Nairobiâ€™s bid to become a global financial services hub has got a boost with the Cabinetâ€™s approval of a draft law that seeks to set up an international arbitration centre for resolving commercial disputes.
Kenyaâ€™s slow and expensive court processes are often cited as a major shortcoming for Nairobiâ€™s attractiveness as a financial services hub.
International firms that open shop in Kenya often sign clauses that provide for resolution of disputes in London or Mauritius, which have well established arbitration mechanisms.
â€œSuch a centre will help in entrenching Nairobi as a regional financial hub which provides additional services that are central to international investments,â€ said Mugo Kibati, director-general of the nationâ€™s long-term development blueprint Vision 2030.
The dispute between East African Breweries (EABL) and South African beer maker SABMiller over a regional distributorship contract is one of the most recent high profile cases to go for arbitration in London.
There are also stalled multi-billion shilling investment projects such as the Tatu City development that could benefit from a quicker resolution of shareholder wrangles that have delayed its start for about two years.
â€œThe objective of the (Nairobi Centre for International Arbitration Bill, 2012) is to establish an independent, non-profit making international organisation for commercial arbitration based in Nairobi,â€ read part of a Cabinet brief on the proposed legislation released last week.
The Cabinet backing paves the way for debate of the Bill in Parliament.
The centre, which will also be mandated to advice the State on international commercial agreements, is expected to help ease the backlog of business disputes which continue to pile in the judicial system, slowing new investments.
Enactment of the proposed laws will place Nairobi on the path to being at par with other major financial hubs like London and Mauritius that are highly attractive to international investors due to their capacity for speedy commercial dispute resolution.
Arbitration is the first line of dispute resolution relating to contracts entered between counterparties.
Parties agreeing to arbitration ordinarily waive their right to move to court in case of a dispute, although they can appeal an arbitration ruling in court. Mr Kibati said the arbitration centre will also help Kenya to attract foreign capital.
The amount of funds involved in arbitration disputes is often in very big, meaning that the fees involved are also large, according to Mr Kibati.
Vimal Shah, managing director of Bidco Oil Refineries and co-shareholder in Tatu City, said the establishment of an international arbitration centre would boost Nairobiâ€™s profile as a regional hub that could serve in the drafting of contracts for global companies eyeing Africa.
â€œIt is a brilliant idea because Nairobi will be viewed internationally as a neutral hub to offer justice in commercial disputes,â€ said Mr Shah.
Law firms, and the hospitality sector which provides accommodation for legal teams, are likely to benefit directly.
Development of the Sh240-billion worth Tatu City, backed by Renaissance Capital, has delayed due to multiple court cases filed by some shareholders challenging the companyâ€™s ownership structure and controlling stakes of the joint-owners.
Arbitration in the Kenyan legal system pales as compared to adjudication within the courts as a means of settling commercial disputes owing to lack of a clear framework, according to Steven Kairu, a commercial law lecturer and managing partner at Steven Gatembu Kairu Advocates.
â€œArbitration is not as widespread as should be though it is the most attractive means of dispute resolution,â€ said Mr Kairu.
â€œThere has been no clear framework as most arbitration has been under the private initiative of involved parties.â€
Among recently concluded cases that went through arbitration include shareholder wrangles that threatened to derail the Sh6 billion-worth Fourways Junction housing estate in Nairobi.
â€œThere are several businesses whose operations have stalled in the courts and those are job opportunities we are losing out on,â€ said Mr Kairu.