Mozambique Law Update 710x400

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Mozambique: Arbitration agreement on contracts entered into by public enterprises

The Public Enterprises Law no.6/2012 of 8 February restrains the arbitration agreement in contracts entered into by public enterprises, by setting out that “it is up to the judicial courts to undertake the trial of all disputes in which a public company is a party thereof, including measures to enforce civil liability for acts of the bodies thereof, as well as the assessment of the civil liability of the its members towards the said company”.

This prohibition is in line with the provisions of most of the by-laws of public enterprises, namely Electricidade de Moçambique, EP, the Portos e Caminhos de Ferro de Moçambique (Mozambique Ports and Railways) or the Aeroportos de Moçambique (Mozambican Airports), which are expressly in favor of the use of judicial courts for the settlement of disputes arising from contractual relations, under private law.

Nevertheless, it has been the practice of public enterprises to conclude arbitration agreements for the settlement of disputes concerning relations of private law or of contractual nature, in accordance with the provisions of the Arbitration Law, passed by Law 11/99, of 8 July, which runs against the general by-laws of public enterprises, which lays down the right of the State and other legal entities governed by private law to enter into arbitration agreements.

In this sense, we believe that the lawmaker’s intention was to restrain the right to appeal to arbitration by public enterprises in order to avoid that in case of disputes, the use of the Mozambican judicial system, was removed in its entirety and in all circumstances, ensuring, although still exceptionally, the public companies to have the possibility to enter into arbitration agreements, taking into account for this purpose the specific context of each of the areas and sector of activities of the public enterprises, otherwise let us see:

Law on Public-Private Partnerships, Large Scale Projects and Business Concessions passed by Law 15/2011 of 10 August, Petroleum Law passed by Law 21/2015 of 18 August, Electricity Law and its Decree no.8/200 of 20 April and in the case of investment relations between a foreign investor and the Mozambican State, the Mozambican Investment Law, as an example, and in the context in which each of the diplomas falls within, explicitly admits that the conflicts arising therein shall be settled by arbitration. It should be noted that in most cases, either directly or indirectly, the public enterprises represent the State Participating Interest in various enterprises in which the State is party and which are governed by the above sectorial law. The disputes may be settled in accordance with the arbitration rules envisaged in the Arbitration Law, as well as international rules, namely, (i) the rules of the Washington Convention  of 15 March 1965 on the Settlement of Investment Disputes Between States and Nationals of Other States as well as its International Centre for Settlement of Investment Disputes Between States and Nationals of Other States (ICSID); (ii) the rules set out in the Supplemental Mechanism Facility Regulation passed on 27 September 1978 by the Board of Directors of the ICSID, when the foreign entity does not comply with the nationality requirements set forth in the article 25  of the Washington Convention; and (e) arbitration rules of the International Chamber of Commerce with head offices in Paris.

In this sense, this apparent contradiction between the regime enshrined in the Public Enterprises Law and the sectorial law aforementioned may in the near future adversely affect the flow of foreign investors to Mozambique, which in its many advantages found in arbitration the most effective means for the settlement of disputes, the possibility of choosing arbitrators trained specifically for certain matters, fairness and procedural speed.

It is important to note that since the entry into force of the Public Enterprises Law, the adoption by public enterprises of arbitration agreements in the contracts to which they are parties to, has never been disputed, which in certain extent contributes to ensure legal certainty of the contractual relationship between the State, represented by public enterprises and foreign investors.

Article compiled by Sandro Jorge of Mozambican member firm Couto Graca Associados


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