A new breed of legal support

Tanzania Arbitration series part III: Modernizing Tanzanian arbitration law and practice will spur investments

2018-02-24 18:54:31

By Frederick Werema & Paul Kibuuka

Making Tanzania an attractive seat of arbitration will signal the country’s openness for business and investment and awareness of investor concerns and market practices. Getting there will require that we enact a modern, fit-for-purpose arbitration law in Tanzania. It will also require Tanzania’s judiciary to adopt a positive and supportive attitude towards arbitration in the country.

Consistent with this, the recognition and enforcement of foreign arbitral awards in Tanzania is one of the key issues for discussion in international arbitration circles. Simply put, a party securing an arbitral award should be able to timely enforce it in Tanzania instead of being tossed around for no apparent legal reason. Judicial officers will need to show prudence and to guarantee both justice and efficiency in examining foreign arbitral awards.

At the same time, commercial actors will have to carefully consider the arbitration clause when negotiating and drafting a contract. The language used in the contract should not be subject to several interpretations or convoluted. The arbitration clause constitutes an agreement separable from the underlying agreement. It survives the underlying agreement, and it is meant to deal with future unknown disputes that may arise in the course of implementing the contract, or after the contract is completed or expired.

A candid assessment of whether arbitration should be a preferred mode of dispute settlement has to be made. This is due to the fact that arbitration may not be suitable in certain transactions. Casual drafting of the arbitration clause should be avoided. Legal advisors and commercial directors and all those drafting the clause should not take anything for granted. In particular, they should ensure that stalemate in the negotiation process is avoided but in case it occurs, be resolved timely.

Where ad-hoc arbitration is preferred, rules and procedures for the conduct of arbitration should be drawn and agreed upon by the contracting parties. In most cases UNCITRAL Arbitration Rules may be used with modification, although great care is prerequisite.

For complex business disputes, especially those involving multiple parties, it is recommendable that parties choose institutional arbitration. This is where parties to an arbitration agreement designate an arbitral institution, such as, the Tanzania Institute of Arbitrators (TIA) to administer the arbitration, as per rules of that institution.

The use of institutional arbitration is advantageous on the ground that the administration process is carried out by the arbitral institution. Nevertheless, the process needs to be strengthened through the introduction of legal reform proposals, which should include making comprehensive arbitration rules. It is on this front that Tanzania’s existing Arbitration Act has several challenges.

The Arbitration Act has failed to keep pace with key changes and developments in the local and international business environment. But by engaging in genuine efforts at modernizing the Act, we will be encouraging wider investment into the Tanzanian economy and boosting economic development if investors know that business disputes in the country will be timely, effectively and equitably resolved.

Such efforts should start with the Law Reform Commission of Tanzania to gather views and then make practical proposals for the modernization of the Arbitration Act. Clearly, we need a new Act that complies with international rules, standards and best practices and an arbitration-friendly environment, in which the private sector business community may have confidence.

In addition, the Government, the media, and the Tanganyika Law Society will need to design and implement programmes of activities focused on rising awareness on benefits of arbitration among Tanzanian businesses. The Government, however, will have to lead the way by asking public bodies to resort to arbitration, but without overtly or unobtrusively being seen to exert influence or outright control over arbitrators’ decisions.

Judicial attitude towards arbitration will also need to be underpinned by flexibility, promptness, and carefulness if we want arbitration to significantly thrive in Tanzania.

Finally, as we look into future times and dwell upon the prospects of arbitration as a viable option for business disputes, we should not take it as a foregone conclusion that arbitration will remain an eternal preference when business executives and entrepreneurs have to choose between a slow, formalized and expensive arbitration process, and an improved litigation system in Tanzania.

Hon. Frederick Werema is a retired Judge and former Attorney General of Tanzania and currently the managing partner of FMD Legal Consultants & Advocates. Mr Paul Kibuuka is the managing partner of Isidora & Company Advocates.

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