Q&A 17 February 2014
Arbitration award enforceability in Tanzania
We are in negotiations with the government on a project worth billions of dollars in which we intend to have an arbitration clause based on either the ICSID or ICC rules. Does the government normally agree to arbitration and if so can this be enforced in Tanzania? What grounds can be used to reject a foreign arbitral award? If we win against the Government, can the Government claim that the award is against public policy simply because it does not have funds to pay? How seriously does the Government take arbitration?
The Government of Tanzania does enter into many contracts where arbitration is the preferred mode of any dispute resolution. Tanzania is also signatory to international conventions recognizing enforcement of arbitral awards.
The Tanzanian Arbitration Act in section 30 provides for conditions for enforcement of foreign awards which are as follows: (1) In order that a foreign award may be enforceable under this Part, it must– (a) have been made in pursuance of an agreement for arbitration which was valid under the law by which it was governed; (b) have been made by the tribunal provided for in the agreement or constituted in manner agreed upon by the parties; (c) have been made in conformity with the law governing the arbitration procedure; (d) have become final in the country in which it was made; and (e) have been in respect of a matter which may lawfully be referred to arbitration under the law of Tanzania, and its enforcement must not be contrary to the public policy or the law of Tanzania. (2) Subject to the provisions of this subsection, a foreign award shall not be enforceable under this Part if the court is satisfied that– (a) the award has been annulled in the country in which it was made; or (b) the party against whom it is sought to enforce the award was not given notice of the arbitration proceedings in sufficient time to enable him to present his case or was under some legal incapacity and was not properly represented; or (c) the award does not deal with all the questions referred or contains decisions on matters beyond the scope of the agreement for arbitration: Provided that if the award does not deal with all the questions referred the court may, if it thinks fit, either postpone the enforcement of the award or order its enforcement subject to the giving of such security by the person seeking to enforce it as the court may think fit. (3) If a party seeking to resist the enforcement of a foreign award proves that there is any ground other than the non-existence of the conditions specified in paragraphs (a), (b) and (c) of subsection (1) of this section, or the existence of the conditions specified in paragraphs (b) and (c) of subsection (2) of this section entitling him to contest the validity of the award the court may, if it thinks fit, either refuse to enforce the award or adjourn the hearing until after the expiration of such period as appears to the court to be reasonably sufficient to enable that party to take the necessary steps to have the award annulled by the competent tribunal.
One of the grounds that you have spotted, and which is commonly used, is that of public policy in that the award, if allowed to be executed in the country where it is sought to be executed, will be against public policy. Generally non availability of funds is not an issue of public policy that can be raised by the Government to stop enforcement of an arbitral award. Tanzania would be in breach of international arbitration conventions and treaties if it attempted to do that.
As for how seriously the Government takes arbitration, please note that the Attorney General’s chambers is involved in a number of arbitral matters outside the country and it does take such matters seriously. Apart from taking it seriously, if the Government does not enter appearance or does not manage the arbitration process well, it is a huge reputational risk for the country in the international business arena.
This is not something that Tanzania can afford at this stage of international competitiveness. We suggest you get specialized advice from your lawyer.
Audit by shareholder of a company
I own a quarter of the shares in a company and am not sure if the company is undergoing proper audits. As a shareholder can I demand an audit to be performed on the company?
The Company must appoint an auditor in its annual general meeting. If you are not satisfied with your auditor, you can invoke section 171 of the Companies Act and demand an audit. Section 173 states that (l) Any member or members holding not less in the aggregate than 10 per cent in nominal value of the issued share capital or any class of it of a private company qualifying as exempt under section 171 or, if such company does not have a share capital, not less than 10 per cent in number of the members of that company, may, by notice in writing deposited at the registered office of the company during an accounting period but not later than one month before the end of that accounting period, require the company to obtain an audit of its accounts for that accounting period. (2) Where a notice has been deposited under subsection (1), the company shall be obliged to appoint an auditor in respect of the accounting period to which the notice relates.
Hence you can proceed to conduct a parallel audit. Another solution is to ensure you change your auditor in the next annual general meeting. In any case normal business practice requires you to change your auditor every few years. Your lawyers can guide you further.