This article was originally published on Thomson Reuters Practical Law.

In line with international trends, commercial arbitration of disputes in South Africa has become more popular over the last 15 years. This is particularly so in disputes which require the arbitrator to have specialised commercial skills, for example, in disputes that are commercially complex or transnational in scope, or where a particular expertise is required, such as in construction or engineering disputes. Another major factor leading to the proliferation of consensual private arbitrations has been the significant delays in obtaining multi-day trial listings in the High Court (which can be up to 18 months from close of pleadings) and the ease with which trials are vacated on the first morning, for a variety of reasons, including the unavailability of judges to hear commercial matters.

The past

The principal legislation governing arbitrations in South Africa is the Arbitration Act 42 of 1965, which applies to international and domestic arbitration proceedings conducted in the country, although the common law (based on English law as developed by the courts) still applies to the extent that there is no conflict. Also relevant is the Recognition & Enforcement of Foreign Arbitral Awards Act 1977 (REFAAA) which gives effect to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958.

Although many arbitrations, including large commercial disputes, are conducted in an ad hoc informal manner, there are several accredited arbitral bodies that are well placed to administer arbitrations with their own sets of rules and highly competent and experienced body of arbitrators. There is a body of retired High Court and Court of Appeal judges with decades of commercial experience, who are available to act as arbitrators at relatively competitive cost.

Further, the Apartheid-era Protection of Businesses Act 1978, which restricts the enforcement of certain foreign arbitration awards (relating to punitive damages or to do with mining) by prohibiting any form of international judicial cooperation by domestic courts, has no place in the modern post-Apartheid world, as is demonstrated by its rather hostile and defensive language. This development is particularly important to South African mining houses, which are involved in global mining ventures well beyond South Africa’s borders.

Because this legislation dates from 40 or 50 years ago, and predates the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, the current South African legislation is not in alignment with international developments. One particularly noteworthy example is section 3(2) of the Arbitration Act 42 of 1965. It provides that the court may, where good cause is shown, set aside the arbitration agreement or order that any particular dispute referred to in the arbitration agreement shall not be referred to arbitration. In addition, the court may order that the arbitration shall cease to have effect with reference to any dispute referred. Another traditional problem has been the view held by some (and expressed by the Judge President of the Cape in 2005) that “to strengthen arbitration is to weaken the courts”, fortified by the need for racial transformation in South African judicial appointments.

The present

The perception of the current laws as “inadequate” and “outdated” dissuades parties from selecting South Africa as their seat of arbitration, with the result that South Africa is lagging behind other developing countries that have taken a more proactive stance, such as Mauritius.

There are several independent arbitration bodies in South Africa, including the International Chamber of Commerce (ICC), Association of Arbitrators of Southern Africa(formed in 1979, it has approximately 2000 members), and the Arbitration Foundation of South Africa (AFSA, founded in 1996). AFSA is a joint venture between organised business and the legal and accounting professions. It has two sets of rules: commercial rules for arbitrating complex or substantial matters, and simple rules for arbitrating smaller, less intricate disputes. AFSA also provides facilities for conducting hearings and sponsors a diploma course in alternative dispute resolution (ADR) in conjunction with the University of Pretoria.

AFSA is arguably the leading arbitral institution in South Africa and the one most involved in trying to fashion for South Africa a genuine international arbitration presence, seeking to capitalise on its position, financial and legal infrastructure, and accessibility. AFSA has partnered with the Shanghai International Arbitration Centre (SHIAC) to provide an umbrella organisation for Sino-African disputes. According to AFSA’s founder, Michael Kuper SC, the original initiative has now developed into services provided in Johannesburg and through South Africa and in Shanghai.

The future

Although South Africa has not adopted the UNCITRAL Model Law, it has at last enacted local legislation (in the form of a draft bill) that is intended to combine the best features of the Model Law and England’s Arbitration Act 1996, together with certain features of the Arbitration Act 42 of 1965, which have been found to work well in practice over the years. This legislation has been years in the making, since being recommended by the South African Law Commission as long ago as 1998.

The bill was approved by the South African cabinet on 1 March 2017 and is on its passage through Parliament, hopefully to be enacted into law by the middle of 2017. The bill demonstrates the government’s intention to transform and align its international commercial arbitration practice with global standards on the resolution of commercial disputes. It also shows a commitment to increase trade and investment in South Africa as an arbitration-friendly jurisdiction in the region and world at large.

In terms of the bill, any international commercial dispute which the parties have agreed to submit to arbitration under an arbitration agreement, and which relates to a matter which the parties are entitled to dispose of by agreement to be determined by arbitration, will be administered under the UNCITRAL Model Law, subject to the exclusions listed under clause 7.

Highlights of the bill are that:

  • It incorporates, with amendments, the Model Law as the cornerstone of international arbitration. Significantly, care has been taken not to tinker with the wording of the Model Law; this is welcomed, as the ultimate goal is uniformity with other Model Law jurisdictions.
  • Domestic arbitration will continue to be regulated by the Arbitration Act 42 of 1965.
  • Investor-state disputes will be governed by the Protection of Investment Act 22 of 2015 (not yet in force).
  • It allows for contracting parties to settle their commercial disputes through conciliation proceedings in accordance with the UNCITRAL Conciliation Rules, affording flexibility and the possibility of avoiding the significant costs of international arbitration itself.
  • It repeals the REFAAA, and provides afresh for the recognition and enforcement of foreign awards as follows: a foreign arbitral award will be binding between the parties to that arbitration, and enforced in the same as any judgment or order of court. However, an award is not recognised and enforced if it is not permissible under South African law, contrary to public policy or was made in bad faith.
  • It applies to and binds international commercial arbitrations to which public bodies (state departments, national or provincial government, municipality and so on) are party, to the extent not prohibited by the Protection of Investment Act.

Conclusion

The new legislation is welcome. Rather surprisingly, it shows South Africa to be one of the last members of the Southern Africa Development Community states to introduce similar legislation: Zimbabwe, Zambia, Mauritius and Madagascar have all done so.

Once enacted, this legislation will send a clear message to the international business and investment community that South Africa is a safe place to operate, and that disputes will properly be heard and dealt with in a manner consistent with international best practice. The legislation will also reduce avenues for delays and infractions of process that create procedural uncertainty, which is problematic for investors and a disincentive to use the South African legal system.

The most important development of these developments will be the curtailing of intervention of South African courts.

It is hoped that the introduction of this legislation will propel South Africa towards becoming a regional and international arbitration centre, in much the same way that Mauritius has done since 2008, when it adopted the Model Law into its domestic law. Globally impressive institutions, such as the Permanent Court of Arbitration at the Mauritius Chamber of Commerce and Industry, have set a benchmark which South Africa would be well-placed to follow. This is especially true if South Africa hopes to become an international arbitration centre for the whole of Africa and to establish the country as a venue of choice for international arbitrations in Africa.