The increasing use and importance of arbitration in Algeria were highlighted in an interview with Alexis Mourre, the president of the International Court of Arbitration at the International Chamber of Commerce, which was published in El Watan on 8 November. International consultants, including Menas Associates, and legal firms have warned that foreign investors ignore the new arbitration laws and climate in Algeria at their peril.

The key comments in Mourre’s interview are that companies should draw up their applications for arbitration properly and that they should prepare their initial contracts with their Algerian partners very carefully – with an eye on the possibility, even likelihood, of arbitration, and in their selection of lawyers and arbitrators.

Such preparation is not easy for a number of reasons, which we outline below.

First, Algeria has acquired a reputation, which has now changed, for being both all too ready to go to international arbitration cases and for being a ‘loser’. Sonatrach’s win over Repsol in October shows how Sonatrach and no doubt other Algerian companies are now becoming more experienced in the international arbitration process. The Repsol case was handled for Sonatrach by Paris-based law firm Shearman & Sterling.

Algeria is party to most international conventions on arbitration and to at least 49 bilateral investment treaties. Also, since 2008, Algerian state companies, such as Sonatrach, can negotiate legally on their own accounts.

In short, Algeria, as Repsol may have learned, should no longer be underestimated in this field.

Second, it is very difficult to get inside arbitration cases because most disputes are confidential. Moreover, although most corporate legal contracts relating to Algerian companies are written in French, they are governed by Algerian law, which is not only complicated and unfamiliar to most foreign companies but made more difficult by the fact that Algerian case law is very difficult to access, because most cases are not published.

Third, Algerian public works contracts can be ambiguous as to whether the contract is subject to an arbitration agreement or an Algerian court decision.

The few cases of international arbitration involving Algeria have centred on three areas:

• The 2006 law on windfall taxes which has seen cases with Anadarko, Maersk Oil, Total (not in court) and Repsol.
• Disputes about giant construction projects, with the best-known case being that involving Japan’s COJAAL consortium. This case is still not resolved. While Algeria challenged the jurisdictional basis of the arbitration, the original contract, in the view of one of the international lawyers involved, was “meaningless” in legal terms.
• Economic diversification. This is an emerging area, and concerns especially renewable energies (solar and wind), where contracts are subject to complex price changes.

Fourth, the number of arbitration cases, although still small, is growing. So too is the publicity surrounding them because the local media has taken an increasing interest.

This, however, is generating a problem within Algeria. This is that while Sonatrach uses international firms increasingly successfully, such as Shearman & Sterling, local media argue that Algerian law firms should be getting a greater share of the business.

From these above-mentioned points, we can see two important developments emerging.

A new code for public works, which includes new provisions for arbitration, is being brought in. It also makes provision for two new authorities: L’Autorité de Régulation des Services Publics and a new national body for dispute resolution. However, as no executive decrees have yet been issued, it is not clear what role these new bodies may play. The new code and these new bodies could therefore apply to all new contracts, meaning that disputes might have to go through this new authority before going to international arbitration.

It is likely that the expected changes to the 51:49% investment law will give primacy to Algerian courts. This might well happen if there is no agreement for international arbitration in place. In other words, the default position of a contract that does not make provision for international arbitration is that it should go to the Algerian courts rather than any international tribunal. Because Algerian courts tend to be told what to do by the justice minister, this could have disastrous consequences for the foreign company concerned.

This article was taken from Menas Associates’ Algeria Politics & Security publication.