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SOMALIA LAW BLOG · IV · LAW IN PRACTICE / ANALYSIS
A foreign arbitration clause is only as good as the assets behind it
HA
Hamza I. Abdullahi · 31 August 2026 · 8 min read
IN THIS BRIEF
01Somalia changes the enforcement calculation
02Follow the assets before choosing the seat
03Sometimes the most important dispute term is the payment term
04Do not assume Somali courts are the outcome to avoid
05A mediation clause can be more useful than it looks
06The foreign seat may still be the right answer
07Write the clause backwards
London arbitration may be a sensible choice for a Somalia contract. But before negotiating the seat, rules or governing law, ask a less elegant question: if you win, where is the asset you need to reach?
A foreign supplier is negotiating a distribution agreement with a Somali company.
The commercial terms are ordinary enough.
Products will be shipped into Mogadishu. The distributor will sell locally and pay the supplier on thirty- or sixty-day terms. Lawyers abroad prepare the contract.
The dispute clause looks familiar:
English law.
Arbitration in London.
Institutional rules counsel has used many times before.
Nobody objects.
Why would they?
The clause is neutral. The institution is respected. The lawyers understand it.
Now change only one fact.
The relationship fails.
The Somali distributor owes a substantial unpaid balance. The supplier begins looking at arbitration.
And somebody asks:
Where are the distributor's assets?
The answer is not London.
The warehouse is in Mogadishu.
The stock is in Mogadishu.
The operating accounts are in Somalia.
Most of the receivables are owed by Somali customers.
Suddenly the arbitration clause is no longer only a question about how to resolve the dispute.
It is a question about how the result becomes money.
That question should have been asked before the contract was signed.
01 — Somalia changes the enforcement calculation
The reason is straightforward.
Somalia is not a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
For international commercial lawyers, the Convention is so familiar that its presence can become almost invisible. A party arbitrates in one Convention state, obtains an award and then seeks recognition and enforcement against assets in another, subject to the limited defenses built into the treaty.
That portability is one of international arbitration's great commercial advantages.
You should not assume that mechanism exists when the assets are in Somalia.
That does not mean a foreign award is worthless in Somalia.
It does not mean foreign arbitration is a bad idea.
And non-membership in the Convention, by itself, does not answer every question Somali domestic law may raise about recognition, evidentiary effect or the proceedings available to a successful award creditor.
Those are separate questions of Somali law and procedure.
The narrower point is the important one:
if the value of your arbitration clause depends on enforcing the resulting award against assets in Somalia, you need to understand that route before you choose the clause.
Do not wait until you have spent eighteen months obtaining an award to begin investigating what happens next.
02 — Follow the assets before choosing the seat
This changes the way we would review a Somalia-facing contract.
The first question would usually not be whether London, Dubai or another seat is preferable.
We would first want to know who actually owes the obligation.
Then we would want to know what that entity owns.
Perhaps the Somali distributor has only local assets.
But perhaps the group also has a trading company in Nairobi.
Perhaps the shareholder owns an operating business in Dubai.
Perhaps payments from customers move through accounts outside Somalia.
Perhaps there is a parent company willing to guarantee the distributor's obligations.
Perhaps none of those things is true.
All of those facts matter before the arbitration clause does.
Consider two versions of the same transaction.
In the first, the supplier allows the distributor to accumulate six months of unpaid invoices. The only contracting entity is the Somali operating company. There is no guarantee. All meaningful assets are local.
The lawyers can draft the finest arbitration clause in London.
They still have a collection problem if the relationship fails.
In the second version, the commercial exposure is smaller because part of each order is paid in advance. A related entity with assets in another jurisdiction guarantees defined payment obligations. The contract preserves access to urgent local relief where legally available. The parties still choose foreign arbitration for the main dispute.
The second agreement has not abandoned arbitration.
It has simply stopped asking arbitration to do every job.
That is a much stronger way to think about dispute architecture.
03 — Sometimes the most important dispute term is the payment term
Lawyers naturally focus on governing law and dispute resolution.
Business people should sometimes redirect us toward the invoice.
Suppose a distributor buys $100,000 of goods every month.
If the supplier gives six months of unsecured credit, a contractual breakdown can create a $600,000 enforcement problem.
If the commercial structure requires a substantial advance and limits outstanding exposure to one shipment, exactly the same commercial disagreement may create a $75,000 problem.
The arbitration clause did not change.
The enforcement risk did.
That is why payment mechanics belong in any serious conversation about disputes.
Advance payments.
Milestone releases.
Documentary credits where workable.
Security.
Guarantees.
Retention of title where legally effective and operationally useful.
Limits on outstanding credit.
The purpose is not to build a contract so hostile that no Somali counterparty will sign it.
The purpose is to ask how much of the transaction's value should ever depend on litigation or arbitration at all.
For many operating contracts, that question is more valuable than another page of dispute-clause drafting.
An award travels only as far as the assets beneath it.
04 — Do not assume Somali courts are the outcome to avoid
There is another habit foreign counsel should question.
International contracts often treat local litigation as something to draft around completely.
Sometimes that makes sense.
Sometimes it does not.
Imagine the immediate problem is not a final money judgment.
A shipment is being withheld.
Goods are sitting in a warehouse.
An account or local asset may disappear.
A vessel, cargo or project site requires urgent action.
The conduct giving rise to the problem is occurring entirely inside Somalia.
A foreign tribunal may ultimately determine the parties' contractual rights.
But the practical remedy may still need to operate where the asset is.
That is why a dispute clause should be reviewed carefully for what it says about interim or conservatory relief.
A foreign arbitration clause should not accidentally prevent a party from seeking a local remedy the transaction genuinely needs, assuming Somali law makes that remedy available.
Somalia is also actively reforming its commercial-dispute institutions.
The country does not yet have the kind of mature specialist commercial-court system international investors may know from other jurisdictions. Work toward specialist commercial courts has begun, and arbitration and evidence-law reform have also been under consultation.
That is important.
But contracts being signed today have to work with the system that exists today.
A future commercial court cannot enforce a current contract for you.
05 — A mediation clause can be more useful than it looks
Not every dispute needs to be designed around a final award.
In one cross-border contractual matter handled by Insaaf for a Somali institutional client, the agreement required mediation before further escalation.
The other side attempted to move outside that sequence.
The existence of a real contractual step mattered because there was something concrete for the parties to insist on: the process they had already agreed.
That experience does not prove that mediation solves Somali disputes generally.
It supports a narrower proposition.
Contractual steps are useful when they are specific enough to be used.
There is a large difference between:
"The parties shall attempt amicable settlement before commencing arbitration."
and:
written notice of the dispute; negotiation between identified senior representatives within fourteen days; mediation within a defined period; arbitration if the mediation does not resolve the matter.
The first clause expresses optimism.
The second creates a process.
For a long-term commercial relationship, that can matter.
A Somali distributor may need the foreign supplier next month.
A foreign investor may still need cooperation from the local project partner.
A contractor and employer may have several years of work left together.
A structured commercial step gives people somewhere to go before every disagreement becomes a legal proceeding.
06 — The foreign seat may still be the right answer
None of this is an argument against foreign arbitration.
There are good reasons international parties choose it.
Neutrality matters.
Confidentiality may matter.
The quality and familiarity of institutional rules matters.
The ability to appoint specialist arbitrators matters.
The governing law and financing documents may point toward a particular international seat.
And if the counterparty has assets in a Convention state, a foreign award may fit the enforcement strategy extremely well.
The mistake is not choosing London.
The mistake is choosing London because that is what the precedent says, without first asking what the clause is ultimately expected to accomplish.
A dispute mechanism should be part of the transaction rather than boilerplate attached to it.
That means the commercial lawyer, local counsel and business team should be looking at the same picture.
Who owes what?
Where are the assets?
How much exposure builds between payments?
What happens during the first thirty days after a breach?
What may need urgent action locally?
Which relationships are worth preserving?
Where would an eventual award actually need to be enforced?
Only then does the question "where should we arbitrate?" have enough context to answer properly.
07 — Write the clause backwards
There is a useful way of testing the final draft.
Imagine the dispute has already happened.
Your client has won.
Now tell the story backwards.
What asset are you trying to reach?
Which person or entity owns it?
Which order or award gives you the right to reach it?
Which court or tribunal produces that instrument?
What steps come before that proceeding?
What happens while the proceeding is underway?
How much money is exposed by then?
If the lawyers can narrate that sequence, the dispute clause probably belongs to the transaction.
If they cannot, the clause may simply belong to the precedent it came from.
Somalia makes this question unusually visible because the New York Convention cannot be treated as the background enforcement machinery for local assets.
That is not a reason to avoid Somali contracting.
It is a reason to do the enforcement analysis at the moment when the parties still have the most freedom to structure around it.
Before the first shipment.
Before the credit builds.
Before the guarantee becomes awkward to ask for.
And before the relationship fails.
Foreign arbitration may still be exactly the right choice.
But it should be the conclusion of the analysis rather than the starting point.
When we look at a Somalia-facing dispute clause, the first question is therefore usually much less glamorous than "London or Dubai?"
It is:
If this goes wrong, what do we actually need to reach?
Start there.
Then write the contract.
This article provides general information and is not legal advice. Somalia is not currently a party to the New York Convention, but the treatment of any particular foreign award, the availability of local interim relief and the appropriate dispute structure depend on the contract, the location of assets and Somali law in force at the relevant time.
HA
Hamza I. Abdullahi sat as a supreme-court judge before he ever argued in front of one, and now leads Insaaf's disputes strategy. Mohamed Abdulkadir Ali leads cross-border strategy with instructing counsel. The Disputes practice →