Supremacy of Domestic Law in Investor-State Arbitration: Micheletti v Ghana in focus (Part II)

A: Background


This is the concluding part of the article, the first part of which was published last week.

Kindly click on the link to read Part 1. (https://fsboateng.com/supremacy-of-domestic-law-in-investor-state-arbitration-micheletti-v-ghana-in-focus-part-i/)

This is your article content.

 

It may be recalled that sometime in 2023, a company known as Micheletti Co. Ltd. (simply called “Micheletti”) claimed $400,000 from Government of Ghana for breach of contract for refurbishment works it did at the Accra Sports Stadium from about 2006 up to 2008, plus general damages from February, 2009. It may also be recalled that Micheletti lost its case at the arbitration proceedings because its claim for recovery of $400,000 from Government of Ghana was statute-barred. That is to say, Micheletti waited too long before filing its claim. Under Ghanaian law, such an action for a claim based on breach of contract should have been brought within six (6) years. Since Micheletti initiated the arbitration proceedings about 14 years after the alleged breach of contract had occurred, the arbitral tribunal relied on Ghana’s Limitation Act[1] to dismiss the claim.

 

 

B: Application of domestic law in international arbitration: Has Justice S.K Date-Bah been vindicated?

Sometime in June 2010, the Attorney-General issued a writ of summons in the Commercial Division of the High Court, Accra, claiming a declaration that the Power Purchase Agreement (PPA) Ghana had with Balkan Energy Ghana Ltd. was an international business transaction that needed Parliamentary approval and was unenforceable because it did not have such approval. The reliefs sought required constitutional interpretation so when the High Court judge refused an application to make a reference to the Supreme Court, the Supreme Court quashed the former’s refusal and referred the question to itself for interpretation. The case is known as Attorney-General v Balkan Energy Ghana Ltd & Others.[2]

 

Balkan Energy Ghana Ltd. later in December 2010 issued arbitration proceedings against Government of Ghana at the Permanent Court of Arbitration at The Hague. At the arbitration proceedings, Ghana argued that the Power Purchase Agreement (PPA) which Balkan alleged it had breached was invalid as it had not received Parliamentary approval under article 181(5) of the 1992 Constitution. Therefore, the non-compliance with the constitutional provision made the PPA invalid, including its arbitration clause. As a result, the arbitral tribunal had no jurisdiction over the dispute before it. But the arbitral tribunal ruled that it had jurisdiction and proceeded to hear the substantive case. The tribunal indicated, however, that it was willing to take account of the Supreme Court’s interpretation of the constitutional provision in question, when it was delivered.

 

In the meantime, in May 2012, the Supreme Court held in Attorney-General v Balkan Energy Ghana Ltd & Others[3] that the PPA was unconstitutional and unenforceable.  However, the arbitral tribunal in The Hague rejected the Supreme Court’s opinion and ruled against Ghana and awarded damages against Ghana. The first question that comes to mind is this: If the principle is that international arbitral tribunals must have regard to and apply domestic laws of State parties (which domestic laws include the decisions of Superior Courts), then what was the basis for the tribunal’s rejection of the position of Ghana’s Supreme Court that the PPA between Ghana and Balkan Energy was unenforceable?

 

It was Balkan Energy’s bid to enforce the arbitral award that brought about the case of Republic v High Court (Commercial Division) Accra; ex parte Attorney-General (Zenith Bank Interested Party).[4] In seeking to enforce the arbitral award, Balkan Energy obtained a garnishee order nisi against Government of Ghana. The issue arose as to whether the High Court could validly grant a garnishee order nisi in respect to an international arbitral award which had not been recognized and confirmed by the court in Ghana under the Alternative Dispute Resolution Act.[5] By a 3-2 majority decision,[6] the answer was in the affirmative.

 

§  Justice S.K Date-Bah’s position on the need for international arbitration to respect the sovereign laws of Ghana

Writing on the subject of why international arbitral tribunals and the parties that appear before them must give due regard to Ghana’s domestic laws with Republic v High Court (Commercial Division) Accra; ex parte Attorney-General (Zenith Bank Interested Party)[7] as reference, Prof. Justice Date-Bah, the eminent jurist notes as follows:[8]

“An issue that arises from the narration above is thus: can an arbitral award confirmed in a foreign jurisdiction be regarded as source of obligation under Ghanaian law, without compliance with section 59 of the Alternative Dispute Resolution Act 2010? This is an issue that is yet to be determined by the Supreme Court. However, it is submitted that the right position should be that foreign arbitral awards which have not yet complied with section 59 of the Alternative Dispute Resolution Act 2010 should not be recognized as a source of obligation in the Ghanaian jurisdiction. Failure to adhere to this position would encourage circumvention of Ghanaian mandatory provisions. Moreover, Article III of the New York Convention explicitly provided that each contracting state shall recognize arbitral awards as binding and enforce them in accordance with the rules procedure of the territory in which the award is relied on.”

Prof. Justice Date-Bah goes further to say that where the underlying agreement that gave rise to arbitral proceedings is against public policy under domestic law, the arbitral award will be unenforceable. He drew support for this position from decided cases from other Commonwealth jurisdiction. I can do no better than quote him in extenso:

“…the facts of the case under discussion[9] raise strongly the issue whether under Article V (II) of the New York Convention enforcement of the award in Ghana would not be against public policy. In the English case of Soleimany v Soleimany,[10] a dispute arose between a father and son, both Iranian Jews, who had entered into a transaction involving the smuggling of carpets out of Iran in breach of Iranian laws. Their dispute was submitted to the Court of the Chief Rabbi in London for arbitration. That Court made an award under Jewish law, ignoring the illegal purpose of the transaction. The English Court of Appeal refused to enforce the award, noting that the award on its face referred to an illegal object of the parties’ transaction, and therefore it would be against public policy for it to be enforced. The Court said:

‘The Court is in our view concerned to preserve the integrity of its process, and to see that it is not abused. The parties cannot override that concern by private agreement. They cannot by procuring an arbitration conceal that they, or rather one of them, is seeking to enforce an illegal contract. Public policy will not allow it.’

 

As Prof. Justice Date-Bah notes further, the facts of Republic v High Court (Commercial Division) Accra; Ex parte Attorney-General (Zenith BankInterested Party) illustrate a situation where the enforcement of the arbitral award in question would be against public policy. This is obviously because there is a binding Supreme Court judgment in the Ghanaian jurisdiction (that is, Attorney-General v Balkan Energy Ghana Ltd & Others[11] ) which states that the agreement sought to be enforced in the award is unconstitutional and unenforceable. He concludes that it would surely be against public policy to enforce an arbitral award in direct conflict with a judgment of the highest court of the land, which has pronounced on the illegality of the transaction sought to be enforced.[12]

 

In conclusion, it is submitted that the arbitral panel in Micheletti v Ghana adopted the right approach by recognizing, respecting and relying on Ghana’s sovereign law (Limitation Act) as the underlying law regulating the contractual relationship that existed between the parties that eventually brought forth the arbitration proceedings. The position accords with and vindicates Prof. Justice Date-Bah’s views that arbitral tribunals, as well as the awards made by such tribunals, must conform to the laws of the State party that govern the underlying contract as well as the enforcement of the arbitral award.

 


C: The choice of international arbitration as the dispute resolution mechanism

It is interesting to observe that though both Micheletti and Ministry of Youth and Sports were, and still are, resident in Ghana, as parties to the subcontract agreement,  they chose to go to international arbitration in case of any dispute. It is curious that two local Ghanaian entities entering into a contract would not want Ghanaian courts to settle their disputes but would rather choose to go elsewhere for legal resolution.

 

Be that as it may, one is inclined to believe that the choice was made ostensibly to assure the investor. It may also have been because Ghana had no law regulating international arbitration in 2006 when the parties entered into the agreement for the CAN 2008 stadium renovation contract. Currently, international arbitration is regulated by the ADR Act[13] and it is hoped that, in future, contracting parties will choose Ghanaian courts or arbitration centres for settlement of disputes.

 


D: Choice of Kenya as the seat of the arbitration

It may be recalled that since the parties (Ghana and Micheletti) failed to state the place where they intended to hold international arbitration (that might arise from a dispute in the contract) and they also failed to agree on the place to hold the arbitration when the proceedings was filed, the ICC chose Kenya as the seat of institution. The parties accepted it.

 

An interesting revelation from the arbitration proceedings is that, both parties and their representatives were from Ghana. Also, two out of the three arbitrators were from Ghana. The lawyers and legal representatives of the parties were Ghanaians. Yet, Ghana was not chosen as the seat or place to hold the arbitration proceedings. Perhaps, choosing Ghana as the seat would have taken the “international” out of the arbitration. But on a more serious note, it is unclear whether the failure of the parties to choose a seat of arbitration in the 2006 contract was a palpable oversight or deliberate. Whatever might have induced the lack of choice of seat of arbitration, the outcome does not make for nice optics.

 

It is refreshing to note that the long-awaited Ghana Arbitration Centre that was to have been established under the ADR Act is in the process of being set up. Its board members have been appointed and sworn in to office by the former President.[14] It is commendable though, that the ICC chose an African seat of Nairobi, Kenya for the Micheletti/Ghana proceedings, with London, UK, as the default seat. But it is urged that in future, parties must endeavour to choose Ghana and the Ghana Arbitration Center as seat of arbitration. This will help popularize and promote arbitration as an alternative and faster mode of settling disputes instead of the traditional route of court litigation.

 


E: Conclusion

CAN 2008 football tournament might be dead and buried; but its contractual fall outs do not seem to have been interred with the bones. The latest attempt by a company – Micheletti Co. Ltd. - to stake claims against Government of Ghana on account of the tournament fell through. The construction giant fell on its own sword and was well advised to apprise itself of Ghanaian law before making a leap onto the international scene to reap the imaginary investment fruits of a long-dead football bliss.

 










[1] 1972 (NRCD 54)

[2] [2012] 2 SCGLR 998, on a reference to the Supreme Court itself: See: Article 130 (2) of the Constitution, 1992

 and section 3 (2) of the Courts Act, 1993 (Act 459)

[3] [2012] 2 SCGLR 998, Coram: Atuguba, Ag. CJ (Presiding) Prof. Date-Bah, Ansah, Sophia Adinyira, Yeboah,  Gbadegbe and Vida Akoto-Bamfo, JJ.SC

[4] Civil Motion No. J5/08/2019 ruling dated 10th April, 2019, SC

[5] See: Section 59 of the Alternative Dispute Resolution Act, 2010 (Act 798) which requires specific steps to be taken to register an arbitral award in the High Court of Ghana, before an arbitral award may be recognized or enforced in Ghana. This is in accordance with the provisions of the New York Convention, specifically incorporated into Ghana’s domestic law by Act 798

[6] Agnes Dordzie, Gbadegbe & Appau, JJ.SC (concurring); Baffoe-Bonnie & Yeboah, JJ.SC (dissenting)

[7] Civil Motion No. J5/08/2019 ruling dated 10th April, 2019, SC

[8] See: S. K. Date-Bah, SELECTED PAPERS & LECTURES ON GHANAIAN LAW (2021) p. 314-315

[9] That is Republic v High Court (Commercial Division) Accra; ex parte Attorney-General (Zenith Bank Interested Party) Civil Motion No. J5/08/2019 ruling dated 10th April, 2019, SC

[10] [1999] QB 785

[11] [2012] 2 SCGLR 998, Coram: Atuguba, Ag. CJ (Presiding) Prof. Date-Bah, Ansah, Sophia Adinyira, Yeboah,  Gbadegbe and Vida Akoto-Bamfo, JJ.SC

[12] See: S. K. Date-Bah, SELECTED PAPERS & LECTURES ON GHANAIAN LAW (2021) p. 315

[13] Alternative Dispute Resolution Act, 2010 (Act 798). The Governing Board of the ADR Centre was recently inaugurated: https://www.graphic.com.gh/news/general-news/president-akufo-addo-inaugurates-adr-board-praises-attorney-general-and-chief-justice.html (accessed on 31st January, 2025)

 

[14] The Governing Board of the ADR Centre was inaugurated around 17th July, 2024: Source: https://www.graphic.com.gh/news/general-news/president-akufo-addo-inaugurates-adr-board-praises-attorney-general-and-chief-justice.html (accessed on 31st January, 2025)

 

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