Friday, September 7, 2018

Container Terminal Row Continues as Court Again Rules for DP World vs Government of Djibouti

Legal Wrangle Over Doraleh Box Facility Continues Unabated
Shipping News Feature
DJIBOUTI – DUBAI – UK – The government of Dubai issued a statement this week saying that the High Court of England & Wales has granted an injunction restraining Djibouti's port company, Port de Djibouti S.A. (PDSA), from treating its joint venture shareholders' agreement with DP World as terminated. Followers of this case will know that earlier Court decisions also favoured DP World's right of tenure and deemed the seizure of the Doraleh Terminal and the expulsion of the port and logistics group, and termination of its management contract as illegal.

Previously of course the Djibouti authorities have stated they will ignore the Court’s decisions, despite the fact it was they who brought the original proceedings. The latest judgement, particularly as a High Court ruling, must put pressure on container shipping lines CMA CGM and Pacific International Lines (PIL), both of whom are slated to take over the contract, at least in part. Acceptance of the contract terms might well led to a counter suit against them by DP World, particularly as the UAE authorities now seem to be pursuing an active interest in the matter.

The High Court ruling also prohibited PDSA from removing directors of the Doraleh Container Terminal (DCT) joint venture company who were appointed by DP World pursuant to that agreement. PDSA is not to interfere with the management of DCT until further orders of the Court or the resolution of the dispute by a London-seated arbitration tribunal (presumably a similar panel to those which have already ruled twice in favour of DP World).

PDSA is owned in majority by the Government of Djibouti and its CEO is the Chairman of the Ports & Free Zones Authority of Djibouti. Hong Kong-based China Merchants is the minority shareholder in PDSA. The High Court’s order follows the proposed attempt by PDSA, deemed unlawful by the Courts, to terminate the joint venture agreement with DP World and the calling of an extraordinary shareholders’ meeting on 9 September by PDSA to replace DP World appointed directors of the DCT joint venture company.

This is then the third legal ruling in relation to the Doraleh Container Terminal following two previous decisions from the London Court of International Arbitration (LCIA), all of them in favour of DP World. It recognises that although PDSA is the majority shareholder of the DCT joint venture company, it is DP World that has management control of the company, in accordance with the parties’ legally binding contracts. The new ruling against PDSA, issued by the Court without PDSA’s participation, makes clear that PDSA:

  • Cannot act as if the joint venture agreement with DP World has been terminated
  • Cannot appoint new directors or remove DP World’s nominated directors without its consent
  • Cannot cause the DCT joint venture company to act on the ‘Reserved Matters’ without DP World’s consent
  • Cannot instruct, or cause, DCT to give instructions to Standard Chartered Bank in London to transfer funds to Djibouti
This last is a significant escalation for obvious reasons, furthermore should PDSA disobey the Court’s order and seek to replace DP World nominated directors of DCT on 9 September, it may be in contempt of court and face a fine or the seizure of its assets and its officers and directors may be imprisoned.

Whether or not the Government of Djibouti will accept it must respond to this pressure will soon become clear. Despite its previous statements that it does not accept the judgement of previous hearings it will not (and legally cannot) claim sovereign immunity its reaction will be seen next week when PDSA has been ordered to present its defence at another hearing on 14 September.

In the meantime DP World has notified the Standard Chartered Bank so that the bank will reject any instructions that may be sent to them after the 9 September meeting. China Merchants, who have been given operational control of the Djibouti Freezone in breach of DP World’s exclusivity rights, will also be informed given its minority shareholding in PDSA. We shall follow proceedings closely.

Photo: Happier days. 2013 and DP World CEO Sultan Ahmed bin Sulayem looks on as representatives from Djibouti and China Merchants uncover a foundation stone at the Doraleh Terminal.