DP World has won another case against the Government of Djibouti over the termination of its concession at Doraleh.
Last week Emirates 24/7 and other news outlets reported that London Court of International Arbitration (LCIA) has ordered the Government of Djibouti to pay Doraleh Container Terminal SA (DCT) US$385M plus interest for breach of DCT’s concession contract. DCT was also awarded a further $148M for non-payment of royalties for box traffic that was not transferred to its terminal pursuant to the concession agreement.
The original dispute, which dates back to 2012, stems from dissatisfaction in Djibouti over the pace and extent to which DP World was prepared to develop DCT as a gateway port. In 2014 Djibouti took DP World to the LCIA seeking to have the concession set aside over alleged irregularities in the award, a case it lost. The dispute eventualy culminated in Djibouti cancelling its contract with DP World for DCT last year.
Since then DP World has won rulings at the LCIA that the concession agreement remains valid and binding (August 2018), and an injunction prohibiting the Djibouti state-owned company Port de Djibouti SA (PDSA) from interfering in the management of DCT (September 2018). DP World also has a restringing order from the High Court of England and Wales (August 2018) prohibiting state owned PDSA from interfering in the operations of DCT.
The Government of Djibouti responded by taking control of the terminal and nationalising the two-thirds stake in DCT that had previously been held by Port de Djibouti SA (China Merchants also holds a 23.5% stake in PDSA) and setting up a new entity to operate DCT. After this, the High Court of England and Wales issued an extended restraining order (October 2018) that prohibited PDSA from interfering in the operations of DCT pending the outcome of the main case on the concession dispute at the LICA.
Djibouti is not backing down. It asserts that "DCT is operated under the sole authority of Doraleh Container Terminal Management Company (Société de Gestion du Terminal à Conteneurs de Doraleh – SGTD), with the State of Djibouti as the sole shareholder”. In October it breached injunctions from both courts and replaced DP World’s IT systems at DCT with Navis N4.
This latest ruling shows once again that DP World is on solid legal ground when it comes to asserting its contractual right to operate DCT, and puts a dollar figure on the damages it has suffered. Djibouti, however, takes the view that the LCIA has no authority to make rulings on a contract that it has declared by law to be null and void in its country. This was done under a 2017 law that provided for the Government to unilaterally terminate contracts that threaten its national sovereignty, and allow renegotiation of concessions agreed by previous administrations.
Djibouti is unlikely to recognize the latest ruling unless it is backed up with political and economic pressure, but unless China gets on board the impact of that pressure will be limited.
Fitch Solutions last month advised investors in a note on Djbouti: “Given that DP World’s 30-year exclusivity agreement for operation of port services in Djibouti has already been upheld in international courts, the strong threat of legal action will deter logistics companies from investing in the country’s transport infrastructure. More broadly, the weak rule of law and potential for arbitrary nationalisations will deter international firms considering entering the market, hindering Djibouti’s ambitions to develop its manufacturing, trade and financial services industries to become the ‘Dubai of Africa’”.
Chinese state-owned companies, however, continue to invest in Djibouti, and in infrastructure connecting Djibouti with Ethiopia, and its economy continues to grow. The IMF is expecting GDP in Djibouti to expand 7% this year, rising to 8% in 2020-2023.