Dubai: An arbitration court in London has ruled against the arbitrary termination by Djibouti of a ports contract held by Dubai’s DP World. The Djibouti ports company had terminated the joint venture agreement with DP World and enforced the transfer of shares held by the Dubai entity to the government.
On February 23, 2018, the Djibouti Government seized control of the Doraleh Container Terminal from DP World, who designed, built and operated the terminal following a concession awarded in 2006. Until the seizure, the Terminal was being managed under a joint venture between DP World and PDSA.
In July 2018, PDSA unilaterally declared that its agreement with DP World was terminated. PDSA also tried to remove DP World’s nominated directors from the joint venture company in an effort to seize control of that company.
It has also highlighted that despite three years having passed, the Government is yet to come forward with any offer of compensation in an effort to find a negotiated settlement to the dispute.
DP World approached the High Court of England & Wales and secured an injunction against PDSA to restrain it from doing so until the Tribunal had the opportunity to rule on the dispute. To circumvent the effect of the injunction, PDSA attempted to transfer its shares in the joint venture to the Djibouti Government of Djibouti, relying on an Ordinance issued by the President of Djibouti.
DP World sued PDSA over these matters in the arbitration. The London Tribunal ruled that PDSA breached the Joint Venture Agreement by "wrongfully attempting to terminate it", and by engaging in the attempted transfer of its shares to the Djibouti Government. The Tribunal ruled that the Joint Venture Agreement was not terminated and remains in full force and effect. It also ruled that PDSA remains a shareholder in the joint venture, and its attempted transfer of its shares to the Government had no effect.
The arbitration will now proceed to a second phase to decide the damages owed by PDSA to DP World. PDSA has also been ordered to reimburse DP World’s legal costs to date in the sum of 1.7 million pounds.
Series of legal wins
The latest ruling is the seventh decision by an international court or tribunal in favour of DP World in its ongoing dispute with Djibouti. It follows a ruling in July 2018 by another LCIA Tribunal that the 'Concession Agreement' over the Doraleh Container Terminal remains valid notwithstanding the Government’s efforts to evade its contractual obligations. A ruling on January 10, 2020 ordered the Government to restore the Terminal to DP World.
A third arbitration tribunal ordered the Government to pay damages of $485.7 million to the joint venture company (in which DP World has a one-third stake) over the breach of its exclusivity rights, due to the construction of the Doraleh Multipurpose Port and including certain unpaid royalties for container traffic handled at other ports in Djibouti. Djibouti has yet to comply with any of these rulings, and remains in breach of its international obligations.