Foreign investors looking to Africa are reaping the
benefits of greater certainty under the Organisation for the
Harmonisation for Business Law in Africa’s (Ohada) investment
framework and arbitration regime.
Created in 1993 by the Ohada
Treaty, the first revision of the body of commercial laws
in the region simplified business entry in eight member states
and strengthened secured transaction laws in the then total of
16 member states. Today, the Organisation now comprises 17 west
and central African countries.
At IFLR’s China-Africa Investment Forum in Beijing on June
5, Baker & McKenzie Melbourne partner John Mollard
described the impact of Democratic Republic of
Congo’s (DRC) ratification of Ohada.
"Once Ohada came into play in the DRC, it gave
financial institutions offshore more comfort," he said. "We
needed to include a number of key terms in security documents
to take advantage of the perceived added protection of
He explained that documents were renegotiated to
ensure their registration with the trade and investment
property register to prioritise the security interest.
Some specific DRC statutory references had to be
replaced with relevant clauses from Ohada, such as provisions
in relation to the termination of the agreements in the event
of default and the ability to resort to public auctions, he
In 2010, Ohada adopted a revised uniform act on security, which took automatic
effect in each member state on May 16 2011. Under this statute,
all security created on or after that date is governed by the
new Act. It is widely agreed that this law is an important
development in multi-lender financings and syndications.
A key part of the law was the introduction of a
security agent, described as a hybrid between the civil law
mechanism of agency and the common law’s trustee.
Previously individual lenders each took security, which then
required an involved process whenever a lender transferred the
Under the revised law, all security or other
guarantees for the performance of an obligation can be granted,
registered, filed, managed and enforced by a national foreign
financial institution or credit institution acting in its own
name or the benefit of creditors of the secured obligations
that have appointed it.
The revised law also allows for the creation of a
security interest in future property, such as a cash flow to be
earned in a bank account or a new asset that will be
As the law introduces several new legal concepts to
Ohada jurisdictions, panelists expressed concern about the
practical implementation of the revised law. But they were
optimistic about its impact on investor confidence.
Panelist Simmons & Simmons’
Yongmei Cai drew on her recent experience in assisting Chinese
banks and companies on their investments in the region.
"So far, most have preferred using English law and
we haven’t yet seen a lot of local security
created in support of the investments," she said.
But she noted that Ohada is very helpful,
especially when Chinese banks are considering more commercial
lending into Africa. She added that the new securities law
seems to have come at the right time, which will encourage
Chinese banks to consider lending commercially based on local
Arbitration and enforcing
As in most emerging markets, international
arbitration is the preferred method in settling disputes.
However only 10 of the 17 Ohada states have acceded to the New York Convention and are therefore not
required to enforce foreign arbitral awards.
Ohada’s 1999 Uniform Act on
Arbitration, which established its Common Court of Justice and
Arbitration (CCJA) is based on the model UNICTRAL law. Based in
Abidjan, Cote d’Ivorie, the CCJA is recognised by
all Ohada jurisdictions.
Capacity, however, may be an issue. Given that CJJA
is a relatively new regime, it is not clear if arbitrators are
experienced with the complex commercial arbitrations typically
settled in the International Chamber of Commerce (ICC) or the
International Centre for Settlement of Investment Disputes
Counsel recommended studying where a
counterparty’s assets are located, and if that
jurisdiction has mutual recognition treaties with England or
another jurisdiction with a strong judicial system.
"The first step we take when considering disputes
is whether we can possibly enforce in England or other
jurisdictions with which England might have mutual recognition,
and whether the counterparty has assets in those countries,"
What to expect
Panelists were optimistic about
Ohada’s future, particularly how its legal regime
will develop to encourage foreign investment.
Mollard said that more examples of successful
enforcement of security under Ohada, and more investors to test
the commercial framework, are needed to enhance financier
The unified securities act has created new
momentum, he said, and perhaps we will see other
French-speaking countries in Africa become signatories.
As African governments become more outwards facing,
it’s also expected that more will become
signatories of the New York Convention and therefore see a
greater willingness in local jurisdictions to recognise and
enforce foreign arbitral awards.
For full coverage of IFLR's China-Africa Investment Forum
Mauritius: the holdco gateway to African FDI http://www.iflr.com/Article/3215770/Corporate/Mauritius-the-holdco-gateway-to-African-FDI.html
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Follow African banks’ lead http://www.iflr.com/Article/3209869/IFLR-magazine/Follow-African-banks-lead.html
Highlights from IFLR’s Africa
Forum 2013 www.iflr.com/AfricaForum2013coverage