Djibouti terminal dispute: Court rules in favour of DP World

Djibouti terminates DP World’s concession agreement

 

Dubai-based port and terminal operator DP World has once again won an international ruling against the Djiboutian government concerning the Doraleh Container Terminal.

An arbitral tribunal of the London Court of International Arbitration (LCIA) has ruled against Djibouti’s port company, Port de Djibouti S.A. (PDSA), in its dispute with DP World, confirming the unlawfulness of Djibouti’s move to terminate its joint venture agreement and transfer its shares to the state.

PDSA is 23.5% owned by China Merchants Port Holdings Company Ltd of Hong Kong (China Merchants), and the rest of its shares are held by the Government of Djibouti.

On 23 February 2018, the government seized control of the Doraleh Container Terminal from DP World, which designed, built and operated the terminal following a concession awarded in 2006. Until the seizure, the terminal was managed under a joint venture between DP World and PDSA.

In July 2018, PDSA unilaterally declared that its joint venture with DP World was terminated.

Subsequently, 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. In an attempt to circumvent the effect of the injunction, PDSA attempted to transfer its shares in the joint venture to the Government of Djibouti, relying on an ordinance issued by the President of Djibouti. DP World sued PDSA over these matters in the arbitration.

According to DP World, the tribunal has now ruled that PDSA breached the agreement by wrongfully attempting to terminate it, and by engaging in the attempted transfer of its shares to the government.

Moreover, 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 the 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 GBP 1.7 million ($2.4 million).

The new ruling is the seventh decision by an international court or tribunal in favour of DP World in its ongoing dispute with the Republic of Djibouti. It follows a ruling on 31 July 2018 by another LCIA Tribunal that the concession agreement over the Doraleh Container Terminal remains valid and binding notwithstanding the Government of Djibouti’s efforts to evade its contractual obligations, and a further ruling on 10 January 2020 ordering the government to restore the Terminal to DP World.

A third arbitration tribunal has also ordered the government to pay damages of US$ 485.7 million to the joint venture company (in which DP World has a 1/3rd 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. The Government of Djibouti has yet to comply with any of these rulings and remains in breach of its international obligations.

DP World highlighted that despite the fact that three years have passed, the government is yet to come forward with any offer of compensation in an effort to find a negotiated settlement to the dispute.

The container terminal in question is capable of handling large boxships, including 10,000-15,000 TEU “Super-Post-Panamax” vessels.

Capacity at the terminal is set to grow in line with market demand to around 3 million TEU over time.

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