PARLIAMENTARY APPROVAL OF INTERNATIONAL BUSINESS TRANSACTION IN GHANA: ATTORNEY GENERAL V. BALKEN ENERGY GHANA LIMITED IN PERSPECTIVE.

INTRODUCTION

The Supreme Court of Ghana had on May 16, 2012 in the case of Attorney General v. (1) Balken Energy Ghana Ltd (2) Balken Energy LLC and (3) Mr Philip David Elder, lent its voice to the vexed issue of when a business transaction in Ghana would be considered or categorized as "international" for the purpose of obtaining the requisite parliamentary approval. The decision was reached in the context of the Supreme Court exercising its constitutional power to interpret the phrase "international business or economic transaction to which the Government is a party" as used in the Ghanaian Constitution.[1] The case as referred to the Supreme Court was primarily centred on two issues and these issues are:

1. Whether the Power Purchase Agreement (PPA) between the Government of Ghana (GoG) and Balken Energy (Ghana) Limited constituted an international business transaction within the meaning of Article 181(5) of the Constitution.

2. Whether the arbitration provision contained in clause 22.2 of the PPA separately constitutes an international business transaction within the meaning of Article 181(5) of the Constitution.

FACTUAL BACKGROUND

The Third Defendant, Mr. Phillip David Elders, a businessman resident in Texas, USA, identified a business opportunity in Ghana which involved the immediate generation of electricity from a power barge located in the country's Western Region. The barge needed rehabilitation and the GoG wanted to negotiate with a private investor to achieve this and bring its generation capacity urgently on stream. The Third Defendant was able to persuade the owner of the Second Defendant to invest in the venture.

On the above basis, the Second Defendant entered into a Memorandum of Understanding ('MOU') with the GoG on May 16, 2007. Due to certain regulatory and statutory licensing requirements[2] in Ghana for power generation, the investor in the business transaction decided to incorporate the First Defendant in Ghana and made it the party to the PPA which was executed on July 27, 2007, 11 days after the incorporation of the First Defendant. Subsequently, dispute arose as a result of the failure of the First Defendant to make the power barge operational within 90 working days. This resulted in claims by the GoG that the Second and Third Defendants misrepresented their ability to deliver on the project, thus it had the right to avoid the PPA.

The dispute eventually led to the First Defendant initiating arbitration proceedings against the GoG under the auspices of the Permanent Court of Arbitration at the Hague, Netherlands. At the proceedings, the GoG raised preliminary objections to the validity of the PPA including the arbitration clause on the basis that the parliamentary approval was not sought and obtained as required by Article 181(5) of the Constitution. The Government further argued that as a result of this, the Arbitral Tribunal lacked jurisdiction over the matter presented by the First Defendant before it. The Tribunal was of the view that it had jurisdiction, however, it expressed the willingness to take account of the domestic court's interpretation of the constitutional provision in question.

In accordance with the provisions of the Constitution of Ghana, the Attorney-General of Ghana requested the matter to be referred to the Supreme Court of Ghana[3] for interpretation of Article 181(5) of the Constitution. The reference was that the PPA was an international business transaction within Article 181(5) and required parliamentary approval and that the PPA was unenforceable because such approval was not sought and obtained from parliament.

COURT'S DECISION

In determining the above issues submitted to it, the Supreme Court held that the PPA was an international business transaction within the meaning of Article 185 (5) of Constitution. As regards issue (2), the Supreme Court was of the opinion that an international commercial arbitration is not an international business transaction within the meaning of Article 181(5) of the Constitution, as it does not by itself constitute an autonomous commercial transaction in the nature which pertains to impact on the wealth and resources of the country. It further held that an international commercial arbitration draws it life form the transaction whose dispute-resolution it deals with.

It is important to note, that the Supreme Court in accepting the Attorney-General's argument on the international nature of the PPA, expressed the view that the phrase "business or economic transaction to which the Government of Ghana is a party", if purposively construed, should not lead to the result that only agreements between entities resident abroad and the GoG can be embraced within the meaning of the term. It further stated that given the complexity of contemporary international business transactions, there will be transactions of such a clear international nature which come within any reasonable definition of an international business transaction, but which may have been concluded with the Ghanaian Government by an entity resident in Ghana.

The Attorney General had in his argument before the Supreme Court maintained that the PPA was an international business transaction. It was his contention that the nature of the transaction or economic activity and/or the parties - what their nationality or habitual place of residence or, in the case of a corporate entity - the seat of its central control and management were the criteria the Court should rely on. Further, the Attorney-General contended that certain identified factors clearly made the business transaction "international".

The factors identified by the Attorney-General are that: the fees payable to First Defendant under the PPA were required to be paid in foreign currency (US Dollars); the PPA contains certain representation and warranties in relation to tax and foreign exchange control, which are usually associated with foreign investment transactions; the Bilateral Investment Treaty between the UK and the Ghana potentially applies; and that the PPA contains an international arbitration agreement and a waiver of jurisdiction of the courts of Ghana. He further argued that the negotiation of the PPA was undertaken by a foreign entity (Balken Energy LLC), which also signed the MOU; that the First Defendant was only a nominee of the foreign entity for the purpose of a valid execution of the PPA; that the First Defendant is wholly owned by an English company that is ultimately owned by a national of the USA; that the Managing Director of the First Defendant (the Third Defendant) is a national of the USA; and that the place of control and ownership of the First Defendant is outside Ghana.

On the other hand, the Defendants' position which was rejected by the Supreme Court, was that the First Defendant was a Ghanaian company and therefore no question of an "international" business transaction arises. Arguing that, the Ghanaian Constitution does not define the meaning of the word "international", they proceed to examine several international commercial conventions[4] and reached a conclusion that, a business transaction would only be considered "international" if it is between two or more countries; involves parties who are nationals of or resident in two countries and/or involves crossing national borders. They further submitted that the transaction between the GoG and the First Defendant does not meet any of the criteria and it is therefore not an international business transaction.

CASE ANALYSIS

In this article, we shall proceed to examine the ruling of the Supreme Court particularly as it relates to when a business transaction in Ghana would be characterized as "International" for the purposes of parliamentary approval under Article 181(5) of the Constitution of Ghana. Further, we shall provide some perspective to guide potential investors and professionals engaged to provide advisory services to persons or businesses that desire to invest in Ghana on issues to be mindful of in relation to Article 181 of the Constitution.

(a) Parties as the basis of Internationality

An analysis of this case would show that, it brings to the fore the problems associated with conceptualizing the "internationality" of a business transaction or a contract. Some scholarly materials and even Conventions[5] tend to approach or deal with the issue of 'internationality' of a contract or business transaction from a narrow perspective or scope and this is usually centred on the "parties" - their nationality, habitual residence or place of business. For instance Kenneth C. Randall and John E. Norris[6] defined an international business transaction 'as any type of deal between parties from at least two different countries'.

The above position has traditionally been accepted by the courts including the Supreme Court of Ghana. The Supreme Court has previously accepted that one critical factor that must be considered in determining whether or not a transaction is international, is whether any of the parties are a foreign entity, that is a foreign national (in case of natural persons) or foreign registered or incorporated entity (in respect of artificial persons). It is in that respect that the Supreme Court in an earlier case of Attorney-General v Faroe Atlantic Co. Ltd[7] held that an international business transaction is a transaction between the GoG and a company registered or incorporated outside Ghana.

In the current case, Balkan Energy (Ghana) Ltd is a company incorporated in Ghana, and therefore cannot be said to be a foreign registered entity. This will be the case, notwithstanding that the shares of the company are held by another foreign entity or the responsibility for the management of the company is in the hand of non-Ghanaians. This is because of cardinal rule under corporate law that once a company is incorporated and issued with a certificate of incorporation, the company assumes a separate and distinct legal personality different from the shareholders and officers of the company. Therefore short of lifting the veil of incorporation, the Court cannot on the basis of the parties to the PPA, hold that the PPA is an international transaction.

The Court indicated in its ruling that it was not "technically" resorting to the piecing of the corporate veil doctrine. That notwithstanding, we are of the view that the Court actually did piece the corporate veil in going beyond the identity of the Balkan Energy Ghana Limited and looking at the terms of transaction including the nationality of the shareholder, place of control and management to determine whether it fell within the ambit of Article 181(5) of the Constitution.

In adopting the approach of looking beyond the parties to an agreement, to looking at the substance of the agreement or transaction, the Court has given the indication that irrespective of the jurisdiction of incorporation or registration of an entity (by extension citizenship of a person), such a fact can be overlooked in determining whether a transaction between the person/entity with the GoG constituted an international transaction and therefore should be subject to parliamentary approval.

(b) Substance Over Form

It is pertinent to note that, the common consensus among most learned authors is that international business transactions normally involve trade, leases, licenses and foreign direct investments between individual, multinational corporations and in some cases countries.[8] In the light of this position, the question one could ask is whether the mere fact that a multinational corporation (MNC) incorporates a company in a host country for the purposes of complying with a legal requirement of the host country and facilitating its investment in that country has a magic-wand effect of transforming a hitherto international business transaction to a purely domestic one?

An answer to the above question can be found in the analytic approach which favours the evaluation of the substance of the transaction, as against the form in order to ascertain whether the contract or business transaction is "international". Gallic R. Delaume, pointed out that French judicial precedents give support to the view that the nationality of the parties, while relevant, is not necessarily the determining factor in the characterisation of a transaction as "international"[9]. According to him, in all of the cases, the nationality of the parties as a factor of determination recedes behind the subject-matter of the transaction and once the international character of the transaction is ascertained, the courts no longer seriously consider the nationality of the parties.[10] Also in support of this approach is Franco Ferrari, who opined that only the habitual residence of the parties or their nationality is not sufficient to determine whether the business transaction is domestic or international and that the presence of at least one foreign element (e.g. currency, place of performance, language etc) is sufficient to trigger an enquiry or analysis of whether the business transaction is international or domestic.[11]

It is clear that the Supreme Court in reaching the decision in the Balkan case departed from its earlier approach of looking to the parties to ascertain whether the transaction is "international", and has now like its French counterpart, followed the analytic or evaluative approach of looking at the nature of the transaction holistically in determining whether it is "international" or "domestic".

In going beyond the parties to look at the nature of the business transaction to determine whether it is "international" and therefore falls within the ambit of Article 181(5), the Court indicated that one must look at the substance over the form. The Court therefore held that a business transaction is "international" in Ghana for the purposes of parliamentary approval, where the nature of the transaction is international in the sense of having a significant foreign element or the parties to the transaction (other than the Government) have a foreign nationality or reside in different countries or, in the case of companies, the place of their central management and control is outside Ghana.

Base on the above, in entering into any business transaction (invariably agreements) with the GoG, one therefore has to answer the following questions:

(i)   Does the transaction have a significant foreign element?

(ii)  Is the company registered or incorporated outside Ghana?

(iii) If the answer to (ii) above is negative, a further question to ask is whether the central management and control of the company exercise at a place outside Ghana?

The first question was considered by the Supreme Court in its decision. As pointed out earlier, on the facts, the Court held that although the agreement was between the GoG and Balkan Energy Ghana Limited, it constituted an international business transaction as the overall transaction involved a foreign investment by a US investor. The Court in coming to the conclusion that the business transaction has significant foreign element stated the following as the foreign elements in the transaction:

(i)   The PPA resulted from negotiation between the GoG and a foreign investor;

(ii)  Balkan Energy (Ghana) Ltd is wholly-owned by a foreign entity, incorporated in the United Kingdom;

(iii) The Managing Director of Balkan Energy (Ghana) Ltd is a foreigner and the control of the management of Balkan Energy (Ghana) Ltd is in foreign hands;

(iv)  The PPA contains clause providing for international commercial arbitration; and

(v) There were clauses in the PPA which are usually associated with foreign investment transactions such as waiver of sovereign immunity, no foreign exchange control clause and "no taxes" clause.

From the above, a business transaction between a Ghanaian registered or incorporated company and the GoG can qualify as an "international business transaction" under Article 181(5) if there is significant foreign element. What qualifies as significant foreign element will however depend on the facts of particular situation and the provisions/clauses in the agreement. Some of the elements that one should be mindful of will include:

(a) Source of funding for the project

(b) Jurisdiction of the originator of the project

(c) Jurisdiction of the project sponsors

(d) Nationality of individuals negotiating with the GoG

(e) Place of management of the project company (or Special Purpose Companies established for the Project)

(f) Shareholders of the project company or SPC

(g) Entities engaged to perform works or provide goods and services.

(h) Drafting of provisions of the agreement

(i) International arbitration clause

It is therefore important, that in the light of the decision of the Supreme Court, all business transactions should be critically reviewed to determine whether any foreign involvement in the business transaction qualifies as "significant foreign element" in order to determine whether it requires parliamentary approval under Article 181(5) of the Constitution.

(c) Parliamentary Approval of International Business Transactions (Agreements)

Once it is determined that a business transaction or agreement between a private party and the GoG has significant foreign element(s) and therefore an international business transaction, the next question is whether parliamentary approval is required. This question is relevant in view of the fact that based on the criteria above (not only looking at the jurisdiction of the private party to the transaction but also examining the substance of the transaction), many transactions will qualify as international business transaction. Secondly, the Article 181(5) provides for the requirement of parliamentary approval subject to "necessary modification" that is to be made by Parliament.

As rightly argued in the case, the application of the criteria above will imply that any agreement between GoG and a private entity that involves significant foreign element will have to be subject to parliamentary approval. Therefore, it follows that an agreement between GoG and British Airways for the purchase of air ticket will have to be subject to parliamentary approval to be valid, so will an agreement for housing projects between GoG and STX Ghana Ltd. This interpretation will undoubtedly overburden Parliament on the one hand with approval of all such agreements, and stifle executive function on the other hand with the need to subject all such agreements to parliamentary approval. To overcome this interpretation, the Supreme Court provided two (2) solutions:

(i) Major versus Minor International Business Transaction

(ii) Necessary Modification by Parliament


(i) Major versus Minor International Business Transaction

The Supreme Court observed that "it would be impractical for Parliament to scrutinize and approve every single business transaction with international ramifications entered into by the Executive. In order to overcome the "impractical" effect, the Court implied into Article 181(5) the word "major" which means only major international business or economic transactions are subject to parliamentary approval under the Article.

In that respect, for an agreement or a business transaction between a private entity and the GoG that qualifies as international business or economic activity to be subjected to parliamentary approval, that agreement must be for a major business transaction. In other words, agreements for minor business transactions between private entities and the GoG are not subject to parliamentary approval even though it qualifies as "international business or economic activity". The criteria as to what qualify as major or minor business transaction was not provided by the Supreme Court.

The Court mindful of the need for criteria for such determination indicated that whilst it is imperative for Parliament to provide clarity on the Article 181(5) of the Constitution, a certification by the Attorney-General that the transaction in question is "major" before a dispute arises would weigh heavily on the minds of the Supreme Court. However, the court is quick to add that such a certification would not be conclusive. In effect, in an agreement for international business transaction, the private party may adopt one of two options:

(i) Require that the agreement be subject to parliamentary approval, or

(ii) Request from the Attorney General legal opinion to the effect that the agreement is for a minor international business transaction and does not require parliamentary approval.

If the second option is adopted, the private party still bears the risks of rejection of the legal opinion of the Attorney General by the Court, since such an opinion is not conclusive in the event of dispute. Even though the private party carries the risk, we are of the view, that the courts mindful of the principles of equity will favour such private party where the GoG seeks to invalid an agreement that was so certified by the Attorney General as minor, on the ground that the parliamentary approval should have been sought.

The authors agree with the above suggestions from the court, they are however sceptical of a measure that stops short of a clear delineation or determination of the scope of Article 181(5) of the Constitution. This is due to the fact that existing foreign investors and prospective ones would not be certain of the status of their agreements with the GoG and where the GoG deems it fit, it could set up non-parliamentary approval as a basis to invalidate an agreement to avoid its contractual obligations or one aimed at preventing the investor from taking benefit of any potential investment.

It our view that the criteria to determine whether an international business transaction is a major or minor international business transaction should depend on the value of the transaction, effect (in terms of the impact on the economy or citizenry) of the transaction, and scope of the transaction. We therefore suggest that any criteria formulated by Parliament in clarifying the scope of Article 181(5) application should be based on these criteria.

(ii) Necessary Modification by Parliament

Article 181(1) to (4) requires parliamentary approval of loans either granted or taken by Government through a resolution passed by Parliament. Article 181(5) provides that "This article, shall with the necessary modifications by Parliament apply to an international business or economic transaction to which the Government is a party as it applies to a loan". The clause therefore permits Parliament to make necessary modification to the application of the whole Article 181 to international business or economic transaction. In that respect, Parliament is permitted to determine:

(i) The types of international business or economic transaction must be subject to parliamentary approval.

(ii)The procedure to be adopted in the approval of international business or economic transaction.

The Court has determined that even though Parliament has not done the "necessary modification" the clause is still applicable. Given the criteria adopted by the Court, there is still uncertainty over what constitute major or minor international business or economic. In order for certainty in this area, Parliament as a matter of urgency needs to provide this "necessary modification" for certainty for private party investors and advisors to determine whether or not a international commercial agreement to which the GoG is a party requires parliamentary approval.

CONCLUSION

Given its abundant wealth in natural resources, stable democracy, dynamic economic with growth rate of 7.4% and a World Bank Doing Business rating as one of the best place for doing business in the ECOWAS Region and in Africa, this judgment holds very significant legal and economical implications for Ghana. Finally, there is no doubt as it stands, that this judgment would be of great interest to the business community in Ghana and also the international community, given its fundamental importance to foreign corporations or individuals and Ghanaian companies with foreign sponsors who have entered into or are considering entering into any contract with the Government of the Ghana. It is however clear that in determining what qualifies as international business transaction,, not only should the question be what the nationality of the party to the agreement is (citizenship or place of incorporation); the transaction as a whole must be looked at. In addition, Parliament needs to provide clarity as to which international business transaction requires parliamentary approval under Article 181(5) of the Constitution to be valid. The clarification is important to provide certainty to prospective foreign investors on whether to require parliamentary approval under Article 181(5) of the Constitution.

*Authors - 

Mr. Ferdinand D. Adadzi - Partner at a Ghanaian Law Firm; and Lecturer at Central University College, Accra 

Mr. Ikemefuna Stephen Nwoye  -  Principal Chief Counsel - NWOYE (Barrister and Solicitor)

*The first version of this paper dealing with International Transaction and International Private Law was presented in the International Business Transaction Seminar at NYU Law in 2013.  Thank you to Mr. Adadzi for his subsequent contributions on the Ghanaian law aspect of a latter version of this paper that was published in the Law Digest Spring Edition 2014. All data and statistics relied on are pre-2013 or 2013.

[1] Article 181 of the 1992 Constitution of Ghana provides that "(1) Parliament may, by a resolution supported by the votes of a majority of all members of Parliament, authorise the Government to enter into an agreement for the granting of a loan out of any public account....(5) This Article shall, with the necessary modification by Parliament apply to an international business or economic transaction to which the Government is party as it applies to a loan".

[2] Section 12 of the Energy Commission Act, 1997 (Act 541) require that corporate entities be incorporated in Ghana to qualify for license to produce and wholesell suply of power.

[3] The action was first instituted at the High court, with the Attorney-General requesting that the matter be referred to the Supreme Court for interpretation of the two issues in contention. This request was reject by the High Court and a further application was brought before the Supreme Court. The Supreme Court quashed the High court's decision and proceeded to consider the issues in contention. See The Republic v. High Court (Comm. Div.) Accra Ex-parte: The Attorney General of Ghana v. Balken Energy Ghana Limited & others https://www.judicial.gov.gh/ejudgment/judgment.php?link=links/cases/Document%20%28115%29.pdf (accessed on 11.16.2013)

[4] The Conventions considered by the defendants in their analogy are the 1980 United Nations Convention on Contract for International Sale of Goods, 1956 Convention on the Contract for the International Carriage of Goods by Road, the 1944 Convention on International Civil Aviation and the 1929 Convention for the Unification of Certain Rules Relating to International carriage by Air.

[5] Id.; Contrast with the Convention on the Contract for the International Carriage of Goods by Road (CMR). Article 1 deal with the "internationality" question in relation to the scope of the Convention. It provides that, the convention shall apply to every contract for the carriage of goods by road in vehicles for reward, when the place of taking over of the goods and the place designated for delivery, as specified in the contract, are situated in two different countries, of which at least one is a contracting country, irrespective of the place of residence and the nationality of the parties.

[6] See Kenneth C. Randalll and John E. Norris, A New Paradigm for International Business Transaction 71 Wash U. L.Q 599 at p. 1

[7] [2005¬2006] SCGLR271

[8] Id; see also Gallic R. Delaume, What is an International Contract? An American and A Gallic Dilemma 28 Int'l & Comp.L.Q 258 1979; also Ralph H. Folsom et al, Principles of International Business Transactions, Trade & Economic Relations (Concise Hornbooks 2005)

[9] See Gallic R. Delaume, supra note 7 at p.264 where references were made to several decisions of French Court that focus on the subject matter of the transaction as against the parties of the forms. Examples of this cases are Cass April 18, 1931, Delafontaine et Deleau v. Perret and Cass July 8, 1931, Dupille et Guiguan v. Maroger et Devigne[ 1931] Sirey 1.387

[10] See Gallic R. Delaume, Id at 265- 266, where it was pointed out that in its decision in Cass. Feb.191930, Mardele v. Muller et Cie[1933] Sirey 1.41 the Court of Cassation had considered the foreign elements of a transaction between a French subsidiary of foreign company and Frenchman as the determinant of the 'internationality' of the transaction.

[11] Professor Franco Ferrari, Director Center for Transnational Litigation, Arbitration and Commercial Law NYU School of Law "International Business Transaction or Contract" lecture delivered on September 18, 2013 at New York University.