During July 2010, Hermanus Philippus Steyn (Mr Steyn) obtained an arbitration award against the Tanzanian Government. In May 2011, this award was declared a decree by the High Court of Tanzania and became enforceable as such (the 2011 decision).
During July 2012, the parties concluded a settlement agreement in terms of which it was agreed that the Tanzanian Government would pay Mr Steyn a reduced sum of US$30 million. The settlement agreement was made an order of the High Court of Tanzania by agreement between the parties (the Consent Order). During 2018, the Tanzanian Government applied to the High Court of Tanzania for a review of the 2011 decision on the basis that the arbitration award was "fraught with errors" and should be reconsidered. The application was struck from the roll, with the court finding that the arbitration ruling was "non-existent as it was overtaken by events".
In 2019, Mr Steyn obtained an ex parte order before the High Court of South Africa in terms of which an aircraft of the Tanzanian Government was attached in order to confirm, alternatively to found, jurisdiction in order to seek the recognition and enforcement of the arbitration award in terms of the International Arbitration Act, 15 of 2007 (the IA Act).
In this case, the Tanzanian Government sought a reconsideration and setting aside of this order on the basis that, inter alia, there was no arbitration award that was capable of recognition and enforcement under the IA Act.
Mr Steyn submitted that clause 6 of the settlement agreement, which provided for the "immediate enforcement of the Consent Order", entitled him to enforce the arbitration award in the event of the Tanzanian Government's breach of the settlement agreement.
The Tanzanian Government argued that, following the Consent Order, the arbitration award ceased to exist, given that it was granted after the arbitration award was made an order of court.
The court found that the literal and plain interpretation of clause 6 of the settlement agreement was that, once there was a breach of the terms of the settlement agreement, Mr Steyn would be entitled to immediately enforce the Consent Order and not the settlement agreement or arbitration award.
The Court concluded that, once a settlement agreement is filed in court for the compromise of an award, it means that the award that existed before the settlement agreement is abandoned and is no longer binding on the parties. Consequently, according to Twala J, the arbitration award essentially "ceased to exist" in May 2011 when it was made an order of the Tanzanian Court. As a result, the court found that Mr Steyn did not have an arbitration award that required recognition and enforcement and that the court did not have jurisdiction to attach the property of the Tanzanian Government to found jurisdiction on the basis of an order of a foreign court. The 2019 order was thus set aside, with Mr Steyn ordered to pay the costs of the application.
The judgment is limited in the sense that it focuses solely on the court's assessment of the Consent Order and the settlement agreement, but fails to provide any information as to the basis on which the South African Court was approached or any details in respect of South Africa's obligations vis a vis the Consent Order and settlement agreement granted under Tanzanian law. In that sense, our analysis is limited to the judgment, which has faced criticism on the basis of Twala J's finding that the arbitration agreement "ceased to exist" when it was made an order of court.
Section 3 of the IA Act provides that one of the objects is to "facilitate the recognition and enforcement of certain arbitration agreements and arbitral awards". This is given effect to in section 16 which dictates that "foreign arbitral award must be recognised and enforced in the Republic as required by the Convention [being the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958]" and that "a foreign arbitral award is binding between the parties to that foreign arbitral award, and may be relied upon by those parties by way of defence, set-off or otherwise in any legal proceedings".
Consequently, Twala J's finding seems to be at odds with the object and purport of the IA Act, and indeed the mandatory enforcement provisions contained in the IA Act. We do not, however, interpret the finding to mean that all arbitration awards cease to exist once they are recognised in a foreign jurisdiction. Rather, the court seemed to reach this conclusion based on the interpretation of a very specific term in the settlement agreement. It is doubtful the court would have reached the same conclusion absent the provisions of clause 6 of the settlement agreement.
Linked to this, legal practitioners should also take note of the court's finding that, once the settlement agreement was made an order of court, the arbitration award became no longer binding on the parties. The court made this finding largely on the basis that clause 6 of the settlement agreement made express provision for the "enforcement of the Consent Order", and not the arbitration award. Settlement agreements should be clear and concise in all respects in order to avoid any uncertainty regarding their application and enforcement, and parties should be clear upfront on the remedies and recourse available to them in the event of a default.
It is understood that Mr Steyn will appeal the judgment, and we await the decision of the appeal court with interest.
This article was first published as a Q&A on Lexis®PSL Arbitration on 16 October 2019.