David Hesse of Hunton Andrews Kurth considers the limitation periods that may apply in international commercial arbitrations arising from African oil and gas contracts, finding they can vary widely depending on the country.

The international oil & gas sector is witnessing a renewed focus on African energy projects. Over 40 African countries in North, East, West and Southern Africa currently host ongoing petroleum activities for international oil companies (IOCs) at various stages of interest and development.

Most national legal systems in Africa are rooted in either civil law or common law as a result of previous European colonial rule. Since the 1960s, however, these states have developed diverse, independent and personalised systems of law, often adapting foundations from the inherited legal system with new laws intended to address more cogently the specific requirements of the relevant state’s independence, culture and economy. Nowhere is this legal diversity more evident than in the wide range of national limitation regimes applicable to contract and tort claims throughout the African continent.

In Africa, time periods during which an aggrieved party can bring a contract claim may vary from 1 year to 30 years depending on the country. For example, a claim for breach of a petroleum agreement may be time-barred after 3 years under Namibia’s limitation regime but remain open for 30 years under the law of Madagascar. Likewise, a tort claim for breach of duty in connection with an EPC contract may be prescribed after 1 year under the law of Equatorial Guinea but stay ripe for 20 years under Mozambique law.

In an effort to harmonise business law in Africa, 17 West and Central African nations have signed the OHADA Treaty, aimed at creating a modern and efficient legal environment. As a result of the OHADA Uniform Act on General Commercial Law of 2010, the limitation period for commercial contracts in the 17 OHADA member states is 5 years. In many cases, where the petroleum-related contact is considered a “commercial contract”, this represents a significant reduction to the limitation periods otherwise applicable under the general regimes for contracts or civil actions in those jurisdictions.

For many players in the African petroleum sector, projects will involve dealing with the laws of remote and unfamiliar jurisdictions. Parties to these transactions will enter into a wide variety of contracts. Disputes arising from these contracts are typically submitted to international commercial arbitration, which often requires an understanding of more than one system of law.

Because of the multiple jurisdictional considerations inherent in international commercial arbitration, technical (yet pertinent) issues in such disputes, such as limitation periods, may fly below counsel’s radar for a considerable time before being identified and addressed. In cases where time-bar issues are identified too late, claims that would otherwise be available could be time-barred. Awareness of all possible limitation periods in international commercial arbitration is therefore paramount. It should be noted that this article does not address issues related to investment treaty arbitration.

Oil and gas contracts in Africa: governing law and seat of arbitration

The great majority of energy-related disputes involving IOCs and oilfield service companies operating in the upstream oil and gas sector in Africa will be resolved through international commercial arbitration (e.g., arbitrations under ICC, LCIA, SIAC or UNCITRAL Rules) by an independent tribunal seated in an arbitration-friendly location (e.g., Geneva, London, New York, Paris, Singapore or Stockholm).

Most African state laws (through their constitutional, legislative or regulatory regimes) require that all state contracts (e.g. where the state or national oil company is a party) with foreign investors in the petroleum sector be governed by national law. Therefore, upstream petroleum contracts (e.g., production sharing agreements, concessions, service contracts, seismic data revenue sharing contracts, and similar agreements) will generally be governed by the law of the host state. However, many of these states (such as Algeria, Ghana, Libya and Zambia) will allow disputes under these agreements (governed by the host state’s law) to be settled by international arbitration seated in an independent country.

Where contracts are concluded between IOCs and international oilfield service companies, the parties may elect to use another law (one familiar to the parties) to govern their contract, regardless of the location of the project, also in combination with international arbitration. For example, an IOC headquartered in Italy that contracts with an oilfield service company based in the US for a project in East Africa might choose English law to govern their contracts, with disputes to be settled by international arbitration seated in London.

IOCs involved in the midstream and downstream oil and gas sector are more likely to have contracts subject to local law (such as storage agreements, refined products sale agreements, technical services agreements, transportation agreements and retail site leases). IOCs generally try to have international arbitration clauses in all such contracts. However, such an approach is unlikely to be successful in all cases depending on the nature and value of the contract, the parties involved, as well as the location of the services.

Regardless of the law chosen to govern their petroleum contracts, IOCs operating in Africa will, with few exceptions, require the seat of arbitration to be placed outside the host state in an independent location that is both neutral to the parties and favourable to arbitration. Aside from being a neutral venue, the choice of the seat will also have implications throughout the arbitral process.

The national law of the seat of the arbitration will provide the framework and govern the procedural aspects of an international arbitration. In certain cases, it may also determine how the arbitral tribunal should deal with limitation periods for contract and tort claims. For example, under section 13 of England’s Arbitration Act 1996 and section 1 of the Foreign Limitation Periods Act 1984, international arbitral tribunals seated in London must apply the limitation period of the governing law of the contract as agreed by the parties. Singapore has a similar regime. In other jurisdictions, such as New York and Paris, international arbitral tribunals are generally given wide discretion on such matters.

Limitation periods: a substantive or procedural matter?

Most international petroleum agreements for African projects provide for a specific national law (often the law of the host state) that governs disputes between the parties in arbitration. Rarely, however, do they include a stated law that governs limitation periods for claims. Therefore, international arbitral tribunals must be prepared to determine which law applies to the issue of limitations. The most commonly used arbitration rules give arbitrators broad discretion in determining the procedure and conduct of arbitral proceedings, subject to the parties' agreements and applicable law. However, arbitral tribunals will need to be mindful of any mandatory national laws applicable to arbitrations seated within such jurisdictions.

Historically, common and civil law jurisdictions have disagreed as to whether limitation issues are procedural or substantive. In general, many common law systems have treated limitation periods as procedural matters, whereas civil jurisdictions have treated them as substantive. Substantive matters are generally governed by the law of the contract, whereas procedural aspects of the arbitration are governed by the law of the seat.

As limitation periods are often considered “outcome determinative”, many scholars, practitioners and arbitral tribunals consider them to be substantive. As such, there is considerable support for the law of the contract to govern such matters. Accordingly, international arbitral tribunals have generally held that the law that parties have chosen to govern their contract should also determine the limitation periods for contract and tort claims.

As stated above, England and Singapore, although regarding limitation periods as procedural, have enacted legislation requiring an arbitral tribunal seated in its jurisdiction to give effect to the limitation periods of the law of the contract. Arbitral tribunals seated in Stockholm follow a similar approach under Swedish law. Swiss arbitration laws do not contain provisions on limitation periods or time bars but qualify limitation periods as a matter of substantive rather than procedural law. Therefore, arbitrations seated in Geneva would likely follow the same approach. International arbitral tribunals seated in New York and Paris are not bound by mandatory rules under the law of the seat on such matters but have generally looked to the governing law of the contract to determine contract and tort limitation periods.

The scope of the arbitration clause: tort (unlawful act) claim

Arbitration clauses vary significantly as to the nature and type of disputes covered by the parties’ agreement to arbitrate. For example, some agreements are drafted “narrowly” and could be interpreted as limiting the scope of the arbitration clause to pure contractual claims arising directly under the contract. Others, however, are wider in scope and are drafted to cover “all disputes” between the parties “directly, or indirectly”, related to the underlying contract. Such agreements to arbitrate will likely be interpreted by the arbitral tribunal to include tort claims or similar non-contractual civil actions.

Albeit not universal, there is a trend by arbitrators, and national courts at the enforcement stage, to give a broad interpretation to arbitration clauses, thereby including many tort-based actions (such as claims for unlawful acts, delicts or vicarious liability in certain civil law-based or mixed jurisdictions). Tort claims may provide parties with a useful second bite at the apple, particularly where their contractual claims are difficult to make or even time-barred.

In addition to understanding the scope of the arbitration clause, counsel must pay special attention to the governing tort regimes contained in the law of the contract and law of the seat. Right to damages from tortious action will vary widely from one jurisdiction to another. In certain jurisdictions (such as Switzerland and Egypt for example), limitation periods for tort claims may be extended where the tortious act involves a felony or other criminal offence.

In addition to identifying the limitation periods for contract and tort claims under the law of the contract and law of the seat, counsel must also to determine how such time periods are calculated. For example, the prescription for negligence in Angola will generally run from 3 years from the date the claimant had knowledge of the tortious action (with a maximum of 20 years from the date of the damage), whereas the same type of claim governed by Zambian law will remain open 6 years from the date the injury was created (not when the claimant had knowledge).

In summary, international tribunals will generally look to the substantive law, the law of the contract, to determine the limitation periods for contract and torts claims. However, considering that lack of complete uniformity amongst national legal systems and arbitration case law, counsel should always examine both the law of the contract and the law of the seat when assessing limitation periods.

This table is designed to provide a general guideline of the limitation periods that will apply to many disputes arising in connection with international petroleum contracts in Africa. I thank my colleagues Maurice Kenton, Phil Mace, Simon Schooling and Mihika Gupta, as well as local counsel in each of the jurisdictions contained in the table, for their valuable insight and contribution to this article.

The information provided here is general and may not apply in a specific situation, nor does it necessarily represent the view of Hunton Andrews Kurth LLP or its clients.

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Reprinted with permission from Global Arbitration Review.