaged with DP World over
any concerns it had about the concessions: “There are positive and
constructive ways of doing it and then there are illegal ways of doing
it.”
any concerns it had about the concessions: “There are positive and
constructive ways of doing it and then there are illegal ways of doing
it.”
In March, DP World won a 30-year concession to develop Democratic Republic of the Congo’s first deep water port.
Ports are critical infrastructure for the economic development of any coastal country. A report by PwC earlier this year revealed that 80% of the volume of the worldwide merchandise trade and 70% of its value go through ports.
