Arbitration tribunal rejects Djibouti Port Company’s bid to escape contract with DP World

Uusmiir · July 13, 2021, 8:39am

https://mediaoffice.ae/en/news/2021/July/12-07/Arbitration%20tribunal%20rejects%20Djibouti%20Port%20Company%20bid%20to%20escape%20contract%20with%20DP%20World

Arbitrator finds Djibouti’s Port Company wrongfully tried to terminate Joint Venture Agreement and transfer its shares to the State

An Arbitral Tribunal of the London Court of International Arbitration (LCIA) has ruled against Djibouti’s port company, Port de Djibouti S.A. (PDSA), in its dispute with DP World, confirming the unlawfulness of its effort to terminate its Joint Venture Agreement and transfer its shares to the State.

PDSA is 23.5% owned by China Merchants Port Holdings Company Ltd of Hong Kong (China Merchants), and the rest of its shares are held by the Government of Djibouti.

On 23 February 2018, the Government illegally seized control of the Doraleh Container Terminal from DP World, who designed, built and operated the terminal following a concession awarded in 2006. Until the seizure, the Terminal was being managed under a joint venture between DP World and PDSA. In July 2018, PDSA unilaterally declared that its Joint Venture Agreement with DP World was terminated. PDSA also tried to remove DP World’s nominated directors from the joint venture company in an effort to seize control of that company. DP World approached the High Court of England & Wales and secured an injunction against PDSA to restrain it from doing so until the Tribunal had the opportunity to rule on the dispute. In an attempt to circumvent the effect of the injunction, PDSA attempted to transfer its shares in the joint venture to the Government of Djibouti, relying on an Ordinance issued by the President of Djibouti. DP World sued PDSA over these matters in the arbitration.

The Tribunal has now ruled that PDSA breached the Joint Venture Agreement by wrongfully attempting to terminate it, and by engaging in the attempted transfer of its shares to the Government. The Tribunal ruled that the Joint Venture Agreement was not terminated and remains in full force and effect. It also ruled that PDSA remains a shareholder in the joint venture, and its attempted transfer of its shares to the Government had no effect. The arbitration will now proceed to a second phase to decide the damages owed by PDSA to DP World. PDSA has also been ordered to reimburse DP World’s legal costs to date in the sum of GBP 1.7 million.

The new ruling is the seventh decision by an international court or tribunal in favour of DP World in its ongoing dispute with the Republic of Djibouti. It follows a ruling on 31 July 2018 by another LCIA Tribunal that the Concession Agreement over the Doraleh Container Terminal remains valid and binding notwithstanding the Government of Djibouti’s efforts to evade its contractual obligations, and a further ruling on 10 January 2020 ordering the Government to restore the Terminal to DP World. A third arbitration tribunal has also ordered the Government to pay damages of US$ 485.7 million to the joint venture company (in which DP World has a 1/3rd stake) over the breach of its exclusivity rights, due to the construction of the Doraleh Multipurpose Port and including certain unpaid royalties for container traffic handled at other ports in Djibouti. The Government of Djibouti has yet to comply with any of these rulings, and remains in breach of its international obligations.

DP World has reiterated that it will continue to pursue all legal means to defend its rights as shareholder and concessionaire in the Doraleh Container Terminal in the face of the Government’s blatant disregard for the rule of law and respect for binding commercial contracts. It has also highlighted that despite three years having passed, the Government is yet to come forward with any offer of compensation in an effort to find a negotiated settlement to the dispute.

The Doraleh Container Terminal, the largest employer and biggest source of revenue in the country, has operated at a profit every year since it opened, and has been found by an international tribunal and the English Commercial Court to have been a “great success” for Djibouti under DP World’s management.

DP World is a leading enabler of global trade and an integral part of the supply chain. It operates multiple yet related businesses – from marine and inland terminals, maritime services, logistics and ancillary services to technology-driven trade solutions.

With a portfolio of 81 operating marine and inland terminals supported by 148 business units in 60 countries across six continents with a significant presence in both high-growth and mature markets, the company enjoys strong relationships with governments around the world, working in partnership to strengthen economies through investment in infrastructure and the implementation of smart trade solutions.

fais · July 13, 2021, 8:58am

I think this is the 5th or 6th verdict against Djibouti.

What can DP World do since Djibouti won’t adhere to the rulings?

fais · July 13, 2021, 9:08am

“The new ruling is the seventh decision by an international court or tribunal in favour of DP World in its ongoing dispute with the Republic of Djibouti.”

Damn, it’s the 7th

Suldaanka · July 13, 2021, 9:12am

Not much really. But what this means for Djibouti in terms of Western investment is bad. Probably Djibouti has reached conclusion that it doesn’t need Western investment and hence can get away with this.

fais · July 13, 2021, 9:16am

Waaow, but they are basically totally indebt to China, maybe IOG is thinking that all investment his country need will come from the CCP in the future, thus sends a signal that Djibouti is defently not open for business.

That is a bad policy.

Suldaanka · July 13, 2021, 9:22am

Only a dictator would do such a thing. He leaving Djibouti not only broke but also mortgaged to China.

Uusmiir · July 13, 2021, 9:43am

Dp world’s best weapon at the moment is Somaliland / Berbera, the more they steer Ethiopian logistics towards Sl the more it will hurt Djibouti economically. DP world is seeking 485 million plus in damages from Djibouti, which if it ever gets paid means their 442 million invest in Somaliland would have been paid for by Djibouti . If Eritrean ports ever come online that’s another headache down the line. They still have a competitive advantage in terms of infrastructure, but these can be duplicated as we are witnessing with the Berbera corridor and possible train to come. Also with Ethiopia’s 19% in Berbera, they automatically get a 20% discount over Djibouti in Berbera. It just means that for the first time in decades Djibouti will have to compete! And compete they will.

They are competing for the livestock market too in a big way.

Aimed at transfiguring the conventional & costly ways of doing the livestock export business, Ethio-Djibouti Livestock Export Promotion Forum kicked off on Sunday (July 4, 2021) attracting scores of high-level officials from each side, several experts from relevant stakeholders as well as dozens of exporters in the sector.

Ministers such as Dr. Fikru Regassa & Ahmed Mohammed Awaleh of Agriculture, Mohammed Warsama of Trade and Tourism, Ambassador Berhanu Tsegaye, Youssouf Moussa Dewaleh of the Chamber of Commerce & his Ethiopian counterpart, Melaku Ezezew, Acting Chair of Port & Freezone Authority, and many more have made remarks at the opening session.

During the session, speakers noted that the two countries couldn’t benefit from the sector as much as they should due to lack of state of the art quarantine centers, the illicit live animal trade, some agents playing damaging roles to illegally amass profit from the sector, the scarcity of a well regulated and suitable animal resting area, etc.

It was mentioned during the talks that to ensure Ethiopia and Djibouti, as exporting countries as well as an important exit-way to destination countries, efficiently benefit from the sector; the governments of the two countries have undertaken various measures.

To mention a few, the Private Public Partnership agreement signed between Ethiopia’s Ministry of Agriculture and a private company from Saudi Arabia in March this year is hugely expected to up-scale the quarantine system in Ethiopia to the level that meets the expectations of the global market.

It was also stated that the second important achievement is the newly inaugurated Doraleh Multipurpose Port (DMP) Livestock Terminal that is expected to enable Ethiopia to reap the benefits it deserves by ensuring seamless transportation of animals to their destinations without having to spend costly time on health check-ups as has been the case in the past.

Presentations were made on challenges & opportunities of the sector, an overview of the new terminal and the animal health system, and a brief note on mille quarantine.

The meeting will continue tomorrow at the DMP where a visit will be made to the new DMP livestock resting terminal.

fais · July 13, 2021, 11:44am

I’m not so keen on politics in Djibouti, who do you guys think is likely to replace IOG?

Suldaanka · July 13, 2021, 12:22pm

Unless they have Saudi Arabia cordoning off a share in the market for Djibouti. In a free and fair market economy, nothing beats Berbera. It is closer to the livestock raring country, and almost all the cut-throat livestock traders are from Somaliland.

Suldaanka · July 13, 2021, 12:23pm

No one knows really. Most likely a family member.

Uusmiir · July 14, 2021, 7:13am

Uusmiir · January 23, 2024, 6:43pm

U.S. District Court for District of Columbia Declines to Vacate LCIA Award Against Djibouti: Doraleh Container Terminal v. Republic of Djibouti

Summary

In Doraleh Container Terminal v. Republic of Djibouti, the U.S. District Court for the District of Columbia enforced an arbitral award against the Republic of Djibouti in favor of Doraleh Container Terminal, arising from a dispute over a port.
The court found that the tribunal did not exceed its authority, that the court did not lack subject matter jurisdiction, that Djibouti’s due process rights were not violated, and that enforcing the award was not contrary to U.S. public policy.
The case serves as a warning that parties who choose not to participate in arbitration when given the opportunity will suffer consequences and that parties who raise new arguments in courts beyond the arbitral tribunal will not fare well.
The case reinforces the principle of deference to arbitral awards in the New York Convention, as well as the principle of finality of arbitration awards and the limited grounds upon which they can be challenged.

This case, 1

heard before the U.S. District Court for the District of Columbia (“the court”), concerns the enforcement of an arbitral award against the Republic of Djibouti in favor of Doraleh Container Terminal SA (“DCT”), arising out of a dispute over the development and operation of a port. Parties entered into a Concession Agreement where DCT agreed to build and develop a new international container terminal on the Red Sea in Doraleh, Djibouti, in exchange for DCT’s exclusive right to handle container shipping in Djibouti and payment of royalties. The agreement also provided for arbitration of any dispute between the parties in London under London Court of International Arbitration (LCIA) Rules if it could not be amicably settled.

A dispute arose, Djibouti commenced arbitration, DCT made a counterclaim, and ultimately, an award was issued in favor of DCT. DCT commenced this action in the District of Columbia to enforce the award.

Djibouti sought to vacate the award, arguing that (i) the tribunal exceeded its authority, (ii) the tribunal violated Djibouti’s due process rights, and (iii) the award would be contrary to U.S. public policy if enforced.

The court rejected all of Djibouti’s arguments and granted DCT’s petition to confirm the award. The court did not accept Djibouti’s argument that the court lacked subject matter jurisdiction over the petition.

In respect of the tribunal’s authority, the court found that the dispute resolution clause in the parties’ contract was broad enough to encompass the counterclaims raised by DCT, and that the tribunal did not exceed its authority by deciding on those counterclaims.

There were no surprises in this decision. Addressing Djibouti’s claim of violation of due process, the court found that Djibouti had actual notice of the proceedings and was given an opportunity to be heard, but chose not to participate. Therefore, the court held that Djibouti’s due process rights were not violated. Finally, with respect to Djibouti’s argument that enforcing the award would be contrary to U.S. public policy, the court held that this argument failed because a purely compensatory award does not violate U.S. public policy. The court noted that Djibouti’s argument relied solely on a case involving specific performance, which was not applicable here.

This case is significant because it reinforces the principle of deference to arbitral awards under the New York Convention. The court emphasized the strong public policy in favor of enforcing arbitral awards and noted that a party seeking to vacate an award faces a heavy burden of proof. The court also clarified that due process rights are satisfied by actual notice and an opportunity to be heard, and that a party’s failure to participate in the proceedings will not be grounds for vacating the award. A party who takes the risk by not participating in arbitration proceedings may be bound by the outcome of the arbitration even if they disagree with the result.

The court discredited what it called Djibouti’s “disguised attempt to challenge the award on grounds that could have been brought before the arbitrator.” 2 It noted that despite being invited to comment on DCT’s authority, Djibouti declined to respond and instead raised its argument of lack of authority before the court for the first time. In light of this, the court did not accept Djibouti’s argument as an authentic challenge to the court’s subject matter jurisdiction.

This outcome is very much in line with the consistent approach of U.S. courts to a very narrow interpretation of the scope of the few grounds for declining to enforce an arbitral award under the New York Convention. This case serves as a warning of the consequences that follow should a party choose not to participate in an arbitration when given the opportunity. A party’s refusal to participate will not be looked upon sympathetically by the court, as such a lost opportunity is “self-inflicted.” 3 Parties should therefore use every opportunity to raise all arguments before the arbitral tribunal and not expect the court to entertain new arguments which could have been raised before the arbitral tribunal.