DP World Takes China Merchants to Court

China Merchants holds 23.5pc on the Port of Djibouti

DP World, already involved in a heated legal dispute with Djibouti, is suing China Merchants for building an international free zone on a Djibouti Container Terminal, where DP World claims a half century exclusive right for building terminals in Djibouti.

The 51-page legal brief by DP World was filed in Honk Kong requesting that the courts order the Chinese company to compensate DP World for damages it incurred as a result of the construction of the free zone along with interest. DP World, which operates over 78 ports across the world, has also requested the courts declare the agreement between China Merchants and Djibouti illegal.

The contract between DP World and Djibouti for the development of Djibouti Port was signed in 2000. In the agreement, Djibouti gave DP World exclusive rights over the port and free zone facilities, including container handling facilities, construction, development and terminal management.

Following this deal, the two parties signed another agreement in 2004 to develop Doraleh Container Terminal. DP World controls 33.3pc ownership, while Djibouti’s state-owned entity, Port of Djibouti (PDSA), holds a 66.6pc stake.

In 2013 China Merchants, a Chinese state-owned conglomerate based in Hong Kong and operating under the State-owned Assets Supervision & Administration Commission of the State Council, bought 23.5pc of PDSA from Djibouti. China developed and financed the free trade zone, considering Djibouti as an important part of its trillion dollar global investment initiative “Belt & Road”.

Meanwhile, DP World and the government of Djibouti became embroiled in a heated dispute last February. The controversy started when Djibouti annulled DP World’s concession at Djibouti Container Terminal. Djibouti unilaterally awarded the concession to the Singapore-based Pacific International Lines. This triggered DP World to take its case to a London-based arbitration tribunal.

The tribunal ruled in favour of DP World by declaring the concession agreement between the two as valid. However, Djibouti denounced the ruling stating that it was made without its presentation and saying it had not been summoned to legal proceedings. Djibouti also stated that the case was tried without any adversarial debate in the proceedings.

In return, two months ago the government of Djibouti nationalised the shares of the state-owned Port de Djibouti. The staff and assets at the terminal were transferred to Société de Gestion du Terminal de Doraleh (SGTD), a public company established to manage the infrastructure wholly-owned by the government of Djibouti.

DP World also took the case to another court, the High Court of England & Wales. Late last August, that court issued an injunction against the Port of Djibouti ordering it not to wrestle control of the terminal from DP World or act as if the joint venture agreement with the port operator has been terminated.

Last April, DP World issued a public notice warning companies that are considering building, managing or operating a Port in Djibouti of the validity of its concession claims at Doraleh Container Terminal in Djibouti.

The recent court action by DP World against China Merchants in Hong Kong follows this warning notice. In its charge, DP World claims that due to Djibouti’s breach of contract, it continues to lose revenues and profits from operations and management of the terminal and a chance to construct, develop, operate and manage the new ports.

It requested that the courts in Hong Kong declare China Merchants as unlawfully inducing the breach of clauses in the 2004 and 2006 concession agreement  it holds in Djibouti and order it to pay damages to DP World along with interest.


Published on Nov 10,2018 [ Vol 19 ,No 967]



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