Mr Anischenko’s primary competence lies in assisting international commercial deals - from simple buy-and-sell to complex investment projects, including related dispute resolution. In this article, we will look into several practical cases of making and respecting deals with African counterparts. They illustrate typical mistakes and resulting implementation problems facing domestic exporters with no previous African experience.
In the first two cases, lawyers had to tackle with the implications of inadequate legal support for African projects. In the third case, however, thanks to timely legal advice, the client was able to avoid major problems that could have even cost a life to the company’s CEO.
Case One
A Belarusian IT company was contracted to develop a software for a trading company in Angola. The exporter's first mistake was to let its guard down after receiving a good advance payment. It was so focused on delivering that at the end it handed over a fully operational software complete with source codes to the client without bothering to check the payments. It was only after the customer stopped answering emails and phone calls that an internal audit was launched. It found that the working time committed to product development corresponded to several hundred thousand euros still outstanding on the client’s side.
The second, rather common problem, arose from the fact that the contractor did not have the original contract with authentic ‘blue’ signatures. As is often the case, the Belarusian company limited itself to exchanging emails with the client with poorly scanned copies of the contract. Luckily, the dispute settlement clause was legible and foresaw i.a. the application of the laws of the Republic of Belarus in such cases. Unfortunately, it contained an alternative, i.e. allowing the plaintiff to choose between the London Court of International Arbitration (LCIA) or the court at the defendant’s location.
Another mistake committed by the Belarusian company inexperienced in international litigation and arbitration, was to choose London over Luanda, apparently out of fear of a likely bias of Angolan state courts. Even more sadly, the suer company charged the London office of a fairly well-known and expensive international law firm to make a legal opinion on how to go to arbitration and the chances to win the case.
Having paid about £20,000, the client received in exchange a weighty and handsomely decorated legal treatise. It contained a brief comment on the English Arbitration Act and LCIA rules, as well as a rather lengthy opinion of the prospects of winning the claim with many caveats. Such information could be found freely available on the Internet, even in Russian. Moreover, since the client's questions were worded in rather vague but strong terms, the English lawyers considered it unnecessary to mention that Angola was not a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) at the time. Even a novice arbitration lawyer would know that in such a situation, with no debtor’s assets outside Angola, taking the matter to the LCIA would be pointless.
The only thing that sobered up the hapless client was the English lawyers’ proposed price of filing a lawsuit and taking the case to arbitration. Only then did the company finally turn to the Belarusian lawyers, who could only express their sympathy free of charge and explain that the only reasonable way of forced recovery under the circumstances was to find adequate lawyers in Angola and bring the case to the Angolan court.
Experience shows that such steps not only make sense, but stand a good chance to succeed, at least in African countries with stable and predictable justice. I have recently had a case when one of big exporters to Africa effectively recovered a significant part of losses from an Algerian debtor with the help of local lawyers.
The end of the Angolan story is unfortunately unknown, but one can assume that the Belarusian company had to either negotiate a voluntary and highly discounted indemnity with the customer or write its off entirely at a loss to itself.
Case Two
In the second case, an oil trader had a large amount of diesel fuel accumulated at a port terminal, which he needed to sell urgently. Through one of the founders’ contact network, a buyer was found in Equatorial Guinea, representing a small local intermediary firm.
The deal size was several million US dollars and the parties agreed on fifty-fifty upfront and post-delivery payments. Because of the rush there was no time for lawyers. The seller's manager used the first one-page ‘dummy’ contract at hand as a template, without complex legal constructions and clauses on arbitration and applicable law.
The seller, who thought himself to be a seasoned ‘black gold’ trader, could not but envisage the risk of problems with receiving the second half of the price. And apparently, that was why he tried to safeguard the deal by stipulating, first, the handover of the delivered goods only upon full settlement, and second, a 1% penalty for each day of delayed payment. It is not hard to guess that the safeguards failed, and the fuel was safely drained from the tanker at the port of destination and taken away in an unknown direction.
But the most interesting and instructive part of the story was not that the seller did not get his 50%, not to mention the penalty, on time, but that the buyer did pay his debt after all, out of sheer goodwill albeit at a very large discount. After a long research the seller found local legal counsels who agreed to collect the debt on a success fee basis without any prepayment. The success fee was 80 per cent of the debt, but lacking better options, the seller agreed to the terms.
In this story, the seller made another common mistake, which is characteristic of dealings with Africa, but not only. In fact, the seller stood a good chance to get the second 50% through a letter of credit. In view of the country risks however, the bank asked for a fee a little over 10%, which the seller considered too high.
Case Three
A branch of an international charity in Ghana ordered a large food shipment from a Belarusian agricultural producer under an international drought relief programme for Africa.
The sales manager, who got the order and an invitation to negotiate the deal in Accra, took safety measures. He asked for a law firm to check and fine-tune the draft contract sent by the African partner and accompany the head of the Belarusian company to negotiations in Ghana.
While running routine open-source checks the lawyers noticed that the charity in question had never had a branch in Ghana, although the foundation itself did exist and had several offices in other African countries.
At first, the exporter’s management waved these warnings away, pushing the lawyers to speed up the contract expertise. However, once the final draft was sent to the alleged buyer, it came back with no objections but with a single request to bring along a large amount of cash to pay a ‘special foreign transaction fee’. It became apparent that the Belarusian company fell for the so-called ‘Nigerian letter’.
It is worth noting that such ‘letters’ in reality do not come from Nigeria only and not always invite you to pay a couple of hundred dollars now in exchange for future zillions left in inheritance by Prince Abakaliki of Nigeria, who ranked the 9th in the fake “Forbes’ 15 richest” rating of 2006.
In the end, thanks to the timely lawyers’ help and vigilance, the fraudsters were left empty-handed, and the exporter without his anticipated African profits. But at least he kept the goods he could still sell elsewhere.
The bottom-line
To conclude, let us briefly summarise the main causes of disputes and conflicts in foreign trade deals. They can be generally grouped in two broad categories: objective and subjective ones.
Objective causes, such as accidents, sanctions, epidemics, economic crises and resulting conflicts of the parties’ interests, differences in legal systems (and there are many of them in Africa), language and cultural barriers are hard to avoid, but should be kept in mind while negotiating.
Subjective causes of conflicts can and should be addressed. Most typical mistakes include:
- careless partner search and checks;
- inadequate contract drafting;
- lack of reliable safeguards against contract breach;
- poor contract fulfilment oversight;
- internal and external miscommunication.
Domestic exporters should:
leave nothing to chance, but use reliable financial and other instruments to make sure that the other party plays by the rules;
seek timely expert advice;
assess likely benefits critically, comparing them to costs and risks;
do not take the partner’s word for it, no matter your history of deals with him. Always check and record what you agreed to, at least through electronic correspondence.
Sometimes it seems that our companies are afraid to offend the other party and lose its trust by asking it to put its promises on paper. But such sensitivity later brings the Belarusians to lament the ‘poor memory’ of their African counterparts.
It is also very important to speak the same language with Africans, both literally and figuratively. While in Morocco, I met an African graduate of the Belarusian National Technical University. After returning home, he successfully combined working as a tourist guide and interpreter with agricultural business and consulting. He accompanied exporters from Russia, Belarus and other Russian-speaking countries and helped them promote their goods and services in the Moroccan market. By seeking guidance of such local ‘sherpas’ and bringing them into the talks the earlier the better, one is likely to spare a lot of money and achieve more than with costly legal advice from international consultancies.
One should pay special attention to the contract’s dispute resolution clause and carefully choose the place to take such conflicts - preferably, in a friendly jurisdiction. This is essential to be able to effectively defend one's legal rights and interests against likely problems, call the cheater to account and claim indemnity in the worst-case scenario. Of course, one feels uneasy discussing dispute resolution in a middle of a highly lucrative deal when both parties have their minds already focused on future nice profits. But a much sadder alternative is to find oneself counting losses after failing to effectively claim one's absolutely lawful rights.
A prominent representative of the African continent, Nelson Mandela, said once, ‘Many things seem impossible until you do them.’ It is by no means easy to work in Africa, but the continent is certainly full of promise. In today’s realities, thanks to our country’s leadership, its diplomatic corps, Belarusian Chamber of Commerce and Industry, this promise appears within grasp. Therefore, if a Belarusian company has a quality product or service to offer or at least an interesting idea, resources, a little courage and, of course, experienced lawyers, this is a chance not to miss.
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