AfCFTA: Navigating Cross-Border Disputes

AfCFTA’s Approach to Dispute Resolution

The AfCFTA’s vision of a united African market inevitably faces the challenge of resolving disagreements between member states and amongst businesses and individuals involved in cross-border trade. Article 20 of the AfCFTA Agreement establishes a Dispute Settlement Mechanism for disputes between member states, reflecting the AU’s commitment to a harmonious trading environment. However, this system underscores the importance of clear procedures for all conflicts within the AfCFTA framework.

While member states have a specific route for resolving disagreements, B2B and B2C conflicts introduce unique complexities – stemming from different legal systems, diverse business practices, and the specifics of individual agreements.

In this setting, the absence of explicit arbitration or jurisdiction clauses can render the resolution of commercial disputes unclear, leaving businesses and investors uncertain.

The Jurisdiction Challenge in the Absence of Explicit Clauses

Determining which court has jurisdiction to resolve disputes is crucial in cross-border commercial contracts. A jurisdictional clause typically provides clarity on this. Yet, within the AfCFTA context, not all contracts may have such clear guidelines. The absence of an explicit jurisdictional clause can leave businesses and investors uncertain. They might wonder which court to approach and under which country’s laws their dispute will be considered. This lack of clarity can result in drawn-out legal proceedings, increased expenses, and potential harm to business relationships. So, what happens when a jurisdictional clause is absent?

a. Place of Performance:

Jurisdiction is often influenced by where the contractual duties are fulfilled. For example, if a Kenyan manufacturer agrees to supply goods to a retailer in Ghana, Ghana may be considered the place of performance. In such a scenario, Ghanaian courts could be the appropriate place for resolving any disputes.

b. Domicile or Place of Business:

The parties’ location or where they carry out their primary business activities can also be significant in determining jurisdiction. For example, a dispute between a South African and a Nigerian company, both operating mainly in Egypt, may see Egyptian courts as a suitable place for resolution.

c. Subject Matter of the Dispute:

The nature of the dispute can further complicate matters. Consider disagreements about intellectual property rights across multiple AfCFTA member states. Varying intellectual property laws in different nations can make choosing a single jurisdiction challenging. In such cases, alternative dispute resolution methods might need to be considered.

The Imperative of a Harmonised Legal Approach

As alluded to above, the legal challenges within the AfCFTA, arising from the diverse legal systems of its member states, can be formidable. Each country brings its unique set of legal practices, norms, and rules, making it a complex environment for businesses and investors to navigate.

The varied legal frameworks can lead to different interpretations of the same contractual clauses, diverse standards for presenting evidence in court, and varying outcomes for seemingly identical disputes. Given the unpredictability of legal decisions, these differences can discourage businesses from fully engaging in intra-African trade.

Consequently, the need for greater alignment in legal approaches among AfCFTA member states is evident. While it is crucial to respect the distinctiveness and sovereignty of each nation’s legal system, there is a clear and present need for some level of standardisation, particularly in sectors that directly impact cross-border trade. The OHADA (Organisation for the Harmonisation of Business Law in Africa) system is a relevant example in this context. It has harmonised business laws across 17 African countries, providing greater legal clarity and reinforcing business confidence. Emulating the OHADA model in the AfCFTA context could lay a strong foundation for increased trust and cooperation among member countries.

The benefits of a more aligned legal framework are substantial. For businesses, it means a clearer understanding of their rights and responsibilities regardless of the AfCFTA territory in which they operate. Harmonisation can also reduce the time and financial resources spent on legal disputes, easing the burden of dealing with various legal systems. Furthermore, a consistent legal framework can bolster investor confidence, enhancing the AfCFTA’s appeal for domestic and international enterprises.

The harmonisation process covers a broad spectrum, including adopting standard contract templates and a shared mechanism for dispute resolution among member states. Careful and thoughtful implementation of these aspects is crucial.

Best Practices for Businesses

Engaging with varied legal environments within the AfCFTA requires businesses and investors to adopt best practices for smooth operations:

a. Focus on Clarity in Contract Clauses: Draft contracts with clear and precise clauses. This clarity helps define the rights and responsibilities of all parties and reduces the potential for misunderstandings that might escalate into disputes. Attention to detail in outlining payment terms, delivery conditions, and particularly jurisdictional aspects can lend stability and predictability to business ventures.

b. Consult Local Legal Experts: Working closely with legal professionals can be highly beneficial. These experts can guide businesses through local practices, rules, and potential challenges. Their advice can ensure that contracts are compliant and tailored to each country’s specific legal landscapes, giving businesses a strategic edge.

c. Opt for Alternative Dispute Resolution: Businesses should consider alternative dispute resolution (ADR) methods before proceeding to formal legal action. Options like mediation often lead to quicker, less aggressive, and more cost-effective solutions than traditional legal processes. This approach can help maintain business relationships and avoid lengthy and often expensive court proceedings.

Challenges and Solutions

Businesses operating within the AfCFTA should focus on finding practical, cost-effective solutions to prevent disputes from escalating. Let’s examine some practical examples:

a. Textile Trade between Mali and South Africa

Challenge: A small to medium-sized textile producer in Mali struck a deal with a boutique in South Africa. A dispute over the fabric’s quality arose, but the unclear jurisdiction made resolving the issue difficult.

Solution: Facing limited resources for a protracted legal battle, the parties opted for online mediation through a third-party platform specialising in cross-border commercial disputes. This approach provided an affordable and practical solution, eliminating the need for physical attendance.

Key Takeaway: Online mediation platforms can offer businesses an accessible, financially manageable means of resolving disputes.

b. Digital Collaboration: Nigeria and Egypt

Challenge: A Nigerian graphic designer and an Egyptian marketing firm encountered disagreements over a digital campaign’s deliverables, complicated by an ambiguous jurisdiction clause.

Solution: Eager to avoid expensive legal proceedings, they consulted a regional business council for advice. The council’s guidance on handling similar disputes enabled them to reach an amicable settlement.

Key Takeaway: For businesses less experienced with cross-border disputes, resources like regional business councils or chambers of commerce can provide invaluable advice and facilitate amicable solutions.

c. Herbal Products Trade

Challenge: A Moroccan enterprise producing herbal tea faced imitation issues from a Kenyan company. The Moroccan firm was uncertain whether to pursue legal action in Kenya or Morocco.

Solution: After initial consultations, the Moroccan company suggested a distributorship arrangement, allowing the Kenyan business to become an official distributor of the original product. This strategy turned a potential rivalry into a collaborative opportunity.

Key Takeaway: Viewing disputes as chances for cooperation can solve jurisdictional problems and expand the market presence for businesses.

Next Steps

The success of the AfCFTA is closely linked to effectively managing cross-border disputes, particularly those with jurisdictional complexities. These disputes can interrupt business operations and overshadow the AfCFTA’s principles, potentially impeding the progress of intra-African trade and cooperation.

Business leaders, investors, and legal practitioners navigating this environment must recognise that leveraging AfCFTA’s opportunities demands a comprehensive and insightful understanding of these challenges. The AfCFTA presents an exciting prospect of a unified market brimming with possibilities. Yet, it also brings to light the intricate legal challenges arising from the convergence of different legal systems and jurisdictional norms.

This scenario calls for a forward-thinking approach. Stakeholders should arm themselves with crucial knowledge and develop an ability to foresee and neutralise potential difficulties. This involves not just reacting to problems as they occur but strategically positioning oneself to influence and guide the direction of trade within Africa.