South Africa – Stepping onto the International Arbitration stage in 2018

By Camilla Froehlich, Lawyer (South Africa), South African Bar | Frankfurt Bar - Infrastructure, Energy, Resources and Projects

In what may very well become known as one of the last significant acts signed off by former President Jacob Zuma, the International Arbitration Act No.15 of 2017 ("the Act") came into effect on 20 December 2017.

The Act replaces the widely out-of-date Arbitration Act of 1965 with regard to international arbitration, and it completely replaces the Enforcement of Foreign Arbitral Awards Act 1977.

Will the new Act affect you?

On recommendation received by the South African Law Reform Commission, the Act incorporates the United Nations Commission on International Trade Law (UNCITRAL) Model Law, as well as the UNICTRAL Conciliation Rules, into South African law and will oversee the enforcement of foreign arbitral awards and all international arbitrations with their seat in South Africa. The UNCITRAL Model law, seen worldwide as the standard in terms of international arbitration, governs arbitral proceedings and the recognition and enforcement of arbitral awards.

Basic features of the Act 

The Act will be binding on all public bodies (state departments, institutions exercising public power or performing public function in terms of the Constitution of SA or any legislation) which have entered into International commercial agreements. This means that the Act can be applied to commercial disputes between state (national, provincial or municipal) departments and international businesses.

The 1965 Arbitration Act will continue to govern domestic arbitration, with the new 2017 Act having international arbitration as its focus.

The UNCITRAL Model Law will now have full force and effect in South Africa, joining the 78 other countries worldwide, including 11 African countries, where legislation based on this Model Law has now been adopted. This also has the effect that parties may now also choose to refer their dispute to conciliation in terms of UNCITRAL Conciliation Rules if and to the extent that those parties have agreed that the Rules would apply.

The Act brings National Law in line with the New York Convention by providing for the enforcement of awards, which will be seen positively by foreign investors . The New York convention has been adopted by more than half of all African states to date (enforcement of the New York Convention, however, differs significantly among those states) and many International businesses. Many foreign investors prefer international arbitration due to the ease with which the New York Convention on the Recognition of and Enforcement of Foreign Arbitral Awards enforces foreign awards.

Notwithstanding certain exceptions, such as the issue not being subject to arbitration in SA or the enforcement being against public policy or in bad faith, foreign awards will be made an order of court upon application. 

The Act applies to international commercial disputes where the parties have agreed to submit to arbitration under an arbitration agreement.

How this affects both existing and potential foreign investors

Fear of facing prospective disputes and then potentially having to litigate in foreign courts is something most international businesses and foreign investors would go to lengths to avoid – even as far as deciding not to invest or trade in a country for fear of the unknown. International businesses find comfort therefore in having a standard dispute resolution mechanism in all their agreements and avoiding having to face local courts in the countless jurisdictions in which they conduct their business. The Act eliminates this aspect of uncertainty and provides reassurance to those trading or wishing to trade or invest in SA by incorporating UNCITRAL Model Law into SA Law.

The Act takes SA one step further in gaining its own dedicated international arbitration centre, providing a cost-effective alternative for disputes in Africa and thereby cementing SA´s place on the international arbitration stage. Positive developments have already been observed, for example the recent launching by The Arbitration Foundation of Southern African ("AFSA") of a new international arbitration centre in Johannesburg dedicated to resolution of commercial disputes between Chinese and African parties (China Africa Joint Arbitration Centre). 

Until now, South Africa has lagged significantly behind many of its African neighbours in terms of arbitration, namely: Mauritius, which has the LCIA-MIAC Arbitration Centre, Rwanda, which has the Kigali International Arbitration Centre (anecdotally, Mauritius and Rwanda also hold the titles of the top two easiest places to do business in Africa as rated by the World Bank Doing Business Survey 2014, which for many years featured SA in one of the top tow positions); and Nigeria with the Lagos Regional Centre for International Commercial Arbitration and the Lagos Chamber of Commerce International Arbitration Centre. This, amongst other factors, has seen many potential investors passing up on opportunities to trade in SA and instead turn their attention to other African nations.

Impact on the Infrastructure industry

The African continent as a whole has many opportunities for infrastructure investments and developments, and it remains on the radar for foreign investors in this field. In addition, with many countries across Africa seeking to diversify their economies there are also many investment opportunities in areas outside natural resources such as agribusiness, healthcare, technology, telecommunications, financial services and education. The potential benefits of the Act will therefore likely be widely observed across many industries. Alternative dispute resolution procedures ("ADR") are the commonly used first step in dispute resolution and commercial arbitration is more often than not the dispute resolution mechanism of choice for international investors..

2018 and beyond

The modernisation of the arbitration law in South Africa through the adoption of the UNCITRAL model law is a welcome development and creates an opportunity for South Africa to establish itself as an arbitration hub for disputes in the SADC region and beyond. This, coupled with the political stability that many are predicting in South Africa following Cyril Ramaphosa´s election as President of South Africa, will go a long way in attracting further international investment and trade in the country.

While there are clearly high expectations that this Act will bring with it a successful new dawn for arbitration in South Africa, just how that opportunity is realised remains to be seen.

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