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IDRI Annual Lecture: 26th April 2014Transcorp Hilton Hotel, Abuja.

Promoting an Appropriate ADR Culture for ResolvingInternational Commercial Disputes in Africa

By Professor David ButlerEmeritus Professor

Faculty of LawStellenbosch University

South Africa

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1) IntroductionNigeria, measured by its 2013 GDP now the largest economy in Africa,following the rebasing of the economic data by which this is calculated.Reaction to this announcement was overwhelmingly positive, also in South Africa.This news underlines the increasing trading and investment opportunities forestablished entrepreneurs in Africa’s large economies in other countries on thecontinent.

Aliko Dangote, of Nigeria’s Dangote Group, is expanding its established cementbusiness in four other African countries, including South Africa.South African examples include Shoprite, MTN and Barclays Africa.Trans-border trade and investment potentially offer attractive returns but alsocarry increased risks.

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These heightened risks exist because the investor has insufficient familiarity with local laws, the workings of the host state’s bureaucracy, its trade practices, andchallenges presented by shortcomings in its infrastructure different to those of theinvestor’s home state.

Consider the challenges for a Nigerian corporation establishing a subsidiary inSouth Africa.

Trans-border trade and investment by established entrepreneurs will often involvevery substantial amounts of money. The contracting parties and the host state allhave a strong interest in the success of the venture.

When disputes arise, because of unforeseen circumstances, the parties have a strong interest in resolving the dispute quickly and without unnecessary expense or damage to their commercial relationship.

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Approximately 60% of African jurisdictions now have modern arbitration legislation.Arbitration is the preferred method, compared to litigation, for resolving trans-bordercommercial disputes.

Nevertheless, this lecture starts from the premise that arbitration should normallyonly be used after serious attempts have been made to resolve these disputes by mediation.

It will also consider what sort of dispute resolution clause will usually be suitable for trans-border commercial contracts.

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2) Comparison of the relative advantages of mediation compared to arbitration forresolving trans-border commercial disputes“Mediation is a flexible process conducted confidentially in which a neutral personactively assists parties in working towards a negotiated agreement of a dispute ordifference, with the parties in ultimate control of the decision to settle and the termsof resolution.”The function of the mediator, in essence, is helping parties to have“difficult conversations”.

UNCITRAL, in the context of international commercial disputes, has traditionally usedthe term “conciliation”, as exemplified by the Nigerian Arbitration and Conciliation Act,but apparently regards the terms as interchangeable.

The lecture’s focus is on trans-border commercial disputes in an African context.

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Advantages claimed for arbitration in a domestic context include confidentiality,flexibility, finality of the award and the parties’ right to choose the tribunal.In an international context two further advantages: neutral forum and enforceabilityof the award under the New York Convention.

Point of departure: parties will prefer arbitration to litigation. Unnecessary to considermediation in the context of litigation, where Nigeria leads the continent withmulti-door courthouses. (Article by Dr Bagoni Ahaji Bukar in 2013 show-casesNigerian experience.)International arbitration currently enjoying its “Golden Age” but there are justifiableconcerns as to high costs and protracted duration.

Advantages of mediation make it glaringly obvious that mediation should beconsidered before resorting to arbitration: savings in time and costs, a solutioncannot be imposed and opportunity for an interest-based solution. Mediationcollaborative process that can strengthen parties’ relationship.

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Disadvantages of mediation: • Process dependent on parties’ continued cooperation;• Danger of settlement before becoming aware or weaknesses in opponent’s case – but proper risk analysis.• Perception that proposing mediation indicates a weak case.• Danger that other party is not participating in good faith, but simply “game playing”.

3) The need to appoint an appropriate mediatorHaving the right mediator is an essential ingredient for successful mediation.Mediator must be “fit for purpose”.

Mediation informal, but is still a structured process. The mediator determines thatprocess. Good mediator must be an expert in process management and havestrong people skills.

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Six most important factors when choosing a mediator per IMI 2013 survey:• Experience as a mediator;• Past user experience with a particular mediator;• The mediator’s personality and attitude;• Independently verified feedback from users;• Expertise in the core issue in dispute; and• Evidence that the mediator’s competence was independently assessed.

Mediation described as “assisted negotiation”. Mediator must be trained in negotiation.Two main styles of negotiation:Positional (distributive) mediation;Interest-based negotiation, where the mediator is essentially a problem-solver.Characteristics:• Separating the people from the problem;• Focusing on interests and not on positions;• Generating a variety of options, with the focus on adding value;• Using objective standards where possible.

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4) Features of mediation process for cross-border disputesDiscussion assumes reasonably complex dispute involving a substantial amount.Duration of process longer than for domestic dispute.

CIArb definition of mediation: “an informal … process where disputes are resolved by[the] mediator assisting parties to reach an agreement”.Two points must be emphasised:Informal process – does not involve applying a formula or set of rules. Mediatorshould not follow a set recipe.

To assist the parties, the mediator must be thoroughly prepared.Detailed knowledge of facts; some idea of the law; possible approaches havingregard to dynamics of the dispute and cultural attitude of parties to mediation.One commentator, Rees, resorted to Google. West African proverb:“If I give you an egg and you give me an egg, we will each have one egg. If yougive me an idea and you give me an idea, we will each have two ideas.”

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For mediator facing parties of different cultures: useful series: Culture Smart!Culture Smart! Nigeria, by Diane Lemieux (2012 Kuperard).

What can the mediator deduce from the fact that one of the parties is a companyincorporated in South Africa? In the case of a listed company, who are theprincipal shareholders?

Detailed discussion of planning and execution of the mediation process beyondthe scope of this lecture.

Mediator should try to meet with the parties separately, before the mediation processcommences – what are their respective cultural attitudes to mediation and whatare their expectations? (The British-US approach has been compared to playing ahole of golf.)

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Mediator needs to retain the flexibility of the process. This point is illustrated by theIBA Rules for Investor-State Mediation (2012). Issues like appointment of the mediator and confidentiality are arranged in detail. Articles 7 and 8 set out certain fundamentalprinciples regarding the mediation process, leaving it to the mediator to settle thedetail at the Mediation Management Conference (article 9).

Parties to trans-border mediations are usually corporations. Necessary that partyrepresentatives include a person authorised to settle. IBA Rules article 9.3(b) –alternatively the process necessary for a settlement to be authorised must be specified. The mediator needs to know about the dispute and the parties’ position. If disputenot yet defined for purpose of arbitration: exchange of position papers. Mediator needsthis knowledge to settle the most appropriate procedure. 

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Mediation process typically starts with joint opening session after short separatemeetings. The mediator will explain the procedure and rules on external andinternal confidentiality, followed by ground or house rules. Joint session concludeswith short opening statements. Assuming issues have been identified and prioritised, the mediation enters thenegotiation and problem-solving phase with a view to generating solutions. Mediator’s role to help the parties to view problems objectively so they can makereasoned, thoughtful decisions, rather than to “settle the dispute”.

Style may be facilitative or possibly evaluative.Side-meetings can be used in combination with other alternatives.

Settlement must be reduced to writing in form of enforceable contract. InFrost v Wake Smith and Tofields Solicitors (2013) the mediator achieved a“small miracle” in producing an agreement in principle, but still necessary to putflesh upon the bones. 

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Continued availability of mediator if allocated time expires before settlement isreached. 5) An effective two-stage dispute resolution clauseMany court cases and arbitrations settle at the door of the court house orarbitration venue – often after positional negotiation to end a war of attrition.

It is clearly preferable to see mediation as a filter process which must be used beforeparties resort to arbitration. This applies particularly to trans-border disputes.

Agreement to negotiations between senior executives not enforceable.The first tier of a two-tiered dispute resolution clause will be enforced by theEnglish courts if it defines “the parties’ rights and obligations with sufficient certaintyto enable it to be enforced”. (Cable & Wireless plc (2002).)

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Instructive case: Wah (Aka Alan Tang) v Grant Thornton International Ltd (2012),where a national partnership was expelled and disputed the expulsion.Three-stage process for disputes: decision by CEO; conciliation by panel of 3members of international board; arbitration. Arbitration under LCIA Rules.Wah disputed arbitral award on the basis that tribunal lacked jurisdiction. Conciliation lacked sufficient definition and certainty to be an enforceableprecondition.

Standard to be used by court reviewing tribunal’s decision: Wah: jurisdictionalmatter, therefore applying Dallah v Government of Pakistan (2010), court mustmake its own decision. US Supreme Court in BG plc v Republic of Argentina (2014):distinction between procedural precondition and situation where existence ofarbitration agreement disputed. In former case, court will normally defer toarbitral tribunal.

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First stage need not be detailed and elaborate in order to be enforceable:

“In the event of any dispute arising out of or in connection with the presentcontract, the parties agree to submit the matter to settlement proceedings under theICC ADR Rules. If the dispute has not been settled pursuant to the said Rules within45 days ... or within such other period as the parties may agree in writing, suchdispute shall be finally settled under the Rules of Arbitration of the [ICC] by one ormore arbitrators appointed in accordance with the said Rules ... .”

How does reconcile an obligation to mediate, with the right of a party to withdrawunilaterally at any stage? IBA Rules article 9.4: a party may withdraw at any stageafter the mediation management conference (first joint meeting).

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Enforcement of settlement agreement, which is obviously not an arbitral award forpurposes of the NYC. Appointment of mediator as arbitrator to make arbitral awardby consent problematic. There is no dispute when arbitrator appointed. Connerty’s solution: appoint an arbitrator before the commencement of mediation. 6) Concluding comments: promoting a pro-mediation cultureFocus of paper is on consensual mediation as opposed to court-annexed or statutory mediation.

In the context of trans-border commercial disputes theessential requirements for fostering a pro-mediation culture are arguably similar tothose that apply to a culture for effective arbitration.

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Informed users are required, advised by practitioners with faith in the process.

Primary need is for trained, experienced and duly accredited mediators.

There is also a need for supportive judges and arbitrators: pro-enforcement biastowards agreements to mediate; encouraging settlement;willingness to consider punitive costs order.

National legislation promoting the effective use of consensual mediation isa “nice to have” rather than essential.

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The IDRI, through its mediation training programmes, has done very valuable work inproviding more trained and competent mediators. The IDRI’s sister organisation,International Arbitration & ADR in Africa, continues to make a very importantcontribution to promoting the use of arbitration and ADR in our continent.The driving force behind both entities, Professor CJ Amasike, richly deserves ourwarm appreciation.

I am convinced that mediation has a bright future as an effective method for resolvingtrans-border commercial disputes in Africa. From a South African perspective, thecore concept regarding traditional African dispute resolution is known as “Ubuntu”.In essence the word stands for the idea that “a person is a person through otherpeople”. The concept emphasises community building, respect, sharing, empathy,tolerance and the common good.

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I trust that this lecture will stimulate interest in mediation as a sensible alternativeand necessary precursor to arbitration and litigation.

Thank you!

Contact details: davidbutler@telkomsa.net