International Arbitration 2020

Last Updated August 18, 2020

South Africa

Law and Practice

Authors



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International arbitration is still a developing mode of alternative dispute resolution in South Africa but its prevalence as a preferred dispute resolution method is increasing.

The most recent major development in this regard was the introduction of the International Arbitration Act 15 of 2017 (the International Arbitration Act), which became effective on 20 December 2017. The International Arbitration Act incorporates the UNCITRAL Model Law on International Commercial Arbitration (UNCITRAL Model Law) into South African law. Schedule 1 to the International Arbitration Act is, in effect, a restatement of the UNCITRAL Model Law.

According to statistics released by one of South Africa’s leading private arbitration institutions, the Arbitration Foundation of Southern Africa (AFSA), ten international disputes were referred to AFSA for arbitration between 2007 and 2016. In 2018, AFSA reported 18 referrals of international arbitrations (with a total quantum in excess of ZAR640 million). In late 2019, AFSA reported that its international arbitration referrals had increased to 24 new cases with a total quantum of ZAR3 billion. These figures demonstrate a significant uptake in appetite for international arbitration in South Africa since the International Arbitration Act became effective.

Prior to the International Arbitration Act, foreign arbitral awards were enforced in terms of the Recognition and Enforcement of Foreign Arbitral Awards Act 40 of 1977, which was the domestic legislation enacted to give effect to South Africa’s accession to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (the New York Convention). This Act was repealed by the International Arbitration Act, which brought the enforcement of foreign arbitral awards in South Africa in line with international best practice.

International arbitration is most prevalent in contractual disputes where parties have included a dispute resolution mechanism in their contracts.

General

Matters referred for international arbitration in South Africa are mainly cross-border commercial disputes. These commercial disputes involve, amongst other things, general contractual disputes, engineering and construction disputes, and disputes involving share agreements and/or loan repayments. Given the relatively nascent state of a distinct international arbitration regime in South Africa, the general trend in this field at present is the uptake in the number of new matters being referred to local and international arbitral institutions.

With an increasing focus on international arbitration on the African continent, a host of jurisdictions have taken steps to increase their attractiveness as arbitration centres and safe seats for arbitration. South Africa is no exception and it has taken steps to secure its position in the international arbitration community through the promulgation of the International Arbitration Act, the development of AFSA’s international arbitration division and various improvements to infrastructure and resources used in support of international arbitration.

The digitisation of South Africa’s courts and the uptake of technologies facilitating virtual hearings and e-discovery – all of which has been accelerated by the COVID-19 pandemic – has increased access both to arbitration proceedings held in South Africa and to South Africa’s courts in instances where parties to arbitration proceedings are required to approach them for relief. South Africa’s arbitral institutions are working towards developing technology designed for virtual hearings which would enable parties to participate in an arbitration from different geographic locations.

Impact of the COVID-19 Pandemic

The COVID-19 pandemic has required South African courts to adapt to electronic hearings and case management processes. This rapid uptake of digital court procedures has been valuable in several respects. Firstly, it has demonstrated that the digital document management system that had been piloted before the COVID-19 pandemic is able to deal with the electronic filing of court documents, which in turn means not only that parties need not be physically present to attend to court-related administrative tasks, but that practitioners and judges are becoming far more comfortable with and confident in using electronic means of conducting hearings and managing and exchanging documents. This is very likely to encourage and increase the existing use of electronic means of conducting hearings and managing and exchanging documents in arbitrations.

Secondly, the COVID-19 pandemic has also required South African law firms and courts to hold hearings via online teleconferencing platforms. This will significantly expand access to international arbitrations seated in South Africa as it becomes increasingly less essential for legal representatives, litigants and witnesses to convene at a single location. With the option of attending an arbitration via teleconference, parties are now able to enjoy the full suite of benefits of choosing South Africa as a seat for their international arbitration without the necessity of being physically present in South Africa.

The key industries in which South Africa has historically seen significant activity in international arbitration include mining, shipping, construction and certain financial sectors. These continue to be key industries for international arbitration in South Africa in 2019-20 due to South Africa’s continued activity in these fields.

Recently, there has been a further uptake in international arbitration activity in the construction sector due to the number of projects taking place both in South Africa and on the continent at large. The effects of COVID-19 are also starting to be felt in this sector and this will undoubtedly see a further rise in the number of international arbitrations in this area. It is also possible that the continued effect of the COVID-19 pandemic will result in a further increase in mining and shipping arbitrations.

Arbitral Institutions in South Africa

The Arbitration Foundation of Southern Africa (AFSA) and the Association of Arbitrators (Southern Africa) NPC (AASA) are amongst the most popular arbitration organisations used to resolve commercial disputes in South Africa, with AFSA being the most prominent and widely recognised institution.

AFSA is divided into a domestic and an international division. AFSA supervises and administers the resolution of cross-border disputes in accordance with its International Rules. Since the promulgation of the International Arbitration Act, AFSA has published revised International Arbitration Rules to bring them in line with the International Arbitration Act (which includes the UNCITRAL Model Law).

International Institutions in South Africa

Aside from the local arbitral institutions, some South African-seated arbitrations are also referred to the International Court of Arbitration of the International Chamber of Commerce (ICC) and the London Court of International Arbitration (LCIA), although this is less common. Although the ICC reported that in 2018 it received 42 referrals from Sub-Saharan Africa and the LCIA reported 25 new matters, in very few of these cases were Sub-Saharan African countries chosen as the seat of arbitration.

Local Preferences

The benefit of utilising South African arbitration organisations such as AFSA or the AASA to administer international arbitrations where the seat of arbitration is located in South Africa is the competitive pricing of arbitration services when compared with arbitration organisations based in more developed countries (such as the ICC and the LCIA). The fact that the local institutions are relatively well known to local parties also serves as an advantage to those institutions when it comes to the choice of an arbitral institution to administer arbitration proceedings.

International Arbitration Act 15 of 2017

The International Arbitration Act governs international arbitration in South Africa and is based largely on the UNCITRAL Model Law. The preamble to the International Arbitration Act provides “for the incorporation of the Model Law on International Commercial Arbitration” into South African law. The scope of this legislation is set out at section 7 of the International Arbitration Act, which provides that any international commercial disputes that the parties have agreed to submit to arbitration in terms of an arbitration agreement may be decided by arbitration, provided that the dispute is arbitrable. As such, the scope of application is particularly broad and arbitrations may be interpreted and construed as being international arbitrations if just one party to the arbitration agreement is from a different jurisdiction from any of the other parties. This assessment of the scope of application is set out in more detail at Article 1 of the UNCITRAL Model Law.

Applicability of the UNCITRAL Model Law

Section 6 of the International Arbitration Act incorporates the UNCITRAL Model Law into South African law. To this end, Schedule 1 to the International Arbitration Act constitutes an almost verbatim restatement of the Model Law. Section 8 of the International Arbitration Act deals with the interpretation of the Model Law and empowers an arbitral tribunal or a court to relevant reports of UNCITRAL or its secretariat in this regard.

Divergence from the UNCITRAL Model Law

Apart from certain nuanced and permissible changes to the text of the UNCITRAL Model Law, there is no significant divergence from the UNCITRAL Model Law in South Africa’s national legislation.

Arbitration Act 42 of 1965

The Arbitration Act 42 of 1965 (the Arbitration Act) was the only arbitration legislation in South Africa until the enactment and promulgation of the International Arbitration Act in 2017. The Arbitration Act is now applicable to domestic arbitrations only. It has been suggested by practitioners and academics that it requires amendment in order to modernise it to make it more suitable for the domestic practice of arbitration in South Africa in the modern age. To date, however, there have been no significant changes in the national arbitration law.

Legal Requirements for an Enforceable Arbitration Agreement

The legal requirements for an arbitration agreement to be enforceable under the laws of South Africa are the same as the requirements for the validity and enforceability of a contract. This is determined at common-law level in accordance with South Africa’s contract law principles. The six legal requirements are:

  • there must be consensus, or an intention to contract or enter into the arbitration agreement, amongst the parties;
  • the parties to the contract must all have had legal capacity to enter into the contract;
  • all formalities must be complied with – this usually does not include the requirement to reduce the agreement to written form, since oral agreements are valid in South African law; however, it is a requirement for an arbitration agreement (especially in international arbitrations) to be in writing in order to satisfy the requirements of Article II of the New York Convention, which have also been incorporated into South African law through the adoption of Article 7(2) of the UNCITRAL Model Law;
  • legality – the purpose of the agreement must be legal and it must not fall foul of South African public policy;
  • possibility – performance under the contract must be possible; and
  • certainty – the contract must have definite or determinate content, so that the commitments can be enforced.

If an arbitration agreement can be shown to meet all of these requirements, it will constitute a valid and enforceable agreement in terms of South African law.

Arbitrability under the Governing Law

Section 7 of the International Arbitration Act sets out the matters that are subject to international commercial arbitration in South Africa. While they are described in broad terms, it is clear from this section that certain matters are not capable of determination by arbitration and that one such instance of this occurs when the arbitration agreement is deemed contrary to public policy in South Africa.

In terms of Article 34(2)(b) of the UNCITRAL Model Law, the general legal principles on arbitrability set out at section 7 of the International Arbitration Act are extended and it is noted that a South African court may set aside any award that falls foul of these arbitrability requirements.

In terms of section 2 of the Arbitration Act, a reference to arbitration shall not be permissible in respect of any matrimonial cause or any matter incidental to any such cause and any matter relating to status.

General Approach to Arbitrability in South Africa

Aside from the statutory provisions referred to above, South African common law also applies with regard to the approach on arbitrability. Any matter relating to the status of an individual or that raises any public policy concerns will, at common law, be subject to additional scrutiny and will need to be decided by the South African judiciary.

Approach of the National Courts with Respect to the Enforcement of Arbitration Agreements

Arbitration agreements are protected under the common law and by the Arbitration Act. In terms of the common law, no party may cancel the agreement to refer the matter to arbitration without just cause. Section 3 of the Arbitration Act states that an arbitration agreement may only be terminated by consent of all the parties to the agreement, unless the agreement provides otherwise.

It is well-established that an arbitration clause does not exclude the court’s jurisdiction. Both in terms of the common law and the Arbitration Act, a court has a discretion whether to uphold an arbitration clause or not. The party wishing to avoid arbitration bears the onus of proving that there is “good cause” or “sufficient reason” as to why the arbitration agreement should not be enforced.

Case law shows that this burden is not easily discharged, and the discretion of the court is seldom exercised. South African jurisprudence on this point has, to a large extent, been informed by English law principles, which remain part of the law. For example, in Russell v Russell 1880 14 ChD 471, the court stated that the cases in which the discretion against arbitration should be exercised were few and exceptional. Examples of instances where a court has exercised its discretion to set aside an arbitration agreement include where a defendant’s counterclaim affects a third party who is not subject to the arbitration agreement, and when allegation(s) of fraud have been made.

The courts have not adopted a single definition for “good cause.” Courts have stated that only in a “very strong case” will the discretion be employed but they have not defined what a “very strong case” entails. What is clear is that the facts and circumstances surrounding the matter will determine whether the court should employ its discretion in this regard.

The Principle of Severability (or Separability)

South African law recognises the principle of severability (or separability) when it comes to the validity and/or legality of contractual provisions. As such, if portions of an agreement are invalid or illegal, those portions of the agreement will be disregarded and the remaining, enforceable, provisions will remain.

Severability at Common Law

At common law, it is accepted that the fundamental principle to be applied when it comes to severability is the probable intention of the parties “as it appears in, or can be inferred from, the terms of the contract as a whole”. In determining the probable intention of the parties, consideration will be given to whether:

  • the objectionable provision is grammatically or notionally distinct from the rest of the agreement;
  • the objectionable provision is subsidiary to the main purpose of the agreement; and
  • the parties would have entered into the agreement without the provision.

If the answer to all of these questions is in the affirmative, then a court will find in favour of severability.

To the extent that the offending provisions strike at the root of the agreement such that the agreement will be meaningless without them, the agreement will be considered void ab initio and none of the provisions will be actionable, including the arbitration agreement, unless the parties expressly provide otherwise. This was re-affirmed in a recent Supreme Court of Appeal case: Namasthethu Electrical (Pty) Ltd v City of Cape Town and Another [2020] ZASCA 74 (29 June 2020).

Validity under the UNCITRAL Model Law

The above should also be read together with Article 16(1) of the UNCITRAL Model Law, which provides that an arbitral tribunal “may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement”. Based on this provision, it is possible that an arbitral tribunal will find the arbitration agreement to be independent of the other terms of the contract and therefore the arbitration agreement may survive in instances where the rest of the contract is invalid or illegal.

In terms of Article 11(2) of the UNCITRAL Model Law, the parties are afforded full autonomy to select arbitrators, subject to deadlock procedures and other agreed appointment procedures. In this regard, see the default procedures in 4.2 Default Procedures.

Articles 11(3) and 11(4) of the UNCITRAL Model Law set out the procedures for the appointment of arbitrators where the parties are unable to agree either at all or under a set appointment procedure. In both instances, the appointment may be referred to the High Court of South Africa for determination in accordance with the applicable Article, as read with Article 6 of the UNCITRAL Model Law.

In multi-party arbitrations, there is no specific default procedure to be applied, but the procedures set out at Articles 11(3) and 11(4), as read with Article 6, of the UNCITRAL Model Law are broad enough to assist parties in this regard.

Extent of Court Intervention in the Selection of Arbitrators

Article 5 of the UNCITRAL Model Law provides that no court shall intervene in international arbitration proceedings except where permitted in terms of the International Arbitration Act and the Model Law.

As set out in 4.2 Default Procedures, Articles 11(3) and 11(4) of the UNCITRAL Model Law allow for court intervention in the appointment of arbitrators where the parties are unable to agree either at all or under a set appointment procedure.

Limitation on a Court’s Power to Intervene

Other than the general limitation set out above, there are no specific limitations on a court’s power to intervene. However, it should be noted that the powers given to the courts by the International Arbitration Act and the UNCITRAL Model Law are narrow in their scope of application and are only applicable in the absence of agreement or failure by parties to agree to the appointment of arbitrators, as allowed in terms of the Act and Model Law.

Grounds for Challenge of Arbitrators

The grounds for challenging arbitrators are set out at Article 12 of the UNCITRAL Model Law. These include:

  • any grounds giving rise to justifiable doubts as to his or her independence or impartiality; and
  • if he or she does not possess the requisite qualifications agreed to by the parties.

It is important to note that these grounds may only be raised based on reasons of which either party became aware after the appointment of the arbitrator. Further, the test for “justifiable doubts” requires that substantial grounds contending reasonable apprehension of bias by a reasonable person must be set out.

Procedure for Challenge of Arbitrators

The procedure for challenging arbitrators is set out at Article 13 of the UNCITRAL Model Law and allows for parties to agree to the procedure to be followed. Failing agreement, the party wishing to challenge an arbitrator must do so within 15 days after becoming aware of any ground for challenge and must send written reasons to the tribunal. In the event that the challenge is unsuccessful, the party challenging the arbitrator may approach the High Court of South Africa to pronounce on the determination. That determination will be final and is not subject to any appeal.

In terms of Article 12(1) of the UNCITRAL Model Law, a person who is approached to be an arbitrator must disclose any circumstances likely to give rise to justifiable doubts as to his or her impartiality or independence. The obligation to remain impartial and independent exists throughout the arbitrator’s tenure and the arbitrator is under an obligation to disclose any circumstances that may arise which may compromise his or her impartiality.

Rule 17.1 of the AFSA International Arbitration Rules provides for the impartiality and independence of the arbitral tribunal and Rule 17.2 makes provision for an arbitrator to disclose immediately to the Secretariat any circumstances likely to give rise to justifiable doubt as to his or her independence or impartiality after appointment.

Common Law

At common law, criminal matters, matters relating to an individual’s status, including matrimonial matters, and matters raising public policy concerns are excluded from arbitration.

International Arbitration Act

Section 7 of the International Arbitration Act, as read with Article 34(2)(b) of the UNCITRAL Model Law, deals with arbitrability and matters that are excluded from arbitration.

Arbitrability

See 3.2 Arbitrability.

Article 16 of UNCITRAL Model Law empowers an arbitral tribunal to rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement.

International Arbitration Act

Article 5 of UNCITRAL Model Law provides that no court shall intervene in matters governed by the UNICITRAL Model Law except where so provided in the UNICITRAL Model Law.

In terms of Article 16(3) of the UNCITRAL Model Law, a court may be requested to decide on the jurisdiction of the arbitral tribunal, which decision shall be subject to no appeal.

In terms of Article 34(1) and (2)(iii) of the UNCITRAL Model Law, a party may apply to a court for the setting aside of an arbitral award where that award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration or contains decisions on matters beyond the scope of the submission to arbitration. A court can set aside only that part of the award which contains decisions on matters not submitted to arbitration.   

Arbitration Act

In terms of section 33(1)(b) of the Arbitration Act, a court may set aside an award by the arbitral tribunal where the tribunal has exceeded its powers. Courts are generally reluctant to interfere where the parties have agreed to resolve disputes by arbitration, but will deal with a challenge on jurisdiction. However, in instances where the parties have agreed that an arbitral tribunal may determine its own jurisdiction, courts will be reluctant to intervene in jurisdictional issues. South African courts do not review negative rulings on jurisdiction of their own accord and will only do so if requested to by a party. Such a review must then be conducted in accordance with the provisions of the relevant governing legislation.

In terms of section 3(2)(c) of the Arbitration Act, a court may at any time on the application of any party to an arbitration agreement, on good cause shown, order that the arbitration agreement shall cease to have effect with reference to any dispute referred to therein.

In terms of Article 16(3) of the UNCITRAL Model Law, if an arbitral tribunal rules on its jurisdiction, an aggrieved party may request a court to decide on the tribunal’s jurisdiction. A party launching such a court challenge must do so within 30 days of receipt of the arbitral tribunal’s ruling.

The standard of judicial review in South Africa is deferential in respect of questions of admissibility and jurisdiction.

International Arbitration Act

In terms of Article 8 of the UNCITRAL Model Law, a court before which an action that is the subject of an arbitration agreement is brought may, on request, stay the proceedings and refer the parties to arbitration. An exception to this will be if the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed. 

Arbitration Act

The courts have held that an agreement by the parties to refer a matter to arbitration should be respected. If a party commences court proceedings in breach of an arbitration agreement, an opponent may apply to the court in terms of section 6 of the Arbitration Act to stay the court proceedings so that the dispute can be referred to arbitration. Alternatively, in action proceedings, a party may raise a special plea contending that the dispute before a court should have been referred to arbitration instead and thus potentially attain a stay of further proceedings.

However, in terms of section 3 of the Arbitration Act, courts have a discretion to bypass the arbitration clause. Such a discretion must be judicially exercised and the courts will exercise it in instances where there are allegations of fraud, where the arbitrator is not to be trusted or is incapable of giving a decision and where there has been misconduct on the part of the arbitrator. The courts may also exercise their discretion against arbitration where all the parties to the dispute or with an interest in the dispute are not parties to the arbitration agreement, with the result that arbitration may lead to a multiplicity of proceedings, with the danger of conflicting decisions and increased costs. The court may also exercise its discretion in refusing to refer a matter to arbitration where the issue between the parties is exclusively a question of law.

An arbitral tribunal may only assume jurisdiction over individuals or entities that are neither parties to an arbitration agreement nor signatories to the contract containing the arbitration agreement if those parties agree to this. 

In the absence of agreement, an interested party may request a court to bypass an arbitration agreement on the basis that not all the parties to the dispute or with an interest in the dispute are parties to the arbitration agreement. Such an order may be sought where different arbitration proceedings may lead to a multiplicity of proceedings, with the risk of conflicting decisions and increased costs.

Article 17(1) of the UNCITRAL Model Law empowers arbitral tribunals to order interim measures, unless otherwise agreed by the parties, for temporary measures, including in respect of procedural issues necessary to ensure ripeness for hearing, such as separating issues or compelling the filing of submissions. A party seeking interim relief should first satisfy the arbitral tribunal that (i) it will suffer harm that cannot be repaired by an award of damages and that is substantially greater than the harm that the party against whom the interim measure is claimed will suffer; and (ii) there is a reasonable possibility that the party will succeed on the merits of the claim. The interim measures will be binding and enforceable against the other party upon application to a competent court.

International Arbitration Act

Article 17J of the UNCITRAL Model Law empowers courts to grant interim relief. The courts, however, are only allowed to grant interim relief where (i) a tribunal has not yet been appointed and the matter is urgent; (ii) the tribunal is not competent to grant the order; or (iii) the urgency of the matter makes it impractical to seek the relief from the tribunal.

Foreign-seated arbitrations fall under the definition of international arbitrations under Article 1(3)(ii) of Article 17J of the UNCITRAL Model Law. In this regard, Article 17J above would apply to any such foreign-seated arbitrations.

Under Article 17J of the UNCITRAL Model Law, the courts can grant the following interim relief:

  • orders for the preservation, interim custody or sale of any goods which are the subject-matter of the dispute;
  • orders securing the amount in dispute but not an order for security for costs;
  • orders appointing liquidators;
  • other orders to ensure that any award which may be made in the arbitral proceedings is not rendered ineffectual by the dissipation of assets by the other party; or
  • interim interdicts or other interim orders.

Arbitration Act

Section 21(1)(f) of the Arbitration Act empowers courts to make orders in respect of an interim relief. An arbitration agreement does not oust the jurisdiction of a court. Accordingly, a party that wishes to obtain interim relief may elect to approach either an arbitral tribunal or a court. The choice of forum will depend on effectiveness based on circumstances that warrant interim relief. 

In terms of section 21 of the Arbitration Act, the courts are empowered to grant the following interim relief:

  • security for costs;
  • discovery of documents and interrogatories;
  • the examination of any witness before a commissioner in the Republic or abroad and the issue of a commission or a request for that examination;
  • the giving of evidence by affidavit;
  • the inspection or the interim custody or the preservation or the sale of goods or property;
  • an interim interdict or similar relief;
  • securing the amount in dispute in the reference;
  • substituted service of notices required by this Act or of summonses; and
  • the appointment of a receiver.

Emergency Arbitrators

Neither the International Arbitration Act nor the Arbitration Act makes provision for the appointment of an emergency arbitrator. However, the applicable arbitration rules may provide for an expedited process for resolving urgent issues or disputes. Whether or not the emergency arbitrator’s decision will be binding or merely a recommendation will depend on the applicable rules and/or the agreement of the parties. The appointment of an emergency arbitrator, to the extent permissible, will not oust the jurisdiction of the courts.

Article 17(2)(e) of the UNCITRAL Model Law empowers an arbitral tribunal to make an interim award for security of costs, but the arbitral tribunal is only allowed to make the award against a claiming or counter-claiming party. Furthermore, Article 17J(1)(b) expressly states that the courts’ power to grant interim relief does not include security for costs.

Procedural issues in international arbitrations are subject to agreement between the parties. This is guaranteed by Article 19 of the UNCITRAL Model Law. In the absence of agreement, the International Arbitration Act empowers arbitral tribunals to make rulings on procedural issues, taking the UNCITRAL Model Law into consideration.

The most commonly used arbitration rules in South Africa are the following:

  • AFSA’s Arbitration Rules;
  • the AASA’s Arbitration Rules;
  • the UNCITRAL Arbitration Rules;
  • the ICC Arbitration Rules; and
  • the LCIA Arbitration Rules.

No specific procedural steps are required by law in South Africa. As previously mentioned, Article 19 of the UNCITRAL Model Law provides the parties with autonomy to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings.

The International Arbitration Act enables an arbitral tribunal to:

  • rule on its own jurisdiction;
  • grant interim measures;
  • conduct the arbitration in a manner that it considers appropriate if the parties fail to agree on a procedure;
  • determine the judicial seat of the arbitration if the parties fail to agree on the judicial seat; and
  • decide whether it is necessary to hold oral hearings for presentation of oral arguments.

Specific Qualifications for Appearing in South Africa

In terms of section 25 of the Legal Practice Act 28 of 2014 (the Legal Practice Act), a legal practitioner who is enrolled and practising as an advocate or an attorney has the right to appear on behalf of any person before any board, tribunal or similar institution. In order to be enrolled and admitted as a legal practitioner, the person must either be a South African citizen or permanent resident in South Africa (see section 24 of the Legal Practice Act).

Position under the International Arbitration Act

The International Arbitration Act is silent on the qualifications or requirements needed for legal representatives appearing in international arbitrations seated in South Africa. It is likely that the consent of the parties would be sufficient in order for legal representatives from any legal background to be appointed. However, given that the procedural law for an arbitration seated in South Africa is South African law, legal representatives would need to comply with the provisions of the Legal Practice Act in order to appear before the South African courts (for example, to obtain court-ordered interim measures).

General

There are no specific provisions in the International Arbitration Act requiring disclosure of all relevant documents by the parties to an arbitration, as is the case in South African court proceedings.

The UNCITRAL Model Law

Article 19(1) of UNCITRAL Model Law provides that the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings and, in the absence of such an agreement, the tribunal may conduct the arbitration as it considers appropriate, subject to the provisions of the International Arbitration Act and the UNCITRAL Model Law. These powers include the power to determine the admissibility, relevance, materiality and weight of any evidence.

The UNCITRAL Model Law does not contain any provisions on disclosure of documents by a party to the other parties and/or the arbitrator, privilege, use of witness statements or cross-examination. These aspects are all subject to the parties’ agreement and, failing agreement, to the discretion of the tribunal to conduct the arbitration as it considers appropriate.

Practice

As previously mentioned, there are several administering bodies based in South Africa, each of which has their own procedural rules. For example, where parties have agreed that their dispute will be administered by AFSA (one of the most prevalent South African arbitration institutions) and the arbitration is an international arbitration, AFSA’s International Rules would apply. These rules provide the following in relation to the procedural approach to the collection and submission of evidence:

  • if either party believes that there are documents in the other party’s possession, custody or control that are relevant to the issues in dispute, it may request copies of those documents, which shall be provided (and a party can apply to the tribunal to direct the other party to provide those documents), unless:

(a)       the disclosure is prohibited by legal privilege or some other legal impediment under the legal or ethical rules determined by the tribunal to be applicable;

(b)       it would be unreasonable and inappropriate to require any disclosure;

(c)       loss or destruction of the document has been reasonably shown to have occurred;

(d)       there are compelling grounds of commercial or technical confidentiality;

(e)       there are compelling grounds of special potential or institutional sensitivity; or

(f)       it would be disproportionate to compel disclosure, having regard to the nature, relevance and quantity of the documents and the relief and issues in dispute;

  • witnesses called to give evidence at a hearing may be heard subject to any such conditions as may be directed by the tribunal, which may include the prior submission of signed statements containing the substance of their testimony;
  • the tribunal has the power to determine the admissibility, relevance, materiality and weight of the evidence.

It is also common in South African-seated arbitrations for parties to agree to apply the South African Uniform Rules of Court, subject to certain agreed adjustments. In the event that the South African Uniform Rules of Court are utilised, Rule 35, pertaining to discovery, will ensure that the parties make full and complete discovery of all relevant documents and recordings pertaining to the case. Relevance is an elastic concept, which is ascertained with regard to the background and nature of the dispute in question.

The rules of evidence applicable to international arbitrations seated in South Africa are derived from South African common law and the Law of Evidence Amendment Act 45 of 1988. These are the same rules of evidence that are applicable to domestic matters. In addition, parties and tribunals may also look to softer forms of law (eg, the IBA Rules on the Taking of Evidence in International Arbitration) for guidance on points not covered by the South African laws on evidence. As always, the rules of evidence may be agreed to by the parties and/or incorporated into the parties’ arbitration agreement.

In terms of Article 27 of the UNCITRAL Model Law, an arbitral tribunal or a party to the arbitration (with the approval of the tribunal) may request a Registrar of the division of the High Court, or the clerk of a Magistrate’s Court in whose jurisdiction the arbitration takes place, to exercise their powers to issue a subpoena to compel the attendance of a witness before a tribunal in order to give evidence or produce documents. Failure to comply with a subpoena without reasonable excuse is an offence.

The High Court uses the same powers as it has for the purposes of civil proceedings before the High Court to make an order for the issue of a commission or request for taking evidence outside of its jurisdiction ie, where a witness is not located in South Africa.

As previously mentioned, Article 17J of the UNCITRAL Model Law allows for court-ordered interim measures, which may include, for example, an order for the preservation and/or custody of evidence. Further, Chapter IVA of the UNCITRAL Model Law sets out the position in relation to interim measures in general, with Article 17 setting out the power of an arbitral tribunal to order interim measures, including:

  • maintaining or restoring the status quo pending determination of the dispute;
  • preserving evidence that may be relevant and material to the resolution of the dispute; and
  • preserving assets.

Arbitration Between Private Parties

The International Arbitration Act is silent on the issue of confidentiality between private parties to an arbitration agreement. Nevertheless, as a general common-law principle of contract law, parties may agree on the confidentiality of arbitral proceedings in their arbitration agreement. To the extent that they do, this will be valid and binding between those parties, but not on third parties. In cases in which the parties wish for third parties (eg, fact or expert witnesses) to maintain confidentiality, this will need to be ensured through the conclusion of a separate written confidentiality agreement. The AFSA Arbitration Rules provide that arbitrations are to be held privately as a default position.

Arbitrations Involving Public Bodies

Section 11 of the International Arbitration Act provides that, where a public body is a party to arbitration proceedings, these proceedings will be public unless the arbitral tribunal finds that there are compelling reasons to direct otherwise.

The International Arbitration Act further provides that, if the arbitration is held in private, the award and all documents created for the arbitration (which would include pleadings, witness statements and the like) which are not in the public domain must be kept confidential by the parties and tribunal, except where the disclosure of such documents may be required by reason of a legal duty or to protect or enforce a legal right.

International Arbitration Act

In terms of Article 23 of the UNCITRAL Model law, an arbitral award must:

  • be in writing;
  • be signed by the arbitral tribunal;
  • state the reasons upon which it is based (unless the parties have agreed that no reasons shall be given);
  • state its date and the juridical seat of arbitration; and
  • be delivered to all parties (a copy will suffice).

No time-limits for the delivery of the award are stipulated in terms of the International Arbitration Act.

Arbitration Act

In terms of section 23 of the Arbitration Act, the award must be delivered, unless the arbitration agreement states otherwise: 

  • in the case of an award by an arbitrator or arbitrators, within four months after the date on which that arbitrator or arbitrators entered on the reference or alternatively the date on which the arbitrator was called upon in writing to act, whichever is the earlier date; and
  • in the case of an award by an umpire, within three months, after the date on which he or she entered onto the record or alternatively the date of the notice calling on him or her to act, whichever is the earlier.

The parties may agree to extend the period for delivery of the award, which agreement shall be in writing. Alternatively, a court may, upon application to it, extend the time period for making an award. 

Provided that the subject-matter of the arbitration is arbitrable and that there are no public policy concerns, an arbitral tribunal may award any remedy available to it based on the governing law of the agreement between the parties. Accordingly, relief can include damages, specific performance, final interdicts (injunctions), declaratory orders, costs and interest. As a general point of law, punitive damages will not be awarded and/or enforced under South African law.

The remedies are determined with reference to the arbitration agreement, the nature of the dispute and the relief sought by the parties.

Recovering Interest

Article 31(5) of the UNCITRAL Model Law provides that a tribunal may award interest on such a basis and on such terms as the tribunal considers appropriate and fair in the circumstances, also having regard to the currency in which the award was made, commencing not earlier than the date on which the cause of action arose and ending not later than the date of payment.

In terms of section 29 of the Arbitration Act, parties are entitled to recover interest at either an agreed rate or, alternatively, if no rate has been agreed between the parties, the amount is calculated in accordance with the Prescribed Rate of Interest Act 55 of 1975.

Recovering Legal Costs

The issue of costs is at the discretion of the arbitration tribunal (unless the parties agree otherwise). Generally, in line with the South African law position, costs are awarded in favour of the successful party.

In terms of Article 31(6) of the UNCITRAL Model Law, an arbitral tribunal is entitled to pronounce upon:

  • the party entitled to costs;
  • the party which shall be liable for those costs;
  • the amount of those costs or the method of determining that amount; and
  • the manner in which those costs are to be paid.

Appeal by Agreement Only

Unless the arbitration agreement provides otherwise, an arbitration award is final and binding and not subject to appeal on the merits. Each party to the arbitration must abide by and comply with the award in accordance with its terms.

The parties may vary this general position to cater for an appeal on any agreed grounds, as contemplated in section 28 of the Arbitration Act. In line with international best practice, the International Arbitration Act does not cater for an appeal. This, of course, does not prohibit the parties from agreeing to an appeal mechanism in their arbitration agreement.

Setting an Award Aside

In the absence of an appeal mechanism, the only method of disposing of a defective award is to have it set aside. In terms of Article 34 of the UNCITRAL Model Law, a court application for setting aside an award is the exclusive recourse against an arbitral award.

An arbitral award can only be set aside if the party making application to the court proves that:

  • a party to the arbitration agreement lacked capacity to contract under the applicable law;
  • the arbitration agreement is invalid under the applicable law, or in the absence of an agreement on the governing law, under South African law;
  • the party making the application did not receive the required notice of the appointment of the arbitrator or of the arbitral proceedings, or was otherwise unable to present its case;
  • the award addresses issues falling outside the reference to arbitration (however, if capable of being separated, those matters falling within the scope of the agreement will not be set aside); or
  • the tribunal was constituted in contravention of the agreement between the parties.

Alternatively, an arbitral award can be set aside if a court finds that:

  • the subject-matter of the dispute is not capable of settlement by arbitration under South African law; or
  • the award is in conflict with public policy.

Under Article 34(5) of the UNCITRAL Model Law, an award is in conflict with public policy if:

  • a breach of the arbitral tribunal’s duty to act fairly occurred in connection with the making of the award and caused or will cause substantial injustice to the applicant; or
  • the making of the award was induced or affected by fraud or corruption.

Parties can agree to expand or exclude the scope of appeal or challenge under national law. There are no grounds of appeal available without express agreement between the parties.

The standard of judicial review in South Africa is deferential to the merits of a case. In reviewing an arbitration award, if it can be shown that:

  • any member of an arbitration tribunal has misconducted himself or herself in relation to his or her duties as arbitrator;
  • an arbitration tribunal has committed any gross irregularity in the conduct of the arbitration proceedings or has exceeded its powers; or
  • an award has been improperly obtained,

the court may, in accordance with section 33 of the Arbitration Act and on the application of any party to the arbitrator after due notice to the other party/parties, make an order setting the award aside.

Accession to the New York Convention

South Africa acceded to the New York Convention on 3 May 1976 without any reservations.

Incorporation of the New York Convention into South African Law

Given that the Arbitration Act contained no express provisions dealing with international arbitration in South Africa, the Recognition and Enforcement of Foreign Arbitral Awards Act 40 of 1977 was enacted to cater specifically for the enforcement of international arbitration awards in South Africa. This piece of legislation largely mirrored the provisions of the New York Convention and remained in force until it was repealed following the enactment of the International Arbitration Act. By virtue of Chapter 3, as read with Schedule 3 of the International Arbitration Act, the New York Convention remains a part of South African law.

Procedures and Standards for Enforcing an Award in South Africa

Chapter 3 of the International Arbitration Act deals with the recognition and enforcement of arbitration agreements and foreign arbitral awards.

The procedure for enforcing an award in South Africa is relatively simple and is set out at section 17, as read with section 18, of the International Arbitration Act. The party seeking to enforce the award must make an application on notice to the High Court of South Africa, setting out the grounds for the application. In doing so, the party seeking recognition and enforcement must produce evidence. The applicant must therefore provide the following:

  • the original award and the original arbitration agreement in terms of which the award was made, duly authenticated, or a certified copy of that award and of that agreement; and
  • if in a foreign language, a sworn translation of the arbitral award and arbitration agreement into an official South African language, duly authenticated.

The court may accept other documentary evidence regarding the existence of the foreign arbitral award and arbitration agreement as sufficient proof where the court considers it appropriate to do so.

In terms of section 18 of the International Arbitration Act, the South African courts may refuse to recognise or enforce a foreign arbitral award on the same grounds as those listed in Article V of the New York Convention. Section 18 of the International Arbitration Act is a restatement of Article V of the New York Convention.

Awards that Have Been Set Aside at the Seat

If an award has been set aside at the seat of the arbitration, it will not be capable of being recognised and enforced in South Africa. This is because it will not meet the recognition and enforcement criteria set out in section 17 of the International Arbitration Act. Where there is no evidence of a final award, the party seeking to enforce it in South Africa will be unable to do so. It would also be contrary to South African public policy to enforce an award that has been set aside. The public policy defence is catered for in terms of section 18(1)(b) of the International Arbitration Act.

Sovereign Immunity

The state or a state entity would only be able to raise the defence of sovereign immunity in circumstances where it is clear that the state or state entity did not intend to conclude an arbitration agreement or to enter into arbitration proceedings. As a general principle of the law of contract, if a state entity voluntarily concludes an arbitration agreement, it would be held to that agreement by the South African courts. It may be for this reason that the option for state entities to conclude arbitration agreements has specifically been carved out in legislation. For example, section 13(4) of the Protection of Investments Act 22 of 2015, provides that the “government may consent to international arbitration in respect of investments covered by this Act, subject to the exhaustion of domestic remedies”.

General Approach toward the Recognition and Enforcement of Arbitration Awards

As set out above, section 16 of the International Arbitration Act stipulates that foreign arbitral awards are deemed to be recognised and enforceable in the South Africa and a party may, on application, have a foreign arbitral award declared an order of court, which is enforceable in the same manner as any judgment or order of court.

At domestic law level, section 31 of the Arbitration Act empowers the South African courts to make an arbitration award an order of court upon application by one of the parties. In instances where there is a patent clerical error or mistake arising from any accidental slip or omission, the court is empowered to correct any such error or mistake prior to making the award an order of court.

In some instances, the South African courts have applied section 33(1)(b) of the Arbitration Act with a view to setting aside an award on the grounds of gross irregularity. This happened in Palabora Copper (Pty) Ltd v Motlokwa Transport & Construction (Pty) Ltd [2018] ZASCA 23, where, at paragraph [8], the following was stated:

It suffices to say that where an arbitrator for some reason misconceives the nature of the enquiry in the arbitration proceedings with the result that a party is denied a fair hearing or a fair trial of the issues that constitutes a gross irregularity. The party alleging the gross irregularity must establish it. Where an arbitrator engages in the correct enquiry, but errs either on the facts or the law, that is not an irregularity and is not a basis for setting aside an award. If parties choose arbitration, courts endeavour to uphold their choice and do not lightly disturb it. The attack on the award must be measured against these standards

Refusal to Enforce Foreign Arbitral Awards on Public Policy Grounds

Being a common-law jurisdiction, South Africa adopts a similar approach to the public policy defence as those raised in other common law jurisdictions, eg, England and Wales. To this end, the public policy defence is upheld sparingly and only in the most compelling of circumstances. This assists in controlling the application of this defence that has so often been described as an “unruly horse”.

In Cool Ideas 1186 CC v Hubbard and Another [2014] ZACC 16, the Constitutional Court set aside an arbitral award on the grounds of public policy. This was a rare example of a successful challenge to an arbitral award on the ground of public policy. The court, in this case, declined to enforce an arbitral award because to do so would allow it would be contrary to a statutory prohibition (because it would allow a builder not registered in terms of the Housing Consumers Protection Act 95 of 1998 to claim compensation, which it should be prohibited from doing).

It can therefore be said that the public policy defence may be raised successfully in circumstances where the most egregious breaches of public policy are committed or where there will be a significant impact on a particular (and potentially vulnerable) class of persons in South African society.

South African legislation does not specifically exclude class-action arbitration or group arbitration.

Class Actions Referred to Arbitration

In South Africa, to date, there have been no class actions referred to arbitration for determination. Class actions in South Africa need to be certified following an application to court to proceed as such. It is conceivable that once a class has been certified with the leave of the court, there would be no prohibition on the parties agreeing to have the issues determined by arbitration. This would be achieved by a written arbitration agreement in terms of which an arbitrator (or panel of arbitrators) is appointed to adjudicate the dispute and make a ruling that is final and binding (unless a right of appeal is agreed).

Group Arbitration

It is interesting to note that in South Africa an arbitral tribunal decided a group arbitration involving the Gauteng Department of Health and parties affected by the deaths of mentally ill patients at the Life Esidimeni Health Care Centre. This was a statutorily appointed body.

Counsel – Advocates and Attorneys

South African counsel, as officers of the High Court, are required to act in accordance with high standards of ethical conduct. These are contemplated in the Legal Practice Act and its associated code of conduct. In addition, if counsel, as advocates, are members of the Bar Council in their province, they are required to act in accordance with the Bar Council of South Africa’s uniform rules of professional ethics, as prescribed.

Arbitrators

Arbitrators’ ethical codes are subject to the provisions of the International Arbitration Act and the Arbitration Act. Further, since many arbitrators in South Africa are usually also advocates, they are further required to adhere to their professional prescribed standards of ethical conduct.

Third-party funding is permitted in South Africa. However, it is presently not regulated. Civil case law may be instructive with respect to third-party funding in arbitral proceedings.

Section 10 of the International Arbitration Act states that parties to an arbitration agreement may agree that the arbitral proceedings be consolidated with other arbitral proceedings. The tribunal is not empowered to order consolidation in the absence of agreement by the parties.

There is no similar provision within the Arbitration Act permitting the consolidation of domestic arbitral proceedings. It therefore stands to reason that a South African court would not be able to consolidate arbitration proceedings without the consent of the parties.

Arbitration Agreement

Third parties may not be bound by an arbitration agreement in South Africa unless they agree to be bound. While a South African court has a wide discretion to make any order it deems reasonable and justifiable within the bounds of the law (and therefore, in theory, could bind a foreign third party to an arbitration agreement), the courts have proven themselves to be respectful of arbitration and have therefore not made such an order.

Arbitration Award

In general, foreign third parties will also not be bound by an arbitration award, unless that third party consents to be bound, in which case a South African court may enforce that consent through the recognition and enforcement of the award.

Bowmans

11 Alice Lane
Sandton
Johannesburg
South Africa

+27 11 669 9000

+27 11 669 9001

info-jhb@bowmanslaw.com www.bowmanslaw.com
Author Business Card

Trends and Developments


Authors



Bowmans has over 400 lawyers and delivers integrated legal services throughout Africa from nine offices in seven countries. Everywhere it operates, Bowmans offers a service that uniquely blends expertise in the law, knowledge of the local market and an understanding of clients’ businesses. The firm’s aim is to assist its clients (including corporates, multinationals and state-owned enterprises across a range of industry sectors, as well as financial institutions and governments) to achieve their objectives as efficiently as possible while minimising the legal and regulatory risks. As a pan-African firm, Bowmans works closely with its alliance firm in Ethiopia and best friends in Nigeria and Mozambique. It has strong relationships with other leading law firms in Africa and is a representative of Lex Mundi, a global association of more than 160 independent law firms.

What Makes South Africa a “Safe” Arbitral Seat?

Introduction

With the relatively recent introduction of comprehensive and modernised legislation regulating international commercial arbitration, South Africa has positioned itself as a safe and strategic seat for international arbitration proceedings, both in sub-Saharan Africa and internationally. At the same time, challenges relating to accessibility and safety have receded as advances in technology and the digitisation of arbitration and court processes have made arbitration proceedings seated in South Africa, and any ancillary court-based processes, safer and more efficient.

Historically, there have been concerns, both in South Africa and abroad, that South Africa is not a safe seat for international commercial arbitration. In part, these concerns arose out of dissatisfaction with the manner in which the Arbitration Act 42 of 1965 regulated (or rather, failed to regulate specifically) the procedural rules applicable to international arbitrations seated in South Africa. Until the promulgation of the International Arbitration Act 15 of 2017 (the International Arbitration Act or the Act), arbitration proceedings seated in South Africa were not aligned with the UNCITRAL Model Law. This increased the risk of arbitral awards handed down in South Africa being set aside by foreign courts as procedurally defective and, more generally, created a barrier to entry for parties preferring to conduct their arbitration according to the UNCITRAL Model Law.

South Africa has been a signatory to the 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) since 1976. Despite this, the general procedural rules applicable to international arbitration were not housed in a standalone piece of legislation. Instead, they were rather loosely governed by local legislation covering certain issues such as enforcement only, for example through the Recognition and Enforcement of Foreign Arbitral Awards Act 40 of 1977 (the Recognition and Enforcement Act). This resulted in lingering uncertainty about how international arbitration proceedings would be regulated if seated in South Africa. The general sentiment amongst international arbitration practitioners, therefore, was that South Africa did not fully support international arbitration in the same manner as other jurisdictions and that its treatment of arbitration was considered to be more “domestic” in nature than “international” in its true sense. This perception, and the resultant uncertainty it generated in the international arbitration community, has largely been disposed of by the promulgation of the International Arbitration Act, which has removed any perceived or actual misalignment between South African procedural rules and international best practice. This has rejuvenated South Africa’s approach to international arbitration. Taken together with the modernisation of South Africa’s court processes and the ready adoption of virtual hearings, these developments (overall) make South Africa an increasingly safe seat for international arbitration. 

Assessing South Africa as a Safe Seat for International Arbitration

In recent years, international organisations such as the Chartered Institute of Arbitrator’s (CIArb) and Delos Dispute Resolution have articulated several useful principles and guidelines delineating the “safety” of a country as a seat for international arbitration. To this end, CIArb has published its London Centenary Principles, which are largely mirrored in Delos’ Guide to Arbitration Places. In essence, these guidelines focus on whether the legislative framework of a jurisdiction has adopted internationally recognised procedural rules and also consider the calibre of the jurisdiction’s legal system as a whole, which should include high-quality legal services, a competent judiciary that is pro-arbitration, and the institutions and infrastructure to ensure that arbitration is accessible and efficient. With the developments described above, South Africa now compares favourably with other jurisdictions, across Africa and further afield, when measured according to these standards and against the London Centenary Principles. 

Clear and effective international arbitration law

One of the most critical of the London Centenary Principles is that a safe seat is one which has “a clear, effective and modern International Arbitration law, which recognises and respects the parties’ choice of arbitration as the method for settlement of their disputes”.  Measured against this principle, South Africa now meets international best practice. South Africa’s International Arbitration Act has incorporated the UNCITRAL Model Law into South African law, ensuring greater procedural certainty and a decreased risk of foreign courts refusing to enforce awards made in arbitrations seated in South Africa on procedural grounds. The Act’s most notable adjustment to the UNCITRAL Model Law has been its narrowing of the power of South African courts to make broadly framed interim awards. This has been praised as a step forward from the historically perceived uncertainty created by the relatively wide jurisdiction and discretion previously afforded to domestic courts. As a matter of fact, while South African courts did enjoy a relatively wide discretion to intervene in arbitration proceedings, they rarely did so in practice. Nevertheless, the incorporation of the UNCITRAL Model Law into South African legislation is a welcome development, confirming that South Africa is an arbitration-friendly jurisdiction, and that arbitration will be supported by South African courts. This should engender a sense of comfort in parties participating in international arbitration proceedings seated in the country.

Parties should be comfortable because Schedule 1 of the Act incorporates the UNICTRAL Model Law into South Africa’s domestic code. As mentioned earlier, this formally limits the extent to which a South African court can intervene in international commercial arbitrations by enumerating a closed list of matters in which a court may assist, rather than interfere with, arbitration proceedings (see Articles 5 and 6 of Schedule 1 to the Act). The Act allows for local court assistance only in the event of the incapacity of a party, the invalidity of an arbitration clause, in proceedings relating to the appointment of arbitrators, including challenges to the appointment of an arbitrator, the termination of an arbitrator’s mandate, or the jurisdiction of the arbitral tribunal.

Independent judiciary and legal profession

Other key ingredients of a safe seat for arbitration identified by CIArb are an independent legal profession with expertise in international arbitration and an independent judiciary that respects parties’ choice of arbitration. South Africa meets both of these requirements. It has a well-developed legal profession with strong expertise in arbitration among pan-African commercial law firms as well as US- and UK- based multinational firms active in the country. The judiciary is strongly independent, and South African courts have an established track record of following a pro-arbitration, non-interventionist approach when asked to interfere in arbitration proceedings.

The procedural consistency and integrity of arbitrations held in South Africa is supported by the country’s sophisticated legal infrastructure, which includes law firms with international footprints, organising bodies like the Arbitration Foundation of Southern Africa (AFSA), and the availability of highly skilled arbitrators, many of whom are Senior Counsel (the equivalent of Queen’s Counsel) or, in some cases, former judges of the Constitutional Court, the Supreme Court of Appeal and the High Court.

In terms of the judiciary, the Constitutional Court, South Africa’s apex court, has confirmed the positive and necessary role of private arbitration in South Africa and has acknowledged that arbitration has several advantages compared to traditional court-based processes. The Constitutional Court has also confirmed arbitration as a dispute-resolution process that is consistent with the constitutional right affording access to courts (which includes access to redress in the resolution of disputes). In a judgment dealing with international arbitration specifically, South Africa’s Supreme Court of Appeal has highlighted “concerns of international comity, respect for capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for the predictability in the resolution of disputes” as considerations that support minimal judicial intervention, to preserve the autonomy of international arbitration proceedings. Based on these statements, and the protections afforded by the International Arbitration Act, it is fair to say that the risk of a South African court intervening to frustrate the conduct of an international arbitration seated in South Africa is extremely low. Intervention is likely only in the limited circumstances ordinarily contemplated by established international principles and best practice.

Recognition and enforceability of awards

A further determinant of whether a seat is safe is whether an arbitral award made at that seat will be enforceable in other jurisdictions. As already stated, South Africa is a party to the New York Convention, which provides for the recognition and enforcement of foreign arbitral awards. Chapter 3 of the International Arbitration Act gives force to the New York Convention without reservation. South Africa’s ratification of the New York Convention is important to the enforcement of South African international arbitral awards because Article I(3) of the New York Convention allows Contracting States to subject their obligations under the Convention to a “reciprocity reservation” limitation. This limitation allows a Contracting State to choose to withhold on the enforceability of an arbitral award that was made in a jurisdiction that is not a party to the New York Convention. South Africa’s accession to the New York Convention was a first step towards ensuring that South Africa would be perceived as an arbitration-friendly jurisdiction and as a safe seat. A second important step is the incorporation of obligations under international treaties in domestic legislation. While the Recognition and Enforcement Act failed to achieve this second step fully, the incorporation of treaty obligations into the International Arbitration Act (as a standalone piece of legislation dealing solely and specifically with international commercial arbitration in South Africa) should ensure, amongst other things, that even those Contracting States that impose a reciprocity reservation will enforce South African international arbitral awards. In our view, this legislative change makes South Africa a strong and safe seat for international arbitrations.

In this way, the promulgation of the International Arbitration Act in South Africa, which deals with the conduct and enforcement of international commercial arbitration in a single statute, brings South African law into line with the intent and purpose behind international law principles and treaties. This should support the enforcement of international arbitral awards (both South African-seated and foreign-seated) across jurisdictions. Indeed, the enforcement of South African international arbitral awards is now determined with reference to Article 35 and Article 36 of the UNCITRAL Model Law, as incorporated into South African law by section 6 of the International Arbitration Act. As a result, the distinction between a foreign arbitral award and a South African international arbitral award is no longer relevant when determining enforceability of the award. This should eliminate any uncertainty on the part of foreign parties over how the enforceability of South African arbitral awards will be determined. This means that parties can secure the benefits of seating their arbitration in South Africa while also benefiting from the protection and consistency of the UNCITRAL Model Law. This, given the broad use and international application of the Model Law, should give parties comfort and make South Africa a more attractive seat than it historically was.

Further, the International Arbitration Act’s adoption of global best practice regarding arbitration procedures by reference to the UNCITRAL Model Law has also increased procedural certainty, for the reasons set out above. In this way, the International Arbitration Act has clarified and finally codified South Africa’s approach to international arbitration. This has, in turn, disposed of perceived uncertainties and historical areas of discomfort that might previously have dissuaded parties from seating international arbitration proceedings in South Africa.

Accessibility and safety

While South Africa has historically been perceived as falling short in relation to accessibility and safety (one of the London Centenary Principles), the digitisation of South Africa’s courts and uptake of technologies facilitating remote hearings and e-discovery - which has been accelerated by the COVID-19 pandemic - has increased access both to arbitration proceedings held in South Africa and to South Africa’s courts in instances where parties to arbitration proceedings are required to approach them for relief. In this regard, South African courts have adapted quite quickly during the COVID-19 pandemic, conducting electronic hearings and case management processes efficiently and effectively.

This rapid uptake of digital court procedures has been valuable in several other respects. For example, it has demonstrated that the digital document management system that had been piloted in some courts before the COVID-19 pandemic is capable of handling electronic filing of court documents efficiently. This in turn means not only that parties need not be physically present to attend to court-related administrative tasks but also that documents forming part of court proceedings that relate to an international arbitration are more secure. The London Centenary principle on accessibility and safety requires adequate safety and protection of the participants and also of their documentation and information. Although, in South Africa, court documents are public records, the migration to electronic filing and storage will, in practice, result in greater control and monitoring of third-party access to those documents. This will be attractive to parties who are concerned about the confidentiality of their proceedings when a court is approached for interim measures.

The COVID-19 pandemic has also resulted in South African law firms and courts holding hearings using online teleconferencing platforms. This will significantly expand access to international arbitrations seated in South Africa as it becomes increasingly less essential for legal representatives, litigants and witnesses to convene at a single location. With the option of attending an arbitration by teleconference, parties are now able to enjoy the full benefits that follow from choosing South Africa as a seat for their international arbitration without the necessity of being physically present in South Africa.

Why South Africa?

If South Africa is, as we suggest, a credible, safe seat for international arbitration, the question then arises: why choose South Africa as a seat for arbitration instead of a more established seat like London, Paris or Geneva or other emerging centres for arbitration in the developing world?

With a South African arbitral seat, the arbitration proceedings will be governed by South African procedural law. South African procedural law and laws on evidence were largely imported from English law. They remain largely based on English law principles, subject to limited variations and the overarching application of the South African Constitution. Parties accustomed to conducting arbitrations in London, using English procedural laws or the laws of other common law jurisdictions, will find South African procedural law familiar. Parties are unlikely to be surprised by the procedural system in place, or to find it difficult to conduct proceedings with South African procedural law as the law of the seat of an arbitration.

A clear advantage that South Africa has over many other established seats is the competitive pricing of legal services as compared to the pricing of legal services in the developed world. South Africa’s institutional bodies offer world-class service in competition with international institutions and are generally much less congested than institutions such as the ICC and the LCIA. This makes case management in South Africa more efficient and therefore more attractive. At the same time, South Africa’s infrastructure and well-established legal profession give it a competitive advantage against other emerging centres with less developed economies and institutions. South Africa’s geographic location and the links established between South African firms and law firms in other African jurisdictions also commends South Africa as a seat where the dispute in question concerns commercial activity in sub-Saharan Africa, a region that is growing economically and has enjoyed an increase in foreign investment in recent years.

In short, these comparative advantages, set against the backdrop of a robust and sophisticated legal system with modern, pro-arbitration legislation, makes South Africa a desirable seat for international commercial arbitrations. Parties should seriously consider South Africa as a seat for arbitrations, both generally and in matters involving jurisdictions on the African continent.

Bowmans

11 Alice Lane
Sandton
Johannesburg
South Africa

+27 11 669 9000

+27 11 669 9001

info-jhb@bowmanslaw.com www.bowmanslaw.com
Author Business Card

Law and Practice

Authors



Bowmans has over 400 lawyers, delivering integrated legal services throughout Africa from nine offices in seven countries. Everywhere it operates, Bowmans offers a service that uniquely blends expertise in the law, knowledge of the local market and an understanding of clients’ businesses. The firm’s aim is to assist its clients (including corporates, multinationals and state-owned enterprises across a range of industry sectors as well as financial institutions and governments) to achieve their objectives as efficiently as possible while minimising the legal and regulatory risks. As a pan-African firm, Bowmans works closely with its alliance firm in Ethiopia and best friends in Nigeria and Mozambique. It has strong relationships with other leading law firms in Africa and is a representative of Lex Mundi, a global association of more than 160 independent law firms.

Trends and Development

Authors



Bowmans has over 400 lawyers and delivers integrated legal services throughout Africa from nine offices in seven countries. Everywhere it operates, Bowmans offers a service that uniquely blends expertise in the law, knowledge of the local market and an understanding of clients’ businesses. The firm’s aim is to assist its clients (including corporates, multinationals and state-owned enterprises across a range of industry sectors, as well as financial institutions and governments) to achieve their objectives as efficiently as possible while minimising the legal and regulatory risks. As a pan-African firm, Bowmans works closely with its alliance firm in Ethiopia and best friends in Nigeria and Mozambique. It has strong relationships with other leading law firms in Africa and is a representative of Lex Mundi, a global association of more than 160 independent law firms.

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