Wednesday, April 10, 2019

Seized Container Terminal Saga Sees a Raising of the Stakes after Court Fines Levied

Government Must Pay Hundreds of Millions of Dollars - but Will They Ever?
Shipping News Feature
DJIBOUTI – DUBAI – The row over the seizure of the Doraleh Container Terminal (DCT) in Djibouti from port and logistics operator DP World has risen to governmental level and last week the London Court of International Arbitration, the body initially approached by the Djibouti authorities to settle the original case it raised, and lost, against the Dubai based port managers, once again decided that the UAE company had been wronged and awarded damages accordingly.

Not of course that this is a simple case, The Djiboutians have previously ignored Court rulings and DP World has declined to comment further as matters are clearly now being dealt with at a more elevated level. The latest statement, issued by the government of Dubai, not the company, is careful to point out the precise nature of the legal situation.

The latest case heard that DCT, owned 33.34% by DP World Group, and 66.66% by Port de Djibouti S.A., an entity of the Republic of Djibouti, prosecuted the case against the Republic of Djibouti. This of course means that, although the action was initiated by DP World, it was in its role as shareholder in the freight terminal whilst the government was effectively acting against its own interests as part of a joint enterprise.

The London Arbitration Tribunal found that by developing new container port opportunities with China Merchants Holdings International Co Limited (China Merchants), a Hong-Kong based port operator, Djibouti has breached DCT’s rights under its 2006 Concession Agreement to develop a container terminal at Doraleh, in Djibouti, specifically, its exclusivity over all container handling facilities in the territory of Djibouti.

The Tribunal ordered Djibouti to pay DCT $385 million plus interest for breach of DCT’s exclusivity by development of container facilities at Doraleh Multipurpose Terminal, with further damages possible if Djibouti develops a planned Doraleh International Container Terminal (DICT) with any other operator without the consent of DP World. The Tribunal found that:

“In respect of the development of the Djibouti Multipurpose Port (DMP) facility, the facts are clear. At no stage before the decision was made to go ahead with that facility with China Merchants did Djibouti offer DCT the right to develop the proposed container facilities at the DMP. Djibouti was therefore in breach of clause 3.6.3 of the Concession Agreement”.

The statement from Dubai goes on to say that China Merchants also operates a $3.5 billion free trade zone it developed pursuant to an agreement with Djibouti, in contravention of DP World’s exclusive right to develop and operate such a free zone under its own concession, which is the subject of other litigation proceedings.

The Tribunal also ordered Djibouti to pay DCT $148 million for historic non-payment of royalties for container traffic not transferred to DCT once it became operational. Djibouti is also ordered to pay DCT’s legal costs. This is just the latest substantial ruling in DCT and DP World’s favour on disputes relating to the Doraleh terminal, all of which we have reported previously.

It appears this affair is far from over, having yet again won in the Court originally nominated by the Djibouti’s themselves as having jurisdiction, the problem for DP World will surely be to extract the money owed to them under these rulings. Litigation against China Merchants also continues before the Hong Kong Courts and DP World has previously issued public notices, following the confirmation of the validity of the 2006 Concession Agreement in a judgment in 2018, warning others against interfering with its, and DCT’s, concession rights.

As we say this has grown beyond the scope of a company matter, Chinese interests have been the subject of much criticism, not least from US politicians, in December US National Security Adviser John Bolton said ‘China uses bribes, opaque agreements, and the strategic use of debt to hold states in Africa captive to Beijing’s wishes and demands’, and ever more Chinese investment in Africa levies unsustainable levels of debt on the poorer countries. Djibouti itself has port and rail projects on hand with a total estimated cost of $12 billion, over 6 times the country’s GDP by some estimates.

This matter has meant that, as Chinese investment in the country grows, other foreign interests are less likely to bet on a state which has been the subject of much scrutiny after a period in which it was once considered one of the most stable of African regions.

Photo: Djibouti Minister of Foreign Affairs, Mahamoud Ali Youssouf meeting Chinese Foreign Minister Wang Yi earlier this year.