Zimbabwe has faced significant political and economic hurdles in recent years, strongly affecting its investment appeal. But how has the disputes landscape fared in the wake of the country’s troubles?
Following a period of hyperinflation in 2004, Zimbabwe now operates in a multi-currency framework dominated by the US dollar. Although the economic situation has improved since 2009, the country is currently facing a ‘liquidity crunch’ due to the loss of monetary sovereignty and the inability to print money – a consequence of the multicurrency system.
Sternford Moyo, a partner at Scanlen & Holderness in Harare, and a former president of the Law Society of Zimbabwe, tells CDR that the liquidity crisis is largely driving the Zimbabwean dispute resolution market. He explains that “the level of non-performing loans is very high, resulting in frequent recovery actions by financial institutions. Many of the large loans end up with the defendants being forced into judicial management or schemes of arrangement with creditors or liquidation, where no viable loan restructuring is possible”.
Ronald Mutasa, associate at The Corporate Counsel – Manokore Attorneys, explains that this surge in disputes as a result of non-performing loans “is due to the punitive interest rates granted by banks, and consequent default by borrowers following the numerous loans granted by the banks in US dollars from 2009 without conducting extensive due diligence on the borrowers”.
Miranda Khumalo, partner at Atherstone & Cook points out that the liquidity crisis has also led to an “increase in debt-related disputes arising from non-performing loans and the inability to meet contractual obligations by many entities”.
Moyo notes that he expects to see further increases in instructions connected with the areas of debt collection, debt restructuring, judicial management, schemes of arrangement and liquidation.
THE RULE OF LAW
Since 1981, Zimbabwe has maintained a fused profession – a small de facto Bar remains, and is supported by bodies such as the UK’s Advocacy Training Council in its work, although firms mainly carry out their own advocacy work.
The Law Society of Zimbabwe has faced tough challenges, over its support for the maintenance of the rule of law, especially in support of its members – it has been steadfastly supported in seeking judicial reform by fellow Commonwealth jurisdictions and the International Bar Association, in particular the IBA’s Human Rights Institute which is co-chaired by Moyo.
A new constitution was promulgated in 2013, which allowed for the independence of the judiciary including a new Constitutional Court. In 2010, a high-profile Bar Council of England & Wales report criticised the level of patronage shown by the government to the senior judiciary and perceived impacts on judicial integrity, although there were subsequently gradual signs of a more independent approach by some judges in 2013. However, unlike neighbouring Botswana, Zimbabwe was ranked at the bottom of the World Justice Project’s Rule of Law Index in 2015, alongside Afghanistan and Venezuela.
INVESTMENT, INDIGENISATION, INDUSTRY
In common with other Southern African states, there is a growing interest in arbitration. Bigger commercial entities place a strong emphasis on confidentiality of disputes, making arbitration a favourable form of dispute resolution. Mutasa points out however, that other ADR mechanisms, such as conciliation, mediation, or expert determination, are less common in commercial dispute resolution in Zimbabwe.
Moyo indicates that there has been a rise in investment disputes as a result of the implementation of an indigenisation law. The controversial law requires non-indigenous investors to sell 51% of their interest in their Zimbabwean businesses to indigenous investors in a market characterised by a lack of liquidity, thus preventing parties from recovering the true value of the assets sold. “When pushed, I can see some investors relying on bilateral investment protection agreements, or seeking international arbitration. Already, a number of such arbitrations have either commenced or been threatened,” he adds.
In respect to foreign investment, the main sectors are mining, oil and gas. Khumalo says that “for foreign investment most of the legal work involves due diligence, reviewing and drafting transaction documents and assisting with regulatory approvals. At the initial stage, the delays are mainly due to regulatory approvals. Negotiations on the investment agreement between government and the foreign company, can take months sometimes years – there are many factors that come into play”.
Moyo states that “compared to other jurisdictions, Zimbabwean courts have a much smaller backlog. This is largely because in 2009 the Zimbabwean dollar was abandoned… Consequently, all litigation which was pending before the courts became irrelevant. The courts were able to start from a clean slate”.
“Obviously there are concerns over the reintroduction of the Zimbabwean dollar,” says Khumalo. “The Zimbabwean government has assured us that this will not happen soon – but the courts do honour the essence of the contract; even if there is a change in currency they can recover their amounts in the stated currency.”
In June, the Reserve Bank said that it would ‘demonetise’ the valueless currency, following plans drawn up in 2014, which process should complete by September 2015.
CONFIDENTIALITY IS KEY
Despite rumours of the establishment of a commercial court, Moyo notes that in commercial matters, there is definitely a tendency by investors to prefer arbitration over litigation. “This is driven largely by a desire to maintain confidentiality, to ensure speedy resolution of disputes and to ensure that the persons adjudicating over disputes are persons with real expertise in the areas covered by the disputes,” he says.
Khumalo agrees, pointing out that while many investment agreements contain arbitration clauses, “this does not inhibit the parties from approaching the courts”.
Mutasa states that specialist commercial knowledge available in arbitration proceedings as opposed to litigation is also a key draw for investors. Khumalo indicates that many parties enjoy greater involvement in the process, which allows them to determine the pace of the matter, stating that “for many commercial clients, time is of the essence. They normally want the quickest and best solution. Arbitration proceedings are usually quick and judgment is obtained in a shorter period than with litigation”. She adds that, of course “confidentiality is also a plus”. – Africa Law Business