Legalese – Arbitration in South Africa

The South African Government has not adopted the UNCITRAL Model Law in relation to domestic and international arbitration. Moreover, vast scepticism exists among lawyers about the role of arbitration in South Africa due to the belief that arbitration undermines the country’s judicial transformation. Nevertheless, South Africa remains a relatively safe place to conduct international arbitration hearings, seat international arbitration and enforce international arbitration awards.

This article examines the issue of arbitration in South Africa and outlines certain advantages to seating an international arbitration in the country. This position is demonstrated through a number of international and domestic arbitration law considerations discussed below.

The Place and the Seat of Hearing

Regardless of where the arbitration is held, the courts at the seat of the arbitration (ie the jurisdiction to which the arbitration is contractually connected) have jurisdiction in respect of the conduct of the arbitration. Therefore any court application relating to the conduct of the arbitration must be brought in the jurisdiction of the seat. For instance, if Paris is the seat but the hearings are held in Johannesburg, any court application relating to the arbitration must be made in the French courts.

Systems of law

Parties can agree that different systems of law govern various aspects of an international arbitration. The governing law of the contract does not have to be the same as the procedural law of the arbitration under that contract. Therefore, parties to an international arbitration in South Africa could choose any foreign law to govern the contract, South African arbitration law to govern the arbitration and a system of international rules, such as UNCITRAL or ICC rules to govern the arbitration.

Enforcement

If an award has to be enforced in South Africa, the parties to the relevant arbitration may choose between pursuing a foreign or domestic award. Generally, an arbitration award is deemed to have been made at the seat of the arbitration. Therefore, an award made in an international arbitration seated in South Africa, will be treated as a domestic award. An award in an international arbitration that is seated outside South Africa will be deemed to be a foreign arbitral award.

Defences to Enforcement

Given there are at least seven potential defences to enforcement of a foreign arbitration award in South Africa, a party seeking to enforce a foreign arbitral award potentially faces more defences to enforcement than a party seeking to enforce a domestic award.

Protection of Businesses Act 99 of 1978

Under this Act no arbitral awards made outside South Africa may be enforced inside South Africa without the consent of the Minister of Economic Affairs if the award arose from an act or transaction "connected with the mining, production, importation, exportation, refinement, possession, use or sale of or ownership to any matter or material, of whatever nature whether within, outside, into or from [South Africa]".

Given most awards relate to the ownership of ‘matter or material’, the Minister’s permission is needed in the vast majority of actions for the recognition and enforcement of a foreign arbitral award. This defence may be used to frustrate the enforcement of foreign arbitral awards beyond its intended scope. As a result, the South African Law Reform Commission has recommended reform in relation to the Protection of Businesses Act.

Quantification and interest

When a domestic award orders the payment of a sum of money, interest attaches to the relevant sum from the date of the award at the same rate as a judgment debt. However, a foreign arbitral award that orders the payment of money, expressed in a foreign currency, must first be converted to Rand for it to be enforceable in South Africa. The applicant therefore runs the foreign exchange risk.

South African Law Commission’s recommendations

The Law Commission identified certain limitations in relation to international commercial arbitration maintaining that the South African legislation does not contain provisions specifically dealing with international commercial arbitration. In order to create certainty, the Commission recommended the adoption of a Draft Bill closely aligned with the UNCITRAL Model Law.

Approach of South African courts

The Supreme Court of Appeal noted that since the early part of the nineteenth century, the courts of South Africa have consistently given due deference to an arbitral award (Telecordia Technologies Inc v Telkom SA Ltd 2007).

In addition, the Constitutional Court delivered a landmark judgment in March 2009 in Lufuno Mphaphuli and Associates (Pty) Ltd v Andrews and Another. In this case the advantages of flexibility, cost-effectiveness, privacy and the speed of arbitration in South Africa were recognised and affirmed. The Court further referred to the fact that there should be limited court interference in arbitrations in South Africa and, in particular, it held that it should be careful ‘not to undermine the achievement of the goals of private arbitration by enlarging the powers of scrutiny imprudently.’

Conclusion

Despite the fact that South African has not adopted the UNCITRAL model law, practice and case law demonstrates that the conduct of international arbitration and the enforcement of arbitral awards in South Africa is robust and certain. If the Law Commission’s recommendations are adopted, the conduct and enforcement of domestic and international arbitration will be further improved.